JF2443_ Learning To Not Limit Yourself To One Path With Andy Heller

JF2443: Learning To Not Limit Yourself To One Path With Andy Heller

Andy Heller has been investing in real estate since the 1990s. His career started when he attended a seminar on how to purchase properties from a foreclosure list. However, that strategy was very taxing emotionally. So Andy and his partner modified their initial plan, opting to work with banks once the property has been foreclosed. And if they couldn’t find a buyer quickly enough, they offered a lease option. This strategy was much easier to execute. Moreover, it was scalable. Listen to the episode to learn how Andy Heller makes money flipping real estate in detail.

Andy Heller  Real Estate Background:

  • Owner of Regular Riches
  • 30+ years of real estate experience
  • Bought hundreds of properties
  • Based in San Francisco, CA
  • Say hi to him at: www.regularriches.com 

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Best Ever Tweet:

“You can’t always assume you’re going to buy a property and flip it because a buyer may not walk in the door. You’ve got to have a backup” – Andy Heller.


TRANSCRIPTION

Theo Hicks: Hello, Best Ever listeners, and welcome to the Best Real Estate Investing Advice Ever Show. I am Theo Hicks and today’s guest is Andy Heller. Andy, how are you doing today?

Andy Heller: I’m great. Thank you, Theo.

Theo Hicks: Thanks for joining us, looking forward to speaking with you today. So Andy is the owner of Regular Riches and he has over 30 years of real estate investing experience; he has bought hundreds of properties. He invests in Atlanta, lives in San Francisco and his website is http://regularriches.com/.

So Andy, can you tell us some more about your background, and then what you’re focused on today?

Andy Heller: Sure, I’ll give a high-level overview, Theo, so hopefully we can go from there. So about 31 years ago, we attended a seminar about buying pre-foreclosures; it sounded really good, so we subscribed to a list of properties going through the foreclosure process. I found that it was very difficult to buy from individuals before the foreclosure sale, Theo, because everybody’s lives were in a downward spiral, their lives were falling apart, and it was a really emotionally taxing way to invest. But in doing so, because we subscribed to these lists of properties, the lists were a wealth of information; they provided the data of the foreclosure, they provided the bank foreclosing, they provided the amount of the loan, the property address, everything. So it was pretty easy to figure out which properties were going through the foreclosure process, that were going back to some smaller banks.

And just out of curiosity, we were following one property, and I spoke to the homeowner before the foreclosure; I didn’t want to go see the property because to be honest with you, it didn’t sound like there’s a whole lot of equity in it and I didn’t think there was time to get a deal done in the two weeks before the foreclosure sale.

So a few days after we called the bank – it was a small lender in greater Atlanta – and they gave us the key to get in, seven days later, Theo, we had a contract to buy our first property. I called my real estate partner, Scott, and said, “This was a piece of cake.” There was no emotion involved, no human beings; it was a simple business transaction. And then we couldn’t sell the property quickly, and we took a lease-purchase format, we modified it, put it on the market for sale or lease purchase. Within three weeks we had somebody in there, on a lease-purchase, paying us a premium rent. I said to my real estate partner, “This is not what we set out to do, but this is so much easier than what we set out to do. Let’s just keep doing it.” He said, “That makes sense to me.”

So we began to use these pre-foreclosure lists, Theo, and approached smaller lenders, if it was not a government-insured loan, and buy the property right after the sale, before they began their marketing process. And we also, for larger lenders, we’ve figured out that the larger lenders like, Wells Fargo, Bank of America, there’s no ability to approach these banks directly… But all these banks nominate, in every community around the country, two or three real estate agents, we call them REO agents (for real estate owned property). And these real estate agents are in charge of marketing the Wells Fargo and the Deutsche Bank and the Bank Of America, the larger lender properties.

So we figured out, in short, there’s a window in time in most communities, anywhere from 2-4 months after the foreclosure sale, and before a property pops up on MLS, and we’ve learned how that window works, and how to approach these banks, what to say to the banks, how to approach the REO agents, what to say to them so you get on their radar…

And the great part about buying this way is that there’s not a lot of competition, it’s a business transaction that eliminates human emotion, and in short, it’s the only way to buy property below market that we have discovered, where once you have a source, you’re not limited to buying one property, but you can buy from the same source over and over and over again.

I’ll give you a quick story that illustrate how easy this is. One of these REO agents that represented a handful of banks – we bought our first property from him. And he liked the way we do business, he liked the fact that we close, we were very reasonable… So my real estate partner and I, we became his investor source for all properties he took back in the northern part of Atlanta.

So in other words, he would get a property back, like, “Oh, this is the type of property Andy and Scott bought three months ago. I don’t want to spend any time getting it fixed up or listed, I’m just going to call them.” He would call us, and within seven days we’d have a contract. It’s a win-win-win; it was a win for us, it was a win for him, and the banks were happy; they got rid of the property in days instead of months. And this became the way we bought most of our properties.

And instead of trying to flip the properties and lowering our asking price if a buyer did not immediately come in the door, all of our properties were marketed for sale or lease option. So we did flip a lot of our properties, but when we could not find a quick buyer, we did not have to discount our profit margins; we just rolled a property into a lease option. And those were great, because a lot of the properties would sell to the optionee within the first three years. And if it didn’t, we put the property into an extension period and most of those properties would sell a handful of years down the road.

So it’s also a great way to invest, Theo, because when you’re investing, you never know the outcome. And you can’t always assume you’re going to buy a property and flip it, because a buyer may not walk in the door; you’ve got to have a backup.

So the great way about the way we marketed these REOs is that we really didn’t care what happened. We always made money, but we’re not limited to one path. Sometimes we flipped the properties, sometimes the original lease purchaser bought the property, typically, in the third year… Sometimes they didn’t buy, we just found a different family and remarket the property. And sometimes, at the end of the original three years we would give them, the family would say, “Hey, look, we’re paying our rent, we love the property, but we’re not ready to buy. Will you give us more time?” And then we rolled the original agreement into a series of automatic one-year renewals. We’ve got some families in our properties 20 plus years, and I’m not exaggerating. That’s 17 years of renewal from the original agreement.

So one of the keys to our success is that the way we market our REOs – we’re not limited to one or two outcomes for us to make money. We make money when we flip, we make money when we don’t flip, we roll into a lease option. So that is the global overview of our secret sauce.

We’re very, very boring, in that 90% of our transactions in real estate over 30 years have been exactly as I described in the last five minutes. And one of the keys to our success is we just keep repeating this formula over and over and over and over again. We don’t have to reinvent the wheel each time… And it’s easy. It’s the easiest way I’ve found to invest. And I’ve tried other models, and they all take too much time, they’re not as lucrative as our model… So we call our strategy Buy Low, Rent Smart, Sell High. We buy bank-owned properties, typically before they’re marketed and listed on the MLS, and we put them on the market for sale or lease option. Some of them we flip, and that creates quick and immediate cash we can use to buy more properties. And when we can’t flip them, we roll them into lease options. That’s our secret sauce, Theo.

Break: [00:08:32] to [00:10:33]

Theo Hicks: I want to dive in a little bit more into one thing you mentioned, which was what I’m sure is maybe the most important for people who are wanting to implement this; maybe for you right now it’s not that big of a deal, because you’ve already built the relationships with the banks and REO agents. But let’s say I’m listening to this right now and I want to follow this strategy. First, would you recommend that I focus on the small banks, or the REO agents, or both?

Andy Heller: That’s an easy one, Theo. Both. As you go to invest and you focus on bank-owned properties, you’re not going to be certain if in your community it’s going to be easier for you to locate a few smaller banks or one or two REO agents. The process of reaching out — one of the things we have in our kit, we have the scripts of what you say when you call the banks and you call the REO agents. So we arm our students with how to reach out to them and furthermore, what to say when you reach them.

So one of our students in Minneapolis may find one REO agent, and from that one contact, they buy 10 or 15 properties a year. Another student in Phoenix, Arizona  may find he’s able to connect with a couple smaller banks, and between those two contacts, they’re good for seven or eight properties a year, and that’s all that investor can handle.

So the process of reaching out is the same. What you say to a bank versus an REO agent is a little bit different. That’s why we kind of script it out. And I’d like to say that your question was great; it’s like asking me, what do you like better, Andy, steak or sushi? I like them both. So I would not focus on one or the other, because the process is fairly similar. And in different communities you may find it easier to reach out to REO agents, in other communities you may find it easier to reach out to banks.

Then the other question is, some of the smaller banks are only going to have one or two REOs a year, some of them will have 10 or 20, that fit what you’re trying to buy. So you don’t really know until you make the reach outs and attempts to foster the relationships, but the answer is you should try to do both.

Theo Hicks: How do I find these banks, and how do I find the REO agents in my market? Let’s say I’m going after Andy’s territory in Atlanta… Or anywhere; I’m just kind of joking about that. But these REO agents, how do we find them?

Andy Heller: Well, let’s talk about your joke for a second, because there’s actually some seriousness to it. Where we are right now – we’ve been doing this for 30 years – we’ve already got our property sources, our relationships are stable. They know us. Frankly, we’re in a position where we can buy as many properties as we want every year, because we have really strong relationships with our handful of banks and REO agents. So I’m not concerned about competition. And that’s the beauty about this model, is once you’ve established yourself with a property source and they find that you’re able to transact, your relationship is going to be solid. In answering that, I forgot the first part of your question, Theo. So that’s me being in my 50s, I need to ask you to repeat it.

Theo Hicks: I was just asking you — it’d be great to go to this in a lot more detail; I’m kind of trying to skip around to what I think is the most important. So let’s say I picked my market already,  I’m in Atlanta or I’m in wherever, and I want to start doing this strategy. What’s the first step I need to do to find the banks and to find the REO agents?

Andy Heller: Okay.

Theo Hicks: And maybe talk about what to actually say to them.

Andy Heller:  Sure. So our students in our kit, they get a list of — I think it’s a couple 1000 REO agents and banks around the country. So for any of you, probably has given you anywhere from 15 to 20 sources in your community already. That’s a supplement to the list. Remember I said earlier, Theo, that we subscribed, and our students will need to subscribe to a pre-foreclosure list. So let’s say if a family is about to be foreclosed on; the pending foreclosure is required to be published, as a matter of public record, within 30 days of the foreclosure.

So let’s say in Fulton County, Georgia, there’s a county newspaper; they have to publish all of the pending foreclosures within 30 days. And then the information is available, that information is free, that information does not cost anything. So students can access this information for free.

That being said, there are companies that take these different counties in each state and provide this information in a nice, organized list for investors who are looking to buy properties in pre-foreclosure. Most of these lists cost between five and 20 bucks a month; very, very cheap. Some national resources also, like https://www.foreclosure.com/ and https://www.auction.com/. We prefer the local list.

In these lists, in the county newspapers, is also listed the lender’s name. So let’s say, I’m looking in Fulton County, and there’s a property that’s being foreclosed on by Mr. and Mrs. Jones, is the name of the homeowner. The bank is ABC Bank in Georgia. It’s a small bank. Okay. So now I have the bank name, I have the property address, I have the type of loan, I have the loan amount. And I’ve decided that this is the property that I want. So now I see the bank name, then I’ve got the script, I wait a few days after the foreclosure, and I call the bank. It’s not more complicated than that.

So to answer your question, the bank name is a matter of public record, and it’s on the lists that are provided to investors. You subscribe to that list. The only difference is that we’re not trying to buy the property in pre-foreclosure, we’re trying to simply get a head start and buy the property in post-foreclosure, right after the sale.

Theo Hicks: Got it.

Andy Heller: So we use the resources made available for investors who are trying to buy before the foreclosure sale, to buy a bank-owned property right after the sale. That’s it. It’s kind of simple.

Theo Hicks: Sure. So what happens if I have a look at the list and it says Wells Fargo on it? Because you mentioned that you don’t want to reach out to the big banks. And so how do I find the REO agent that’s responsible for that foreclosure?

Andy Heller: That’s a great question. So banks are arguably the most structured type of business in the United States, maybe in the world. In banks they have structures, they have the processes and they do the same thing all the time. So Wells Fargo, let’s say, they get a foreclosure in Denver, Colorado; they’re not going to open up the phonebook or go online and call 50 real estate agents, interview them and select one for that property. It doesn’t work that way. Wells Fargo already has two or three agents in every community, including Denver, that automatically get their foreclosures. So we give the students the roadmap for how to find these agents, how to introduce yourself to them, and how to get on their radar. You follow that roadmap, you follow the scripts that we give you, and you make the phone calls.

The process of identifying which agents receive the foreclosures for the larger banks is really simple. And once you have that information, it’s not going to change. And the other thing about this which is great is all these are REO agents, they all know one another in every community.

A great story I can give you of just how easy this is… In Atlanta years ago, we met an REO agent. It was really the first one that we established a strong relationship with. We took her out to lunch, and during lunch, she gives us the names of about a dozen more REO agents in Atlanta. So we were young, we were in our early 30s at this point, and so she leaves lunch and my real estate partner, Scott, leaves lunch. I call him in the office. I said, “Scott, did what I think just happened over lunch actually happen?” And Scott’s a lot smarter than me, and he says to me, “Andy, absolutely. She just basically open the chest. She gave us the treasure map. Now we just need to follow it.”

So here in one lunch, Theo, this one REO agent, she gave us the names of a whole bunch of others. And then we just got on the phone, we said, “Hey, we just had lunch with so and so; she gave us your name and said that you handle a lot of REOs in Atlanta for different banks than she handles. This is what we do. This is how we do it. Can we meet for lunch?” They will all say yes. And then boom – from that one lunch, we generated about a half dozen other contacts that led to, I can’t even count how many other purchases over the next decade. It’s not more complicated than that.

Break: [00[19:35] to [00:20:15]

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

Andy Heller: Okay, that’s a great question. And I can spend an hour answering that. But because we only have a short window here, Theo, I’m going to kind of condense this. Scott and I have bought properties probably using eight, nine or ten different methods of sourcing properties. However, 90%, of what we’ve done, bank owned properties, and 100% of them have been put on the market for sale or lease option. We’re really boring.

And one of the reasons why we’ve been so successful, Theo, is a) we’ve got a very simple and lucrative model. It’s time tested, it’s done the same thing for 30 years, and there are times when it’s easier to buy REOs, when there’s bigger discounts, when there’s more properties available and we’re heading towards that right now… But there’s always REOs available and it’s a very easy way to buy. I don’t know why anybody would rent property. Lease options are so much more lucrative, they’re so much easier. And once you find a family, they landlording element – they take care of the properties way better than if you’re renting.

So the answer to your question is, my advice to all of you is—now, look, I’m a little bit biased; I think the Regular Riches model is the most lucrative model for an investor who’s interested in single-family homes, bar none. That being said, my advice to all of you is this – find a model that makes sense for you. What I mean is it make sense for how much time you have available; some models take a lot more time, some models require a lot more cash than ours. Some models are a better fit for personality. What I mean by that is — in the early part of the interview I said we tried to buy properties in pre-foreclosure, but the emotional component was too difficult. You’re meeting with families in a downward spiral, their lives are falling apart. I couldn’t handle that. I couldn’t deal with these families whose lives were crumbling. Some people can, I couldn’t. So you’ve got to select a model that’s a good fit for your personality, for your available time, for how much risk you’re willing to take, and find a model that’s a good fit; learn it, perfect it and make that yours.

In other words, guys, don’t become a jack-of-all-trades, become the master of one or two strategies. That’s been a key element of our success. So we’re not reinventing the wheel every time, Theo. We’re just doing the same thing over and over and over and over again. And when you’re repeating a formula, you’re less likely to make mistakes, and you’re more likely to make a lot more money. And that’s been really our secret sauce.

So clearly I’m biased. I think you should focus on our model, particularly the trajectory of where the real estate market is going right now; there’s going to be a massive increase in REOs. And I can give you the why to that after I’m done. And particularly if we’re in challenging economic times, lease options become more lucrative and even easier because the pool of candidates grows.

So my advice, to answer your question, is you pick a model, learn it, perfect it, and just focus on that model over and over again, and you’re likely to make a lot more money, because you’re going to reduce the likelihood of making first-time mistakes. That’s my advice.

And if I could speak to the “why is this a great time for our model?” If you go back to the last opportunity to buy properties at ridiculous discounts, which was between 2010 and 2013 – because it followed the real estate bubble burst in 2008; the market hit bottom around 2010, and for about three years, you had a window where you can buy REOs in some communities, discounts between 20% and 50%. That’s nuts. That didn’t just happen, Theo. Before that bubble burst, the rate of 90 plus day delinquencies and mortgages rose dramatically. In other words, statistically, people began to get behind in their mortgages and most of those people lost their homes. And then between 2013 and 2020, the 90-day delinquency rate was flat and it was very low.

I did a real estate seminar actually just last night, and I showed them a graph that showed the last six months the rate of 90 plus day delinquencies has increased 400% from May of 2020. And that completely compares to what was happening between 2007-2009, and that was the precursor to a real estate sale that we had not seen for 20 years, between 2010 and 2013. The same thing is happening now.

So, if you are student of history, if you look at opportunities to buy real estate below market, they were all preceded by dramatic rises in 90 plus day delinquencies. And we are seeing that right now. So what that means is, it’s likely that sometime next year, we will see a correction as these people lose their homes and that will become for real estate investors, an opportunity to buy property below market.

Unfortunately, in real estate, great opportunities to buy typically follow periods when we see economic distress and many people arrive at very, very challenging times and they can’t keep their homes. So what is very sad for our country, unfortunately, it is a leading indicator to an opportunity for real estate investors. And the trend that we’re seeing today mirrors what we saw between 2007 and 2009. So what I said last night in the real estate seminar is, “Guys, this is a great time as an investor to get ready to find that model that you want to implement, because you’re likely to see massive increases in distressed property. You’ll start to see this sometime this year or sometime next year. So you want to be ready.”

Theo Hicks: Perfect, Andy, thank you so much for joining us today, providing us with your best ever advice, providing us with your secret sauce. To learn more about Andy’s company, make sure you check out http://regularriches.com/.

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

Andy Heller: Thank you, Theo.

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JF2442_ From Baghdad to Boston_ Combining Dentistry and Real Estate With Dr. Bender

JF2442: From Baghdad to Boston: Combining Dentistry and Real Estate With Dr. Bender

Coming from a family of medical professionals, Dr. Bender studied to be a dentist. Originally located in Baghdad, Iraq, his family had to move to Dubai, and that’s where he got introduced to the world of real estate.

After the 2008 market crash, Dr. Bender had to go back to dentistry to support his family. They moved to Canada, and then to Boston. In 2019, Dr. Bender got back into real estate by purchasing a 45-unit multifamily house in North Carolina. He’s now in the process of acquiring a 200-unit together with two other investors.

Dr. Bender  Real Estate Background:

  • CEO of American Dental Group with 5 dental offices, real es
  • Real Estate investor, e-commerce, and day trading
  • 3 years investing in Abu Dhabi and 2 years in the USA Portfolio consisting of 45 units, in process of selling to buy a 200 unit asset before the end of 2020
  • Based in Boston, MA
  • Say hi to him on www.benderscapital.com 
  • Best Ever Book: Best Ever Syndication book

Click here to know more about our sponsors

RealEstateAccounting.co

thinkmultifamily.com/coaching 

Best Ever Tweet:

“Even if you do not have the money, you probably have friends who believe in you” – Dr. Bender.


TRANSCRIPTION

Theo Hicks: Hello, Best Ever listeners, and welcome to the Best Real Estate Investing Advice Ever Show. I am Theo Hicks and today we’ll be speaking with Dr. Bender.

How are you doing today?

Dr. Bender: Good. How are you doing, Theo?

Theo Hicks:  I am doing well. Thanks for asking and thanks for joining us today. A little bit about his background—he’s the CEO of American Dental Group, with five dental offices. He’s also a real estate investor, as well as into e-commerce and day trading. He has three years of experience investing in Abu Dhabi and then two years of investing in the US. His current portfolio is 45 units, but he’s in the process of selling those in order to buy a 20-unit asset by the end of 2020. He is based in Boston—

Dr. Bender: 200.

Theo Hicks: I’m sorry, a 200-unit.

Dr. Bender: Yes.

Theo Hicks: I was getting ahead of myself with the 2020.

Dr. Bender: It’s no big deal. It’s not a big deal.

Theo Hicks: I was getting ahead of myself with the 2020. He’s based in Boston, Massachusetts, and his website is https://www.benderscapital.com/.

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

Dr. Bender: Sure. So first, thank you for having me. And basically, I started dental school – as you see Dr. Bender, but I have a love of real estate; that’s what we’re here for, talking about real estate. But I’m born and raised in Baghdad, Iraq, and moved after; I went to dental school there. I’m from a medical family, my dad is a dentist, my mom is a gynecologist. And after the war in 2003, we had to move to Dubai, and then I found a job in real estate actually in Abu Dhabi. And then I started to sell real estate in order just to stay in the country safe, basically. And we started to invest actually, at that time; I was in my mid-20s. And then I saw something really interesting and fascinating – you buy real estate, you sell real estate, you have to have a great reputation, you work hard and you do a really great job with people, so people will trust you and do business with you… And it was really nice to do that.

And then we started to invest more and more. But then the financial crisis came in, and we saw in 2008 everybody’s starting to lose money. But then I went back to the dental field in 2010, started to go back to school. So I went to Canada, I lived a couple of years there, studied a little bit. And then I went to Boston University here in Boston. I’m still in Boston, I love Boston. But I went to dental school, and I didn’t go back to Canada with my family, because everybody moved there. So I stayed here and wanted to do some work in terms of dental work.

So I started working seven days a week after graduation, then we opened the first office in 2015 after I graduated here in 2014. And then opened another one and another one,,. It became like a kind of nice habit, adding more. And basically, we see good people everywhere, so we could find the ones that have energy, that would love to be joining the team, and we’re adding. Actually today, this morning, I was actually talking about adding office number six. And we created a plan to add 10 more locations in 2021, 10 dental offices; we could end up by 2021 with 15 locations.

And at the same time, we invested in real estate. So in 2019, we purchased that asset in Durham, North Carolina, because I wanted to go back to real estate, which I love, and apparently, a multifamily Class C product or maybe B is the sweet spot for me. That’s how I kept analyzing for the three years, just to study real estate and see, because I don’t want to jump into something without knowing, because knowledge is the most important thing in this game. But in general, we bought this one for 3.95, and now, we increase the NOI—I know that we’re going to get into details, but now, we’re selling it [unintelligible [00:04:01].17] It’s kind of like addictive process. Because in dental business for us, money is not the most important thing; the patient satisfaction and the treatment is the most important thing. So we don’t care about money.  But in real estate, if you want to talk about money, it’s totally fine; that you could invest for your investors, and also to improve the quality of your tenants. So it’s kind of like a different game. But in dentistry, we do it for more — it’s rewarding helping people. This way, using money to help people in real estate. So that’s what we’re doing right now, jumping to a 200-plus-unit, hopefully soon.

Theo Hicks: So the 45 units is one property right?

Dr. Bender: Yes, one address.

Theo Hicks: Okay. When did you buy that?

Dr. Bender: The closing was June 28, 2019.

Theo Hicks: 2019, okay. And then you said you bought it for $3.9 million, and then you’re selling it now. How much are you selling it for?

Dr. Bender: Between 5.8 to 6.1. So probably 6.1 is going to be the listing price, because the NOI went from 250 to 330 now, in one and a half years. And I didn’t know that we could do a great job with this, and apparently, we did a fantastic job.

Theo Hicks: So my next question… You owned at that point, about five dental offices, and you bought a 45-unit apartment, and you obviously are managing it… So how were you able to balance those two things? How did you make the time to acquire, to do all the upfront work and then the continuous work with that building?

Dr. Bender: What we do is basically — we always say “we”, because nothing can be achieved by one person. But in real estate, I have two investors with me, and they’re my friends. They believed in the project, and in me, of course, first. And that’s what we wanted to do together. But in terms of organizing the timing, it is really important that we give enough time for each subject. Let’s say, dental management. I used to do also dentistry with my hands, but this year, I stopped doing this because I didn’t have enough time. So I couldn’t serve patients, I had to hire more doctors. But now I have certain time in the day that I do the dental, some time of the day I do real estate, and some time of the day I do other things. So that’s how I would look at my time.

Theo Hicks: So you get three batches of time. How does that look on a week-to-week basis? Is it Mondays is dentals, Tuesdays is real estate, Wednesdays other things? Or is it each day is broken into three different categories? Or is it just you wake up and then you just figure it out?

Dr. Bender: A very good question. It depends on the phase of what I’m doing. So there’s some phases – the growing phase, and then some phase that’s the plateau… And then as business you grow and then plateau, hopefully there’s no down. But then you plateau, and you go up again.

So if I’m growing — let’s say, now I’m in the process of acquiring two dental offices now, hopefully the second one. But this one is not sure; we’re sure about one only, but even when we’re acquiring multiple ones and let’s say we’re doing the real estate… So this way I have to do everything during the day. So I do an interview probably with you, and then i do dental, and then after that, I’m going to talk to a real estate agent.

So during the day, I will do everything. But when we plateauing, just to maintain, I do let’s say Monday and Thursday is dental; Tuesday and Friday, real estate, and other things. It depends on the day. And we still have time to work out, so that’s good.

Theo Hicks: Perfect. There you go. That makes sense.

Break: [00:07:05] to [00:09:06]

Theo Hicks: So you mentioned that you’ve got your two investors who are your partners. So is this for the unit, is it a syndication, or is it a joint venture? Are all three of you actively involved?

Dr. Bender: Basically, it’s a GP-LP. Basically, I’m the general partner and they are the limited partners. But I do take their opinions; like, we have to give full attention to the asset and we discuss sometimes what we should do. But in general, I would say 90% of things – management company, talking to the lender and other things to manage the asset is done by me.

Theo Hicks: How were you able to grow the NOI by 100k, in I guess about a year and a half?

Dr. Bender: I would say [unintelligible [00:09:43].01] growth, but in general, the main focus is the gentrification[unintelligible [00:09:48].14] I know there are a lot of people that are moving to these areas. Like, in Durham, North Carolina, it was chosen the best city to recover from Coronavirus hit, as financials. But there’s a lot of people coming in. So people are moving to these areas – Texas, Florida, North Carolina, and a lot of inflow and the young professionals who can actually keep their jobs, surprisingly—keeping their job, and just to pay less rent. And that’s why when you see a lot of young professionals coming in. If we provide the quality of living that’s acceptable by the new tenants, I think the vacancy could be something good for you to use.

Some people, they complain about vacancy. I look at it differently. I think it’s an opportunity; if we can turn over this unit into a nicer unit with the new touch-ups and making some improvements in terms of appliances and floorings and paint and all of that, then more tenants will be attracted. Plus, you change your marketing aspect from the “old school,” I would call it. So I do the marketing for example for the whole dental group. So that’s why I changed how the potential tenant is going to look at the property. And when they come in, they have to see what we actually promised them online, and that’s going to create trust right away. So people will act, and then you can increase the rent; they don’t mind paying extra 50 or 100 bucks if you give them something worth paying more for.

Theo Hicks: Sure. So did you know this going into the investment that it was an area where young professionals were moving into? And this business plan you explained, was that the plan beforehand? Did you research beforehand to figure all this out, or did you just buy and then on the fly figure it out? And if it’s the first one, what research did you do? Where did you look? What data did you gather?

Dr. Bender: This book is my favorite book, by the way, I just want to let you know… But this book, I read it—

Theo Hicks:  For people who are just listening to this, what book are you referring to?

Dr. Bender: Well, [unintelligible [00:11:37].20] Yeah, actually, I told Joe on Instagram that I listened to the audio, but then I bought it so I can write my notes, you can see here. I listen to it and I read, and I just put my notes were the areas that I probably should come back at, at some point in the process. But I didn’t read this book when I—back to your question, I didn’t read this book when I wanted to buy, so it took me probably longer time to pull the trigger. But I studied the markets; I live in a beautiful city and I love it, but apparently, it’s not as good as to be investing in it for a multifamily Class C product, what I look for. So apparently, we found certain locations… North Carolina was one of them, and Texas, Florida. But because we have one of the partners lives there, like 10-15 minutes from the property, we said, “Well, we know the area better.”

Plus, the exit strategy was discussed from day one, before even purchasing it; what are we going to do the whole period and how we can exit. So yes, we did study everything before we purchased the property.

Theo Hicks: Great. Okay, Dr. Bender, what is your best real estate investing advice ever?

Dr. Bender: The best advice I would say, you have to start early. Because the sooner you start, the better you are. So I spoke with many investors in Abu Dhabi and I pretty much told everybody in town. So these guys, all of them, they started early; even if you think that you don’t have the money, but you probably have nice friends who believe in you. So the sooner you start – even if it’s small, it’s okay; the sooner the better, because it’s a time game. The longer you have it, the better it appreciates… And also depreciates, which is a deeper subject. But my point here is you have to start early and don’t keep waiting.

Theo Hicks: Sure. Alright, Dr. Bender, are you ready for the Best Ever Lightning Round?

Dr. Bender: Sure.

Theo Hicks: Alright. First, a quick word from our sponsor.

Break: [00:12:28] to [00:14:05]

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

Dr. Bender: Well, talking about real estate, I truly think this is the best book, The Best Ever Apartment Syndication book by Joe Fairless and Theo Hicks.

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

Dr. Bender: I would just go ahead and do two things. Number one – go back, treat patients, work seven days a week. Number two – go to my people and think about how we can go and invest in real estate again.

Theo Hicks: So usually, I ask “what’s the best ever deal you’ve done?” So if you can answer that, great; maybe you can apply it to those dental offices. Which one of those is the best deal you’ve done?

Dr. Bender: Obviously, the one we’re doing right now it’s really cool, because we’ve got offers over $5 million. So basically, it’s a 45-unit apartment complex, a 1965 Class C product, great location by the 85, right by the Interstate, and we purchased it for 3.95; we put $1 million down. And now, it’s going to go to the market at least above 5.5. So we’re probably going to double the down payment, which is $1 million, and everybody’s happy, including the tenants, because they have now a much better quality of living.

Theo Hicks: So this next question is usually “What’s the deal you lost money on?” I’m going to change that just a little bit and ask you what’s one of the biggest challenges that either you have faced or you continue to face?

Dr. Bender: I can answer actually that question, because we did lose in Abu Dhabi.

Theo Hicks: Well, perfect. Yes. Let’s talk about that then.

Dr. Bender: Yes. Basically, in Abu Dhabi, when the financial crisis hit in 2008 – our project there is different than the multifamily. But the reason I’m going to multifamily here is that I want security; so I have a cushion. If we basically have vacancy or something happens, we have the debt coverage ratio high, and that can actually secure the loan for a longer time, especially if we secure long-term debt. But there we used to buy something under construction or not even constructed yet; they didn’t start yet. And on the reservation, the paperwork or the contract to the ownership, you sell the property again. That was scary, because there was no rules specifically for this type. And when the financial crisis hit, the developers stopped the project, but they didn’t return the money according to the contract.

So a lot of people lost money, and I was one of them, but nobody from my clients did actually get angry at me, because I lost with them… But just an advice that, don’t ever buy a project pre-construction; buy multifamily, something that’s cash-flowing day one.

Theo Hicks: Yes, that’s sound advice. And skin in the game, too…

Dr. Bender: Totally.

Theo Hicks: …so your investors don’t get mad if the money’s lost. Okay, what is the best ever way you like to give back?

Dr. Bender: There are multiple ways. I used to do Meals on Wheels; I go and give food to people that they can be approached, and also feed them, and make sure they’re doing okay.  Second thing, I’m with the American Red Cross, I’m working for free, and a community leader in Boston areas. We’re in disaster management also, we want to be involved in that. So a lot of things. And also in dental business, for example, Boston Marathon; every year, whoever it is from the audience or anybody from participants, they get any toothache, we will take them for free; we will take care of them for free.

Theo Hicks: Nice.

Dr. Bender: And also for multifamily, we always try to help by understanding the tenants that are struggling with their payments, so we can give credit or understand the more people you service, the more opportunity you could actually get. What I enjoy the most is when I give things for free, whether it’s volunteering myself or just donations like what we’re going to do for the business, for the Christmas… And from the business that we have, the dental business, any employee that donates for the company, we will match it from the business, so it goes to Gifts For Kids.

Theo Hicks: That’s awesome. Last question is what is the best ever place to reach you?

Dr. Bender: Well, social media is really important. So I would go with Instagram, Doctor Bender, and my website is https://www.benderscapital.com/.

Theo Hicks: Perfect. Well, thanks, Dr. Bender, for joining us today and sharing your best ever advice. We went through a lot of detail on that first deal you did, the 45-unit deal. We went through the numbers, we went through the business plan, why you selected the market, we talked about how you were able to fund the deal, and then we also talked about your strategy for managing your time between real estate and your dental business, and then the other things that you need to do in life. Unfortunately, we didn’t get to talk about the 200-unit, but maybe we can bring you back for a separate time—

Dr. Bender: Yes.

Theo Hicks: —once that’s actually purchased. And then lastly was your best ever advice, which was to start early; the earlier, the better, the more time you have. And if you are not starting early because you don’t have the money personally, that’s okay. You can either invest your time, kind of like what you did when you were selling real estate in Abu Dhabi, or you could also use your friends’ money, or people that already know you and like you and trust you and use their capital partner up with, which is something you did in your first deal. I’m sure you’re continuing and going to do it with the 200-unit deal.

So Dr. Bender, thank you so much for joining us today. Best Ever listeners, as always, thank you for listening; have a best ever day and we’ll talk to you tomorrow.

Dr. Bender: Thank you.

