JF2285: Working Two Full-time Jobs With Jimmy Johner

Jimmy has been investing for 5 years and currently owns and operates a marine infrastructure company. He is also working full-time with a commercial general contractor and developer with the purpose of continued growth. 

Jimmy Johner Real Estate Background:  

 

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Best Ever Tweet:

“Networking is the most important thing you can focus on to help grow your business” – Jimmy Johner


TRANSCRIPTION

Theo Hicks: Hello, Best Ever listeners, and welcome to the Best Real Estate Investing Advice Ever Show. I’m Theo Hicks and today we’ll be speaking with Jimmy Johner.  Jimmy, how are you doing today?

Jimmy Johner: Doing great, Theo. Thanks for having me on board.

Theo Hicks: Absolutely. Thanks for joining us. So a little bit about Jimmy— he is the owner and operator of a marine infrastructure company, and he also works full-time with a commercial general contractor and developer. He has five years of real estate investing experience and his portfolio consists of 66 units, as well as a 9-unit salon suite development. He is based in Beaufort, North Carolina, and you can say hi to him at his LinkedIn profile, so his name is Jimmy Johner. And if you’re watching the video, when you look him up, you’ll see his face and know that it is his profile.

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

Jimmy Johner: Yeah, absolutely. And thanks for the description of my last name there, spelling it out, people tend to botch that up quite a bit. So as you said, I own a marine infrastructure company. I’m kind of all things business and kind of have been an entrepreneur bone for the majority of my life. The marine infrastructure company consumes quite a bit of my time right now, and then I obviously do as much real estate investing as I can. We try to pull as much money into the real estate as we can from the other businesses.

I guess looking into my background, I went to a Maritime Academy after high school, and just dove into the shipping industry, traveled all over the world and got the travel bug out. I still do quite a bit of it now… And just always wanted more and real estate was kind of the path I decided to take to continue to grow.

So right now our main focus is multifamily. We try to find some value-add deals in the Eastern part of North Carolina around the Raleigh market in the East, and we’ve got a couple deals under contract right now, another 46 unit property right outside of Raleigh that we’re hoping to close on late October, and steady hunting some more down south. So I’m actually in Louisiana right now, outside of New Orleans on a self-storage project that we’re under development on. So all over the place, wide open.

Theo Hicks: Awesome. So you said that you spend a lot of your time with the marine infrastructure company. So right now while we’re interviewing, you’re doing something for your real estate business, right? Or are you doing something for your marine’s infrastructure?

Jimmy Johner: For the general contractor that I work for. So I work full-time for a pretty good-sized commercial developer/contractor. We work all over the country, doing new development deals. I mainly do storage, so we do Class A Self Storage developments. So from the ground up, three to five-story, 120,000 square foot buildings. Yeah, so right now I’m actually out of town for the company that I work for full-time.

Theo Hicks: Got it. So when do you work on your real estate business? Is it on the weekends, at night, in the morning?

Jimmy Johner: Well, all the time. My partner in crime [unintelligible [00:05:46].05] His name’s Alan. We kind of tag-team a lot of stuff, a lot of late nights and mainly weekend work, and with the power of the cell phone, we’re able to do quite a bit remotely. And given today’s climate with remote working, it’s kind of a no-brainer that we’re able to hunt deals and delegate different things to different people on our team, and continue to find deals and place capital.

Theo Hicks: So you have 66 units right now… What’s the breakdown of that? Is it just one building? Is it 66 single families, or somewhere in-between?

Jimmy Johner: No, 66 apartment units. So we own two different properties. One’s an 18-unit and the other ones is 48, consisting of seven different buildings, but it’s two different properties.

Theo Hicks: Perfect. And then how did you fund those deals?

Jimmy Johner: We raised, you know, OPM (Other People’s Money); raised money for the first one just through connections and networking with people that I know that that had some liquidity and were interested in the real estate realm. A lot of them were kind of neck-deep in single-family homes and we’ve tried to transition some of their focus, because they do have the capital available to get on board with us with multifamily, and kind of leverage our knowledge with that sector of the real estate industry and their capital and make it a win-win partnership or a no-lose, no-lose, as I like to say it.

Theo Hicks: So that was for the 18 unit, it was people that you already knew that invested?

Jimmy Johner: Well, and as well for the 48. So we actually have the same equity partner on both of those deals and it’s kind of been a dream come true, for lack of a better word. It kind of came easy. Once we put the work in place and he felt comfortable with what we were doing, it was actually pretty simple to raise the money, to be honest with you. It wasn’t too much effort on our part. And just finding it and putting it all together and making it work was the real task.

Theo Hicks: So you have one guy that invested in the 18 unit and the same person invested in the 48 unit for all of it?

Jimmy Johner: All of it.

Theo Hicks: Alright. Do you mind telling us some background on that? Who is this person? Maybe not their name, but how did you meet them? How long did you know them? How did you bring up the concept of him investing in your deals, and things like that?

Jimmy Johner: Great question. Yeah, I’ll leave them somewhat private, because that’s how he tends to stay. But it’s all to the power of networking. So my partner and I know people all over the country through the construction industry that we work in, and we’ve known this guy for a long time, probably five or six years or so. I knew he was interested in real estate, he owns a ton of single-family homes, and we just bounced it off of him and asked him if he knew anybody that might be interested in it. He raised his hand.

So it’s kind of a typical approach, asking somebody that you know, that’s got the liquidity, if they happen to know anybody that might be interested, hoping that they’re the ones that say, “Yes, I’m interested.” And from there, we just continued to leverage that relationship is really all it comes down to. And he trusts us and we trust him and we were able to make the deal work. So my partner and I have come pretty little out of pocket; we put all the upfront effort and all operational stuff in play, which again, makes it a great partnership, because we can’t do without him and he can’t do it without us. So that makes a great partnership.

Theo Hicks: So this conversation happened, and then he invested in the 18 unit and he’s invested in the 48 unit. Are those the only two apartment deals you’ve done? Was the 18 unit the first deal you and him have done yourself personally, or had you done deals in the past before it?

Jimmy Johner: I’ve done a few duplex developments and stuff in the past, and we’ve done a salon suites development in the past, but the 18 units was the first apartment building that we bought. So that was the first time that the partnership was born with the three guys that are in it now. The other stuff was just me personally.

Theo Hicks: So [unintelligible [00:09:00].03] talking about this to someone else; if someone asked you, how beneficial has your full-time job with this commercial general contractor and developer, being full-time in real estate, how beneficial has that been towards your investing business? Not at all or completely invaluable? Without it you wouldn’t be able to do what you were doing, or somewhere in between?

Jimmy Johner: I don’t know that I’d call it I wouldn’t be able to do it without it, but it has definitely been transformational from a networking standpoint and a knowledge basis and a literacy concept of how everything works with real estate, from land acquisition to building it, to renovating it, to everything. It’s just made a tremendous difference. And again, the network. I mean, I can’t emphasize that enough. The network that I’ve developed over the last five years has just been incredible. I know people all over the country that are neck-deep in real estate every single day that I could call and bounce questions off of, and so on and so forth. So it’s been invaluable for sure.

Theo Hicks: And is that how you met your business partner?

Jimmy Johner: No, we actually grew up together. He’s one of my best friends, so I’ve known him since I was 10.

Theo Hicks: Huh, interesting. So a lot of people, they’ll give advice and say that you shouldn’t partner up with a family member or a friend that you already know, that you already have a pre-existing relationship with; maybe walk us through your advice for anyone—it is probably the easiest to partner up with someone that you already know, but they say that eventually things might get difficult. So—

Jimmy Johner: Yeah, no, I—

Theo Hicks: Would you let us know or give us some of your advice on what people need to do in order to set themselves up for success when partnering with someone they have a pre-existing relationship with?

Jimmy Johner: I’m a big fan of partnerships. You can spread the risk and also spread the amount of work that it takes upfront and on the backend, take massive action on getting stuff done, which is a huge part of getting stuff done… It’s just taking action, quit thinking about it and just do it.

But I would say that in any good partnerships, you both have to have one another. If it’s one-sided where you don’t really have to have the other person to do one thing or another, and it’s not a no-lose/no-lose situation… I think that’s key. And you do have to be careful with friends and family, especially when it comes to money, with any type of partnership. But upfront, we put together an operating agreement with an LLC, just like you would with anybody, and I trust him with my bank account and he trusts me with his, and I can’t do without him and he can’t do it without me. So again, that’s the value of an awesome partnership, is not being able to do without the other person… And knowing your boundaries with them and knowing what they’re comfortable with and knowing that they’re not comfortable with and having an open dialogue with that is really the key, I think, to moving forward with it.

Theo Hicks: What was the size of the deal you said you’re working on right now, you said a 42 unit?

Jimmy Johner: It’s a 46–

Theo Hicks: 46 unit?

Jimmy Johner: Yeah. I think it’s a one-three purchase price. So we’re getting a pretty deep discount, along with about almost a million dollar renovation on the backend. So about a two-year turnaround for our investors on money, and so forth. I can get into the weeds and that stuff if you want.

Theo Hicks: Yeah, so I wanted to ask how you found the deal. And then I’m assuming that the same individual who invested in the previous two deals is investing again… So maybe tell us about what that structure is going to be. It sounds like this is going to be a pretty heavy value-add deal.

