JF2756: How One Cup of Coffee Kick-Started Her CRE Investing Career ft. Alessandra Thompson

When a mentor offered to grab coffee with Alessandra Thompson if she was ever in town, Alessandra didn’t hesitate. The next day, she showed up to Nashville, and that coffee date ended with a business partnership. Alessandra shares how she made the bold move to move across the country from California to Tennessee, her experience as an underwriter and asset manager, and what she’s planning for the future.

Alessandra Thompson | Real Estate Background

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TRANSCRIPT

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, Alessandra Thompson. Alessandra is joining us from Nashville, Tennessee. She began her journey into real estate syndications after moving across the country. Alessandra now has two properties under management and she handles day-to-day asset management and operations. Alessandra, thank you for joining us and how are you today?

Alessandra Thompson: Thank you for having me. I’m doing really well. I’m happy to be here, excited to just be on the show.

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

Alessandra Thompson: Yeah. A little bit about me is that I’m originally from California. I started my real estate investing journey probably last March 2020. A little bit of education a couple of months before. I always knew that I wanted to just get into something that would free up my time and where I wanted to live, and also just help me out financially. This is something that I just wanted to really get educated in. I started out by just looking at all the different ways of how I could get out of my W-2. I wanted to get more passive income, so this is something that just clicked with me in the multifamily world.

I was just working in marketing in Los Angeles and it wasn’t until COVID that I realized how unhappy I was with just going into an office, especially with the LA traffic. I was able to just get my life in order of where I wanted to be. I fell into multifamily, I found some mentors and people that were doing what I wanted to be doing, and I just got started and moved to Nashville to be in my market. I’m just super-excited to be here. I love the industry, I love the multifamily space. That’s a little bit about me.

Ash Patel: I’ve got a lot of questions. First of all, you’re in your mid-20s and you had this epiphany that you wanted more free time, you weren’t happy with the W2. Do you know how many people I interview in their late 30s, 40s, and 50s that had just had that revelation? How did you come to this? I would Imagine a lot of people at that age are just like, “Alright, I’m going to work, I’m going to grind harder, and then I’ll retire early. Or I’ll save up enough money and then I’ll move on to something else.” How did you have this awesome mindset at that young age?

Alessandra Thompson: I think it’s just that I’ve never been able to sit still in an office, and look outside and be like, “I want to travel the world and I want to be able to have the opportunity to spend more time with my family and friends.” Also, my father passed away about four years ago and he was working until the day that he passed, and that just really struck a chord in me that that was something that I could not do. I wasn’t able to spend enough time with him, I wasn’t able to just be able to go on a trip with my family and friends, or go out somewhere, because it was always just about work. I think that life is meant for more than that. I think that there are just boundaries that need to be had, so I wanted to just be able to free up my time and be able to do the things that I want to do, when I want to do them. That’s a lot of where it came from.

Ash Patel: Yeah, sorry to hear that, and thank you for sharing that. So you had that in the back of your mind… How did you bring yourself to take the action of leaving your job, pursuing real estate and moving to Nashville? Now, you said Nashville was my market – did you have the property first, or did you move to Nashville just because Nashville is awesome?

Alessandra Thompson: That’s a really long story, but I’ll get into the nitty-gritty. I was living in Los Angeles and then COVID happened. I didn’t see anyone for three months, I was just like, “I’m just going to get my life together a little bit.” My brother was living in Florida, he was doing door-to-door sales, and I just went. So I haven’t seen anyone — Florida seems like the other right place to go just to visit. So I went and visited, I stayed there for the entire summer, I started doing door-to-door sales with him. I made a good amount of money doing that while working my marketing job at the same time. I knew that I’d always wanted to get into real estate, so I was just like, “Okay, I’m going to put this money to use. I’m going to buy maybe a duplex and rent out one side.”

It didn’t seem like it was going to replace my job or my W2, and so I wanted to think outside the box of like, “How can I scale bigger?” That’s when I started falling into multifamily. I got on Clubhouse when it first started. It was an interesting space, because I was just asking any question I wanted on the platform and just meeting different people, getting on phone calls, asking all the questions that I could, just jumping on the phone with people. My mentor now, the people that I work with were in the space and I just jumped on a call with her and she said, “That’s awesome that you want to get in the industry. If you’re ever in Nashville, let us know, we’ll grab a cup of coffee.” I was just jumping around from state to state, and I was like, “Okay, I’m going to go to Nashville tomorrow.”

I packed my stuff up and I just moved to Nashville. I’d never been here before. I thought it was coming into old country, but it’s actually very different than that. I showed up and I was like, “Hey, I’m here for coffee.” I was still working my marketing job, so I had that security on the back end. So I just told myself to take that risk, take that action, see if there’s any value that I can provide for these people. They happened to have an open position and they gave me the opportunity to start working with them, so I quit my W2 job and jumped straight into multifamily. I think through experience, I’ve been able to just grow a lot quicker and educate myself a lot faster by being like, that boots on the ground.

I took action, because if I didn’t, then I would be in the exact same position that I was before. I think that in my mind, I was just like, “Well, the worst that can happen is that I move home, so I might as well just go test it out.” I had really great time driving across the country, so that was a win for me. It has been working out, so I’m just really grateful and excited.

Ash Patel: I love your story. What did you end up buying first?

Alessandra Thompson: We went in on a property in Little Rock, Arkansas. It’s a 36 unit and that was last July. There was a lot to be done; it was a 1935 build and we just went straight in, replaced property management. We ran into some issues and delays with closing, just because of the HUD statements. We also found there’s a huge groundwater stream running under the property, and we had a big mold issue which just delayed closing a lot. I’m actually going there tomorrow, I’m going to drive there and take a look at it. I’ll post it. So yeah, that was the first property that I closed on.

Ash Patel: Hold on, we’re diving into some of this stuff. I’m very curious. When you say we, this is you and the person you had coffee with?

Alessandra Thompson: Yeah, we’re partners.

Ash Patel: Okay. There’s a story there that I need to hear. You had coffee and then you became partners. How did that happen?

Alessandra Thompson: I was able to come in and work with them as their underwriter and just doing day-to-day stuff, and now I’ve grown. Because I didn’t know anything when I first started, so they didn’t have to give me that opportunity. But they saw the hard work and determination, and so I was able to just start small, just doing basic things. Then I started to just keep educating myself, really looked through how the process worked, and now I’m working in asset management and going out to contractors, speaking with contractors, property managers, underwriting the deals still… I’m doing a lot of work on that end, and so I was able to just partner with them on the property.

We got it through our lender relationship. He actually lived in the area in Little Rock, Arkansas, so he thought it was a really good opportunity. It was on the MLS, it’s a 36-unit. No one’s going to go on the MLS to buy their house and be like, “I’m going to buy this 36-unit to be my residence.” We were able to just go in there and get the financials. It’s a great little deal, it’s right off the main street of downtown, so that’s just been so exciting to see. It had a lot of different challenges to it, so I was able to just grasp how to deal with them. I think that’s the way that I’ve learned the most, is just through experience. So that started from coffee, yeah, to answer your question. [laughs]

Ash Patel: Were they blown away that they said, “If you’re ever in town”, and the next day, here you are?

Alessandra Thompson: Yeah. It’s a funny story to always tell but I think it all just comes with taking that action and just showing up. Even if you don’t know what to do, just take that next step because that’s what’s just going to propel you into the next step, and the next step. I wasn’t very educated in it and so it just takes time, but they were blown away.

Ash Patel: I would be as well, that’s incredible. I was going to ask you a question and you just answered it. The question was, what advice would you give somebody that’s in their 20s, or even — I don’t think age matters. Somebody that’s in a W2 job, hates it, realizes they’re sacrificing all of their time, it’s not where they want to be… And what you’ve just said, I think is the answer. Just take the next step; whatever step it is, take a step.

Alessandra Thompson: Take a step, even if that means reading a book about it. I think that just meeting people that are doing what you want to be doing, getting on the phone with people, going to meetups, having conversations, or attending certain webinars, it’s all going to be helpful, because you’re just going to build upon that, it’s always going to take the next step. There’s a lot of fear that’s involved, and I think that’s what people are afraid of is just getting out of their comfort zone.

I’ve been uncomfortable for the last year but I know that every time that I conquer the next step, I can look back and be like, “Well, I did this, so why can I do the next one?” I think it just comes with, “Okay, where am I going to direct my energy to, and what’s going to get me to the next level?” It just all begins with believing in yourself, but also just taking that action and not letting fear guide you.

Ash Patel: I’m sorry, I’m blown away. You have an incredible outlook, a great mindset. Back to the Nashville deal – you also mentioned you found it on the MLS. Something I tell our Best Ever listeners often is to look for mis-marketed or mismanaged deals, and the MLS is a great spot to look, because a lot of people are looking to brokers. I have broker relationships, I look for off-market deals. While all of that is great, we’re missing the low-hanging fruit, that new or inexperienced residential realtor that lists a multifamily or commercial property on the MLS; there’s a ton of that out there. So I’m glad you brought that up as well. You ran into a lot of issues there… What was your role in resolving the mold issues, the HUD issues?

Alessandra Thompson: That was just speaking with our lender and speaking with the previous sellers of just how are we going to handle this mold issue. But it took a lot of just back and forth with the groups. My role I think came mostly with property management. I was just helping the transition of property management groups in the due diligence phases of how are we going to switch over the utilities, or collect the balances, and just working between those groups. We actually ran through the property management group that we hired secondly; they were not doing the job that they said they were doing, so we had to like pick up a lot of work, and so I was on the phone with contractors. I even posted Facebook Marketplace posts to get people into the unit. It was great, to just experience what day-to-day life looks like for a property manager. It’s a lot of work, but it’s just been helpful for me to learn. Really just a lot of communication and the due diligence of just switching over companies.

Break: [00:14:37][00:16:33]

Ash Patel: Alessandra, how much hand-holding have you received, or is this just learn as you go?

Alessandra Thompson: It’s learn as I go. At first, I think the biggest challenge was speaking with contractors, like “What is the standard pricing? Where are we supposed to be? What’s the timeline?” I think that I just had to get accustomed to that. It took a lot of asking a lot of questions and getting a lot of different quotes to compare. I think it’s just been learn as I go. Jason Yarusi, the person that I work with has a great background in construction, so it’s just in his brain. So I could just turn to him and be like, “What is this? What is that?” That’s why I think it’s so important to partner with people that are just doing what you want to be doing, that have that experience. I think that’s the best strategy to just get into the place that you want to be, because you can just learn as you go from experts and people that are experienced.

Ash Patel: What’s an example of a mistake that you’ve made and what would you have done differently?

Alessandra Thompson: Oh, man. I know I’ve made many mistakes, but I don’t know why I can’t think of one right now.

Ash Patel: Think of an embarrassing moment, an “Oh my God” moment, or “I can’t believe I did this.” Something that stood out, something crazy.

Alessandra Thompson: Oh, I can’t even think of one, but I know that speaking of contractors I’ve probably said some dumb stuff, because I just wasn’t accustomed to like, “How does this electrical thing work?” I’m sure I just sounded silly, but I genuinely cannot think of what I’m really…

Ash Patel: No, that’s a good example. What would you have done differently? Because there’s a learning curve, you talk to somebody who’s been doing this for X number of years, and here you are asking a silly question. Is there something that you could have done differently?

Alessandra Thompson: Yeah. During the due diligence phase, there was one point where I was on the property and we were doing the inspection. I was on the property with 12 different contractors, and three of them getting different bids from everyone, so I started to just lose track of what I was supposed to be doing. I think that I could have been better at just writing everything down and recording what I was doing. Also, it’s a space that I wasn’t fully understanding yet at the time, so I think just being more educated and having someone that’s more of an expert on-site would be helpful. Now I can go in there like a breeze and speak to those contractors.

Ash Patel: Like a boss.

Alessandra Thompson: Yeah. So I think it just takes practice. But I’m sure I’ve said some silly stuff.

Ash Patel: We all have. What was your next property?

Alessandra Thompson: We are doing a 20-unit motel conversion up in North Nashville, we’re turning it into a short-term rental community, an Airbnb. This one has just been a full project. It’s been really exciting, because I can just drive over there, it’s like 10 minutes away, and just to really get down into the nitty-gritty of every layer of the process, versus the other property that is in Little Rock. It’s just focusing on that communication with the property management that the business plan is going according to plan, which it wasn’t with them at first, so that’s why we had to also re-hire a new property management company; now it’s going smoothly.

This one we’re just handling on our own and it’s just been getting people onsite, making sure that the schedule is just completely – no holes in it, because there are so many people in and out, like “Okay, the electrical needs to go here but we need to make sure this is done first; then the electrical needs to go back again.” I think it’s been really fun for me. I know it sounds stressful for a lot of people because we have to make sure we’re doing a lot of everything on time, but it’s fun for me to just see it happening before my eyes.

Ash Patel: How did you guys find this deal?

Alessandra Thompson: This one was actually through a broker.

Ash Patel: It was marketed as a hotel?

Alessandra Thompson: It was marketed as a motel. Yeah.

Ash Patel: Okay. The great idea of turning that into short-term rentals – doesn’t Nashville have very strict rules on that?

Alessandra Thompson: They do. So with zoning, you’d want to just contact the zoning department. But here, because it was already set up as a motel, it was perfect because people are just coming in and out anyways. But there are a lot of issues with the zoning department.

Ash Patel: What’s your role on this project?

Alessandra Thompson: I’m doing asset management, so I am always out there just with the contractors. It’s a lot of work and just making sure everything’s going according to plan, according to budget, speaking with the lenders on draws… Just out there.

Ash Patel: Asset Management sounds simple, but you’re doing everything – the renovations, the lease-ups… You’re going to run the asset once it’s up and running as well, right?

Alessandra Thompson: Yeah, we have a third-party short-term rental property management group that’s going to come in as soon as the property is ready. But because there’s such an overhaul of work right now, it’s probably not going to be online until April or May, just because there’s so much to be done. It’s been quite a journey. It’s exciting because Nashville is such a good market for people coming in and out, especially – apparently, there’s more bachelorette parties here than there are in Las Vegas.

Ash Patel: Nash Vegas.

Alessandra Thompson: Yeah. The numbers are great, and it’s super exciting. I’m excited.

Ash Patel: How many hours a week do you work?

Alessandra Thompson: A lot. I feel like I couldn’t tell you, because I wake up so early, like four in the morning. So I’ll be emailing at four in the morning, or when I go home, and I’ll be up on my email at 7pm underwriting a deal… It just doesn’t end, but that’s okay, because I enjoy it.

Ash Patel: The reason I asked that question is I want to contrast that to when you had your W2 job in that office, in traffic. Even though you may have worked less hours back then, the smile on your face now is amazing, because you love what you do and it’s very fulfilling. Congratulations to you. Again, at a young age, having this stuff figured out… What are you doing to inspire other people?

Alessandra Thompson: I just want people  — especially there are not a lot of women in the industry, and I think that a lot of people just are afraid of getting into something like this because there’s a lot to learn. But like we said, it just takes taking those small steps. I think to inspire other people, I love to set up Calendly links and just have phone calls. I like to help with mentoring others, so I’ll just randomly get on a meeting with someone and overlook a deal with them that they’re looking at. Help them point out what they’re missing, how they could improve, who they can talk to, what they can just do to be stronger on their underwriting.

Then also just getting on panels or podcasts like this; I just want people to know that if they want help, I’m happy to just be a resource to them. I love helping others, and I want them to know that they are capable of doing something like this too, because I didn’t use to think that I was, but I also just pushed that out of my mind. I was like, “Okay, well, why can’t I do it?” Just letting other people know that it’s possible to do what you want to do and make the leap.

Ash Patel: You are incredible and very inspirational, and  I’m glad you’re doing that. Where do you see yourself in five years?

Alessandra Thompson: As I said, I want to have that geographical freedom, so I would like to travel a lot, but I also would just like to keep scaling my portfolio with multifamily, possibly get into development at some point. I don’t know what the future holds, but I think I’m on the right track to just leveling up each year, each year just trying to get better. Also just spending more time with family and friends. I love traveling, it’s my main goal. I love eating at restaurants, so I’ll be eating some more. [laughs]

Ash Patel: Do you get to travel right now?

Alessandra Thompson: Right now, a lot of US travel, so I’ve been doing some of that. Like Denver at the conference, that was fun. I’m going to go to New York for my friend’s wedding, which will be good. But I haven’t been out of the country since before COVID, so that’s something that I really want to make sure I’m doing… But I’ve been very busy right now so I’ll make it work, I’ll figure it out.

Ash Patel: Good. What does your team look like right now? Is it just you in that one partner, or is it is a giant company?

Alessandra Thompson: There are three of us. It’s Jason and Pili, they are amazing at what they do, and I’m so grateful to be a part of the team. So yeah we’re just going to continue scaling and growing as a group, and seeing where we’re going to go next.

Ash Patel: I am excited for you. Alessandra, what is your best real estate investing advice ever?

Alessandra Thompson: Just get started. I think that just take action, don’t let fear guide you. I think success lies on the other side of fear. Just know that you’re capable of doing anything that you set your mind to. Just take action.

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

Alessandra Thompson: Oh my gosh, these stress me out, but yeah.

Ash Patel: Well, you’re stressing me out now. All right, listen, let’s take a breath, and let’s get through this. Alessandra, what is the Best Ever book you recently read?

Alessandra Thompson: Oh man. I read the Psycho-Cybernetics book is really good. Just shifting your mindset of the way that you see yourself. I think that once you shift the way that you see yourself, then you can shift the way that you act on daily actions. That’s a great book, everyone should read it.

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

Alessandra Thompson: Give back? For friends and family, I love cooking a home-cooked meal and sitting down at the table, just being there together and checking in on everyone. That’s why I love to get back to my family and friends.

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

Alessandra Thompson: They can reach out to me at alessandra@yarusiholdings.com. They can find me on LinkedIn, Alessandra Thompson. Send me an email, that would be great.

Ash Patel: Your information will be in our show notes as well. Alessandra, it was actually a very good pleasure meeting you at the Best Ever conference. Glad we got to do this podcast together. Thank you for sharing an inspirational story. Moving from California to Nashville, showing up because somebody invited you for coffee, showing up the very next day. You’re on your way to building a great portfolio. Thank you for sharing that inspiration with us and the Best Ever listeners.

Alessandra Thompson: Thank you so much for having me. I’m looking forward to hearing the episode. It was so great to meet you at the conference.

Ash Patel: Thank you again. Best Ever listeners, thank you for joining us. If you enjoyed this episode as much as I did, please leave us a five-star review and share the podcast with anyone you think can benefit from it. Follow, subscribe, and have a Best Ever day.

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JF2749: Broker’s 4 Invaluable Tips for Finding Multifamily Deals ft. Beau Beery

What’s the best way to find multifamily deals? According to Beau Beery, it’s having a good relationship with a broker! As a multifamily broker, Beau reveals how high-net-worth investors find and make deals, how they increase the probability of making more deals, and what you can learn from their strategies to scale your portfolio.

Beau Beery | Real Estate Background 

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TRANSCRIPTION

Slocomb Reed: Best Ever listeners, welcome to The Best Real Estate Investing Advice Ever Show. I’m Slocomb Reed and I’m here with Beau Beery. Beau is joining us from Gainesville, Florida. He’s a multifamily broker specializing in conventional and student housing over 10 units in the northern half of Florida. He’s also the author of the book Multifamily Investors Who Dominate. Beau, can you start us off with a little more about your background and what you’re currently focused on?

Beau Beery: Yeah, sure, no problem. I went to the University of Florida back in the late ’90s, got a marketing degree, went to work for Trammell Crow Residential, which was the leading apartment developer in the country at the time. I was doing on-site leasing and sales, I got to understand the multifamily business from the ground floor, which is really, really awesome. I had great upline, and had great coaches. I went back and did a master’s degree in real estate at the University of Florida, which is currently the number one program in the country, graduate real estate program. Then I went and worked for a development group that mostly developed, owned, and managed office, retail, industrial, and multifamily. I brokered and managed the portfolio, I did that for 10 years.

Then I started to think, “Well shoot, I’m pretty good at this. What if I did this for 10 people? What if I did this for 20 people? What if I did this for 30 people?” The brokerage world was calling at me. So in 2010, I acquired a Coldwell Banker Commercial Franchise with some partners, and we just blew up, it was awesome. I did only multifamily brokerage while my partners ran the company. I was number one in the state of Florida almost every year for Coldwell Banker Commercial, and I was in the top three in the nation in all 40 countries for almost all of those years as well. I just sold that company to my partners last year, and now I just have my own boutique multifamily brokerage firm called Beau Beery Multifamily Advisors. I broker anything over 10 units, market rate, or student housing in the Northern half of Florida. That’s my story, brother.

Slocomb Reed: Nice. When did you buy the Coldwell Banker Franchise? How long have you been brokering multifamily?

Beau Beery: That was 2010 when I acquired the franchise; it was me and three other partners. We also had a Coldwell Banker Franchise, so we had about 90 residential agents. My partner’s ran that firm, and then we had about 12 or 15 commercial agents, and I ran that part of it. But I did nothing but brokerage for my side; I just brokered multifamily assets.

Slocomb Reed: 2010 is an interesting time to get into brokering multifamily…

Beau Beery: Yeah, man, for sure. Actually, it was interesting to just be alive in brokerage, period. When I acquired that company with the partners, we had a very limited number of months of reserves left; after 100 years of that business being in business, it was about to go under. Everybody was, everyone in brokerage; everyone in the market was struggling, they were barely surviving. We came on, and I mean within a few months, we just started killing it. When I came from working for one person to brokering for others, I had built a name for myself 10 years prior. So day one, when I acquired the Coldwell Banker Commercial, everybody who had been following me for 10 years was blowing up my phone for that first 30 days, and we must have racked up three or four dozen listings. I was the number one agent in the entire market year one, and then it took off from there. It was just a great story, it was good timing, and then I exited at a good time.

Slocomb Reed: Yeah, 2010 was a great time to get listings.

Beau Beery: Yeah, for sure. There were plenty of listings. It was finding the buyers man, that was the key. Now there’s that’s plenty of buyers and no listings. [laughs]

Slocomb Reed: Yeah. So you had 10 years’ experience before acquiring the commercial brokerage with Coldwell Banker in 2010. Fast-forward another 10 years for me Beau, 2020. The market’s been completely turned on its head. It usually turns on its head faster than every 10 years, but even prior to COVID, we were in a market where it was very difficult to find sellers and it felt like everyone was a buyer. I know in my conversations with commercial brokers, their buyers list has four or five digits, and that’s just the people who are getting the emails when they take a listing. So what is it that you’re doing now to get in front of listing opportunities to be on the listing, the selling side of multifamily deals?

Beau Beery: Yeah, I take a very digital approach to how I get my listings. It’s a system that I’ve been creating for years and years, and it’s an algorithm. I use a CRM called RealNex, realnex.com. What I did was, about 15-16 years ago, I exported every single apartment complex that exists in the Northern half of Florida, anything that was over 10 units. I exported from the property appraiser websites. Property appraiser websites are the only source of data that is accurate. All these other subscription-based websites that people subscribe to, they are not 100% accurate. They all get their information from property appraisers.

Slocomb Reed: Beau, I want to make sure we’re on the same page here. When you say property appraiser websites, are you talking about…

Beau Beery: Tax assessors.

Slocomb Reed: Yes, so you’re talking about local or regional government authority public records.

Beau Beery: That’s correct. County tax collectors are the only human beings, or the only websites, the only municipality, whatever you want to call it, that has the information on every asset, because they want to tax you. All the websites you subscribe to – CoStar, Reece, whatever it is – they have good information. Basically, what they’re doing is they’re assembling information into an easy-to-read format and they’re charging you money for. But it’s being input by a lot of young folks who don’t do real estate; so a lot of the data is incorrect. They don’t know what a qualified sale is, sometimes they don’t know the difference between market rate and student housing. There’s a lot of stuff that’s inaccurate. And I saw that. So a long time ago, I exported every asset, imported it into a CRM… And I’m leading to answer your question about listings; this is all part of the story.

So what you get from the property appraiser website, is you get a parcel number, you get an owner name which is always an LLC, you get an address, sometimes you get number of units, depending on the website, you get the age, you get what it sold for, and when it sold, and that’s about it. But oftentimes doesn’t give you the number of units, the bedrooms, sometimes the ages are not in there, the type of construction sometimes are not in there, the actual principal of the company and their contact information, how much value-add is left… Property appraiser websites don’t rank them, A, B, C, all this stuff. So I spent a tremendous amount of time and resources getting all of the physical data perfect. Everything about the physicality of the asset, who owns it, what they paid for, everything, and created a database. And over time, I tracked a number of indexes. I tracked when the mortgages end, I tracked when it last sold for, so I tracked all the sales. I can tell you what the number of months is someone’s going to hold it based on the type of asset, the size of it, the market it’s in, and most importantly, the type of owner, whether they’re a syndication or private. I track all of these sales in different silos. So as soon as someone buys a complex, I go ahead and put a date into the future of when I think it’s going to sell based on a bunch of other indexes that I’m tracking, combined with when the mortgages end, combined with the type of owner and when their equity is going to mature and they have to go ahead and sell for their investors… So there are all kinds of things that are intersecting, and I’m inputting in dates.

So every day when I walk in my office and I pull up my CRM, I pull up today’s to-do’s, there are two or three phone calls that I have to make to people who own apartment complexes that are ripe for selling today. These are phone calls that I put in last month, last year, or sometimes 10 years ago. It’s also discussions I have with owners. Over time, as you can imagine, I have lots of phone calls with owners who say, “Hey, Beau. Our loan doesn’t come up until 2025. We cannot sell before then. Our defeasance is too huge until 2023.” So I get that information. If their defeasance is too huge until 2023, I may start calling them in late 2022 or mid-2022 to start feeding them information, getting on their side, adding value to them, so that they think of me once that defeasance burns off, and now they’re capable of selling.

Slocomb Reed: Beau, this is fantastic. I know that there are some of our Best Ever listeners who do their own lead gen. The vast majority of them are not brokers, but a lot of people are hungry enough for good opportunities that they are going direct-to-seller. Especially when you say 10 units, going direct-to-seller is much more common for us investors in that 10 to 40 units space, because it’s much more likely that those mom-and-pop style owners don’t already have embedded broker relationships. First, let me ask you, Beau, in your experience, does that hold weight? Is 40 units a good metric? Under 40 doors, the majority of the owners don’t already have a brokerage relationship, but above 40 doors they do?

Beau Beery: Definitely not. To say the majority, absolutely not; they’re using brokers, period. Is there a greater chance under 40 units of getting a deal directly from the seller than above 40 units? Absolutely. But you have to understand, the guy who owns a 20-unit complex that is worth $2.5 million, he’s probably fairly sophisticated. That’s probably not the only one he owns, it’s probably not the only one he has transacted in the past. He’s not living in some silo somewhere, away from the world, and doesn’t understand that you can hire a broker and get 15 offers in two weeks. Everyone knows you can do that.

If you’re buying quadruplexes, duplexes, 10 or 12 units, there is a higher likelihood that that person isn’t in our world, transacting on a regular basis, and may entertain an offer from some guy he doesn’t know who calls him off the street. But logically speaking, when you own a reasonably good asset, you’ve probably transacted before, you’ve probably stayed with your ear to the ground, you’re probably getting calls from brokers every week educating you on the world, which is why 93% of every deal that sells over 10 units is done by a broker. That is an actual five-year study I did, it’s in my book right there. I studied 31% of every transaction over a five-year period where I literally called the sellers and I determined that 92.77% of every deal over 10 units was done by a broker, because it just makes sense for them to do so.

What I try to coach investors on is you can try to be the guy who calls the seller directly, because there’s a higher profit margin, or at least you think so, and your profitability per deal, over time will likely be greater than the guy who only focuses on network and the brokers. But the guy over here who networks with brokers has a much higher net worth than this guy over here. Because this guy is hitting base hits left and right, he’s doing way more deals per year; he doesn’t have to hit a home run every time, he doesn’t have to feel like he’s sitting around a fire drinking beer with his buddies and tries to brag about a deal he got direct from the seller. That doesn’t mean anything to this guy; he’s trying to build a huge treasure chest of assets. Because the more number of units you buy, the more powerful you become; because the more units you own, the more I as the broker want to bring you deals, because the sexier you look to the seller, the easier it is for me to sell you as the winning bidder in a multiple offer situation to the seller.

The guy who’s buying one or two deals a year directly from the seller, because he’s making as many phone calls as he can and he’s only getting one or two of those a year… And by the way, there’s nothing wrong with that, but that guy is never going to be able to compete against the guy who has nine complexes that he bought in the last 18 months using brokers. It’s a relationship business.