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JF2422: Finding & Landing Real Estate Investors with Terry Painter

Terry is the author of the Wiley publication “The Encyclopedia of Commercial Real Estate Advice.” Since 1997, he has been the chairman of Apartment Loan Store and Business Loan Store, two mortgage banking companies specializing in commercial loans in all 50 states. He has worked as a top producer for Lasalle Bank and Lehman Brothers, and he is well-known for his excellent investment consultations and strategies. Terry has been speaking about commercial real estate investing and lending to commercial real estate investor groups and real estate experts worldwide for the past 18 years. In today’s episode, Terry will be going into details about the ways to find investors in real estate.

Terry Painter Real Estate Background:

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Best Ever Tweet:

“Don’t talk about what-ifs. Talk about it from what you’ve either done in the past or what you plan to do.” – Terry Painter


TRANSCRIPTION

Ash Patel: Hello, Best Ever listeners. Welcome to The Best Real Estate Investing Advice Ever Show. I’m Ash Patel and I’m here today with our guest, Terry Painter. Terry is joining us from Portland, Oregon. He is the president and founder of Apartment and Business Loan Store. He’s owned real estate investments for over 40 years. His portfolio currently consists of two rentals and he is seeking multifamily properties. Before we get started, Terry can tell us a little bit more about your background and what you’re focused on now?

Terry Painter: Yes, thank you for having me, by the way. Just so you know, most of my background comes as a mortgage banker and a commercial mortgage broker. Over the past 24 years, I have financed hundreds of commercial real estate deals. I still, to this day, can’t wait to get to work. I’ve been doing it for 24 years, and I get to look at a lot of deals, and that’s fun for me.

Ash Patel: What are some of the challenges with what you do now?

Terry Painter: Well, there are always challenges. Basically, when you’re working with investors, they have already fallen in love with whatever they’re going to do, and they are behind it. So you don’t really want to be the bearer of bad news. What makes it difficult is — we’ve been around a long time, so we get a lot of inquiries; I have a staff that for the most part takes care of those, but I still work on the phones once in a while and I’ll tell you, it’s just that they’re so excited and you just don’t really want to put their fire out.

So I’m very busy, but I’ll tell you, if somebody has a dynamite property, something really good, I will drop everything and work on their deal, because that’s how we get deals done. But it is challenging, because some people have no money, they have no experience, their credit isn’t good, and so on. And yet, maybe they’ve found a great property. Well, if they have the property, it’s really the key here.

Ash Patel: So let’s dive into that. When you said commercial real estate, does that mean multi-family as well as non-residential commercial?

Terry Painter: Correct. I would define commercial real estate as any property that is occupied by a business or it’s five units or more if it has residents. So that’s commercial. And it’s also zoned commercial.

Ash Patel: Okay. Again, a retail shopping center – same thing, you’ll do those loans?

Terry Painter: Yes. It’s the same thing.

Ash Patel: Okay. So let’s dive into that. If I find a great property and I want a loan from you, how do I get my ducks in order?

Terry Painter: Okay, that’s a very good question; that’s really what it’s all about. I sell money for a living – how good is that? That’s pretty cool. But on the other hand, if you’re going to expect somebody to finance 75% or even more of your investment, you better have your ducks in order. What that means is you have to actually have the actual financials of the properties. A lot of people go for financing too early and they have not actually seen the actual rent roll, the actual P&L statements on the property, and they really don’t even know the physical condition of the property.

So if you really want to get your foot in the door, like I mentioned earlier, if you find a property that has cashflow today, it’s got a great upside, maybe the rents are under market, and you also have the financials for that property, that really will make a difference.

Also, you want to have your personal financial statement prepared. It’s really important that if you don’t have much money or experience, that you have somebody join with you; bring in a mentor, somebody that can actually fit in those shoes and help you look really good. Keep in mind, you’ve found that property, and that’s key. It’s going to be your deal because of that alone.

Ash Patel: I’ve got so many questions based on just what you’ve said. Okay, so I find this great property; do I call you right away and give you a heads up and say, “Hey, I’ve got this. I’m working on getting all my documents to you.” Do you want that heads up or do you just want the whole packet at once?

Terry Painter: Actually, I would prefer the heads up. I would really like to get into a dialogue with this person. This is not something I would recommend doing just to get rich. You’ve got to really love real estate. You’ve got to love putting deals together. You’ve got to love sometimes faking it until you make it.

So I’d rather get to know the person a bit. I’ll tell you, people get in the door with me sometimes because [unintelligible [00:04:54].15] My book has over 500 real estate terms in it and it’s amazing that if you just start talking some of the lingo, like throwing a cap rate, cash on cash return, and so on, you’ll get the attention of real estate professionals and lenders… But also be prepared — have some excitement behind your presentation and be prepared to tell the lender why this property is going to be successful.

Ash Patel: So pitch the whole narrative, not just your book of documents. You’ve got to sell the story of why you want to do this, and essentially sell yourself as well.

Terry Painter: Exactly. Because, let’s just say you’re even just applying for a loan at a bank. In your bank, you know some of the people there. Maybe you have a business; a lot of my clients who invest in commercial real estate already own a business. So you might know somebody. But what you want to do is go in and get them excited about your deal. Because bank employees are underpaid and overworked; they have more deals to look at, more heartburn than they care about. So if you bring in something and get them excited, they’re going to enjoy their job more, and you’re also going to be selling your deal at the same time. That’s a great recipe.

Ash Patel: That is an epiphany, because when most people think of bankers, they probably think of the blue suit that is just heads down looking at numbers, and I didn’t know that this narrative was that important… But it makes sense. It keeps you fresh in their mind. Maybe it builds some of the excitement in their mind in helping you get this deal done. What types of creative things have you done for somebody who may not qualify on their own, but the deal isn’t just right? How can a lender actually help them secure the deal?

Terry Painter: Well, I’m going to give you an example of my favorite one, actually. In 2004 – this is a while ago – I got this call from a lady named Kelly Fabras; she was an LAPD officer in Los Angeles. She told me she had found this great property called River Walk Apartments in Wichita, Kansas, and that she was going to buy it. I always have two qualifying questions. How much money do you have, and what’s your experience? Because usually if people don’t have the money, you’re just not going to take the time to work with them. I had already asked her what the price was, and the price was $6.8 million. She said that she had about $160,000 and she owns one rental property. I said “I’m really sorry. But this is not the property for you. What you should do is find a fourplex or something you can afford and you have the experience to operate.”

She would not have any of that. She said, “No, this is the property that’s right for me.” She actually had taken this course called Maui Millionaires – it’s still around – where they taught her how to raise investors, and if you find the right property, you could do that. Well, that was something that I had, at that time, not had much experience doing. But she had so much enthusiasm – that’s what I’m talking about – and she was so crystal clear. She knew the numbers on the property, which impressed me.

I told her, “Okay. Well, you’re going to have to bring in some more people.” She brought in a very high-powered executive from Intel, some other investors… And my gosh, she got the price lowered and that was her first syndicated deal. It was way sophisticated; something that a newbie could not really do. But I’m going to tell you her secret. She did not frigging know that she couldn’t do it. Most of us think about “Oh, no. I can’t do that. That’s beyond me.” But she didn’t know that, so that’s how she got it done.

Break: [00:08:15][00:10:16]

Ash Patel: That is a great story and a great example of how the narrative really helps in getting this loan secured. One of the things that I often tell people is to get with a lender before you start looking, and establish a relationship. Would you prefer that people come to you and say, “Hey, listen. This is what I’m looking for. Here’s my personal balance sheet, here’s my goals,” and establish that relationship, so that when they do find the deal, that part is already done.

Terry Painter: I actually really stressed that in my book. I think it’s really important, because so many new investors and commercial property, or for that matter, residential investment property, do it backwards. What they do is they try to put the deal together, they tie up the listing brokers’ time, maybe their brokers’ time, and time of investors without actually knowing that they have a loan. If you really think about it, the most important thing in this transaction is having the money to close the deal. So actually knowing what you qualify for and being able to fill in the holes where you don’t qualify is really essential. So you absolutely do that right out of the gate.

Ash Patel: Okay. And part of the underwriting process — so I’ve got my balance sheet, I get as many of the numbers as I can on the property… What if a lot of those numbers are hypothetical? What if there’s a fair amount of vacancy in, let’s say, a shopping center? How do I convince you that these are the right numbers?

Terry Painter: Okay. Well, here’s the thing – in the lending world we don’t deal at all with potential hypothetical numbers, proformas. A lot of real estate professionals, especially in this market — with the exception of retail, hotel, and hospitality properties, all other properties — there’s just such a low inventory, that realtors are really pushing a lot of properties based upon their pro forma, not based on actual. So you’re just going to be wasting the lender’s time and your investors’ time if you do not get the property financials together. You really need to convince the listing broker, even prior to signing the purchase contract, to give you some of the financials. A lot of times they won’t do that.

What you really want to do is deal with actual numbers, we need to know what those are. Okay next, go ahead and put a proforma together; absolutely enhance those numbers based upon fact. Show that market rents are higher; this property is $150 a month less than the market, that’s a multifamily. All you have to do is spend 4000 per unit and you could bring it up to the level of where these other apartment buildings are, renting at these higher rents. Show them what you’re planning to do. Don’t talk about what-ifs, talk about it from what you’ve either done in the past or what you plan to do.

Ash Patel: What if you’re a newer investor with limited capital, but you find a deal that’s just over your reach? What can you do to help them, or what would you recommend that investor do to get the deal done?

Terry Painter: Well, there’s a lot of people that fit that category. Once again, I’m going to go back to what we started this conversation out with – if you have a really dynamite property, in other words, what you want to know, and you’ve got to be able to prove it, based on financials – the cash on cash return, the internal rate of return, how much money you need to put into the property, and how much is that property going to sell for in five years if you’re going to fix and flip it down the road. What you want to do is money returns speaks to investors; you’d be surprised. Make a list of absolutely everybody you know, some of the people who you don’t think have much money, they’re just sitting on some money and they want to diversify, and they’d love to invest some money with you. The key is really having a really great property and knowing it, and then you can bring in an investor or two to fill in that gap.

Ash Patel: Terry, earlier, you mentioned variable down payments. What determines if I get to put 20% down, or if I have to put 30, or even more percent down?

Terry Painter: Well, we’re talking about commercial property. Commercial property is a cash flow-based system. We’re talking about net operating income, which most people probably know what that is. It’s just gross rental income less expenses. Okay, so we look at that number, and then we’ll take a look at two other items – you take a look at what’s the interest rate going to be on that program, and what’s the amortization. From that, we could compute the debt service coverage ratio.

Let’s just say for multifamily properties today, we’re looking for an extra 25 cents for every dollar of a loan payment you’re going to be making. That’s a 1.25 debt service coverage ratio. So cash flow really [unintelligible [00:14:49].28] so often today because it’s so competitive and properties are overpriced, commercial properties, especially multifamily. In the lending world, we look at some of these properties that just don’t cash flow the loan that they want. It’s just not going to happen, and you’ve got to put more money down. It’s so important when you talk to a lender to really know that ahead of time. Find out what a lender’s top numbers are, what can they lend. If they go up to 75%, then find out what their debt service coverage ratio is. Then take a look at actual financials and see if you could cash-flow that property out of the gate.

Ash Patel: So you’ve seen a lot of deals, and you’ve mentioned that multifamily is overpriced. What asset class do you think is the most attractive right now from a return standpoint?

Terry Painter: Well, here’s the thing… If you go after multifamily in any category — some of my best clients cannot find A or B properties and they’re looking at C properties right now that are over 40 years old. They’re in good shape, but they’re priced almost as high as a B property. So what you’re really going to be looking for I would say on this market right now is actually a repositioning opportunity; that would probably be the best. Or a repurposing property would be even better. But it’s really hard to find properties. Repositioning is basically doing value-adds, using your ingenuity and your intelligence to actually find the value that the seller hasn’t cared to implement. So finding properties with value-adds is really number one, and number two is actually repurposing.

An example of that – with so many hotel properties right now that are just tanking… Let’s just say you find one in a college town, and an opportunity could be to –we’ve done this many times– actually repurpose that. Change the purpose of a property to student housing. You could have a lot of single occupancy rental units, which a lot of college students are looking for.

Ash Patel: That would be a high-risk investment. What would the terms look like on a deal like that?  Taking a hotel — there’s going to be some period of vacancy while you’re doing renovations. To me, that’s a pretty high-risk deal. How would you fund that?

Terry Painter: That is so important that you brought that up… Because we’ve really got to take a look at risk here [unintelligible [00:16:57].25] for the opportunity. There’s a lot of hotels out there that could be repurposed into apartment buildings, or student housing, or something like that. In order for this formula to work, you do have to find the property at a really good price. You’ve almost got to steal the property, and that’s not easy to do. But just like any business, if it’s not earning income, what is it worth? Let’s say you wanted to buy a tire shop, and they just haven’t been running at a profit. Well, you’re not going to pay much for that business. You’re only going to pay the depreciated value of the real estate or something. So it’s really important to get it for a good price, and then to mitigate the risk, you’re going to have to really know what it’s going to cost to renovate that property, change the use, and so on. You’re gonna have to get an actual construction bid and you’re going to have to know how long it’s going to take. So it’s best to get a bridge loan for a property like that.

Ash Patel: What would the buyer have to put down on a deal like that?

Terry Painter: We do a lot of bridge lending or temporary loans. So just bridge a gap between what you want to do today on a property that’s not bringing in the income that it needs to cash flow to loan payments, to when the property’s doing great and fully occupied. Our best programs actually take a look at what the property is going to be worth once it’s stabilized; that means that it’s occupied at market occupancy. And that’s going to be about 75% loan to value, but we might be able to loan you up to, for a really great property in a good location, up to 85%. Because we’re in a recession right now, 80%, I would say, of the total cost of the project. We’re talking about the purchase price, the closing costs, the renovations, payment reserve perhaps will be likely in there. We would lend you up to 80% of that amount, but it will be constrained by 75% of what the appraised value is in today’s market.

Ash Patel: Okay, that helps a lot. So I have my balance sheet, I have my relationship with you, I have my great story on the property that I’m about to purchase… What else will help me in getting this deal done with you, or with any lender?

Terry Painter: Actually, if you’re kind of a newbie, just bringing in a partner that actually has the experience. If you don’t show enough net worth and liquidity, enough cash, you want that person you’re bringing in as a partner to represent that as well. You also want to bring in a dynamite team of professionals. We’re talking about a commercial real estate attorney, we’re talking about a really solid property management company… Because this is a business. The reason that businesses fail is not that they don’t necessarily have a great business going on, it’s because they probably aren’t managed well. That’s the same thing for commercial real estate. So if you could bring in a management company that fits those shoes, then it’s going to really help sell the deal to a lender.

Ash Patel: That’s really helpful. So I would imagine having the whole team, the property management company, the contractor, you’ll be able to put together a great narrative for the lender.

Terry Painter: [unintelligible [00:20:00].10] a great executive summary. It could be three pages, but not much longer than that. The lender wants to take a look at the deal and you want to get them excited about it. You could use the same executive summary to get investors excited. If you’re going to be doing a syndicated transaction, you’ll have a private placement memorandum that will cover that. You can show that to a lender, too. Then they really know you’ve got your stuff together if you have a PPM.

Ash Patel: That’s a good way to think about that… Pretend you’re pitching investors that are putting their own money in, versus a banker that’s just lending the bank’s money. You’d have to be more convincing, convincing somebody to put out money of their own. That’s a great way to look at that.

Terry Painter: I just remembered that excitement sells, and also great numbers sell, too.

Ash Patel: Yeah. And again, an epiphany, because we don’t think about bankers as exciting people.

Terry Painter: No. We don’t.

Ash Patel: Great epiphany. Give me an example of a deal, Terry, that didn’t go so well, and why. Maybe a loan that didn’t get funded.

Terry Painter: Do you want me to bring up one where…

Ash Patel: Let’s do both.

Terry Painter: Okay. There was the chiropractor that took a course from one of my colleagues, Peter Harris, who wrote the book Commercial Real Estate Investing For Dummies. He and his partner had a seminar circuit, and I would be part of that. I would mostly give my spiel on commercial lending. Anyway, this guy – he just studied, he just did everything right to find a property that needed to be rehabbed in Oklahoma.  What happened is I did this bridge financing for him, and then he was out of state, so he unfortunately did not manage the property well. Somebody drove by it and said there was like an old mattress in the driveway, and there were dead leaves in the swimming pool, and so on. So what happened is that I was also working on a perm loan at the same time for him. He did a lot of the renovations and spent this money with our bridge loan, but then the property went the wrong way. Why? Because the guy was out of state, he didn’t drive by the property, he didn’t see that mattress in the driveway, he didn’t see the leaves rotting in the swimming pool, and the bicycles on the patios that were rusting, and so on… And what happened is that he didn’t realize that his investment was going down the toilet. He was still doing his chiropractor business mostly.

So the truth of it is that if you’re going to be a deal sponsor, you’ve got to be hands-on. This is your baby; you’ve got to think about it; it’s taking care of your baby, and the buck stops with you. This guy did everything right, except for being out of state. So he lost the property is the end of the story.

Ash Patel: Was that because he wasn’t able to make the payments to the lender?

Terry Painter: Ultimately, yes. But what happened is actually his bridge loan matured and we no longer had a perm loan for him.

Ash Patel: So it’s not set in stone.

Terry Painter: An 18-month bridge loan, he had plenty of time — this property had very little occupancy and needed a rehab, but he had plenty of time to get it all done and occupied. But just once he got the rehab done, he had poor management… So you’ve got to really have all your ducks in a row to be successful on something like that. He was such a great guy, and he poured his heart and soul into it. So it broke my heart. It’s like it was my failure as well.

Ash Patel: Terry, a lot of our Best Ever listeners have transitioned into becoming full-time real estate investors. When they do that, they no longer have a W-2 income, they don’t have a job. I see a lot of these people on forums, and they’re saying how do I get a loan if I don’t have income and I don’t have a job? How do you address that?

Terry Painter: Well, fortunately, our firm – we represent Fannie Mae, Freddie Mac, CMBS; these are all securitized loan projects, HUD. We also have some private debt fund money. So income to a bank – that’s the most important thing. Bank examiners even, they want businesses and commercial properties to actually have two sources of income. Basically, what we would be doing is looking to get you a securitized loan. Those loans start at about a million dollars and go up from there. But that’s the key. Because we don’t look at personal income, we look at the income of the property and we look at your financial strength. There are plenty of loans out there that do not require tax returns, and for the most part, we have a lot of people in business who just don’t want to pay a lot of tax, so they don’t show much enough on tax returns to actually get a bank loan.

Ash Patel: Terry, if it’s a three, four, or $500,000 loan, what options does that individual have?

Terry Painter: In that case, their options are more limited. If it’s a loan of that size, what they are going to have to do is bring in a partner.

Ash Patel: That has an income.

Terry Painter: That has an income. Right.

Ash Patel: At what point does a high net worth or large balance sheet usurp the need for an income?

Terry Painter: Well, actually with a bank, it doesn’t. It’s quite shocking. We’re members of the Oregon Bankers Association and the Mortgage Bankers Association… And basically, it’s quite shocking, but we have clients that have actually tried to get a loan at a bank with millions of dollars in the bank. But their money was in the stock market, or let’s just say in treasury bonds, which don’t produce enough income. Two million dollars is not that much if you’re making less than 1%. So they can’t get a bank loan. So if the loan is only 300,000 or 400,000, they’re going to have to take out a private money loan. There’s soft or hard money these days, but it’s going to be probably at about 7% to 9%. So ouch; that’s what they’re going to qualify for.

Ash Patel: What’s the difference between soft money and hard money?

Terry Painter: In some ways they’re similar. Hard money really is, I would say, 10% and above. We’re talking about 10 to 12% on average, sometimes they go up to 14%. We’re not seeing such high rates with hard money lenders today, because there’s so much hard money out there. Soft money is actually, I would say, between 6% and 9.9%, somewhere in that range.

Ash Patel: So it’s just the rate.

Terry Painter: It’s really the rate, and also the points involved as well.

Ash Patel: So, Terry, you see these phenomenal deals every day for many, many years… Have you gotten the bug to go after some of these deals yourself?

Terry Painter: I do all the time. My passion is actually new construction. We’ve done many loans that have been 30 to 40 million dollars. We do a lot of the big stuff these days, although it didn’t start off that way. When I started out, if I got to 100,000, that was a big loan.

I love working with developers, and that’s where there’s a lot of opportunities there, but it’s a big learning curve. That’s where the opportunity is today, I would say especially in multifamily, where you can actually build a property for less than what you could buy it for. So when I see land, and so on — but the thing about it is that I’m an older guy. I don’t know if this is going to be on video or just on audio, but I’ve got to think about every moment in my life, and what I want to do with it. It’s really fun just to evaluate deals, but I do see deals all the time that I would love to participate in, and sometimes I do. Not if I’m making a loan out; then it’s a conflict of interest, so I cannot.

Ash Patel: Sure. I think what drives you is your passion for what you do. That gives you enough fulfillment on the real estate bug to satisfy that.

Terry Painter: Yeah, I love it. It hasn’t been easy. I’m on my third marriage, which I’m not proud of, and I finally learned to live a more balanced life that I used to. I’m the kind of person that couldn’t wait for the weekends to be over so I could go back to work. That’s not good when you have a family, you know…

Ash Patel: Terry, what’s your best investing advice ever? Whether it’s yourself or real estate this time.

Terry Painter: My very best advice is to really get to know the property and do not make a decision based upon having fallen head over heels for that property. You won’t believe how many times people do that. They go by looks; it’s like you’re dating, it’s the same thing. In my book, I give an analogy where one of my clients actually thought she was almost like online dating… It’s the same thing is looking at properties.

I’ve had clients that have overpaid for their properties. It’s not that they haven’t bought them in the right place and at the right time, but they just paid too much, and they have had to spend years to get the net operating income up to where it really made sense. The best action you could take is… Well, first of all, let me back up. Nobody buys a property to purposefully overpay for it. They only do it because they have an emotional attachment to that property. So you’re going to make some bad business decisions sometimes because of looks. So be careful.

Ash Patel: That is great advice. Terry, are you ready for the lightning round?

Terry Painter: Sure, go ahead. I’m not sure what it is, but…

Ash Patel: Let’s do it. First, a quick word from our partners.

Break: [00:28:10][00:28:47]

Ash Patel: Terry, what’s the best book you recently read?

Terry Painter: The best book is actually Passive Investing in Commercial Real Estate by James Kandasamy. What makes this book unusual is for those who want to invest in other people’s deals. Okay, well, what I love about this book, and I recommend it to some of my deal sponsors, is that you can reverse engineer it. It tells you exactly from an investor standpoint what are they looking for to protect themselves. This would be a great book for Joe Fairless to pitch to his clients, because if we reverse the advice in it, it tells you exactly what you need to accomplish and how you need to sell your deals to investors.

Ash Patel: Good to know. Terry, what’s the Best Ever way you like to give back?

Terry Painter: I’ll tell you what I love to do… And I don’t get too much opportunity, but I’ve done it a number of times, I’d like to do it more. I like to actually help new entrepreneurs in developing countries that have no opportunity. Currently, I have a home in the Dominican Republic, it’s my winter home. Somebody who’s working there, he’s Haitian. I said, “What’s your dream?” He said, “I would love to own my own store.” So my wife and I helped to invest in his store, and he’s now very successful today.

Ash Patel: That’s a great story.

Terry Painter: Now they have another store. So that’s what I’d love to do, is more of that. Help people actually get in business, that have dreams, in developing countries.

Ash Patel: Good for you. Terry, how can the Best Ever listeners reach out to you?

Terry Painter: Okay, well, if you want to learn just about everything on commercial real estate, I recently had a book published by Wiley. They published the dummies books called the Encyclopedia of Commercial Real Estate Advice. That book has all my web addresses, but you don’t have to buy the book. But otherwise, you could just google apartmentloanstore.com and you can reach me there. That’s my online business.

Ash Patel: Terry, thank you again for your time today. You’ve given us some great advice, sharing some of the inside tips on what lenders look for. I’ve certainly learned a lot and I had no idea that the narrative in having a team in place, but with the deal itself, was that important. Thank you for sharing all of your advice today and thank you for being on the show with our Best Ever listeners. Terry, have a great day.

Terry Painter: Thank you. It’s been fun.

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F2415: Good Partnerships & Dedication with Abiel Ballesteros

JF2415: Good Partnerships & Dedication with Abiel Ballesteros

Abiel is the Vice President and Founder of SAR Apartment Capital, a Miami-based real estate investment and asset management firm specializing in multifamily apartment syndication.   He is also the Principal Broker for United Dream Real Estate, a full-service real estate brokerage in Florida with over $150 million in sales. He focuses on sourcing, acquiring, and managing multi-family assets with low risk and high ROI potential for our investors. The key to his excellence is his competence and dedication in helping his investors gain financial freedom and build sustainable wealth. In this episode, Abiel takes us through the importance of strong relationships and partnerships and why it became the foundation of their success.

Abiel Ballesteros Real Estate Background:

  • Full-time real estate investor
  • 16 years of real estate investing experience
  • Portfolio consist of 845 units 
  • Based in Miami, FL
  • Say hi to him at: www.abielballesteros.com

Thanks to our sponsors

Best Ever Tweet:

“Having partnerships allows you to see the things that you don’t see.” – Abiel Ballesteros


TRANSCRIPTION

Ash Patel: Hello, Best Ever listeners. Welcome to The Best Real Estate Investing Advice Ever Show. I’m Ash Patel and I’m here today with our guest, Abiel Ballesteros. Abiel is joining us from Miami, Florida. He’s a full-time real estate investor with 16 years of experience and his portfolio consists of 845 units. Before we get started, Abiel, can you tell us a little bit more about your background and what you’re focused on now?

Abiel Ballesteros: Thank you for having me on the show. I got into real estate in 2005. I was drawn to the business by that boom that was going on in real estate back in the day [unintelligible [00:01:26].28] doing residential appraisals sold me on it. As a young kid, my dad did a lot of rehabs, maintenance work, and things like that, so I was always around the construction business at a very early age… So it drew me to the business. I would have to say at that [unintelligible [01:45] about 25 years old, I was kind of lost in my life. I chose the path of workforce coming out of high school instead of going to college, and did a lot of numerous types of jobs. I think the only one that kept records of how many jobs I had was my mother.

I started the workforce very early. At the age of 16 I was already out there working. So school was not an option for me; not because I didn’t grow up in a family that had education, it’s just I didn’t connect well in school. I struggled in school with education, and the way the school was didn’t fit me at that stage in my life. I won’t preach that to my kid now, to my son now; I would love for him to go to school. But back then just working for me and making money was the option that I want it to go through.

Going through a lot of jobs, I fell into real estate and it just hit me, I just loved the industry immediately. But it evolved from different things; it evolved from a residential appraisal to start flipping properties with my father, with his background in construction. That led me to appraisails, to doing a lot of flips between 2005 and 2008. Then the crash hit, I was very fortunate that I had some strong and older mentors that were flagging me down, “Hey, you’ve got to slow down. Something’s going to happen. Something’s going to happen.” I was able to exit a lot of my flips in time in 2008, so I didn’t get to experience that hit that a lot of them took, but I did lose all my business, in the sense that I had no cash flow, nothing going on that had an income. The appraisals dropped, they changed the regulations, it was hard to do business.

Gradually I dwelled off into other businesses like restaurants and marketing. That led me back into going full-time into real estate and flipping houses, beacuse in 2010 the properties were just amazing and the prices were cheap. I saw the amount of all these hedge funds gobbling up properties in South Florida.

That’s how I lived from then on. Slowly I started watching how syndicators and multifamily guys were buying the properties. I got myself really educated through shows like this, through podcasts, through YouTube videos, trying to learn how do investors buy these big large apartments? It always intrigued me. Slowly but surely I got into duplexes and fourplexes; that was extremely hard to scale. I was living a life of a roller coaster, flipping houses. One day I was balling, the next day I was fully invested in four or five houses, and that was extremely stressful. That’s when I started saying I need to commit to a certain amount of cash flow to cove — I started first covering my expenses.

I think that a lot of multifamily investors go down that path. I just want to cover my expenses and do my thing on the side with real estate. Then I just got hooked with the multi-families, man. Now I am a full-time syndicator, buying large apartments, and actually not touching any single-family flips at the moment. Actually, I’m so focused that if you send me a house I wouldn’t even open the email, because I just don’t want to go down that rabbit hole right now. I just want to get big apartments.

Ash Patel: Tell me about your first syndication, please.

Abiel Ballesteros: My first syndication was in Cape Coral, Florida. It was a 16-unit syndication with a friend of mine, a partner, which actually we own a lot more units now. We bought that deal together; he put in the capital, I found the deal, I did the operational, I increased the rents, and once we stabilized it, we refinanced the property with Fannie Mae. We had the vision of a long-term hold and we got an offer. It was an off-market offer, it was a local broker that sent us an offer, and we were like, “How much are they going to give us for this?” We just couldn’t believe it. We told them, “Well, have a loan” and we explained to them the loan is assignable. What’s crazy was I wasn’t that educated. I knew I needed to get an assignable mortgage just in case, but I didn’t know how desirable that was. It was actually very desirable to this buyer that we already had the mortgage locked in.

We ended up exiting within four months after we got the mortgage. My mentality now is a little different. Now, I would probably not have accept that offer, because now we have a longer-term hold. But that was my first syndication multifamily deal, it was the 16-unit one.

Ash Patel: Did you have syndicators on that or just your one capital partner?

Abiel Ballesteros: It was two capital partners. So it was actually a joint venture.

Ash Patel: Okay. You found the deal, they fully funded the entire deal, rehab, everything?

Abiel Ballesteros: Correct. 100%.

Ash Patel: Abiel, do you remember the numbers on that property?

Abiel Ballesteros: They were townhouses. There were 16 townhouses; we bought them at $70,000 a door, we spent an average of between 10 to $12,000 a unit, I know that we hit a target rent of between $1,250 and $1,300 a unit, and we exited at $118,000 a unit. It was a nice little flip.

Ash Patel: How many years did you hold that?

Abiel Ballesteros: It wasn’t even a year.

Ash Patel: So now you’re riding this market wave up.

Abiel Ballesteros: I made more money on that small multifamily flip than I was making in residentials, because in residential we use sometimes bridge loans to buy these properties. There’s paying a mortgage out of my pocket to pay the bridge. This multifamily had income flowing in since day one, so it just offset that overhead of paying a bridge loan or private loan on a single-family. It just made so much sense, it was just like “Oh my god, this is sweet, man.”

Break: [00:06:51][00:07:57]

Ash Patel: Were you a 1/3 partner in this deal?

Abiel Ballesteros: That deal was a sweet deal. It’s hard to close those types of deals, so it was 50/50. It was a 50/50 and it’s hard to close 50/50s now. Now that you’re scaling it, it’s not like that anymore.

Ash Patel: What was your next deal?

Abiel Ballesteros: The next deal was another small apartment with 14 units in Fort Myers. That one was very similar, not with the same investor, but with a different investor. Very similar. That deal actually went a little longer; than one went almost two years. But same exact model, same structure. From that one, I jumped into a 32-unit in Crystal River, Florida. Then from there, I scaled it to 100 units in Miami, and now we are only looking at deals that are above 80 units. They just make more sense for our business model.

Ash Patel: Abiel, your first two capital partners hit a home run on the first deal. Why didn’t they invest with you on the second and subsequent deals?

Abiel Ballesteros: They did; the first one, he did the Cape Coral one, bought with me on the 100 units that we bought. The one that did the 14 units, to this day he’s still also my equity partner on deals.

Ash Patel: With cap rates compressing, what is your target cash on cash or IRR number that you want to hit on each of these properties?

Abiel Ballesteros: We need to be above 10% cash on cash. Our IRR has to be at least 18% and above. Traditionally, in most of the deals that we’re looking at, IRRs are above 20%. Realistic, conservative numbers; we want to be realistic. Our business model is distressed properties. We don’t buy stabilized products. Most of our deals have 20% to 30% vacancy, they’re just in poor shape. That’s our criteria. They usually come off-market. We buy properties that are completely empty, [unintelligible [00:09:37].23] deal not as completely empty. That’s what we like to get – we like to get into the heavy lifts.

Ash Patel: There’s your strong background work ethic wanting to take these distressed properties and completely turned them around. How do you find these deals?

Abiel Ballesteros: Strategically, what I did was, when I created — I always say “I”… When we created SAR Apartment Capital – I have my two partners, Rene Sanchez and Sam Jazayri… I saw that we shared the same values, principles, and love for distressed properties. What I mean is that I will show investors a vacant multifamily building and they will just get terrified. They’re like, “Oh, this is too risky.” I will show it to these two guys and they’ll get so excited. I’m like, “Yes, this is exciting. We’ve just got to get it at the right price.” They weren’t scared of the heavy lifting. In fact, they wanted those types of deals.

For them, it was actually less risky, because that’s the way I saw it. If we get it so cheap, it’s actually less risky, because we know what we’re walking into; we have a plain canvas to underwrite a deal. We’ve got access to all the units, we’re seeing the condition, and we know it’s going to cost this much… So for us, it was easier than looking at stabilized products where you have so many hidden things; properties are fully furnished, tenants are living in it, you don’t get to see too much of all the units, sometimes you don’t get access to all the units… So this is just, like I said, an open canvas just for you, to see everything that it has.

Ash Patel: So if you think back to when you were doing all of this yourself, and then you took on the initial partners, what advice would you give somebody that has always done their own deals and now they’re looking to take on capital partners or do a raise? What advice would you give them?

Abiel Ballesteros: Yeah, the best thing I ever did was joint ventures with my partners. It’s a dynamic that we needed. One of my partners, he’s been in the business for 40 years, very successful in real estate. Renee has also been in business for a very long time in multi-families. So I don’t have to make a decision on my own anymore. That stress of having partnerships allows you to see the things that you don’t see. Sometimes we’re so stuck in our vision, and we’re so gung-ho on what we want and what we want to see. Sometimes we’re blinded because we’re so eager to do a deal. Having other partners underwrite a deal with you, sit down with you, “Is this for us?”  When you start seeing how they see the deal and their concerns, you’re like “Whoa, whoa, I did not see that coming.” Especially when you have a partner with that much experience.