Jimmy Johner: Yeah, pretty heavy value-add deal. The way we found it – it was an off-market deal, we found it through a pocket listing through a broker that I know; he brought it to us just because again, that network; he knew we could close. So he brought it to us, negotiated directly with the seller and the broker via Zoom, just like this, and it went under contract about a month ago on it. We’re just heading into the due diligence right now, and like I said, planning to close late this month, early October. And we’ll get some bridge debt in place for the acquisition, refi it after 24 months or so, getting some agency debt on it and pay our investors back, and roll all the refi proceeds into another deal that we hopefully will find between now and then.

Theo Hicks: So your investors will invest upfront… And then when you give them money back, are they still in the deal or are they just kind of putting that money upfront so you can stabilize it, and then they get their money back plus some sort of profit, and then they’re out?

Jimmy Johner: Great question. There’s a million different ways to skin a cat. That’s one of the first things people always ask me. So from an equity standpoint, the way we structure a partnership, we don’t like to label ourselves as syndicators, just because we really like the word partnership when it comes to SEC regulations and so on and so forth. So being an active partner makes a big difference. There’s less paperwork, there’s less soft costs upfront with security attorneys and so on and so forth.

But the way that it’s working on this one, we’ve got three partners – it’s myself, my partner, Alan, and then our other equity partner that’s going in on the deal. He’ll own 33% of the deal, just like he does on the other two, and we’re all raising the money together from within the three partners. We’re not raising it from anybody else outside of the partnerships. So all the money that’s coming in is ours, so at refi we’ll all get our money back, and then like I said, roll it over into another deal.

So we don’t take anything out of any of the properties right now. And that’s also the power of me trying to maintain a full-time job, along with my partners; they do the same thing. So we don’t rely on any of the money that our real estate makes right now, we’re just continuing to build the business, and we’ll continue to roll that money for as long as we can, until we can say peace out on everything else.

Theo Hicks: So you’ll buy the deal and then you’ll all invest. The money is coming from mostly the equity partner, but then you and your business partner also invest, and then you get bridge debt, stabilize it, refinance, all the investment money that went in there is paid back equally, you don’t get anything extra on top of that… And I’m assuming that extra equity that you get back from the refi plus all of the cash flow – does that just go into an account that’s then used to buy more deals? How does that work?

Jimmy Johner: That’s a great question as well. There’s a lot of tax stuff that you’ve got to watch out for… And again, that’s the power of having a team of people that know this stuff; they’re a heck of a lot smarter than I am when it comes to all the tax code. But we’ll refinance the deal, roll it over into the same entity, and then it’ll get distributed to the partners, quote on quote, but all it does is get rolled over into another bank account with a new entity that buys another deal. So it’s all kind of tax-deferred because we’re active partners and because we all do take a liability in the refi.

So again, there’s a lot of steps in the middle, but that’s kind of the basis of it, just what you said; we’ll shift the money around, move it from one account to another and then buy another deal with it as a down payment.

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

Jimmy Johner: Networking. I’d say that’s the most important thing. In my short lifetime of doing this, it’s the power of networking. The more people you know and the more people you can bounce questions off of, the more things that tend to come to you… And just taking massive action towards that networking.

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

Jimmy Johner: Sure.

Theo Hicks: Alright. First, a quick word from our Best Ever partner.

Break: [00:15:15] to [00:15:57]

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

Jimmy Johner: So I do a lot of reading, I’ll have to say — I don’t know if it’s the most recent one, but Seven Habits of Highly Effective People. I know I said like 10 times in these 20 minutes about taking massive action, but that’s probably my number one book I’ve ever read; just an overall mindset, and so on and so forth. And a close second would be, you know, Carnegie’s How to Win Friends and Influence People, of course.

Theo Hicks: If your businesses were to collapse today – your marine business, you lost your commercial real estate job and then your multifamily business were to somehow collapse, what would you do next?

Jimmy Johner: I would do it all over again.

Theo Hicks: Start from scratch. Okay.

Jimmy Johner: Start from scratch. I know how to do it now, so it’ll be a heck of a lot easier to do it again.

Theo Hicks: Out of all the deals you’ve done, what has been the best ever deal?

Jimmy Johner: I’ll say that first 18 unit… And not necessarily so financially speaking, but just from a learning curve perspective. That’s probably the best deal. I mean, it’s what kick-started my multifamily mindset on getting rocking and rolling with apartments and finding the value in them. We’re actually getting ready to refi that deal right now and it’s helping buy the 46 unit. So it works. I’d say that deal is probably my best one.

Theo Hicks: If you’ve lost money on a deal before, how much did you lose and what lesson did you learn?

Jimmy Johner: Knock on wood, I haven’t lost money on a deal in real estate. I’ve broken-even and come close, but haven’t lost money. Now, I have elsewhere on jobs, and so on and so forth. And it’s just — knowing your numbers is the most important thing, and not faking a proforma. Whether it’s real estate or any business, just not faking your proformas and making the numbers work, but actually writing a real proforma and making sure that you know every little detail.

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

Jimmy Johner: I like to employ people. That’s my number one thing. I know that kind of sounds like not really giving back, but… There’s no free lunch, I’d like to say that, and I thoroughly enjoy keeping people employed and providing them a place to come to work every day, and with a positive environment, and having ownership in what they’re doing every day, and enjoying where they work. So that’s my form of giving back.

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

Jimmy Johner: I’d say through LinkedIn, it’s probably the quickest and easiest way to get a hold of me. I’m also on Facebook and Instagram, all my handles are the same, it’s James Johner or Jimmy Johner.

Theo Hicks: Perfect, Jimmy. Well, thanks for joining us and walking us through your real estate journey, as well as your best ever advice. Some of the big takeaways that I got was number one — and you talk about this a lot, is that a really good way to get started in real estate if you don’t have the money to buy deals yourself is to just get a full-time job in real estate, because of the massive benefits you’ll get, as you mentioned, from networking and then from knowledge.

So for your business, you were able to find your equity partner through this networking, and then the knowledge and the literacy that comes from working in real estate gives you a leg up when you’re first getting started, and lets you skip a lot of the minor mistakes that people usually make because they don’t know/they’ve never done it before. So it allows you to do it without having your own skin in the game, in a sense.

And the other thing was your strategy. I also really liked that too, where you’ve got your equity partner, you don’t do syndication, you do the joint ventures, so everyone’s active… And then you’ll invest, you’ll do value-add deals, the three business partners will invest money in the deal, and then once the deal is stabilized, you refinance, rather than each of you cashing out and taking the cash and doing whatever you want to with it. You said there’s some processes you need to follow, but high-level, the money is rolled into another deal. So all the cash flow, all the refinance proceeds, all of that stuff goes to you and then goes into an account that’s used by other deals.

And then you are living off of your full-time income, and ultimately the goal is to do enough of these deals where you have enough cash flow coming in, so that that replaces your full-time income. So a more longer term perspective and I really like that strategy, so thank you for sharing that.

One thing I forgot to mention with that networking part – not only did it allow you to find your equity partner, the knowledge, but you also got the deal you’re working on now from a broker who knows that you’re able to close on deals, that you got through that network.

So Jimmy, thank you for joining us, I really appreciate it. Best Ever listeners, as always, thank you for listening, have a best ever day and we will talk to you tomorrow.

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JF2261: “Passive” Income With Chris Hsu

Chris Hsu is the co-founder and CEO of Zibo, a venture-backed financial services company for independent landlords. Chris invested in real estate for over 20 years while pursuing a corporate career and learned that investing in real estate is anything but a “passive” income. He founded Zibo to help independent landlords save time and increase cash flow in their rental businesses.

 

Chris Hsu Real Estate Background:

  • Co-founder and CEO of Zibo (zee-bo), a venture-backed financial services company for independent landlords
  • U.S. Army Armor Officer
  • Has been investing in real estate for over 20 years
  • Based in Redwood City, CA
  • Say hi to him at: www.zibo.co 

 

 

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Best Ever Tweet:

“Talk to your customers, understand their pain points and how they are currently addressing those points today” – Chris Hsu


TRANSCRIPTION

Theo Hicks: Hello, listeners and welcome to the Best Real Estate Investing Advice Ever show. I’m Theo Hicks and today we are speaking with Chris Hsu.

Chris, how’s it going?

Chris Hsu: I’m doing great, Theo. It’s great to be here with you.

Theo Hicks: That’s good to hear. Thanks for joining us. A little bit about Chris. He is the co-founder and CEO of Zibo as you can see by his beautiful attire, which is a venture-backed financial services company for independent landlords. He’s also a US Army Armor Officer. He’s been investing in real estate for over 20 years. His company is based in Redwood City, California, and you can say hi to him and learn more about his company at www.zibo.co. If you’re watching this, you can see Z-I-B-O.

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

Chris Hsu: Sure. A little bit about my background. I grew up in Louisiana and decided I wanted to go to the army. So I went to West Point, joined the army. As you mentioned, I was a tank officer stationed predominantly in Germany; left the army and that’s when I started becoming a real estate investor. I was doing it on the side, it was like most mom and pop real estate investors. I didn’t have a lot of money when I got out of the army, I didn’t have any equity and I wanted to build some wealth and equity for me and my family, so we started investing in real estate, just really learning from friends and borrowing tools and just kind of building your own online/offline, Excel spreadsheet, paper-based system… And I worked at various different companies all throughout that to really culminate in being a public company CEO of a tech company, of a software company.

And I took a little bit of time off, stepped back and thought about what the heck do I want to do with the rest of my life, and I’ve just always found, I would say, real estate investing a hobby, something I really loved… And with some guys who had been really successful real estate entrepreneurs, we got together and we started Zibo.