Slocomb Reed: Absolutely. Beau, I may be showing my Midwest-ness here when I talk about 40 doors… Because I’m based in Cincinnati, Ohio, and when you’re talking about predominantly C-class inventory – I’m not saying all the inventory in Cincinnati is C-class, but that’s what I’m focused on presently – one of the numbers that we’re pushing on if your property is 50% or more one-bedroom apartments… We’re just now seeing properties get around 65,000 a door. In your from-the-gut example of a 20 unit being worth 2.5 million, there are not a lot of 20 units at 125k a door in Cincinnati, at least in C-class areas, which I think lends itself to some more mom-and-popsmanship in a market like ours than a market like yours.

Of course, you have much better analytics than I do. I get what you’re saying about the investor who is networking with brokers, doing more deals, and building their network faster than the person who’s going off-market, trying to hit home runs. In the interest of giving you a platform, let me play devil’s advocate.

Beau Beery: Please.

Slocomb Reed: My ability to purchase is limited. And if I go to raise capital, I’ll be working primarily with sophisticated limited partners who have serious return expectations. So I feel like I need to hit homeruns. I have the wherewithal to do off-market lead generation and do a lot of digging to find a few homeruns this year, because a few homeruns this year is as far as my capital can stretch. And frankly, because I’m only hitting homeruns, I’m going to be able to perform, ideally, cash-out refinances within a 12, 18, 24-month time period, and get my capital back out so I can go digging for more homeruns.

Looking at someone in a circumstance like that, where capital and the ability to raise capital is a serious limiting factor, and understanding that the margins for forcing appreciation are often lower on brokered deals, why is it that I should be looking, or someone in this situation should be looking at brokered deals instead of trying to go direct-to-seller?

Beau Beery: It’s just to just increase the probability, it’s a statistical fact. Listen, the difference between someone who buys a couple of deals a year and someone who buys lots of deals a year – it’s not their smartness or the amount of equity they have or experience oftentimes, it’s how many deals the other guy sees. The more deals you see, the greater probability you have of getting in the game. That’s it. Now, that’s not to say, if you have the ability to have a junior or someone else on your team doing the letters directly to sellers, making the phone calls, whatever – awesome. Do it, because that doesn’t cost you anything. But if you are the only principal in your company, and you’re trying to pick up assets, and you have a limited time in your day, why wouldn’t you increase the probability of acquiring any asset? Why would you limit yourself to trying to find the only person who’s going to entertain an offer from some guy they’ve never met in their life, who calls him and says the right thing at the right time? That’s all I’m saying.

I get where you’re coming from, and it works for people, and if you’re good with picking up a couple of deals a year, that’s all good; there’s nothing wrong with that. I’m telling you information about how to become a giant. I’m giving you information about the most elite investors in the world. These guys are doing a dozen deals a year on a regular basis for 20 years. The only way you do that is networking with every broker, so that every broker brings you every deal that they come across, both before it goes to market, and after.

It’s just a statistical thing. I’m saying, if you’re going to spend your time somewhere, should you spend it to trying to find a needle in the haystack, or should you go to where the vast majority of the deals are? When you get good enough at and you build enough of a reputation of closing, you get to see the broker deals before they ever hit the market. You can be one of the limited number of people who see it before it goes out.

Slocomb Reed: Sam, that’s a very valuable point.

Break: [00:20:44][00:22:41]

Slocomb Reed: I want to ask about your database. You’ve used public record information and your own digging to accumulate a very powerful database that you use at a very high level to make sure that you’re having conversations with owners at the time that they are most likely to be selling.

Beau Beery: Right, oftentimes they don’t even know it.

Slocomb Reed: Yeah, totally. I want to compare that to the broker who gets a Costar subscription or buys a list and just starts calling people. Beau, how often, when you’re making your two or three phone calls in the morning, are you calling people who are already having conversations with other brokers, who have not gone to the lengths that you have to make sure they’re making the right phone calls?

Beau Beery: Every seller has heard from eight brokers that week, that’s a fact. Every one of them, from the guy who owns 12 units to the guy who owns a 1200-unit complex, they’re getting calls from brokers on a regular basis. There’s a couple of trains of thought on the brokerage side. Most national brokers – now, I’m going to do a general statement here, which is not fair, because there are going to be some anomalies within the national brokerages. But the national brokerages, the CB Richard Ellis, Marcus and Millichap, Colliers – all these are big, giant companies that are very, very good at what they do. They are investor-driven, they’re commission-driven, they want to do deals. So many of the agents, particularly the younger guys coming up, they are called demons. “Hey, my name is Beau Beery, do you want to sell?” “Hey, my name is Beau Beery, do you want to sell?” “Hey, my name is Beau Beery, do you want to sell?”

Slocomb Reed: Yup, I know a lot of those guys.

Beau Beery: Right, that’s their game. That’s good, it builds up a skill for that young person, it drives listings eventually, and those listings go to the head honcho broker. When I say head honcho – usually within national teams, there’s usually a two-partner partnership. There are always these two guys who are fantastic at what they do, they partner together, they have three or four juniors under them, they have analysts, and so on and so forth. Those juniors are doing the dialing for the dollars, they get a hot one, they turn it over to the major partner, the guy gets the listing, and they go to sell it.

What happens is everyone knows those shops. When they call, that’s what they’re going to ask for, is the listing, and they almost become white noise. For most investors, it becomes annoying. Now, I try to take the long game. The long game for me is I add as much value as I possibly can. When I’m making those several calls each morning, I’m not calling asking for a listing; I very rarely asked for listing. All I’m trying to do is add as much value as I can to their business. I’m talking to them about what rents are doing nearby, what amenities are driving up rents, what amenities can be added, sales that happen nearby, what construction costs are running for different things, changes in the market, just adding value. What I want is, when that person sees me show up on their cell phone, they answer the phone, because I’m going to add value and not ask for a listing.

Now, I will say this – a lot of the national shops do way more business than I do as a whole. They may not make more money than me as in net, because they have franchise fees, cuts with the house, junior, assistants and all these things, but they’re going to get more listings. So you as the investor should be networking with every one of those major brokers, because they’re fantastic at what they do. And when you go to sell, their selling point is they have national offices, they have offices in different countries, and so on so forth.

The reality is every broker has the same access, the same number of buyers, whether you’re a little old me, or your CB Richard Ellis. That’s what technology has done for this world. I literally have every human being on Earth, that owns every asset in the state of Florida, and everyone on earth who wants to own assets in Florida who doesn’t already. It’s literally a touch of a button that I have access to them.

So the two different approaches are just call, call, call, call, it’s a number of probabilities, and they’re going to get listings. They’re going to say the right things, especially if you’ve got some of these junior guys who are very good at what they do, they’ve got good verbal skills, so they get the listings.

And the partners they’re doing it for are making calls to their key prospects, doing the same thing. They already have prior relationships, they’re tight. I’m taking a different approach, because I’m not a giant national. I have to be more of a SEAL team member. I think long term. I want someone to look at me as someone who’s a true advisor, who is there to grow their portfolio, grow their business over a 30-year period. And I’ll do less deals, but I’ll have a waiting list of folks who want to work with me.

Slocomb Reed: Beau, as an apartment investor, let me say that I wish I had brokers like you calling me, offering to add value. I am a one-man band when it comes to being an owner-operator, for the most part. I have capital partners, but it’s my advice and my expertise that they’re relying on. I’m still trying to figure out what amenities in what areas are worth how much in rent increase… So if you’re an apartment broker in Cincinnati and you’re listening to this, get my contact info so that you can add value to me and all of my buddies who own apartments. What Beau is saying here is gold.

Beau Beery: Sure. And it works both ways. The thing is that you as an investor is in more competition by far than I am. For me, in the Northern half of Florida there are about 50 brokers that I compete against. You as an investor are competing against tens of thousands of people, but only a very limited number of those tens of thousands of investors are networking and building relationships with brokers, so that there’s this mutual adding value to each other. So I would encourage you to reach out to every multifamily broker in all the markets in Cincinnati, and create – not just a business relationship, but you talk about what you guys do on the weekends, your hobbies, wives, and kids, and over time you develop these personal relationships so that I like reaching out to you and telling you about amenities that people are putting in that are driving up rents, and how people are cutting down on bad debt. So brokers get to see from dozens and dozens of the top investors in the world how they’re operating tremendous businesses, and you can gain that information from them. They’re happy to share with you.

I have a lot of stuff in my head I love to share with folks; that’s why I have the YouTube channel and the book and all that. You just have to reach out to them. And for you to then be able to take some that information and share with your investors and some of your equity – that makes you look like the expert.

Slocomb Reed: Beau, are you ready for our Best Ever lightning round?

Beau Beery: Bring it on!

Slocomb Reed: Beau, what is your Best Ever way to give back?

Beau Beery: For me, it’s two things. It’s probably my YouTube channel. I put a tremendous amount of really high-quality content on there. It’s called Beau Knows Multifamily; it takes a lot of time, it’s a lot of research. Every time I do a deal and if something went bad or good, I’m putting out a video about it. My whole thing is trying to educate investors, both beginning to advanced level guys as much as possible, because the better everybody gets at this buying and selling game in multifamily, it makes my job easier; it brings up the level of that. And the second way is I take on a lot of calls from beginners. I’m very sharing of my time.

Slocomb Reed: Beginner investors or beginner brokers?

Beau Beery: Both. I’ve got more brokers that call me than investors, but I get a lot of beginning investors that call me, and I just have short conversations with them about the inventory that’s out there, what they need to do to prepare packages to hand to brokers, how they need to get letters of recommendation, who to talk to on the lending side, where they may find equity… I want to get them started, because to me as a 46-year-old, I’ve got another 15 years I want to do this. If I can grow some along, they’re going to stick with me for a long time; they’re going to want to pay me back if you will. Not that I’m doing it for that, but there’s a mutual respect. If I can help them, they’ll want to help me.

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

Beau Beery: My favorite book is probably Deep Work. I think the author is Cal Newport, and the whole premise is that there’s a two or three-hour window of your day where you want to carve out, where you cut out the whole world. You turn off the noises on your computer, you turn off your cell phone, you don’t check social media, your family doesn’t come in the door, and all you do is that one thing that nobody’s better at than you. For me, it’s interacting with my rank A customers, adding value in their lives and their business, so that we do more deals together. That two-hour window from nine to eleven in my business, I’m in this room, it’s completely shut off, and all I do is talk to my top customers. For you, it’s finding deals.

Slocomb Reed: What is the Best Ever lesson you’ve learned as a commercial broker?

Beau Beery: Man, I would say it is working with high-caliber, quality, empathetic, non-bull in a China shop type of investors. Because people who have bad reputations, people who re-trade assets, who bad-mouth assets, who renegotiate terms, who redline contracts to insanity, who do all the things that push a bad reputation, what happens is that crap rubs off on you. Even though you’re not that person, I’m the broker in the middle, and the more difficult the person is that I have to work with, that crap rubs off on me and the other party sees it, and they don’t know how to separate the two as much as they should. So I try very, very hard, in every transaction I do, I have a qualification checklist that I go through before taking on a listing, and most of the checklist has to do with the type of investor they are, the character.

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

Beau Beery: My Best Ever advice is two things. Number one, if your overall goal is to accumulate as much units as you can, your whole job should be networking with as many brokers as you can. I go through a full process on how to do that in a book I wrote.

Number two, you have to become a master at the analytics. The reason there are 15 offers in two weeks on every deal is not because they’re smarter than you or better than you, it’s because they know the market like the back of their hand. They know as soon as the listing comes to market, they already know what that deal is worth, they know what they can take the rents to, they know what they can sell it for in three years, they know what the remodeling costs are going to be, they know who’s going to manage it, they already know who’s going to do the lending… They know all this stuff. I should be able to ask you about rents, absorption, sale prices, renovation cost, in any market, in any sub market you’re in. And the better you can get at that, the faster you can react.

Slocomb Reed: Beau, how can people get in touch with you?

Beau Beery: Three ways now. I’ve got a website, beaubeery.com. The reason you want to go there is because whether you invest in Florida or not, you’ll want to see all the metrics and the data I have for the markets that I cover. That’s the kind of data you want to master for your market. Second way is – I know I’ve mentioned it, but this is my book; you really need to get this. I don’t make a bunch of money selling books; I’m telling you because this is the inside stories between brokers and sellers and how they choose buyers.

And the third way is my YouTube channel, the Beau Knows Multifamily. I’ve got playlists on there for beginners, for advanced level guys, I’ve got analytics stuff on there… Every now and then I’ll put new listings on there before I send to anybody else.

Slocomb Reed: Awesome. Best Ever listeners, thank you for tuning in. If you’ve gotten value from this episode, please subscribe to our podcast and leave us a five-star review. If you know someone who would get value from listening to this episode with Beau Beery, please share this episode with them. Thank you and have a Best Ever day.

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JF2737: 3 Reasons to Diversify Your Portfolio with Agricultural Investing ft. Peter Badger

Why should you consider adding farmland to your investments? Peter Badger, Chief Strategy Officer at Farmfolio, sees agricultural investing as a secure asset to add to your portfolio. In this episode, Peter shares the benefits to investing in agriculture and what makes a good land deal.

Peter Badger | Real Estate Background

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Ash Patel: Hello Best Ever listeners. Welcome to The Best Real Estate Investing Advice Ever Show. I’m Ash Patel and I’m with today’s guest, Peter Badger. Peter is joining us from Miami, Florida. He is the chief strategy officer at Farmfolio which focuses on agriculture investing in development in emerging markets. Farmfolio has now become one of the largest exporters in all of Colombia. Peter, thank you for joining us in how are you today?

Peter Badger: I’m good. Thanks, Ash. A pleasure to be here today.

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

Peter Badger: Yeah, I spent 18 years on Wall Street, Morgan, Merrill, Credit Suisse and Barclays, got the inside track, drank the Kool-Aid, and then I went to Silicon Valley for 8-9 years, I started my own tech company, exited, got acquired, and I started my crazy real estate journey around eight and a half years ago. My only goal in life, Ash, was to try and keep my money and grow it.

Ash Patel: Well, hold on. So all those years in Wall Street and Silicon Valley… Why real estate?

Peter Badger: I went around, when I started my tech company, to all the founders in Silicon Valley that I knew, and I said “Listen, guys,” they’re mostly guys, sorry to say, “…how do you keep your wealth and grow it?” Bar a couple of them, all of them said “Listen, we make our money from public and private company stock, and then when you’ve made that money, you put into hard assets like real estate, agriculture, and other similar assets.” Their point was basically don’t roll it into the stock market once you’ve made something; put it into real buildings, land, structure, all the stuff that is really hard and inflation proof.

Ash Patel: Okay, that makes sense. So why not do the typical, buy single-family houses, multifamily houses? You don’t seem like a typical kind of guy, do you?

Peter Badger: No, I went through the whole journey. I did single families, I’ve bought 21 of them in like 18 months, I couldn’t scale it. I bought some multifamily buildings, went through that, I’ve had a good run with multifamily. I did mobile home parks, short-term rentals, I tried everything. Then I ended up basically with three pillars, a bit of money in the stock market, liquidity, I have a decent multifamily real estate portfolio, which is solid steady US real estate, and then agriculture is my third pillar. I did agriculture because of the non-correlation with the first two pillars.

Ash Patel: To diversify?

Peter Badger: Exactly. Because if you think about it, with farmland — the stock market will ebb and flow and crash every seven to 12 years. Real estate has its own cycle based on the local market you’re in. With agriculture, people are still going to buy coconuts, avocados, citrus fruits, all the stuff that’s in high demand in supermarkets, 12 months a year. Who cares what’s happening in the economy? Macro, micro, people are still going to eat.

Ash Patel: Peter, did you start out by buying farmland in the US?

Peter Badger: I did not, because you cannot buy farmland in the US, because it’s too expensive. Our little secret is that land is inflated in the US, labor is expensive, so I went to actually Eastern Europe, Latin America, Central America, I went to a place where there’s amazing agriculture, but there’s a lot cheaper land and cheaper labor.

Ash Patel: You sought out agricultural land as an investment, and you traveled the world to find it. Why? How did this bug get in your head?

Peter Badger: Well, I love to travel, so I was like, “Listen, I can’t buy U.S. farmland.” I just met some people, and I actually visited 19 cities in three years, and lived there between four to six weeks. I was kind of a digital nomad. You just network while you’re down in these countries, you just meet more people, meet more people, and you just get to a bunch of providers who are trying to offer farmland, agriculture, anything really real estate-wise. So I just built the network that way, by trial and error.

Ash Patel: I’m trying to see how grounded you are or lack thereof. Did you start out by investing in other people’s farmland?

Peter Badger: I did, yes.

Ash Patel: Okay. Coffee plantation, or something of the sort?

Peter Badger: Yeah, I did coffee, avocado, mango, got my feet wet… I lost a bunch of money, by the way. I trusted the digital glossy marketing brochure. On that crazy journey, I ended up meeting a company called Farmfolio, I spent five years investing in all of their products, their deals, and I eventually joined last year, because they’ve got it right.

Ash Patel: Alright, you’ve already made it, you got a ton of money, you’re just looking to diversify… It sounds like you’ve taken on a new job, a new career.

Peter Badger: I have, I have.

Ash Patel: Take us through that evolution, if you would?.

Peter Badger: Well, I think for me, once you understand agriculture and the reason for it, I wanted to find a way to share it with everybody else. Because to date, we as little people have not been allowed to invest in farmland or agriculture. Most of the land is owned by big rich landowners, old farm families, or big private companies. So there’s very little ability to get into the ag space as an individual investor. Farmfolio, who I was investing with five years in a row, they’re basically going out and buying farms that are producing, that have been basically harvesting their high-end premium fruit, coconuts, avocados, limes, they’re being washed, packed, sorted, exported to North America and European markets. So there’s this amazing opportunity whereby the fruits are being sold in the supermarkets that we shop in, for the highest price, but the farming is being done in Central ir South America, at a lower price. That’s what the arbitrage allows us to make some money along the whole supply chain.

Ash Patel: Alright, so you invested money with them. Now you can come back to Silicon Valley, come back to the states, you’ve got your three pillars set up… Something didn’t go right. What happened?

Peter Badger: It all went well.

Ash Patel: I mean, something sucked you in…

Peter Badger: Well, I think we all need to have a purpose. I think when you hit the right idea at the right time for the right reasons, that’s when I jumped into Farmfolio. Because I’ve found a way to give titled farmland real estate to people like you and me, that gives a great return for a consistent, multi-decade period. I don’t know whether, Ash – people may have heard this concept, but it’s called the financialization of everything. So there’s like MasterWorks, people are taking art, allowing to invest 10 to $100,000. RobinHood did it on stocks, no more having to buy a share, you can buy $1 amount. So I think every asset class right now is being financialized down to the n-th degree. I think the journey I’m going on right now for the farmland piece is that we’ll be tokenizing it and giving people the ability to invest their $1 amount into harvesting income-producing farmland such that you can control the income you receive from a passive income perspective.

Ash Patel: Peter, what is your role with Farmfolio?

Peter Badger: I do strategy and a bunch of marketing for the company. So I help find some farms, I help market the farms, I help basically put the strategy together for the long-term. It’s kind of a FinTech meets agriculture. As you can imagine, we want to give everybody access to farm as an asset class, and the ability to democratize that, so it’s going to require a technology play to make that happen.

Ash Patel: When did Farmfolio start and why did they start?

Peter Badger: They started in 2015, and the CEO is Dax Cooke, he’s still the CEO today. Dax, in a similar manner, was living in Central America and he was looking for an ability to actually build agricultural assets for his own portfolio. He found a way to actually raise private equity syndication money in the early days, and eventually get to this farm and ownership model, and start to build this amazing company. He started it personally for himself. As usual, these things get a life of their own, they become successful, and you’re like “Oh, we can help others benefit in the same way we intended for ourselves.”

Ash Patel: Peter, you are an investor; how did you become an officer in the company?

Peter Badger: I tip my hat in around a year ago, because the pandemic was a great leveler for everybody. I realized from all my portfolio investments – Airbnb’s, mobile home parks, multifamily… You name it, add everything. The thing that kept going and was exceeding my expectations during the whole damage was food and shelter. My multifamily portfolio was occupied 95% plus, the farmland, fresh fruit, vegetables – it doesn’t stop; people have to eat. For me, it was a great leveler. When you look at Maslow’s hierarchy of needs, if you’ve see that triangle, at the bottom is food, shelter, and security. I think, really, if you stick to that bottom layer with your real asset allocation, I think you’re on for a good thing long term.

Ash Patel: Do you spend a lot of your time in Colombia now?

Peter Badger: I do. I spend probably a third of my time down there at this point. I’m heading back on Sunday.

Ash Patel: And from an investment perspective, why would somebody want to invest in farms in South America?

Peter Badger: Because it is the best agricultural land on the planet. In the same way, Ash, that we use data to invest in US real estate, you look at population growth and jobs, local to the buildings, and reducing crime rates, I have a similar set of characteristics when I invest in farm and agriculture. Weather is a primary one. You want a place where there’s lots of rainfall, lots of sunshine, soils that are healthy. When you look at a world map – I actually challenged people, type into Google “world precipitation”, and it’ll bring up a map of all the rainfall. There is this layer with this tip of South America, it goes through Columbia and various countries. That’s where most of the rainfall and best agricultural lands are. So stop investing in farmland in California, because there isn’t any water. Go to the places where there is water, plenty of sunshine, and decent farming or agricultural skills in that region.

Ash Patel: Peter, what are some of the risks that investors should consider?

Peter Badger: Outside of generally having the right climate, the right rain, and sunshine blend, land price and labor costs are two major ones to make sure they’re part of the characteristic. But then it’s just the traditional stuff we normally see, which is around the team; have they got the track record, have they the ability not just to actually do the farming itself, but then to wash, pack, export, and sell the produce? I find that when you meet these people, they’re either really good at farming, or they’re really good at fruit sales and distribution. You’ve got to be good at the whole supply chain to be successful in this domain. That’s the key.

Break: [00:13:36][00:15:33]

Ash Patel: You mentioned the pandemic being a bit of an equalizer to US equities and assets. What about insects or viruses for fruits and vegetables in agriculture?

Peter Badger: I think part of this is on the farming side is absolutely, you’ve always got to look for insects and pests when you’re farming, and then you have a really good high-end packing facility. When you actually bring it from the farm into the packhouse, you need to process that in a very hygienic environment. There’s SMETA, there are all these certifications you can get now which actually the retailers in the US and Europe demand to make sure the packhouse have that ability to not only wash and clean the fruit, but then pack it and store it for that journey across the ocean to the premium fruit markets.

Ash Patel: Here’s probably a really dumb question… Pineapples, limes, avocados, coconuts, all have a pretty tough exterior; does that make them less susceptible to insects?

Peter Badger: It does, and it also allows you to have a longer shelf life in some cases. A coconut is an easy thing, isn’t it? It’s a robust, hardy shell, you can’t mess it up; shelf life six to nine months. It’s not like getting blueberries off a farm and onto your plate in a very short period. So yeah, look for those crops that are perennial, they’re tree crops. There are row crops and tree crops, or permanent crops, as we call them. With row crops, anybody can get into it; wheat, barley stuff. You can plant it today, nine months from now, you’ll see the harvest occur. It’s very labor-intensive, very low barrier to entry. Look for those permanent crops where you’ve got to plant a tree, wait three to four years, the first harvest appears, keep improving the harvest, and then it basically produces fruit for 20, 40, 60, 80 years straight. That’s the key. A coconut tree, -I can plant it, wait four years, wait for the harvest, income in my pocket, and then touch wood, another 30 years from now when I pass, I can pass it to my kids, and it passes well intergenerationally.

Ash Patel: I’m intrigued now. As an investor, what would I buy into?

Peter Badger: With Farmfolio, you buy a title piece of farm real estate. So instead of a single-family home producing rental income, we get 220 Tahiti lime trees producing harvest income, because those limes are being exported to the US and being sold in Walmart, Trader Joe’s, Albertsons, Publix, etc.

Ash Patel: Do you harvest and split across multiple farms, or do I get what’s on my particular plot of land?

Peter Badger: So you’ll receive your portion of fruit from that farm for the titled land you have, and then we consolidate all of that through multiple farms in the packhouse to export to the big retailers; because they need scale. Your little plot wouldn’t suffice to give much scale at all, so we bring all these farm lots together into the packhouse and then export that in containers full.

Ash Patel: So I get some kind of land title to a lot in Colombia?

Peter Badger: Absolutely.

Ash Patel: Can I get a loan against that?

Peter Badger: We are looking into leverage for this product, we’re discussing with a few lenders. But right now, you’re taking title to the real estate itself. When I talk to people about when you take your money and your wealth and you invest it, you try and take control of that wealth. If you put it into private equity syndication, then the asset manager decides how long to own or hold that. So listen, if you got titled real estate, as you would for a piece of US real estate, you control the title, you control how long you keep that, and how long you benefit from the passive income. So always go for farmland ownership on a titled level.

Ash Patel: What kind of returns do your investors get?

Peter Badger: It depends, as usual. No one guarantees returns. We should put it in the single-family home bucket, because it depends on the age of the tree, the crop type, the price of the land, the price of labor… And the same way that you work out which market you’re buying a single-family home in, what the rents are in that market, how much the house costs, how much the insurance and taxes are – we have a similar set of characteristics. You can basically end up with a single-family realm of returns; you’re looking at an 8% cap rate, to 10% to 12% on a consistent basis.

Ash Patel: What have you seen as far as land appreciation for these plots?

Peter Badger: The beautiful thing about Farmfolio’s farms is we buy them earl. We’ll buy an average age of three to four years a tree. For a Tahiti lime tree, for instance, the crop has a massive increase in harvest between years three and eight. So what you’ll see is as the harvest goes up, the income goes up, therefore, the NOI goes up, net operating income, and therefore the entire land parcel appreciates in tandem with that income profile. So it’s just like a value-add – buy a rubbish home in a good neighborhood, do the rehab and charge more rent – you get that low rent to high rent, it becomes a low crop to high crop return.

Ash Patel: What’s the challenge with having US investors and what are the tax implications?

Peter Badger: I don’t give tax financial advice, obviously. Everybody’s different. I have a lot of people who are basically buying these farms and lots in their IRAs or solo 401Ks. Obviously, the more you can use existing US tax-sheltered vehicles, the better off we’ll all be. That’s what I send people, because it is a beautiful thing.

Ash Patel: So then that’ll be shielded from a lot of the typical [unintelligible [00:21:06].05]

Peter Badger: That’s right.

Ash Patel: Can you give us a percentage over five years what the IRR cash-on-cash return would be?

Peter Badger: No, because we don’t deal in IRRs. This is a real estate, basically ownership model. But you buy a three-year farm, hold it till it’s eight years, and you’re looking for double-digit returns from a harvest income perspective. There are characteristics around that number. It’s hard unless you saw the type of farm, the crop, the age of the tree, the density of the trees on your land. Come visit farmfolio.net and we’ll show the different options and the different profiles that those harvest incomes become.

Ash Patel: Do you find a lot of investors want to come down and actually see their plot after they buy it?

Peter Badger: Yes, I’m going next week to meet two people who have bought a coconut lime lot.

Ash Patel: I love that.

Peter Badger: People love to travel. Why not travel and go and do your due diligence?

Ash Patel: That’s a business expense. Yup.

Peter Badger: Exactly. I’m just saying.

Ash Patel: Absolutely. Peter, you mentioned tokenization. I want to dive into that. Currently, do you have to come up with the amount for the entire plot of land?

Peter Badger: Yes, you do. Right now, we’re offering a single plot between 32,000 and 65,000 depending on the tree age, the crop type, etc. One of the goals basically is over time, as we’re sourcing these farms and getting better technology plants from underneath this offering, we intend to get on the tokenization route to enable fractionalized purchases.

Ash Patel: Yeah, I love that concept. What part of your Silicon Valley background has helped you apply some tech to this business?

Peter Badger: The whole thing. I mean, every business is the same. It’s just a different vertical, different subject matter. You’ve got to know how to basically do digital marketing, how to raise money, you’ve got to know how to run operations and financial processes, build technology underneath those processes. Every business is the same and I think the beauty of being in Silicon Valley is you’re at the forefront of that. And then applying those skills to an agricultural domain is one of those value-add domain areas on top of your existing skillset.

Ash Patel: Peter, you’re setting up a business in a whole different part of the world. What’s been your biggest challenge?