So that to me was the best decision I made. It’s like going back to a board meeting and bring to your board a deal that you feel confident about, and then they just start chopping it down. It’s a necessity. This is not a one-man game; you need a team around you, you need a strong support team. What we did also to bring in this team is that we join-ventured with [unintelligible [00:12:17].00] with a contractor that’s highly experienced. He comes in before we get out of our DD, our inspection period, he gives us his advice on what maybe we might be missing. That is just three great minds giving you advice on a deal. It just makes it so much better, man. And for the investors.

Ash Patel: That is great advice. Is your contractor a part of this deal as well?

Abiel Ballesteros: He does come in in some of the deals with us.

Ash Patel: What are the challenges with that?

Abiel Ballesteros: Well, it’s not really a challenge. We have contractors actually putting some capital up into the deal. We actually embrace that.

Ash Patel: Are there any conflicts of interest when that happens?

Abiel Ballesteros: That is always the concern, is a conflict of interest. The way we go around the conflict of interest is we have our underwriting, we’re very specific of what a cost to a knob installed in a unit is. We have our own construction detailed list of what each item should cost, and what each item should cost in labor and material. So we would walk and underwrite the units just like we underwrite an Excel sheet. We would do the same thing on a per unit basis. So we kind of have an exact specific cost of what we know the units are going to cost, and then we give it to them – “Can you do it for this amount?” Once we show them that amount, he says, “Yeah, we’re not seeing this, and that.” But we already know ourselves. We shouldn’t be too off on what we think it’s going to cost.

Ash Patel: Got it. So you’ve mentioned deals with joint venture partners. Do you also do deals with syndicators that are passive investors?

Abiel Ballesteros: That is correct. We just closed on a deal that we did with a group in Ohio.

Ash Patel: And how did you go about finding your investors in the passive deals?

Abiel Ballesteros: The passive deals were word of mouth, relationships, talking to a lot of people in my circle in Miami. Once you do a couple of deals in multifamily — sometimes you’ve just got to get in with the small deals first to get some experience under your belt. I definitely get that advice. Once you’re able to do a couple of small multi-families, some people are fortunate and they could just go into bigger deals. I started the small route;  I started with duplex, and triplex, fourplex, to the 16, to the 14. That’s the way I built my relationship and my experience.

Once you have a few of those you become more attractive to investors. There’s a lot of investors that are at the point of their lives that they’re educated in multifamily, they know the business world, they’ve had success in that business, but they don’t want to be the operator. They want to find a partnership with someone that is a strong operator, that is knowledgeable, and I found that niche. I saw that there are investors that know the business very well, probably better than I do, but they just don’t want to be the boots on the ground anymore. But they do want to invest with an operator that will.

Ash Patel: Do you also have novice investors that you have to educate on the passive side?

Abiel Ballesteros: I’ve had those. I do. There are friends and family that had nothing to do with real estate, that put in some capital in our deals. We do have those.

Ash Patel: What challenges are there with trying to educate those folks and get them to see the long-term picture of what you’re doing?

Abiel Ballesteros: I think it’s a personality thing. Some of them are very hands-on and want to know every time you send them a monthly report. Some of them are just okay with just hearing about the property. I know that some of them like to drive around the property, they like to see it, they like to walk it. Some of them don’t ever go to the property. It’s definitely a personality thing.

The only challenge that I find is not with them, it’s more of in-house, making sure that we provide our monthly reporting that it is as detailed as possible. If you do that, and you’re consistent with your monthly reporting to your investors, and you make sure it’s very detailed, there’s no reason for them to give you a call. Unless they have a concern about something that they saw in the report. But if you communicate well on a monthly basis with the investors on that monthly reporting, you should be fine.

Ash Patel: Good. What’s the biggest lesson you’ve learned in doing all of these deals? What’s the hardest lesson you’ve learned?

Abiel Ballesteros: There’s been so many…

Ash Patel: Give me a real tough one that hit you.

Abiel Ballesteros: Attention to detail. My two lessons are attention to detail on your craft. You can’t assume anything; do not assume the contracts that you’re signing are going to be okay, do not assume the agreements that you’re doing are going to be okay, do not assume that everyone is an expert in construction. Those are my experiences, my expensive lessons of life have been those – assuming that someone told me something, I saw their resume, I saw their background, that they knew what they were doing in construction.

Do not assume that someone read this agreement and said, “Oh, everything’s fine.” No. Give me bullet points. What are my warnings on his contract? What should I be aware of? That goes with attorneys, do not assume that your attorney — some attorneys just browse through it. They need to be very detailed in what they read in these contracts.

So the attention to detail is something that I work on every day in my life, especially when you’re trying to grow a business. I stopped assuming that everyone knew what they were doing.

Ash Patel: That’s great advice, and having your partners involved probably helps that attention to detail as well.

Abiel Ballesteros: Oh, yeah.

Ash Patel: Good. What’s your best real estate investing advice ever?

Abiel Ballesteros: Clarity. You need to have clarity of what you want, all the way down to the specific product you want to buy, to the specific city, suburbs, or neighborhood that you want to be in. You’ve got to have that clarity of what exactly you want. The day you discover that, it’s something that would take away so much stress from you. If you want to be the investor that’s doing it all, you’re not going to draw the big bucks. You need to become an expert at one thing, understand it, learn it, be obsessed with it. Understand that city, understand the submarkets, understand the rents in that city. If anyone says “I want to call Ash”, I know that Ash is going to tell me specifically the most confident market he’s in, because you have that clarity. That is the mistake that I see investors and friends of mines make all the time, and it’s a mistake I made for many years. Once you obsess about one thing, you become so good at it that when you talk to someone about it, they’re going to know you know your stuff.

Ash Patel: Are there markets that you focus on, in that if there’s a deal that comes up in a market you’re not familiar with —

Abiel Ballesteros: It happens all the time. It draws you in because you see the numbers are great, but then it goes — you’ve got to stay disciplined, “No, that’s not my sub-market. This is my sub-market. I’m sorry. The numbers look great, but you got to make sure you stick to the sub-market you’re an expert at.” As of right now, we are an expert in Atlanta, we’re an expert in Columbus, Ohio, we’re an expert in South Florida, we’re an expert in Jacksonville, and an expert in Orlando. Not an expert in North Carolina, Texas, all those hot markets; right now we’re not there yet. Right now, these are my markets where I’m confident.

Ash Patel: Let’s take Columbus, Ohio. What’s special about that? Why are you an expert and what makes it a good place to invest?

Abiel Ballesteros: We’ve done a lot of underwriting. We’ve purchased 194 units in Columbus, Ohio, the deal that was brought to our table. We wanted to be in Ohio, Cincinnati, and Columbus. We saw the job growth and an economy that was doing well, so we wanted to spread our investments and that was one of the ones that we identified. Then a deal fell in front of us that we had to buy. It ended up being a home run, and that deal actually was a syndication deal with other syndicators that we had great a relationship with.

Ash Patel: Explain that. You went in on a deal with other syndicators. Can you tell me more about that deal and how that worked?

Abiel Ballesteros: Yeah. We raised 50% with another group, a gentleman called [unintelligible [00:19:44].05] They raised money with a group of friends and family. They’ve done a few of these and they’re very educated in that business. My group, SAR Apartment Capital, came in with the other 50% of the equity. We bought it with a bridge loan. It was a very distressed asset; it had over about 25% to 30% vacancy, really low rents. We bought it at $41,000 a door, which ended up being a home run; average rents were between 800 to 900. It is a heavy lift; we’re actually still in the middle of the rehab.

Ash Patel: So the other syndicator found the deal.

Abiel Ballesteros: We found the deal.

Ash Patel: Oh, you found the deal. Why did you partner with the other syndicator?

Abiel Ballesteros: We had a mutual friend, David. David does all our financing on multi families, and David did a phone call with me and Gwaith on a Zoom call – this was like at the beginning of COVID – and we hit it off, Immediately. I liked what they were offering, their expertise, their knowledge, and the conversation just went well. Then we had a couple of other Zoom calls and we underwrote it a bunch of deals together. I saw the way they underwrite their deals and I just knew there were pros at what they did. Then this deal came up, I proposed the deal to them, they said “Yeah, let’s do it.” I went to my partners, “I want to do more business with this group. I think we could grow with them.” And it just led to that.

Ash Patel: And you guys are equal partners on the deal in terms of managing the asset?

Abiel Ballesteros: No, they handle the asset management side. I handle the construction side of the property. So we spread the responsibilities.

Ash Patel: Would you do another one of those?

Abiel Ballesteros: Yeah, 100%.

Ash Patel: Good. Abiel, are you ready for the lightning round?

Abiel Ballesteros: Let’s do it.

Ash Patel: Alright. First, a quick word from our sponsors.

Break: [00:21:28][00:22:05]

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

Abiel Ballesteros: Oh, the 50 Cent book.

Ash Patel: What is that? Tell me more.

Abiel Ballesteros: Oh, man, the 50 Cent book just came out. I don’t know how to explain it, man. It was such a great read. He basically explains everything about how he did all his videos, coming from vitamin water all the way to the show with Power. He just gives a different perspective of what you assume. He’s just a rapper, he’s not a very successful businessman. That’s the last book I just read. It was great. I recommend it for anyone that’s interested in business but also into the hip-hop culture.

Ash Patel: Great advice. Abiel, what’s the Best Ever way you like to give back?

Abiel Ballesteros: I like to give back work. I like that we have, right now, 120 people throughout our projects. I like to see that we’re a growing company and we are giving out a lot of employment. We were employing a lot of people during COVID. That brings me a sense of pride that there’s a lot of people that are eating off this multifamily business. It’s not just me and my partners, but this employs a lot of people. These are large apartments; one apartment could bring a lot of money into an economy. So it’s a beautiful thing, man.

Ash Patel: That is a great accomplishment and a great responsibility as well. Abiel, how can the Best Ever listeners reach out to you?

Abiel Ballesteros: They can reach me at my email, abiel@abielballesteros.com, they can shoot me an email there. They can go to my website abielballesteros.com and hit me up if they have any questions or want to do a quick underwriting or anything like that. I’m always open to talk to someone about the business and any ideas that they have. I love this stuff, man.

Ash Patel: That’s great that you’re willing to help. Abiel, thank you again for all of your great advice today. You had an untraditional upbringing; you didn’t go the traditional college route. You had numerous jobs, found the real estate bug, and you had a great trajectory on the way up. The typical single-family, multifamily, graduated to syndications and partnerships… So, thank you again for sharing your story with the Best Ever listeners. I really enjoyed talking to you today. Thank you.

Abiel Ballesteros: Thank you, man. I appreciate the time.

Ash Patel: Have a Best Ever day.

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JF2414: Bounce Back & Rebuild in Real Estate with Jason Moss

JF2414: Bounce Back & Rebuild in Real Estate with Jason Moss

Jason is a real estate broker, a home builder, a developer and an appraiser. With more than 20 years of experience he has the foundation for what properties are worth and can help you get familiar with the real estate industry. Gaining over 160 rental units and 120 flips in wholesale, he too has his career ups and downs. He has an exciting story to tell explaining how he crawled his way to success!

Jason Moss Real Estate Background

Thanks to our sponsors

Best Ever Tweet:

“Don’t be afraid to buy old. Just get started. Because that if I were to tell if I convinced myself years before that, you know this has all happened within the last four years.” — Jason Moss


TRANSCRIPTION

Ash Patel: Hello, Best Ever listeners. Welcome to The Best Real Estate Investing Advice Ever Show. I’m Ash Patel and I’m here today with our guest, Jason Moss. Jason is joining us from San Tan Valley, Arizona. He’s a real estate broker, a homebuilder, a developer, and an appraiser. He’s got 20+ years of real estate investing experience. His portfolio consists of 160 rental units and 120 flips and wholesales. Jason, how are you today?

Jason Moss: I’m great. Thanks for having me on. It’s fun.

Ash Patel: Good. Before we get started, can you tell us a little bit more about your background and what you’re focused on now?

Jason Moss: Sure. I started out as a real estate appraiser in Las Vegas. I got the foundation for what things are worth and just started to get familiar with the real estate industry. I’d actually did my first house hack back then, that’s how I got started, and went from there. I just loved investing; I invested in stuff while I was doing my nine to five appraisal job. Not nine to five, it was more than that, but… I did a lot of investing, got a lot of creative financing deals going, worked my way up, got wiped out in the crash, and came back, I got back into real estate investing, and here I am now.

Ash Patel: What year did you start appraising in Vegas?

Jason Moss: This was in 2001.

Ash Patel: Okay, so you saw the rise of that crazy market out there in Vegas; it was insane. The prices just went through the roof. Is that what prompted you to get in on the other side of real estate, on the investing side, when you saw those property values rise?

Jason Moss: No, I have an uncle who lives in Utah, and he’s a developer. Ever since I was 14 I was like, “I want to be a developer.” I thought that was so cool. But it’s not as easy to become a developer as I thought. So I just always loved real estate, and as soon as I got my appraisal license, I wanted to buy a house, so I bought a house. And yeah, I saw the values going up, so that was definitely a part of it, but I was also in the Utah market, the Arizona market, and the Montana market at that time.

Ash Patel: As an appraiser or an investor?

Jason Moss: Well, not the Montana market, but I had my appraisal license in Arizona. This was a couple of years later, like 2002 or 2003. It took a couple of years to get my license. But then I immediately got my license in Arizona and Utah. I had [unintelligible [00:02:55].11] that was a great gig back then. You could have interns and they were just churning as fast as we could do the appraisals they were doing. So that was a great income boost for me.

And I would be driving 200 miles every other day, doing these loops around the valley. Ron Legrand was my first real estate training course that I took; it was like 500 bucks. I went on those high-pressure seminars, where they’re like “Come to the back and order the thing.”

So I bought those, 500 bucks, and 40 hours worth of audios, DVDs, and stuff – I just listened to those things and just consumed them. I love the idea. And I was in the industry, so I started to see these deals. At a certain point, I had the knowledge, and I just couldn’t not do it. I just had to get past that fear and finally do my first deal, and I never looked back.

Ash Patel: What year was the first deal?

Jason Moss: Well, I don’t really count my first house hackm, because I had to have somewhere to live. But I bought one in — I think it was 2002 when I bought my first wrap deal, subject-to.

Ash Patel: What’s a wrap deal?

Jason Moss: A wrap deal is where there’s a mortgage in place, and somebody needs to sell their house for whatever reason, and I come in and I’m going to take over that mortgage. This is how I did this particular deal anyway. I went over and took over this lady’s mortgage. She needed to move, for whatever reason; she still owed like $80,000 on the house. I came in and I took over her payments. I didn’t assume the responsibility for the loan, but I took over payments and she deeded me the property; so I owned the property. She went ahead and basically left, and I paid her whatever down payment she wanted. I can’t remember what it was at the time… And I took that over. So what I did is then I resold it to somebody else on seller finance.

Ash Patel: Was that essentially like buying a note?

Jason Moss: No, I wasn’t really buying the note… I was taking over the borrower’s position. The difference between selling a note or buying a note is you’re taking over the bank’s position. I was taking over the seller’s position.

Ash Patel: And how do you come across a deal like that? It seems like a win.

Jason Moss: They’re actually easier to find than just straight owner finance deals. You probably know what those are, those are pretty common. But the problem with owner finance deals is somebody has to own the house free and clear in order to do it. Otherwise, it gets tricky. And if they don’t, then you can do a wrap too. That’s the same type of scenario where if somebody owns a property free and clear and they want to sell it to you on terms [unintelligible [00:05:00].04] and pay you a thousand bucks a month for five years or whatever, and then you go out and you sell to somebody else. You bump up the price, you bump up the interest rate, you bump up the down payment… So you make a little bit on the down payment, make a little bit monthly, and make a little bit on the back end.

So it’s kind of a wrap because you have this mortgage, and then it’s wrapped in a new mortgage that you’ve created on the outside of that. So you’re ultimately responsible for the underlying mortgage, but the new buyer is paying for your mortgage. So they call it a wrap because you’re wrapping around that existing mortgage with another mortgage.

Ash Patel: Yeah, it makes sense. So you said they’re easier to find than owner financing. How do you go about finding them?

Jason Moss: So owner finance, they have to own the house free and clear. These are elderly people who’ve owned their house for 30 years, and a lot of times, they don’t have 30 years left in their life to want to do an owner finance deal. So they’re going to want two or three years. So these other type of deals – they’re called subject-to, and they’re easier to get, because you can find people that are in a motivated situation where they may not care about the credit. Maybe they’re already late on their mortgage, so you’re going to come in and you’re going to take over the mortgage. You’re actually going to fix their credit by coming in and actually making the payments on time and eventually cashing them out… But ultimately, they don’t care, because they’re going to go into a rental.

So they’re easier to find in the fact that you’re not just narrowed to older people with their house paid off, or that young person that was aggressive and is probably pretty darn savvy, and probably isn’t in a motivated situation… So it opens up the world to everybody with a mortgage to do this with. It’s not necessarily a wrap, but it’s a subject-to wrap, which is kind of what I’m specifically talking about.

Ash Patel: Got it. So you mentioned earlier that you got wiped out in 2008. We’re still back in 2001 with this story… So bring me up to the 2008 mark; tell me your deals that you’ve done and how you evolved.

Jason Moss: Yeah, so I house hacked that first house. I had my office in there and then I had my room. I thought “You know what? I’m going to do this other house,” and it worked great. I was super scared, but I did it. I made 20 to 30,000 bucks on that deal.

Then I bought this other house and I house hacked that one. Actually, I moved into the master bedroom closet. I just had a bunch of buddies and I was never there, because I was going from Arizona to Montana and all over the place. When I was there, I’d just sleep in the closet. I didn’t need a whole lot. I grew up – not necessarily poor, but I didn’t really have a whole lot, so I didn’t need a lot and slept in the closet.

Then I bought a house in Utah — I actually bought some land in Arizona and I actually flipped that for a hotel. Well, that was right after the crash, so I just jump ahead of myself… But I did some flip deals; I didn’t do any buying holds at that time, I didn’t really see the value in that.

I had amassed a million bucks by the time I was 26, and most of that was through real estate investing. I mean, I had a good wage as an appraiser; I made 150k to 200k as an appraiser, but when it came down to it, the investing is really how I was able to build my nest egg up to a million bucks. All my buddies were buying 12 houses at a time and then they would refinance them immediately, sucked out all the equity, and buy 12 more… So it was this race to see if you get too many houses.

I knew this market was going to collapse. Me and a handful of buddies knew this was going to collapse. I was keeping my mortgages at 50%. I’m like “I’ve got to be safe and smart about this, because I know this is going to collapse.” I thought 50% would be a good number, but nobody expected what happened to happen. I had a house that was 330,000 that ended up selling at an auction for 90,000. That’s how hard we were hit. And these are in the fast-growing areas. If you’re in an established area or in the Midwest, you weren’t hit that bad. But man, we got wiped out. I ended up $250,000 in the hole, negative.

Ash Patel: So when 2008 hit, was that a personal bankruptcy moment?

Jason Moss: It’s funny, because most people say 2008, but it really happened in 2005 for me. What I mean by that is in the very fringe areas, where the new developments were happening, that’s when things first stopped. That stopped in mid-2005, is when the bell curve started to wane. And 2008 is when it kind of started to go down the other side, because people held out for a couple of years thinking “Oh, the market is going to come back.” People weren’t desperate at that time. But then the longer time goes by, then they start to get desperate, then they started to foreclose on their houses. It took a couple of years for that to flush through.

This was in 2005, and by 2006 I had had that million bucks made, and I was like, “Okay…” Me and my buddy, we saw the drop coming, he dropped his house by 60 grand, and he was the last person to sell on our street.

As an appraiser, I’m in the numbers and the stats every day, so you kind of see this coming… I was selling each house, I was like “Oh man, the values are going down, down, down. I’ve got to sell this one. I’m going to go upside down if I don’t sell it.” So I would sell these properties as they were going down. Eventually, there was no more to sell. I ended up getting foreclosed on two houses. I’ll probably talk about that later, but one of them was down here in Arizona, which we ended up living in for a minute. The other one was a property in Montana that I had.

So I ended up 250,000 in the hole. My parents at the time had sucked out the equity line of credit and they were trying to help me save the empire, so they borrowed me that money. When I was 250 grand in the hole, I couldn’t just file bankruptcy. So now I’m in negative 250k at the age of 27.

Ash Patel: And then what?

Jason Moss: That was the hardest time of my life. That was really rough.

Ash Patel: So what’s the next move?

Jason Moss: I licked my wounds for a little bit. I still was an appraiser and I got my real estate license shortly after, because I was always hustling deals, I never really stopped. But I tried to start a windshield company, because that was my business in high school, I had a windshield repair company. I thought maybe I could resurrect that, because real estate was just… There were no appraisals going on, and there were no real estate sales… The only thing that was available was investor fix and flips and investor-type deals. Those were everywhere, and they were ridiculous. But I didn’t have any money and I had no credit, because I just got wiped out. So I was relegated to do these types of subject-to deals that I was talking about, where I didn’t have any money. I had several people that gave me their houses, because they were going into foreclosure, but they owed right about what it was worth… So I came in, I did my magic and I actually made money on some of those. But those were few and far between, so I was looking for other ways to make money. That’s kind of how I kind of creep and crawled back.

This is what I told you about that land I had in Arizona. I think it was 50,000 bucks and it didn’t even have an easement. It was landlocked, so I negotiated with the neighbors. It was actually really easy. I thought I was going to have to pay him some money to get an easement to this property. But I ended up just talking to him and his little boy and he said, “Oh, yeah, I’ll give you an easement. No problem. Just let me sign the paperwork.” So he gave me an easement.

So I took that piece of land that I had and I took it to a guy that really wanted to sell his hotel up in Park City, Utah. I said, “Hey, I’ll trade you this piece of land” which honestly was not worth a whole lot of that time, because the market was crashing. I was going to do a palm tree farm on this, I was going to get some water, and I was going to grow palm trees for the next 25 years. He ended up trading me the down payment on that hotel for the piece of land, and I took over his mortgage and did a subject-to on that hotel and we flipped it.

Break: [00:11:21][00:12:27]

Ash Patel: Alright, wait a minute… So if I want to buy something subject-to, how do I go about doing that?

Jason Moss: The biggest thing is to find a motivated seller. They’re everywhere, at anytime. There are motivated sellers now, there’s a forbearance wave, a forbearance with all the foreclosures and the COVID… There’s this pent-up pool of people… I don’t think it’s as big as everyone’s saying it is, or I don’t think it’ll flush out that way. But anyway, there’s this pool of people that are not in a good position right now. And if you can find those people, whether that’s knocking on doors, notice the default list, or however you find them, if you can get in front of them, 9 times out of 10, if you can get past those initial smokescreens that they throw up, they’re going to tell you “Hey, I’m in the spot. I can’t pay my mortgage.” Maybe “I’m upside down by 10 grand.” Or “I just can’t pay my mortgage or whatever, I don’t have enough to pay a realtor to get out.” Those are the ones you’re looking for. You can get in and basically give them 100 bucks or 1000 bucks and they’ll just give you the house and walk away. Because that’s what they’re doing anyway. The bank is taking it back, so if you can step in and save them…

We’ve come in with 5, 10, 15, $20,000 in back payments for people and we’ll reinstate their mortgage. They’ll be like, “Hey, we’re days away from foreclosure.” “Here’s 20 grand, let’s get this thing back rolling.” Then we work with the bank to resurrect the deal, and then we do our magic with it and then sell on the backside.

Ash Patel: And the banks don’t require you to own some part of the debt?

Jason Moss: If they knew… [laughs] Well, the thing is, in every note mortgage since 1987 there’s a due on sale clause, or an alienation clause is what it’s called… Basically, that says that if you transfer the mortgage to somebody, we can call the loan due. Some people think this is illegal, and it’s weird, but it’s not. It’s not illegal, but it’s against the terms of the original contract. So if the bank found out that this deed transferred, which they don’t, but they don’t even care when they do, because all they care about is getting paid, but… If they found out, they do have the legal action to go ahead and foreclose on a property and call everything due. In that event, I would have to scramble and figure out a way to pay that bank off so I could keep the property and protect my assets. But ultimately, we’ve had plenty of lenders find out about this, and the only couple of times where it’s been an issue –I’ve talked to title companies and they’ll back me up on this– it’s usually when there’s an equity line of credit. So it’s something that the owner can go and draw money on – that’s going to be a big red flag, because they don’t want me drawing on an equity line of credit on something, and I wouldn’t want that either. So I don’t even buy properties that have an equity line of credit. Or I make sure that the owner goes and closes that out and can’t be reopened. That, or possibly an FHA deal. I’ve done plenty of FHAs and never had a problem. But I’ve heard of it being an issue with some FHA deals.

Ash Patel: Jason, do you run a title search to make sure that you know about all the loans that are out there?

Jason Moss: Yeah, I’ve got a pretty good relationship with my title company. I’ll give them a call and be like, “Hey, is there anything crazy on this deal that I’m not seeing here? Because I’m just seeing the first mortgage. Or is this one taken over?” And I’m okay. I’ve never had any kind of weird IRS lien come in after the fact. But if there’s nothing recorded as of the date that they deed it to me, I’m not too worried about it, because I’ll be like “Hey, whoever this new lender is, they don’t own the property anymore. It’s mine, so you need to remove this lien” and they’ll do it.

Ash Patel: So 2008 hit, and you now traded a worthless piece of land for a hotel. Tell me about the hotel.

Jason Moss: I just got married four months before… We were living in Utah, doing this flip. Newly married, my wife got a full-ride scholarship to the college there, and “This is a bad idea. Don’t do this. Don’t get married and then live in a fix and flip.” But we did, and then we move from that fix and flip into this hotel. It was a 15 room hotel. But basically, it’s like doing 15 flips at the time. My wife calls it the Dark Ages in our marriage.

We couldn’t leave, because we had daily people coming in and out for the hotel; we didn’t have a manager yet, we were dealing with drug people, we were trying to get everybody out of this property, we were trying to clean it up, and we were doing 15 rehabs at the same time. So there weren’t a lot of date nights or anything like that. It was a little rough during that time… But that’s kind of what we did, we flipped that hotel and then we moved to Arizona. We’ve been here ever since, since 2007.

Ash Patel: How long did it take to flip the hotel?

Jason Moss: It wasn’t too long. I think was about a year, or a year and a half.

Ash Patel:  So that was a year and a half of you guys playing front desk, playing maid, playing rehab, doing it all?

Jason Moss: Not exactly. We bounced after about six months. [unintelligible [00:16:32].05] So we got a manager to come in and take over the day-to-day. Even though they called me up one night and they’re like, “We’re leaving.” I’m like, “Okay, well, that’s fine. We’re working it out over the next couple of weeks.” And they’re like, “No, no, we’re leaving right now. Like right now.” They were leaving, so I got in my car and I drove eight hours or 12 hours off to Utah, I had to break into my own hotel, so I could be there in the morning when people woke up and started to check out of the rooms. We had a couple of managers and we finally ended up selling it to a guy on owner finance. So it worked out in the end; it was just stressful.

Ash Patel: And what was the amount of profit on that hotel?

Jason Moss: Not a lot. Again, this one – everything was falling apart. And I was happy — I think we made about 50 grand on that hotel, which wasn’t a lot in hindsight. I thought it would have done a lot better, and I think it would have if we could have held on to it, honestly. If we had been there for a couple more years, we would have made a lot of money, because our finances would have been a lot better. But we had to get out of that situation, it just wasn’t healthy for us. And we couldn’t manage it from out of state; we were just too naive in this hotel space. If I had to do it again now, I think it’d be a whole different ballgame. But we ended up selling at that time and we were happy to be done with it.

Ash Patel: Alright. So I’m assuming you didn’t do any more hotels, and you probably don’t even want to stay in a hotel after all that.

Jason Moss: It was a motel, so it my wife’s sore spot. But we’re looking at them now just because they’re in distress. We’re looking at the possibility of converting some of those into multifamily units, and things like that, because that’s a kind of niche right now that we’re looking at.

Ash Patel: Okay. Back to the rebuilding phase… What are you doing? Are you doing fix and flips right now to get back on your feet after you left the hotel?

Jason Moss: I was trying to do appraisals in Utah and I was trying to do fix and flips, but the market was just different up there. I wasn’t doing nearly as many appraisals. Again, I guess my point was in telling you that I made about 50 grand, but I also paid $50,000 to my realtor to sell the thing. And like, he didn’t do any work; I did all the work. I basically found the guy, I even reviewed the contract… I  was like “I am paying this guy 50 grand and he spent probably a total of eight hours.” I’m like “I’m getting my real estate license.” So that was the catalyst for me getting my real estate license. Now I’m a broker and I’m an appraiser, so I’ve got a little more clout under my belt. Right after that, we moved to Arizona, so I started to build that up, and I did that for a while.

Ash Patel: Alright. The way you feel about realtors is how I feel about appraisers. When I do a commercial appraisal, I have to pay $2,000 for that.

Jason Moss: Okay, this may make you feel a little bit better – I don’t even do appraisals right now, because it’s such a headache. There is a book called the USPAP, it’s Uniform Standards of Professional Appraisal Practice. It’s this book that changes every single year. It’s basically all the hoops you have to jump through as an appraiser. All you see is the report that they send you at the end, it’s like 46 pages. It looks like they put some work into it for sure, but you don’t see all the work files and all these hoops you have to jump through as an appraiser. It’s not worth even 500 or 600 bucks for me to do an appraisal right now, it’s just a lot of work.

I was never a great appraiser; I was always very good at getting values, but I wasn’t great at filling out that work file and doing all the things that the state wants me to do. As an appraiser, there’s a lot more work that goes into it than a realtor. Because I’m both now, I can see both sides. If I list the house, it literally takes me five or six hours from start to finish to get that deal done. Whereas an appraiser would probably cost me the same amount, but I’m like — a commercial appraisal is a different story, but a residential appraisal will take me four or five hours to do that and I’m making 400 or 500 bucks, versus a realtor, the same amount of time, I’m going to get $15,000 or something like that.

Ash Patel: Alright, that makes me feel a lot better. Thanks for sharing that. So you saw how much money realtors are making, and in your case, for not a lot of work. So you got your realtor’s license. Take me through that journey.

Jason Moss: I actually did pretty good with that. I would do about 50 to 70 a year, which I think is pretty good for a realtor. I was doing appraisals as well at the same time. They married perfectly with each other, because I could be out in the field and I’d do a loop and [unintelligible [00:20:17].01] because it’s hard to get a constant flow of real estate deals and you’re always out hustling. Sometimes you’re just spinning your wheels trying to find that next deal, where during that time I was actually appraising. So I actually made some of my best money during that time.

Luckily, I got on a panel for Fannie Mae, which was really very eye-opening for me as an appraiser, and as a realtor, and as an investor. Because what they wanted us to do is they wanted us to this give them an as-is value. Remember, this was 2009, 2010, 2011. So Fannie Mae has this massive amount of properties and they don’t know what to do with them and they’re trying to sell as fast as they can, but they’re realizing that all these properties are nasty, and then all they can sell them to is investors… So they started to ask us appraisers and said “What would these properties be worth as-is, and then also after repairs?” Of course, as an investor, we all know this, it’s the ARV. Back at this time, no lender ever remodeled a house. It just didn’t happen. If they got a property back, [unintelligible [00:21:11].01] So we did this and they would start to see that if they put in a $3,000 granite countertop, it would bump the price by five to $10,000, and it would only cost them three. So they remodeled all their houses, and I had this queue of 10 appraisals. As fast as I could get them back to them, they would send me more. So I made hand over fist money during that time, and I was able to dig myself out of that $250,000 hole that I had dug myself in. And then I got a little seed money. I need about 40 grand to start investing more heavily again. Then I started into that again.

Ash Patel: Into the fix and flips?

Jason Moss: Right. I had also done one here or there, maybe two or three a year at that time, so it wasn’t a ton. But I was starting to get more money so I could do that more… Because that’s where I’d get my chunks of money, I’d do a flip and get 30 to 40 grand and do another one. I wish I could have bought 100 houses right then, I just didn’t have the capital.

Ash Patel: Yeah, that would have been great to go back in time and do that. So how did that evolve into your buy and holds?

Jason Moss: About 2017 I partnered up with a guy around that time, and we started doing fix and flips. We were doing like six at a time and we were churning them out. It was a great time for buying properties at the auction. Now it’s kind of got overrun with all the fix and flip shows and the auction shows, it’s kind of got overrun and it’s kind of crazy. But during that time, it was great to do fix and flips. And we started to see those margins get less and less.

We wanted to make about a minimum of $20,000 on a flip, because it was me and a partner. We’re like “It’s getting tighter and tighter. Why don’t we try and hold one of these?” We had gone to a John Burley boot camp that was about lease options, and we’re like “This is interesting, let’s give this a shot. What the heck?” We didn’t make a whole lot, we made like 50 bucks a month on the cash flow on our first deal. It was a small $80,000 house, it wasn’t a big deal. But we were like “That wasn’t that hard to do. If we had like six or seven going on at a given time, and we convert all these to lease options, what would happen?” So we did, and we haven’t flipped a house since, because we ended up making two to three times the amount we’d make on a lease option, versus what we would have made on a flip.

Ash Patel: And if you do sell those houses, it’ll be capital gains instead of ordinary income.

Jason Moss: That’s part of it. We don’t pay realtor fees, because we’re selling it to the tenant that’s owning it; we’ve got cash flow every month, we’ve got the mortgage paid down, we can sell it for a premium because it’s a lease option and there’s not enough of them, so people are willing to pay a premium on the price, and a  premium on the rent. And then the depreciation, and the capital gains. There are so many things that two to three times is probably conservative, really, for what we make on a lease option.