Our mission in life is to fundamentally change the experience that small independent mom and pop landlords have with financial services. And that’s people that own anywhere from one single-family rental home to 100 units, and a mix of multifamily, single-family, mobile homes, you name it… Because they all have a very similar problem and a very similar stresses. In almost all cases, they’re really focused on trying to get to that elusive passive income, where they’re just cashing a check. And we just thought that there’s a better way to bring financial services to that independent, underserved mom and pop landlord, which is the vast majority of the landlords in the United States.

Theo Hicks: Thanks for sharing that. So the goal of your company is to transition people from more actively investing, being involved in their business, to as you mentioned, just collecting the check. So what would you say is the number one thing that is keeping people from being completely passive or at least more passive? And then how does your company address that problem?

Chris Hsu: There’s two aspects to passive income. One is the passive part and the other is the income part. I think on the passive part, we’ve spent time with thousands of landlords and independent mom and pop landlords, and what you hear from them is just a ton of stress and worry and time spent on simple things like collecting payments. Am I getting paid on time? Am I going to be able to get my bills paid? Is the timing of when I get paid correspond with when I have to get bills paid? If I’ve got 20 properties or 20 units and I’ve got rent collections checks and all kinds of forms of payment coming in, it takes me three weeks to pay me on time and to get those checks deposited in the bank.  Well, what Zibo is doing is trying to automate that process, so that landlords have one integrated dashboard that they can see exactly—if you’re a tenant and a landlord on Zibo, as soon as the tenant hits a button to send a payment, whether it’s credit card, debit card, check, money order – as soon as that’s sent, the landlord is going to see a status. So they’ll know within a couple of days who’s paid the right amount on time, etc, because they’ll have a dashboard. They can set up automated payments.

In today’s day and age 80% of tenants want to pay electronically, either bank transfer, credit card. 42% of tenants want to pay by credit card, debit card, any form of electronic payment. But yet today, 80% of payments are still cheque, cash, money or cashier’s check. There’s a huge mismatch. And part of that is because the banking system which is the main system which landlords use to manage their account, they use basically their bank or a whole series of banks, Excel, paper and maybe QuickBooks. But that bank account is not set up to be able to take the forms of payment that make it easy for them to accept credit card, debit card, even from two different banks are very difficult to do.

What’s Zibo has done is create an automated platform that allows landlords to collect rent the way that tenants want to pay it; free of charge to the landlord, all in an integrated system. If they have 20 bank accounts, they can bring all those bank accounts into one environment with one log on, they can see all those bank accounts and they can transact from Zibo across all those bank accounts. They can move money back and forth, they can collect rent, they can pay bills. And the really interesting thing is that all of that we’ve used medical algorithms to essentially help landlords classify and organize all the rent and expenses to specific properties and specific schedule, i.e. tax buckets, which allows them to stay organized. They can have one bank account for their operating account, 10 properties in it, and they can keep everything organized and we pay 3.75 times the national average interest on checking accounts.

We have tools for keeping your security deposit straight. So your security is deposit probably is spread all over lots of different accounts. If they’re commingled, you shouldn’t be commingling them, meaning if they’re in your operating account, they should be separated. Well, we’ve created tools on top of our Zibo bank account that you can use with your current bank accounts or on Zibo, that allow you to keep all that straight. What tenant belongs to what security deposit? Do I owe them interest? When does their lease become due? Lease document, checking document, all in one place.

So we tried to really become the one-stop shop for end to end cash management for that independent landlord.

Theo Hicks: And then you said the other aspect of it was the income aspect. Do you cover that as well or is that something separate than what you just mentioned?

Chris Hsu: You’re absolutely right. So there’s a couple different ways that Zibo can help impact income. Number one is, if you’re paying somebody to do all that rent collection for you, Zibo can do that for you for free. So you can save up. actually. We have lots of landlords out there that are spending anywhere from 5% to 10% of their income, where you get a free tool. We have landlords coming to us and telling us, “Look, we’re tired of paying a monthly fee and then having our tenants have to pay a big fee just to pay by cheque.” Zibo solves that problem.

The other thing is, landlords have tons of cash, it’s idle cash. Think about all the cash just sitting in security deposit accounts that you can’t touch, or all the cash that’s sitting in your excess operating account. And in most cases, you’re getting no interest on that. And in fact, if you have a business checking account, if you have an LLC or any form of business checking account, you’re paying 29 bucks a month just to have that account. We charge you nothing and we give you interest on top of that. So that’s for idle cash working for you to generate returns for you.

And the other thing we do is we offer competitive loans and insurance. So if you think about the independent mom and pop on insurance — I’ll just use an example insurance. Independent mom and pop pays, on average, 50% to two times what an institutional investor who has thousands of properties and has a master insurance policy with one of the biggest insurance brokers or carriers in the country. The independent landlord, even those that are being managed by property managers, don’t have access to that same insurance policy.

So what Zibo is doing is we’re aggregating all of that demand of independents and we’re creating master insurance policies, so you can get lower cost insurance, you can better protect your asset at lower costs.

Then the final thing I would tell you that we’re doing is, with all the expense classification I talked about and how you can basically classify every single expense to a property, every piece of revenue to a property, and to schedule a tax bucket, we create the ability for you to benchmark your own properties and then also to look at how your properties are performing vis-a-vis other properties.

Now, if you do that, then that basically highlights areas where your properties are underperforming. You’re spending too much on utilities, you’re not getting enough rent per square foot, whatever those metrics are. And if that’s the case, then there are a simple set of things that you can do to increase that income. So lots of different ways. Again, we think the independent landlord is very focused on passive income, we’re trying to help them on both sides of that equation.

Theo Hicks: That last point about comparing the P&L I think is [unintelligible [00:12:53].23] where you’re underperforming. How does Zibo get paid?

Chris Hsu: We make money by essentially negotiating deals with insurance companies, negotiating deals with the mortgage companies, and by taking a portion of the transaction fees associated with various different forms of payments, negotiating with the payment providers. But if you think about it, what a lot of folks are selling is SaaS platforms; we’re providing essentially a SaaS software platform that includes banking, payments, insurance and lending. That core platform is free and all transactions from the landlord perspective are free, minus things like if you want to do a wire. We have a standard fee for that. But everything else is free. If you want to do  ACH transfers, if you want to move money, if you want to accept cheques from your tenants. By the way, we’re the only platform that does online and offline payment methods.

So in other words, if you’re still one of those landlords that’s accepting physical checks, we’ve created a remote deposit capture, so you can actually take a picture from your phone of that check and deposit into your bank account, and it goes right to your Zibo dashboard for all those properties. So as I mentioned before, having one place to view by property, by tenant who’s paid, who’s paid the right amount, who’s paid on time, and have a 12-month rolling history on that. No one’s doing that.

Theo Hicks: As the CEO of a tech company, how do you spend the majority of your time? I’m just curious to see, you have a business about being passive… So how passive are you?

Chris Hsu: Oh, wow. Let’s just say there’s nothing passive about being the CEO of a tech startup. I will say that if you just think about what my job is, my job is to, number one, set the vision and strategy of the company. So there’s a lot of customer research, industry research, economic research, really understanding the trends of what’s in real estate investing, in financial services and in the technology that powers financials. So I spend a good deal of my time on that.

The second is finding the team. So first of all, figuring out what change do you need to execute on a strategy and finding the key leaders that I’ve got confidence in their capabilities to bring us to that strategy, and ultimately that vision, to fundamentally transform the experience that independent mom and pop landlords have with financial services. And then helping those teams allocate resources and hire people.

So when I started this, I was the first employee; I had no people. And we’re now 34 people globally, with lots of other external marketing consultants and PR and all these other things. But we had to build every aspect of that and that’s time-consuming; making sure that you hire the right people with the right skills to deliver on the strategy. And then I spent a lot of time making sure that those people now are working as a team.

As you’re building a new innovative product, you’re scaling the team, you’re scaling the product and you’re building the processes as well, and keeping all that aligned is just a heavy lift. And then I spend probably 20% of my time, in addition to that, talking to customers… Because I just think that — I’ve got a lot of my team whose job it is to interview customers, to get their insights, to do user testing with them… But if I get disconnected with customers, I can’t do the first part of my job, which is strategy.

And then I spend the remainder of my time, which kind of overlaps with the customer time, on making sure that we’re creating awareness for Zibo; because we can build the best product in the world, but if those independent mom and pop landlords aren’t aware of it and don’t know that what we’re doing is providing them an automated end to end cash management platform that gives them access to competitive loans and insurance, then we built a great thing that’s not going to be successful.

So I have a specific percentage for all those things, but that’s really the job of a startup CEO. It is anything but passive.

Theo Hicks: Yes… Alright, Chris, are you ready for the best ever lightning round?

Chris Hsu: I’m ready for whatever you’ve got.

Theo Hicks: Alright. First, a quick word from our Best Ever partners.

Break: [00:17:28]

Theo Hicks: Okay. Chris, you mentioned that a lot of your job is doing research. So what is the best ever resource you use to perform your research?

Chris Hsu: Well, number one is I actually talk to customers. I truly believe that that’s the number one form of research, and we’ve done a bunch of professionally facilitated research. We’ve spent a decent amount of our funding early days on just talking to customers in a structured way with professionals to really understand what are their pain points and how are they currently addressing those pain points today. And I think we read lots of stuff on the internet, we talk to lot of experts, but there’s no substitute from hearing first-hand how customers are dealing with these problems. And then because we have these technology tools today, we can do a video like you and I are doing and they can actually walk us through their portfolio and how they’re managing things and how they’re doing their banking. There’s no substitute for that.