Peter Badger: It’s a lot easier nowadays, let’s be honest. Globalization has occurred. 20 years ago, forget it, you couldn’t have done this. The fact that everybody is remotely working now, Zoom, Google Workspace, there’s data, there are tools, there are SaaS services for everything you can imagine. So I think as long as you spend a lot of time down on the farms, down the packhouse, on the fruit supply chain, building the team, making sure everyone knows their roles, responsibilities, and we coordinate well, it’s a wonderful time to build a business compared to how it was a few decades ago.

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

Peter Badger: I have a proverb I live by; it’s a Russian proverb, it’s “trust but verify.” I see too many people trust a person they know who gives them a glossy marketing brochure, and just goes and invests their money or buys that real estate. I say to people “Listen, trust, but verify.” Yes, trust that brochure is correct, but you know what? Dig underneath it. Go and verify every single aspect of that offering; meet the people, get boots on the ground, understand the data behind all the returns or income profiles telling you what you’re going to get. You’ve got to do it. Laziness, when it comes to due diligence, is what makes you lose your money.

Ash Patel: Yeah. Peter, I want to ask you, what’s the liquidity in these investments?

Peter Badger: In the same way that you would buy a single-family rental, there’s always a market for it. If you’ve got a steady stream of cash flows, there will always be somebody taking off your hand; and there’s the ability over time to compress the cap rate, just like you would with real estate. So if you have a lime farm parcel that’s producing income for five years straight, [unintelligible [00:25:01].28]

Ash Patel: Yeah, absolutely. Peter, are you ready for the Best Ever lightning round?

Peter Badger: I am. Go ahead.

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

Peter Badger:  The Gap and The Gain by Dan Sullivan, that every entrepreneur–

Ash Patel: What was your big takeaway from that?

Peter Badger: That the key, the gap versus the gain – everyone that looks at the most successful people andlooks at the gap between where you are today and where they are as the most successful entrepreneurs, whereas the gain is where you should be. Where were you last year? What have you achieved in the past 12 months? Stop comparing yourself to unrealistic expectations, and therefore you’ll be happier because you see your gains, not everybody else’s gap.

Ash Patel: I love that. Peter, what’s the Best Ever way you like to give back?

Peter Badger: Education. I’ve been fortunate to have mentors my entire career. I continue to seek them out and I give back and I mentor everyone I meet, because the knowledge available today on YouTube, on websites is unbelievable. You just need someone to give you a framework on how to harness that knowledge and apply it in the real world. When I give back, it’s just mentoring helping other people learn what I’ve learned, and stop making the mistakes I’ve learned in the early days.

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

Peter Badger: Reach me through my email address, peter@farmfolio.net, or check out our website farmfolio.net. We believe that you should have Farmfolio as part of your portfolio all day long.

Ash Patel: Peter, thank you so much for sharing your story with us today. 18 years on Wall Street, nine years in Silicon Valley… You set out to just diversify a little bit of money, and look at you now, in Columbia, South America. Thank you again for joining us and sharing your story with us.

Peter Badger: It’s a pleasure Ash, thanks a lot.

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

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JF2736: 3 Tactics for Building Excellent Networking Skills ft. Vish Muni

Does networking online really work? How do you make sure you stand out? Vish Muni, Founder of PGL properties, reveals the tips and tricks that have helped him excel at networking to find new deals. He also discusses what he looks for in an operator and reviews his latest deals.

Vish Muni | Real Estate Background

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TRANSCRIPTION

Slocomb Reed: Best Ever listeners, welcome to The Best Real Estate Investing Advice Ever Show. I’m Slocomb Reed and I’m here with Vish Muni. Vish is joining us from Belton, Texas. He’s the founder of PGL Properties, which syndicates class B and class C properties. He’s a GP on over 430 doors and an LP on almost 700 doors. Vish, can you start us off with a little more about your background and what you’re currently focused on?

Vish Muni: Well, thank you Slocomb for having me on your show. Well, I used to be an IT person for 15 years, and about 10 years back, me and my wife decided to start a real estate company called Duplexaholics. It is primarily for investing in only duplexes. Our goal was to buy one duplex a year for 10 years. When we started, we bought one duplex a year, the first year, the second year, the third year, and the fourth year, we bought a fourplex, and the fifth year we bought a single-family home, and then we hit a wall. In the next five years, I managed to continue with the business, in spite of all the financial challenges… But in year 10, I decided to take a step back and see what are we doing wrong. People talk about having a fantastic lifestyle after investing in real estate, and out here, I’m 10 years into it and all I’ve been doing is having problems after problems in terms of finance. That is how I discovered something called syndication. This was 2019, and that is when everything changed. I decided to stop chasing too many rabbits, so I gave up my IT job and decided to focus full-time into multifamily investments.

Slocomb Reed: So that’s in 2019, after 10 years of going the owner-operator route.

Vish Muni: Yes.

Slocomb Reed: As a duplex-aholic.

Vish Muni: Yup, Duplexaholics. We still have that company, we still have a single-family portfolio, but my entire focus has shifted. I tell people I’m a slow learner; it took me 10 years to decide what I was doing may not work in the long run.

Slocomb Reed: Gotcha. So you’re based out of Texas, or what areas are you currently investing in? Or what areas are you looking to invest in?

Vish Muni: Well, the properties which I’ve invested in so far have all been in Central Texas; within Texas there’s the Texas triangle. Unlike the Bermuda triangle, this is the Texas triangle, and nothing vanishes and nothing goes missing. It consists of San Antonio, Austin, Dallas, and Houston; I’m right in the middle of the triangle. More than 80% of the Texas population is in these three major cities, so all my investments are within this triangle. What I’m looking at investing is – because it is a syndication, so it really doesn’t matter where the property is going to be, as long as I partner with the right partners, that’s what is going to happen. But going forward, I’m open to invest in Atlanta, Florida, and the Carolinas.

Slocomb Reed: Gotcha, okay. Are you primarily investing in Texas right now because of the proximity to you?

Vish Muni: Yes, right now that is what it is. Because I just got started a year back, and right now, I’m looking at primarily the Texas market; but that doesn’t stop me from looking at other locations.

Slocomb Reed: So the last two to three years, you have been the general partner on 432 units. How many properties is that?

Vish Muni: That is four properties.

Slocomb Reed: So a quicker pace than one a year. Are they all around that 100-door mark?

Vish Muni: Well, one of them is a 232 mark, and the rest of them are all at 65 to 70-unit. Of those four properties, three of them are in Texas and one property is in Omaha, Nebraska. These are four different operators I partnered with on year one. Since I was getting into the business, I was open to partnering until I have my own team. So that is how I partnered with four different operators. But it’s all good.

Slocomb Reed: Gotcha. So four deals in your first couple of years, partnering with operators. Tell us a little more about how those partnerships work out. What is it that you’re bringing to the partnership and what is it that you’re looking for from an operator?

Vish Muni: Well, a couple of things that I look for from an operator. Number one, I believe strongly in educating myself in whatever I’m doing. Being 10 years on my own taught me a lot of things; number one, to educate myself educate, educate, educate. Number two is to have a mentor, because I don’t want to spend another 10 years only to learn that things don’t work. So I educated myself, and I have a mentor. Number three is all about relationships; everything is about relationships. So these are the three things I would not deviate from; my focus is on these three things.

Now, all these different operators – what do I look for in operators? Number one is how long have they been in business, and what kind of business? How many full cycles have they done? At what level are they investing? What are the locations? What is their track record? Now, if I were to work with them, how comfortable am I going to be? If I’m going to talk to someone who invests in my deal, they’re investing in the deal because of me, not because of the deal. If the deal itself is good, and they don’t like me, they’re not going to put money in the deal. So it comes back to the relationships. That is one thing that I’d be looking for in all the operators. What is the track record? How long are they been doing it? Which are the markets? And do they fulfill all the promises they’ve made? That is how I got onto these deals… And who are all these operators? The ones with whom I built relationships over a period of time, I met them on several occasions, and I would not invest with any operator if I don’t know them, if I am not convinced with them in the first place. If I’m not going to invest in their deals, I’m not going to ask my investors to invest.

Slocomb Reed: Vish, you focus primarily on capital raising, then on identifying operators you can partner with who give you the opportunity to deploy capital?

Vish Muni: Yes.

Slocomb Reed: Gotcha. 10 years as an owner-operator… How large did your portfolio get before you got into syndication?

Vish Muni: I had five duplexes, two fourplexes, and four single-family homes.

Slocomb Reed: Gotcha. Which of the skills that you developed as an owner-operator prior to syndication have been the most valuable to you now that you’re focused on capital raising for syndication deals?

Vish Muni: Number one, I always liked networking. Networking – I had to step up a notch in terms of networking. Earlier, I used to network with five different people. Now that same five different people are not going to make a cut, so I had to spread myself in terms of what platforms I’m going to be in, and education. So I needed to improve my networking skills, that is number one. Number two is relationships. I used to probably work with three or four financial institutions earlier. Now with multifamily, I need to take the same relationships to a different level, because the game has changed. It’s not me anymore, it’s a whole team of people. The volume of transactions, it’s not a million dollars anymore, it would be a $20 million or $15 million deal. So the relationships also, everything changed. I hope I answered your question. Was that your question or I deviated?

Slocomb Reed: Yes, you’ve talked a lot about the value of building relationships and networking. Are there any particular aspects of operating as an owner-operator that you’ve found have translated very well and very importantly into being a capital raiser?

Vish Muni: Number one, identify people who are really good at what they’re doing, and let them do their job; don’t micromanage them. Because I learned the hard way when a property manager fired me as the owner. So I decided not to micromanage. If I’m going to delegate something to someone, let them do it; I’m not going to micro-manage. In terms of relationships, people like to know whether they can trust me or not before they do anything. And I don’t need to sell them into anything, as long as they trust me and like me and what I’m doing, I just need to influence them in the right way and educate them.

Slocomb Reed: Gotcha. The 232-unit, significantly larger than your others – is it the most recent deal you’ve done?

Vish Muni: My recent deal was last October; we closed on a 75-unit deal in Lake Conroe, Texas. The 232-unit deal was almost a year now, it was back in March 2021. That was scheduled to close in 2020, and a lot of things did not go as planned just after Thanksgiving; the holidays came up, and the New Year’s, and then Texas had a snowstorm, and two of the buildings collapsed, and the insurance claim… So it finally closed after four months; that was last March. That was the biggest deal so far, and the latest deal was the 75-unit deal.

Slocomb Reed: Gotcha. You just brought up something I wanted to ask about, Vish, because we’re recording this in early February of 2022, and Texas has been hit with another snowstorm; not as dramatic, to my understanding, as the one in late 2020, early 2021. But have these weather events in Texas recently, the cold weather events, affected the way that you underwrite your deals in Texas?

Vish Muni: Well, you’re going to add a little more CapEx items to that. Also, when you’re doing the due diligence, pay a little more attention to the roofing, piping, wiring, and anything which you think might get affected. Pay close attention to that.

Break: [00:13:43][00:15:39]

Slocomb Reed: Are you adjusting your insurance expectations?

Vish Muni: Well, yes. When I’m underwriting, we are probably adding another 20% to the underwriting template.

Slocomb Reed: Gotcha. With the largest deal a little over a year ago and the most recent 75-unit, are you underwriting to the five-year hold?

Vish Muni: Yes. I’ve not been underwriting, because my role in all these deals has been participating in the due diligence, also risk capital, and also bringing capital to the deal. I do look at the underwritings, but primarily I’m not underwriting these deals.

Slocomb Reed: Gotcha. Focused on raising capital. You’ve talked about the emphasis that you put on networking to build relationships. Vish, what is your favorite way to network?

Vish Muni: Well, it’s very easy to network, because I use a simple formula called FORD, as in automobile Ford. Anyone can use that formula, I’m going to speak about it. F in FORD stands for family, O stands for occupation, R stands for recreation, and D stands for dreams. If you just focus on these four in no specific order… Everyone has a family they want to talk about, anytime; people wouldn’t stop talking about the family the minute you ask them. Occupation, everybody says that they like their job, they don’t like their job, they want to switch, everything. Recreation – I don’t know of any person who doesn’t like something. Everyone loves sports; talk about sports, which game they like. If you don’t know something, that’s fine, ask them to teach you about it, they will be excited to teach you. And dreams – everyone has a dream. Unless you ask them to specify, they won’t talk about it.

Just use a simple formula to connect with people. Once you connect, make sure you follow up on that. If you don’t follow up, it’s of no use. I’m a Texas realtor also, and then I also need to connect with people all the time. There are multiple locations people can connect to, there’s no one specific location. You could go out for a drink and you could meet somebody, you could go to a workout and you could meet somebody there. Just stick to this FORD principle. You can connect any time all the time.

Slocomb Reed: I have a friend who likes to say that someone who talks about themselves is egotistical, someone who talks about things is boring, but someone who talks about you is a brilliant conversationalist. FORD, family, occupation, recreation, dreams. That’s an acronym I’ve come across several times, Vish. When it comes to networking, are you primarily looking to meet people on online platforms? Are you attending conferences? Are you attending local meetups? What are your tactics for getting in front of people to have the opportunity to have that conversation and build a relationship?

Vish Muni: Well, in terms of the order of meeting people or building relationships, I would say meeting people online is the last. The first is I like to meet people in person. Most of the events in Texas I try to be there in person. I like to shake hands with people with whom I want to do business or with whom I want to build relationships, that is number one. Number two is local meetups – yes, most of the time I’m there. The last is online meetups. Online meetups, I feel it’s like Facebook friends. You ask anybody, everybody has like 2000 friends. But if you walk by the same person on the street, he or she wouldn’t say hello to you. Even if you go talk to them, they’ll say “This guy is weird, there’s something wrong with him. He’s walking up to me and wants to shake hands.” But it is the same person. So online is good, but I think I wouldn’t depend only on that. I like to meet people in person. Where do I meet these people? Everywhere; they’re everywhere. I belong to something called Toastmasters, I meet people there. I meet people at the Lions Club I’m a member of. You go to a fitness center, you meet people there. They’re everywhere. It’s just that I need to step out of my zone and meet them, because nobody’s going to walk to me and say, “Hello, nice to meet you.”

Slocomb Reed: That makes a lot of sense. Tell me what is the number one lesson you’ve learned thus far in your syndication deals?

Vish Muni: Disclosure, number one. Disclose what it is; speak out as it is. Don’t sugarcoat things, because it will come back to bite you. Be honest and upfront with what is happening. I’m playing with other people’s money, so it’s best just to be honest and educate people all the time. Let them come to a point to say “You educated me too much, don’t give me any more information.” Sooner or later, they’re going to come back to you and tell you that you did not tell this to me. That is why from day one, educate them, be transparent, speak out, tell things as it is. If the deal is not going to work out, tell them “No, the deal is not going to work out.” Before anything, people want to know if I have any skin in the game or I’m just selling them something, so that is what I would do. If you do things right, you don’t need to sell it to them, they’re going to invest in you. What I feel is I need to take care of one relationship at a time for me to get to 10. Because if I’m not taking care of what I have, it’s very unlikely he or she is going to come back to you and leave you alone. They’re not coming back to you, they’re not going to refer you to anybody.

Slocomb Reed: Vish, you’ve successfully executed [unintelligible [00:21:24].00] four syndication deals in the last couple of years, focusing on raising capital and raising that capital primarily through networking, building relationships, making sure that you’re focusing on the person with whom you’re meeting, not yourself, and their family, occupation, recreation, and dreams, but also their goals and their aspirations for investing… And you said that one of the most important lessons you’ve learned is to be upfront, be honest, disclose, don’t sugarcoat. This is very helpful advice. Are you ready for our Best Ever lightning round?

Vish Muni: Yes.

Slocomb Reed: Vish, what is your Best Ever way to give back?

Vish Muni: Well, I belong to the Lions Club in Temple where I live, and I’m a certified vision screener. That is one way — I do vision screening for people who can’t afford to get their eyes checked, that’s number one. Then I always look for opportunities to volunteer. Me and my wife are big-time into charity and donations, and to help people educate, more than anything. People could have all the money in the world, but if they’re not educated, they’re going to lose that money pretty fast. Education alone could change people’s lives, so we try to educate or we try to donate to education centers. Also, once a year, me, my wife, with my daughter cook about five to 10 lasagnas to donate to the homeless shelters close by.

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

Vish Muni: I’ve read several books. I think what sticks to me every day is one by Tom Wheelwright. He’s written this book called Tax-Free Wealth, which I read three times, and then Robert Kiyosaki’s book Rich Dad Poor Dad. There’s another book called Unfair Advantage. But the Tax-free Wealth one so far tops my list.

Slocomb Reed: You know, I catch myself quoting Tax-Free Wealth by Tom Wheelwright all the time. Especially with people who are not in real estate and don’t understand what we’re doing, don’t understand the advantages, the tax advantages of what we’re doing, I end up quoting that book way more often than I expected when I first read it. Vish, what is your Best Ever advice?

Vish Muni:  Well, I tell people to join a mastermind group, that is number one. Number two, get a mentor. These two things alone would change their life or change their investment strategy in whatever they’re doing. In the 10 years, I didn’t dive either of them, I didn’t have a mastermind group so I thought whatever I was doing is the best thing, and I didn’t have a mentor. Now, that is my advice to anybody, I tell them to join a mastermind group, and number two is to go get a mentor. These two are expensive but the 10 years is more expensive than these two.

Slocomb Reed: Vish, where can people get in touch with you?

Vish Muni:  Well, they can look me up on LinkedIn as Vish Muni, that is the best way they can reach me, because LinkedIn messaging is the best way I would reach out to them faster than text messages.

Slocomb Reed: Excellent. Well, Best Ever listeners, thank you for tuning in. If you’ve gotten value from this episode, please subscribe to our podcast, leave us a five-star review, and please share this episode with a friend so that we can add value to them through our podcast too. Thank you and have a Best Ever day.

Vish Muni: Thank you, Slocomb.

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

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JF2711: How to Invest in the Everything Bubble of 2022 | Actively Passive Investing Show with Travis Watts

How will the events of 2021 affect your investments in 2022? In this episode, Travis reviews the variables that may make you rethink how you invest this coming year, including the pandemic, government actions, supply and demand, inflation, and more.

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Travis Watts: Hey, everybody. Welcome back to The Actively Passive Investing Show. I’m your host, Travis watts. In today’s episode, we’re talking about investing in the everything bubble. The headline you may have seen or may have heard here recently, a lot of folks are calling today’s investing environment an everything bubble. Debatable if we are in a bubble, but we’re going to talk about it. We’re going to talk more specifically about the stock market and real estate, dissect what’s happening. Hopefully, this is informative to help you make a decision on what you want to do this year in terms of your own investments.

Prices are up, I think that’s pretty evident. Inflation is here, used cars are up, real estate is up. So where do you place money? Generally speaking, there are two ways of thought here, two schools of thought. There’s “I’m going to wait this one out until we get a massive correction pullback or a dip, and then I’m going to buy in at that point.” Or there’s the dollar cost average philosophy, which is you’re buying in on a regular frequency all the time, and sometimes you’re buying in a dip, sometimes you’re buying at a high price, but over time, you’re averaging out and getting kind of the middle of the road, general pricing.

I’ve shared the story before, but it’s worth sharing again in this episode… When I started investing in multifamily syndications around 2015, one of the first things I did is I started reaching out to the experts in the field, people who had 10, 20, 30, 40-year track records doing what it is I was thinking about doing. There was a syndicator, a general partner with about 25 years of experience at that time. I was talking to him about multifamily. I said, “Please put me on your deal list. I really want to do a deal with you. I’m into this. I’ve read this, that, and the other.” He goes, “Listen, Travis. Unfortunately, it’s 2015. I predict that in 2016, we’re going to see one of the biggest market meltdowns that we’ve seen in history. Quite frankly, we’re not doing any new deals right now, so I’ll put you on our list, but don’t expect to see anything, because we’re really liquidating assets right now and we’re not bringing anything new in. We’re going to sit, wait, and see.”

That was one philosophy, and I’m certainly not insinuating in this example that I’m any smarter than this individual. I mean, this guy’s got at that point and 100% more experience and track record than I had. But what was different was my philosophy. I was of the mindset that there’s always a deal to be had. This was stemming from my single-family flipping, buy and hold, vacation rental days, where I thought that even if there were a downturn or the market went flat for a while, if I was collecting conservative, consistent, steady cash flow streams, it really didn’t matter that much to me about the asset price. If I wasn’t going to sell it, what does it really matter? So I went ahead and moved forward with doing syndication investments. Fast-forward five years later, which would bring us to 2020 in the midst of COVID, my investment portfolio had just about doubled at that point from 2015. Meanwhile, the GP and syndicator had really been sitting on the sidelines. I think they did maybe one or two deals in that timeframe.

Again, not saying that I’m smarter or well-versed, but the point in that story is to decide for yourself what your philosophy is. There’s nothing wrong with sitting and waiting on the sidelines if that’s your thing and you’re very risk-averse, or if you’re into the dollar-cost averaging, just moving forward and riding the wave, then you go with that. Of course, I try to be more conservative than I’m making that sound, but something to think about.

Let’s talk about how do we get here? How do we get to the so-called everything bubble? First of all, there’s still a lot of pent-up demand since COVID, with people being locked down, inside, not really spending, and maybe not even investing, maybe sitting on the sidelines to see what happens… So that is starting to come out and unfold; that’s how we’re seeing inflation is rising simultaneously. There’s been an awful lot of government printing new money, these PPP loans, these unemployment checks… There’s been a lot of money pumped into the economy, that money has to go somewhere. A lot of people have chosen to put that either in the stock market or into real estate, which is why we’ve seen such a massive uptick. Well, I should say that’s one reason why.

We also have all-time low interest rates, the lowest interest rates that we’ve seen in US history. That is a stimulus to encourage people to invest and perhaps take a little more risk, go put your money somewhere if you can borrow at very low-interest rates.

And last but not least, we have severe supply chain issues. This is simply supply and demand; this would explain why rental cars, for example, are up 21% year over year right now. It’s simply because when COVID first hit and no one was needing the rental cars, a lot of these agencies offloaded their inventory. Then we had a massive kickback where people started traveling again – they didn’t have enough cars so it shot the prices up. It’s tough to get new cars right now, as you probably know, because of the microchip shortage that we have going on. So that’s supply and demand 101. The bottom line is there’s a lot of money in the system, and that money needs to find a home, and a lot of people are chasing yield, so that’s buying up asset prices, including real estate, including stocks.

Break: [00:06:32][00:08:11]

Travis Watts: With that, let’s talk a little bit about the stock market, then we’ll talk about real estate. I want to dive in and dissect a little bit about each of these asset classes, because they’re two of the most common that we have at least. This is a real estate show, and then a lot of people are talking about the stock market.

So you’ve got a lot of predictions always in the markets like JP Morgan Chase and Goldman Sachs. Every year they’re putting out their predictions based on their experience. Of course, you have to take any prediction, no matter who it’s coming from with a grain of salt because the truth is, no one really knows. But JP Morgan was pretty dang close on their estimates for 2021 about the stock market and what performance we might see. So their prediction now for 2022 is that things will continue to rise, the stock market will continue to go up, they’re predicting somewhere around 8% annualized.

On the other hand, there’s another school of thought that’s worth noting, which is that we have efficient markets. This means when these headlines come out and these news reports come out, that’s already priced into the market. But if it’s already built-in, and things don’t pan out as expected, there’s a chance the market could actually drop, and instead of seeing a plus eight, we see a minus four, a minus eight, or something like that.

Again, I’m not saying one’s right and one’s wrong. It’s just a question for you, do you believe that everything’s priced into the market currently as we see a lot of optimism at this point? Or do you believe that it will just keep rising and rising? Regardless of which side you’re on, there are certainly some things that we don’t know. We don’t know if there’s going to be any future government stimulus. Of course, there’s a lot of talk about this, and there’s a lot of proposals, but what actually passes, we don’t know, and when that actually happens, we don’t know. Also, future interest rate hikes. Again, there’s been a lot of talk from the Fed that this is going to happen, but when and how much, we don’t know. And as different things come in, different variables, and the situation changes, they could also change their forecast as well. It’s something that’s just out of our control.

Then there’s the virus uncertainty. Will there be new variants? What will those look like? Will they be mild? Will they be severe? Hospitalizations, business shutdowns? We just don’t know what the political environment looks like, and what the health environment looks like moving forward at this point.

Then we have unpredictable inflation and supply chain issues. When will all of this clear up? We don’t know. Will inflation stay the same or go higher? We really don’t know. Again, we have predictions and forecasts, but until the data comes out, we just don’t know. These all have a play in both the stock market and in real estate. Like I always say, when it comes to the stock market, it’s really anyone’s guess. It always seems to be, in my personal experience, it’s 50/50. If I think the Feds are going to speak tomorrow and it’s going to be positive, 50/50 chance it goes up or down.

I’ve been wrong just about as much as I’ve been right and that has caused me to not have very great returns overall when I’ve invested in the stock market. I’m clearly not the expert, I’m just giving you some things to think about for yourself. Take this with a grain of salt, what I’m about to say. This is not a prediction or a forecast, but just me personally, in my own mind, looking forward. I’m saying, I don’t believe that the markets in general, real estate stocks, no matter what we’re talking about, will be as robust as we just saw in 2021. We saw exceptional returns, I think the stock market, in general, did somewhere in the high 20s, like a 28% annualized return. My real estate portfolio did incredible as I had a lot of sales happen in 2021, as things ramped back. I don’t predict the same moving forward, as I look five years out, maybe even 10 years out.

I think a lot of things are priced in the market and I think we are really up there nearing all-time highs. Now does that mean a bubble and a bust? Not necessarily, in my opinion. But it certainly means that things have gone up. But see, here’s the thing about sustainability, this is something I think about as an investor all the time. Anything I do needs to be sustainable, any kind of strategy, any kind of philosophy. This is why I quit flipping homes at a certain point because I realized that this is not sustainable. I could do this while the markets are flat or increasing, but when markets come down, the strategy stops working, therefore, it’s not something I can do for 20, 30, 40, 50 years on end.

The stock market has historically returned between eight to 10%, annualized, depending on if you’re looking at the Dow Jones, or the S&P, or the NASDAQ, or whatever index, but basically, it’s usually in that range as a historic average. When you have a year like we just have in 2021, where you have a 28% return on the stock market, there’s a very high probability that the following year will not be as high. It may be a flat year, it could be a slight decline in that year. In fact, we just recently saw this in 2017, the stock market returned somewhere around 21.5%, don’t quote me exactly, but it was something like that. The following year, which is 2018, was a negative 4% year so that makes sense. Because if you’re going to average eight to 10, you’re not always going to have these 20 and 30% returns year over year. It’s a roller coaster, so if you’re going to park all your capital there, be ready to ride.

Alright, moving on, let’s talk a little bit about real estate. Just like the stock market, there are a lot of predictions. Just like any prediction, you have to take it with a grain of salt. There’s a group called CoreLogic, for example, and they predict that housing will increase another 6% in 2022. 6% is still strong growth and this is, of course, nationwide. But it certainly dwindled down from what we just saw in 2021, which I think was closer to about 15% appreciation over the last year. Then you have other sources. Like realtor.com believes that the appreciation amount will be closer to 3%, not 6%. One thing to keep in mind when we talk about real estate in a general sense going up 3% or 6%, is the fact that most people investing in real estate are using leverage, they’re using debt.

The way to look at that in real terms as far as your return on investment is this… To use simple math because you guys know I’m not very good at math. If you invested in a $100,000 piece of real estate, we’ll call it a single-family home or a condo, and that went up 6% in one year, but you had only put $20,000 down as a down payment, that was your actual investment. You actually invested 20k and then what did you make? Well, if it appreciated 6%, that’s $6,000 that it went up. Again, I’m using loose numbers, we’re not talking about any taxes, realtor commission, or any of this kind of stuff. But $6,000 divided by $20,000, that’s how you find your return, it’s actually a 30% increase or ROI. That is actually quite substantial. That’s why I say, in real estate, if we really did see a 6% tick-up, that’s actually pretty huge.

Another thing to note is that mortgage rates remain historically low, I just mentioned that a few minutes ago. We are literally at the historic lows for the United States. That’s been a huge encouragement for people to get into real estate, both single-family, multifamily, mobile home park space, commercial space, self-storage, all the above. Another thing to keep in mind is that real estate is a local game. There are markets despite these forecasts of three to 6%, we’ll call it. There are markets like Modesto, California, Kalamazoo, Michigan, or Springfield, Massachusetts that are actually anticipated to see a decline in housing prices in 2022. It’s not all created equal, we’re just talking about a national scale on average.