But the difference is, with a flip you get 20 grand right now, versus a lease option, we get it spread over three years. But if I start stacking these up, me and my partner are starting to see the vision. We’re like “If we start to stack these up, that [unintelligible [00:23:37].16]” Now we’re pushing to 200 properties now and we’re like, “This is looking pretty good.”

Ash Patel: Play the long game. Yes.

Jason Moss: And that was our worst deal, at 50 bucks. Now we try to target about 200 bucks a month cash flow on our properties.

Ash Patel: So right now your 160 rental units. Is that all single families or is there multifamily in there as well?

Jason Moss: Did you say 160?

Ash Patel: Yes.

Jason Moss: I think when I filled out the form initially, that’s what it was. We’re pushing 200 now. I think we have about 70 to 80. It’s hard to keep track, because the machine is kind of rolling forward. But I think we have about 70 to 80 single-family homes, and most of those are on lease options. We have a chunk of those that are rentals, and then we have a good chunk of multifamily properties, and then we have six mobile home parks as well.

Ash Patel: On your lease options, what are some of the mistakes that you’ve made that you wish you could have corrected?

Jason Moss: Honestly, I wish I would have done it sooner. For the longest time, all the way up to about 2016, my partner basically bent my arm into doing one. I just didn’t want to be a landlord, because I don’t want the calls on Christmas Eve having to fix the toilet. It was so many misconceptions that I had built up in my mind that just weren’t so, that once we started doing it, I was like “I could have been retired 20 years ago with cash flow.”

Me and my partner argue all the time about net worth. I think net worth is dumb, he loves net worth. I’m all about cash flow. I could care less about how much I’m worth on paper, I really want that cash flow. So I wish I would have just started this sooner, honestly. There hasn’t been a whole lot of errors that we’ve made on these. We just had three people exercise their option… Because now we’re three to four years into our lease, so people are starting to exercise these options. One guy walked into $100,000 equity.

Ash Patel: A lot of people — do you think they’ll exercise the option, or do you think they’ll end up walking away because they can’t get financed or they just don’t want the house?

Jason Moss: Well, I don’t think anyone will walk away because they don’t like the house, because the markets have gone up so much… As I said, the guy that just did walked into $100,000 equity. But historically and statistically, I think about 15% of the people exercise their lease option.

Ash Patel: So if somebody has one of your lease option houses, and they’re at the end of their lease period, but they can’t finance the property, is there something that you would do to help them out, or would you just start over again?

Jason Moss: We may reset the price, but we’ll keep them in the property. If they still want to buy it, we may just reset the price, or reset some of the terms, or… We can really do whatever we want. We’ve had people that have moved to Oregon and were like, “Hey, here’s your option fee back.” We’re okay, we’ll take the property, because the property’s gone up by 30 to 40 grand since then. It’s like, “We’d be glad to take that back.”

But yeah, to answer your question, not everyone’s going to be able to do this. A lot of you will just procrastinate. We actually try to work with these people and try and get them to buy the house, we really want them to. Now it’s kind of hard because they’ve got so much equity in them and we’re like, “We don’t really care if they exercise it or not.” But we’re not going to step in their way by any means. We’re going to still help them. If they reach out to us and they want help, we’ll help them. But we’ll see. We’ll see how many shake out. Every single one of them may buy, or they may not, and we’re okay with that, because we went in from the start knowing that — say the house is worth 200,000. We would market it for 210. We got $10,000 more than what it was worth at the time, so if we were to do a flip, we would have got way less. So we’re happy either way.

We could have structured that a little bit differently where we could have had some price increases and capitalize on some of that, but by not doing that, we’ve had great tenants. Our one office manager handles all of those 80 properties and she has a couple of calls a month. Because these are buyer mentality, not tenant mentality. It’s just a different mindset.

Ash Patel: So Jason, are these leases set up as a typical single-family rental? Or are the tenants responsible for more, such as HVC, plumbing problems, drain backups?

Jason Moss: They are. It is a typical lease, but there’s also an option agreement that sits alongside it. The option agreement says, “Hey, you can buy it for this price. Here are your responsibilities. You take care of the property. Any minor repairs under 200 bucks you take care of. Anything over that, we’ll go ahead and take care of. We’ll come in and replace an AC unit or a roof. We’re just going to add that onto your option fee.” So none of that capital expenses or reserve replacements that people have to factor in – we don’t really have to factor those into our matrix, because we’ve kind of exited ourselves out of that.

Ash Patel: That’s a great way to hedge against unexpected expenses.

Jason Moss: Yeah. Technically, as a landlord, we have to do certain things. We have to replace their AC, we have to keep that property safe and sound. So technically, we are on the hook. But contractually, they have the motivation to keep the property nice, because it is theirs.

Ash Patel: You mentioned earlier you were trying to do subject-to with hotels. Have you had any luck or have you approached any hoteliers?

Jason Moss: You mean if right now we’re looking at that as a strategy?

Ash Patel: Right.

Jason Moss: No, we’re not looking at necessarily subject-to as a strategy for that. We’re just looking at buying hotels. You said, “You probably would never touch a hotel.” I said, “Well, I may now, because that’s a good niche.” Now, I love the subject-to, but those are probably a little different. That’s a commercial mortgage; they may call that due. I’ve never wrapped or done a subject-to a commercial mortgage, but I’d be willing to try it. But no, we’re just looking at hotels in general.

It’s like some of these mom-and-pop motels we see outside of town, we’ll come in, we’ll buy them, rehab them, and make them into a little six-unit apartment complexes and then operate it that way versus a hotel.

Ash Patel: What kind of systems do you have in place to keep your machine turning and burning?

Jason Moss: We use some software. The one we’re using currently is called Buildium. So I find the property… I’m kind of the real estate aspect of our team. I’m the real estate guy, and my partner is the financial guy. He’ll go out, he’ll get all the money, get all the loans, and things like that.

So I’ll find a property or he’ll find a property and be like “Okay, what about this one?” I’ll do the value. As soon as that’s done, we basically just send an email out to everybody that’s involved – our title company, our insurance guy, my office manager, his office manager; everybody gets looped in, and then everyone knows their part, and they just go do it. That’s kind of the acquisition side.

As far as the management side, as I say, for these lease options, which is a good chunk of our portfolio, they don’t take a lot of maintenance or month-to-month management. But the mobile home parks, that’s kind of a beast unto itself and those do take a little more. That’s where the Buildium comes in, and the systems, those kinds of automatic payments, the automatic deposits, and things like that that we encourage our tenants to do, and we actually incentivize them to do, to really make things work smoothly. The lease options kind of take care of themselves, really.

Ash Patel: Yeah, we covered a lot. I think we’re going to have to do another episode and dive into the mobile home parks. Jason, what’s your Best Ever real estate investing advice?

Jason Moss: Just do your first deal. If you haven’t done a deal, do your first deal. That’s it. And don’t be scared of buy and holds. Just get started. Because if I had convinced myself years before that… This has all happened within the last four years. So 2001 — 2017 is when we started, now we’ve got over 200 properties. We both could probably retire right now and have residual income until these properties are gone. I would have rather done that when I started and four years later I could be in a totally different position now. So that’s my advice.

Ash Patel: That’s great advice. Jason, are you ready for the lightning round?

Jason Moss: Sure.

Ash Patel: First, a quick word from our partners.

Break: [00:30:36][00:31:12]

Ash Patel: Jason, what is the Best Ever book you’ve recently read?

Jason Moss: Atomic Habits was really, really cool for me. But I think Slight Edge kind of filled in the gap. So those two combined. Slight Edge and Atomic Habits kind of go hand in hand. They’re not even by the same author, but they kind of are circling around the same thing.

Ash Patel: What’s your takeaway from those books?

Jason Moss: Just a way to set up habits and to push through and to keep things moving.

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

Jason Moss: Right now I’m trying my hand at YouTube, trying to share my knowledge the best I can. I’m also looking to start up a non-profit as soon as this cash flow machine ramps up all the way. We’re going to be breaking off a piece of that income and doing a non-profit with that. I’m not sure what we’re going to do yet, but it’ll be fun I’m sure.

Ash Patel: I’m sure it will be fun. Jason, what’s the Best Ever way that our Best Ever listeners can reach out to you?

Jason Moss: Probably YouTube. I watch those comments like a hawk. Real Estate Getting Started is the channel, and you might have to add my name on there, Jason Moss. Or LinkedIn. That’s probably a less effective way but you can still reach me there.

Ash Patel: Wonderful. Jason, thank you for being on the show today. You shared some great advice and you’ve taken us on your journey with you. The rise up until 2008, and then how you got back on your feet after that downfall. So great advice with the lease options. I learned a lot about the wrap around mortgages. Thank you again, have a Best Ever day.

Jason Moss: Absolutely. I appreciate you having me on. This was a blast.

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JF2408: Real Estate Networking in Single-Family and Multifamily Value-Adds with Savannah Arroyo

JF2408: Real Estate Networking in Single-Family and Multi-Family Value-Adds with Savannah Arroyo

Savannah started investing in real estate while she was on maternity leave with her second daughter. She and her husband were looking for different ways they could start investing their money, growing their wealth, working towards financial freedom, and they stumbled upon real estate. They started investing in single-family homes and then switched into multifamily. Right now they’re doing value-add multifamily syndication deals. Within 1 year, they acquired 15 units. Today, Savannah will be explaining which details helped her team reach their goals.

Savannah Arroyo Real Estate Background

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Best Ever Tweet:

“The more you share, the more you network, the more you help other people grow, it has the potential of coming back to you.” — Savannah Arroyo


TRANSCRIPTION

Ash Patel: Hello Best Ever listeners. Welcome to The Best Real Estate Investing Advice Ever Show. I’m Ash Patel and I’m here with today’s guest, Savannah Arroyo. Savannah is joining us from Sacramento, California. She’s a full-time registered nurse and has a portfolio of 15 units. Savannah, welcome.

Savannah Arroyo: Hi, thank you. I’m super stoked to be here.

Ash Patel: Alright. So tell us what you’re working on now. A little bit more about your background.

Savannah Arroyo: Yes. I’m a registered nurse. I grew up in Sacramento, California. I went to Sacramento State University, got my nursing degree, worked in a couple of different hospitals and a couple of different specialties up there, and then went back to school and got my master’s degree in nursing leadership and administration. I since have moved down to Los Angeles, California. So I live down here, I oversee multiple departments in a hospital here in LA. I got started investing in real estate last year while I was on maternity leave with my second daughter. My husband and I were just looking for different ways that we could start investing our money, growing our wealth, working towards financial freedom. We stumbled upon real estate, we got started investing in single-family homes, and then shortly after we switched into multifamily. Right now we’re doing value-add multifamily syndication deals.

Ash Patel: Alright. One year, 15 units.

Savannah Arroyo: Yes.

Ash Patel: How did that happen?

Savannah Arroyo: We’re very motivated. When we first decided we were going to get into real estate, we got very specific with our goals and what we wanted to achieve in the next five years specifically, and we’ve worked backward from there. We just wrote down where we wanted to be in five years, physically wrote it down together, and then backtracked what we needed to be doing at three years, one year, on a monthly basis to make that happen. We had originally done the two single-family deals we did them across the country in Georgia, just because of the lower price point to entry than LA. After that, we just scaled faster and then switched into multifamily. We did our first 12-unit syndication last year.

Ash Patel: Okay. So a lot of questions there. Can you share some of your five-year goals?

Savannah Arroyo: Yes. One of our five-year goals is just for my husband to be working on real estate full-time. That’s a huge change in our lives, just because we both work full-time careers. I’m in the healthcare industry, he does some benefits consulting, so we are very busy with that. One of our biggest motivations behind starting investing in real estate was we realized if we started investing now, doing it full-force, that we could be in a place five years from now where my husband can really run the asset management side of our business and have a lot more flexibility with being home with our daughters. So we plan to do two to three syndications every year over the next five years to put ourselves in that position.

Ash Patel: Very cool. So husband and wife team that currently both work full-time jobs. Do you have separate defined roles?

Savannah Arroyo: Yes, we do. That was something we learned after we did our first syndication deal. That first syndication deal, we did everything together, side by side. We were looking at the underwriting together, we were on the phone with the broker together, we were on the phone with the lawyers together, with the investors, doing all the paperwork side by side, and that was really so we could get a better idea of how a syndication works from start to finish. We were both through every step of the process. It was really eye-opening to us, and then it allowed us to pick and choose what sides of the business we naturally liked or gravitated towards more.

Me in my role at work, I oversee operations, so I was naturally drawn to the operational side of things. I love connecting with people, so I took over marketing and investor relations. And then my husband, he’s an Excel wizard, so he does our underwriting and asset management.

Ash Patel: Savannah, from day one, was your goal to get into syndication?

Savannah Arroyo: No, it was not. I had never even heard of the term syndication; like most people, I guess, when you get into real estate, I had never heard of the concept.

Ash Patel: Alright, let’s talk about your first deal. So you’ve done some homework, you’ve done a lot of research, and now it’s time to find your first deal. What was that process like?

Savannah Arroyo: The first thing we did when we switched over from single-family homes to multifamily was…

Ash Patel: Let’s start with the single families, let’s rewind. Your very first deal.

Savannah Arroyo: Very first, okay. For that first one, we were actually looking at the BRRRR strategy, because we had a fixed amount of capital and we wanted to make it grow. So with a BRRRR strategy, you’re buying a property usually below market value, it needs a full rehab pretty much, renovating it, putting a renter in it, refinancing it with a goal of pulling out all that initial capital, and then repeating the process over and over. So that was our plan; we were gung ho on that.

When it came down to looking at properties across the country in Georgia, and knowing we were going to put all our capital into this, we just really didn’t feel comfortable overseeing a complete renovation across the country. That was where we stopped with that approach. It was just a little bit out of our comfort zone. I’m not saying that people aren’t making it work. I know firsthand there are tons of people that are making that strategy work. But for us, working full-time jobs with our kids, we didn’t want it to be a very stressful journey. So we ended up buying new build townhomes over there, build to rent projects.

Ash Patel: In Georgia?

Savannah Arroyo: Yes.

Ash Patel: Okay. What was your next deal?

Savannah Arroyo: The next deal was the 12 unit multifamily syndication, which we’ve converted into 13 units. So that’s where I’m at, 15.

Ash Patel: Okay, so you went from a single-family right to syndication?

Savannah Arroyo: Yes.

Ash Patel: What were the numbers on the single-family? What’d you buy it for? The townhouse.

Savannah Arroyo: Yeah. $127,000 for a four-bedroom with a two and a half bath, so bigger than a house here in LA. And we bought two of them. But just the price point entry over there is a lot cheaper.

Ash Patel: What does it rent for?

Savannah Arroyo: Those rent for $1,545. So it’s cash flowing from day one. The property management team is the team in place who helps build it, it’s the same company. So they have an interest in building it correctly, because they’re going to be the ones managing it. Even some of the maintenance issues that we’ve had come up, which has been minimal because they’re new builds, they’ve taken very well care of the issues that arose. And then they work with financial companies and lenders that were able to get us in at 15% down. So we were really able to stretch our capital and get into two of those.

Ash Patel: Was this project purpose-built for landlords and renters?

Savannah Arroyo: Yes.

Ash Patel: Interesting. What is that project called?

Savannah Arroyo: Build-to-rent projects. Specifically for investors. They come in and buy multiple homes or a whole block of homes. A lot of people investing out of the country or out of state that is coming in, they’re wanting a cash-flowing turnkey property that’s very low maintenance.

Ash Patel: What is the project called in Savannah? This specific development.

Savannah Arroyo: It’s called Union City townhomes at Suncoast Management.

Ash Patel: Okay. And how’s the cash flow?

Savannah Arroyo: Good. They’re cash flowing a couple hundred a month. We took a hit on that, because we got in at 15% down, so we do have mortgage insurance… But for us, that’s something we’re going to be able to get rid of in a year or two. It’s in a very well-developed neighborhood in Georgia, and there’s just great appreciation over there in that little city.

Break: [00:08:08][00:09:14]

Ash Patel: The next one turns into a syndication. Did you set out to syndicate it, or did you go out just to take the multifamily down?

Savannah Arroyo: We did set out to syndicate it, and that was specifically because after doing those first two deals and telling people we were investing in real estate, we got a lot of interest from friends and family who were interested in getting involved in real estate. And when we stumbled upon multifamily specifically and what syndication allows people to do, which – it basically allows investors to pool together their capital to take down these bigger deals. And usually, in these projects there’s an operator of the deal who oversees the project and how the business plan is carrying out… And then a lot of people just jump on as passive investors, so they’re investing passively in these deals, getting a lot of the returns of real estate that even the operator is getting. And it allows people who don’t want to put in a lot of work into real estate to still get involved passively. That was an opportunity we were able to provide our friends and family, and it’s  something that now I’m working to provide medical professionals. So it’s become a team sport, and we love it.

Ash Patel: Good. What are the numbers on that deal?

Savannah Arroyo: It was a 12-unit that we’ve converted into a13-unit. So it’s a very strong value-add. It is a million dollars, it is in a coastal town in Oregon, 25% below market rents, so we’re increasing that over three years, and then we’ve converted that storage unit into a studio, so it really just skyrockets that NOI. We plan to exit after three years.

Ash Patel: How many investors did you take on for this?

Savannah Arroyo: We have four investors and [unintelligible [10:45] members.

Ash Patel: How much of your own cash did you have to put into this deal?

Savannah Arroyo: We put a little bit above $100,000, just because it had really good returns and we wanted a piece of that for ourselves, and we had the capital available to put in it. We always put up our capital in all our deals, so that’s something that we just put in.

Ash Patel: How did you find this 25% below market?

Savannah Arroyo: Well, I don’t hear about a lot of investors investing over there, and that was something that we originally just started looking into because I have family over there, and we were really just curious more than anything, we were just running numbers when we first got into it, just practicing running numbers and looking at deals, just comparing different markets, and we found this really good deal and just started kind of talking to brokers… There are a lot of strong value-add opportunities and very strong rental markets where the majority of the people in the towns do rent. This building has had zero delinquencies since the beginning of COVID, which is pretty crazy. But it just goes to show that it’s a very good market.

Ash Patel: So you guys took a real systematic approach to this, and it seems like that’s how you do everything. So that being said, your three and five-year plans, now that you’ve discovered syndication, how have those changed?

Savannah Arroyo: Well, we definitely think that we’ll be able to achieve our five-year goals faster now, especially after the traction that we’ve gotten after doing that first deal. Networking has been huge for us. Just networking within real estate and especially the multifamily network, there’s a lot of people that have strategic partnerships and developing different relationships with people to kind of fast-track your growth within real estate… So that’s provided a lot of opportunity. We still have the same goals, so we’re very focused on them, but we are aware that we’ll probably achieve them a little bit faster.

Ash Patel: Great. So I agree with the networking. Great advice. What are some of your tips for our Best Ever listeners on how to increase their networking?

Savannah Arroyo: Join masterminds and meetups, they are all over. I started investing during COVID, so I actually just attended my first live meetup in Texas a couple of weekends ago, and it was so awesome for me to be face to face with other investors. It was the first time I’ve had that in a year and a half since I’ve started investing… But since then, once I got into it, there’s all these virtual meetups. Zoom has been so amazing. I’ve gotten to connect with people all over the country who are investing in real estate and who have similar goals. They’re everywhere.

So if you hop on Facebook, different networking groups, Clubhouse is big right now… I’m not on it yet, but I hear that there are some good networking events in there. Just connecting with people, even in social media. Usually, people that are doing these events are putting it out there on social media and you can see that people are doing it. They’re usually always free. You can join and connect with other people. They’re amazing resources.

Ash Patel: That’s great advice, and I agree with you, the real estate community is just incredible. They’re always helpful and sharing advice. I have to ask you this question… I’ve spoken with a number of investors from California, and after talking to them, they asked me why am I giving away all my secrets. And my mentality is, the more you share, the more you network, the more you help other people grow, maybe it has the potential of coming back to you. How have you found other real estate investors? Are they more cooperative or more competitive?

Savannah Arroyo: I totally relate to that statement. For me, personally, I don’t operate from a scarcity mindset. I think people who are more reserved with sharing their secrets and kind of what they’re working on might be operating from a scarcity mindset, where they don’t think that there’s enough out there to share with everyone. The people that I am naturally drawn to, and the people I think that are drawn to me, operate more from a giving mindset.

I have personally seen it not just in real estate but in all areas of my life, people that constantly give always get back more. I love sharing what I’m learning with other people, and I’m about leveling up people… Especially in the medical industry where I’m at, where people don’t even know about real estate. I love connecting with other women, or just people wanting to get into it. I think I just attract those people because I’m like that, I guess.

Ash Patel: That’s an incredible mindset. Speaking of secrets, what’s your best secret?

Savannah Arroyo: I would say networking and not being afraid to ask people for advice. My husband and I were coming into the real estate game just thinking that we would just do it ourselves, which is fine – we did that first deal ourselves – but once we started networking with people and creating those connections and relationships, the amount of resources that people have shared with us has been so amazing.

I have now, after I’ve been doing podcasts, people reaching out to me and I love connecting with people. But you get on these calls with people, and as you said, they’ll share their secrets or kind of what they’re working on and it just provides so much more opportunity when you start doing that.

Ash Patel: I agree 100%. So you’ve done one syndication Savannah. What were your lessons learned on that one that you’ll apply to the next one?

Savannah Arroyo: I would say definitely building a platform was our biggest learning curve on that one. So for that one, I hadn’t launched The Networth Nurse yet. We were sharing these investment strategies with our friends and family and we didn’t have a platform with resources that we could provide them. So we were constantly directing our investors towards other resources… Which is still great. People should always be getting resources from multiple sources. All your resources and education should not come from one source. But after we did that first deal, I launched The Networth Nurse, I’ve created blogs, YouTube videos, and doodle videos explaining exactly how our syndication works… And that way I can direct investors to my website, where it gives them all the information about me, about what we’re doing, what kind of deals we’re looking at.

So then by the time that I do get them on a call for a potential deal that we have in the works, the process is a lot smoother. Before, we would spend a lot of hours on the phone with our investors, which was fun and it was a big learning experience, but now we’ve kind of streamlined that process.

Ash Patel: Still in line with that theme of networking.

Savannah Arroyo: Yes.

Ash Patel: That’s great. Savannah, on your next deal, what are you looking for specifically?

Savannah Arroyo: Strong value-add opportunities. They are all over. We’re still looking at Atlanta, Georgia; it is pretty competitive over there. We’re looking in Reno… We just have different strategies in each market we’re looking at, depending on how they work. In Reno they have a very low inventory, so we’re looking at more new construction opportunities over there. We’re still looking for value-add opportunities in Oregon (a strong rental market), we have a great relationship with a broker out there. And then we started looking at New Mexico, too. So strong value-add and 50 to 100 units will be our next deal.

Ash Patel: Are you looking just through brokers?

Savannah Arroyo: Mainly through brokers, yeah. My husband has created great relationships with the brokers. We give them very quick and thorough feedback when they send us deals. We’re very specific on what we’re looking for, so in each market we have very strict parameters, you would say, for what deals we’re expecting. So it helps give the brokers more direction when they send us deals. My husband always gives them a 48-hour turnaround time of what he liked or didn’t like about the deal, and whether he wants to see more. So we’ve created great relationships with brokers and that’s where we’re getting all our deals right now.

Ash Patel: What are some of the ways you can add value in terms of the deals that you’re looking at? What kind of specific value-add elements are you looking for?

Savannah Arroyo: So pretty much below-market rents and out-of-control expenses. A deal we’re looking at right now, the expenses are up to 75%, which if you’re investing in multifamily, they’re usually around 50%. The water sewage charges for that building are crazy high. When we went to look at the property, there are faucets leaking and showerheads dripping throughout the whole building, so we’re working with a water conservation teams to implement water conservation fixtures throughout the whole building, which will drastically drop the water charges. So that’s a huge value-add. [00:18:40].28] below-market rents. So they’re really just properties that are owned by local mom and pop who aren’t necessarily taking care of it.

For our first deal, he owns multiple properties and was wanting to get out of multifamily altogether, and was 1031-ing it to land, so he was motivated to sell. For this last one that we’re looking at, the 24-unit, it’s one of his smallest deals. The seller has a lot more bigger deals, so he’s let this one kind of go on the backburner and wanting to get rid of it. So there’s a lot of value-add potential in those types of deals that were just not really properly managed.

Ash Patel: That’s a great strategy. What are your targeted returns for your investors?

Savannah Arroyo: We’re looking for two times equity return around five years; three to seven years, and five is kind of the middle point on that. We’re looking at 15% to 17% AAR, around 14% to 16% IRR, and 6% to 10% cash flow.

Ash Patel: Got it.

Savannah Arroyo: [unintelligible [19:42]

Ash Patel: What were the returns on your original syndication thus far?

Savannah Arroyo: Thus far – that’s the thing about strong value-add deals, they’ll have a lower cash flow, because the rents on that one were so below and we’re adding a lot of value to that unit. So we’re still about six months into it and it’s very minimal cash-flowing. We haven’t disbursed that check to our investors yet, but that was something they knew getting into it. It’s a shorter hold on that deal, it’s three years, and a really good equity return. So they’re understanding of the fact that it’s not heavy cash flow, but we’re really working to increase those rents, and our underwriting is going on track so far.

Ash Patel: Awesome. Savannah, the investors that you’re interacting with – are they in it for the long game, or do they want the monthly or quarterly checks?

Savannah Arroyo: I would say both. Definitely both. I’m talking to investors who want both types of returns. I would say more the cash flow. I think a lot of the people that we are talking to for investing, they’re trying to create that passive income to potentially replace their earned income down the road… So most people are looking for that cash flow. But if they have the ability to invest in multiple deals and we have multiple projects going on, we can show them some of our other deals that don’t necessarily have high cash flow, but have really great equity return in a short amount of time.

Ash Patel: Great strategy. Savannah, what’s your Best Ever real estate investing advice?

Savannah Arroyo: I would say network. Get out there and network. If there’s someone out there doing what you want to be doing or going where you want to go, reach out to them, ask them how they did it. Whether it’s platform building, getting down a niche, taking down a deal, doing anything that they’re doing in their business; if it appeals to you and you want to be there, reach out to them. I’m sure that they would be very cooperative and provide some feedback.

Ash Patel: Great advice. Savannah, are you ready for the lightning round?

Savannah Arroyo: Yes.

Ash Patel: Good. First, a quick word from our partners.

Break: [00:21:36][00:22:11]

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

Savannah Arroyo: I would say Crushing It by Gary Vaynerchuk. I think I’m new to the game. No one’s really recommended this book to me, but especially as I’m building a brand and marketing, I’ve listened to it on an audiobook for the last two weekends and I’m ready to listen to it again. I love it.

Ash Patel: That is a great book. What’s your biggest takeaway? I think you’ve already implemented it. Is it networking?

Savannah Arroyo: Networking and content creation. People want to trust you and know that you’re putting out good content. I don’t think I undervalued how important content creation is, but I’ve now started building it up and ramping up my game.

Ash Patel: It’s like a snowball. Once you start creating it, you get hooked. Savannah, what’s the Best Ever way you like to give back?

Savannah Arroyo: Connecting with other investors. Honestly, people who are looking to get started, or build a brand, or even especially with medical professionals who haven’t heard about real estate investing and I’m able to provide them the opportunity to invest in some of our deals – I love that. When they get their first check in the mail and start getting some of that cash flow, it’s just such a great feeling.

Ash Patel: That is great. Savannah, how can the Best Ever listeners reach out to you?

Savannah Arroyo: The Networth Nurse. You can find me under @TheNetworthNurse on all social media handles. That’s Facebook, LinkedIn, YouTube, and Instagram. That’s also my website. I love connecting with people. If you’re even remotely interested in anything I’ve been saying, please reach out to me. I’d love to connect.

Ash Patel: That’s great. Savannah, thank you so much for sharing your advice and being on this show. In just one year, you and your husband have been able to create something incredible. On your way to your second syndication and you didn’t even plan on going down this route… So great advice for everybody with the networking, and you used your profession and your medical context to your advantage… Great story. Thank you again for being on the show.

Savannah Arroyo: Thank you. My pleasure.

Ash Patel: Have a Best Ever day, Savannah.

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JF2406 Learning To Listen To Your Intuition With AdaPia d’Errico #SkillsetSund

JF2406: Learning To Listen To Your Intuition With AdaPia d’Errico #SkillsetSunday

AdaPia has been a guest of the show twice before, in 2014 and 2017. This time she’s here to talk about her book, Productive Intuition. She started writing it back in 2018, and the Covid lockdown gave her a push to finish the book.

In the past, she’d feel that the deal would be off, yet she’d still go through with it since there was no rational reason behind the feeling. Now she’s learned how to listen to her gut, and she shows others that they can teach themselves to do it as well.

 

AdaPia d’Errico  Real Estate Background: 

  • Principal and VP of Strategy for Alpha Investing, a private real estate equity firm
  • Alpha Investing invests in multifamily, senior housing, and affordable housing nationwide 
  • 20 years of real estate experience 
  • Author of Productive Intuition – connecting to the subtle
  • Guest on episode JF1187
  • Based in Los Angeles, CA
  • Say hi to her at: www.productiveintuition.com  

Thanks to our sponsors

Best Ever Tweet:

“In real estate, we use our gut all the time” – AdaPia d’Errico.


TRANSCRIPTION

Theo Hicks: Hello, Best Ever listeners and welcome to The Best Real Estate Investing Advice Ever Show. I am Theo Hicks, and today we’re speaking with AdaPia d’Errico. AdaPia, how are you doing today?

AdaPia d’Errico: I’m doing really great. Thanks so much for having me.

Theo Hicks: No, thank you for joining us again. AdaPia was on the episode all the way back in 2017. It went live almost exactly three years ago, in December 2017. A lot has happened since then. We’ll talk about that just a little bit in the beginning, but the main focus of the day is going to be on AdaPia’s book, which was launched in October, correct?

AdaPia d’Errico: That’s right.

Theo Hicks: Perfect. It’s called Productive Intuition: Connecting To The Subtle. So this is Sunday, and that’s going to be the skill set for today. Before we get into that, a reminder – AdaPia is the principal and VP of strategy for Alpha Investing, a private real estate equity firm. Alpha Investing invests in multifamily, senior housing, and affordable housing nationwide. She has 20 years of real estate experience. As I mentioned, the author of the book we’re going to discuss today, Productive Intuition. If you want to check out her original episode, it’s Episode 1187. She is based in Los Angeles, California, and you can get her book at productiveintuition.com. So AdaPia, before we get into the book, can you tell us a little more about your background, and then what you’ve been up to since you were last on the show about three years ago?

AdaPia d’Errico: Sure. It seems like I have three-year stints, because the first time I was on the show was in 2014 when, we did a whole series on real estate crowdfunding. That’s how I met Joe and The Best Ever Show. So it looks like we have these three years stints.

For the past few years, I have been over at Alpha Investing on the equity side. Previous to that I was doing a lot more of the hard money debt side, and now I’m over here on the equity side. We have a private capital network, we syndicate these projects, we do the underwriting, what you would expect from syndication; we just really, really focused on these three asset classes, on the needs-based asset classes. Everybody needs a place to live, and we put a huge emphasis on the sponsors and the sponsor’s background. In addition to Alpha – I’m over there as VP of strategy, really building the investor-base, PR, and communications – clearly, like I’ve had some free time to write this book, I was actually able to finish it in COVID. I started writing this book in 2018, and if anybody’s ever tried to write a book, you might not finish and then there’s just this moment when it just feels right and it flows. COVID actually gave me that moment, because I was like, man, I need to stop doom scrolling and do something more productive.

Theo Hicks: Doom scrolling. I haven’t heard that before. I like that.

AdaPia d’Errico: So it’s been a real adventure. I self-published and it’s been really, really well received. It’s really aimed at more of a business audience. It’s really aimed at people that  — everyone is trying to bio-hack, optimize, or try to make their lives better, make their businesses better, and I feel it’s really important to touch on the subject of intuition for that because, as you know too, in real estate we use our gut all the time. Whether we know it or not, we are actually using our intuition a lot to understand partners, syndicators, or even deals… And you actually make better decisions when you’re tuned into your intuition; you make faster decisions, you can get into a flow state, you can be more creative. This book really kind of came about from my experiences, and especially my experiences of realizing that so many times when things went wrong. And Theo, I don’t know if this ever happened to you, but something went wrong and you’re like “I knew it. I knew I shouldn’t have done that. I shouldn’t have said that. I shouldn’t have whatever” because there was a part of you that had warned you and you just brushed it aside. “No, I’m not going to listen to that, I’m not going to pay attention.”

I kind of reached that point where after one particularly really big career crash for me that led to a whole need for me to re-evaluate my life, what am I doing, and what are my values, why am I not listening – I kind of landed on this place of “I really need to listen to my intuition.” So I just did all this research on what makes us intuitive, how it works, and how to use it.

Theo Hicks: Thanks for sharing that background. I’m sure we could go on the tactical side of a book, how do you actually write a book. I totally understand exactly what you’re talking about when it comes to writing books. I think a good place to maybe start is if someone’s listening to this, and maybe they don’t necessarily know what you mean by intuition… Like, they say, “Oh, I’m really angry and emotional. I should listen to that”, so what do you mean by intuition?

AdaPia d’Errico: Yeah, actually, that’s a really good point. When I’m angry and emotional, is that my intuition? Definitely not. So there’s a lot of discernment. That’s why the subtitle of the book is Connecting to the Subtle, because it’s a really subtle sensation.