And then we have lots of public data sources like census information, and we’ve just pulled lots of data together to try and triangulate who is that mom and pop landlord? What software and organization tools are they using? And where is there an opportunity for Zibo to come in and fundamentally transform their experience?

So that’s really the main sources.

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

Chris Hsu: As I mentioned before, I served in the military, and the reason I served in the military was because my father grew up in China during the Japanese occupation and communist revolution. And he spent the vast majority of his life trying to escape that and get to the United States. He ended up spending several years in Formosa Island, which is now Taiwan, and then eventually, in his mid-30s, made it to the United States. And he raised four children, all of us with the perspective that we had to serve our country, because freedom wasn’t free.

So for me, service was a huge component. My brother and I both went to West Point and both served in the military, and all of my volunteer hours, time and money goes to somehow serving veterans, whether it’s veteran homelessness or helping veterans transition from the military to a fulfilling career. I’m the senior advisor at a company called COMMIT that really dedicates full purpose to helping that. And then my family, we funded the Hsu Freedom Scholarship at West Point, which is designed to provide one to two cadets every year a scholarship in the summer to go around the world and study and write about oppression and the fight for freedom. So the theme for me is all about service and really veterans and serving this great country.

Theo Hicks: And then lastly, what is the best ever place to reach you and to learn more about your company?

Chris Hsu: You can reach us at https://www.zibo.co/. It’s not .com, it’s .co. You can learn about all the products and services that we provide, you can learn about our team, and if you want to reach out to me directly, I love talking to customers and interested folks. My email is very simple. It’s chris@zibo.co. So email me. Also, look for me on LinkedIn. I’m very active on LinkedIn. So Chris Hsu, and look for that, Zibo Inc. But follow us, like us and please try our products. It’s been great, Theo, connecting with you.

Theo Hicks: Yeah, absolutely. And thanks for joining us, Chris, and telling us about the advantage of technology and how we can use technology to go from spending lots of time in our business to automating it as much as possible. So we talked about the two ways that technology can help you. It can help you become more passive, but it can also help you increase your income as well.

You mentioned how you as a company get paid and we also talked about what it’s like being the CEO of a startup, for people who might not know what it’s like. It’s not as passive as your business can be if you use a technology service like Zibo. So make sure you check that out. Again, that’s https://www.zibo.co/.

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

Chris Hsu: Thanks, Theo.

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JF2257: Sports Reporter to Sales to Multi-Family Investor With Zach Haptonstall

Zach is the Founder & President of ZH Multifamily and an equity owner of over $48M worth of commercial real estate apartment buildings. Zach climbed up in healthcare sales and at the top of his career after accomplishing many of his monetary goals he found that he wasn’t fulfilled. He eventually discovered real estate and decided to leave his job and live off of 12 months of income while he pursued his new dream and now the rest is history.

Zach Haptonstall Real Estate Background:

  • Founder & President of ZH Multifamily
  • He is lead sponsor, general partner, and equity owner of  over $48,000,000 worth of commercial real estate apartment buildings
  • Portfolio consist of 420 units
  • Based in Scottsdale, AZ
  • Say hi to him at: www.ZHMultifamily.com 
  • Best Ever Book: Bible

Click here for more info on groundbreaker.co

 

Best Ever Tweet:

“You need to attack, constantly be trying to move the needle forward and know it will be difficult because you will not have tangible evidence that it will work” – Zach Haptonstall


TRANSCRIPTION

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

Zach, how are you doing today?

Zach Haptonstall: Hey, I’m doing great, Theo. Thanks for having me on, man. I really appreciate the opportunity to be with your viewers and your listeners here.

Theo Hicks: Absolutely. Thank you for taking the time to speak with us. So a little bit about Zach. He’s the founder and president of ZH Multifamily. He is a lead sponsor, general partner and equity owner of over $48 million worth of commercial real estate. His portfolio consists of 420 units. He is based in Scottsdale, Arizona, and his website is https://www.zhmultifamily.com/.

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

Zach Haptonstall: Absolutely, Theo. So I was born and raised here in Phoenix, Arizona. Never really had much of a real estate background, no family in real estate. I wanted to be a football player, so I had a small Division II football scholarship to a school in Colorado. I went there for a bit, realized I wasn’t going to make the NFL, came back and the next best thing is I wanted to be a sports reporter and a journalist. So I went to journalism school, I got a broadcast journalism degree, and I was actually a live news anchor on Arizona PBS here for a short time. And it was a sports reporter, and I hosted a show on Fox Sports Network. So that was really cool at first, being on live TV and everything. And then I just quickly realized that it wasn’t what I wanted to do. I wasn’t passionate about it. I was a sports fan, but I didn’t want to do that as my job.

So I graduated school, I was 21, I decided I don’t want to do this… I have all this school debt and I was like, “Man, I need to make money.” So I was delivering medical equipment nights and weekends, Theo, while I was going to school to pay for school, and my boss was like, “Hey, you can make pretty good money doing healthcare marketing.” So after journalism, I actually had a job of all things as a hospice marketer. For those listeners who don’t understand what hospice care is, it’s basically mobile nursing and care giving for people with end-of-life illnesses. And so my job was to drive all around Phoenix and just cold call, walk into hospitals, doctors offices, assisted livings, build relationships with physicians, social workers etc, to sign people up in hospice.

So long story short, Theo, I was very blessed to do well in the hospice arena. So by the time I was 23, I was making 150k a year. I bought a house. By the time I was 24, I had gotten my MBA, paid off all my school. So I did that for about four years. I was blessed to be making over 200K a year by then. I had no debt, with a little over 100k in my bank account, and coming from a lower middle-class family, I was blessed in doing well and grateful, but I just didn’t feel fulfilled. I just was burnt out and I had already achieved all those goals in that arena… And I wanted to create more freedom of my time and more passive income. So I didn’t know much about real estate like I said, but January of 2018, I said, “Screw it. I don’t want to do this anymore.” So I resigned, and I sold my equity in the company. And I had no plan except I knew I wanted to somehow create passive income through real estate.

So I set aside savings for over 12 months. I said, “I’m going to live off savings for the next 12 months.” I ended up living off savings for more than 12 months, and I just kind of dove in. I started listening to podcasts like this one, reading books, cold calling people, etc, etc.

Initially, I was looking at flipping homes, then mobile home parks, then I went to multifamily and syndication and the power of leveraging other people to come together and acquire these assets.

So long story short, 10 months went by, I burned through a lot of savings, went through a lot of adversity just trying to figure this out. And finally, after 10 months, we got the first deal under contract. We closed it four months later. So it was 14 months from when I first quit my job and decided to do real estate full time that we got the first deal. It was a 36-unit. And then we were just fortunate to catch momentum after that.

Since then, since closing on that first deal, right now we’re near the end of July 2020, as we record this deal, Theo, and we acquired that first property in February of 19. And since then we’ve acquired 420 units, 48 million over five assets, all here in the Phoenix area. So it just kind of goes to show once you get that first deal, you catch momentum – we were able to scale up from there.

Theo Hicks: Thanks for sharing that. So you said your first deal was 36 units, you said?

Zach Haptonstall: Yeah, it was 36 units, 3.4 million. Correct.

Theo Hicks: Perfect. So maybe walk us through how that deal came to be. So you mentioned that you had partners on that deal, you mentioned the cost and the size, but from—you made your decision to do multifamily. You got educated on the process, then what did you do? Did you first reach out to partners and then who did you reach out to for the money? Maybe walk us through that process from, “Okay, now I’m ready to start taking action”, to “This first deal is closed.”

Zach Haptonstall: Great question, because it’s a daunting task, right? To take down these multi-million dollar assets… And I didn’t have tremendous net worth or liquidity to even sign on these loans, so you have to find a partner. That was probably the hardest part, Theo, was going through the adversity of trying to find people who are like-minded, who are motivated, who actually can help you with these deals. And so I initially was just trying to meet with people, cold call people. Then I started going to conferences, meetups, things like that. I met a guy Robert [Inaudible [00:08:03] who also lives here in Phoenix, Scottsdale area, and we kind of hit it off; he’s high net worth, high liquidity guy. He had been trying to find apartments, and so we decided to team up.

So this first deal, to answer your question, it was on market. So it wasn’t like some secret off-market deal. It was through a broker. It was on market. I had personally underwritten at least 30 or 40 deals by that time, and nothing penciled, nothing really made sense. Everything’s overpriced, which is the case in multifamily. This deal finally penciled. So Robert and I, we put in an offer on it, and then it gets accepted and we’re like, “Oh, crap, what do we do now?” That was a scary thing. Like, “Well, we’d better just push forward.”

So we get the deal under contract, and our plan, Theo, was to syndicate the deal. Okay? So I had a network of physicians and healthcare business owners from being in the healthcare arena, and Robert had some high net worth friends. So in our minds, we were thinking, “Yeah, we’ll just get this deal, all of our network will invest in the deal and it’ll be great.”