To talk a little bit about rents, because a lot of us are investors or landlords here listening to the show. Rents went up about 10% in 2021 which is a huge increase for rents. A lot of the projections that are in these syndications I do are more like 3% and 4% annualized rent bumps, so to see 10 was quite amazing. The realtor chief economist is predicting a 7% rent increase for 2022. If that really occurs, it is just going to be another killer year in general, for real estate. Especially things like multifamily because you don’t just have one house, one tenant, one rent bump of 7%, you have maybe a 400-unit property, or maybe you’re invested in 20 different deals that are 200 to 600 units. That’s a lot of rent increase.

There’s usually a little bit of a lag in rent bumps compared to asset prices, which makes sense because prices go up. As investors have to pay more, they need to charge more rent to get an adequate cash flow out of the property. No one wants to be investing in real estate for a 1% or 2% return. I shouldn’t say nobody because people do it. But in general, you want to keep your ROI up and therefore rents go up. As I mentioned earlier, with the 15% rise in asset prices and real estate over 2021, rents are now following as these properties get rented out.

Break: [00:17:22][00:20:19]

Travis Watts: Jumping back to the Fed’s saying they’re going to raise interest rates, what effect will that have on real estate? It’s one thing to say that rents are going to grow, etc., but if interest rates rise, that’s generally a negative thing for real estate. But see, there are other factors at play simultaneously. There are the unknowns that we mentioned with the government, with stimulus, and what’s inflation going to look like. Then there’s also the supply and demand issue which is a huge factor right now to where asset prices are. Builders just can’t keep up, there’s just a severe lack of inventory that is pushing prices up.

If we had a whole bunch of supply come on the market, that would soften the prices. But if that doesn’t clear up over the next year or two, prices will remain high, and it will remain a very competitive environment. Real estate is a very slow-moving asset class with the exception of what we saw in 2008 and 2009. It was really the great real estate recession with the exception of that. If you took that off the radar, real estate’s really slow-moving when it trickles up and trickles down, it is not the stock market that real estate’s down 30% overnight, that just doesn’t happen. I think as we progress through this data and through the years, we’re going to see more and more signs and potentially red flags to talk about to help us make better decisions.

Just remember, if you are investing in actual real estate, not publicly-traded REITs, and things like that, they are generally an illiquid investment. So you’ve got to do your due diligence, you’ve got to know what you’re buying, how it performs, whether or not you can actually execute the business plan. Hopefully, you will remain profitable even if you bought a property today, did nothing to it, and just decided to hold it for five or 10 years, you would be cashflow positive.

Alright, swinging back to inflation real quick. We’re somewhere in the ballpark depending on when this episode airs, the last data that I just looked at was somewhere around 6.8% annualized inflation year over year. Now, a couple of things about that. One, that’s the highest inflation we’ve seen in the US since 1982. So in a lot of people’s lifetimes, this is the highest inflation that they’ve seen. The Fed has also said that they’re going to be reducing their stimulus, this is known as the Fed taper. They’re reducing basically their stimulus from injecting about $30 billion per month through the end of March until they’re no longer having to supplement what they’ve been doing since COVID.

We mentioned that the Fed said they will have multiple rate hikes, this is to help tackle inflation as inflation starts. That’s just one of the tools that the Fed has when inflation starts kicking up is to raise interest rates to help fight that. That’s definitely on their agenda, but every Fed meeting, it seems like there’s a little bit of a change so we just don’t know. There have been years that the Feds come out and said we’re raising rates and then they didn’t, or where they did raise rates and then they decided right after that to lower rates again. We just don’t know is the bottom line.

The last bullet point I’ll point out is that at the last Fed meeting that I tuned into, Jerome Powell had said that he anticipates a natural decrease in inflation from the 6.8 that we’re seeing now to the mid twos. To that, I say “We’ll see.” Here are the takeaways I want you guys to have from this episode, 20 to 30% annualized returns are exceptional but usually not sustainable year after year. Since we’ve already seen those in 2021, you may want to lessen your forecast here looking forward. I could be dead wrong, I’m just saying I like to be a little more conservative than that and predict that we will kind of see a softening or stabilization, if you will, of returns.

The number two takeaway is that the gurus and the talking heads are projecting increases still happening. We have the chief relative economist, JP Morgan, Goldman Sachs, a lot of folks are saying that the stock market and real estate are still going to be on the rise, just at a much lower and more conservative level than last year. Hopefully that means another great year for investing, at least that’s my interpretation of that data. If anyone is curious or anyone cares what I’m doing personally, I’m still investing heavily in private equity. I believe you should invest in what you know and understand the most and then try to diversify a little bit outside of that.

I use the 80/20 rule, 80% of my portfolio is what I know and understand. I invest in value-add B class multifamily properties primarily because they’re stabilized, they cash flow, they pay me on a monthly basis, they’re tax-advantaged. And from the data that we just uncovered with rents still on the rise and lagging a bit behind, the primary driver of the value of a multifamily property is the net operating income. When rents go up, that’s it more collections, that’s more income, therefore the price goes up. But I’m never a speculator on what the price will be in the future. I’m simply investing for cash flow and for yield. I like the value-add business model where we’re buying at a slight discount, we are improving a property, making it better, making a better community. For what it’s worth, that’s my take on it, I’m still investing here in 2022. The question is, what are you going to do?

Hopefully, you guys found some value in this episode. I truly appreciate you tuning in. Reach out anytime with questions, comments, concerns. I’m on Bigger Pockets, I’m on LinkedIn, I’m on Instagram, I’m on Facebook, joefairless.com, travis@ashcroftcapital.com. I look forward to connecting with you. Have a Best Ever week and we’ll see you on another episode of The Actively Passive Investing Show.

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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.

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

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

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

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JF2704: 4 Millionaire Investing Tips for Real Estate Investors | Actively Passive Investing Show with Travis Watts

How can you achieve the same success as a millionaire through passive investing? In this episode, Travis shares four practices that lucrative investors use to generate more passive income and navigate the market.

Want more? We think you’ll like this episode: JF2515: Top 5 Best Practices for Effective Investor Relations | Actively Passive Investing Show

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TRANSCRIPTION

Travis Watts:  Hey, everybody. Welcome back to another episode of The Actively Passive Investing Show. I’m your host, Travis Watts. In today’s episode, I’ve got a very special episode for you called Four Millionaire Investing Tips for Real Estate Investors. A little context and background for this episode. Basically, over the last 12 plus years or so, I’ve done a lot of research on millionaires, I’ve bought a lot of reports, I’ve watched a lot of documentaries, I’ve interviewed hundreds of people, I’ve networked and been able to meet thousands of accredited investors at this point. But this episode is really just to break down kind of the mindset when it comes to investing in real estate. I want to share what’s worked for them and what can potentially help you along your journey.

The first thing that I want to point out is that investing is not just for the rich. This is definitely a tool that anyone can utilize, whether you’re accredited or non-accredited, whether you’re a millionaire, or a millionaire in the making. Hopefully this episode adds some value, as you just get to see some insights to the mindset that it takes to be a multi-millionaire real estate investor. Like I always say investing can be simple, but it’s not easy. Most people make mistakes when they begin investing, because they go in without a plan and without setting goals. We’ve talked about that a lot on the show, is how important it is to reverse engineer, to look 5, 10, 15 years down the road and say, “Where is it I want to be? What is it I want to do? Why is it that I want these things?” And then to start reverse-engineering to figure out what kinds of investments can get you there. Some people need mentorship, which I try to be on a non-paid basis, but I also have limited capacity to do that. It might be on a paid basis, with some consulting; it also might just be somebody that you know, or would like to get to know that’s doing what it is you want to do successfully. So it’s kind of picking their brain, so to speak. I applaud you for listening to this episode, because this is kind of the first step in that direction.

Alright, with that, let’s go ahead and dive into the four tips that I want to share with you today. Number one is millionaires and/or multimillionaires – they don’t save, they invest. This is a huge, huge, huge differentiator. I know that sounds probably pretty simple and basic and 101. But I was the kind of kid who was raised by parents that just said “Save your money.” That’s the whole game, is saving. It’s to use a coupon, and it’s to make $2,000, to try to save $500 of that, and then put that in your bank account for a rainy day. There was nothing taught about investing. But I’m telling you, it is so hard, unless you’re an extremely high-income earner, to get to a stage of being wealthy or being rich or whatever you want to call it, simply by saving and putting money in the bank. Generally speaking, of all those I’ve interviewed and been around, you basically want to save enough to have emergency funds and to have a liquid operating account for your lifestyle, but you don’t want to have hundreds of thousands of dollars potentially just sitting in the bank, earning nothing.

You may have also heard folks like Robert Kiyosaki, author of Rich Dad Poor Dad, I know he’s been quoted as saying “Savers are losers”, which is a bit extreme. I don’t think I would coin it quite that way. But what he’s saying is you’re losing money if you’re saving in a bank. It used to not be that way back when the banks would be paying you five, six, seven, eight, 9% on your money if you just deposited. Well, in today’s environment, as you well know, you’re making basically 0%. You might be making up to maybe 1%, but the government stats show that inflation is running it 4%, 5% and 6% annualized. In other words, you’re actually losing purchasing power if you’re not making at least the inflation amount that the government says exists. Again, that’s why you don’t want to have large sums of money sitting there losing purchasing power.

On this topic of save versus invest, I want to kind of verbally go over something that I’ve had a hard time articulating in the past, so hopefully this makes a little bit of sense to you… The way I Look at it as in the world of finance, there’s two sides of the coin. There’s the personal finance and budgeting side. That’s saving money, not spending more than what you make, understanding how to be a little bit frugal when needed, and all of this. It’s just keeping control over your finances no matter what your finances are. The other side of the coin is investing. The reason I think this is so important is because A, it’s not widely taught, B, it’s how you’re going to become a millionaire, a multimillionaire or beyond. Also, because it’s tragic to me to see celebrities, professional athletes, and high-income earners that make literally millions of dollars in income, but they don’t have the personal finance side of the coin down so they go bankrupt. It’s absolutely insane because you’ve got folks on the other side here that are in the FIRE community, the financial independence retire early, who quite frankly, could live forever off a million dollars invested. That’s the difference, invested. Invested for cash flow, passive income, things like that.

The average US household income is what, or I should say individual income, is around 50 to 60,000 per year or something like that. Quite frankly, someone that had a million bucks invested, that 8% is 80 grand a year, that would be a-okay. Most people would be a-okay with a million bucks invested. Something of the think about and put in perspective. Hopefully don’t need to make $100 million and go bankrupt to figure that lesson out. To circle back, the point is that you can’t just save, you need to invest as well.

Tip number two is that millionaires don’t tend to speculate, they don’t tend to gamble. Again, they tend to invest and there’s a big difference. It’s something that’s not talked about and some that gets confused all the time. I watch a lot of YouTube financial folks and people getting into the crypto space thinking that they’re professional investors because they think or they predict the market’s going to do A, B or C. In fact, I have a really good friend –I’ve talked about him before here on the show– who’s a day trader in the stock market. He’s also now in the crypto space, these NFTs, and all of this kind of digital stuff. It’s funny because he’s always talking to me about 50% and 100% returns. I think this stock is going to double, if you buy this crypto, there’s a good chance you’re going to have a 50% upside here in the next two weeks, and all this kind of stuff. But the reality is, if you look at his portfolio, unfortunately, he loses 50%, if not 100% of his investments all the time. He’ll go put two grand out, speculative, and then something will go bust. It’ll be some kind of rug pools, sham thing, or whatever on some new crypto.

The thing is, risk isn’t talked about enough. I’ve made a full episode on risk and why that’s important and how to evaluate it. You’ve got to understand that if you’re looking at an investment that potentially can go 50 to 100% up in a matter of a very short amount of time, you’re probably taking an awful large amount of risk. It’s like playing the roulette table in Vegas. Is it black or is it red? I don’t know. But you could either boom or you could bust and you got about a 50% chance, actually statistically a little bit lower if you’re playing in Vegas. But anyway, the odds are not in your favor is the bottom line. As a long-term strategy, that’s a losing strategy. That’s what you want to try to avoid is to not be a speculator or gambler.

Break: [00:08:36][00:10:15]

Travis Watts:  A lot of people who invest they subscribe to this buy low and sell high investing mentality. There’s nothing inherently wrong with that. But ask yourself this question, “What if things don’t go up in the future?” You’re buying a piece of real estate because why? Well, I want to flip it, I’m going to buy it for 200 I’m going to sell for 300. What if the market stops going up? What if it starts going down? Then what? The same thing can be said with the stock. I think I’m buying the stock at 10 but it’s going to go to 15. What if the stock market crashes right after you buy it? You’ve got to think about the risk profile associated with these things.

The biggest net losers of the Great Recession in 2008 and 2009 were speculators and gamblers. They were the folk’s flipping homes in 2007, 2008 as the market is falling apart and going down. They were people gambling on high growth companies that are projected to do so great, but yet the market is falling apart. That’s speculative. The best example probably was from the dotcom era in the year 2000 where we’ve got this big internet boom, everybody’s a whatever.com, and everyone’s speculating and throwing money at all these companies that aren’t even generating any revenue. It’s purely high growth speculation. Look what happened, we had a huge bust and a collapse of the whole dotcom market. It might seem like a good way to get rich, and of course, you’re always going to hear about the stories where people did just like you hear about people who win the lottery every day. That sounds great but statistically, that’s a really bad strategy to subscribe to. It’s not something that a lot of multimillionaires embrace, at least not long term. It could have been a multi-millionaire or one kind of gambler speculation on some dumb luck. But if you continue that over and over, you’ll end up losing the portfolio.

Instead, if you’re looking to produce income over a lifetime, if you’re looking to produce generational wealth to pass down to your kids, family, or charity, you’ve got to look at cash flow, you’ve got to look at passive income, you’ve got to look at interest, you’ve got to look at dividends, you’ve got to look at royalties, you’ve got to look at being paid on a monthly or quarterly basis through the types of investments that you choose. Again, I don’t want to beat a dead horse. I’ve talked about the lost decade a lot on the show. It was a 10-year period in the stock market that if you went with the buy low sell high mentality, you really walked away with $0 in your pocket, additional from what you invested over a 10-year period because there really wasn’t a cash flow or dividend strategy. You were buying the stock market in general saying “I think it’s going to go up, I hope it goes up.” It did go up and it did go down, and it did go up and it did go down, and it did go up, but you ultimately hit a flat spot for about 10 years. That’s what you don’t want to do. You want to constantly have money coming into your pocket. I find that that’s a very common theme among millionaires and multimillionaires.

The biggest reason I think this isn’t taught to many people, the reason I think this isn’t widely marketed is because it does, in some sense, take money to make money. That’s not always true in every situation. But think about this. If I had $5,000 to invest and that’s all I had, that’s where I’m starting, I invested in something that produce passive income or cash flow or whatever, and it paid me 8% a year, that’s $33 per month. Not very exciting, I can’t even pay my cell phone bill with that amount of passive income. However, once I build up a nest egg because I’ve got the financial side of my coin, my personal budgeting down, and I figured out how to be frugal where necessary, now I have $500,000 to go invest at 8%, now I’m talking about $3,333 per month. That starts to make a big difference, that could now be a mortgage payment, that could be a luxury vacation every single month, it could be so many things. That’s really kind of the turning point is when you start to build a nest egg and now it’s “What do I do with this?” Hopefully it’s not just “put it under my mattress for a rainy day,” it’s “start investing.” Cash flow investing is playing the long game and the long game, quite frankly, is how you win.

Third tip, multimillionaires and or billionaires invest in assets that appreciate in price and have cash flow components typically. I’ve referred to this in previous episodes as what I call the holy grail, it’s the best of both worlds. When I go out and I invest in real estate, what I’m ultimate looking to do is invest in real estate that’s at a discount today or below market value. Then I want that either me or the group I’m investing with will add value or renovate it to make it more valuable so that we can justify raising rents. That’s what gives us the equity upside, it’s also called forced appreciation. But while we hold the property, even if we failed on that execution plan and we didn’t end up renovating it at all, we just bought it and sat on it, in either case, it’s a cash flowing asset as well. It’s putting money in our pocket every single month and I’m not having to do anything to produce that. It’s just people living there and paying their rent. Of course, this being a real estate show and me being a bit biased towards real estate in general, that would be to me a holy grail kind of asset to invest in. Now, I don’t always just invest in real estate, I invest in some things that only produce passive income. That’s it, there is no equity upside.

An example of that might be note lending or hard money lending where I am making a high yield interest return, say eight or 10% of my money. But there’s no upside, there’s no actual asset that I’m participating in the growth of. I’m just using that for passive income to live on. There are other investments I’ve made that are more equity focused and a lot less cashflow focused where sometimes, to diversify, I do use a little bit of the buy low sell high. If you know you’re getting, for example, a really good discount on a piece of real estate that you think can turn around and get better, you might sacrifice a bit on the cash flow. You might only be getting three, four, or 5% cash flow for a while, but once it’s stabilized and occupied hopefully, then your cash flow might jump into the double digits, you never know. I do have some investments like that as well.

The last thing that I want to point out for a tip is a huge one and something I underestimated when I got into real estate 12 plus years ago. Millionaires and multimillionaires are definitely looking to invest in something that gives them a tax break or a tax advantage. Again, the reason I don’t think this is so widely marketed is because you have to really be a high-income earner to recognize how much you’re really spending and tax money. I’ll give you an example of that. Imagine that you’re a supervisor at a company, you’re a W2 active income earner, and you make $50,000 per year as a salary. Well, your federal tax bracket, I’m going to leave state out on the side because every state is different, but your federal bracket is probably going to be 10 to 12% that you owe in tax. If you break that down, just to use rough numbers, that’s about $5,000 per year that you’re paying in tax, not a huge bill.

Now imagine if you’re the vice president of that same company, you’re also an active income earner, you’re a W2 employee of the company, making $500,000 per year in salary. Well, that all of a sudden puts you in about a 35% tax bracket, it could be higher, and now all of a sudden, you’re paying $175,000 roughly in taxes every year. That’s a huge amount. We just jumped from 5000 in tax to 175,000 in tax. Without a doubt, you’re going to be saying, “Hey, how do I pay less than tax? That’s a lot.” Some homes in America sell for 175,000. You’re forfeiting buying a home or a rental every single year because you’re paying Uncle Sam instead. You guys, just a quick disclaimer, as you know, I’m not a CPA or tax advisor so please always seek licensed advice. I’m just giving you this as an example purpose and something to think about that, again, when we’re talking about millionaires and multimillionaires, we’re generally talking about high income, high net worth individuals, and they’re more inclined to look for tax advantages, quite frankly,

Break: [00:19:06][00:22:03]

Travis Watts:  Again, back to real estate. Real estate is an awesome asset class that has historically always had great tax benefits, it continues to have great tax benefits today. We’re still operating under a tax code, as this episode airs, that Trump put into play in 2017 that even enhanced the real estate tax benefits even further. It’s kind of a golden era right now, quite frankly, for real estate and multifamily.

In one of the earlier episodes here on The Actively Passive Show, I broke down one of my favorite books. It’s called Tax Free Wealth written by Tom Wheelwright, he’s a CPA. I love what he said in his book, though. He says, “The IRS is actually your business partner. You want to partner up with them and you want to find out where they’re going to give you the most money.” I’m paraphrasing what he said, but basically, hear me out on this example. You’re in a 35% tax bracket and there’s an investment you can do. You can take $100,000, you can go place it into this investment, and you’re going to get a 100% write-off or deduction for making that investment. What the IRS is essentially doing in this situation is saying, “We’ll give you 35% off your investment.” That’s an immediate tax savings of 35% or $35,000 in this case, just for making the investment. This is how Tom Wheelwright sees that as a partnership.

They’re saying, “Look, we know that there’s risk in investing. If you take your 100,000, you can go put it in the bank, you can go put it under a mattress, and it is what it is. You’re going to pay all your taxes and we’re not helping you at all. Or you could go place it into real estate, or oil and gas, or some kind of investment over here and we’ll let you take, –for example purposes– 100% deduction. They’re basically just allowing you to pay 35,000 less in tax or they’re just giving you $35,000, in a sense. This is how powerful the tax code is to learn. I highly, highly recommend everybody get a competent CPA that specializes in what it is you’re doing or that you want to do. It’s a pretty sweet deal. I’ve come to recognize now, of all these deals I invest in, all these syndications that have come full cycle and they’ve sold, I’ve worked with my CPA and I’ve asked a lot of questions that it is an amazing tax advantaged asset class. It really is. Of course, everyone’s situation is different and I’m not a tax advisor. But definitely multimillionaires have their eye on the tax code.

Let’s recap the four tips here in the episode. Millionaires and or billionaires don’t save, they invest. They don’t speculate, they invest. They invest in assets that appreciate in value and have cash flow components ideally. They invest assets that give great tax benefits.

I hope you guys found this episode useful. I really enjoy doing these. Look, I’m only sharing my perspective, I’m only sharing my opinion. You might agree, you might disagree, you might have a different take on it, and that is totally cool. We’re all different. But my mission and my goal is to help spread the word on things that I think are worth listening to, things that have helped me, things that have helped a lot of people, that I’ve seen help a lot of people, and I want to share them with you. I just want to bring them to surface and bring them to light and these little short snippet episodes of 15 to 30 minutes long. I hope that you guys really find some fulfillment because I really get a lot of fulfillments from sharing with you guys. It’s great when you reach out and say that something helped or that it puts you on a different trajectory in terms of investing and things like that. Always reach out and connect. I’m on Instagram, I’m on LinkedIn, I’m on Bigger Pockets, I’m on joefairless.com, travis@ashcroftcapital.com. Always happy to be a resource for you guys. Thank you so much. I’m Travis Watts, host of The Actively Passive Show. Thank you for tuning in. Have a Best Ever week and we’ll see you in the next episode.

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JF2697: How to Live a Balanced Life – The Investor Lifestyle | Actively Passive Investing Show with Travis Watts

Maintaining a good work-life-balance can be difficult to accomplish. In this episode, Travis shares the lessons he’s learned trying to navigate a good balance between work and the other aspects of his life, such as health, relationships, and more.

Want more real estate advice? We think you’ll like this episode: JF2627: 5 Ways to Align Your Investments to Achieve Your Goals | Actively Passive Investing Show 67

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TRANSCRIPTION

Travis Watts: Hello, everybody. Welcome back to another episode of The Actively Passive Investing Show. I’m your host, Travis Watts. As always, I appreciate you guys so much for being here. I have a very exciting episode to share with you here today. What we’re talking about is how to live a balanced life. Specifically, from the perspective of being an investor, whether you’re an active investor or a passive investor like I am, I just want to talk about finding and creating a little bit of balance and how that plays into investing. You’ve probably heard the term “work-life balance” in one form or another, at one time or another. It’s kind of what we’re talking about but there’s a bigger picture here that I want to address, there’s something very profound, a very simple message that I want to share with you in today’s episode.

With that in mind, I want you guys to think about this real quick. It’s tough to be rich, let’s say, but be in poor health, and to live the good life. Equally so, you could be in great health and great physical shape, but if you’re living at or below the poverty line, or piled up in debt, it’s also tough to live the good life. Even if you have the health and the wealth under control, but you’re in, let’s say, a terrible relationship that is dragging you down and making you depressed, it’s also tough to live the good life. I want to help you guys with balancing these different aspects and just talk about a few things. Now I’m no coach, guru, or expert here, and I’m not pretending to be but I do want to share some things I think are impactful and insightful with you.

Let’s kick off this episode with a visual exercise really quick. What comes to mind, visually in your mind, when I say the words financial freedom? I’ll give you a minute here to think about it. Financial freedom, financial independence, not having the obligation to have to work, it’s a work optional lifestyle. What would you do with your time? What does financial freedom mean?

Now, whatever you’re picturing in your mind, the first thing I want to address is resistance. I think there’s a true benefit to having some resistance in your life, something to push against. A couple of years back, Joe Fairless at the Best Ever Conference… I can’t remember if it was the 2019 or 2020 Best Ever Conference that happens every year out in Denver or in Keystone in this case. He was talking about having a thorn in your side, something that’s kind of irritating, that agitates you, that makes you want to take action, you want to address it, you want to stay active, move forward, push through it, and fix the problem. It’s good sometimes to have a thorn or a pain point, so to speak.

Think of it like this, you might have a vision when I asked you about financial freedom, sitting on the beach and drinking pina coladas, or hanging out on a yacht and popping champagne. While those things can be fun for a period of time, they’re really not sustainable and they’re certainly not going to be fulfilling to you long term. As appealing as that might be for a weekend or even up to one week, I think we would all get pretty bored and become obese alcoholics over time if that’s all that we did with our spare time.

A practical example in real life is to think about Bill Gates. He ran as CEO and then is the chair of Microsoft, and this is what he did actively. But as he realized –a little late in the game– he had more than enough wealth, he stepped down from being active on the job and he started being active and charity. He runs a really huge foundation so he’s still active, moving forward, using his brain, and applying value to the world just not in a work sense. He’s not at a cubicle nine to five, had to punch his time in and out, he’s still producing, but in a different way. That’s what I want to have you guys think about for yourself. An interesting little side note too, before this episode I was just reading. There’s a lot of research out there, believe it or not, of children that come from upper middle class to wealthy lifestyles that are handed a lot of things. The anxiety, the depression, the substance abuse statistics shoot through the roof. You might be surprised to learn that. But basically, at the end of the day, what it comes down to is that as far as resistance, there was nothing to push against or to achieve.

There’s a lot of fulfillments in setting a goal, going out there, grinding it out, achieving that goal, then feeling that that success and that dopamine rush. But if it’s all just handed to you as an end result, you can easily take that for granted. There’s a great article written by the way on apa.org, American Psychological Association, I want to say, don’t quote me on that. It was by a Sonia Luthar Ph.D. She’s a professor of psychology and it was about what we’re talking about here. The only point that I’m really trying to make with any of this is that you do need, in my opinion, some resistance and something to push against to help you move forward. Be thinking about that. I think a lot of people get fearful of retirement because you hear these scary things like once you stop working, you start dying, or whatever. It’s all about figuring out what it is you’re going to do and having a plan. It’s something to start thinking about sooner than later, and hopefully, you can be in a position as an investor to retire early if you wish to do so, or at least move to part-time work to free up time to do other things that are meaningful to you.

Break: [00:05:57][00:07:36]

Travis Watts: As I always say, the goal of investing for passive income is to do less of the things you don’t enjoy and to focus more on the things that you love, quite simply put. Some resistance is good, not all resistance all the time, you got to find a balance there. Let’s transition into talking about a few things in regard to health. Quite frankly there’s a lot of marketing and sales crap out there in the health space, but let me make health simple for you. It comes down to just diet and exercise, that’s it, simply put. It doesn’t have to get all fancy with this keto, vegan, vegetarian, paleo, and all this fancy crap. Look, you and I both know what healthy food is compared to unhealthy food. The bottom line is just to pay attention to what you’re putting in your body. Avoid fried food and processed things as much as possible, drink lots of water, and eat more greens. That’s really it. You do you, you figure out the specifics of what works best with your body. But generally speaking, just avoid the nonsense.

Now as far as exercise goes, again, no specific routines, or there isn’t just this one trick of the trade. But for anybody who’s traveled outside the United States, what you may have discovered is exercise is actually a free thing. You can actually go on a walk, a jog, a run, and it’s free. You don’t need a treadmill in your house or these fancy peloton bikes. You can get a bicycle for 25 bucks on Craigslist or a garage sale if you need to, or a pull-up bar for 20 bucks on Amazon. You can do pushups at home, you can do sit-ups at home, everything that you need in terms of exercise truly is free. But again, we live in a capitalistic society so we get sold on a lot of things and we think it needs thousands and thousands of dollars of equipment, fancy gyms, orange theory classes, and all this kind of stuff. There’s nothing inherently wrong with any of that if it helps you or if you enjoy it. Generally, get your heart rate up, exercise, eat better foods and less processed foods. That’s really it.

There’s a great quote that I heard years ago, “It doesn’t matter what you do 10% of the time, what matters is what you do 90% of the time, that makes all the difference.” You can go eat cake, ice cream, French fries, processed foods, drink alcohol, and do all these things but try to limit it to 10% of what you do. The rest of the time try to eat right, try to exercise, try to do the right thing. Simple but not easy, as I like to say.

Now let’s transition to finances and wealth. My simple take is this, invest in assets that produce passive income and use that passive income to provide yourself with more options in life, or to enhance your lifestyle. It’s whatever you want to do with it. But the bottom line is to invest in assets that produce passive income, or dividends, or cash flow, or interest, or royalties, there needs to be an income stream that is being paid out to you. That is the name of the game, that is my mission, that is my message, that is what I live and breathe, that is what I teach. These assets can be active or passive. I’m not saying everyone has to be a passive investor or do what I do. I’m saying if you’re going to be an active investor, focus on cash flow and passive income, don’t focus as much on speculation and trying to time the market and trying to say, “I’m going to buy this property today at this price and fix it up. I think I’m going to sell it for X down the road.” Because you never know, the Fed comes in, they change interest rates, the whole environment changes, we have a new virus that comes out, it could all just screw up your entire plan.