Intuition is the full “You know something, but you don’t know why you know it, but you just know it.” Intuition will also feel very different than an emotion, especially an emotion like anger is really just a signal. Anger is signaling to you, it’s saying, “This is not okay for me, something to pay attention to.” And of course, we have to do our work with our anger and all that kind of stuff. I have anger issues of my own so I totally get that. But intuition is more like a hint or a subtle signal. Often we feel it in the gut. Some people feel it in different ways. It can be a fully formed thought, it can be that idea in the shower, it can be so many things. But most of the time, I think the best way to describe intuition is a knowing that goes far beyond the rational mind. It’s really just something that you know, and it’s unshakable. That’s your intuition.

Theo Hicks: Yeah, I think that’s how I would describe it as well. Now that we know what it is, you’ve kind of already hinted at this with the discernment and the Connecting to the Subtle, but very practically, I’ve got a decision to make on whether to buy this deal or not. What exactly does it look like when I’m tapping into my intuition? Do I sit there and just say, “Alright, what does my intuition say?” and then the first thought that pops into my mind is my intuition. What does it actually look like?

AdaPia d’Errico: It’s different for a lot of people. One of the best ways to work with your intuition is to journal. Actually ask yourself questions and just journal it out. For some people, meditation is also a really great thing, because what you’re trying to do is get beyond the chatterbox of the mind. We’re trying to get to the self, and the space, and the knower that goes behind that mind. So journaling is a really great way to do that. Meditation is a really great way to do that.

When it comes to a deal, intuition works in a couple of different ways. One of the big things that I always want to talk about is intuition isn’t this magic thing that’s like for psychics. There are definitely people who are super tuned in to their intuition, and they seem really magical… But a lot of times intuition is also a function of deep experience. Like, if you have a lot of experience, let’s say in real estate, and let’s say you’re walking a building, you’re going to walk around, and you’re going to know things about it that have a lot to do with your previous experience. You’re going to notice things, you’re going to see things, you’re going to get a sense of something, and that’s because you have this lifetime of experience stored in your brain and stored in your body that you’re drawing upon, because we function to create patterns.

There’s also an element there with your intuition, like you were saying with a deal, is something might hit you and you’re like, “Something doesn’t feel right about this.” So you should go explore that. “Something doesn’t feel quite right about this.” It doesn’t mean that you make a decision just based on that, it means that it’s an invitation to go check on that. Another really good place that your intuition is going to speak really loudly are your partners. The people that you’re going to be doing business with and how they interact with you. It’s like the non-obvious ways. You’re going to get a sense of, “Do I trust them? Do we have alignment?” All of this is operating in your body and it’s giving you these signals. So I would always say, if you have a sense of “Something’s not quite right about this, it’s not sitting right with me,” then go explore what that could be. Don’t just let that sit there niggle at you. It could be nothing, but at least you go and explore it and figure it out.

Theo Hicks: That exploration process – that would be the journaling and them kind of sitting there thinking about it?

AdaPia d’Errico: And actually exploration. If you have a bad feeling about somebody, I would just go do full background checks. It’s actually really practical, too. To me, intuition is extremely practical. It’s like “Okay, I need to go do some fact-checking, because I got kind of a bad feeling about this over here.”

So the important thing is not to ignore that little feeling that comes up; that might be a warning. Also in a positive way if it might be like, you just get the sense of like, “I’m going to go this way today.” You just get these little inspirations; you’re like, “I’m just going to do this today. I’m going to do this differently.” Sometimes it’s fun to just see where that takes you.

Break: [00:10:04][00:11:10]

Theo Hicks: What are some common traps that people might fall into when they first start doing this? Maybe they’re someone who’s always been very rational that every single decision needs to be based off of an Excel calculator template. It needs to be an exact threshold or whatever, and they’re like, “Okay, I’m going to start going on my intuition a bit more.” What are some common traps that people find and how can we avoid those?

AdaPia d’Errico: That’s a really good question. A lot of those traps actually are in the emotion, in the emotion and the ego. This happens to me a lot, especially when I’ve had a situation where I lost a lot of money to fraud. I knew it, and I just didn’t want to believe it. The whole time, I was paying more attention to what my ego wants. I really wanted this deal to work, I didn’t want to believe that this could happen to me, I was smarter than this. Whatever the narrative is in our head, we really have to watch what is going on that’s causing us to dismiss it. There are usually these ulterior motives. For me, it was pride, it was not wanting to ask for help…

So these are the things that trip us up a lot and they’ll start to trip us up when we start to question it or talk ourselves out of it. You’ll notice that, you’ll notice you’re talking yourself out of it, like “Oh, no, that could never happen to me. Oh no, I’m not going to do that. I’m not going to bother this person. It’s like the wrong thing to do.” But yet the whole time, like maybe you have this feeling in your stomach. For me, with this person that I lost all this money, I just would always get this really tight feeling in my head, and I just never felt good. But I just was so stubborn. I did end up down to the wire and I ended up getting defrauded for a lot of money.

Theo Hicks: On the flip side – because that’s an example of not listening to your intuition… So maybe give some examples of when you have listened to your intuition. I’m sure there are examples in the book. In addition to the example that you found about someone who listened to their intuition and either avoided a complete disaster, or you avoided a complete disaster, or it ended up being a really good decision, that allowed you to make money or to find the right partner or whatever.

AdaPia d’Errico: For sure. Yeah, absolutely. There are so many. We were saying this before we started recording, I helped launch real estate crowdfunding as an industry. That was my intuition that led me into that space. Even though it seemed totally bananas at the time, I joined one of the earliest firms. There were three people and I became employee number one, and it was wild, it was crazy, and it shouldn’t have worked. But it did. That was my intuition saying “There’s something here; there’s something about this real estate, and there’s something about crowdfunding. I don’t know what it is, but I know it’s going to be big.” So I’ve always had this ability to also understand the key trends. That’s your intuition kind of at work.

Another thing is actually this year, we moved to the mountains from the city of LA. We both had the same moment of this intuition. It came totally out of blue. We were not going to sell our house this year; it was not even on our radar. We both went for this hike, we both kind of came back from that hike and we’re like, “Huh, let’s look for some land. I feel like we should look for some land.” And then we ended up selling our house and buying this one.

That doesn’t mean that intuition makes it a smooth ride. It still took six months, it was still all the crazy housing market. But that’s an example of following my intuition, because otherwise, my rational brain “Well, that’s not on your plan for 2020.” But it just felt right. The more we did it, even though we encountered challenges, it just still felt like the right thing to do. So that would be like a really positive example.

Theo Hicks: You kind of already touched on this, but I’ll ask it again and see if you answer a little bit differently. You mentioned something about how it works, and that it’s going to be based off of your experience, too. So someone who’s never done a deal before, who has never flipped the house before, or done any sort of renovations to the house before is not going to walk into a house and then be able to listen to their intuition about what renovations need to be done. That’s just kind of an example. But what are some resources, what type of content, what sort of routines do we need to do to make sure that we’re continuously feeding whatever it is that allows us to have correct intuition?

AdaPia d’Errico: It’s a constant and daily self-awareness practice. It’s like a mindfulness practice. Anybody who has a mindfulness practice already — you’re already living life, let’s say, just noticing yourself. So you start to be able to notice when you’re having nasty thoughts; you’re going to notice when you have an emotional reaction, you’re going to notice when you’re triggered, you’re going to notice when something feels good. This is how you work with your intuition, because it’s really like a muscle. It’s like a super skill that we all have; every single person has it, and it must be worked. You do that, like with anything – with practice, and consistency.

It’s a constant daily awareness of yourself. What happens is you start to notice and you start to discern different aspects of you; you start to feel like you see yourself from the witness perspective for those who do meditation, and you start to be able to notice the ego part of you or the pride part of you, and then you’ll just also notice other parts of you. So it’s a self-awareness practice.

So if you go about your day, just like also noticing and taking the time, and remembering –because this is the hardest thing with all of this kind of work mindfulness– is to remember to do it. Let’s say you walk into a room, and just like you ask yourself, “What do I notice?” Just start with that and see. Now, you might not feel anything, nothing. Zero might come up. But over time, it’ll start to be there, because you’re starting to put attention on that part of you that’s always there, you’ve just haven’t given it space or time or any attention before.

Theo Hicks: Yeah, I think that’s the biggest thing. It’s not like these reactions we have are something that is completely brand new; you’ve been doing it forever, but you just don’t realize it. These are just patterns, for sure, so I totally agree with that.

Alright, the last question… Throughout your process for doing research for this book, I’m sure you’ve learned a lot of stuff. What was the most interesting thing you learned? Or maybe the one thing that maybe had you believe in one thing and then you did your research and like, “Oh, wow. I was completely wrong about that. THIS is actually true.” Or is there something that stands out from your research that you think could be valuable to listeners?

AdaPia d’Errico: I think one of the most shocking things that I’ve realized in my research is how powerful the heart is. It’s actually a thousand times more powerful than the brain. It sends more information to the brain than vice versa. The electromagnetic frequency of the heart is just so powerful… And it’s measurable now. They’ve done studies when large global events that happen, that just like the overall frequency of the earth will change. The reason that that is so amazing to me is that we’ve put such an emphasis on the brain in culture for hundreds of years, like the brain, the brain, the brain, the brain, and the heart is just a blood pump. But actually, the heart is so much more than a blood pump. It is actually what is controlling everything. There are really interesting studies that I had –I talk about it in the book too– that will put the heart as the main organ of intuition, and that it can future-see things. This is your heart.

So I just found that all of the research about the heart was so fascinating, and also timely. It’s time that we lead with the heart. We’re more human; we don’t want this top-down, aggressive, too cold, too rationally centered way. So many people that know, like you and Joe, for such a long time – you lead from your heart and you connect with people from your heart. The research around that will just blow you away. I know it did me.

Theo Hicks: Do you have that in the book?

AdaPia d’Errico: I do.

Theo Hicks: Perfect. That’d be fascinating to look into. Thank you for sharing that. I’m glad I asked that question.

AdaPia d’Errico: Yeah, me too.

Theo Hicks: Is there anything else that you want to mention, whether it be something we didn’t talk about before we sign off? And then obviously, where people can find your book.

AdaPia d’Errico:  This has been really great. I really, really appreciate coming on the show and being able to talk about the book. I really hope that people will be inspired to read it and start to work on their intuition and to listen to it more. Because intuition is productive, it’s faster decision-making, and it creates better outcomes.

So the reason I wrote the book too was I put so much science in there because I’m very left-brained. I’m like “No, I don’t want to just believe something. I want to know how it works.” So that’s what’s in the book, too. So I think it’s also very appreciated by a lot of people who — as you said, you’re like, “Okay, tell me something that’s scientific-based or that’s more rational.” It’s really important, because we need a rational side of us to participate in life, too. We’re not trying to throw it out the window. We’re just trying to say, “Hey, there’s another part of us that wants to work with us.” So I appreciate being able to come on the show and talk about the book, because it’s been a lifelong dream to write it.

Theo Hicks: This is a really fun conversation. It’s a lot different than what I usually do. I really enjoyed this. So thanks for coming on and talking about your book. Again, it’s called Productive Intuition: Connecting To The Subtle. You can buy it at productiveintuition.com. So again, thank you so much for coming on. Best Ever listeners, as always, thank you for listening. Have a best ever day and we’ll talk to you tomorrow.

Website disclaimer

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

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

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

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

Oral Disclaimer

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

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JF2400: A Millennial's Multifamily Success with John Stoeber

JF2400: A Millennial’s Multifamily Success with John Stoeber

John Stoeber is the Principal at Kronos Investment Partners. At 26, he discovered his passion for real-estate investing. Experiencing the pain of rehabilitation, John scaled himself to multifamily. He is a “spreadsheet-driven guy,” who functions well in planning and finances. John is eager to expand his repertoire of investments to heavy-valued ads and venture into growing markets. In this episode, John gets into detail on transforming his failures into a multifamily success.

John Stoeber Real Estate Background:

  • Full-time in corporate finance and Full-time in real estate
  • 3 years of real estate experience
  • Portfolio consists of 2 multifamilies totaling 34 units 
  • Based in Denver, CO
  • Say hi to him at: www.kronosinvestmentpartners.com 

Click here for more info on groundbreaker.co

Best Ever Tweet:

“When analyzing your numbers, verify everything.” -John Stoeber


TRANSCRIPTION

Ash Patel: Hello, Best Ever listeners. Welcome to The Best Real Estate Investing Advice Ever Show. I’m Ash Patel and I’m here today with our guest, John Stoeber. John is joining us from Denver, Colorado. He’s got three years of real estate experience, owns two multifamily properties that consist of 34 units. John, before we get started, tell us a little bit more about your background and what you’re working on now.

John Stoeber: Ash, thanks so much for having me on the show today. I’m a huge fan. A little about me. I’m 26 years old right now, I graduated from college about four years ago (which I can’t believe), with degrees in finance and accounting. Like everyone else in college, I’m just trying to get a job, get good grades, just like going into the corporate world. So when I got my job offer right before I graduated, I saw the salary, the compensation package, and the PTO, which is paid time off for all the entrepreneurs out there, I was just like, “Yeah, this isn’t going to work.” It’s not enough money, it’s not enough time off. So I started searching for ways to make passive income, which led me down the real estate rabbit hole. And in the last three years, I started off with just a little two-unit which I house-hacked, I learned how to be a landlord, transitioned over to flipping, because I knew I was going to need to get some experience with rehabs and renovations… And after doing some of those smaller deals with a small group, and by myself, I kind of got exposed to multifamily. I was like “This is definitely the path I want to take.” It’s just a much better use of my strengths, analyze these big properties, as opposed to going after single-family BRRRRs and flips.

Ash Patel: What was your first property?

John Stoeber: It was a little two-unit that I house-hacked in Baltimore City. I had a tenant who lived upstairs in an apartment, and then I rented out my basement. I was living completely rent-free, mortgage-free and that’s how I caught the bug.

Ash Patel: What was your next deal?

John Stoeber: It was that flip I did. So a little background about me… I’m a spreadsheet jockey; I shouldn’t be allowed to touch a hammer, let alone swing one. And I feel like me and a couple of partners, we went off and bought the biggest, baddest flip in Baltimore City, where there are just like lots of shells and dilapidated houses… And we had to do everything on this house, from roofs, mechanicals, digging out the basement, and then, of course, new flooring, walls, paint, kitchen updates, the whole nine yards… Which was a great learning experience, but it was really, really painful. I was like, “Yeah, I need to scale up into multifamily. This is going to take too long and I need to be able to leverage the strengths of others.”

Ash Patel: What were the numbers on that deal?

John Stoeber: On the flip?

Ash Patel: On the flip.

John Stoeber: When we bought it, we originally anticipated it was going to be 89k purchase, 60k rehab, 235k sale, and the actual numbers were 89k purchase, about 80k rehab, and 200k sale.

Ash Patel: Oh… Your spreadsheet wasn’t accurate at that time, was it?

John Stoeber: Oh, the spreadsheet was accurate, but the inputs I put into the model were not. So garbage in, garbage out.

Ash Patel: Alright. So you put all this work into a flip that didn’t yield the results that you wanted, and then you decided you wanted to go into multifamily. So bring me on that journey.

John Stoeber: We’re in the middle of this flip, I think we’d have found out you’re going to have to replace our roof, which wasn’t originally in our budget… It was a small row home, so it was like $2500. But I’m talking with a partner and we’re just like, every time we miss something with our budget, we have to come out of pocket for the expense, and we’re hoping that we’re going to get it back at the end when we sell the property.

And I had this little two-unit here, he had a four-unit, and each of us had dealt with some problems. He had to deal with a six-month eviction while we’re doing this flip, and I had to evict the first time I ever had who lived above me, which was a little sketchy, because she knew exactly where I slept… But every time we make a mistake on one of these small multi-families, really our tenants end up paying for it. My partner didn’t cash flow for six months on his fourplex, but he’s like “My tenants paid for my eviction, they paid for the mortgage, and I still get these great tax write-offs.” And then with us just not having these great construction and renovation skills, our deal with the flip – we were anticipating a 30k profit, and it’s hard to bring on a partner and really incentivize them with a big carrot at the end of the day for 10k. Whereas if you start buying multimillion-dollar multifamily properties, there’s just a big enough pie where you can have someone do the finances, you can have someone do the management, you have someone find the deal, and all the other roles that it takes to take a multifamily deal down. So that’s when the light went off in our heads and we’re like, “Yeah, like we need to go into multifamily and bigger deals.”

Ash Patel: So you realized the benefit of having those economies of scale. What was your first multifamily, your larger one?

John Stoeber: I’m part of a joint venture in Little Rock, Arkansas. We have a portfolio consisting of an 18-unit and a 16-unit property in Little Rock. I guess I just really like big rehabs and big value-adds, even though that’s not my strength… Because it was a totally distressed property when we bought it; it was around 35% economically occupied, in the middle of COVID… And we’re going in there and we’re putting about five to 10k a door into rehab, and we’re taking rents that were 400 to 450 a month, and we’re getting them up to 650 to 700 with tenants who can actually pay the rent.

Ash Patel: Who’s we?

John Stoeber: It’s a joint venture partner. I have four other partners in on this deal. One of them found it. We were going to get a loan, but we ended up getting seller financing, so they’re kind of going to be the KP. Another one is a partner I work with at my company Kronos.

Ash Patel: Which one of them are the boots on the ground?

John Stoeber: It’s the couple who was going to be the KP.

Ash Patel: Okay. So they’re in Little Rock, Arkansas.

John Stoeber: Actually no, they’re in Dallas, which is about a four-hour drive away. Yeah. So they have some long road trips every couple of weeks.

Ash Patel: So they’re remotely managing this massive rehab. What are the challenges with that?

John Stoeber: So on one of our properties it’s cardinal construction. I don’t know if your listeners know what that is, but it’s kind of like these small rancher style apartments, kind of weird floor plans… And an example would be we have issues with getting the correct size appliances. On one of the units, we had to get a unique sized oven and range. When you’re not there, you can’t really rely on other contractors if your contractor is being slow, or he’s busy with other jobs. So at least in our experience, it’s taking a little longer than we would have liked. It’s still getting done, the numbers still look good, it’s just you don’t have as big of a network as if you’re local to the market and you’ve been doing deals there for years.

Ash Patel: Got it. What are you looking forward to in your next project?

John Stoeber: That’s a good question. I like these heavy value-adds, because there’s a lot of money to be made in them and there’s a huge spread. They’re definitely stressful though. So I would definitely take another one of these if the time was right. I’m also looking for more lighter value-add, like B class properties and more growing markets. So Little Rock’s a good stable market, it’s a state capital, but it’s not like Phoenix, Arizona, or Central Florida where the growth is just crazy.

Ash Patel: What were the numbers on that Little Rock property?

John Stoeber: This is my favorite part. So we bought 34 units for 800,000, which I think comes out to 23k or 24k a door. We’re putting between five and 10k/unit into renovations, which is interior and exterior. The sales comps for the cardinal construction are about 40k, and the sales comps for these small townhomes, they’re north of 50k. So all in we’re in for around 30k to 35k a unit, and the ARV per unit is from 40k to 53k.

Ash Patel: Are you going to hold on to this property or dispose of it?

John Stoeber: We’re still contemplating that. The way I view it is we’re in phases, and right now we’re still doing the rehab and the lease-up. Then when it’s time to either refinance or sell, we’ll have to make that decision. It’s kind of the cool thing about being on seller financing though, it gives us a little bit of flexibility. It’s not like a rehab loan where you have to refinance into a permanent loan… But given the types of properties they are – they’re smaller, our boots on the ground are farther away, and they’re lower income – it does make a lot of sense to just flip the properties and then redeploy the capital somewhere else.

Ash Patel: What were the terms of that seller financing? What did you have to put down?

John Stoeber: There are two different properties. So the one property we got 85% LTV, the other property we got 75% LTV, 3% interest, and then one property is amortized over 18 years and the other one is over 20 years. All in all, we had to put $215,000 down.

Ash Patel: What part did the seller finance? The entire loan?

John Stoeber: Yeah, they financed everything. We were trying to get a construction loan, but that fell through and it was just taking too long. So our partner who found the deal, her name’s Emma, she was able to negotiate really good seller financing terms.

Ash Patel: I’m sure you asked him, but does he own any more that he wants to get rid of for you?

John Stoeber: No, he doesn’t, unfortunately. I’d love to pick some up, because he completely mismanaged them.

Ash Patel: On your next deal, would you look for seller financing specifically? Or would you go the conventional route?

John Stoeber: I feel like seller financing. It’s a great tool to have in your tool belt. But if you’re only looking for seller financing deals, especially in today’s market, I feel like you’re really going to reduce your deal flow. We were trying to get bank financing, and the reason we ended up going with a seller carry is because the bank financing doesn’t work out. So yeah, I’m totally open to doing it, and it’s something that I ask every seller when we analyze properties. But if the deal works with the bank financing and bank debt, I’m definitely going to go that route, if it makes sense.

Ash Patel: In this case, why did the bank financing not work out?

John Stoeber: I think it was because it was in the middle of COVID, and they were requiring really high reserves and lower LTV. It’s funny, because they originally quoted us 80% LTC, and then they ended up bumping it down to 70%, so the numbers just don’t work, and he was willing to give us higher leverage with seller carry.

Ash Patel: Did you look for a bank that was local in Little Rock, or one where you’re at in Denver?

John Stoeber: No, we were talking with local community banks in Little Rock. It was too small of a property or purchase to get an agency loan on it.

Ash Patel: Okay. Were these small local lenders? Were they credit unions? Were they regional banks or big banks?

John Stoeber: It was all three, and we reached out to a ton of them. So every bank that we could find on Google, we were calling them to see if they would lend on the project. It was going to take too long to close on the loan.

Ash Patel: Were their terms okay, even though their time to close was not?

John Stoeber: They weren’t as good as the seller financing. I mean, we get 3% interest and 85% LTV on the one property.

Ash Patel: Do you have a relationship with a lender where you’re at now?

John Stoeber: I have relationships with national lenders. They’re like mortgage brokers and they broker agency loans. I have a couple of contacts in the Little Rock market for the community banks, but it’s always great to have more. Again, we’re not in the market, so it’s not like we know every lender there.

Ash Patel: Yeah. So now that this property’s on its way to becoming stabilized, if you had to refinance, would you use a lender in Little Rock or one where you’re at?

John Stoeber: I wouldn’t use one in Denver, unless they were an agency lender. If we could get an agency loan, that’s the route I would like to go, because it’s longer amortization, lower interest rates, and non-recourse. But if that didn’t work out because the portfolio was too small, then we would go with a community bank in Little Rock.

Ash Patel: Got it. So what’s next for you?

John Stoeber: We’re looking for deals with our team at Kronos; we’re hunting them down in Florida, because one of my partners is local to Jacksonville. We’re looking to partner with other sponsors to do more deals outside of our geographic range.

Ash Patel: Good. So you just want a partner that has boots on the ground, and you’re ready to take on a deal, and you would prefer properties that need significant rehab…

John Stoeber: I’m open to all deals, like light value-add, even core stabilized assets if the returns make sense. But yeah, I’m not afraid of doing a heavy value-add either, because the returns are potentially so good if you buy right.

Ash Patel: John, what’s your benchmark for pursuing a deal or not? Is it cash on cash return? Is it gut feeling?

John Stoeber: It’s kind of all of it. Yeah, I wish I could tell you it’s 8% cash on cash… But when I’m analyzing the deals, I’m looking for a story within the property. So signs of mismanagement, distressed owners who need to sell, and if there’s upside in the market. Like if I’m in Phoenix, Arizona, I might require lower returns than if I’m in Little Rock, because the market is so strong.

So if it’s like a light value-add B class property, I’m going to look for between a 15% to 17% IRR, at least 8% average cash on cash… And then as the properties get more distressed and older, I’m going to require a higher IRR, which stands for internal rate of return, and higher cash on cash.

Ash Patel: Got it. John, what’s your Best Ever real estate investing advice?

John Stoeber: When you’re crunching your numbers, make sure that you verify everything. That’s what I’ve learned when I did that flip. I made certain assumptions, and they were just wrong. So now when we analyze deals, we’re trying to get at least two or three other parties to verify our numbers. By parties, that’s like contractors, property managers, investors in the market who know how to operate the properties.

Ash Patel: And what assumptions were wrong. Was it specific rehab items?

John Stoeber: In the flip, it was the complete rehab budget. We just didn’t know what things cost at the time. Also, our ARV was way off. We pulled a comp that was next door that had gotten a higher ARV than we had sold it for, but we missed that the days on market were 120 days.

Ash Patel: Got it. John, are you ready for the lightning round?

John Stoeber: Yes, sir. Let’s do it.

Ash Patel: Awesome. First, a quick word from our partners.

Break: [00:17:29][00:17:51]

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

John Stoeber: There’s this book by Peter Linneman… I think it’s called Real Estate Finance and Investments: Risks and Opportunities. If you’re looking to really get in the weeds of analyzing deals and underwriting, I think that’s a fantastic book.

Ash Patel: Right up your alley with the spreadsheets, right?

John Stoeber: Yeah, exactly.

Ash Patel: Got it. John, what’s the Best Ever way you like to give back?

John Stoeber: I really like to create our own content, and one thing I really like to do is do these underwriting case studies and just help educate other people to learn how to analyze bigger properties.

Ash Patel: Do you post those anywhere?

John Stoeber: Yeah, I’m active in a couple of Facebook groups. We’ve done a few live events there. I think I’ve been on a couple of other podcasts or podcast-type things. I don’t really know what they’re called. We’ll do case studies there, too.

Ash Patel: Got it. John, how can the Best Ever listeners reach out to you?

John Stoeber: You can reach out to me on Facebook, which is just John Stoeber. Instagram, it’s @john_stoeber. We have our own podcast called The Millennials in Multifamily. So if you’re young, looking to break into multifamily, feel free to check us out there, too.

Ash Patel: Great. John, thank you so much for being on the show. You’ve given us some great advice. It turns out you knew in the beginning you are not set up or made for a job in corporate America, and you went out this real estate thing and you didn’t take the easy route. You took on some hard rehabs and you’ve made a lot of progress, remotely managing some decent-sized units… So good luck to you and thank you again for all of your advice, and have a Best Ever day.

John Stoeber: Thank you so much for having me, Ash. It’s great to meet you.

Website disclaimer

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

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

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

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

Oral Disclaimer

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

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From Instagram Posts to BP Podcast Host: Using Social Media to Grow Your Brand with Ashley Kehr

JF2397: From Instagram Posts To BP Podcast Host: Using Social Media To Grow Your Brand With Ashley Kehr

Ashley was studying to be an accountant. However, 6 months into the job she decided to change her career and took on a property management job. Soon after that, she started investing into duplexes while still managing properties. Last February, she managed 82 residential and 16 commercial units all while having a portfolio of her own.

Now she owns 35 units with 2 other partners. Having an Instagram account helped her grow a community of like-minded investors and introduced her to many opportunities such as hosting a Bigger Pockets podcast show. 

Ashley Kehr Real Estate Background:

  • Full time buy and hold investor
  • 6 years of real estate experience 
  • Portfolio consists of 35 units; 17 properties all buy and hold
  • Based in Buffalo, NY
  • Say hi to her on Instagram @wealthfromrentals
  • Best Ever Book: Your Not Listening

Click here for more info on groundbreaker.co

Best Ever Tweet:

“The best thing about social media for investors is the networking” – Ashley Kehr.


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 Ashley Kehr. Ashley, how are you doing today?

Ashley Kehr: Very good. Thank you for having me.

Theo Hicks: Thank you for taking the time to speak with us today. A little bit about Ashley – she’s a full-time buy and hold investor with six years of experience. Her portfolio consists of 35 units across 17 properties, all buy and hold. She is based in Buffalo, New York and you can say hi to her on her Instagram, which is Wealth From Rentals. Ashley, do you mind telling us a little bit about your background and what you’re focused on today?

Ashley Kehr: Sure. I actually graduated college as an accountant. I lasted about six months and then I started working part-time as a property manager. I started to learn all about real estate investing, and from there, I started to buy duplexes on my own. So over the years, I’ve taken on a couple of partners. I’ve done some deals by myself, and just kind of fell in love with it and got hooked on it, and now that’s just all I do.

Theo Hicks: When you started working for that property management company, was that part-time in addition to your CPA job? Or did you quit the CPA job and start doing the property management company?

Ashley Kehr: I actually quit the CPA job and I was going to be a stay-at-home mom. Then I got the opportunity… My friend’s dad had a 40 unit apartment complex and he was getting rid of the current property management company he was using, and he wanted me to run the complex. So I actually started a property management company for him, and he continued to purchase residential and commercial property and I managed those. I just stopped doing that last February. At that point, I was managing about 82 residential units and about 16 commercial units.

Theo Hicks: Interesting. What are some of the things that you learned while doing the management company that helped you become a better real estate investor?

Ashley Kehr: It was definitely because the first day I started, I was put into this little tiny office and everything was in cardboard boxes; the files were a mess, the keys were just thrown in a drawer, not properly labeled… I basically had to teach myself how to do this job. I had no guidance, no training, and I had to learn everything on my own, which I think really helped me become a better investor or a better manager, because I had to learn everything from scratch. I actually built the company for him.

Theo Hicks: Did you have experience doing property management before?

Ashley Kehr: No, not at all. I was an accountant and that was it. I was six months out of college.

Theo Hicks: How did that work? Did you have to sell him on yourself and your ability to do this? Or was he just like, “I trust you, you’re my daughter’s friend.”

Ashley Kehr: I was actually on vacation with that family, and I was pregnant with my first child. I had told them I just left my other job and I was going to be a stay-at-home mom. Well, after that trip, he approached me and asked me to come meet with him and he said “My family’s harping on me. I’ve got to get rid of this property management company. I need to get organized. Can you help me get organized now that you are unemployed?” I was like, “Well, the kind of the point was for me to stay unemployed, but sure.”

So it started out part-time, and I did the bookkeeping for the property. So I think the fact that I knew how to do that was a big help. I managed all of his money, and then I had to teach myself how to do leases, how to manage tenants, what the landlord-tenant laws were, I found a lot of free classes online to take for that. But yeah, I had zero experience at all.

We got a cell phone for me to have his actual company phone, because the deal was I could work from home if I wanted. I remember the first morning, my first day I was starting, I got a phone call that the electrical outlet was not working from a resident, and I hadn’t even hired a maintenance person to work with yet, so I had to beg my husband to go with me to take care of this problem on my first day, the first hour. But it was definitely a big learning experience, because at first, I thought that I had to be available 24/7 to these tenants. It really wore me down, and that’s when I learned to build systems, put procedures and policies in place, and put that company together.

Theo Hicks: So at what point did you decide to start investing on your own? Was it something that you had always wanted to do? Or was it just something that became of interest to you after you started the management company?

Ashley Kehr: After I started working for this investor – he was awesome, because he involved me with every single thing he was doing. So when I first started, he was actually purchasing an auto dealership. He took me into the closing room and he had me open the bank account, put the money in to purchase this, and at the closing he let me write those huge checks to give at the closing. And just the little involvement like that just made me see how he did everything. So for that purchase, he was taking equity out of his rental properties to make that purchase of the other business. And just seeing how all those dots connected really made the wheels start spinning, so it was probably two years after that I actually approached his son, who I knew had a bunch of cash saved up, and I started talking to him about real estate investing, and said, “Look at how well your dad has done from it.” And then we purchased our first duplex together.

Theo Hicks: Alright, let’s talk about that first duplex deal. So you’ve got the money; you started off with the money. So how did you find the deal? Where did you look? Did you just invest in your backyard? Why did you pick a duplex?

Ashley Kehr: The duplex I picked just because I wanted more than one unit. I had been managing apartment complexes and I just liked more units under one roof. So a duplex was something I knew that, with his money, we could afford. So my mom’s friend was a real estate agent, I just told her what I wanted to do, and the first house we looked at, we ended up putting an offer in and purchasing.

What we did was we did 50/50 partners on the deal, and then I managed everything, I took care of everything. We had some slight rehab to do in it, and I would rent it out manage the tenants. And then he put in the money for the deal, which gave him the 50% equity. But he also held a note on the property, so he was paid a principal and interest payment, along with 50% of the cash flow too, each month.

Theo Hicks: On that first deal, what kind of evaluation did you do on the deal and then also on the area? And then how’s that compared to what you do now?

Ashley Kehr: The area was in the same area that I was managing residential units anyways for the other investor. So I knew the area very, very well – what rents could go for, what the value of the property was just from being involved in appraisals, everything like that. So I was very comfortable in the market, just from doing transactions for this guy and renting out apartments for him.

And then as far as valuation, I basically just wrote down what I thought it could get monthly and what my expenses would be. One big mistake I made on that first property was I didn’t account for snow removal. In Buffalo, that is a huge thing that you really need to account for. So that was one mistake I made on my first property.

Then it was about — I think, a year and a half later, or maybe even two years when I found BiggerPockets. After that, I started using BiggerPockets calculator reports, and really diving into getting better at analyzing deals.

Theo Hicks: So you use a BP calculator – is that how you analyze your deals today?

Ashley Kehr: Yeah.

Theo Hicks: What about how you’re finding these duplexes? You said you’ve done 17 deals, and you said your mom’s agent friend?

Ashley Kehr: Yes, I used her for a while. I’ve done probably 50% MLS deals, and the rest have been word of mouth, or I saw a sign and I called on it. So I’ve never really done direct mail, anything like that. I’ll send out a couple of letters if there’s a house that I see… But really, the influx of deals had been word of mouth and people bringing them to me. My partners and I are very, very good at telling anyone and everyone what we’re looking for and what we want. We’ve just had so many people approach us saying, “Hey, we’re selling this. Would you be interested before we put it on the market?” That’s been our biggest way to find deals.

Theo Hicks: What about the money side of the equation? So is the first guy that invested in the deal, is he still with you? Is he’s still funding all of your deals? Or are you doing other sorts of funding, like your own money, or other investors? How are you finding the deals now?