So we get the deal under contract, 30 days go by, we’re done with due diligence… We’re each non-refundable for 25,000. So I have 25k hard, and nobody’s really interested in this deal. So it’s a scary thing. We’re like, “Crap, we need to bring 1.4 million of equity to this deal.”, and our plan was to syndicate it and we’re not really getting a lot of interest. So I was just calling different people I had met and established relationships with at conferences, and had several phone calls with them… And I get a call one day from somebody I had met at a conference and had several calls with and she’s like, “Hey, I heard you have this deal in Phoenix.” I don’t know how she found out about it, but she’s like, “I just sold a 12 unit deal in Seattle, and I’m going to 1031 exchange. Why don’t I 1031 exchange into your 36-unit deal you have and we’ll do what’s called a tenant in common, a TIC deal, and I’ll bring 650k of equity.” And I said, “That sounds great. Let’s do it. And what’s a TIC deal? How does that work?” So I didn’t really understand that process. We originally planned, Theo, to do a syndication, but we ended up doing a tenant in common, which is essentially it’s similar to a JV, a joint venture structure. Everybody’s active, there are no passive investors.

So I at that time had about 160k to 164k left, and I was all in and I put 160k into this deal. Almost all my cash. Robert put almost 300K, we brought in her for 650k, and then I found a couple guys that come in at about 150k, and we made the deal work. So we ended up doing a TIC structure, not a syndication. We closed on that deal and that just gave us a lot of confidence going forward.

And then there’s different things throughout that process… Right after that, I sold my house, which I was never planning on selling… Because I needed more liquidity, and I invested that money in the next deals… But you just kind of have to figure it out and you have to find complementary partners who have skills that you don’t necessarily have, and that’s the key really.

Theo Hicks: What do you think would have happened if that person didn’t reach out to you for a 1031 exchange?

Zach Haptonstall: Good question. I would like to think we would have figured it out and found somebody, but it’s likely we wouldn’t have been able to close and we could have lost our earnest money. That’s the risk you take with multifamily. And you don’t ever want to be too aggressive. You want to make sure you have stress tests in place in your underwriting and you have conservative assumptions. But of the five deals we’ve done, and we have one under contract, none of them have been super-smooth. It’s like there’s always these scary things that come up, so you have to get to the point where you trust in your underwriting, you trust the deal, the fundamentals, and you have to be a problem solver and overcome different obstacles along the way.

And so I would like to think we would have scrambled… Because one part of that story, Theo, was that literally four or five days before closing, our lender calls me and says, “Hey, man, I’m so sorry. We were too aggressive on this underwriting on line item. We’re cutting your proceeds by $227,000.” “Right before closing, what do you mean? That’s crazy.”

So we just scrambled, and I had a friend who invested 150K, and Robert found somebody who put in 77K and we made it happen. So scary things come up and you just have to adjust and adapt.

Theo Hicks: Another question I have about this first deal… So you mentioned that your business partner, the net worth liquidity guy, he put in 300 grand in your first deal?

Zach Haptonstall: Yeah, it was like 275k. Yep, nearly 300k.

Theo Hicks: And then I’m assuming he’s the one who was the loan guarantor as well, so he signed the loan.

Zach Haptonstall: Yeah, we both did. Yep. But I needed his liquidity and net worth. Correct.

Theo Hicks: And then before this, you had never done a deal before, right?

Zach Haptonstall: Never. I had only bought a single-family home, which was my primary residence. That’s it, no other real estate investment.

Theo Hicks: Okay. So why did he partner up with you and then put all that money into a deal with you, and sign a loan with you if you hadn’t done a deal before? What did you do to sell him on this?

Zach Haptonstall: We initially met in — I think it was July or August. So we had been meeting frequently, and having several conversations for three or four months prior to that. And I thl6ink he could tell how serious I was. And I was transparent. I was like, “Look, I have this much money. I’m going to go all-in for the deal if I believe in the deal.” And he saw that I was putting in 160K. So he knew I had skin in the game and then I had a lot to lose, and we were on the same page. But I will say, he’s a lot more risk-averse than I was. So I was probably the more aggressive one to push to get that first deal.

So it’s really just about building that relationship and that trust, but it’s never a perfect thing, right? It sounds nice in hindsight, but there was a lot of stress throughout that process… But we’ve been partners in all of our deals, and it’s gone well. So you really have to just build that relationship, and you really do need to like the people you partner with, because you’re going to have to communicate with them frequently, and you’re going to have to have tough conversations, and you’re going to need to be able to hold each other accountable and call each other out if one person isn’t holding their weight. So that’s kind of the relationship that we have, along with our other partner now, [unintelligible [00:13:22].07]. So that’s important.

Theo Hicks: So during these three to four months, was it just you guys kind of just hanging out building a personal relationship? Were you just like talking on the phone, texting each other, getting coffee?

Zach Haptonstall: Yeah.

Theo Hicks:  I think is very important for the listeners, because you had no experience and you were able to do your first deal. So I’m kind of focusing on this a lot.

Zach Haptonstall: Yeah.

Theo Hicks: So you met this guy in July/August, you had three or four months kind of conversation, and then eventually he ended up investing with you. What were these interactions like? How often did you meet this guy? Kind of get into some specific stuff.

Zach Haptonstall: Yeah, good question, Theo. We were meeting frequently either at coffee shops or at his house… So I’m engaged, getting married in a couple months. I have no kids. Robert is married and has three kids. So obviously, there’s different dynamics, but he’s full-time real estate and I was full-time real estate as well at that time. And so we were able to meet during the week frequently, and we were underwriting deals together. I was demonstrating to him that in the previous six months before I met him, I was already focused on multifamily. And I was showing him and demonstrating all the relationships I had built with brokers, property managers, lenders, insurance brokers and just people in the industry etc, etc. So that was really a key, was to show him, “Look, I’m fully committed and I’m serious.” And he didn’t have any experience with multifamily either, so he was hungry to get into it, too. So he was trying to find a partner just as I was, but he had been looking for over two years.

So I think when we kind of clicked and we realized that we’re good complementary partners, it made sense for both of us. And we had complimentary assets, you know… Where he didn’t really have the relationships and things like that and I did, so I could bring value to him and vice versa. It just comes down to mutual respect and both demonstrating that you’re willing to work hard.

Theo Hicks: Thanks for sharing that. It was really solid advice. Alright, Zach, what is your best real estate investing advice ever?

Zach Haptonstall: There’s so many components to it… I guess if we’re really focused on people doing their first deal, this kind of sounds like an oxymoron, but my best advice ever is you need to really attack. You need to constantly be trying to move the needle forward, and it’s going to be very difficult because you’re not going to have any tangible or visible evidence that you’re making progress. But by listening to podcasts, reading books, and most importantly, getting out there and meeting real estate professionals, like brokers, lenders, and starting to underwrite deals, is the most important.

So my best advice to you would be you need to relentlessly attack; don’t ever give up. You need to stay consistent. You don’t need to do a crazy amount of things every day, but you need to do something little or try to keep pushing forward. And at the same time, you do have to be patient, which is where the oxymoron comes in… Because I got to the point where it was eight, nine months, I was putting so much pressure on myself that I was discouraging myself, and I had to almost relax and just kind of let it come to me. So just keep attacking, be determined, stay faithful, but be patient, too.

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

Zach Haptonstall: Let’s do it. I’m ready.

Theo Hicks: Okay.

Break: [00:16:12] to [00:16:55]

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

Zach Haptonstall: Good question. So just to be clear, I don’t ever actually read books. I do audiobooks because I just can’t read books. But right now, I’m reading the Bible, front to back, on audiobooks. I’m Christian, I believe Jesus Christ is my Lord and Savior… And I’m doing audiobook, New American Standard Bible front to back, which is actually pretty interesting when you’re [unintelligible [00:17:12].12] things like that. There’s a bunch of other good books, The Power of Ambition by Jim Rohn is a good one I listen to frequently, just talking about fundamentals and discipline. So those are two good ones.

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

Zach Haptonstall: I would restart it and rebuild it. I would identify what are the issues, why did it collapse, take a little bit of time and reflect and I would come right back and go into attack mode. I would just do it again.

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

Zach Haptonstall: The best deal we’ve done so far—well, we’ve acquired five deals and we have not sold any of them yet and gone full cycle, so it’s hard to say. However, our first deal is under contract and it’s going to be closing in September. So it’s got to be our first deal, our 36-unit deal. We bought it for 95k a door and we’re about to sell it for 148k a door in 18 months. So it was a good value-add business plan that we executed.

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

Zach Haptonstall: We like to volunteer. We’ve been to Feed My Starving Children and done food boxes, things like that. We had signed up to go on a mission in Mexico through our church,  but COVID kind of ruined that. In the real estate industry, I really like to just help people and get on phone calls, who are trying to get into it…  Because I went through so much adversity and people told me I couldn’t do it… So I like to get on phone calls with people and just share advice and try to inspire them or support them any way I can and just lend any valuable advice.

Theo Hicks: Have you lost money on a deal yet?

Zach Haptonstall: No, I haven’t. Not on a multifamily deal. The only thing I’ve ever lost money on is the Super Bowl was here in Phoenix, Arizona, Theo, in 2014/2015. And I had a friend who at a previous Super Bowl had leased out a hotel and then subleased it. Because there’s so many people that come here for it. So there’s this really nice four or five-star hotel, Talking Stick Resort. It’s got a casino, and all the hotels were booked in Phoenix. And I had this genius plan to sublease this. So I rented out this suite at Talking Stick Resort the weekend of the Super Bowl for four consecutive nights, Thursday night through Sunday night, 1000 bucks a night. I rented it out, and I reserved it. There was no more suites left. And my plan was to sublease it. So I put it on Craigslist, all these third party websites, and nobody bought it. So I lost four grand, and I literally stayed there for four nights in a row just so I didn’t feel like I completely wasted it. And I didn’t even have any fun or anything. So I probably won’t sublease any hotels.