M best advice is to focus on passive income. When you focus on the buy low and sell high mentality… I covered this, in fact, in a few episodes ago, so go check it out if you haven’t. It’s called The Lost Decade, How to Avoid 0% Returns. It’s how you could potentially get hosed, so to speak, when you’re doing buy low sell high and trying to speculate. There are like a thousand ways you could get hosed. But the main thing is it really happened in real life in a big, big way. It was about people who invested with their IRAs, brokerage accounts, cash, and just index funds in general, just the overall stock market, not really paying attention to cash flow or dividends, and just saying “I just want to participate.” Then your account trickles up, it trickles down, it trickles up, it trickles down. From January 2000 to December 2009, you basically made $0.00. Check out that episode for more.

The last thing that I want to say about wealth is trying not to get caught up in what I call the success cycle. Again, I made an episode on it and I also wrote a very lengthy blog on this. It’s this concept of making a million bucks, then once you get to the destination, you go “I need two million dollars.” When you get to two million you go “Four million is kind of what I need.” Then you get to four million and now you need 8 million. The point is you’re going to work till the day you die, you don’t know how much is enough, you don’t know why you’re doing what you’re doing in most cases. Another phrase for this could be “keeping up with the Joneses.” If you’re comparing yourself to others and saying “I’m not rich enough, I don’t have enough, I need two homes, three homes, I need five cars, I need a boat, I need a plane I need.” It never freaking ends so don’t get caught up in that. Truly reflect on what matters to you, what brings you the most happiness in life, focus on those things, and know how much is enough.

There was an episode here on the Actively Passive Show in August, I believe, of 2020. It’s called How Do You Know How Much is Enough? Something like that, so go check out that episode if you haven’t already. Listen, you guys. The simple point is this, the average US income, I believe, is still around 50 to 60,000 per year or something like that, per individual. A million bucks invested at 8% a year is $80,000 per year. Quite frankly, most Americans would be a-okay and happy with a million bucks, and that’s it, that’s enough. If you’re the person grinding it out for 50k a year and you can have 80k a year that’s tax-advantaged, that’s almost double your income at this point, that’s more than enough for a lot of people. Maybe you don’t have to be someone with $100 million to be happy, maybe one million would suffice. So know your number, know how much is enough, and just think about it in terms of being an investor.

Break: [00:13:52][00:16:49]

Travis Watts: Alright. The last category I want to talk about is just relationships in general. We’re talking about friends, family, colleagues, spouses, kids the whole deal. Listen, again, I’m no expert in this area, I’m not pretending to be, I want to be as candid and humble as I can with you guys, especially in this category. I’ve struggled a lot with finding balance in this area. I mentioned that when I worked 100 hours a week away from home that was one extreme where I had no balance whatsoever. Then I transitioned out of that and I met my wife who was my girlfriend at the time. When we started dating, I lost connection with a lot of my friends and things because I was spending so much time with her. Then later, I tried to bring the friends back in with my spouse, but then I lost touch with some of my family members. It’s been an ongoing struggle and an ongoing battle for me. But there’s a few things I’ve learned, a few takeaways that I think you might find useful.

Rule number one, at least for myself, has been don’t be overly independent thinking “I can do it all on my own. I don’t need anybody else in my life.” But also, don’t be overly reliant on other people. If you’re not being a social butterfly seven days a week, then you’re depressed. It has to be the balance somewhere in between. You do need people in your life or it’s a pretty lonely existence. But the hard truth is that people will let you down here and there. You can’t hold your expectations too high. Number two rule, for at least myself, –I’m not giving advice to anybody else but just sharing in case this is helpful– is you shouldn’t always get your way. I think it’s nice to have a healthy balance there. I think it’s what’s led to a fantastic marriage so far with my wife is that we both are able to voice our opinion and rationalize together. But we trade off on who wins what battle, so to speak, and there are no hard feelings.

It’s just trying to find that balance. You pick out the colors for that room, I’ll pick out the flooring, the ceiling fan, or the artwork on the wall. We try to work together. It’s not just “Nope, it’s my house my rules. This is how things go.” Because that really puts a big crunch in things. Be okay with not always getting your way. It’s also nice in the workplace, it’s also nice in terms of investing. Things aren’t always going to go as planned and I think that’s a good lesson. I’ve invested in stocks, for example, that I thought, “Oh my gosh, they just fell 30%. I’m getting a bargain. I’m going to buy in.” Then they fell another 30%. Now I’m stuck holding the bag and that’s okay because it teaches you lessons that maybe there’s a lot of volatility in the stock market. If you can’t stomach that or you’re not okay with it, that may not be a great investment for you, I don’t know.

The last thing I want to point out, rule number three is to diversify who you spend your time with. For example, I spend some time with my mentors and I have quite a few. Mentors help pull me up and guide me towards where I want to be in terms of my goals. I also spend some time with my peers, with colleagues, with my spouse, with my family, and with my friends. That’s nice too and it has its own benefits. Then I spend some time educating others that are trying to get on the path that I or other people like me are on and trying to educate and inspire. That’s why I do this show, so again, thank you guys so much for listening. But this is part of how I spend my time and diversify it up. You guys, the perspective is the biggest benefit here. You get a ton of perspective and gratitude and fulfillment, at least I do, from diversifying out. I don’t think it’s that healthy, personally, to spend all your time with one person, one sector, or one group. I think you can get very biased, have black and white thinking, and just miss out on a lot of learning opportunities.

With all of that, I guess my final thoughts to conclude this episode would be that, unfortunately, I suppose, there isn’t just one thing that makes us happy or fulfilled. It’s a combination of all the categories that we discussed. Of course, we could probably talk for several more hours on these topics, and we could probably add a lot more collaboratively to the conversation. But hopefully, that helps and it’s a few practical takeaways or tips. I wish you and your family the best of luck on your journey. Always happy to be a resource for anybody here listening. If you have any questions reach out to travis@ashcroftcapital.com, joefairless.com. I’m on LinkedIn, social media, Instagram, etc. Thank you, guys, for the feedback and for the comments. Have a Best Ever week everybody. We will see you next time on The Actively Passive Investing Show.

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JF2690: How to Network at Conferences – The Best Tips For 2022 | Actively Passive Investing Show with Travis Watts

Attending conferences and events is one of the best ways to expand your network. But how do you make sure you make the most out of your experience? In this episode, Travis shares the critical elements to networking at conferences and how to create your own game plan for your next event.

Looking for your next real estate conference? Join us in Denver, Colorado at the Gaylord Rockies Convention Center from February 24th-26th for the Best Ever Conference! Register here: www.besteverconference.com

Want more real estate advice? We think you’ll like this episode: JF2668: 3 Ways to Grow Your Business at a Networking Event with Ben Lapidus

Check out past episodes of the Actively Passive Investing Show.

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TRANSCRIPTION

Travis Watts: Welcome back Best Ever listeners. I’m your host, Travis Watts. This is The Actively Passive Investing Show. As always, I appreciate you for being here. I thought that for today’s topic, I want to kind of bounce out of multifamily and all the real estate, inflation data, and things we’ve been covering lately on the show. I want to talk about something else, which is how to network effectively at conferences. Whether we’re talking about a local real estate meetup group, or a nationwide conference, whether you’re there as a passive investor looking to find deals and find other passives and/or actives, or if you’re an inactive syndicator, or a GP, or an aspiring GP or sponsor. I’m going to cover what I feel are the most critical and important elements of networking at conferences.

Long story short, I’ve attended a ton of conferences over the last seven years or so, both from local to national and even international. I got to tell you, I’ve learned a few things. I’m no expert here but I really want to try to help you out. You’ve got to attend these events with a game plan. It is totally a failure from the get-go to just show up not really knowing what your mission is, what you’re doing, what you’re hoping to get out of the event, who you’re hoping to meet, you will walk away disappointed and/or feel ripped off. I have felt that way before and I want to prevent you from doing the same.

We’ve got the Best Ever Conference coming up in Denver, Colorado in February. I don’t know when this episode is going to air but hopefully, that hasn’t already passed. I will be there, I hope you guys will be there. I’d love to meet you face to face. I love meeting fellow Ashcroft Capital investors and other passives. Quite frankly, I found a lot of deals that I invest in today through conferences like the Best Ever Conference. It is a great conference for passives and actives, so check it out if you feel like it. But that’s not the point here. Let’s dive into why I think this is so important as a topic and why I want to share it with you today.

As many of you know, my journey in the passive investing space when I started investing in real estate syndications actually began with a local real estate meetup group. I promise you, I wasn’t doing all the things I’m going to talk about in this episode today, effectively. But I’ll tell you what it did do, it allowed me to find two mentors that changed my life, two mentors, two older gentlemen doing these passive investments. They were limited partners full-time, they were investing in value-add multifamily, private equity, and that was the bulk of what their portfolio was. It completely shifted my mindset more than any book had ever done, more than any friend or family member had ever done. These were just folks doing what I didn’t even know I really wanted to be doing with my life. I was able to hop on the bandwagon and drink the Kool-Aid, so to speak, and I’ve been on that path ever since. But so happy that I made that choice, I haven’t looked back. That’s what I’m here to share with you, is how life-changing conferences can be and finding mentors, and all the rest.

The number one thing that I want to talk about is from the macro end of things. You are hopefully looking to build relationships and add value to others as well as receive value from going to these events. But here’s my thing, you got to play the long game. Let’s use an analogy that you’re looking to date somebody new. Well, it’s probably not best practice to go down on one knee and propose for marriage on the first date. You got to play the long game. You’re trying to build a friendship, you’re trying to build a business partnership, so start slow. Just be open, be honest, be humble, just talk with people, and let people talk about themselves. Please, for God’s sake, that’s one thing.

I’ve shared the story before. I was at this conference out in Dallas and here comes this guy. I see him beeline right towards me from across the room. I don’t know this guy at all. He’s like, “Hey, I have a deal. Here’s my business card, and here’s a brochure on what our deal is.” Then he walks away. It was like the weirdest, most bizarre thing, and let me tell you, completely a waste of his time and a waste of my time. I would never invest in a deal that way. He didn’t even know if I was an investor. I could have been an operator myself and had no interest in his deal. It was the craziest thing. I’m sure someone told him who I was or that I was an investor or something. But guys, don’t do that. Please don’t do that.

Let’s dive into humility and the honesty approach. I’m quite convinced at this point this is how I was able to get the two gentlemen I alluded to be my mentors in the first place. I was just candid with them. I said, “Look, I don’t have a ton of experience here. I’ve done a decent amount of active real estate, but what I really like to do is learn how to be more hands-off. I hear that that’s kind of what you guys do. If you’re just willing to share maybe three or four minutes with me, just kind of give me the nutshell of it. This is really the path I believe I need to be on and here’s why.” Then I just shared a couple of bullet points. I said “I’m a very busy W2 worker, it’s really hard for me to scale these single-family homes. It’s taking all my time away.” I said, “If I could be in real estate but not have to be managing my tenants, running around the weekends trying to find new properties, underwrite, show up to closings, and make all these decisions, I could really live a more meaningful life, quite frankly.”

I was just being humble, I was just being myself. I didn’t come in there with the attitude, “Hey, I’m a big fix and flipper here, you know. I’ve made tons of money. Who are you?” None of that. Let the ego go out the door and come in with just truth, honesty, and what you’re looking for. I think people really pick up on that and resonate with that. That’s always kind of my macro and high-level advice is just be your true genuine self. Be open, be honest, share if somebody asks. This isn’t a macho match, it’s not keeping up with the Joneses thing, it’s genuinely trying to meet people, network, and like I said, build long-term relationships.

Break: [00:06:42][00:08:21]

Travis Watts: Now let’s talk about if you’re active, if you’re a sponsor, or general partner, or aspiring to be one. Generally speaking, if you’re going to be at a conference, you’re either there for educational purposes, finding a business partner, or finding passive investors. I’d say, based on my own experience, there are a lot of active folks at these conferences looking for passive investors. Here’s my advice for you. Again, don’t try to close a deal in the first conversation, don’t even talk about a deal in the first conversation. Meet people and ask about them, make them start talking, figure out, are they even an investor? Are they an accredited investor? Have they done this kind of investing before? You’re just trying to get some answers here and figure out if you’re even talking to the right person in the first place.

Then what you’re really trying to dig at are two things, and it’s your choice on what you want to pursue. Generally speaking, people are moving towards pleasure or away from pain. If you’re moving towards pleasure, that has to do with your goals, so ask people about their goals. What are you trying to achieve by investing in multifamily? What’s kind of your long-term horizon? Is it cash flow or equity-focused? Do you have kids? Is this part of the whole generational wealth thing? Just tell me a little more about you and what it is you’re looking to achieve. These are the kinds of questions you want to probe at. That’s the pleasure side usually. If it’s a pain point, I just mentioned one of my biggest pain points back in the day, which was lack of time.

You will find, among a lot of LP investors – they’re doctors, they’re dentists, they’re lawyers, they’re attorneys, they’re pro-athletes, they’re – whoever; they’re career-focused individuals. They are not real estate people, most of them. They’re just people that are looking to diversify away from the stock market or participate in real estate because they heard real estate’s possibly a great asset to be in, they want to learn more, and maybe they just want to park some capital there. Usually, they have more money rolling in than what they’re needing to live on. That’s kind of the basis of it. You’re trying to figure out what pain points are, or what pleasures are.

Then after maybe two conversations or three, then you can start getting into “Well, hey. Listen, here’s how we can help you with that pain point or moving towards that pleasure. It’s because we do this full-time. We find deals, we underwrite them, we make them offerings to investors, and they produce cash flow. You told me that you were looking for X amount of passive income per month so that you could send your kids to college, you could retire at age 50, blah, blah, blah.” Then you kind of reiterate, again, you got to take notes and remember this stuff. At least write it down. I’m not the best at memory either. I don’t know about you, I shouldn’t say either. That’s kind of the name of the game, is listen first talk second. Don’t jump into a deal, play the long game, and just make it a point to follow up with people.

This is what I mean when I say focus on adding value to others. It truly is valuable when somebody listens to you, understands what your pain points are, and says, “I have a potential solution. I don’t know if it’s right for you or not, but hear me out. You said A, B, and C, I do A, B, and C. That seems to be a good fit for what you told me it is you want. If you want to have a discussion around that, I’d be more than happy to do that for you.” Just something as simple as that, you guys. Throw in a little self-quote, I haven’t done that in many episodes. I do this as a joke, by the way, you guys. I’m not an egotistical person where I think I need to quote myself, but it seems to fit right here. I always say “Passive income allows you to spend less time on the things you don’t like doing and more time on the things you love.” That’s the basis of it. Think about that when you talk to other people. Who wouldn’t like to spend less time doing things they hate and more time on things they love? That’s pretty much everybody. You’re trying to figure out what are the things you love? What are things you hate? How can I help? It’s not about money, it’s about time.

Let’s now talk about quality over quantity. I know a strategy for a lot of folks, especially those that are lead generation oriented. Their goal when they go to a conference is just to get everybody’s business card. You’ll see these booths, they’ll have a raffle giveaway, and it’s just like, “I don’t care who you are, I don’t care what you do, put your business card right here, we’re giving away an iPad.” Well, the problem with that is it’s a hodgepodge of a mess of nonsense and randomness. You don’t know who put their card in there, who they really are, what they do, you know nothing about them. Really, you’re just throwing away money, in my opinion. I remember talking to Joe Fairless years ago about conferences in general, just kind of as a friendly conversation that I was having with him. He said, “Travis, I would rather walk away from a meetup with one deep-rooted connection, one long-term relationship, one person I could really follow up with, one person I truly understand and could be friends with, versus 50 business cards in my pocket.”

At first, I was kind of baffled by that. I thought, “Man, that’s kind of seems like a waste of time. What if that one person doesn’t end up investing or whatever?” But he was 100% right. I can tell you that with certainty at this point. I look back at all the conferences I kind of blew through and just “Hi, I’m Travis. Who are you? Hey, what’s your name? Hey, Bubba.” And then I don’t remember anybody because it was all shallow, it was all just “Oh, you live around here. How’s the weather? What do you do? Okay, great. See you later.” I didn’t make any deeper connections and I am very sorry to myself that I didn’t do that. Take Joe Fairless’ advice, play the long game, and make a deep-rooted connection. You never know where they’re going to lead, but the probability that that person… Even if they don’t invest with you or partner with you, they’re deep enough of a connection where they might be a referral source for you, or say, “You ought to meet my friend, blah, blah, blah. They do this and that.” You’re not going to get those opportunities if you’re blowing through conferences on 60-second conversations with people.

My advice there is to stop talking about the weather and start talking about people’s goals, interests, and pain points if you can manage to do that in a way that’s not a turnoff to people. You don’t want to just walk around and say “Hey, what’s your pain points? Hey, what makes you upset? What do you hate in life?” You got to find a smooth approach to get to it. Sometimes I like to lead with the pleasure aspect and then later get to pain points. One other thing just on a psychology side note is people remember stories more than they remember anything. I could talk to someone at a conference and say, “Did you know in this market the cap rates are ABC and did you know the average IRR in multifamily Class B is blah, blah, blah, in Phoenix, Arizona.” They’re going to get home and they won’t remember crap, I guarantee it. But if I sit with somebody and I tell them a true story of anything, just a deal that I did, or how I found a partnership, or my personal family, or a trip I took, I guaran-freaking-tee you, I could call them in two weeks and they will remember that story.

There’s a great book out there, it’s called Building a Story Brand by Donald Miller. I recommend everybody read it, everybody in any element of business or not in business. The fact is, human beings resonate with stories. It’s an effective way to communicate with people. You will be way more remembered if you’re a story brander and not someone saying, “Here’s my card, here’s my deal. You want in?” That’s a bad approach every time, I guarantee it.

A few additional tips off the top of my head here, is always, always, always, always have business cards with you when you go to a conference. I’ve made the mistake of forgetting business cards, many people have. But there’s nothing more annoying than wanting to swap cards with someone and they don’t have one. Here are two things to think about. One, have a business card, two, have your face on the business card. Because no one’s going to remember John Doe after a conference that was three days ago in St. Louis, Missouri, no one remembers John Doe. But with a face, or a website, or some kind of link, or a QR code, they will absolutely remember who you are.

Number two, I used to not know what to do with the back of a business card. I did everything from just the free advertising logos –which is probably a no-go, that’s kind of a cheap out– to fancy QR codes, shiny crap on the back, and different… Here’s the deal, leave the back blank and carry two pens with you at all times at a conference. When somebody says I forgot my business card, you go “Great.” You pull your business card out, you flip it over on the back that’s blank, you can easily write on it with a pen or a pencil. You hand them the pen and you say, “Would you mind jotting down your name and email. I’d love to stay connected.” Boom, no excuses. With all these digital apps and all this kind of stuff, people just aren’t there yet in 2022. But hopefully, we do get there because they’re actually quite cool if you’ve ever used them where you can scan people’s business cards and stuff like that. But it gets messy taking digital notes or trying to remember somebody’s address, phone number, email, or whatever.

We already talked about, don’t present a deal to somebody right off the bat or any kind of sales pitch whatsoever, get to know them, let them talk first. If you are a sponsor, if you have a booth at a conference, please, please don’t give out a pen or a koozie. These are crap, nobody wants them, nobody needs them. If they do need them, they’re going to use the pen and they’re going to toss it in the trash on the way out. They’re not effective. If you’re trying to raise capital from people and you’re asking people for $100,000 checks, you don’t want to give them a 10-cent pen and hope that converts them into liking your company. Give quality gifts. It’s always quality over quantity, I promise you that. Giving people five water bottles that are off-brand is not as great as giving somebody a Fiji water bottle, I guarantee it. That brand subconsciously just resonates with people. Starbucks coffee versus some off-brand. Whatever you give out, spend a little extra money and give out something that’s actually meaningful or impactful or useful, something that people aren’t going to toss on their way out or leave in the bag at the conference. Those are the only things that are effective.

Break: [00:18:30][00:21:27]

Travis Watts: Here’s a great way to start a conversation at a conference. I usually start with something like, “Hey, my name is Travis. What’s your name and what do you do?” Something like that. Or, “Hey, my name is Travis. What brings you here to the conference?” Always switch it back to them. If they’re very short and it’s just like, “Hey, I’m Bob. I do real estate.” Back to them, “Hey, Bob. What kind of real estate do you do? Are you in the multifamily space? Are you a passive investor, an active investor? What do you do?” Keep pushing the ball back. It’s like bait, it’s a catch. No one wants to hear you talk about yourself. Anytime they pass you the ball, it’s a hot potato, it’s just [gesture], and then you send it right back to them as fast as you can, you get them to talk. What you’ll find is, usually, people will start to open up more. Their first reaction might be, “Hey, I’m Bob. I do real estate.” Their second might be, “Oh, I’m in multifamily. I’m an LP investor partnered with 14 different people.”

From there, you start asking about pains and pleasures, and then all of sudden, hopefully, you release some excitement, and then they’ll really start opening up to you. Psychologically, there is not a lot of better ways to get people to actually resonate with you to, a.k.a., like you than to get them to talk about themselves. It’s the craziest thing but it’s true. It’s just a weird psychological trick. If you just let someone rant and rave, and you just sit there and listen for 30 minutes, they will just feel a connection and like you. They know nothing about you. It’s the weirdest thing. I promise, it’s always in your favor to let people take away the bulk of the conversation and focus on themselves. Plus, if you’re active or passive, you’re going to learn so much about the person, you may not even be talking to the right person so save your own breath. If you’re looking to meet passive investors and you ask someone what they do, and they say, “Oh, I’m active and I do house flips. All I ever want to do is house flips and I hate multifamily. I like Bitcoin.” You know you’re talking to the wrong person so you don’t even have to waste your breath about what you do because it really doesn’t matter. You can find a way to kind of scapegoat out of that conversation, hopefully, sooner than later.

My final thoughts, you guys, I’m a macro level guy, I just can’t help it. I always think of high-level stuff. But my final thought to wrap up this episode is always try to focus on learning something from every person you encounter. That’s not all going to be life-changing but I always try to learn something, and it keeps me probing, that’s why. If I’m looking to meet an active syndicator and I’m talking to someone who’s not that, they do CPA work and they’ve never invested in all this kind of stuff, instead of me just getting turned off and saying, “Oh, that’s cool, man. Nice to meet you. See you later.” I keep asking like, “Oh, you do accounting, you do CPA work? Do you focus on the real estate space? Because I know a lot of people that are always looking for real estate CPAs. Tell me a little more about what you do. Do you strategize, do you help people with proactive planning or just kind of ask for tax forms at the end of the year? Just tell me about your business.” If I can just take away one or two things, I always walk away with value. In my opinion, it’s always worth your time, it’s always worth my time to network and mingle with people at these events. After all, you’re usually paying hundreds if not thousands of dollars to be there. Take advantage of it and you never know where that can lead if you just walk away with 10 new pieces of information and at least one deep-rooted connection.

With that, the more people you know, the faster you’ll go. That sounds like a Dr. Seuss quote, but it’s not, it’s Travis Watts’ quote. Thank you, guys, for being here. As always, this is The Actively Passive Investing Show. Have a Best Ever week. Please reach out on social media, travis@ashcroftcapital.com. Leave a comment, like, subscribe, all that millennial jargon stuff. We’ll see you next time on 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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JF2689: Scale from LP to GP with These 3 Tips with Joel Fine

Starting out as a Limited Partner, Joel Fine did everything he could to learn about multifamily syndication: he read books, listened to podcasts, and even asked to be part of a weekly GP meeting on one of his passive deals. In this episode, Joel discusses how he scaled from being a Limited Partner to a General Partner.

Joel Fine | Real Estate Background

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Ash Patel: Hello Best Ever listeners. Welcome to The Best Real Estate Investing Advice Ever Show. I’m Ash Patel and I’m with today’s guest, Joel Fine. Joel is joining us from Austin, Texas. He is a multifamily investor and syndicator that buys undervalued assets, improves them, and then sells them. Joel’s portfolio includes over 1000 doors as a GP and over 5000 doors as an LP. Joel, thank you so much for joining us today and how are you?

Joel Fine: I’m great, Ash. Thank you very much for having me.

Ash Patel: It’s our pleasure.

Joel Fine: Really appreciate getting to talk to you.

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

Joel Fine: Absolutely, yeah. I originally went to college to learn to be an engineer. I worked as an engineer for many years, then as a project manager, and a program manager. Back then I was living in California. I started doing real estate on the side, but only did real estate outside of California. I didn’t like the characteristics of the California market; no cash flow at all, we were just counting on the appreciation. As it turns out, in hindsight, the appreciation was great, but I didn’t want to take that risk on buying properties that didn’t cash flow.

But eventually, I came around to learning about other markets that do cash flow. I bought a single-family house in Texas, and then some duplexes and triplexes and other small stuff in Ohio. I learned about syndication and started getting involved with syndications, first as a limited partner in a passive capacity, and then later, as an active general partner or sponsor. About the time I was starting to invest more heavily in real estate and ready to make the transition from passive to active, my wife and I moved from California to Texas; we moved about a year and a half ago, right in the middle of COVID. That was a kind of an exciting story in itself. At the same time, I left my W2 job and decided to go full-time into real estate. And at that time, that’s when I decided I want to pursue the active side of syndications, the active side of large-scale commercial multifamily… And I haven’t looked back since.

Ash Patel: So you moved to Austin right when it was popping?

Joel Fine: Yeah. In fact, I think I beat the flood by about a month. We moved in May of 2020, and within a few months, things just went crazy here.

Ash Patel: So Joel, for all those years that you invested as an LP, what were some of the things that you learned that GPS do well and that they don’t do so well?

Joel Fine: Let’s see. Things that GPS do well – first off, when they’re putting together a transaction, the assumptions they make about the transaction are absolutely essential. They can make assumptions that really can affect the apparent quality and value of a deal. For example, one of the assumptions you make is how quickly rents might rise over a period of time. If you move that a little bit, let’s say from 2% per year to 4% or 5% per year, it doesn’t sound like a big difference, but that can make a huge difference in the apparent outcome of the deal. So you have to look carefully at what kind of assumptions the GPs are making.

Beyond that, I love to see GPs that are transparent, that share a lot of information about what’s going on, both before the deal is closed, then after the deal is closed, and while they’re operating the property. Sharing the good and the bad. When things go well, and when the plan is being executed properly, but also when things aren’t going so well.

Sometimes you might have higher delinquencies than you anticipated, it might be a little more challenging to get renovations done, and so forth. So when things aren’t going well, it’s important to share that with the passive investors. They’re really not in control of the investment; most of my passive investors are remote, they don’t live in the Austin area. Likewise, when I was a passive investor, I didn’t live near the properties I was investing in. So there was really no way for me to make any first-hand observations about the property, so I was dependent on the general partners sharing information about the property. For me, that was really critical, this transparency. And then just diligence, making sure that they’re paying attention to the other properties operating, focusing on the key metrics, managing the property manager effectively; just good, high-quality execution.

Ash Patel: What made you transition from being an LP to wanting to become a GP.

Joel Fine: So when I first became an LP, it was sort of with the intent of, “Okay, I’m going to learn about this enough that I can decide if I want to be a GP or not.” I was content buying the small stuff, the duplexes, triplexes, and quads. But I felt like scaling up might be a good way to go. And as I learned about syndications and about how to go about investing in commercial multifamily, I realized that being on the active side is a much more effective way of scaling up. It gives me an element of control that I don’t have as a passive investor, and I’m willing to put in the time to do it.

As I said, when I moved from California to Texas, I left my W2 job to do this full-time. So I figured, “Okay. If I’m going to do it full time, I want to do it in the most effective, most scalable way possible.” For me, that was being on the sponsorship side over the general partnerships.

Ash Patel: Joel, what was your first deal as a GP?

Joel Fine: Let’s see… The first one was 42 doors in Austin; it’s a 1983 property, mostly untouched. The exterior looked pretty good, the interiors were pretty much what we call classic, which means they really hadn’t been renovated, they hadn’t been updated since the property was built in the ’80s. So there was a lot of opportunities there to improve the property, mostly cosmetically, which is really the ideal situation. A lot of properties, they’ll have issues like maybe foundation issues, or they’ll need a new roof. Things like that, you’ve got to do the repairs, but they aren’t going to really improve the top line, the rent you can get. A potential tenant isn’t going to come to a property and say, “That’s a beautiful new roof. I’m willing to pay an extra 50 bucks a month in rent to live here.”