Ashley Kehr: I really haven’t used any of my own money doing any of these deals. So with that same first partner, he’s taken a line of credit on his house and a home equity loan on his house to fund some deals. We’ve also refinanced some of those properties to purchase more properties, just with conventional commercial financing on those. Another partner I have – we’ve pulled equity out of other properties we have to each put in 50/50 to purchase another property.

My husband and I, we live on a farm and we have an old farmhouse, and we have tenants in there now, but we own that free and clear, so we actually found a bank that would put a line of credit on that, and that’s primarily what I use to purchase deals. And then I will go back, basically do a BRRRR, pay the line of credit back, and then use it again to purchase another property.

Theo Hicks: So you’ve got an Instagram we talked about earlier. Is that something that you have found to be beneficial to your business from a financial perspective? And if so, how?

Ashley Kehr: Well, the biggest thing is that I probably would never be the host of the BiggerPockets Real Estate Rookie Podcast if it wasn’t for my Instagram. That’s kind of how I get to meet the producer and how I got to be on the BiggerPockets show, and then eventually become a podcast host. So I think it was definitely beneficial from that, just because I love getting to meet people, interview them, and then I get to ask the questions that I want. That really benefits me in that way, so I’m continuing to learn different strategies and how to grow my business… But really, the best thing about social media for investors is the networking. So that may bring you deals, that may bring you financing, but it will give you ideas, it will give you inspiration, give you motivation. It’s the network of the people you’ll meet online.

Theo Hicks: I feel like a bad host. I didn’t realize that you were the host of the BiggerPockets Show. Congrats on that. You should be interviewing me. So a quick follow-up on the Instagram, and I guess how I became a host… You said you met them through Instagram? What does that mean? Did you message them or you posted stuff and they found you?

Ashley Kehr: They slid into my DMs, yeah… [laughs] So when I started my Instagram account – this was in June of 2019, so like a year and a half ago… And I just wanted to put out real estate content, show people what I was doing, and help others do the same thing, and I had a goal that one year I wanted to be on the BiggerPockets podcast. So it was in August that the producer for the show sent me an Instagram message and just said “Hey, I’ve been seeing your name all over places on Instagram. Would you be interested in being a guest?” And of course, here comes the screams, the jumping, the excitement…

And then my episode aired in September and then after that, they had announced they were going to do a new show; “Did anyone have any ideas?” and you could fill out this form and submit it. So I did submit with an idea, and they called me and said “Well, your idea is okay, but not good enough for a whole show. But we’d still like to have you try out as a host.” So that’s when they had partnered me up with my co-host, Felipe Mejia. We had to go through sample interviews and kind of like a trial run… And then in December of last year, we found out that we were chosen to be the hosts of the Real Estate Rookie Podcast.

Theo Hicks: Nice. That’s really cool.

Ashley Kehr: It was really exciting.

Theo Hicks: They slid into your DMs based off of you posting every day…

Ashley Kehr: No, I–

Theo Hicks: I’m trynig to get an idea of what you were posting that made them “Oh, wow, we want her to come on the show.”

Ashley Kehr: So what I do are these whiteboard posts. I started out handwriting actually on a whiteboard and then taking a picture of it, but now I do it on my iPad with an Apple Pencil. But I would just write out everything, what I was doing; I would pick a topic, or I’d write out information on a deal, the numbers, and everything, and I would post that with a couple of pictures of the property or something like that. Whenever I do those, they just gain a lot of traction. I really don’t post a lot; I try to post to my stories, but I think I’ve only done maybe 160 actual posts on my Instagram page.

Theo Hicks: Is it a video where you are talking over, of is it just a picture of the thing?

Ashley Kehr: Nope. It’s just the picture. I’ll do the topic, what are four ways to get started real estate, or something like that, and then I’ll have a new slide, it will be another whiteboard explaining way number one, and then another whiteboard explaining way number two.

Theo Hicks: Okay, nice. I have not been on Instagram in a while. I didn’t realize you could do sliding pictures. I’ve learned two things I didn’t know today. There we go. Okay, Ashley, what is your best real estate investing advice ever?

Ashley Kehr: When I first told about my story, my history, it’s how I worked for this investor… I think if you have the opportunity to and you’re able to, start working in the real estate industry. You could be a leasing agent or you could do maintenance.

I had met this police officer a couple of months ago who, when he was in college in between his classes, he would go and fulfill maintenance requests for an investor. There are so many different ways to be involved in real estate; driving for dollars for a wholesaler, anything like that. Especially if you can be paid for that experience, too. A lot of these jobs can be done on your own time, they can be done on the weekends, and it doesn’t mean you have to quit your full-time career to actually start doing something in real estate investing. But I think getting paid to learn how to do real estate investing, and just the amount of people you will not work with too, and the relationships you’ll build by just being in that industry will really help you grow.

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

Ashley Kehr: Yes, I am.

Theo Hicks: Alright. First, a quick word from our sponsor.

Break: [00:17:27][00:17:49]

Theo Hicks: Okay. What is the Best Ever book you’ve recently read?

Ashley Kehr: I actually did an Instagram post on this book… It’s You’re Not Listening. It’s by Kate Murphy. It just really goes into talking about how people don’t listen and telltale signs that you’re not listening, because you’re more focused on the person thinking that you’re actually listening… It was just really wide opening and there were some things in it like, “Oh, wow, I actually do that.” But it’s showing how powerful it can be to actually listen to someone than worrying about how you’re going to respond and what you’re going to say next.

I really liked that, because I think in your personal life, and in business, and just everywhere in your whole life, that can really add value to you. But as an investor, you’re either dealing with tenants, you’re dealing with sellers, you’re dealing with buyers… There are tons of people you have to work with and communicate with, so I think communication is key, and this book was a great read.

Theo Hicks: Yeah, a lot of people I’ve interviewed use the cliché that you’ve got two ears and one mouth for a reason, so I guess a lot of people will agree with you about the listening part. If your business were to collapse today, what would you do next?

Ashley Kehr: Well, I just opened a liquor store… So I’ve gotten distracted by retail businesses now, so the next one I would do is laundromats.

Theo Hicks: Nice. So out of all of the deals you’ve done so far, which was the Best Ever deal?

Ashley Kehr: My best one would be I purchased this portfolio from this older investor who just wanted to be done. The properties were not very well taken care of, and I couldn’t purchase all of them at the time… And there was this one commercial building he was selling; it was two commercial units, two residential units, a very small town, there were other vacant buildings, so I didn’t take it, and he had wanted 90,000 for it.

Well, about a year and a half later, he approached me again and said he’d sell it for 60,000 and include a duplex he had that needed a ton of work. I told him I would take both of them for 40,000 and he accepted. Then I wholesaled the duplex for 20,000, so I get this four-unit commercial building for 20,000. I put about 70,000 of rehab into it, and it’s now getting $2,700 a month in rent… And I was able to put private financing on it for 30 years at 4.5% for $100,000.

Theo Hicks: Wow. What’s it used for? The commercial building.

Ashley Kehr: The upstairs, there’s two tenants in there. We completely remodeled one unit and then the other one, we just did what was needed, because the resident wanted to stay and didn’t want her rents raised. In the downstairs there’s a little boutique store, like gifts, clothing, stuff like that went into one side. And then I actually opened a liquor store on the other side.

Theo Hicks: What’s the Best Ever way you’d like to get back?

Ashley Kehr: It’d really just probably be just on my Instagram, and then I recently started a YouTube channel called Talk It Over, and just giving as much free content as I can. I like talking about real estate, and I like especially when I interview someone and they have that lightbulb moment, and they just talk about the recent success they had because they took action and got into real estate. So I love it when I can be a part of that and I can help someone take that first step into real estate.

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

Ashley Kehr: That would be on Instagram @wealthfromrentals or biggerpockets.com. I have a profile on there, too.

Theo Hicks: Alright Ashley. Thank you so much for joining us today and giving us your Best Ever advice, as well as walking us through your journey. Your best advice, which you followed and that’s how you got started in real estate, is to start working in the industry before you get started. So this doesn’t need to be a super-fancy job. It could be a leasing agent, it could be maintenance, it could be driving for dollars… Something to get your foot in the door, something that you can do part-time, so you don’t have to actually quit your job, and then something that pays you. That way you can learn at least some aspects of the business to use that as a jumping point. A lot of people talk about the best experience is actually doing it. You learn a lot from reading books and listening to podcasts; it’s obviously important. But going out there and taking action and actually doing something is also important. So what better way to do that than doing it on someone else’s dime, as opposed to having your own money invested.

Then you’re kind of walked us through your overall journey from working at that property management company, to starting a property management company, to starting to buy duplexes… You talked about how you started your valuation, how you find your deals, about raising money… And then the coolest thing I think that I didn’t know about was the Instagram. So you talked about how your whiteboard posts on Instagram not only got you on the BiggerPockets Podcast, but then you were also able to get your own podcast on the BiggerPockets Podcast. Super-cool. Everyone make sure you check out her podcast or Instagram and her YouTube channel, which she mentioned. Ashley, thank you so much for joining us. 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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JF2394: On Investor Relations and Strategic Marketing Initiatives and Business Operations with Charlie Stevenson

Charlie is an experienced business founder and passionate leader with a history of working in the marketing, travel, hospitality, and real estate investment industries. He is the founding partner of Akras Capital, a company that provides investment opportunities for those seeking passive income. He is currently scaling a real estate investment business focused on multifamily assets in inland growth markets across the US. Charlie is actively involved in the communities he resides, and serves as the local chapter leader for GoBundance, a Nationwide men’s and women’s group that supports “healthy, wealthy men and women leading balanced and epic lives.” In today’s episode, Charlie will be going into details about his journey in real-estate. He will share some challenges on investor relations and their strategies in business and marketing.

Charlie Stevenson Real Estate Background:

  • Founding Partner of Akras Capital
  • 3 years of multifamily investing
  • Portfolio consists of 4 properties totaling 450 units
  • Based in Boulder, CO
  • Say hi to him at: www.akrascapital.com

Click here for more info on groundbreaker.co

Best Ever Tweet:

“If you try to go alone, you can go fast. But if you go together, you can go far. Go together and create a team. Don’t try to do it alone.” – Charlie Stevenson


TRANSCRIPTION

Ash Patel: Hello, Best Ever listeners. Welcome to The Best Real Estate Investing Advice Ever Show. I’m Ash Patel and I’m with today’s guest, Charlie Stevenson. Charlie’s joining us from Boulder, Colorado. He’s got four years of multifamily investing, and his portfolio consists of 450 units. Charlie, welcome to the show.

Charlie Stevenson: Thanks, Ash. Good to be here. Thanks for having me.

Ash Patel: Yeah. Tell us more about your background and what you’re focused on now.

Charlie Stevenson: Yeah. I kind of fell into real estate investing after a decent career in kind of serial entrepreneurship. After graduating college, I actually started an adventure travel company with my brother and best friend, because we love to travel, and we moved out to Italy and lived there for four years, building an adventure travel company, taking American students on trips to ski in the Alps and sail on the Greek islands. That was a blast, but it was a risky endeavor. You never knew exactly if the business was going to work out or not. So after returning to the United States and starting another business, and that one failing, I got into the corporate world. After meeting my wife and several years in the corporate grind, we both looked at each other on our honeymoon and said, “Let us take a break. Let’s quit our jobs, let’s go do what we really love to do, which is travel and spend time with family.” So literally, she quit her job as a finance investment professional in Boston, I quit my job as a travel industry director, and we bought some backpacks, and kind of like you, we went and traveled all over the world. We spent 14 months cruising around Southeast Asia, we were in Russia for a bit…

While we were there, we rented our condo in Boston, Massachusetts, which we bought for ourselves. We rented it out to a pharmacist and his beautiful young family. I kind of had this epiphany –while we were riding the Trans-Mongolian Railway across Russia with our good friend who’s now our business partner– that “Holy cow, this thing is cash-flowing. We’re making a grand a month just maybe replacing a washer and dryer every three years or something like this.” So we said, “Boy, if we had five more of these things or 10 more, we could do this continually. We could just keep traveling and spend time with family and live the dream.” That was kind of when the idea hatched; our friend and now business partner said, “Hey, I know you guys just realized this. I realized this about 10 years ago.” She’d been buying multi-families in Boston already. So she’s like, “Let’s combine forces, the three of us, and figure this out.” So we decided to form Akras Capital (that’s what it is now and began buying a small portfolio of small multi-families in Washington state, where I’m originally from.

Through that experience –using our own money, we just self-funded everything– we learned how to do it, we reinforced the experience that my other partners had, we utilized my two partners’ experience as Chartered Financial Analysts. They already knew how to underwrite stuff. I was just kind of a travel guy, I was having fun building the business. They were the ones that knew how to use the spreadsheets at first. So we began buying some bigger stuff. We actually went to the Best Ever conference, Joe Fairless’ conference a few years back, met some new partners and they introduced us to the world of syndication. We began buying much larger assets, starting with a 300 unit down in Orlando, and then another one over in Dallas, and it’s just kind of gone on since then.

Ash Patel: What did your portfolio look like before you partnered up with your now partners?

Charlie Stevenson: Before we partnered, it was one condominium in Boston, Massachusetts. My wife and I owned it; that was it, a single door. Our other partner had several units that she had a long-term leasing strategy on, one multifamily, and had a couple of condos that had Airbnb strategies in place.

Ash Patel: When you formed this partnership, did you all combine assets? Or did she keep her existing assets and did you keep yours? Or did you put it all under one umbrella?

Charlie Stevenson: No, we kept them totally separate. In fact, we sold our condo in Boston, because it generated a lot of appreciation, there was a lot of equity. So we actually sold that to generate some deployable capital. We used that as part of the money just to fuel the growth of the business and acquire our first multi-families in Washington.

Ash Patel: Okay. And then once you formed this company, where did your capital come from, to take on more deals?

Charlie Stevenson: So like I said, we use some of our own savings. We had savings in our own bank account, there was cash, we had IRAs built up from years and years in the corporate world that had decent size, and we used that money, converted it into self-directed IRAs. In doing that, essentially, had more deployable capital; so we used our own money at first, and then as we grew our portfolio and as we leveled up our experience and began taking on larger assets in the syndication space, we used external capital from private investors, private equity.

Ash Patel: Okay. So Charlie, we’ve been on a pretty good run. How many years have you been doing this?

Charlie Stevenson: Akras Capital was founded in 2017. So four years.

Ash Patel: Okay, so you’ve benefited from a great real estate environment. Give me an example of a deal where you lost money and learned a lesson.

Charlie Stevenson: That’s a good question. I was thinking about it… We’ve been really careful and intentional about making our investments. So far, of the investments we’ve made, the deals that we have acquired, and some of the disposition, we haven’t lost any money. So we certainly had components of the business plan that didn’t have the same performance that we had expected or projected; perhaps there was some kind of a natural disaster we had to handle that affected performance of that particular component of the business plan… But overall, when we’ve dispositioned assets or with existing assets that we’re operating, the returns have been at or above projection. So we’ve been really thankful for that.

Ash Patel: What was a natural disaster?

Charlie Stevenson: In Dallas Fort Worth, about a little less than a year ago, actually, in the fall of 2020, there was a tornado that went through the center of the city; actually several of them. One of them landed about a mile and a half from one of our assets. There were just intense winds that kind of tested the structural integrity of our roofs. We had to go through basically pausing the business plan while we mitigated that risk and handled the insurance claims and all that kind of thing. That was one particular example of components of a business plan, like the interior and exterior renovations being put totally on pause while we handled that situation.

Ash Patel: Okay, what are some of the challenges you had dealing with investors or acquiring investors?

Charlie Stevenson: Dealing with investors – I think in this environment, we’ve had such a great run. The economy has done so so well over the course of the last decade; it was the longest growth period in modern economic times. There’s a lot of capital out there. And because there’s a lot of capital, there’s also a lot of other operators, like ourselves, bringing deals to the market. Different operators have different ways of underwriting and different levels of conservatism in the way that they underwrite assets and underwrite the performance of business plans for assets. So you see a wide range of a spread of returns. Especially with the more retail investors, the folks investing maybe 50, 100, or $150,000, I think that some of our peers are putting deals out there that have very, very, let’s say, high expectations for return that may or may not be achievable. But what that’s doing is it’s setting the bar for return expectations with the retail investors very high.

When we underwrite our stuff, it’s not often that it has at this current stage in the market, it has really exciting returns that cannot compete with people that have lower than true value add business plans with their underwriting if that makes sense. So expectation setting has been kind of one of the challenges, I think.

Ash Patel: What are your typical returns on your deals?

Charlie Stevenson: Pre-COVID we were aiming for 17% to 22% as an IRR, kind of our floor for investing any deals, and 9% cash on cash return, and hopefully it’s higher than that. That still is the floor for any investments we do, but we’ve been setting expectations with investors that returns are now for a true value-add business plan are ranging probably between 13% to 17%. But of course, past performance is no guarantee of future results. I have to say all that for compliance stuff, otherwise my partners will not be happy with me. But yeah, I’d say 13% to 17% for the typical run-of-the-mill, large multifamily asset running a value-add business plan. Hopefully, that goes up, but we’re seeing cap rate compression, so it might not.

Ash Patel: How do you mitigate that?

Charlie Stevenson: How do you mitigate the changing of returns?

Ash Patel: Lower returns.

Charlie Stevenson: One way that we’ve done that is we focus on investors that have lower return needs, and institutions that have lower return needs, and that group is excited about a 13% to 17% IRR; maybe an investor that’s been in the market for two or three cycles. A 30-year veteran of investing is excited about anything that’s a multiple of what the treasury is returning. We’ve got an investor who’s a portfolio and fund manager for three decades and he looks at anything relative to the Treasury. So an 11% return is 10x over the Treasury so he’s very excited about that, because he sees higher returns than that as maybe a little riskier.

Ash Patel: How do you find those investors that are looking for a little bit lower returns?

Charlie Stevenson: It might not be that they’re looking for lower returns, it’s like they’re looking for a blend of different characteristics in a return profile. So a return, the actual ROI is one component of an investor who’s maybe a little bit of a higher net worth investor. But also liquidity needs are one particular need. Also, things like tax liability mitigation is another need. So if we’re approaching a high net worth investor who is okay with a 13% or a 10% return, they have other particular interests and needs that are more important to them than that actual return. They don’t care so much about cash flow, maybe they’re more of a five-year or 10-year hold appreciation, total-return-focused investor.

How do we find them? Well, a lot of it had to do with starting with our own personal networks. My two partners were in the financial industry for years and years in Wall Street, in Boston, and New York. So certainly, there’s a lot of folks in our colleagues within our past experience that we can tap on who has an interest. Also, attending conferences, like the Best Ever conference was a great way for us to meet higher net worth investors, or just investors in general. We love all investors, whether they’re retail or high net worth, we want to work with all of them and support all of them. I’m not saying we only go after one. Other ways – we network, essentially. There’s also a lot of referral that happens. One person refers us to a network of their friends, who all have large capital deployment needs.

Ash Patel: Charlie, can you tell me about your last acquisition?

Charlie Stevenson: Sure. Yeah, so our last deal was an interesting one. Like I said, we had a portfolio in Washington state, a smaller multifamily asset. This one was a 12 unit, a little bit of an older asset that was outside of Spokane, Washington, right next to Eastern Washington University, which is a large public university; directly across the street from it. It was unique in that regard because it was a great location and had no difficulty leasing it up. We actually found the deal with a wholesaler, which is kind of a unique deal provider. It’s different than a commercial broker. They find the deal, they get it under contract with a direct relationship with the seller, they trade a contract assignment fee that’s built into the agreement, and then when you work with them they essentially charge you that assignment fee, you then get assigned the contract, and then own it.

So that deal was great. Cap rates are pretty decent in Washington State, or at least in that region of Washington State. So we got it for $500,000 for a 12-unit, which is a great per unit price. It was cash flowing in a really nice way. A wholesaler said that cashflows like a hog, and I’ll never forget that phrase, because that was funny. We ran a typical value-add, like most of the BRRRR strategy on it; fixed up some of the interiors, some of the exteriors, forced some appreciation by moving the NOI up and getting the rent and the tenant base stabilized, and then we just dispositioned it. It’s set to close in like a week or something like that for 818,000. So, ultimately, we made about $300,000 on it, of which we’re 1031 exchanging that into another asset in a new market that we’re focusing on.

Ash Patel: What were the rehab numbers on that?

Charlie Stevenson: That’s a great question for my asset manager, who is my partner, Christina. I focus on business systems, capital raising, and investor relations. But I can kind of like… Let me think about this for a second. It was around 50,000, I think; $75,000 in total to do the repair cost, maybe a little bit less.

Ash Patel: How did you manage those rehabs? Was it a property management company?

Charlie Stevenson: Yes, we have a strong property management company in place there in Washington State. A team that we work with with a few of our assets. We also had a DC team that we worked with to get in there and help out.

Ash Patel: Washington State has some pretty unique tenant laws. Have you had any experience, positive or negative, with that?

Charlie Stevenson: From a positive perspective, I think it’s incumbent upon us as a multifamily operator to make sure tenants are really well protected. So I really do appreciate Washington’s progressive stance on taking care of tenants. That said, I think that the landlord-tenant balance has to be really managed, it should be fairly equalized, so that a good landlord can take care of their tenants and also take care of their assets and run a business plan. In Washington state, with COVID happening, a lot of some of the more progressive policies, like rent control and eviction moratorium, were accelerated. COVID — the federal level came in and accelerated some of that imbalance between landlord and tenant rights. That’s part of the reason we’re actually dispositioning our portfolio in Washington State and moving to states that have more landlord-friendly environments, business environments.

Ash Patel: So there’s a bit of a negative impact there?

Charlie Stevenson: There was. I’d say that while that market, I think, still has a lot of room to go and there’s still a lot of opportunity for investors, it was getting in the way of our hyper-growth, strategic positioning. We wanted to be able to move a little more quickly and that wasn’t allowing us to enact our business plans at the rate that we wanted to. So it had some impact on our strategy.

Ash Patel: And is there a specific example you can offer on how those laws impacted your business model?

Charlie Stevenson: Certainly, we need to have tenants that are taking good care of the asset. It’s sort of an unwritten and written rule on the lease that people that we bring in to provide them with housing should take good care of the asset. We had no situations where there were tenants that were from the previous ownership that had been not staying up on their rents, they hadn’t been taking care of the asset, and not taking care of some of the maintenance that needed to be handled. So we found situations coming into the ownership of this asset where some of these units needed to be totally removed or remodeled. And because of the current federal moratorium on eviction, we couldn’t do that at first. The tenant eventually left on their own accord, kind of skipped in the middle of the night, which was actually thankful. But if we wanted to get them out so we could take care of a pretty terrible bathroom mold issue, we couldn’t have done that at that moment in time because of the eviction moratorium.

Ash Patel: Got it. Charlie, what’s your Best Ever real estate investing advice?

Charlie Stevenson: My Best Ever advice is kind of philosophical. There’s this men’s group that I’ve heard of called GoBundance. Something that I really learned working with them was if you try to go alone you might go faster, but if you go together, you’ll go far. So it’s an ancient or African proverb that says, go alone and go fast, go together and go far. That’s been truly one of the hallmarks of our success in the business, is by pairing up with two other folks, my partners, who have a lot, frankly, more experienced than I am, [unintelligible [00:18:18].07] in the room, and can work with me. I can do what I’m good at and they can do what they’re good at. We can combine forces and really go a long way. I do see a lot of investors who go the lone wolf route, and maybe they get a project going a little more quickly, but ultimately, I see that we can have a lot more distance in the end. So yeah, go together, create a team, don’t try to do it alone.

Ash Patel: That’s a great philosophy and a great outlook. Charlie, are you ready for the lightning round?

Charlie Stevenson: Let’s do it.

Ash Patel: Alright, first, a quick word from our partners.

Break: [00:18:50][00:19:12]

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

Charlie Stevenson: I use this book regularly and it sits right in our library. It’s actually the Best Ever Syndication Book. It’s kind of a handbook for us. We’re getting ready to put some offerings out there to our investor networks for some assets we’re looking to acquire, and the first thing I do is I open up that book and I look at the 25 or 30 questions that an investor will ask during the webinar process. That just gets me ready to go. So it’s a book that I read for the first time years ago, but it’s a constant reference, which is Theo’s and Joe’s Best Ever Syndication Book.

Ash Patel: Awesome. I’ve got that book sitting on my shelf. It’s on my list of things to do. So, thanks for that advice, I’ll get around to it.

Charlie Stevenson: Do it. There is good advice in there. Yeah.

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

Charlie Stevenson: Giving back is something that is really important to me. Something that my dad really instilled in my brother and I. The way that I find that I can contribute the most value is at my university back in Boston, there is a venture accelerator that works with students who are undergrads and also alumni who are getting businesses off the ground. Back in 2010, when I was starting my adventure travel business, I was one of their first ventures, I was really lucky. It’s called Northeastern University’s IDEA Venture Accelerator. They gave me a ton of resources, a ton of advice, assigned me a mentor, and helped me to work through the process of starting and launching a business. That experience was so impactful to me that I now am part of that same organization, not as a venture, but as a mentor. Now I go in and I help out young organizations and growth ventures that are doing this very same thing. I coach a digital yoga platform, a travel business, and a couple of other things. I meet with them on a monthly or bi-weekly basis, I help them organize their business plans, their revenue models, all kinds of stuff. It’s fun, it keeps me young and keeps me thinking in an innovative way.

Ash Patel: Very cool, Charlie how can the Best Ever listeners reach out to you?

Charlie Stevenson: I think probably the best way is just go to our website at akrascapital.com. There’s a whole different bunch of ways that you can reach out to us. There is an Ebook you can download, which will collect some information. You can reach out directly to me and book a meeting with myself or one of my other partners to talk about what Akras is doing. We’re always looking for limited partners to come in, and also small institutions who want to invest with us. So certainly reach out, and happy to be a resource and build a relationship.

Ash Patel: Charlie, thank you for being on the show today. Thanks for all the great advice. You started out with the travel bug, accidentally got into real estate, and now with Akras Capital you’re doing syndications and building a giant portfolio. So thanks for sharing your story today.

Charlie Stevenson: Thanks, Ash. I appreciate it.

Ash Patel: Have a Best Ever day. Thank you again.

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JF2392 : Finding Deals Through Your Website With Melissa Johnson #SkillsetSunday

Melissa started out by doing flips and creating owner finance notes. After being in the business for over 17 years, she is now transitioning into the coaching space. Melissa teaches other real estate investors her skills and helps them customize and apply her guidance to their business.

Melissa was finding up to 80% of her real estate deals with the help of her website. Its biggest advantage is that motivated clients come to you as opposed to you seeking leads via traditional marketing. In this interview, Melissa describes a step-by-step process of finding deals on the website if you don’t’ have any online presence yet.

Melissa Johnson  Real Estate Background:

  • Full-time real estate investor, and the Co-Founder of San Antonio InvestHer meetup group
  • 17 years of real estate experience
  • She has completed over 1000 flips, and has a portfolio of rental properties and notes
  • Based in San Antonio, TX
  • Say hi to her at: www.themelissajohnson.com  

Click here for more info on groundbreaker.co

Best Ever Tweet:

“Testimonials are great for credibility” – Melissa Johnson.


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 Melissa Johnson. Melissa, how are you doing today?

Melissa Johnson: I’m great. How are you?

Theo Hicks: I am doing great as well. Thanks for asking. Thank you for joining us again. Melissa is a repeat guest and, as of this recording, her episode actually hasn’t aired yet, so maybe in a few months from today, or probably a few months before this episode goes live, it will have aired already. So make sure you check that out, where she goes into more detail on her real estate investing background and what she’s focused on.

Today we’re going to talk about something more specific. Today being Sunday, this is a Skillset Sunday, so we’re going to talk about a specific skill that she has that you can apply to your real estate investing business, and that’s going to be finding deals through your website. So that’s going to be the main topic of conversation today. But before we get into that, a reminder – Melissa is a full-time real estate investor and the co-founder of the San Antonio InvestHER Meetup group. She has 17 years of experience and has completed over a thousand flips, and also has a portfolio of rental properties and notes. She is based in San Antonio, Texas. Her website is themelissajohnson.com. So Melissa, before we dive into that skill set, do you mind just quickly telling us more about your background and what you’re focused on today?

Melissa Johnson: Sure. So like you mentioned, I’ve been in the business for about 17 years now. I started out with flips and creating owner finance notes, which I really like. I bought a few rental properties, and then as the years have gone by, pretty much stayed with that. We did start wholesaling several years ago when the market was really good for that, so we’ve kind of thrown that exit strategy into the mix. That’s pretty much what I’ve been doing… Raising my kids, I’ve got five kids, and I’m still doing real estate, but I am also moving more into a coaching space. I’m working one on one with clients, just teaching them how to do what I do, very specifically to what their goals are. So it’s very individualized and it’s been a lot of fun; I’ve really been enjoying that.

Theo Hicks: Perfect. So let’s jump into the skillset today, and just to kind of set the foundation, could you maybe mention how many deals you’re generating through your websites, and maybe an absolute number, but also in relation to any other strategies you’re doing? Is it half your deals, is it all of your deals, or somewhere in between?

Melissa Johnson: It’s one of those things, I think, as with all marketing, it’s cyclical. There are times where it’s very effective and times where it’s less effective, just like with anything else. At my peak of doing deals, finding deals online, I would say about 80% of my deals were coming from the website, which was a very high percentage. And those are so great, because the difference between just shotgunning out a bunch of direct mail versus working with a website is when people are online, they’re searching for you, so their motivation is pretty high. So those deals, actually — we got more deals that way, and we were able to convert more deals that came from online more than any other channel than we’ve ever done.

That has slowed down a little bit, mostly just because I’ve kind of taken the gas off of that for a little bit. But it is still a very effective way to get leads and deals, especially from motivated sellers.

Theo Hicks: Let’s start from the beginning. I want to start finding deals online, and I don’t have an online presence. What’s my first step? What’s the first thing that I need to do just start to get the ball rolling here?

Melissa Johnson: When you get started with this sort of thing, obviously, the first thing you want to do is get a website. There’s a lot of companies out there that provide websites for you. Some people have completely custom websites built, and  that can get very expensive. There’s also some great sort of out-of-the-box things, like Investor Carrot, LeadPropeller… Those companies provide websites for real estate investors… So those are a great place to start. You’re obviously going to want to have a domain, because you won’t be online without that, so that’s important to have… And then there’s a lot of other things. Do you want me just to jump into what to do?

Theo Hicks: Yeah, let’s just jump in. Well, really quickly. What are your thoughts on the domain names? Obviously, you have yours as themelissajohnson.com. So should it be my personal name? Or should it be my company’s name? Should it try to be something really catchy? What are your thoughts on the actual name of the website?

Melissa Johnson: There are different schools of thought on that, and it really just depends on you. This is, again, to like the coaching thing, this is kind of something that I coach people through with, is how do you want to be known? Do you want to be known as an individual out there? Or do you want to be known as a company? Do you want to build your company brand, or do you want to build up just who you are? I think they both can work. The thing is, though, to have something personal about that, something that people will remember.

So it really depends on what your goals are as to how you should name your website and how you should start that branding process. A lot of people do it Their Name Buys Houses, like Chris Buys Houses, something like that. Those are really good, because they indicate what you’re doing, but also puts a name to it; so I really like those names for things. But then some people want to use their company name, and I think that’s okay, too. Just make sure it’s something that’s easy to spell and easy for people to remember. It’s not something that’s a super complicated or a super long domain name, with underscores and weird things like that in there. You want to make sure that it’s something just concise, clean, and fits with your brand, whether that’s personal or company brand.

Theo Hicks: Oh yeah, that last point is key. I always like whenever I read people’s bios, if I don’t have to spell it out then I know it’s a good website.  If I have to spell out and be like, “Is that a dash or an underscore? What’s that thing called?” That totally makes sense. Alright, so I’ve got my website. Now, what do I do?

Melissa Johnson: Now you want to make sure that you’ve got some key elements on that website. The first thing you want to make sure of is that you’ve got very clear call to actions in multiple places through the website. Starting that, you want to make sure that you have an area, it’s called above the fold. That came from an old newspaper term, when you buy a newspaper and it’s folded in half, that’s the first thing people see. It is the same thing with your website.

When people go to your website, you want to have as much relevant information and actionable things as you can above that fold, which means the point before they start scrolling. So right when you go to someone’s website you want to be able to see the call to action, whether it be a form – usually there’s a short form. Something that describes who you are, what you’re doing, and then just some way for them to contact you. Again, whether it’s a form, whether it’s “Call Now” with a phone number, or a text sort of situation.

Videos are also really great above the fold for ranking. If you can have some kind of short little video talking about what you do, I think those are fantastic. Because one, it puts your name and your face out there to people. So you’re starting to build trust right away with people; they can see your face, they see who you are, and then you have the opportunity to tell them what you’re doing, instead of reading through a bunch of text. Videos’ where it’s at right now. So if you can have a nice video and a very clear call to action above the fold, I think those are two really good things to have.

You also want to make sure when you’re getting started with your website that you’ve got relevant content. You don’t want to put a bunch of fluff and stuff like that in there. People want to hit the key points, so you want to make sure those key points are very clear, concise, not too wordy, things like that. You want to make sure that the content is relevant to what you’re trying to do.

Another thing that I usually encourage people to do is credibility. Even if you’ve never done a deal, you can get people to give you a character reference as a testimonial, or somebody that you’ve done business with. Maybe you’ve never actually closed a deal, but you’ve done some bird-dogging, maybe having some other people that you’ve worked with, with wholesalers, title companies, or loan officers, just anybody that can give you some kind of a credibility boost. And then of course, as you do deals, you want to make sure that you’re getting testimonials from all your customers.