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

Zach Haptonstall: You can just go to our website. It’s https://www.zhmultifamily.com/. You can email me at zach@zhmultifamily.com. I’d love to get on a call. There’s a ‘Contact us’ sheet on the website. You can fill that out and we’ll set up a call and help you however I can.

Theo Hicks: Perfect, Zach. Well, thanks for taking the time to join us today and walk us through your journey. I think that the biggest takeaway that most people are going to get is the specifics you went into on how you were able to find that first partner.

So again, you’d bought a house before, but it was just your single-family house. So it was your first investment deal, first multifamily investment deal. You said you met your partner at a meetup or conference, you met in July or August, and 3-4 months later he was investing almost $300,000 into a deal with you. And you mentioned that the reason why he did this is number one, you were super-transparent with him, and you mentioned that you are going all in, you were putting all your eggs into this basket, which gave him confidence that you had to succeed or you were done for.

Zach Haptonstall: Yeah.

Theo Hicks: You mentioned you went to the coffee shop and met, you went to his house and met. You said you were underwriting deals together, and then the biggest thing that I think you said was that you showed him all the relationships that you would built. So you didn’t come up to him and say, “Hey, let’s do this deal together”, and then he asked, “Okay, what’s the next step?”, and then you have a million things needed to do. You already had the education, you said you had your team built, so again, that portrayed that you knew what you were doing, that you were credible and that you were going to be able to get the job done… Which you did, because now you’re in the process of actually selling that deal.

And then you walked us through the process of that first deal and how it was supposed to be syndication, you didn’t have the money raised beforehand, you had a hard time raising the money, but it ended up working out. You mentioned that really in every deal you’ve done so far, it was always something that comes up and happens.

Zach Haptonstall: Right.

Theo Hicks: So it’s never going to be perfect. So it’s making sure you have those problem-solving skills. I think this also comes in your best ever advice about being patient and relaxing and not losing your mind when things do happen.

And the other aspect of your best ever advice was making sure that you are constantly in attack mode, constantly moving forward, constantly taking action and realizing that just because you’re not seeing that tangible evidence, you’re not seeing that deal being done right away doesn’t mean that you’re not actually progressing. That’s where the patience and the relaxation comes in. So keep focusing on getting educated, keep focusing on building your team members, keep focusing on building deals, because all those actions added up daily will lead to you ultimately doing a deal, whether it’s a month from now or a year from now.

Zach, again, I appreciate you coming on the show. Best Ever listeners, as always, thank you for listening. Have a best ever day and we’ll talk to you tomorrow.

Zach Haptonstall: Thanks, Theo.

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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JF2204: Investing While Overseas With Vincent Gethings

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

 

Vincent A Gethings  Real Estate Background:

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

 

 

 

Click here for more info on PropStream

Best Ever Tweet:

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


TRANSCRIPTION

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Vincent Gethings: Let’s do it.

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

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

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

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

Vincent Gethings: Be a commercial pilot.

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

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

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

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

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

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

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

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

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

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

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

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

Vincent Gethings: The Boston version, the SMAT goals.

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

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

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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JF2201: The Hands-Off Investor Author Brian Burke

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

Brian Burke Real Estate Background:

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

 

Click here for more info on PropStream

Best Ever Tweet:

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


TRANSCRIPTION

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Brian Burke: Let’s hit it.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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JF1818: Don’t Save For Retirement #SkillSetSunday with Daniel Ameduri

Daniel is returning today after he has already given his Best Ever Advice. Today, Joe and Daniel will be focusing the conversation to a topic that Daniel recently wrote a book about. We’ll hear how Daniel recommends people save their money, and even work towards retirement, just not the conventional way. Daniel looked at the wealthy class and the middle class to differentiate what they are doing with their money and discovered some insightful observations. If you enjoyed today’s episode remember to subscribe in iTunes and leave us a review!

 

Best Ever Tweet:

“Preserve capital and buy things that produce income” – Daniel Ameduri

 

Daniel Ameduri Real Estate Background:

 


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TRANSCRIPTION

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

With us today, Daniel Ameduri. How are you doing, Daniel?

Daniel Ameduri: I’m doing great, thanks for having me back on the show.

Joe Fairless: Yeah, my pleasure. You mentioned it already, back on the show, so Best Ever listeners, if you wanna check out Daniel’s best ever advice, you can go to episode 1106, titled “How to find owner-financing deals.”

Daniel is the co-founder of Future Money Trends. He also recently wrote the book “Don’t save for retirement.” That’s gonna be our focus for our conversation today. He has over 40 transactions, owns 15 rental units, 7 homes, 2 duplexes and a fourplex. Based in San Diego, California.

Best Ever listeners, first off, I hope you’re having a best ever weekend. Because today is Sunday, we have a special segment called Skillset Sunday. The skillset we’re gonna be talking about is around the focus of the book that Daniel has, “Don’t save for retirement.” Daniel, if we don’t save for retirement, what the hell are we supposed to do?

Daniel Ameduri: Exactly. Well, first of all, “Don’t save for retirement” – really what I mean by that is don’t save for conventional retirement… Because all these different things are great for the retirement industry. They’re making a fortune – the brokers, the mutual funds, the ETFs, the 401Ks… They are making money hand over fist. It’s just not working out for the clients and the baby boomers.

And what does work is something that’s been proven for thousands of years, and that’s preserving your capital and buying things that produce income. It’s as simple as that. Instead of saving for retirement and deferring and using all these different things, like a 401K, where you don’t even know where it’s gonna be in 30 years, or what the tax rate for the withdraws are gonna be, how about focusing on passive income?

What I did was I looked at what are the wealthy doing? What are the middle class doing? There’s a huge divide. The middle class, of course, they’re trying to get rich, and most of  them overnight. The wealthy – they’re preserving; they’re focused on income. But it is the one proven way that works, what they’re doing.

The whole retirement idea – really, the 401K is legislation passed in the ’70s, but it’s been around since the 1980’s. Same thing with IRAs. I think there’s just a better way to go about living your life and having your life becoming financially free.

Joe Fairless: I pride myself on thinking through the opposing opinion on basically anything, and just thinking “Okay, if we think this, then what would the other group say that’s the opposite? What would their points be?” Just because I think it’s good to have that ability to be able to do that, so that the initial perspective that I have – I can make that stronger, or perhaps I retreat from that and I open up my mind to this other stuff.

This I’m gonna have a hard time doing, because I agree with you, and I don’t really do stock market investing. I agree with everything you said, so what I’m gonna have to do is I’m gonna have to ask you – because I’m sure you’ve come across people who are heavily in the stock market, and they have other retirement accounts… And you’ve mentioned this to them, and then they have some counter-points. So help me ask some good questions about it – what are their counter-points to the things you’ve just mentioned?

Daniel Ameduri: Well, it’s interesting you bring it up like that, because yesterday I was emailed by a New York Times reporter who was looking at the book and wanted to ask me some questions. And he says “How many people are making $100,000 a year from passive income, that started as the middle class? How many people have subscribed to your letter and have done this with passive income and have quit their jobs?” He’s asking me questions he knows there’s no data point; there’s no data on that.

So I actually flipped it on him. I said “How about we do this? Let’s go over the data for what you’re advocating.” I said “Vanguard, the biggest mutual fund company on the planet – they are saying according to their data the median 401K-er (65 and older) has $58,000 in their account.”

Then you look at social security, which doesn’t even equate to the cost of survival increases annually anymore. Then you look at savings accounts, which is part of that three-legged stool retirement plan, and they’re offering 0% interest. So I kind of flipped it back to them and said “Look, I don’t have a lot of data points for how many people have come from nothing and gone to passive income, or have done a partial retirement, but I do have a ton of data to show you that the other way that you guys are advocating for is an absolute failure.”

Joe Fairless: What was his response?

Daniel Ameduri: I haven’t gotten a response; that was literally yesterday. So I’ll let you know if he does.

Joe Fairless: Was it via email?

Daniel Ameduri: It was via email.

Joe Fairless: Oh, okay.

Daniel Ameduri: We’ll see what he says. But look, I’m not advocating for people to quit their jobs with passive income tomorrow, or even replace completely the idea of retirement. What I’m saying is passive income has been much more beneficial to people who’ve adopted it. I have used passive income to pay my bills. I have used passive income to go on vacations, and I simply don’t worry about retirement at all, because I love what I do – which we do talk about what you’re going to do in life as far as work, and how healthy it is… But we also talk about in the book that you do have that option, and that is where that real financial security and peace and freedom comes from, wherein “Hey, maybe your dream was to be an engineer, or maybe you’re a prosecutor who puts away certain criminals that you really are passionate about doing that job.” Do that job. But what I’m saying is when you buy passive income and reshift your mind from capital appreciation to income, it opens up all kinds of opportunities and a peace of mind and a feeling of wealth that is worth pursuing.

Joe Fairless: Okay, I’ll do my best to pretend I’m the reporter and continue his line of questions. So you mentioned passive, but investing in real estate really is not passive, because there’s some form of activity we’ve got to do. I have three single-family homes outside of the apartment communities that we have, and those three single-family homes – once a year I’ve got to pay the insurance bill, and once a month I maybe get an email from a property manager about something that happened… And that’s on the management side. But going into purchasing those, there was work involved to educate myself, find the right city, and find the right team… Versus I go on Vanguard and I could pick whatever options they have and just passively – and that truly is a  passive investment – and just let it ride on the stock market.