On the other hand, if you swap out the interior components, if you repaint, put in new cabinets, countertops, new flooring, new plumbing fixtures, and lighting, that can really improve the property, not only from the perspective of the potential tenants, but also from the top line. Tenants are willing to pay more to live in a place that looks better. So anyway, that’s one of the characteristics of this property. Again, it’s 42 doors. As it happens, a few months later we bought the property next door that had 44 doors. Combining them, that’s 86 doors, and they’re literally next door to each other; they share a fence. We’re now running it as a single property.

That’s really important, because a 42-unit deal has challenges in terms of its scale. Below about 70 to 75 units, it’s really hard to manage effectively, because you can’t really afford an onsite property manager full-time. But once you go above 70 to 75, you can afford a full-time property manager and maybe even a full-time maintenance tech. That’s what happened with these properties – we combined them, a 42 and a 44 to 86. Now we’re running them as a more efficient property.

Break: [00:07:24][00:09:02]

Ash Patel: Joel, on the 42 units, how much did you raise for that deal?

Joel Fine: Let’s see. I think that was 1.9 million, purchase price was 4.4 million.

Ash Patel: The whole time that you were an LP knowing your end goal was to become a GP, were you prepping investors, gathering emails? Or did you wait until you found the deal?

Joel Fine: No. In fact, I started letting people know that I was involved in real estate, focused on real estate, and planning to syndicate. One of the things I did was I updated my LinkedIn profile to make it clear that I was no longer in the high-tech engineering IT field, I was now full-time in real estate, and I talked about the deals that I was a passive in. Because even as a passive, that’s a great learning opportunity to find out what syndication is all about, how the industry operates, how people manage their assets. In fact, in my first LP deal, I got the general partners to allow me to dial in to their weekly property management calls. I would dial in every week and just go on mute and listen. That was a terrific learning experience for me because I got to hear what kinds of problems they were having, how they addressed those problems, the problems that lingered and were difficult to solve so I used that as a learning experience. Then I communicated that kind of information to friends, family, acquaintances, people I knew, I attended lots and lots of meetups. I had been attending meetups in California. When I moved to Austin, I attended as many meetups so that I could hear, meet locals, just get to know the real estate community, and hopefully have them know me as a potential investment partner.

Ash Patel: Can you walk us through raising that 1.9 million?

Joel Fine: Yeah. I have to backup before the raise actually. My partners in this deal, there were three of us. My apprentice actually found the deal, got it under contract, and then brought me in to help out. We agreed that we would share the responsibilities of the capital raise. So we did the underwriting, reviewed the property, we wrote up a pitch deck, developed information that we could share with potential investors, and then we put together a webinar where we presented information about the deal. In that webinar, we shared all kinds of information. Again, transparency is important to me. We talked about not only the property itself and the business plan about the property, like what we wanted to do to the property to improve it, but we also talked about the markets, what was the neighborhood like, what’s the Austin market doing. We talked about what sort of comparable properties were in the area and why the behavior of those comparable properties justified the numbers we were putting together. We laid out our expectations of, “Hey, if we do the following upgrades to the units, we think we can get this much in additional rent, we think we can improve the net operating income, and so forth.”

We put that information together in a pitch deck, in a PowerPoint slide deck, presented that in a webinar. I think we had, I don’t know, at least 40 people attend. From there, it was actually fairly straightforward. It took us about two weeks to get all the commitments we needed to fund the deal. At that point, it was just a matter of going through the rest of the purchase process, including due diligence and getting the lender approval, getting the appraisal done, and so forth. It actually was very smooth. I think Austin is a very, what I would call a sexy market. When you tell people you have a deal in Austin, there’s a lot of interest in it. They know that Austin’s a fast appreciation market, it’s a place where jobs are growing, people are moving to Austin, so the demand is high. There’s a shortage of housing here so people are inclined, are attuned to invest in Austin. I think that was part of what made it relatively easy for us to raise the money. But within two weeks, we had the money and ready to go.

Ash Patel: What do you say to those people in New York, Austin, and Southern Florida, that say there’s no good deals here?

Joel Fine: Well, it’s very challenging to find deals, there’s no question about that. I have to give credit to my partners, they’re the ones that found that deal, and they found a couple of other deals since then that I participated in. It’s really all about relationships, getting to know brokers, getting to know sellers, getting to know lenders who might have access to deals. When you find deals, you underwrite them, and you have to be ready to move quickly. It can be challenging to get a deal to underwrite, to get a deal to look like it’s going to do well. But if you’ve got your ducks in a row, if you understand the market well, you know where the rents maybe are under market, and you have a good sense of what you can do to a property to improve it, there are opportunities. We’ve done two deals already in Austin, we’re in contract on numbers three and four. I’ve also done a couple of land deals here that are very promising.

Ash Patel: That’s incredible. Joel, in my experience, engineers make some of the best real estate investors because of all the systems and processes they employ. What’s one of the biggest mistakes you’ve made so far in your real estate investing career?

Joel Fine: Ooh, a mistake that I’ve made. I guess I would say one big mistake that I made was early on. One of the first properties I bought was a quad in Cleveland, Ohio. That was before I was really doing any syndications. In fact, I think it was even before I started being a limited partner. But this particular property was four units, it was in a suburb of Cleveland called East Cleveland. For folks who aren’t familiar with Cleveland, East Cleveland has a very poor reputation. It’s kind of the hood. This particular property was in a pocket of East Cleveland that was isolated from the rest of the city by a big park. It was right next to a much nicer suburb called Cleveland Heights. I was really optimistic about that. I convinced myself that my property, because of its location, was going to attract Cleveland Heights type tenants and not East Cleveland tenants. In hindsight, I was wrong. Bought it for 145,000, I did about $80,000 worth of renovations to it, it really needed a lot of work, rented it out for a couple of years. While I was renting it out, I had a property manager running it, but it consumed a lot of my time. Between vandalism, there were delinquent tenants, there were fistfights on the property, broken windows, broken lights. I finally gave up. I sold it for a little bit more than I paid for it, but much less than I put in, including the renovations. I probably lost about 60k on it. In hindsight, I suppose it was a good learning experience. I’ve heard folks call that expensive seminar.

Ash Patel: Just time and money.

Joel Fine: Exactly. It did help me on my journey. If I hadn’t bought that quad then I wouldn’t have bought other things I did buy in Cleveland that worked out much better. I wouldn’t say I regret it but it was certainly, in hindsight, a mistake.

Ash Patel: Yeah, thanks for sharing that. With your investors on the 42 unit and a 44 unit. What’s their projected return in such a competitive market?

Joel Fine: On that one, when we underwrote it, we were projecting 16% to 17% internal rate of return, IRR, with I think it was 10% cash on cash return. We had an 8% pref, we’ve been operating the property for a little less than a year, I think nine months now. When we bought the property, the units were almost all one-bedroom. The units were getting 950 to 975 a month, we underwrote for 1100 a month. We said, “Okay, we think after the renovations we do, we can get 1100 a month.” We did the renovations on a handful of units and tenants were willing to pay 1250 a month. We went from 1100 a month in our expectation to 1250 a month. We expect to beat our forecasts substantially. We haven’t quantified that, I don’t know what the number will work out to be. But we’re feeling really good about it. It’s like I said, the rent is higher than we anticipated that we put in our spreadsheets and so that’s just really good news for us and our investors.

Break: [00:16:43][00:19:40]

Ash Patel: Did you have appreciation as part of your proforma?

Joel Fine: Well, with commercial multifamily, the appreciation is embedded in the improvement to net operating income. It’s different from single families where appreciation is all about the comparable sales. If you’ve got a three-bedroom two-bath and your neighbor has a three-bedroom two-bath, you’re not going to get much more than your neighbor no matter what you do to the property, no matter how much rent you can get. But on a commercial multifamily property, if you can increase the rents and increase the net operating income, you can increase the value of the property, it’s almost linear. If you double the NOI, the net operating income, you can almost double the value of the property. For us, that’s what it’s all about. We can force appreciation by improving the property, by renovating, upgrading the tenant base, increasing rents, and thereby increasing the net operating income. That creates the appreciation so we don’t have to count on market appreciation. What we’re counting on is our ability to force that appreciation and then derive the benefits from it.

Ash Patel: Was your exit cap rate lower than your entrance cap rate?

Joel Fine: No. We always underwrite for a higher exit cap rate. It’s a more conservative thing to do. That particular property, I think we bought it 4.25% cap rate, which isn’t bad for Austin. In Austin, three and a half is not uncommon. But we bought it at 4.25 and I think we underwrote for 4.75% cap rate. It works out to about point 1% per year, which is roughly where we like to be.

Ash Patel: It’s very conservative underwriting. Good for you on that. Do you have a waterfall structure? If let’s say the cap rate is even lower when you exit and the appreciation is just through the roof.

Joel Fine: We haven’t put a waterfall structure on any of our multifamily value-adds. But the one land deal that I syndicated, I did put a waterfall again. That one, we have a 10% pref and then I think it’s something like 70/30 up to 20%, and then 50/50 after 20%. We figured, if we can deliver a 20% IRR to our investors, that’s pretty awesome. We all can be dancing in the streets. At that point, we’ll take a little bit more of the top-line as an incentive, as a reward for all of us for doing better than that.

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

Joel Fine: Best advice. I would say if you’re trying to get into the business, be ready to partner up. One of my limiting beliefs that took me a while to get over was I thought I had to do things on my own. When I was buying the little stuff, the duplexes and triplexes, I thought, “Okay, whatever I’m going to buy, I have to be able to afford to buy on my own.” Now I was dealing with debt, I was getting bank loans, but for everything I bought, I would have to come up with 25% of the purchase price. Once I broke through that limiting belief and decided I could partner up, suddenly I could buy much bigger assets, because I didn’t have to come in with 25% of the purchase price. I could come in with a much smaller number, maybe one or 2%. My other co-sponsors would come up with a little bit of it and then my passive investors would come up with the rest of the down payment, that would get us to 25 or 30%, the bank would do the rest. But the key thing is, by partnering up, both with other sponsors and limited partners, that enabled me to scale up substantially and buy a very different class of properties.

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

Joel Fine: Absolutely. Bring it on.

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

Joel Fine: Well, let’s see. There are two of them, I want to give a shout-out to. These are actually for passive investors. I love it when people read these books and then have a conversation with me as potential passive investors because it makes them much more knowledgeable. One of them is called The Hands-Off Investor by Brian Burke and the other one is Passive Investing in Commercial Real Estate by James Kandasamy. They’re similar in terms of the content they present, but slightly different angles on the content. But the key is, they’re really great for people who are thinking about investing passively and just want to understand how to get into that, and how to do their due diligence since they can’t necessarily visit properties, they can’t necessarily look through the books the way general partners do. They’ve got to rely on a lot of information that the general partners are feeding them. Those books are really excellent resources for passive investors to learn about the business.

Ash Patel: What’s the best type of way you like to give back?

Joel Fine: A couple of things. One is, giving back for me is a kind of an interesting phrase because I think what I do on a daily basis improves lives. For me, that’s what’s giving back. When I buy a property and I renovate it and improve it, I’m improving the lives of my tenants, I’m giving them a better home to live in. That’s important to me. I’m also improving the lives of my investors by giving them a great return on their investment, by giving them good risk reward trade-off that allows them to diversify their portfolio and buy into asset classes that they might not otherwise be able to. I also run a meetup locally in Austin. I love to have people who want to learn about syndication and multifamily investing. Join me in my meetup. The education of other investors is important to me. When I was in California, I actually ran an educational nonprofit that focused on social and political education. I did that as a way to give back. I haven’t run across a charity organization in Texas just yet, but I’m hoping to find one that I can participate in.

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

Joel Fine: Well, they can go to my website, lakelineproperties.com, or they can email me joel@lakelineproperties.com.

Ash Patel: Joel, thank you so much for joining us today, sharing your story, going to college, becoming an engineer, and getting into LP investments knowing your end goal was to be a GP. Congratulations on your success.

Joel Fine: Thank you very much. I appreciate the time.

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

Website disclaimer

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

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

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

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

Oral Disclaimer

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

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JF2668: 3 Ways to Grow Your Business at a Networking Event with Ben Lapidus

Ben Lapidus is the host and founder of the Best Ever Conference and has extensive experience in creating and overseeing networking events. In this episode, Ben shares how to maximize your experience at these events to help build new relationships, educate yourself, and ultimately grow your business.

Join us for this year’s Best Ever Conference in Aurora, Colorado from February 24th-26th: www.besteverconference.com

Ben Lapidus Real Estate Background

  • Chief Financial Officer for Spartan Investment Group LLC,
  • Portfolio: 51 operation, $100M AUM 
  • Founder and host of the national Best Ever Real Estate Investing Conference and managing partner of Indigo Ownerships LLC
  • Say hi to him at www.spartan-investors.com

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TRANSCRIPTION

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

Ben Lapidus: Doing well, Slocomb. Thanks for having me.

Slocomb Reed: You all just recently heard about the success that he is having with Spartan Investment Group LLC, and the self-storage that they’re developing, and the other deals they have going on. He is also the founder and host of the national Best Ever Real Estate Investing Conference. That’s what we’re going to talk about today. Ben, I’m going to translate my own experience and hope it goes with a lot of our Best Ever listeners. I’m attending the Best Ever Conference in person myself for the first time this year. I attended virtually last year and got a lot of great info. But you know, sitting at home with my headphones and my laptop, and my toddler running around, is a very different experience. Help me understand, Ben, this is my first Best Ever Conference attending in person. The first question, I’m registered, I’m checked in, I have my hotel room, I want to dive in… What’s the first thing that I should do?

Ben Lapidus: The first thing that you should do is you should identify your primary goal of attending. If your primary goal of attending is to identify a new passive investment to place, because that’s what your aim is – you’re not an active operator; you’re a pilot, an attorney, a lawyer, you’re looking for places to place your capital that you’re earning in your career into syndications, you’re looking for more groups like that, or to engage with the groups that you’ve already invested with, meet them once a year, the Best Ever Conference is a great place for that. There are dozens of high-quality operators that sponsor and attend the event that are friends of the Best Ever Conference. If you’re…

Slocomb Reed: What’s the best way for me to get myself in front of those operators?

Ben Lapidus: Just attend. If you’re at the conference, you will identify them by sitting down at the lunch table, there’s going to be somebody there that is an owner-operator. By going to the sponsor booths, you’ll walk up and down the aisles, and you’ll see dozens of those options.

We have a pitch event for passive investors to see a dozen or so of our owner-operator groups that have opportunities to invest into their deals. Groups like Spartan or Ashcroft. There are dozens of them that are in attendance, I want to say three or four dozen. Some of them highlight themselves on stage, some of them highlight themselves in the sponsorship area, some of them highlight themselves in the pitch event. There are dozens of operators. It is a conference for real estate syndicators to attend. So if you’re a passive investor, which about a third of our audience is, then you’re also going to be in a room with a large amount of nationwide syndication real estate firms.

Slocomb Reed: What if I am an aspiring syndicator, I own some rentals already, and I’m thinking about explosive growth in my own business?

Ben Lapidus: Again, back to what is your primary goal? Are you there to identify what is the asset class that you would like to invest your focus and time into? Are you there to find a business partner who can complement your skill sets? You’ve already got your team and you’ve already got your assets, so you’re there to figure out your winning acquisition strategy or your winning capitalization strategy that’s been limiting your ability to take down your first deal, or to scale a preexisting portfolio. So identifying what your primary goal is will help you figure out an agenda for yourself. What sessions do I want to attend, while allowing myself the freedom to network and enjoy the overall experience? There’s not a single-track way to attend the event, so identifying your goal in attendance is essential and primary.

Break: [00:04:42][00:06:21]

Slocomb Reed: Tell me, Ben, again, you’re talking directly to me and hopefully also a lot of our Best Ever listeners who have either been there several times or are planning to attend for the first time this year. These mini masterminds, I’ve read the blurb, but how is this going to work? What’s the deal with mini masterminds?

Ben Lapidus: We have a team of staff members who offer a white glove concierge experience, give you a call, get to know you one on one, and then identify a group of people that could be a good fit for you. We bring people together in a virtual space, one of our staff members attends and launches the first interaction of the mini mastermind. From there, it’s kind of for the individuals inside of that group to take it and run with it leading up to the conference. The intent is to have more interaction than just this one weekend so that you can maximize the impact of your time while you’re in attendance. If you have a group of six to eight people who have gotten to know you over the last couple of months, every couple of weeks interacting with them, you’re not only there in attendance for yourself, but you’ve got six to eight cheerleaders who are also looking out for you to identify that one nugget of wisdom, that one relationship, that one contact that can impact your life forever, that can impact your business. The idea is to create a group of people that can be a home base when you’re at the event because 1000 really successful people can be intimidating, but 1000 really successful people where you’ve got six to eight peers who you know, trust, and have already been vulnerable with, who you can kind of come back to as a sounding board for the experience, and who can also be your cheerleader and identifying opportunities for you as their networking. That’s a home base that we’re trying to create for all of our attendees.

Slocomb Reed: That is awesome. Ben, I don’t want to ask who your favorite speakers are going to be. But can you give me a couple of three speakers that you think may surprise people with their insight or with their subject matter?

Ben Lapidus: Some of the speakers that I’m personally interested in… Remember, I say this all the time, I basically built this event for me. I was an intermediate real estate investor, not advanced, not a beginner, and I didn’t want to be told one way to skin a cat at one of these “I’ll show you how to get rich conferences” which have value. I wanted diversity of thought on stage and I wanted to identify people who I thought were interesting that could teach him something. I assumed that, as an avatar of an audience member, if it was interesting to me, it would be interesting to others. The people that I’m most excited about are probably going to be the most interesting. But we have Spencer Levy who is a chief executive of CBRE, he’s been hailed as one of the best orators in the real estate space, he’s incredibly entertaining, and he’s got macroeconomic information that is going to be brand new for 2022. I’m very excited about that. We have cryptocurrency being represented on the stage for the first time and the impact of blockchain technology on commercial real estate. I’m excited to marry those two knowledge bases, those two investing worlds.

We have Vicki Schiff, who has been in commercial real estate since the 90s. She just recently sold a mortgage REIT that has originated over $3 billion. Just having somebody on stage that has played at that scale and can share some of her economic wisdom as well. I’m very excited about that. John Chang is coming back. He’s a great economist for Marcus and Millichap. We have an intellectual debate that is always awesome. We get two people to debate for a motion and two people to debate against a motion. It’s just a great way to explore a question that doesn’t have the right answer to it in trying to predict what the future looks like on a particular subject matter. There’s a number of sessions and speakers that I’m really excited about. That’s just a few.

Slocomb Reed: I hear an amazing speaker, one of the people you just mentioned likely. I have questions for them or want to connect with them afterward, will I have an opportunity for that?

Ben Lapidus: Absolutely. What we learned from the virtual event last year is that it was really efficient from a user experience to kind of keep the show moving, not do Q&A during the mainstage event, and to have a Q&A room after the fact. We’re going to take that model and we’re going to convert it into the physical space where during our breaks we’re going to have Q&A rooms with our speakers who have gone… Kind of like a radio station set where the hits keep coming, and then during the commercial break, you can go to the bathroom, you can hang out with the sponsors, or you can go into the Q&A room and interact with the speakers.

Slocomb Reed: Got you. I hear something that appeals directly to me and I want to follow up with that speaker on their subject matter. The main stage will get a new speaker soon, but I can go do Q&A with the speaker who engaged with me in another space.

Ben Lapidus: Yes, exactly right.

Slocomb Reed: Nice. Is there anything I haven’t asked about yet that you think everyone needs to know?

Ben Lapidus: Why come to the Best Ever Conference? What’s the point? What are we doing it for? I find that there’s a lot of content out there. There are dozens of conferences that you could attend, there are hundreds of books that you could read, lots of podcasts. Why this one? Why this experience? Why this content set? My answer is, it’s the only true national forum that marries the mid-market investor space, which is what the listeners of this podcast are, to institutional quality speakers and content. There’s a lot of conferences out there where you get your kind of top podcasters to be your speakers. These are folks who are, let’s say, early still in their real estate cycle. Even Joe, myself, and Brandon Turner from the Bigger Pockets Podcast, we’re all in our first economic cycles. We weren’t investing back in 2005 in commercial real estate. To learn from people who are talking about tens of billions of dollars who have seen multiple economic cycles, but to do it in a space where you have 96% of your people have done at least one commercial transaction in the last six months, which makes every audience member just as impressive as every speaker.

We have incredibly high audience quality interactions, incredibly high speaker quality interactions. It’s the only national forum that’s kind of taken that tact to allow our syndicator operators in our audience inside the Best Ever community to interact with institutional-level execution. We have found over 60 podcasts have been started from the Best Ever conference, over two dozen companies have been formed by interactions, by partnerships made at the Best Ever conference. Brandon Turner from Bigger Pockets kind of hails the Best Ever conferences, the inflection point when he started open door capital. That’s an example. Life Bridge Capital was formed out of the Best Ever Conference. Spartan Investment Group was formed out of the Best Ever Conference. Ashcraft was formed out of the Best Ever Conference. These partnerships were formed by connections that were made at the conference. That’s the reason to attend. It is the highest audience quality event in this big market syndicator commercial real estate space.

Break: [00:13:05][00:16:01]

Slocomb Reed: Ben, speaking of audience quality and quality networking, I was looking at the prospective itinerary for the conference and I saw Best Ever Party. That’s definitely not something I got to do virtually last year. Tell me about that. What is that?

Ben Lapidus: That is where we have one of our top sponsors just buys around drinks for the entire conference. We got a bus series coming in to bring people from the Gaylord to the largest bar in Denver. We’re just going to take it over and we’re going to be there for as long as people want to be there. Denver shuts down at 2 am and usually, there’s at least 100 people left by that hour in our physical space. The Best Ever Conference is not just a place to go and sit with your notebook and take notes, definitely do that but it is the best networking ground. People think they want to come to the speakers but the real value that they get out of it, the reason they come back, the reason 60 to 70% of people come back every year, is because of the audience quality. It is the best place to meet all the people that you’ve listened to on podcasts, that you’ve spoken to over the last year, and to make great new connections, partnerships, relationships. The party helps foster that.

Slocomb Reed: That’s awesome. I know, I spent a lot of time with my notebook in my seat last year watching the conference on my computer. I’m very much looking forward to the networking, the opportunity to meet you in person, Ben, and some of the other people that I’m interviewing with this podcast as well.

Ben Lapidus: Right on.

Slocomb Reed: Great. The conference is from February 24th through 26th. Where is the best place for people to get more information about it and to register, Ben?

Ben Lapidus: The best place is besteverconference.com We’re really excited. We have more than double the amount of people attending already than any other previous year by this time. We’re excited about another great event in February.

Slocomb Reed: Awesome. Best Ever listeners, we hope you have a Best Ever day. Ben and I hope we get to meet you at the Best Ever Conference in February.

Ben Lapidus: Thanks, Slocomb.

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JF2663: 3 Ways to Find Deals as an Introverted Investor with Camilla Jeffs

Camilla Jeffs was a burnt out, introverted landlord. When she learned about passive investing, it sounded like the perfect elixir to her fatigue. There was just one problem: commercial real estate is a team sport, and as an introvert, the idea of having to talk and network with groups of people was overwhelming. However, Camilla was able to create a strategy to work with and overcome a lot of the anxiety that surrounded the necessity of networking. In this episode, Camilla shares three great tips that introverted investors can use to overcome their anxiety and seek out amazing deals.

Camilla Jeffs Real Estate Background

  • Founder and CEO at Steady Stream Investments, which helps people achieve an elevated level of financial health through investing passively in cash-flowing real estate that impacts local communities, all without the hassles of being a landlord.
  • Portfolio: 107 multifamily units passive, 600+ multifamily units active, 64-bed assisted living new construction, totaling to $80M AUM.
  • Based in: North Dallas, TX
  • Say hi to her at: www.camillajeffs.com

 

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TRANSCRIPTION

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

Camilla Jeffs: Fantastic. Thanks for having me on.

Slocomb Reed: Great to have you here. Camilla officially went full-time as a real estate investor about 10 weeks ago. She has 18 years of commercial real estate investing experience as a multifamily syndicator, both active and passive. Her current portfolio includes 107 multifamily units in which she’s invested passively, 600 plus multifamily units where she’s an active investor, and a 64-bed assisted living new construction, totaling at 80 million in AUM. She’s based in North Dallas, Texas, and you can say hi to her at camillajeffs.com. Camilla, tell us about yourself. What got you into real estate?

Camilla Jeffs: Thanks. I want to clarify one point on the bio. You said I have 18 years of commercial real estate experience. That’s not true. 15 of that was actually residential. I spent 15 years in the residential space doing single-family rentals, some small multifamily as well… But what got me into real estate? Well, it really was necessity. My husband and I were living in a garage apartment, had very little money, we were both students in college, trying to make ends meet, working full-time, school full-time… And our landlady came to collect the rent one day, because that was back in the time where you put the rent in an envelope on your door and they would pick it up. I started a conversation with her and just said, “How are you doing in what you’re doing? I know you have multiple rentals. I know you’re a realtor as well. Tell me about this.” As we started talking, she suggested that maybe I should buy a house. I was like, “No, we’re poor. We don’t have any money. There’s no way we can afford a house. We can barely afford this garage apartment that we are renting.”

She said, “Actually, there’s a really cool strategy you could use where you could buy a house that has a basement apartment, and then you could rent it out, and your monthly payment might even be lower than what you’re paying in the garage apartment.” I thought about that for a minute. I thought “That’s really interesting.” That’s exactly what we did. We worked with her and we found a six-bedroom home. It was giant. Well, for us it was giant, because we’re in this little tiny, nasty apartment. And we bought this home as owner-occupants, so we were able to put just 3% down and got the best interest rates… And then it had a basement apartment, it had a kitchen in the basement, three bedrooms in the basement, and we rented those out, and we were able to live there for about $150 a month, is all that we paid for that house. And it had a pool in the backyard. How cool was that?

Slocomb Reed: That’s awesome.

Camilla Jeffs: And it was the only way that we really could get into it — well in our minds, at that time. That’s the only way we thought we could get into it. So today the term is house-hacking, and it’s a fantastic way to start in real estate for anybody. I recommend it for anybody to house-hack. And then that’s when we started thinking, “Okay, there’s something to this real estate thing”, and I started diving in, reading all the books I could find, and figuring it out. Then we just grew our portfolio, one house at a time. We were not the 10Xers, we were not the one out there massively pounding the pavement and getting it; we were just growing our portfolio.

So for 15 years, we grew a nice single-family residential portfolio, and then I hit burnout. I hit this point, because we were literally doing everything ourselves. I was mowing the lawn, we were fixing the toilets, answering the tenant calls, all the things. I was just to the point where like, “I’m tired.” And we had five kids by then, so there was a lot going on. Then I decided to pivot into large multifamily. The first thing we did was sell a bunch of our properties and invest passively. Then second, now I’ve built an active multifamily portfolio by focusing on teaching other people how to invest passively into real estate. That’s where I am today.

Slocomb Reed: Awesome. So you made the transition from single-family and small multifamily into larger deals, primarily to get yourself out of the day-to-day tasks that you were doing when you were self-managing?

Camilla Jeffs: Yeah, I was definitely looking for more time freedom.

Slocomb Reed: That’s awesome. What does your active investing look like now? Are you specifically in the Dallas Metro? What size properties are you looking for?

Camilla Jeffs: We just barely moved to Dallas about a year ago, so I’m still figuring out the Dallas market. I actually don’t have any assets in Dallas yet, but I plan to pick up a couple next year. But my portfolio consists of four assets in Arizona and two assets in Oklahoma. I like both of those markets, for two different reasons. Arizona, that’s where we used to live, so I know that market well and spent a lot of time in that market. It’s growing like crazy high appreciation, it’s booming; so that’s a great appreciation market to take advantage of that. And then Oklahoma is just a fantastic cash flowing market. It just cash flows from day one, really nice returns in terms of cash flow. Those are the two markets that I focus on currently.

Slocomb Reed: Is there a particular part of Oklahoma?

Camilla Jeffs: I have an asset in Oklahoma City and one near Tulsa. Both are great.

Slocomb Reed: You said you sold some of your portfolio, your smaller stuff, to get into passive investing. As a passive investor, what attracted you to particular syndicators or operators? Who is it that got your business, and why?

Camilla Jeffs: To be honest, it wasn’t very scientific for me in the beginning, because I didn’t know what I didn’t know. I’ve been a real estate investor for 15 years, so I thought I had a good experience, I thought I knew about real estate… But actually, investing in commercial real estate is completely different. There are different metrics, they use different numbers, they talk about it in a different way. With my real estate investing, for example, I never thought about equity multiple. And in commercial real estate we talk about equity multiples. Well, that’s because in my single-family portfolio, I didn’t have a set end date. I couldn’t project over five years, for example, which is what we do in commercial. So equity multiple was a very fascinating number for me to fixate on that.