So testimonials are great for credibility. If you’ve been featured in something, if you’ve been featured in a real estate magazine, or a podcast or something, those things are helpful to have in there, also just for the purpose of backlinks. But it also does create some more of that credibility, like you’re a reputable person, you’ve been doing deals, it just shows that you’re knowledgeable about what you’re doing. Then any reviews too, so Facebook reviews, Google reviews. There’s a great tool, it’s called Broadly, that you can use. That is something that we were using in the past. I really liked it, because it actually sends a link. So when we would close a deal, we would send that seller a link to our Broadly, and it would go directly in an email to them, so that they could type up a Google review, and then it would automatically post it on the website for you. So that was a really, really cool, handy little thing to have.

So just some things like that… And then also just make sure that you’ve got a clean design and everything’s easy to read. Don’t use some kind of funky font, that when you look at it, it’s like “I can’t really read that.” I think clean, simple is always the way to go as far as design. So those are some key things that I think are really important when you’re building that site initially.

Theo Hicks: I like that Broadly tool; that could be used for more than just when you’re fix and flipping. If you’re an apartment investor, you can use that whenever you have a new tenant, send them a link to Broadly to review and start working on your reputation. So we might have to start using that tool. Thanks for sharing that. I want to dive deeper into the relevant content, but I just wanted to ask – so are these all things you would have above the fold? Or is this just what you want to have on the website in general?

Melissa Johnson: You want to make sure above the fold that you’ve got at least one call to action, and that video if you can, or something that says about what you’re doing. The rest of it can fall underneath that, but you don’t want to scroll too far to get that stuff either. So you want to have a definite call to action at the top… But keep sprinkling in that call to action throughout the page; don’t just leave just at the top. Have it in multiple places, because you never know at what point somebody is going to say, “Oh, that’s the thing” that triggers them to contact you. They might read something and say, “That is exactly the situation that I’m in. I need to call this person right now.” If you’ve got it right there, then it’s good.

So you can’t pack everything to the top of the fold, but as a minimum, have a call to action, have a video, or even if you can’t do a video right now, just something that says who you are, and have a picture of yourself, or your company, your team, whatever up there also.

Theo Hicks: The two things I want to talk about in our remaining time would be diving deeper into the type of content, and then you’ve got a really nice website, you have all these key elements on your website, you’ve got great content. But then how do people actually find your website and get there. So I want to bring those both up now because I’m not sure if they are related to each other. You create content and you’re sharing in the right spots, or you write the right kind of content… So those are the two things I want to talk about in the end. Let’s first talk about the relevant content, and that ties into getting people to your website, and then, obviously, you can talk about that, too. But what type of content should I be creating in regards to video, audio, written, a combination? What should I be writing about? How often should I be writing? And then what do I do with that content once it’s written or created? So, lots of questions.

Melissa Johnson: Yeah, my head’s spinning. [laughter] Let’s see. Well, I think, first of all, just basic, relevant content; just stating, again, what’s your process. When somebody comes to your website, usually they want to know how it works. So you want to make sure that that’s laid out. That’s relevant content, for sure. This is what we do, this is how we do it, these are the type of people that we help, these are the situations that they’re in. So then you can start to go into more detail with that on a blog, for example. You can have a blog page set up on your website. This could be a video too if you wanted it to be. It doesn’t have to be like a written blog. But think about the situations that your sellers find themselves in, especially when you’re going on appointments or taking phone calls. Take notes about what they’re saying and use that for content.

Especially this is great too if you’re recording your phone calls. We record all of our phone calls with the sellers, so we can go back and actually listen and pull things from those conversations to use for content. But you want to make sure that you’re creating content that speaks to their situation, something that’s helpful. Don’t make it all about you and what you can do for them, but make it to where “Hey, this is a valuable resource. This person helped me and they don’t even know me, but this was really helpful for me.” So stuff like lists of moving companies in the area, or what does the probate process looks like in your state, or what does the eviction process looks like in your state. Any kind of free little tools that you can give them through a blog post is also relevant content that’s really helpful. So any little things that you can provide to the sellers that are helpful, pulling from things that they’ve actually said is just a really good place to start with all that.

Well, let me go back to – if you buy an out-of-the-box sort of website, you can customize those. Say you get like a Carrot website or a LeadPropeller website – a lot of them come loaded with content already on it. But that’s the same content that a lot of other people have. So you want to make sure that you go through and customize that to you and your company, your location, things like that. And then those blog posts are also going to separate your website from the 50,000 other websites that are just like it. So having that good content in there, in the form of a blog or something, is good. Thenyou want to make sure that you’re doing that regularly, putting out content on a regular basis. So maybe you start doing it once a month to begin, maybe, and then ramping that up as you talk to more people, you get more ideas for content, I would say bump that up to like once a week. And then of course, you’re mixing this with all the other things that you’re doing, like on social and things like that, you can pull micro content from that bigger content that you used in small posts and things like that. But everything goes back to the website. That’s where your meat really sits, if that makes sense. All the good stuff is there. So when somebody goes to your website, they can click on that and say, “Okay, this is an article I need to read right now, because I just inherited this house, I don’t really know what to do with it. Where do I start?”

Theo Hicks: And then once I have this content or while I’m creating this content, do I want to maybe keep in mind writing in a certain way, or using certain keywords to make sure that it’s easily searchable? Or are you attracting people by sharing it on social media and stuff? How are you getting people to read these blog posts once they’re written?

Melissa Johnson: So it’s both. Like I was saying, you can write a nice blog post, and then if you’ve got somebody on your team or if you can do this yourself, chop that up into smaller content that can be put out as Instagram posts or quick LinkedIn posts. But you can always link those blog posts back also. So if you share it on Facebook, if you share it on LinkedIn, if you share it on YouTube, if it’s a video, TikTok even I guess, all these different platforms – it just makes it easier to have it in that one place and then sharing it out through.

And also having it work back the other way too. That was something I was going to talk about too, is just ranking your site, like driving traffic to your site and then checking to see what’s happening with that. Because they’ve got all these great tools and stuff out there now where you can see your analytics for your sites. So that’s going to help you figure out what content is hitting, how your site is performing, and there’s a lot of things that go into that, too.

Like you were saying with the keywords, you want to make sure that when you’re writing something, that it is keyword rich, but not overly so, because there’s so much to SEO. I’m definitely not an expert in that area, but I know enough to probably be dangerous. I know that there’s a lot to keywords and things like that. You don’t want to have too much, I think, of certain things, because it can hurt you, but then not enough can also hurt you. So you’ve got to figure out what that medium is, and looking at the analytics really helps with that. And the more specific you can be with your keywords, the better, too… Especially with regards to location and situation, I think. So the more you can put in there, like inherited a house, or dealing with probate, or dealing with a problem tenant. There are resources out there, they’ll give you the good keywords to use and you want to make sure you’re peppering those throughout your website, so that that helps you become more easily found.

Another thing you can do too is driving traffic to your site through paid resources like PPC… You can do paid SEO, but you can also do things organically that don’t cost any money, to drive traffic to your site. That’s what I encourage people to do when they first get started. Because you need budgets to do AdWords; you need a budget to have somebody working the SEO on your site. But there are things that you can do yourself that don’t cost anything. So one of them is putting out good content and sharing it, another thing is — I like to add my website to all my mail pieces and anything that I send out. So if I send out a direct mail piece, I’m giving them the option also to go to another site, that way they can see that. You could put it on your bandit signs, if you’re putting signs on your car, put it on your car, put it on your business cards, flyers, brochures, door hangers, if you’re doing those. All those are places where you’re doing that marketing anyway, so you may as well throw your website on there too, and drive some traffic to it. That’s very low cost and easy to do.

Theo Hicks: Those are all great. Is there anything else that you have that you want to talk about that we weren’t able to hit, that you want to mention before we sign off?

Melissa Johnson: Yeah, there’s a couple of really quick things… One of them is if you don’t have a Google My Business Page, get one. That pulls you up on the map search. So if somebody says “I need to sell my house in San Antonio,” if you have a Google My Business Page, it’ll make you pop up on the map, and that’s free. So that’s a nice thing to have. Another thing is just make sure that your page load speed is good. If your website loads too slow or doesn’t load right, that can be a problem. Make sure all the external links, all those are working, and make sure that your website is mobile optimized. There are ways to check that, too. A lot of times with these site builders, you can actually click and see what your site looks like on desktop, what it looks like on mobile phones, what it looks like on a tablet… So you just want to make sure that everything looks good in mobile, because most people are doing searches from their phones these days. So it needs to look good and load fast on a phone.

One last tip that I have that is a super, super cool thing… There is a tool called Hotjar; I always want to say heat jar, but it’s Hotjar. It’s a really cool thing that you can use; you can put it on your computer and it actually tracks people’s movements on your website. So it’s kind of like a heat map, if you’re familiar with a heat map. This actually records where people are going on your site, so you can actually track them and see, “Okay, where are they hanging out? Where did they click? How long they spent this much time on this thing?” That will start to tell you if something’s confusing or unclear, or if they’re abandoning the site… Maybe they start filling out the form and then they abandon, or whatever – you’ll have all that information captured. You can even see what sort of device that they’re on, looking at your site. So it’s a really cool thing to help you improve the user experience on your site and to see how things are converting.

Theo Hicks: Perfect Melissa. Thank you so much for joining us again and doing a deep dive into finding deals through your website, growing traffic on your website. So I’m not going to try to summarize everything we’ve talked about. We’ve talked about so much, but we went from, “Hey, I want to find deals on my website, but I don’t have a website”, to very specific tips once the website is done. You’ve got all the key elements, you’re creating the content, how do you actually get people to your website? You also talked about a lot of different tools that you can add to your computer to help you along the way. So thank you so much.

Again, her website is themelissajohnson.com. I guess that’d be another thing, is go look at her website and see what she’s doing. Because I’m sure she’s doing all these things on there, plus more. Thank you so much for joining us. Best Ever listeners, as always, thank you for listening. Have a Best Ever day and we’ll talk to you tomorrow.

Website disclaimer

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

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

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JF2391: Building a Business to a Greater Purpose with Ellis Hammond #SituationSaturday

Ellis Hammond is living proof that a real estate investor doesn’t need to have an impressive portfolio in order to inspire and attract other investors. Having a powerful story and motivation is often enough.

As a former missionary and college pastor, Ellis Hammond used to struggle with funding his ministry adequately, so he started looking for other ways to change lives for the better. Now, a full-time investor and entrepreneur, he’s built a business to a greater purpose that served others, and he helps other investors do the same.

Ellis Hammond Real Estate Background: 

  • Full time multifamily investor 
  • Previous guest on JF1866
  • Leads a mastermind community, Kingdom REI, for other faith-driven investors
  • Based in San Diego, CA
  • Say hi to him at: www.EllisHammond.com

Click here for more info on groundbreaker.co

Best Ever Tweet:

“Most of my investors right now don’t really care about cash flow” – Ellis Hammond.


TRANSCRIPTION

Joe Fairless: Best Ever listeners, how are you doing? Welcome to the best real estate investing advice ever show. I’m Joe Fairless. This is the world’s longest-running daily real estate investing podcast, where we only talk about the best advice ever. We don’t get into any fluffy stuff. First off, I hope you’re having the Best Ever weekend. Because it is the weekend and because it is Saturday, we’re going to talk about a specific situation that should you come across the situation, well, you’ll have some tools to help you solve for it.

Here’s the situation – the situation is you are looking to get more traction in your real estate investing business, you’re looking for your brand, your company to be recognized by more people, and you’re looking to grow your business. Well, that kind of probably covers a lot of us, so that’s why I wanted to have this Situation Saturday episode, where today’s guest is going to talk to us about how to use our personal story to build our brand. With us today to guide us through that conversation, Ellis Hammond. How are you doing, Ellis?

Ellis Hammond: What’s up, Joe? I’m really thankful to be here man. Excited to serve your audience in this way. I didn’t know we were doing a Situation Saturday, so I’m pumped, man. Let’s get into it.

Joe Fairless: That’s awesome. Well, sometimes I change it up right before the last second… So I figured we could probably make sense for this segment. So a little refresher… Ellis has been on the podcast before, Episode 1866. He is a full-time real estate investor. He leads a mastermind community called Kingdom REI for other faith-driven investors. He’s based in San Diego, California. Really quick, will you give us just a refresher of your background? And then let’s go right into how we can use our personal story to build our brand, because you’ve done it effectively.

Ellis Hammond: Yeah. So I’ll just set the premise real quick and then I’ll let you kind of lead through it, too… But the reason I think I’m an expert to be able to talk on this subject, Joe, is when I go to and speak at these conferences, or in front of other investors, especially when I’m in a room with other experienced operators like yourself, I don’t have the biggest track record, we don’t have the largest portfolio. As a matter of fact, it was a year ago I was a full-time college pastor. I served as a Christian pastor for six years; we started buying real estate and our first syndication deal as a full-time pastor. So when I come in front of a room, or when I get in front of a group of investors, I can’t say, “Hey, look, I’ve got 10 years of investing experience,” or “Hey, I have this massive real estate portfolio.” I don’t have any of that. But somehow I’m able to leave that room and almost always leave that conference or whatever, with people who are emailing me, or DM me on LinkedIn, or whatever, saying, “Hey, I want to learn more about you and your business and ways to invest with you.” Why? It’s because I have a powerful story that separates me from everyone else and that really resonates with my core audience. So that’s really what I’m excited to kind of hopefully get into today a little bit. So where would you like to go, Joe? How to best start that, man?

Joe Fairless: Thank you for framing it that way, because now we’re all with you on, okay, one of the toughest questions that you can get is, “How are you differentiated from your competition? Why should I invest with you?” This solves for that, I assume. So what would you say if I was a potential investor, you’re in front of the room, and before you get into your story, I ask, “Real quick, why would I invest with you over other people?”

Ellis Hammond: I think it’s knowing who I am. I always start with “Listen, my journey, my story…” something that’s going to catch their attention for me is I was a former pastor, I was a former Christian missionary. All of a sudden, they are like, “Whoa, what? That’s not what I was expecting to hear. Now, you’re a full-time investor?” Now they’re intrigued and I’ve caught their attention. So the backstory that maybe resonates with them.

Then I’ll tell them the turning point, “Listen, we wanted to figure out ways to go and create vehicles that could produce wealth, that would better serve the things that we were passionate about being a part of. I was a full-time missionary, and honestly, we were running out of money. So we went on a journey to figure out how do we go build and create wealth? And the vehicle that we figured out how to do that was through real estate. Now we have this vehicle that we can allow other investors to be a part of this journey with us.”

I’m saying, “Hey, we want to go create vehicles of wealth.” a.k.a. real estate, real estate syndication, multi-family, that can produce wealth for our investors, yes, but also impact change in the lives of our residents, but then even more so create enough cash flow, margin for us and for our investors to go and support the things that we’re passionate about serving.

So I think it’s helping them see where I come from and then showing my journey. I call it the journey that resonates with people that they want to be a part of. Because you and I both really do the same thing, but the journey you bring them on and the journey I’m bringing people on are very different.

I think this is so important, Joe, that people have to get – not everyone is going to want to go on that journey with me. Because some people  all of a sudden are going to outrule me because I don’t have the track record or the experience. So many people, man, are trying to serve everyone, where I just want a few. I want the few people who resonate with my story so much that they’ll say, “I’d rather go and work with that guy, because I’m passionate about the things that he’s passionate about. I’m so convicted to his message and thought process that I’ll go work with him above everyone else, even though he doesn’t have that track record.” I think a good story, a good brand must attract the right people and it must repel the wrong people.

Joe Fairless: I love how you broke down the components of it. Perhaps it wasn’t an official breakdown, so let me recap what I heard and then you tell us what else we need to factor into it. I heard one – you didn’t say this, but I think you implied it – that you surprise them with your background of being a pastor or former pastor. Then two, you talk about in that story, a challenge that you had, which was to create wealth. Three, there’s a turning point where you discovered real estate. And then four, now we offer this to create wealth for ourselves, as well as help others to create wealth and support the things that they want to support. Are those the main components, first off?

Ellis Hammond: Yeah. I can say [unintelligible [00:09:31].20] plan. Okay, what’s our plan to go do that now? Really, the plan is also your call to action. So what’s the plan that involves the person that you’re talking to? I’ve done a longer talk on this, but I think for the sake of this podcast, Joe, of those four components, the backstory really is what gives people a vested interest in your journey. And then what was the problem that you faced, the turning point that you had, and now what’s the plan that you’ve created, and that you’re bringing or you’re inviting other people into to be a part of? I think that’s huge.

Joe Fairless: With each of those –and I’d love if you could go through each one of them individually– what are some tips for if we’re thinking about, “Okay, I can do this. I’ve got a backstory, I’ve come across a problem, there’s a turning point, and now my plan is to do apartment syndication, or fix and flip homes, or whatever it is.” Can you give us some tips for each of those that as we’re developing, if we didn’t hear from you we might not implement?

Ellis Hammond: Yeah. So the backstory – I always ask three questions when I’m thinking about a story or a brand. The first question is always “Who am I?” You’ve got to be authentic. Don’t try and make something up. But I think all of us do have a story. And typically, the more vulnerable we are, the more authentic those come out. We don’t think people will resonate with our story; you think “Well, I don’t really have an exciting story.” Well, what is exciting? If you come from the corporate world, you don’t think that’s very exciting. Well, there’s a lot of people that come from the corporate world that wanna invest in real estate.

Let’s say you’re in the medical field – well, listen… You don’t think that’s exciting or you don’t think that’s relevant, but that resonates with people. If you were a doctor, a lawyer, or a nurse, and now you’re in real estate… Again, it’s not about trying to be the biggest or the most famous, it’s trying to find your core audience who resonate with you and your journey. So I just think, be authentic to who you are.

I think the second part is struggle. This is something that I think should resonate with people. For us and for me, to be a little bit more specific, in the world of faith and religion, especially Christianity, there is this dual mindset of, “Well, if I’m going to be a pastor or in the world of nonprofit, I must be poor. The only way I can really go make money is if I have a business.” That is the overall mindset of our faith for a lot of people, but a lot of people know that mindset is wrong. So I’m really challenging that and I’m inviting those who think the same way into that. I wanted to go figure out how do we merge that together.

So go figure out again, with the people that you serve, what is that common problem that they also face, that has some tension to it? Because it’s the tension and it’s the edgy dilemma that really is going to invite people in to say, “Yes, I also struggle with that. Yes, I want to know what you’re doing.” Now they’re eager to hear how you’re fixing that problem. Does that make sense, Joe?

Joe Fairless: It does. Help me have a broader mindset than what my mind goes to initially. I think, well, if we’re talking real estate investing, then isn’t a common problem going to be that they want to make passive income?

Ellis Hammond: No, actually. I don’t think so. That’s such a good example, Joe, because we have you, for example, who’s a big name. We have Grant Cardone, who’s a big name in this space. It’s all about cash flow, it’s all about passive income, and that’s the thing where we say, “Oh, people also want that. That’s what I should be promoting.” That’s actually not always the case. Most of my investors don’t really care right now about the cash flow. That’s not their biggest need or concern. I think that’s just what we’ve heard from other people and what their investors want.

So to me, what I see what folks want is they want to be part of a vehicle that has a mission, that is purposeful and intentional about the way it serves people, but also protects their money and helps them grow that money over time. That’s what’s most important to my people. The passive income, the cash flow is honestly just a bonus. Most of these people are still working, so the passive income is really probably third or fourth on your list.

So I would just say figure out who you serve, because their needs and their wants and their desires for what they want out of this vehicle could be different. It may not be passive income.

Joe Fairless: Okay, thank you for that. I’m glad we’re talking about that, because I heard what you said, and you did include passive income and capital preservation in what you said, but you lead with “being involved with something that has a purpose and is serving.”

Ellis Hammond: Yeah, it aligns with our core values, it has a bigger purpose in life. Again, the bottom line is important, they want to know their capital — because if you can give them both… “Man – preservation of capital, equity multiplication, but I’m involved in a vehicle that I can feel good about and that I know my money is actually helping others at the same time…” That’s the kicker.

Joe Fairless: So tactically speaking, are you doing anything that other groups might not do that makes your investments — you do apartments, right?

Ellis Hammond: Yeah, we do.

Joe Fairless: …your apartment investments more purposeful and more warm and fuzzy?

Ellis Hammond: Actually, we do. So we’ve kind of built up a brand around this and we currently — and I think by the time the show goes out, this fund will be closed… We just launched a faith-driven multifamily fund; it’s essentially the way that we’ve since kind of branded and putting this out to the world. Again, is everyone going to want to be a part of a faith-driven fund, Joe? The answer is no, right? That’s the whole point, and I hope people are catching that. I’m not trying to raise a fund that everyone and their mother wants to be a part of. I want something that my people want to be part of. So yes, we have a faith-driven fund; it’s actually a feeder fund into a larger group. Really what makes this faith-driven is we’re working with an organization called Apartment Life, which is a Christian nonprofit that works and comes alongside apartment owners, and really places families and resident leaders in our apartment complexes with the intention of really caring for our residents alongside our property management team. So they’ll do anything from events, to Bible studies, they check in on all of our residents 60 days before their lease is up to see how they’re doing… So really, their goal is to connect people in that apartment community, and really love all of them and show them the love of Christ. So that is very intentional, it’s very even measured. There are metrics to what we’re doing there.

So yeah, we’re very intentional, very purposeful about what we mean by faith-driven. I would say — I know a lot of people were using [unintelligible [00:16:24].16] and you’d actually be surprised how many people use this organization Apartment Life. But I don’t want to say no one’s been bold enough, but we just said, “Hey, we’re going to use this organization, so let’s be honest about…”

Joe Fairless: You’re going all-in.

Ellis Hammond: Yeah, let’s go all in. Like “Why are we not talking about?” So we are a faith-driven fund. So that’s what we kind of said.

Joe Fairless: One, you have a backstory; two, problem; three, turning point; and four, a plan to do it. We talked about the backstory. It’s okay, you should have a core audience… And as you mentioned, that I really like, you’ve got to find the common problem that they all face, where there’s tension, and inviting them in.

Can we just pretend your background is a software engineer for a moment? What would be your best guess that if I was a software engineer, and I wanted to create a multifamily company, and I wanted to say, “Yeah, Ellis had a great point. I want to create a backstory. What’s that common problem? Let me think about this… I know Joe asked him, he said it doesn’t have to be cash flow, it could be something else.” What are some other examples besides the faith-driven component that you have, and that you can think of?

Ellis Hammond: That’s a great question. I have a buddy — and I’m going to change the example just because I can speak to this one…

Joe Fairless: Okay. Sure.

Ellis Hammond: It’s guy sure is a guy who works in San Francisco tech, typically startup company. So we have a friend — actually, Joe, you might know this guy; we don’t have to use his name, but his whole brand and mission, and we chat regularly about this, is helping people go from IPO to cash flows; that’s his tagline. So his investors are typically in the San Francisco Bay Area, and they have spent most of their life waiting for IPOs. That’s how they make their money. They are part of a startup and they kind of stake their life or their income based on the next IPO. He is helping them shift their mindset to say, “Hey, that’s good. You don’t think you should leave that job. But let me teach you about a vehicle that once you IPO, you can invest in, and it can give you passive income.” Passive income is very important now for him… “So that you aren’t always relying on the next IPO.” So he has very clear targets, that he’s helping them open their world and say, “Oh, wow.”

This was his story, by the way, he worked in San Francisco area tech. This was what he did, and he learned about syndication, and now he started investing in real estate, and having the passive income to support him in between these IPOs. So I think that’s a great example of just kind of knowing who you serve, knowing that there’s a problem there that he saw because he experienced it, of “Man, this is so unstable. What if this startup doesn’t go well? So I’m always kind of waiting for the next thing.” And that was a way that he figured out how to use his story, figure out a problem that his people had, and bring them into a journey that he’s on now, really helping people invest in multifamily syndications.

Joe Fairless: Thank you. I appreciate that additional example. The thing that comes to mind, just to play the other side of the fence with this… The thing that comes to mind is its cash flow. No matter how you’re packaging it, the problem is ultimately, in this example at least, it’s IPO meaning “I don’t have the cash flow.” And now, “Hey, apartment investing. You get cash flow”, which is totally fine. But that to me is the challenge in this, is that when you say a common problem that they all have – that makes sense, but ultimately, it sounds like it’s always going to lead to cash flow. Allow me to put words in your mouth and then you can correct me… Now that it’s ultimately really about cash flow, except for your example, which I would argue is an outlier, but we can talk about it… If the problem is cash flow, like from IPO to cash flow, then really, it’s about — okay, let’s think about our background. I was in advertising before this. We would make a salary, and then we would need to jump from one employer to another, most likely, if we were going to get a significant salary bump. Because that’s just how the advertising world works, generally speaking. So if I were to apply this, then I could say, “Hey, advertising people, I know the stress that’s involved with needing to go from one job to another and completely start over with a new company just to get this extra bump of income.” So that’s the problem I came across. And now here’s real estate, where that solves for that. So it’s just repackaging, which is fine, but I think it sounds like you’re ultimately always solving for the cash flow and capital preservation. But I would like to hear your thoughts.

Ellis Hammond: That’s a great point. I don’t actually disagree. I think, though, to make the caveat, you and I, the vehicle we’re talking about is multifamily. [unintelligible [00:21:23].16]

Joe Fairless: Correct.

Ellis Hammond: …to this that aren’t in multifamily and cash flow is not part of their business model. So I totally agree with you, the vehicle that you and I are in, a huge component of why we’re in this is because we like the cash flow. That is also part of our story in the story that we’re working with. I’m sure there are people listening to your show that aren’t in multifamily, and they may have something else in real estate that cash flow isn’t that. So I just wanted to make the point that it doesn’t have to be cash flow; figure out what that is. But I think when it comes to multifamily, you’re right, it’s probably in the top three of whatever problem that you’re trying to solve,

Joe Fairless: Ultimately, money. Replace cash flow for “make more money” and “preserve the money that you have,” and not in that order. So I don’t think it changes much. I think yours is a bit of an outlier, but even in your example, you said cash flow and capital preservation, even when you said, “Here’s what we offer.”

Ellis Hammond: You could change [unintelligible [00:22:21].13] all you want, but again, we’re still not having an investment vehicle, right?

Joe Fairless: Right. That’s my whole point. So with backstory, it’s identifying the core audience who we are a part of, and the common problem that they face – that has to do with money, quite frankly. And then thinking about what are the unique situations that they’re in.

Ellis Hammond: We’ve got to point out here, I think – I think this is important before we finish here… Yes, we started with the preface of, let’s say, you’re listening to this show today, and you get asked to speak at the Best Ever Real Estate Conference, and you’re going to be in front of all of these people… And you get on the stage and talk about why they should invest with you is because you preserve their capital and you give them cash flow…

Joe Fairless: Not going to work, right.

Ellis Hammond: Right, because you are not Joe; he owns the state, and if they want preservation of capital and cash flow, they’re going to go invest with Joe. You have to give them a different outcome. And it may be still preservation capital and cash flow, Joe, is my point… But for example, when that guy said, “Well, I was in San Francisco tech, and this is who I served” and he’s able to speak to them in such a way that he knows their problems; he knows their struggles, he knows their journey. He’s not just selling cash flow and capital preservation.

Joe Fairless: I get that.

Ellis Hammond: He’s selling them away out of this lifestyle from just living on IPO. That’s what people have to realize. You have to sell the benefit. You’re selling the outcome of what capital preservation and cash flow provide that person. I think that really would separate anyone knowing what do your core people really want whenever they get capital preservation and cash flow, to use those as an example? What is the outcome of them getting cash flow? I’m telling you, that’s probably different from everyone who’s listening to this show, because we all serve different audiences.

Joe Fairless: That’s helpful. I’m glad that we dug in deep there, and I heard your perspective; that’s very helpful, and everyone heard the thought process. So backstory, identify core audience… And it is our backstory; it’s who we are, and what audience can we serve based off of who we are, thinking about the problems they have, as it relates to what we can help them solve for. They might be colorblind – well, we can’t do a whole lot about that. But as it relates to the business that we’re in, what can we help them solve for related to those problems. Then our personal story about the turning point, and then our plan for how to do it, and then opening it up. It personalizes the brand, resonates with that audience, it might not rise with other audiences, but who cares? I have a loyal group of a thousand people every day, over 100,000 generally passively interested people. You want a thousand raving fans.

Ellis Hammond: I’m fine with 100 committed people who would invest 50k with you every single year. You can build something pretty massive over the next decade.

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

Ellis Hammond: Absolutely, man. If you want a really great example of this, I wrote actually a book about my story and kind of walk through this in more detail. Missionofmultifamily.com is actually where you can grab a free copy, Joe. It’s our book link. And then just email me; I would love to connect with you. Invest@ellishammond.com.

Joe Fairless: Ellis, thanks for being on the show. I really appreciate it. Hope you have a Best Ever weekend and talk to you again soon.

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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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JF2387: Diversifying Your Portfolio By Investing In Multifamily Properties With Karen Oeser

Karen spent over 25 years in the traditional investment business. Her specialty was helping clients with fixed income. Since interest rates have plummeted in the past decade, Karen started looking for new investment opportunities for her clients. That’s why she left the traditional business and turned to the real estate market.

She started with single-family properties. But since her focus was on helping people mitigate risk, she went on to pursue multifamily property investment. She had the right skill set, so the transition was easy.

Karen Oeser Real Estate Background:

  • She left 25 years of traditional investing experience to pursue real estate
  • Have been investing in single-family for a few years and recently transitioned into multifamily
  • Portfolio consist of 3 single-family rentals and seeking new multifamily deals
  • Based in Greenville, SC
  • Say hi to her at: www.eastlightinvest.com 
  • Best Ever Book: Hidden Investing – Holly Williams

Click here for more info on groundbreaker.co

Best Ever Tweet:

“I started with single-family, and that is a really great way to get your toe in the water ” – Karen Oeser.


TRANSCRIPTION

Ash Patel: Hello, Best Ever listeners. Welcome to The Best Real Estate Investing Advice Ever Show. I’m Ash Patel, and I’m here with today’s guest, Karen Oeser. Karen is joining us from Greenville, South Carolina. She left 25 years of traditional investing experience to pursue real estate. Karen started out with single-family deals and has transitioned into multifamily deals. Before we get started, Karen, can you tell us a little bit more about your background and what you’re focused on now?

Karen Oeser: Yeah, definitely. Thanks for having me. So glad to be here today. I was in the traditional investment business for nearly 25 years. My area of specialty within the traditional investment business was fixed income. I spent many years helping clients add income to their portfolios, but what happened over the last 10 years, as you well know, the interest rates, they’re hitting rock bottom. So to be able to find the kind of income for our clients, it was very difficult.

I was continuing to scour the markets and look for different opportunities and I just wasn’t pleased with what the options were out there. Because first, you go to your banks. What do you do? You go to your banks, and at these interest rates, you actually owe your bank money by the end, so that’s not a very good option. One of your other options is the traditional Treasury market, and that’s less than 1% in today’s market. That doesn’t work very well, especially when you’re looking as a traditional financial advisor, you’re charging one percent or so. Where’s your client going to make the money in that option?

Then there are corporate bonds – you have that, and you can make a little bit more money but then you add risk, because you’ve got corporate risk, and especially pre COVID… My goodness, it was pretty difficult. So people traditionally go into fixed income because they think it’ll be fixed income, and it’s safe. But the market actually wasn’t bearing that out, and you don’t feel very good about bringing your clients into that. So I decided, “You know what? There’s got to be a different way.” That’s when I left the traditional business, just a little bit over a year ago, and I jumped into the real estate market.

Now I started out with single-family as you said in the introduction, and that is a really good way to get your toe in the water. It’s a really good way to understand how the real estate market works and learn a lot of the terms of discussion. But one of the things I realized pretty quickly, again, my heart is to help people to mitigate risk. And with single-family, especially in this environment, because COVID was just starting to come in, and as soon as that starts to happen, you can have your tenants and they leave.

So if you have a portfolio of one, one tenant leaves for three months, well, that doesn’t seem like a very risk-free option. So that didn’t feel very good. So the next thing you do is maybe let me own two or three houses, but still one tenant leaves, you lose 33% of your portfolio; that doesn’t feel very safe. That’s when I was introduced to multifamily. A good friend of mine came in and said, “Look, you have a very good skill set for going into multifamily, because you understand how to talk to investors.” You know, investor relations is obviously the area that’s a natural fit for me, and I do love to look at the valuations and that as well. That’s all very easy for me to understand. So what I had to do is I had to learn about the markets themselves. That’s when I started looking closer and closer and I thought, “Man, this is amazing. Who’s been keeping the secret all these years? This is a perfect thing.”

It’s very interesting, because in the traditional market, your real estate is considered “other”. It’s usually the home that you own, which is a different asset in itself. So there’s this new asset class that’s growing, and it’s called alternative investments. That’s where this fits perfectly into it. So I’m not here to completely disparage stocks, or bonds, or any of that. You can have a very well-diversified portfolio, but you’re really selling yourself short if you don’t have a broader diversified portfolio. Multifamily is a fabulous asset, because as the demographic there is shifting, it becomes actually a safer and safer market to go into… Because people always need a place to live; it doesn’t matter if you have COVID, doesn’t matter if the economy’s going up or down, people still need a place to live. If they can’t afford to own a home, they have an apartment that they can move into. So we’re actually doing them a service giving them a place to live.

Ash Patel: Karen, what a transition from the exciting world of fixed income to real estate… So you were blown away by the returns that you can make in real estate. Why did you not know about this in 25 years being in the fixed income world?