Daniel Ameduri: Yeah. The stock market to me is not a good diversifier for most people. They’re probably not sophisticated enough to even know what stock to buy. Warren Buffett even hasn’t beaten the S&P 500 in the last ten years. So I’m not big into stock picking; I do dabble into venture capitalism, but I’d say for people who are comparing the two – sure, you do have to do a little legwork, or a lot of legwork if you wanna make a lot of money in real estate, and it is a great way to have passive income, but there really isn’t too many passive incomes where you have nothing to do, at least if you wanna maximize it, like in physical properties.

Now, there are private REITs — there are public REITs too, but there are private REITs, or even the crowdfunding stuff… You’ve heard of PeerStreet and Fundrise – there are a lot of ways to make money, and it can be 100% passive to you, but just know you’re never gonna get that same return as if you had gone out and purchased the apartment, or purchased the single-family home. Those are gonna be your best returns.

Now, if you wanna just give the money to a private equity group that owns fractional shares of J.W. Marriotts, or maybe they build skyscrapers, you’re gonna get your 7% to 11% return, but the best returns and the best tax benefits are always gonna be owning physical real estate. But yeah, sure, they got me that it’s not 100% passive on owning physical real estate, but I think we’ve got them check-mated that the alternative is you don’t even know half the time what you’re buying, and you have no idea what that 401K is gonna be at.

At least when I have a property – not only do I have the tax benefits, but I have the income, the potential appreciation, though it’s not important… But you look at a 401K, for example, and people have no idea what the withdraw rate is. Think about how risky that is. You’re borrowing money from the IRS essentially by taking that deduction and not paying the tax, and you have no idea what your tax rate will be… Even though what you do know for certain is taxes are lower than they’ve been since 1931. And you’re gonna speculate that with 22 trillion dollars in debt and ballooning entitlement – an entire movement out there to tax people more, that taxes are gonna be lower. No, taxes are gonna be higher, so why wouldn’t you focus on passive income, rather than deferring things in a 401K?

Joe Fairless: How do you have the book outlined? Or how does it flow?

Daniel Ameduri: It starts off with my wife and I’s journey. It literally starts actually in a bankruptcy attorney’s office. I have the first chapter and the intro, for your readers, if they wanna go to FutureMoneyTrends.com/save – they can read it free. There’s an Amazon link there, of course, if they wanna continue reading… And it essentially starts with what did my wife and I do; how did we just start pointing — a lot of people say “What’s the first step? What do I do if I wanna become financially free?”

Then it goes into really what is wealth, and what is wealth ultimately going to mean for you? And then we go over the actual investments that I’m involved in, and different things that I have discovered. What I’ve done is — I’m not worth 50 million dollars, but I’ve been to a lot of these family wealth offices where everybody else in the room is worth 50 million, or 100 million, or even a billion. I’ve spoken and interviewed many billionaires over the last few years here, and I’ve always just been looking for what are they doing, and I’ll tell you – and your listeners will love this, because they’re listening to a real estate show – in the end, all roads lead back to real estate when it comes to the super-wealthy.

Joe Fairless: Well, can you drill down into some specific things from a cashflow standpoint that have worked best for you, and then some things that did not work well for you?

Daniel Ameduri: Well, when it comes to cashflow, I’ve tried to diversify it as much as possible. One of the things that works very well for me is I have been participating in private equity, either by multi-units, say 30-50 units, and then doing value-adds… Or even getting into where we purchase farmland and lease out the equipment. Now, the farmer obviously will make more money because they can actually profit from the crops, but they also carry the most risk. So it’s a fair trade. They get more risk, and they get more profit, but we get more safety. And again, my focus is preserving, so I love farmland. Then the income – we’re getting rents from the farmland and we’re leasing  out the equipment to the farmers.

On the income disaster side – I would say one of my worst experiences is trying to vet and do individual mortgage notes or loans on my own. I’m just not a credit analyst. So when it comes to that, if you wanna have some debt income, I would highly recommend, defer to people or organizations that have been very successful.

One thing I’ve done is I always try to find organizations that have been around for a long time, ideally (it’s almost a must) that they’ve been around before the 2008 crisis. If I’m gonna partner my money with a group that’s buying mortgages specifically, I wanna partner with a group that has been through the 2008 crisis, frankly… Because that was one of the worst crises and I don’t see us going into something like that again for a long time, because when those types of things happen, investors tend to be more on the conservative side for some time.

Probably my worst experience is me trying to actively involve myself in things I’m not an expert in, I don’t know about. I would start simple when it comes to cashflow – single-family homes, move into apartments, and then definitely, if you’re getting into bigger things, move into partnerships or places like your website where people can get educated and trained… Because this stuff is all repeatable; you can mimic what other people are doing. What other people are doing, you can do. That’s one of the things I always tell our subscribers, and even my kids – “Look, what one man can do, another can.” So it’s all possible, but I highly recommend people partnering with people who know what they’re doing, prior to just jumping out there and throwing money at something.

Joe Fairless: Out of 1,800 or so interviews, the term “farmland” has come up maybe 5 times, so let’s talk about that… How did you get into investing in farmland?

Daniel Ameduri: You know, it always has been something I wanted to do, and I just could not find the right partners. I would look at foreign farmland, where you buy a parcel, and the internal rate of return was like 20%, and all these things, and I was like “But I don’t know about that…” I’d go to Panama and look at these farms, I’m like “If grandma dies on the farm, it’s over. She’s running the entire operation.” In fact, I know a group who got into coffee farmland, and the guy who was the main farmer died, and all the investors lost their money because just one guy was not part of the operation anymore.

So I’d been wanting to get in it for the last decade, and finally a group out of Southern California – if anybody knows Sprott Asset Management. They’re a very good group; they have commodity, resource-related investment companies, and they had brought the opportunity up to me. It’s a private fund, private equity, and that was the pitch – they were gonna buy farmland all throughout the Midwestern United States, they were gonna buy the equipment, they were gonna lease the equipment to the farmers, and it’s done really well. It’s appreciated probably about 7% or 8% annually, but the income is about a 10% yield on my money… So it’s a great way to expose myself to farmland without owning a physical farm, which I know nothing about.

Joe Fairless: And on that note, investing in something that you don’t know much about, what gives you the comfort level to invest in something that you don’t know a whole lot about?

Daniel Ameduri: Well, I’ll give you an example in some of these mining stocks I’ve had a lot of success in… What I’ve done is I’ve just been religious about making sure whoever I’m investing with is on their second go-around. So I identified a handful of people – about 12 of them – and I wanted to find the guys who had already created a 5-million-dollar or a 10-million-dollar company to a billion-dollar company. And I took those guys and I looked at what they were doing, and the asset and the project met what I wanted.

I think if you’re going to involve yourself in a thing you’re not that familiar with, you wanna make sure you’re with somebody who’s on their second go-around. Not the CPA who’s decided he wants to be a gold-mining expert, or somebody who last year was managing a Subway, and this year they wanna buy a 25-unit apartment building with you. So try to find people on their second go-around.

Now, I will tell you this from first-hand experience, and I’m sure a lot of listeners can relate to this – typically, when I venture too far away from things that I know, I usually don’t make that much money. Whatever you’re doing right now that’s making you the most money… As entrepreneurs and investors, we love to go out and find new things. But for the most part – and this is my own personal experience – you’re far better off just doubling down on what you’re doing right now, whatever is making you money. If you wanna monetize your job and make your employer your first client and expand that industry, or if you’re an investor who’s killing it in apartments, or killing it in single-family homes, just keep killing it in single-family homes, or keep killing it in apartments, and just stay focused.

They asked Bill Gates and Warren Buffett if they could say one word that’s been the most important thing in their lives, and both of them said “focus”. I really believe that, because I made a lot of money in stocks and real estate, and I remember one time I wanted to venture out into the payday loan business, because I saw these returns, and… Let me just tell you, it was not a pretty thing. That business is so gone you can’t even find it on the internet.

So you’re better off sticking with what you do know, but if you don’t, make sure you’re partnering with somebody who’s on their second go-around.

Joe Fairless: Anything else you think we should talk about as it relates to your experience and the topic at hand, that we haven’t discussed already?

Daniel Ameduri: As far as income, no. But I would say one thing that helped me become financially independent was cutting spending in an aggressive way. If you google right now “how to save money” or “I need to save money”, it’ll say switch your credit card, switch your checking account, don’t drink coffee at Starbucks… When my wife and I wanted to become financially free, and our definition was passive income paying for your basic needs in life (not extravagances), and just making sure that that was taken care of, we moved. That cut our expenses 50%. We got rid of our pets, because they had a $150/month bill. We stopped eating meat.

Joe Fairless: You got rid of your pets because of the money?

Daniel Ameduri: We did crazy things. She wanted to quit her job, I hated my job…

Joe Fairless: What did you do with your pets?

Daniel Ameduri: We gave them to a very nice family who actually kept a lot of these different type of dogs [unintelligible [00:18:50].15] This goes back to 2009-2010…

Joe Fairless: Oh, okay. Tough time.

Daniel Ameduri: Much different life, right?

Joe Fairless: Right, right.

Daniel Ameduri: So that was us crushing all expenses… And what that allowed us to do – it freed us up to buy even more passive income. And of course, that snowballed and compounded. My wife was able to quit her job, and then I quit my job, and today we live a very good life. Even though I was financially independent, I still drove a 2003 Nissan Altima in 2012.