So how did I find the people that I ultimately invested with? Again, living in Arizona, so I knew I wanted to invest in an Arizona asset, so I could drive by it and see it, because I wanted to be able to touch it. That’s what I had done with all my other properties; because I’m still in this DIY mindset. I’m trying to figure out “How can I even partner with other people? How can I trust these people to take care of my money?” It caused a lot of anxiety for me. I knew it was the right thing to do, I knew it was the right way to level up and to get out of being a landlord, but it was still hard to pass my money over and feel 100% confident. I don’t think you ever feel 100% confident in an investment. There are always risks, there’s always things, but you can do some steps.

One of the steps I did was I wanted to meet the people that I was investing with. So I got out of my comfort zone – and I think we’re going to talk about being an introvert a little bit later, in a bit… But I’m an introvert, and I never, never in my 15 years of investing, in the beginning, did I go to a real estate networking event. That was way too scary, I didn’t ever want to do that. So I didn’t really have any other friends who were investing. Well, to invest in commercial, it’s group investing; you can’t do it on your own. So I had to get out of my comfort zone, so I literally googled multifamily meetup in Arizona, and I started going to some of those. Some were very inexperienced people like me, who’d never done anything, that were trying to figure it out how to do something. And then some had more experience, folks that were there. So I just started networking and talking to some of the folks.

After I’d gotten to know a certain guy for a while, he came to me and he’s like, “Hey Camilla, I have a deal.” I was like, “Okay, show me what this deal looks like.” He walked me through the deal, he answered all my questions, and then I was like, “Okay, let me think about it. I’ll get back to you.” Over the next couple of weeks, he just followed up with me; he was just right there like, “Hey, what do you think? Do you have any other questions? How can I help?” He was very responsive to me and I really appreciated that about him, that he didn’t just, “Okay, if she’s interested, she’ll get back to me.” Because honestly, I probably never would have. I never would have gotten back to him, because I just needed someone to kind of push me along and help me to do that.

So really, after looking at what he had, talking to him about his track record, like “What have you done in the past?” And I’ll admit, it was light, it wasn’t even like someone who’d been doing it for 10 or 15 years. He’d been doing it for a couple of years. But I really liked the deal, I liked the concept of group investing, and I wanted to have that experience and have that as part of my portfolio. So I ended up investing $50,000 into that investment. And it’s going really well, it’s awesome. I get checks, I get notifications, and updates on it… And that’s the only thing I do. I don’t have to do anything. It’s amazing.

Slocomb Reed: Very different from taking your own maintenance calls, and cutting your own grass, and showing your own houses, for sure.

Camilla Jeffs: Yeah. 100%.

Slocomb Reed: That’s awesome.

Break: [00:10:32][00:12:12]

Slocomb Reed: Camilla, thinking about yourself around three years ago when you invested passively for the first time, thinking of yourself as an introvert do-it-yourselfer who wants to get more time freedom and get into larger deals, take better advantage of the wealth that you built for yourself through your own active investing – thinking back to yourself three years ago, what advice would you give to other people who find themselves in the same situation? They’ve been shoveling garbage out of their parking lots, and showing apartments, getting stood up, getting paint on clothes they never thought would have paint on them… What advice do you have for those people to get into passive investing?

Camilla Jeffs: Yeah, I ruined a lot of pants. [laughs] That paint, you just like accidentally bump a wall, you’re like “Dang it!” [unintelligible [00:13:07].00] those pants.

Slocomb Reed: Best Ever advice for people who have to do their own manual labor – wear scrubs, what nurses wear. It’s tough, it’s durable, it’s lightweight, it doesn’t matter how hot it is outside… I have so many dirty, bloody, painty scrubs from when I’ve had to do that stuff myself. Sorry Camilla, please continue.

Camilla Jeffs: I love it. I love it. [laughs] Okay, so what advice would I give to a fellow introverted burnt out landlord? Number one is there is a better way; there just is. It’s pretty crazy that the returns that I’m getting on this passive investment beat out some of the returns that I was getting on some of my single-family properties. I literally don’t have to do any of the work. That was mind-blowing to me. So number one, there’s a better way.

Number two – yes, it’s going to take a little bit of getting out of your comfort zone to get started. I think that’s the hardest part. The hardest part is getting out of that comfort zone a little bit to get started. And what I mean by a little bit is you don’t need to meet 50 syndicators; you need to meet a couple. You need to find a couple of people that you feel comfortable with, that you feel like they have the same vision and values as you, that you feel like are going to be very communicative, that you feel comfortable with their experience, their background, and what they bring to the table. Then you can start evaluating their opportunities.

So how do you meet them? Well, you’ve gotta attend some networking events. The whole nature of commercial real estate investing and some of the rules that we have to follow for the SEC are you have to have a personal relationship, a lot of times, to even get in these deals. So what is a personal relationship? It could be as simple as a call that you’ve had, like a Zoom call, face-to-face, or you met up at a real estate conference, or things like that.

You can go to real estate conferences… Go to a real estate conference. I know that’s even scarier than a smaller meetup. So here are my strategies for doing that; here’s my Best Ever advice for introverts, at real estate networking. Number one, when you walk in the room, find someone who’s sitting alone. Chances are that person is also an introvert and is just as uncomfortable as you are. Go sit by that person and strike up a conversation. They will be so grateful that you did. And then you have your one-on-one conversation. No awkward, “Oh, there’s this clump of five people who are talking and laughing, and I’ll try to like waddle up and see if they’ll notice me, or insert myself…” No, that does not work for introverts. We don’t do that, we don’t work like that. So find someone there.

Number two advice is to set a goal for yourself, whether that’s three people or five people – set a small goal for yourself that says, “I cannot leave this conference until I have met five new people.” And then, once you’ve hit that goal, give yourself permission to leave. And if you’re still uncomfortable after meeting five new people, you have full-on permission to leave. You’ve hit your goal, you can pat yourself on the back, “I did it! I met five people. I got five business cards, people I could follow up with and talk to you later. Great. I’m done. I can go home.”

Because one of the challenges that introverts have is that, being in those large groups of people, it drains our energy. It’s not that we don’t like it, it just drains our energy, because we gain energy from being alone, in our thoughts, reading a book, walking in nature, things like that. That’s how we gain energy. Whereas extroverts, they gain energy from being with people, and they really feed on each other. It just drains introverts. But it’s not that we don’t want to be there and we don’t like talking to people; that’s a myth about introverts. But that’s my advice for introverts at networking conferences.

Slocomb Reed: That’s awesome. Find the other introverts; you know how to identify yourselves because they look and feel the way you look and feel, walking into a big room. And set a goal for how many people you know you’ll talk to. Then give yourself permission to be done when you need to be done and the tank is empty. That’s awesome. Camilla, taking the perspective of I know a lot of our listeners were active investors, and taking the perspective of myself if I’m honest, and you now as an active investor, what advice do you have for us when we are looking to attract passive investors to ourselves, particularly introverted passive investors?

Camilla Jeffs: To attract passive investors, you need to be heavily focused on education. I always say that Steady Stream Investments is an education company, because that’s what I do, I really focus on education. So if you think about a passive investor – and I thought really hard about my own experience and what my own experience was like, what I could have used to feel even more comfortable about investing… Because I felt like I was the one that was pulling for the information. But if you can set yourself up as someone who is pushing information to your investors, your investor database – that’s key, you’ve got to start building an investor database, and then nurturing that database in some shape or form.

My favorite thing to do is at first — but first start your database, you need to send out a sample deal… You need to come up with a sample deal, like “Here’s the types of deals I’m looking at.” If you’re in your mind, you’re like, “My next deal, I probably need to raise money from passive investors. I’ve never done it before. What do I do?” Put together a three-page thing on this deal. What is this going to look like? Where’s it going to be? Why do you like this market? What type of deal will it be? What kind of returns would the investor expect to receive? Everybody you know that you have their email, send this information to them and say, “You know, I’ve been an investor, and I’ve been doing this, and this, and I’m really excited about the next steps. My next step would be to start a group investment where I can allow other people to invest with me. So if I had a deal like this, would you be interested?” Everybody who says yes, you put them on a list. Now, this is the start of your investor database.

This is where most people get it wrong… Because they’ll do that, they’ll start, and they’ll get all these people who say they’re interested, and then they think, “Okay, great. Now when I have a deal, I’ll send it to all these interested people and they will invest.” Well, there’s a big difference between someone who is interested and someone who actually invests in a deal. Everybody’s interested in real estate, everybody knows that real estate’s a great investment. But to get them to actually invest, you have to really be strategic in educating them; so you can’t just leave them alone. So you’ve got to be sending out information constantly, and then think really hard about the information you’re sending out. Is it tailored to a passive investor, what a passive investor needs to know, or are you just touting your accomplishments and achievements and “Here are all the things that I’ve done, and here’s what I’m doing”, just to stay top of mind?

Again, a big difference between sending out information that says, “Here’s what I’ve been doing all the time. Here are all the podcasts I’ve been on. Here’s all this stuff” and then you flip that and say, “Hey, you investor, here’s what you need to know to be prepared for the next deal. Here’s how you vet a sponsor. Here’s how you vet a deal. Here’s what you need to understand about equity multiples. Here’s what you need to understand about the average annual return. Here’s what you need to know about IRR.” Hardly anybody understands IRR. That’s a hard calculation to figure out. So think about how you’re educating your investors… And I guarantee, if you flip the script and focus on the education of your investors, by the time you have a deal, they will be ready and they will invest in your deal.

Break: [00:20:59][00:23:56]

Slocomb Reed: A personal question, Camilla… This is coming from me and I hope it is relatable to some of our Best Ever listeners. Let me set the scene for you. I host Cincinnati’s Best Ever Real Estate Investor Mastermind at Joe Fairless’ investor meetup here in Cincy… And I am a large, gregarious man, 6’4″, 300 plus pounds. When I raise my voice to make an announcement, everyone just naturally gets quiet, turns around, listens, and then does whatever I tell them to do. The opposite of the introvert experience at meetups like that. I know there Best Ever listeners here who host local meetups and want to engage everyone who walks through the door. How can I help 2017 Camilla feel welcome at my meetup and how can I help you get connected with the people she showed up to connect with without draining the energy tank too quickly?

Camilla Jeffs: Well, number one — as an introvert, when I walk into a room, I immediately scan the room and try to figure out who is safe for me to talk to, and who’s going to be a safe person. I think as the host of the meetup, I think you need to work really hard on your own safety vibe. What vibe are you giving off? I think the way you approach – so you can’t approach gregariously, or I’m going to be like, “Whoa…! You’re too much. I can’t handle you.” But I think you can definitely approach me and welcome me; that’s really helpful, actually, for an introvert to be welcomed immediately, as soon as we walk in the space. So I think being the greeter at the door would be helpful for you.

Anybody who’s hosting a meetup – greet at the door. Don’t be standing in the front of the room behind your desk, or table, or whatever. I get, you need to set up, but you got to set up well before the time that people started coming, so that 10 minutes before, you can be at the door and greeting people as they come in. And you’ll know immediately who a new person is, because you’re the one running this meetup. It depends on how big your meetup is. I walk in, I’m a new person…

Slocomb Reed: Introverts tend to show up early.

Camilla Jeffs: That’s right, we do. Because we want to sit up front, so we don’t have to be distracted by all the people. So as I walk in the door, you greet me and you’re like, “Hey, welcome. I haven’t met you before. What’s your name?” Immediately, I’m put at ease, because I don’t have to be the one that starts the conversation. I think it’s hard for introverts to start a conversation. If you ask me a question, I’m happy to answer that question. Then ask the second question you alluded to, “What are you looking for? How can I help you?” Then as they answer that question, in your mind, you should be thinking of people that you can introduce them to. The third step is to take them over to Sally over here and be like, “I think you would really like to meet Sally”, introduce them to Sally, and then you leave them on their own, and then you can go back to greeting more people. That would be a perfect scenario for me as an introvert walking into a brand new meetup.

Slocomb Reed: Awesome. Let’s wind down with this… Camilla, give me an example of a passive investor who remains nameless, of course, who you have engaged with to educate them and help them not only learn passive commercial real estate investing, but also invest in your deals – how you engaged with them to give them the confidence to invest with you.

Camilla Jeffs: I do that through multiple avenues. I started out building my email list, and then I do send out newsletters. I also added on webinars, so I hold monthly webinars with my passive investors, and we cover a certain topic. Last month, we did the three biggest risks to investing passively, so they could fully understand their risks. Then I have a one-on-one conversation with every single investor that comes into my database to answer their questions and help them out.

So I have a pool of investors, sometimes they’re in the background and they’re just kind of watching the education and reading it, and it takes them a while. And it doesn’t bother me at all. It doesn’t bother me at all if someone comes into my thing and they don’t invest for two, three, or four years; that’s fine. If you need that time to feel fully educated or feel like you have enough money saved – whatever, totally fine.

I had one who was in my database for almost two years, and finally, they invested. When they decided to invest, once I launched a deal, they put in a commitment. I was so excited to see their name on there, because I’d been working with them for a while… And then we had several conversations about it, because they’re still a little bit nervous and still wanted to fully understand everything. When it’s the first time investing, it’s a lot to take in. When you’re faced with that PPM that’s 100 pages of legalese, in really big letters, and it says risky, risky, risky, risky all the way through… It’s a lot, and I think that’s something that I’ve been able to really develop, kind of my superpower, is really helping the first-time passive investor fully understand the process so that they feel comfortable… 90% comfortable. Again, as I said, you’re never going to be 100% comfortable. But once you’re at 90%, you can invest, and getting them into a deal. And then we celebrate. It’s very exciting for them when it’s your first time investing in a deal, then you start receiving the distributions, you receive the monthly updates, and that’s when you start feeling really good about the choice that you made.

Slocomb Reed: Awesome. That’s good stuff, Camilla. Thank you. And thank you for sharing your personal story and what it is that you’re doing to help investors now. If you are a burnt-out landlord, there is a better way. Re-listen to this episode. Camilla has shared her story to tell you about that better way. Get out of your comfort zone and do networking. Commercial real estate is it team game, it’s a group investment. When you are looking to attract passive investors for your active deals, focus on educating them and be proactive. Be the one who reaches out to the people who are looking to invest, to get their questions answered, their concerns addressed, and get them investing in your deals. Camilla, thank you again. Best Ever listeners, we hope you have a Best Ever day and we’ll see you tomorrow.

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JF2660: 3 Ways to Pitch to Partners With Little CRE Investing Experience with Brock Mogensen

Brock Mogensen went from completing one house hack to an 89-unit syndication. Self-taught and with limited commercial real estate investing experience, Brock was able to successfully pitch himself to partners. In this episode, Brock details how he crafted his winning pitch and the lessons he’s learned diving headfirst into CREI.

Brock Mogensen Real Estate Background

 

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TRANSCRIPTION

Ash Patel: Hello Best Ever listeners. Welcome to the Best Real Estate Investing Advice Ever Show. I’m Ash Patel and I’m with today’s guest, Brock Mogensen. Brock is joining us from Milwaukee, Wisconsin. He is a full-time real estate investor and has 10 million dollars of assets under management. Brock has also been syndicating deals for almost three years. Brock, thank you for joining us and how are you today?

Brock Mogensen: Doing well. Thanks for having me on.

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

Brock Mogensen: Definitely. I got started in real estate a little over three years ago. I started with a house hack, so I bought a duplex, lived in one side, rented out the other, fell in love with everything about real estate, and decided this is what I want to do, I’m going to scale this and make it my full-time thing. From there, I got into syndication, spent some time learning the underwriting side. That was kind of my focus, it still is, and partnering with the right people. About a year after I bought the duplex, we syndicated in 89-unit deal, and have gone on to do five or six more since then. It’s been amazing. In that time, I was able to leave my W2 job and now I just focus 100% on investing in real estate.

Ash Patel: Man, that sounds easy. Hold on, let’s dive into all this. What were you doing before your house-hack? Or what was your full-time job?

Brock Mogensen: I was in a few different roles. I was in marketing, then I was in IT for a while; most of the time it’s like in an analyst-type role. I did have some skills that transferred over. I learned how to use a spreadsheet and kind of the analytical side of the business. Some of those skills transferred over, but nothing in real estate related in my W2.

Ash Patel: What prompted you to start house hacking?

Brock Mogensen: As I grew up, my dad owned two duplexes. Both my parents worked very blue-collar jobs. Growing up, I kind of saw just the power of simply owning four units, the cash flow from four units, what that can change your lifestyle. So it was kind of just ingrained that I was going to buy a duplex out of college, save up some money, and buy a duplex. I never really had the thought in the beginning that it was going to turn into what it is now, but that initial thought of just simply buying one property was always on my mind.

Ash Patel: So you never meant to scale it, it was just to provide some additional income.

Brock Mogensen: Exactly. In the beginning, it was more, I kind of just thought maybe I’ll buy a couple of duplexes throughout my life. But after that first deal, I fell in love with real estate and everything it provides, and I realized I got to go all-in on this and make it big.

Ash Patel: And then a year later, an 89-unit syndication. Give us the details of how that came together.

Brock Mogensen: My thought process was when I initially started researching syndication, there’s a ton of different stuff that goes into syndicating a deal. I knew I didn’t have the net worth, I didn’t have all the money, I didn’t have the investor base, I didn’t have a lot of these big pieces of the puzzle. So I figured, let me learn one piece of the puzzle, then I’ll go out and find partners that might be looking for someone on that piece, that is strong in the other areas. Underwriting, naturally was kind of where I spent some time learning. Once I became proficient in there, six or seven months later, after just doing everything I can, practicing, looking up as much content as I could, I went out, and networked a ton, I connected with one partner that had the same kind of mindset as me, then he brought on one of his other buddies that had much more experience and had been doing it for a while, he just hadn’t syndicated anything… And us three kind of just went from there and did that first deal. They brought the capital, they brought all those connections, and I was more on the analysis side. Since then, our partnership has gone great, we’ve done a ton of deals together, and now I kind of take part in the whole process now. But initially, it was a lot. I figured let me just learn one piece, instead of trying to learn everything in the beginning.

Ash Patel: Alright, you’re doing it again, you’re making things sound easy. Let’s dive in a little deeper. You said “when I started looking into syndications”, what prompted you to look into syndications?

Brock Mogensen: Really, it was this concept of wanting to go bigger. I realized that the way I was going to scale was by going after bigger deals. And obviously, the first thought is I don’t have an expendable couple thousand dollars each year to go out and buy a big apartment building… So I came across this concept of syndication, leveraging other people’s money to go after bigger deals, and just taking a piece of the pie, instead of the whole thing. I came across this subject, it caught my attention, and I realized this is the way I’m going to scale. I’ve started thinking about how do I get into this personally, with my skill set and what I have to bring to the table? What is the way I can get into this?

Ash Patel: Brock, how did you educate yourself on syndications?

Brock Mogensen: It was really just a ton of podcasts and books. I listened to this podcast quite a bit, just going out and finding everything I could out on the internet. I did a few small courses, but never really got into one of the larger mastermind groups… But it was really just going out and putting all the pieces together and pulling information from everywhere I could. There’s so much essentially free information out there just through podcasts and books for people. If you really are dedicated, you can learn it.

Ash Patel: Was part of your to-do list “find partners”?

Brock Mogensen: Yes. Initially, I just wanted to spend some time just learning. Before I started going out and searching for partners, I figured let me at least have an idea and kind of know what I’m talking about before I started sitting down with these people. But as soon as I became pretty confident and understood the process — I was going out and networking a ton and just telling everyone what my goals were. After a while, I connected with the right person and everything went from there.

Ash Patel: Brock, what did you bring to the table? Because you’ve done a house hack, why am I going to partner with you on a syndication?

Brock Mogensen: It’s a great question. It was really me selling these two partners that had much more experience than me that I was going to put in the work. I did all the analysis on the front end, so I was able to talk through, show what I knew on the front end, and then lay out what I was going to bring to the table throughout the entire deal. I took on a lot of the investor reporting, and a lot of the admin duties in the beginning that they saw value in bringing on someone. So you’re totally right, as someone who’s coming into it with just a duplex and not much money in the bank, it’s kind of hard to sell someone that has several hundred units on becoming a partner with them. It’s really obvious you’ve got to learn the ropes first, and then you just got to learn how to sell yourself.

Ash Patel: I love that, man. You did it. You educated yourself and you made it happen. You got the partners, you talk the talk, you put the work in, and did the grunt work, I’m sure in the beginning. What a great recipe for success. So what was your first deal, the first syndication?

Brock Mogensen: The first one was 89 units, a class C apartment in Milwaukee. That was the first big one that we did. There were definitely some learning lessons in there, but it was a good first deal to start out with.

Ash Patel: Is this a deal that the three of you did together or was in the works when you came into this partnership?

Brock Mogensen: Kind of in between. It was a deal that we were looking at for a little while, it fell out of contract, so we all kind of had our eyes on it. But they ended up getting it under contract and I came aboard right after they got it under contract. So it was kind of a mixture. We all kind of understood the deal, but it was just like we were talking about — I had to sell myself on how I can get on the GP team.

Ash Patel: And you spearheaded the underwriting?

Brock Mogensen: Correct.

Ash Patel: How the hell did you learn how to do that?

Brock Mogensen: It was a lot of mostly just practicing. You’ve got to learn the basics of what’s NOI and how to categorize expenses, all that fun stuff. But once you have that base knowledge, you can go buy a spreadsheet online from one of the operators, or you can build your own. But then I’d literally go on LoopNet every day, I’d find a deal that was in the size range I was looking at, and I would just plug numbers in, try to analyze it, some questions would come up, I’d do some Google searches, and there’s a lot of — practicing is the best way, like anything I know; like sports or anything else. The more you practice, the better you’re going to get. So pull deals and just try analyzing and see what happens.

Ash Patel: Just pure hustle and grind.

Brock Mogensen: Absolutely.

Ash Patel: Were your partners pretty impressed with what you were doing?

Brock Mogensen: Yeah, I think on the front end I definitely spent a lot of time really diving deep into everything to show my value, to show my analytical side, and what I was going to bring to the table. Both my partners are more on the sales side, so I think they saw the value in bringing on someone that’s analytical. Those are really the best sort of partnerships that are created. But it worked out.

Break: [00:08:14][00:09:47]

Ash Patel: How much did you lean on them for questions? Or did you try not to bother them?

Brock Mogensen: I definitely had a lot of questions. I had all the book knowledge, the podcasts, all that stuff’s great and useful, but it’s a lot different than actually doing it. Actual experience can’t be replaced by anything, no matter how much knowledge you have. The best knowledge is learned by actually doing it. Yeah, there was a ton of stuff as we were going through the process, and after we bought the deal. Some basic stuff, that looking back on it, I didn’t even know, that I was kind of just learning as I went. I had that front-end knowledge. But having partners that already had done these deals and bought big apartment complexes, being able to ask them questions… And the more deals we’ve done, it’s always a learning process. You never stop learning. It’s just a matter of asking the right questions and making sure you understand stuff.

Ash Patel: Brock, do you remember the numbers on that? The purchase price?

Brock Mogensen: Yeah, we were at about three and a half million purchase price.

Ash Patel: Class C. So what was the renovation amount?

Brock Mogensen: We ended up renovating most of the units. That was one of the learning lessons we had on the first deal, was always put more money in your reserve account than you think you’re going to need. We ended up having to pull from cash flow to do some of it, we ended up doing more renovations than we thought, we didn’t quite budget correctly… So that was definitely one of the learning lessons on that property. Now whatever amount we think it’s going to cost for rehabs, reserves, and tenant improvement costs all that stuff, we throw in an extra 20% to 30% in there just as a safety net. Because when you’re holding these deals for five to 10 years – that is usually how long you’re going to hold these types of deals – something in your proforma is going to go wrong. There’s always going to be some water heater you didn’t account for, or something in the roof, there’s always going to be something. COVID comes and you get 10% of your tenants who don’t pay rent; there’s going to be hurdles along the way, so I’d rather have that safety net in there. If you don’t use it, you just give it back to investors at the end.

Ash Patel: So that 20% to 30% buffer comes from investors.

Brock Mogensen: Correct.

Ash Patel: So you’re paying the returns on that money that you’re holding. Can you return that early?

Brock Mogensen: It’s a good question. We haven’t done that yet. We do have some properties where we have a ton in there, and we haven’t used any of them. Potentially, I think we’ll look at that as we get further down the road and if it gets to a certain point where it makes sense to distribute back. But so far, we’d rather stay on the conservative approach and just avoid having to do any capital calls. That’s the worst-case scenario really in syndication is having to go back to investors and ask for more money. So our thought process is we’d rather just have it sitting there, and if the numbers work based on that amount of capital being contributed, then there’s no harm in just letting it sit there.

Ash Patel: Yeah. And in terms of dealing with investors, did you move into that role? Do you interact with investors? Do you try to get new investors on deals?

Brock Mogensen: Yes. I’ve definitely had more and more deals that I’ve taken part quite a bit in the capital raising, and then I do all the investor reporting, so I’m putting together reports every month to send to investors, and tracking the financials. So I take part quite a bit on the asset management side as well… As well as my partners; we’re all kind of contributing to all aspects of the deal.

Ash Patel: Do you attract investors yourself?

Brock Mogensen: Yes.

Ash Patel: How do you do that?

Brock Mogensen: I try to do more and more on marketing, social media, email lists, and networking events, doing everything I can. I’d say our biggest source of investors has been from networking events. We started a meetup here in our state; it’s grown to be pretty big, and we’ve attracted quite a bit of investors through that. We’ve put quite a bit of time into marketing those events, to just bring in as many people as we can into our funnel, let them know what we’re working on, and see if they’re interested.

Ash Patel: Brock, what’s a hard lesson you learned about interacting with investors?

Brock Mogensen: That’s a good question. I think really just being upfront with investors and letting them know where you’re at and not exaggerating things. We’re very upfront about some of the learning lessons we’ve had on deals; we don’t try to hide stuff. We’ll lay it all out there and say, “This is what we’ve learned. We made some mistakes here.” We’ll kind of show some performance on some of our other deals. I think being transparent with investors is the biggest thing instead of trying to hide the stuff that they’re probably going to find out anyways. Be transparent on the front end, and I think that goes a long way in building rapport.

Ash Patel: What’s a hard lesson you learned about having partners?

Brock Mogensen: I’d say dividing work sometimes and figuring out what everyone’s strong suit is. I think the best partnerships are all these people that have different strong suits and kind of come together to create this partnership. If you can divide certain tasks to say “You’re better at this task, I’m better at this one. Let’s just kind of take these paths and go.” Sometimes that can get challenging, because there can be certain tasks where maybe you both think you should work on, but it’s better to just have one person. I think that’s always going to be a struggle, is defining those roles. Eventually, when you get to a point when you can start hiring employees, you can delegate more of those tasks, I think that becomes easier. But on the front end, that can get difficult sometimes.

Ash Patel: Have you read the book Who, Not How?

Brock Mogensen: No. I’ve heard of it though.

Ash Patel: Alright. So if you have partners that have the who not how mentality where they try to offload things, have you run into that where they offload something and you don’t want to deal with it, you don’t like dealing with it? How do you deal with that?

Brock Mogensen: It’s a good question. I would say, in the beginning, that was probably something that happened, where there might have been some tasks… But again, I was kind of coming in, showing myself, saying I’m going to do all these tasks, and do everything. I think in the beginning, there were definitely some things where it’s like, “I don’t really want to do this”, but I know I have to do it, to prove my value. Now that we’ve done more and more deals together, it’s all even. We all put the same amount of work, and have been able to hire some virtual assistants now, so we’re able to delegate some of those tasks. As you’re growing, there’s still going to be stuff you don’t want to do. You can’t outsource everything. So there are those days where it’s like “I don’t really want to do this, but I know I have to do it.”

Ash Patel: So it’s not “Hey, Brock will do it.” That doesn’t linger from the early days. “I’ll just give it to Brock. Brock will handle it.”

Brock Mogensen: No. I would say it’s pretty even now. Obviously, there are certain tasks where it makes sense. Like the reporting stuff and some of the admin stuff where I’m the one that’s kind of manning that stuff. It just naturally makes sense for me to do it, even though it might be more of a mundane task. That’s my role and that’s what I’m doing. They’re bringing in more of the capital, so that’s obviously a huge value-add on that side.

Ash Patel: Brock, what’s the hardest lesson you’ve learned in real estate in general? I’m talking about a tough lesson, a hard lesson, one that beat you down.