Karen Oeser: It’s called a silo. [laughter] We live in a silo and it’s like an us and them world. Because like I said, I’m a CFA, I’m a Chartered Financial Analyst, which is the highest designation you can get in the investment world, so I’m not here to disparage my brethren. But at the same time, I’m actually educating them as well. I live in South Carolina and am on their National Public Radio show because they were interested in learning more about it. Traditionally they only have people coming in and talking about traditional assets on there, and people are hungry to learn about more.

Ash Patel: I want to deep dive into this. Back to your investing career… What were your typical clients that were looking for the fixed income returns? Is it elderly people? People that already built their nest egg and they just want to preserve capital?

Karen Oeser: That’s a very good question. To answer it, they’re primarily people that are just going into retirement. Over these cycles, what’s happened, and it yet even feeds into why this is an interesting asset across no matter where you are in your demographic… Because what has happened is, first I came into the market you have the dot-bomb. So you had people that have put their entire nest egg into that. Then you had the real estate crash, that primarily hit the single-family as we know. So people keep having to rebuild their portfolios. So it’s actually those same people that keep coming back, and they’re like, “I don’t really want to put my assets at risk again.” So they’re really people who are saying, “I have been burnt so many times, and I know the mattress probably isn’t the answer either. But I’m feeling better about that than what my options seem to be.” So it seems like there’s this huge secret that nobody tells you about.

That’s actually one of the things that I’ve been doing, is rather than saying I’m a competitor to the financial advisory market, that’s one of the areas that I’ve gone through, and I’ve talked to several financial advisors and I said, “Let us partner. This is a beautiful partnership.” Because this is a way to diversify your client’s portfolios, as well as a way to add a lot of oomph and a lot of power into the returns that your clients really need… Especially those that are trying to rebuild their portfolios.

The stock market has really had a really nice turnaround. People were surprised, actually, by how well the market’s done this past year in the world of COVID. But the fact remains, the vast majority of people didn’t put their money back in there and it stayed in their mattresses.

Ash Patel: Especially the older people that were jaded from a couple of market cycles. So were you able to retain a lot of your clients through this real estate transition? And are you able to get them investing in real estate?

Karen Oeser: You know, I had a non-compete within my company, so we couldn’t do that. But I am reaching out; they’re finding out through LinkedIn and through other ways. But the fact is, I know how to speak to clients like this, I know how to hold our hands through, I know the questions they have, I know how to look at the portfolio in a very broad and diversified way, so they can feel good about it.

One thing about it – I’d really like to go back to the risk, because that’s really where people want to camp out on there as well. It goes back down to — let’s say you’ve got 100 doors, you’ve got one tenant that’s missing… That is going to be a fraction of your portfolio. It will not even be a blip on your return. So when you’re going back into the traditional markets and you say, “Okay, I’ll have one fixed-income fund, I’ll have one particular fund”, you can have one company that could go down and it can wipe the whole thing out. That’s why it’s so important to have such a broad diversity within your holdings, both in terms of when you’re buying your properties… Because it’s not healthy just to buy one property as well. You want to diversify it as well.

Ash Patel: Do you think one of the reasons that your typical financial advisor isn’t promoting real estate is because it’s difficult for them to get paid on these types of investments?

Karen Oeser: Yeah, I think that’s fair.

Ash Patel: How do you find a solution for that? You’re looking to bridge these gaps, so what can you do to innovate a solution where they can be rewarded and their clients can get exposure to real estate?

Karen Oeser: These advisors get paid on a percentage of the assets under management. Some are commission-based. But where this really can add some value is to those that are paid as a percent of their assets, because you’re looking at particular properties now that you’re getting 12% IRR on it… Well, if you’re going for 1% of assets under management and you’re going up to a 12% return, the return they’re getting paid for their clients is on their total assets under management. So when you’re helping their clients, you’re helping them as well, so it’s actually a symbiotic relationship.

Ash Patel: So it’s a win-win-win.

Karen Oeser: It is. Absolutely.

Ash Patel: Good. So are you looking to partner with some of these financial advisors in the future and get their clients to invest in some kind of vehicle that you’re putting together?

Karen Oeser: Exactly. That’s what I’m in the process of doing. As you know, I’m fairly new to this whole multifamily, but what I’m finding is I’m developing a lot of relationships… Because with my CFA, a lot of people will take my call. So I’ve developed a lot of relationships with the local banks here, and different financial advisors, because I am part of that club, so they’ll take my call. Whereas if you don’t have any experience, they won’t take your calls. So I’ve got a real big leg up in terms of developing that client base and that investor base.

Ash Patel: You’ve got me excited about all the potential opportunities in front of you. Where is this going to be in three years? Let’s say two years – what are you going to be doing in two years to leverage all of your experience, all of your contacts, your relationships, and your knowledge of both the financial world and now the real estate world, where everybody gets to benefit?

Karen Oeser: One of the big areas that I’m really focused on as well is on financial literacy. That’s financial literacy across the board, and that’s even financial literacy for the experts in the financial markets… Because it’s about knowing what your opportunity set is. Once advisors get a taste of this, it’s very, very exciting… Because literally, it blows my mind that I hadn’t even been introduced to it. The closest we get to it in the traditional markets is in the REITs, but that’s still a completely different animal, and the assets are so diluted by the time that they get to the clients, it’s not the same thing.

The other beautiful thing about this is their clients are actually getting a piece of a physical asset. They could actually go and drive by these apartment buildings. It’s different than a nefarious stock that’s over here [unintelligible [00:14:21].21]  something else. But these are physical assets that are real; this isn’t funny money.

Ash Patel: One of the challenges, when I try to explain to people what it is that I do, is to get them to understand the returns. Have you had those moments where people just don’t believe that these returns are possible?

Karen Oeser: Every time. They think you’re nuts.

Ash Patel: Okay. So you’re talking the same language to people that you’ve been in the same industry for 25 years. How do you overcome that? How do you get them to actually believe, “Oh, my god, wait a minute. I’ve had blinders on. How do I take them off and do what you’re doing?” How do you explain to them that this is a real thing and these double-digit returns are real?

Karen Oeser: Well, it’s my case study, quite honestly. You have to go by case studies. Obviously, now that I’m an owner myself, I’m a passive owner in some real estate now, I actually can speak from experience… Because I can actually talk about the process and what it takes. These deals are so well-vetted… And as you know, in this market, it is really hard to get deals through with managers that don’t do a good job at that, because it’s a very small universe, and income is very self-selecting. People know what it takes to get — what returns are real. They’ll know the markets if they square, because as you know, there are different asset classes. So if you go out there and sell a Class A, for example, with class C numbers, people know that that doesn’t square.

So that’s one of the things you do, depending on how sophisticated your investors are. The more sophisticated investors want to get into the weeds a little bit more, and then you can educate them what’s the difference between a class A, class B, Class C. But that’s no different than talking about when you’re in the traditional investment world and you’re saying, “Well, we’ve decided to go more defensive”, and the type of stocks you buy for that versus high aggressive growth; there’s no difference. This just happens to be an apartment building that’s different. So there are different classes and industries within that.

Ash Patel: That’s a great explanation. You spent a lot of your life mitigating risk. Now, listen, our real estate cycle, we’re up there, we’re up high…

Karen Oeser: Yeah, we are…

Ash Patel: What’s your mind doing knowing that there could be some risk around the corner? And how do you leverage that or how do you remediate that?

Karen Oeser: Well, remediating is vetting the managers you choose to work with and looking at their track record and who they’re working with. And again, for example, that’s one of the reasons I intentionally chose to own a couple of passive investments before I decided to be an active investor. Because if I just went and jumped into it without getting the proper training and knowing who I’m working with, well, that’s one of the things that you look for. You look for managers that have good experience, working with people that know what they’ve been doing, and also have worked through several cycles. Some people can jump on the bandwagon, but if they haven’t been through cycles and know how to manage them, that’s no different than going with a brand new portfolio manager in the traditional stock market and say, “Hey, where were you for that bubble? How did you handle that bubble?” These are the questions that you teach, that build confidence. When you go and talk to the manager and they say, “Yeah, we’ve been through this last cycle, we know what to do.” Understanding what vacancy rates mean, because vacancy rates, obviously, in this market are one of the big measurement tools for how well-managed the property is.

Ash Patel: So what I’m hearing is you’re not terribly concerned with a downturn in the economy as long as there are good operators that you’ve put your money into.

Karen Oeser: Yeah, that’s exactly right. And knowing how they invest, because this is a speculative investment… And if you want a speculative investment, all the power to you to do that, but you need to understand that you’re investing in that. So yes, there’s some risky stuff out there, and if you’re especially going in the class As in the top tier markets, you can get yourself burnt, because that’s getting pretty toppy right now.

Ash Patel: Yeah, that’s getting rough.

Karen Oeser: It is. Would I advise clients to be jumping into that? I don’t think so. Because that’s how you mitigate risk.

Ash Patel: And would you consider doing a syndication of your own? You being the general partner, you forming the syndication?

Karen Oeser: Not solo. That’s part of risk mitigation as well. You mitigate through the minds you put together. So what you do is you put together people that have been through different cycles and that come in with different strengths. Because one of the mistakes people make when they come into the market is you’ll get somebody who has worked in construction, for example, and they say, “Well, I know how to do the rehab” but they’re having a value-add property, and you get a bunch of people only know how to do that, but you don’t have people that know how to manage the books, and you don’t have people that know how they manage the flow, how to manage your property management company… So that’s what you do. This is really how you can mitigate the risk in this market, is understanding who you’re doing business with, both on the operator side as an active investor, or on the passive investment side as well.

Ash Patel: I think that’s a great outlook, because over the last several years, syndication is hot, and everybody wants to be a syndicator. I don’t think one of the things that are in their mind is assembling this team of people to help me and do it right. I think individuals have goals where “I’m going to syndicate this deal, and I’m going to make money leveraging other people’s money”, not thinking about the burden that that bears on you, how much of a risk it is, and how difficult it is to do it all by yourself. So assembling that team is great advice.

Karen Oeser: In fact, for any of your listeners, I’d warn them. If you’re going to somebody that’s a one or two-man show, be wary. It’s one thing if you’re talking 10 doors, but if we’re talking about anything 50 doors or above, you really want to have a team that has at least three members on it, if not more, that they all have something unique and special that they can bring to the table. One my partners that I work with, my favorite saying is one plus one equals five. It goes for this teamwork. The more people you have on there, there’s a multiplication effect. But you need to have people that have a broad set of experiences, so they can say, “I’ve seen this movie before, and then when this happened, this is what we did to mitigate that risk.” And you’re so grateful for that experience.

Ash Patel: What are some of the other things you look at in vetting some of these syndicators?

Karen Oeser: I have to say ego is a big one. That’s part of my old school coming back into it as well…

Ash Patel: They have to have an ego, right?

Karen Oeser: Well, you have to have an ego, but you can’t have an ego. It’s a dance. The problem is, if this just becomes a one-person show, that team won’t be successful. Because you need to have a team that shares and values each member. I have to say, having come from the traditional world, I am very impressed with the level of camaraderie within our industry. I’m also impressed with accepting the fact that teams are important, and we welcome that. And the other thing is, we all know each other, and that’s another thing. So we bring each other into different deals.

Some people will assemble one single team and they’ll only invest with that team. I call myself the diversification queen, so I can’t do that by definition. I’d rather work with different people in different markets that have a team assembled for “Get a Class C, get a Class B.” Then you’re talking different size markets; you’ve got your smaller markets, your second-tier markets, third-tier markets… And you want people that have experiences in that. I don’t want to be in my B class in my second-tier market if it’s a Class C property. I need somebody with a different set of experiences for that.

Ash Patel: That’s a great observation. I’m going to assume from what little I know about the financial industry that your peers were a lot more competitive, versus in real estate, everyone’s more cooperative.

Karen Oeser: Yes, we didn’t share very well.

Ash Patel: Yeah. It’s amazing with real estate, you’re absolutely right. People will give away all their secrets, they’ll share their ideas, they’ll collaborate, and they’ll often find that that’s what increases your level of success, is the collaboration and sharing.

Karen Oeser: And that level of vulnerability, to say, “I don’t know what I’m talking about. Can you tell me what you know?” As you said, the other thing that blows me away is people’s willingness to share.

Ash Patel: Right. Back to your ego comment right?

Karen Oeser: Yeah. Exactly.

Ash Patel: Put that ego away, get out there, ask the questions, be vulnerable, get a mentor, learn from others. Hey, imagine if you had learned these lessons 25 years ago and you never got into the fixed income game, and started out right in real estate.

Karen Oeser: Oh, my goodness. I know, I know. And the life skills that you learn within this as well. The other thing I’m really touched by this industry is not only the level of cooperation and collaboration, but also people’s desire to contribute. One of the first things that they ask you in your classes is “What’s your why?” They don’t ask you that question in a traditional business. What’s your why? What gets you out of bed every day? Who do you want to be able to help? Who do you want to be able to serve? Everybody likes to talk about who they’re serving and how they’re helping them. It’s really uplifting. I still think that I’m taken aback by the level of generosity that our community has, and what we teach others, and that kind of behavior.

Ash Patel: I’m glad you transitioned and are able to experience that. With that being said, what is your why?

Karen Oeser: My why is financial literacy for women. Your viewers may or may not know that women control over half the investable assets in this country, yet many of them – it’s sitting under a mattress for a lot of the reasons we talked about earlier in this call. I’ve actually created an organization called Financial Literacy For Her. It’s a place where we come, it’s a place for both mindset development, as well as learning about investments. It’s more of a support group environment where women can come and ask their questions and talk about what is an interest rate, why does it matter? How do I put my portfolio together? What is a portfolio? To some people that’s even a little bit advanced.

So we’re setting it up so that we have an entry-level, intermediate, and more advanced… Because some people have a lot of assets and they just need some help deploying them. Some people don’t have two pennies to rub together and they need somewhere to start. That’s really where I want to help with the younger generation as well, is teaching them how to think about money.

Another thing I’m putting together – and again, this is where I’m taken aback by the generosity – is I’m putting together a scholarship fund to help fund scholarships for women who really want to step into this and get some help investing, and be able to have a support system to help them start investing and making these wise decisions. Because once you start making money and you’ve been able to get a taste of it, it’s very exciting. Then those women share with other women and it becomes a collaborative environment to help everybody grow and be wise with their money.

Ash Patel: That’s an amazing why, and you are the ideal person to lead a crusade like that. A question that that brings up is a lot of these women that you mentor – do you recommend that they manage their own finances and their own investments? Or you as a professional, like somebody that was in the industry that you came from?

Karen Oeser: That’s a very good question. It goes back down to the teams, and it’s very interesting. So that’s one of the things that is very important with us at Financial Literacy For Her, is we make sure that we have a team of advisors. Just like we do on the multifamily where you have accountants, you have lawyers, you have everybody within the whole ecosystem…  And that is something that I really want to let the women know as well, it’s like, “Let’s work together as a team”, because if any of those service providers are fixated or are working in a silo, they probably don’t have your best interest in hand. Because it’s not all about law, it’s not all about accounting, it’s not all about financial advising. We’re all here to help you grow your assets in your estate.

So my greater vision of where I want this to go, is I actually have this emblem, the Financial Literacy For Her, and my goal is I want to reach out to service providers where they have that, so our clients will know that this is someplace they believe in collaboration, they believe in a team effort, and they will help you grow your entire assets.

Ash Patel: That was an epiphany. You blew my mind, because we look at the team behind the syndications and we ask a lot of questions. But when it comes to somebody managing your entire portfolio, your entire net worth, you really don’t do the same research. It’s just not a thing. You could put $20,000 into a syndication, and oh my God, you ask questions, you get references, you visit their properties, you interview their managers… But you can give your entire life savings to a financial advisor and really not think a lot of it. It could be one person and not a team, as you mentioned.

Karen Oeser: That’s what happens. I saw that a lot over my years, is that people would be three years from retirement and no one would talk to them about estate planning.

Ash Patel: Yeah, you’re making me question a lot of things.

Karen Oeser: Yeah, that’s what goes on. Part of it is because there’s this  whole specialty mentality, and it’s back to the ego again… It’s “Let me keep my world in my silo.” That’s why a lot of these bubbles happen. Think about it like accountability groups. You get your team of accountability partners. They keep you out of trouble when you’re like, “Okay, my eyes are wandering and I’m thinking about jumping into this investment, or I’m buying this insurance policy, or thinking about playing around with this accounting rule.” Well, your team of collaborators is there to keep you honest and keep you accountable for where you’re going and what your goals are.

Everybody on your team should know what your goals are, they should know what your why is, where you want to go. That’s also like with the Financial Literacy For Her company – what we’re doing is we’re saying what are your goals? What are your dreams? Is everything that you’re doing in your life leading you to that road?

Ash Patel: You have an amazing outlook. You make people question a lot of things that are just done a certain way. Karen, what’s your Best Ever real estate investing advice?

Karen Oeser: Oh, that’s a good question. That is get a coach who you understand and apply everything I just said to the coach as well. Because if the coach is not coachable as well and the coach isn’t growing, you’re going to only go as far as that coach can take you. So you want coaches that are collaborators. One of the things that I tell the people I introduce to this market that say, “Where do I start?” I said, “Find somebody who has an energy level that matches yours, because you want to grow with that level.” Some people grow at different levels; some people are racehorses and want to go, some people want to be very slow, very methodical.

It’s very important to find people where there’s an energy match to keep up, because that’s also how you make sure that everybody’s contributing at an equal rate. Because if you have a couple of racehorses and then a couple of people behind that don’t want to move at the same pace, that doesn’t make for a healthy environment. So knowing who you’re working with… And you always want to grow. If you’re not growing, you’re dying. That is so important and coaches are so important to that. The basics of the coaching program are pretty similar, but it’s all those extras that are important that really can help you grow.

Ash Patel: That is phenomenal advice. Karen, are you ready for the lightning round?

Karen Oeser: Okay, here we go!

Ash Patel: Let’s do it. First, a quick word from our partners.

Break: [00:30:08][00:30:29]

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

Karen Oeser: Hidden investing by Holly Williams.

Ash Patel: And what was your wow moment in that book?

Karen Oeser: My wow moment for that is because she’s like-minded with me and she wants to know that there are so many hidden tools within the investment world that we’re bringing it to the masses.

Ash Patel: Wonderful. Karen, what’s the Best Ever way you like to give back? You talked about your foundation, that’s incredible.

Karen Oeser: What I like to do is I like to give back — women are my passion. I like to help women who’ve been struggling, who have every passion and every desire to move forward, but they just need that one little push, that one little thing, that one little piece of information that will nudge them forward. Having met me for one day, or somebody on my team, if we know that we’ve made their life a little bit better, that’s the Best Ever.

Ash Patel: I think you’ve inspired a lot of people with your podcast today. Karen, how can the Best Ever listeners reach out to you?

Karen Oeser: Yes, you can reach out to me — the best way, I have East Light Investments, which our website is eastlightinvest.com. If you want to download a report that tells you the 10 reasons why I left the traditional investment world, that gives a little bit more meat behind what we talked about today, you can go to our website and you can download a free copy of that report.

Ash Patel: That’s amazing. Karen, you’ve got an incredible story. 25 years of having the blinders on in the fixed income industry, and somehow you’re able to find real estate, adapt to that, and now you’ve found a whole new calling with helping women. What a great story. Thank you so much for sharing that with me today.

Karen Oeser: You are most welcome. Thank you so much for having me and have a blessed day.

Ash Patel: You as well. Karen, thank you.

Karen Oeser: You’re welcome.

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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JF2386: Starting A Remote Syndication Company From Scratch With John C Paniagua

John’s background is in engineering. In the 1990s, he took his engineering degree to get a job in the finance sector. Later, he joined the New York Stock Exchange. Transitioning into real estate was an easy choice after he flipped his primary residence that was purchased back in the 1990s.

His focus is now on multifamily syndications. He knew that it was a big jump in terms of capital required to run that business, so he started looking for a mentor and a team.

John C Paniagua  Real Estate Background:

  • Works at the NYSE full-time in regulatory technology software development
  • 3 years as a flipper and 1 year as a GP/LP in 3 multifamily syndications
  • Portfolio consists of 3 syndications 
  • Based in Rego Park, NY
  • Say hi to him at: https://www.onewayholdingsllc.com/ 

Click here for more info on groundbreaker.co

Best Ever Tweet:

“When you build a team, you definitely want to not supplement each other but complement each other” – John C Paniagua


TRANSCRIPTION

Ash Patel: Hello, Best Ever listeners. Welcome to The Best Real Estate Investing Advice Ever Show. I’m Ash Patel, and I’m here today with our guest, John C. Paniagua. He is from Rego Park, New York. He works full time at the New York Stock Exchange in regulatory technology software development. John’s portfolio consists of three syndications and he has three years of experience as a flipper. He has one year as a GP/LP in three multifamily syndications. John, before we get started, can you tell us a little bit more about your background and what you’re focused on now?

John C. Paniagua: Sure. Thank you, Ash, for inviting me to the show. My background is essentially I’m an engineer by education. I went to Stony Brook University, Columbia University, got my master’s in PhD in engineering. I started working at Northrop Grumman 30 years ago. In 1998 I became a consultant, I made the change to being a software engineer in finance. What I did was I worked for Sapien Corporation for six years before joined the New York Stock Exchange in 2004. I got a risk management certification. So essentially, the rocket science that I’m very familiar with, I’ve applied it to finance and now I’m applying it to real estate.

I got into real estate heavily around 2017 where I flipped the home I had. I bought a home back in 1993 in Bayville, and I flipped it. That’s how I got into multifamily syndications, and my focus has been in that area since, in commercial real estate, in multifamily syndications.

Ash Patel: How did you get into syndications? Going from flipping your own house to syndications is one extreme to the other, so tell me the story behind that.

John C. Paniagua: Yeah, sure. That was interesting. In 2017 when I flipped the house with my two partners I had — by the time we flipped it, the gains were quite substantial, I realized. I think we made 75% on that one deal. We looked at it saying, “Okay, can we do more?” and I quickly realized — I said scaling the trying to do flipping required enormous resources. From an operational perspective, it would have been considerable time spent trying to manage that type of operation. So then, in 2017, I happened to be in Las Vegas – this is the funny part, I was in Las Vegas and it was a life insurance conference. They had as a guest, Grant Cardone, and he talked about doing big things, just thinking big. That night in our hotel, I happen to look up Grant Cardone on the web and I saw a couple of articles. One was from Business Insider and the other was Forbes… And he talked about he owned, at that time, 4,000 units. But what was great about the article is he actually walks through step by step as to why in multifamily syndication your reward can be much more substantial, with less risk. He talks about how and that was the trigger that lit the light bulb in my head, saying multifamily is the way to go.

I spent 2017 looking, with a business associate of mine, we were looking at apartment building complexes in New York and New Jersey. Then I quickly realized, looking at the numbers, doing the underwriting, multifamily syndications there, those are for the big boys… Because it was very, very difficult looking at the cap rates that were existing at the time and looking at the cost per unit versus the monthly rents that you can charge… It didn’t add up. But I knew that was the way to go, and that’s why I focused out of state.

Ash Patel: And where did you go?

John C. Paniagua: Well, I quickly realized if I’m going to continue working full time that looking in New York was not the place to go. I had to look elsewhere. And I quickly realized I needed help. So I read several books… One of the books I read, Joe Fairless’s book at the time, he had the Best Advice, before his last book… I think it was 2018 or 2019 that I read it… A great book he wrote on multifamily syndications. He had written two prior ones, and I read those, and I read a Michael Blanc book. And I quickly realized that I needed a team, I needed a mentor, and that was the first step, was to find a mentor… And I did, and I joined Michael Blanc’s group. There’s where I met Phil Capron. Ever since then I felt it was one of the best decisions I ever made, Phil Capron, and last year I also became a mentor of Hunter Thompson.

So in combination, working with Phil, that’s how I ended up being a general partner, and I was introduced to other members of the team. So this syndication team ended up being just half a dozen people. Another one was Chris Roberts and Paul Wilcox, also from Michael Blanc’s group. So that’s how I started.

Ash Patel: So John, the deal that you were a GP on, you were one of many GPs on someone else’s deal. So your job was to get investors in on this deal.

John C. Paniagua: Well, there are several — the way we partitioned it, because we work cohesively as a team… You have to do asset management, investor relations, you have to keep an eye on the lender docs, you need to interact with the lenders on a monthly basis, you’re tracking too a pro forma… Another thing we had to do was operations, looking at working with the property manager… So one of the good things about this deal was that we had people on-site. You need to have, as part of the GP team, somebody with boots on the ground. So we had somebody on our team doing that. I did a lot of the underwriting, I helped out with the asset management… So I became very familiar with a lot of the issues. We have weekly calls. And this model I replicated not only on this deal, but on the other two deals. So we have two deals in Southeast Virginia, one in Chesapeake, another one in Hampton, and another deal in Savannah, Georgia.

Ash Patel: How many GPs were on that first deal and how big was that deal?

John C. Paniagua: It was $9 million and we had to do a $3 million equity raise. It was a $9.25 million, 104 units. I believe we had at least seven GPs on that deal. The other two deals – we have five or six on those.

Ash Patel: And how do you divvy up the tasks for each GP?

John C. Paniagua: Good question. Because when you build a team, you definitely want to be able to not supplement each other, but rather complement. Each individual has their strengths and weaknesses, and you try to make sure that when you overlap, you know all the responsibilities that everyone strength is in each section. So somebody’s main strength is in the underwriting, another individual on the team could be operations, managing the property manager, or managing the contractors, and another one could be dealing with the investors, sending out monthly newsletters, any  updates, any events on the property… And investor relations. So that’s how we divvy it  up. And then, of course, we had the head sponsor.

Ash Patel: Alright. So while things are going well, the Friday meetings are probably easy, everything’s smooth and everyone’s getting along, give me an example or a story where there was an issue to deal with or things weren’t going so well, things got heated, or there was a challenge in front of you.

John C. Paniagua: Yeah, good question. We had one deal… One of our properties, we had a fire. So we had a fire; how do we deal with fire? The firemen came, they had to put out the fire and destroyed two units… Where do we go from there? So we had a GP meeting, and we discussed what is the procedure? And it’s a good question, because one of the things that we’re doing is we were writing procedures and manuals. Because that’s one of the things we need to do. For each property that we have, I realized we need to have a procedure manual to do with such emergencies, or your normal day-to-day operations; we call it the blue sky scenarios. Then you have your black swan scenarios, which could be a fire, it could be natural events that can destroy part of the property. How do we deal with it?  For example, this one, we had a fire. So we had to make sure the tenants were out, we had to deal with the insurance company, and we had to deal with contractors.

So we never have heated arguments… It mostly is “Okay, how do we deal with this issue?” Phil is very, very good at this because he’s from the Navy and he was a special weapons crew combatant, and he knows a lot about operational risk. In the military, it’s actually ingrained in them to do that. My background, when I was an engineer at Northrop Grumman, and I worked with the Navy, I worked with the Air Force building airplanes. That was another thing I had also with me. I understood clearly what’s operational risk and how do you deal with it. And Phil was really good, so we overcame that incident and we’re moving forward.

That’s just one example. Another example could be, again, dealing with a contractor who possibly is not doing the work the way he’s supposed to, or the property manager not filling out reports. That’s something that we’re working with now. We’ve been on this deal now almost a year, and we’ve been able to work through some of the reporting issues to make sure they’re in line with what we expect, so that when we do our lender documents, we have the lender docs to report to the lender to make sure that numbers are in sync.

Ash Patel: Right. Your team was put to the fire on that one, literally. So John, how often did GPS communicate? How often do you guys meet and talk?

John C. Paniagua: Oh, at least once a week, at least. Sometimes, depending on if there are any issues, it could be twice a week. We send texts to each other, we definitely communicate with texting; we’ve got to get on a call, or email.

Ash Patel: All of you guys are systematic, have a lot of experience behind you… Are you looking to scale what you currently have to the next level?

John C. Paniagua: Great question. Me personally, after being a GP on three deals, I realized for me, because I’m here in New York and I still work full-time, I really can’t afford to do that yet, to be able to scale up in a GP. What I can do and what I’m focusing on is more on the LP side, is creating a fund… Because there is a lot of opportunities here in New York, there’s a lot of money in New York, and I’ve seen money leave New York, heading to the South Southeast, for example. There is money heading to Texas, there is money heading to Arizona… And it’s leaving New York for a reason, because there seems to be an anti-landlord atmosphere right now, and it’s not very conducive. You can’t get your investors returns on the multifamily side. And looking at a hundred units… They’re more like 20, 30, 40 units, and the returns are not there for you.

So I’ve been focusing now and I’m going to be creating a fund. I’m going to create it by next month. That’s where I’ve been focusing, because I want to be able to do that, build out a sponsor network, also an investor network, and then be able to get a deal flow and match that with the capital raise. So that’s what I’m working on right now.

Ash Patel: So will this fund have other syndicators taking your investor money into it?

John C. Paniagua: Exactly. That’s the intention. It’s funny, because I invested in one of Joe’s deals, a very good deal, and I see what Joe’s doing. So I’ve done three deals last year; I am by no means an expert. I’m still a student, and that’s my philosophy, my attitude. I want to be able to learn from as many different syndicators and learn from many different investors who have a lot more experience than I do, but I want to learn from them.

One thing I learned is to listen to them and that’s what I’ve been doing. I listen to Phil, I listen to my teammates, I listen to others, and I’ve been on other podcasts… I listen to people with a lot more experience, because they’ve walked the path and they know. So that is where my focus is right now, is exactly that.

Ash Patel: What’s the challenge of starting a fund? A lot of regulatory hurdles?

John C. Paniagua: It depends how. So from a regulatory hurdle perspective — it depends on the size of the fund. Right now what I’m looking at is a small fund, I’m looking at a five to ten million dollar raise, and then be able to scale from there. You know, once you get to a certain size, now you have to register with the SEC… That’s where the attorneys come in, and you work with the attorneys on that. But right now, I want to start out, get the platform basics set up, and then be able to bring in investors through the advertising, being able to bring sponsors in, and vet their deals, because it’s very important. One of the things I learned now that I’ve experienced on the GP side, is being able to see what’s a really good deal for my investors.

Ash Patel: What’s your target return to your investors on this fund?

John C. Paniagua: I’m looking at IRRs of 15% or higher, and looking at value add deals, possibly maybe some core value deals like class C, C plus, and class B. So that’s what I’m looking at right now, because I think that’s where you can still get deals out there… They are getting harder. They’re definitely getting harder to find. I’ve seen that. I’ve seen cap rate compression where I never saw before, because people are bidding up prices. So a metric I always use is unit cost and the monthly market rent.

One of the things I remember in reading in Joe Fairless’s book was study your market, understand what is it that can give you always opportunity in that market, which is driven by economic fundamentals…  The job market, is it  diversity… I remember I followed his step by step to create a spreadsheet, you create a list of the markets and then you rate them based on these criteria. So I’m not going to make a shout-out for the book, but you’ve got to get it. Joe Fairless’s book is an invaluable read.

Ash Patel: It’s the book on syndications, right?

John C. Paniagua: Correct. The big one, The Best Ever… And the other one was Hunter Thompson’s Raising Capital. Again, I’m a student, I’m still learning, and that’s it. I just try to absorb as much as I can and listen to what they say.

Ash Patel: John, what is your Best Ever real estate investing advice?

John C. Paniagua: I would say when you network and you establish relationships, listen, listen to them. Like I said, my mentors – I listen to them. Follow what they say because they’ve been through there. You don’t want to have to deviate off the road to learn that you’re going to end up back on the path they told you. Listen to them, learn as much as you can, and that’s it. You’ll see that when you apply it, it’s so true what they say. It’s remarkable. I find it uncanny with what I’ve been through so far.

Ash Patel: That’s great advice. John, are you ready for our lightning round?

John C. Paniagua: Sure.

Ash Patel: Awesome. First, a quick word from our partners.

Break: [00:17:35]  – [00:17:56]

Ash Patel: John, what’s the best book you’ve recently read?

John C. Paniagua: Raising Capital by Hunter Thompson. It’s that blue book, it’s a very good book. That was the one I’ve read recently.

Ash Patel: What’s the Best Ever way you like to give back?

John C. Paniagua: Oh my God… For the very reason that I was talking about… So besides, personally, I want financial freedom, I’m more about also giving people a good product. You take a class C that needs some work, do a value-add and you enhance the living space for somebody that’s living there. Being able to add value, make it a nice place for them… And it’s a win-win situation. To me, improving people’s lives that way; make them feel more comfortable… I’m giving back that way.

Ash Patel: That’s a great byproduct of real estate investing.

John C. Paniagua: Yes, they said that before I started and it is so true.

Ash Patel: Good. John, how can the Best Ever listeners reach out to you?

John C. Paniagua: Oh, simple. Right now my website is www.onewayholdingsllc.com. You can reach me by email at info@onewayholdingsllc.com, or use my personal email, I have no problem; it’s jpania@yahoo.com.

Ash Patel: John, thank you for being on the show. You’ve given us some great advice, and your story coming from the corporate world, using and learning all of these systems that you’ve learned over the years and applying them… You got the real estate bug just a few years ago, and you applied all of these systems. You educated yourself and you literally went from zero to syndication, which a lot of people, their goal is syndication, and it takes them years to get there. But you took the fast track and systemized everything, educated yourself along the way, and what a great story. Thank you so much.

John C. Paniagua: Yeah. The key was my teammates, and understanding not to be greedy. So being a part of GP — think of it as the Amazon distribution model. Being a part GP on many deals to me was very valuable, because I get to learn by an order of magnitude many more the issues with multifamily syndications…  And investing in other people. I enjoy investing in Joe’s and other syndicators’ deals, because you learn.

Ash Patel: That’s an angle that a lot of people probably don’t look at – get into the GP side and learn by putting your feet to the fire.

John C. Paniagua: Yes.

Ash Patel: Yeah. Awesome. John, have a great day. Thank you so much again.

John C. Paniagua: Thank you so much for inviting me to the show.

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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