Brock Mogensen: I would say, really going back to that first deal we did. We had a few learning lessons there. I think it really changed our business plan of wanting to not necessarily target any C-class properties anymore. We’ve had quite a bit of struggles there, where we didn’t budget correctly on the front end, ended up having to evict much more tenants than we thought, which led to more unit turn costs… Then once we get all that figured out, we’re finally in a good place and hitting our proforma, COVID decides to hit. We have 10 tenants walk in and say they’re not going to pay rent, we can’t do anything about it.

Then we had to kind of go back to the drawing board on that and figure out a way to get out of that. We had to work with some local community programs to get funding to cover some of that. So there was definitely a ton of learning lessons on that first deal. I think it’s just a matter of… There’s always going to be learning lessons on every deal, and just taking that, and making sure you don’t make the same mistake again.

Ash Patel: Yeah, that’s a tough position to be in. It feels like the walls are caving in on you.

Break: [00:16:27][00:19:20]

Ash Patel: What were some of the issues with, you said class C properties? Was it the tenants or was it the renovations?

Brock Mogensen: The tenants, I would say. Really, I think it’s just… There”s good deals, I think right now especially, even the C-class deals. The cap rate difference between a C deal and a B deal – really not that much different nowadays. I think, personally, I’d rather pay a little bit more, have a little bit less of a return on a B class deal on the front end, and cash flow, to know it’s just going to be smoother on the management side. Generally, the B class, it’s going to be easier to exit those sorts of properties.

Ash Patel: The $3.5 million property – is that close proximity to where you guys are?

Brock Mogensen: Deal size we’re looking at now…

Ash Patel: No. Location-wise. Sorry.

Brock Mogensen: We’re in the Greater Milwaukee area. My partner’s management company is right outside Milwaukee; an hour radius of Milwaukee is kind of our target zone.

Ash Patel: Got it. What advice do you have now in managing C-class tenants?

Brock Mogensen: Really keeping a pulse on everything in the property, looking at the numbers daily, and having some sort of KPI reports. We learned to really track collections, see and stay in touch with the on-site manager there to understand… We have a call with them each week to understand where are we at, “We’re only at 80% collected, and it’s the 15th of the month. Give us a list of those 10 tenants that haven’t paid yet. What’s the status? ” You really have to keep a pulse, especially in that space where they might not care as much about their credit, so if they don’t pay for a few months, they’re not too worried about it, as long as they get away with it. I think really, the collection is a big part of that, and managing expenses as well. Tracking KPIs every day on a weekly basis, at least, looking at the numbers, and talking to your property management company to make sure we’re doing everything we can to hit proforma – that’s the key, I think.

Ash Patel: Do you remember what the total renovation cost was on that property?

Brock Mogensen: We’ve put at least 200 grand into renovations. In the beginning, we were flipping units and kind of putting in the LVP flooring and everything. Now that we’ve realized there’s not as much of a rent bump there that’s worth it for those costs, we’ve kind of trimmed down some of those unit flip costs, which has helped. But yeah, there were a few other items. We’ve put in new lighting, we updated the camera systems, stuff like that, that we did budget for on the front end. But the unit turn costs are really something that usually are going to be more expensive. It’s going to be, especially now, with supply costs going up, labor costs going up, 5% or 6% a year. You have to account for that and assume it’s getting more expensive than you think.

Ash Patel: I’m glad to hear that you guys pivoted and changed how you renovate the units. If you’re not getting the returns that you anticipated, why continue super-improving properties?

Brock Mogensen: Exactly.

Ash Patel: Yeah, that’s a great lesson. How long is the hold on this property?

Brock Mogensen: We were targeting a seven-year hold on that property. We’re about two and a half years in, so we’ll get a few more years before we start looking at an exit.

Ash Patel: Why seven, versus five or less?

Brock Mogensen: A lot of it has to do with the loan structure. We use agency debt on that. There is a prepayment penalty all the way up until year seven. So even if someone were to come in today and say, “Hey, we will pay you a million dollars more than you bought it for.” If you look at their prepayment penalty, it’s really not going to make sense. That’s I think one of the downsides to working with agency debt, they almost always are going to have a higher prepayment penalty, unless you structure it a different way. But that’s where it really doesn’t make sense. Maybe when we get year five or year six, it might make a little bit more sense if you look at the prepayment penalty. But the 10-year note, at year seven, that prepayment goes away, so we do have a nice three-year window there to sell. But that’s the main thing, is looking at that and deciding when it makes sense. One of the benefits of working with local banks is, a lot of times there’s no prepayment penalty.

Ash Patel: Is that prepayment penalty staired, where it gets reduced each year?

Brock Mogensen: Not in our structure, no. It’s all just based on what’s owed.

Ash Patel: What’s the penalty?

Brock Mogensen: We have to pay out all the interest owed until ,up until year seven. If you look at the numbers and we’re in year three, four years of interest is a lot of money.

Ash Patel: Is that loan assumable?

Brock Mogensen: That is a good route and a good question. Yes, we do have the option to assume it. And we’ve kind of looked at exploring it for some people that have looked at it and made us some soft offers; we’ve kind of tossed that out there. I think most investors don’t like to assume a loan, especially with interest rates having gone down probably 100 basis points. We’re at like four and a quarter, I think, on that deal, right now… They need to get money in the 2% range now, so it’s a pretty big jump down there where a lot of investors are like “No, I want to get my own loans. I know I can get much better terms.” I think that just adds a little bit more hair on trying to sell someone a deal early.

Ash Patel: How much did you have to put down?

Brock Mogensen: That deal, I think our total capital raise was 830k. We did 80% LTV on that deal.

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

Brock Mogensen: I think thinking big. A lot of who people get into real estate and just assume the only way to get deals done is to save money and buy a deal. But just think big and think creatively. There are a million different ways in real estate to structure a deal. You can get creative on a lot of these deals, and then get into some larger deals with less money out of pocket than you might think.

Ash Patel: Great advice. Brock, are you ready for the Best Ever lightning round?

Brock Mogensen: Let’s do it.

Ash Patel: Let’s do it. Brock, what’s the Best Ever book you’ve recently read?

Brock Mogensen:  Somewhat recently — I like some of the mindset books. I read 10X Rule. I got it here in my background, actually. I like that book for mindset and kind of thinking big.

Ash Patel: What was your big takeaway from that?

Brock Mogensen: Just that whatever your mindset is right now and whatever your goals are set at, you can think much larger, and just grow how you’re thinking. That really was a huge pivot point for me. Looking back at some of the goals I had three years ago when I was first starting, compared to the goals I’ve set now – they are just so much larger.

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

Brock Mogensen: I would say providing people with the education of learning real estate. I get a ton of calls a lot of times from people and I just explain how real estate works. I talk to my friends about it, show them the basics, [unintelligible [00:24:54].23] and invest in real estate. That’s, I’d say, at this point the way I’m giving back most, is through education. I have some bigger goals down the road, but that’s where I’m at right now.

Ash Patel: Brock happened the Best Ever listeners reach out to you?

Brock Mogensen: Yes. I’ve tried to post quite a bit on Instagram, real estate stuff. That’s just @brockmogensen. My email is brock [at] smartassetcapital.com. Our website is smartassetcapital.com, we have some free downloadable templates there, and some different eBooks.

Ash Patel: Brock, I got to thank you again for your time today. It’s hard to believe that it was only three years ago that you started a house-hack, and now you’re doing syndications. But you worked your way into this partnership, you hustled, you put the grind in. I love your story. Thank you for joining us today.

Brock Mogensen: Thanks for having me on, Ash.

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

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JF2659: How to Expand Your Network to Find Better Partners with Daisy Serrano and Luc D’Abreau

Daisy Serrano and Luc D’Abreau are a millennial husband/wife multifamily investing team that scaled their business through extensive networking. The wider their network grew, the easier it was to find the right people with the right competencies to secure good sponsors and partners. In this episode, Daisy and Luc share what it’s like to enter CREI as millennials and how they hustled to expand their circle. 

Daisy Serrano & Luc D’Abreau Real Estate Background

 

Click here to know more about our sponsors:

Deal Maker Mentoring

 

PassiveInvesting.com

 

 

Follow Up Boss

 

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 guests, Daisy Serrano and Luc D’Abreau. They’re joining us from Austin, Texas. They are a husband-and-wife team whose portfolio consists of 445 units as LPs and 42 units as GPs. Daisy and Luc have been in real estate for four years now. Guys, thank you for joining us, and how are you today?

Daisy Serrano: Hey, Ash doing amazing. Thank you for having us. We’re excited to be on the show. We are definitely supporters and definitely excited to be on the other side now.

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

Luc D’Abreau: Yes. Like you alluded to, Ash, Daisy and I ended up starting our investment journey about four years ago where we started out as LPS in late 2017. And just with our goals and what we ended up having, we ended up deciding to not only do one deal but did another deal shortly thereafter. Then looking down the road at that time, we ended up thinking okay, we need to get active really, if we really want to accomplish what our financial goals are and what our life goals are. With that, we end up saying, “Okay, let’s get active.” We figured out what that would end up looking like. We ended up seeing that, a lot of times, if somebody is local to their target market, then that ends up helping out a bunch.

We had invested passively in San Antonio, so we were looking in Central Texas, hence the move to Austin about a year ago. We ended up being part of a GP group and got active with a deal earlier on this year. We just continued to look for properties here in Central Texas and be able to grow and continue on from there.

Ash Patel: What came first, setting the goals or investing as LPs?

Daisy Serrano: They kind of came hand in hand. We started investing first; we actually weren’t even married at the time, we weren’t even engaged, we were still dating, and started investing. Once we did really see the power of distributions and wealth creation, from that point — we already had certain goals in place in terms of our future and where we want it to be, but once we really got a taste of that distribution and saw the cash flow from the properties we had invested in, that really changed some of the long-term goals, and that focused right on wanting to be on the active side. I have to say one thing to add to what Luc shared, is that in that process of investing, being on the active side, we also saw a very big gap in the market, which was not seeing a lot of young people like us, millennials investing, so we really set out on a mission to help educate and create more access for millennials to know that this was something that was possible. Whether somebody invests with us or not, it’s really just about creating access and education for more millennials, more young people at any age group to be able to start investing as well.

Ash Patel: The mailbox money got you guys hooked. Alright, so how do two millennials come into real estate investing as LPs? How was the opportunity presented to you? How did you find out about it?

Luc D’Abreau: I guess it was mostly led by myself. I had been interested in real estate for a number of years and was looking for an opportunity to be able to get involved in some form or fashion. Right after I finished grad school. I started working when I was 23. I’ve read Rich Dad, Poor Dad like so many people do, and a lot of those thoughts, ideas, and those concepts, they really, really resonated with me. So I was looking, “Okay, how do I get involved? What do I do?” I explored a couple of different things, Ash, but ultimately ended up being connected to a GP through one of my old roommates who was also interested and involved in real estate.

Yeah, this was actually the GP group’s first deal in fact, so it was my first deal, it was their first deal, it was our first deal. That’s kind of how we ended up getting involved. It was just one degree of separation, an introduction, and then a ton of due diligence to figure out “Okay, am I going to throw five figures into this deal, or what’s going to go on here?”

Ash Patel: What was that due diligence? Because I remember my first passive deal, and – man, I just thought it’s too good to be true. You put money in and you just get returns every month. What a great idea. My mindset back then was “Alright, I’ll put the money in. If I lose it, lesson learned. But if I actually make what Joe Fairless says – what a win!” So what was your guys’ mindset and what was the due diligence that you performed?

Daisy Serrano: There was quite a bit. We had definitely listened to podcasts such as this one, read books, and really started going to meetups to meet people that were in the industry that were doing it. Once that opportunity came about for us to invest, to move forward, and take that leap of faith, it was really about knowing the team that we were working with. We ended up meeting with one of the sponsors that were based in California where we were at the time. We also flew out to the market, so we flew from California to Texas, and went to San Antonio to secret shop the property, secret shop some of the comps as well. People thought we were a little crazy, because we were investing this money before investing into the actual property. But for us, it was worth coming out, really touring, getting an understanding of those metrics that you see on paper or online, and getting an idea of if that’s really what’s happening on the ground.

Those were all really the different things that we did. It was over a month, starting with basic education, books, podcast, and then leading up to really meeting the sponsors, knowing who they were in person, that was really important for us. Then, of course, going out into the market, secret shopping it, and understanding what it was exactly that we were investing into.

Luc D’Abreau: To your point, Ash, also about not losing money – that was something I was very concerned about. I’m fairly risk-averse, so I figured, okay, at the very least, I don’t want to lose any money, so I ended up backing into ultimately – I didn’t know it at the time, but breakeven occupancy, ended up taking the underwriting that the sponsors had, and ended up just creating my own spreadsheet to tinker with, kiind of pull the levers, and be able to get a much more tangible understanding of what levers to push and pull. Because up to that point, I didn’t have any finance classes or done any accounting. So that was just a way for me to dig in, have more surety for myself, and then be able to provide more to Daisy as well.

Ash Patel: I love that. Good for you guys, you’re putting in all that legwork. Was this an experienced investor? This was their first deal…

Luc D’Abreau: Yeah, it was their first deal, but it’s funny, because they’re actually part of the Joe Fairless tribe. It was with Wild Horn Capital. There was a lot of experience behind the main lead GPs on it.

Break: [00:06:49][00:08:22]

Ash Patel: What were the returns on that deal?

Luc D’Abreau: That was a percent pref and then two times equity multiple over five years. The IRR was in the mid to high teens. Actually, the first deal is exiting now. It should be exiting officially and closing on the 29th of December. So coming full cycle in just about four years instead of five.

Ash Patel: Awesome. Was that Western Station by any chance?

Luc D’Abreau: It wasn’t. It was Joseph [unintelligible [08:46].

Ash Patel: Okay, because I’ve got a deal with Joe that’s closing December 29th as well.

Luc D’Abreau: Oh, there you go.

Ash Patel: Awesome. Alright, so you guys now have your mailbox money coming in and this real estate thing is working, it’s cool. What’s the next step?

Daisy Serrano: For us, it’s really been a transition. I failed to mention, I was in international education prior to coming into the space and did that for about 10 years. So for me, it was a really big change coming into the commercial real estate space and learning everything that’s involved with being a sponsor and being an operator. What’s next for us in our journey is really…

Ash Patel: Sorry, can I cut you off? I meant what’s next after you did this first investment? So we’re still back in the day. So you’ve got your first one under your belt, you wrote the check, you’re getting the returns… It’s got to feel good, getting those monthly or quarterly distributions. So what’s your guys’ next step?

Daisy Serrano: After that first investment, it was really about creating the kind of life that we wanted to have and backing into how to make that happen. I think Luc alluded to this earlier, but I had been in international education for about 10 years prior to starting my investing journey in real estate. Within that space, unfortunately, there wasn’t the opportunity to help retire my parents and accomplish a lot of these big goals that I wanted to do…. So together we realized that the planning that you asked about earlier, once we started investing in getting those distributions, that cash flow, then it was how can we scale, how can we help provide more opportunities for other people to also take advantage of all of these different things that are available within real estate? And really, it came down to getting involved more to joining organizations locally and nationally, to corresponding and just meeting more sponsors that were doing what we wanted to do, and jumping onto the active side.

So that was really the next step for us, Ash, was looking at, okay, we’ve taken that leap of faith, and now there’s this creation of wealth that’s starting to happen. Now, how can we take that to the next level and help create that opportunity for more people? That’s really where Make It Rain came about for us. It was being able to be operators ourselves, to move into our target market, to leave California, to leave everything that we knew, and our whole lives behind, be able to be in Texas to be boots on the ground, and make progress in this dream that we had.

Ash Patel: Awesome. So how do you do that? How do you go from being an LP to being alongside the GPs or co-sponsor, co-sponsoring a deal?

Luc D’Abreau: I think looking back at what we did, we decided that that is something that we wanted to do. From there, it was a matter, like Daisy had mentioned, of attending more networking events so that way we could meet more sponsors, be able to understand what their either day to day, week to week, month, a month actually looks like, and kind of what that would look like once we’re in those shoes. From there, being able to meet more people we ended up helping of course, because then you just have a wider network, so that way you know whose competency is raising capital, whose competency is being able to asset-manage, and whose competency is boots on the ground, all those different things. Then I guess the next part in our journey, like Daisy mentioned, was deciding, “Okay, if we’re going to do this then we need to relocate.” That was just what worked for us and that’s kind of what our plan was.

Daisy Serrano: We joined a mastermind as well, which was really important just in terms of surrounding ourselves with people that had done it, that had the experience, the track record, and being able to learn from them. I think that’s a really big thing. What’s really important, was to seek mentorship and have people around us that could support us in that journey.

Ash Patel: Alright, a lot of syndicators out there right now have the typical 8% pref, high teens, mid-teens IRR. How do you differentiate all of these different sponsors or operators?

Luc D’Abreau: I think it boils down to who do you trust. Underwriting is underwriting like it’s numbers and sometimes it can be garbage in, garbage out. I think if somebody doesn’t have a level of understanding of what rent growth should be, or really what should taxes align to, or a myriad of other things in your underwriting that you’re getting from your sponsor, then it should be “Okay, do I actually trust this person to have a relationship with them? If I call them, are they going to pick up my phone call? Are they are willing to answer questions?” I think that’s ultimately a lot of it, of how to differentiate. Because at the end of the day, if it goes sour, then are you as a sponsor willing to look somebody in the eye and be able to have a conversation about what occurred, and be able to take responsibility, be able to move forward in a positive manner? That’s kind of what my thoughts are. I’d be interested to hear Daisy’s.

Daisy Serrano: Yeah, it’s similar for me. It’s really being able to have a personal relationship, understanding what somebody’s goals are, being able to help them get there, and making sure that it’s the right opportunity with the right investor. Because not every opportunity is going to be the right fit for every investor, depending on what they’re looking for.

But I would say on the other end also, for us, the big differentiator was moving here, was people seeing the seriousness of how we were operating and conducting our business. We were willing to move, to relocate to be boots on the ground, to get out there and tour, meet brokers, and really have that face-to-face presence. We have a local meetup here in Austin and just have found ways to add value to people on a regular basis… Not just with an investment opportunity, but connecting them with somebody that they’re looking to meet, or just looking at different ways to add value, depending on the investor.

Ash Patel: And Daisy, what is that value you bring to the sponsors?

Daisy Serrano: For us, it’s really now being boots on the ground. It’s being able to – now that I’m full time within the multifamily space, to get out into our property within a couple of days’ notice to really understand some of those submarket metrics, and really be very active here and in the local Austin MSA. So whether that’s with meetups, being able to help connect people, getting out, touring, meeting brokers, and all of that; being very active boots on the ground.

Ash Patel: Do you raise capital for these deals?

Daisy Serrano: We do.

Ash Patel: Is that primarily how you add value? Or are there other things you do as well?

Luc D’Abreau: We’ll end up raising capital, of course. Then the other piece is – with us being local, it’s “finding the deal” because we do have those broker relationships. So those are those main two pieces. There was just a deal yesterday, it came out Thursday or Friday. We’re like “Let’s take a look at it.” Yesterday was Sunday; underwriting it today or tomorrow, then if everything looks good, we’ll be able to tour pretty quickly in short order. It’s 10 minutes from where we live so we know the area very well, we know what the comps are, we can back check with the broker scene. A lot of that ends up helping as well, in addition to being able to raise capital and equity on deals.

Ash Patel: Luc, who would end up buying the deal. Would you give it to a different sponsor and just raise capital for the deal? Or would you guys buy it yourself?

Luc D’Abreau: It would end up being the latter. We would work to be the leads, then be able to bring in the appropriate people in the strategic fit that ends up making sense in order to be able to get the deal across the table, and have it be the right fit for a three, five, seven-year partnership that you have on that one specific deal.

Ash Patel: Got it. Okay, so you’re involved in all aspects of the lifecycle of a project.

Luc D’Abreau: 100%.

Ash Patel: You mentioned seven years – is that how long some of your deals anticipated are going?

Luc D’Abreau: We end up saying seven years because of just the environment that we’re in. Ideally, I guess, average, we would say is that five-year mark. If it happens in three or four, then that’s great. Not knowing what the future is like, if it gets pushed out to six or seven, then that’s something that we end up talking to investors about and say, “Hey, this is what we’re seeing.” That way, they’re not knocking on our door at [12:59] on year four like, “Hey, what’s going on here, guys? I thought this was a five-year deal?” Because things end up changing; no underwriting is perfect, and financials end up changing, so that’s why I ended up saying seven years in that instance.

Ash Patel: You guys look very young. Do you find that’s a hindrance with having brokers or investors take you guys seriously?

Daisy Serrano: I think it was more so at the beginning. I think now that we have a pretty solid team, and once we talk to investors or brokers, we’re able to show the team that’s behind us. Luc mentioned that the first GP group that we invested in, something that was really important for us is who was their entire team, who had the experience and the track record. For us, it’s really been about leveraging the people behind us as well, our team on the lending side, on the GP side, our property management of course, and making sure that we have that experience and track record. If we have a question about X, Y, and Z, we knew exactly who to go to. That’s definitely helped a lot. I think we can’t really control how people see us from the outside in, but we can definitely control the business plan and the team that we bring to the table.

Ash Patel: Daisy, somebody that wants to follow in your footsteps, what advice would you give them?

Daisy Serrano: The first piece of advice I always give is to, one, educate yourself. Start by understanding the foundations, the multifamily 101 basics. Number two is to start going to meetups and meeting people that are doing what you want to do… Because after a certain time of education, reading books, and listening to podcasts, I think it’s so important to surround yourself with like-minded people and build your tribe. Build that group of people around you who is going to support you, but also who is doing what you want to do, because that will push you to go a lot further than you ever thought you might be able to on your own.

Break: [00:17:54][00:20:47]

Ash Patel: Awesome. I’m going to push you guys here for a second… What’s one thing that would make this husband-and-wife team work better together?

Daisy Serrano: Work better together? That’s a good question. I think time. Luc has a full time job. He’s still having his gig on that end. For me, I’ve been able to now transition full-time into the multifamily space. But I think like as with everything, there’s the marketing piece, there’s the acquisitions piece, there’s the operations piece, there’s so many different aspects of the business. I think for us, it’s time. Being able to have more time to dedicate to growing, scaling, meeting more people, partners and investors alike.

Ash Patel: What advice would you give husband and wife teams to minimize issues?

Luc D’Abreau: I would say open lines of communication, just like with any relationship. I know that for myself, whenever there’s a misunderstanding, either with Daisy or with somebody else that I end up having, it’s because there was some miscommunication that occurred. So I think having open, honest, candid lines of communication is extremely important. If a husband-and-wife team is looking to do this, I think to understand that there’s a solid foundation there already within the marriage, first and foremost, because it’s going to be very difficult to end up working together if that isn’t already there.

And just being open to change. I definitely learned what Daisy’s work style was, she learned what mine was, we learned what each other’s competencies were, and what that ended up looking like. I think just being open to the journey and how things end up looking as you continue to make progress.

Daisy Serrano: On the more practical side, having an operating system as well and knowing who’s doing what. There are certain things that Luc focuses on, and there’s certain things that I focus on. For our operating system, we use EOS, based on the book Traction. I think it’s pretty common in the industry. He has certain metrics that he’s responsible for, I do as well. We have a weekly meeting where we look at where we are in X, Y, and Z. Where am I? How can I support you? How can you support me? We separate the professional and the personal on that end, to where when we have that Make It Rain operator hat on, then it’s business. Of course, there’s overlap, there’s no clear delineation. But the more that you can stay in your lane and support each other within that lane, I think that makes things a lot easier going forward.

Ash Patel: What’s a hard lesson that you learned about dealing with investors?

Daisy Serrano: I can share on that. I think that not every investor is the right investor for you. We learned that on the last deal that we had. We had somebody that we were working with that was very difficult to work with. As a sponsor, of course, you want to provide the opportunity to as many people as you can. But it’s also about it being the right fit in terms of values, in terms of long-term goals, so we decided not to work with someone for that reason. We didn’t have similar values, the long-term expectation wasn’t clear on the investors… So working with the right people on all aspects, on the property management, your partners, your investors, everybody that you’re working with, I think was a hard one, because you’re then raising less money, raising less capital; but I think in the long-term, they’ll be happier with the right operator and we’ll be happier with the right investor.

Ash Patel: Daisy, what was it specifically about that investor that made you not see eye to eye?

Daisy Serrano: It was really the method of communication, to be quite honest. I have certain expectations in terms of how I was raised, and being spoken to respectfully. I think it’s just foundational for me in terms of an expectation. If that basic understanding is not there, and it’s not being respected, then it’s not going to be the right working relationship going forward.

Ash Patel: I agree. 100%. Good for you. What is your best real estate investing advice ever?

Luc D’Abreau: I would say figure out what you want to do. It’s not necessarily only applicable to real estate, but I think if you figure out what you want to do, then that informs everything else. It always goes back to what’s the goal; is this something that you truly want for yourself, for your family, and for everyone else in your life? Starting there, what does that goal look like? Then go into the why, what’s motivating you, and trying to understand that. That informs everything else, and I think that pushes you through when it becomes difficult, when there are hardships, and those long hours and early more mornings, late nights and weekends, and all of that.

Ash Patel: Alright. Are you guys ready for the Best Ever lightning round?

Daisy Serrano: We are.

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

Daisy Serrano: For me, it’s The Energy of Money. It’s really more of the spirituality of money; for any of your listeners that aren’t familiar with it, it really walks you through your own money journey growing up, why you make certain money decisions, and how to take control and be able to intentionally channel that money energy into different aspects of your life.

Luc D’Abreau: I would say Outwitting the Devil by Napoleon Hill. It was a book that came out a handful of years ago. It was actually written when he was younger, but it didn’t get released until, I think maybe three, four, or five years ago, something along those lines. It’s a great book built upon Think and Grow Rich. I think foundational for anybody who’s looking to accomplish really anything in their life.

Ash Patel: What’s the Best Ever way you guys like to give back?

Daisy Serrano: Mentoring and volunteering. That’s really been something foundational for me. I’ve always had very active mentors, and so with that, being able to give back to the community and to other people that are in a different place than I am. I’m volunteering right now. I’m part of two organizations. Seedling, which works with children of incarcerated people, and Girls Empowerment Network, working to empower girls that are younger to help them be who they can be growing up once they reach adulthood.

Ash Patel: How can the Best Ever listeners reach out to you?

Luc D’Abreau: The best place is to actually go to our website; it’s makeitraincapital.com. You’ll find all the info about us on there. You can schedule a call with us, you can email us, you can check out our social media, our podcasts that we have as well. Everything is there, all in one central place and you can connect with us. When I say schedule a call, literally feel free to schedule a call. We will make calls with anybody who’s looking to do anything within real estate. Even if you’re not looking to invest with us, as Daisy said, we’ll connect you with somebody else who is a better fit potentially for whatever your goals are. We’re more than happy to do that, so makeitraincapital.com.

Ash Patel: I love it. Daisy, Luc, thank you guys for joining us today and giving us your journey. Four years ago, you invested as LPs and now you guys are doing deals on your own. Thank you for your time.

Luc D’Abreau: Thank you, Ash.

Daisy Serrano: Thank you so much for having us on and just for providing this platform for so many of us.

Ash Patel: Best Ever listeners, thank you for joining us. Have a Best Ever day.

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JF2646: Want to Host Your Own Networking Event? Check Out These Clever Tips to Elevate Your Meet-ups with Hayden Harrington

Hayden Harrington was tired of the meet-ups he kept attending. They were usually hosted in crowded, hard-to-hear areas where it was difficult to effectively network with people. That’s when he decided to create his own, unique events. In this episode, Hayden shares how he broke from tradition and created a successful in-person and online networking group.

Hayden Harrington Real Estate Background

  • Real estate entrepreneur focused on large-scale multifamily syndications
  • Currently has $30MM AUM and actively growing the portfolio
  • Managing partner at Momentum Multifamily, a commercial real estate group focused on buying institutional quality assets for their investors
  • Based in Richardson, TX
  • Say hi to him at: www.momentummultifamily.com
  • Best Ever Book: The E-Myth Real Estate Agent by Michael E. Gerber

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TRANSCRIPTION

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

Hayden Harrington: I’m doing well. Thanks for having me on, Joe.

Joe Fairless: I’m glad to hear that and it’s my pleasure. A little bit about Hayden. He’s a real estate entrepreneur focused on multifamily syndications. His company has $30 million of assets under management. He’s a managing partner, speaking of his company, at Momentum Multifamily, based in Richardson, Texas. With that being said, do you want to give the Best Ever listeners a little bit more about your background and your current fo