Now, I’m not telling people that’s how it’s gonna be permanently. That’s not how it is now. My wife and now – we just got done traveling for 60 days, in Africa and Japan and Israel, and we took an Atlantic cruise with Disney from Miami to Barcelona. So I’m not telling people you’re sucking up and living a poor, minimalist life; I’m saying we need to cut deep. Because most of us aren’t living sustainable lives, because we have adopted what we’ve been conditioned to do… Just like the retirement savings, having a 5 to 8-year auto loan, having an auto loan that’s equal to your annual income… That’s just stupid stuff that we do because we think it’s normal.

The book really goes into how do you deep, deep cut spending. Because you’re doing it not permanently; you’re just doing it because what you wanna do is you need to free up as much money as you can to buy income. You need to put those dollar bills out there and put them to work.

I have the mindset — when I go check my mailbox or log in to my checking account, I’m looking for ACH deposits, I’m looking for checks in the mail. And that’s a very rewarding and healthy lifestyle I think everybody can benefit from.

Joe Fairless: How can the Best Ever listeners learn more about what you’ve got going on?

Daniel Ameduri: I would love for you guys to just go to FutureMoneyTrends.com/save. You’ll get to read a part of the book for free. It also subscribes you to my weekly wealth digest. I share stories of what my wife and I have done, and what we’re actively doing right now.

Joe Fairless: Well, thank you so much for sharing your approach to making sure we’re ready for retirement, having cashflow, and having income-producing assets. Then how you go about doing that, what has worked and what hasn’t worked.

Daniel, I really appreciate the conversation. I’m interested to hear how the New York Times reporter reacts to your email… I’m thinking you’re just not gonna get a reply, because they’re probably looking for one perspective only. But if they are good reporters, then they’ll actually get really curious about what you’re saying.

Daniel Ameduri: My publisher was the one who had the email, so I’m sure he’ll get back to them, just because he’s probably regularly in contact with the publisher… But when I emailed them, I said “He’s either going to hate this, or he might actually become curious and wanna dig further.”

Joe Fairless: Yup. Well, I agree, and… Hey, I really appreciate it. I hope you have a best ever weekend, and we’ll talk to you again soon.

Daniel Ameduri: Thank you very much, Joe.

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JF1812: Starting An Investment Club, Renting RV’s & Building Indoor Sports Arenas with Ryan Enk

Ryan is here to share his story today, which will have a heavy focus on hard work and passive income. Ryan’s passion is helping other working class people earn passive income to better their own futures. If you enjoyed today’s episode remember to subscribe in iTunes and leave us a review!

 

Best Ever Tweet:

“Some people have no money and no network, they can start with wholesaling” – Ryan Enk

 

Ryan Enk Real Estate Background:

  • Founder of Columbia Real Estate Investment Club, the author of Rolling Real Estate Formula and owner of an RV rental fleet
  • Has built 2 two million dollar indoor sports arenas
  • Based in Covington, LA
  • Say hi to him at www.cashflowdadlife.com
  • Best Ever Book: Rich Dad Poor Dad

 


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TRANSCRIPTION

Theo Hicks: Hi, Best Ever listeners. Welcome to the best real estate investing advice ever show. I’m Theo Hicks and I will be the host today. Today I will be speaking with Ryan Enk. How are you doing today, Ryan?

Ryan Enk: Doing great. I’m glad to be on the show, Theo. Thank you.

Theo Hicks: Yeah, I’m glad to have you on. I’m looking forward to our conversation. A little bit about Ryan. He is the founder of Columbia Real Estate Investment Club, the author of Rolling Real Estate Investment Formula, and the owner of an RV rental fleet.

He has built a few in-door sports arenas – I’m looking forward to talking about that. He’s based in Covington, Louisiana, and you can say hi to him at cashflowdadlife.com. We’ll have that website in the show notes of this episode.

Before we get started, Ryan, do you mind telling us a little bit more about your background and what you’re focused on now?

Ryan Enk: Yeah. The main thing that I’m focused on right now is helping people achieve passive income, specifically through real estate investing… And enough passive income to replace their working income. The reason that I’ve got a heart for that is because I’ve got five kids, I’ve got five boys (I don’t know how to make girls, but I’m not a quitter, so we’ll see what happens there), and when I was going through corporate America, and had a corporate job selling copiers – I don’t know if you’ve ever seen that movie Office Space, where they take the copier to the backfield and beat it with a baseball bat… That was how people felt about me when I walked in the door unsolicited to sell them a copier.

I was really at this crossroads, because I was having all these kids, and I just got chewed out by this [unintelligible [00:03:57].11] who I sold a copier to, and I was like “Man, I’m in a really bad place right now…” And I asked myself a critical question that I think everybody should ask themselves, and that’s “What would you do if money didn’t matter?” Because if money didn’t matter, I would be more present for my wife and my family and my kids, I’d be able to serve my community better… And I just chased that rabbit all the way down the hole, and the vehicle I used to achieve that was real estate investing… So that’s what I help people now.

Theo Hicks: That’s such a great business model, and I’m sure people really appreciate you helping them out with that. So when you’re helping people achieve their passive income, is it more you’re helping them set up their own real estate business, or are they investing in some of the deals that you do, or is it a combination of those two things?

Ryan Enk: Yeah, it’s a combination of those two. A lot of real estate mentors sometimes pigeon-hole you into one strategy or another, and as you know, there’s tons of strategies out there…  So what we like to do is we like to reverse-engineer the situation, because some people might not have money, but they have a big network. Or they have a lot of money but they don’t really wanna spend a whole lot of time going out and finding deals… So we focus on creating single-family portfolios and multifamily portfolios as the main two strategies.

But that being said, some people have no money and no network, in which case sometimes we’ll say “Well, let’s get started with wholesaling.”

So we really kind of figure out where people are with their current capital situation, their current time constraints, their current network, and then we recommend a strategy and educate them from there.

Theo Hicks: Okay, that’s great. That’s how you’ve gotta do it; you don’t wanna just present one strategy and say “This is exactly how you have to do it”, because as you mentioned, it’s based on where they’re at right now, and everyone’s situation is different, so… That’s a great strategy.

As we said it in your background, you’ve built a few indoor sports arenas… I’ve personally never met anyone who’s done that before, so do you mind telling us a story about that? How you determined that that’s what you want to do, and then maybe kind of walk us through the numbers on one of those deals?

Ryan Enk: Yeah. So as part of the story I was giving you earlier, I asked myself what I would do if money didn’t matter… I was actually driving across the bridge from New Orleans – it’s the longest bridge in the world, across Lake Pontchartrain, and I just prayed for a little bit, I asked God to help me, because I was miserable; I was waking up every day with anxiety with what I had to do for work… So it popped in my head, “Well, what would I do if money didn’t matter?” I’ve always loved played soccer and football, and I was previously a teacher before Hurricane Katrina hit… This school I was at was six feet underwater.

So I was like “You know what, I’d like to do something where people are happy when I walk in the door, they want to know me… And something that people look forward to every week.” People look forward to their games every week, and it makes a positive impact on the community… And I also played guitar too, so I was like “There’s three things – I would either mentor people, help people, I’d open up an indoor sports arena where people can come and play sports, have birthday parties, whatever it is, or I would play music, if money didn’t matter.”

So I called my wife – and we had never had this discussion before – and I said “Obviously, you see me coming home unhappy and miserable, and not totally present to you and the kids… What could you see me doing if money didn’t matter?” She said “I don’t know, maybe opening up an indoor sports arena, playing music, or mentoring people.” So I was like “Alright, that’s my golden ticket to remind her that’s her idea, as I try to pursue this.” [laughs]

And at the time I didn’t have anything in my bank account really but overdraft fees. For anybody looking to get started, most people think that that’s a huge brick wall… But there’s a saying that I heard – I think it was Tony Robbins that said “Most people’s problem isn’t the lack of resources, it’s a lack of resourcefulness.” So I just decided whatever brick wall I was gonna come across, whatever I didn’t have, I would go look to find who had that.

So I began, I created a business plan, started looking for money, looking for capital, met with investors, met with banks, I got a consultant… One thing just led to another until we got our first deal. I think we built it for 1.7 million dollars. We structured like 11 investors in order to build that arena. So it was 1.7 million for the actual building, and then it was like another 380k just for the furniture, fixtures and equipment, the indoor turf and whatnot.

So that was just an experience, and all I brought to the table at that time was sweat equity. It turned out to be a pretty good deal. I don’t know if that answers your question, but if you’re looking at a little  bit about how that was structured, I basically got investors to help me build it.

Theo Hicks: And at this point had you done anything like that before?

Ryan Enk: No. [laughs] That was actually a huge problem, because when I first started, I was like “Alright, I know that I’ve gotta get a consultant”, and a lot of people when they first start something – and you can apply this to multifamily apartments, to anything that you’re starting for the first time – a lot of times the question that you’re gonna get is “Well, what’s your experience with this? Have you done this before?” And the biggest advice that you can give is it’s not like going to a job interview, where you have to present your own resume. I think too many people are trained in that mentality, like “This is just my job resume.”

When you’re pursuing something in investing, or a business, whether it’s an indoor sports arena or a multifamily apartment, you basically can give everybody else’s resume as part of the team. So you start creating a team around you, and that’s what I had to do – basically, look to leverage other people’s experience, other people’s money in order to prove myself to investors and to bankers.

Theo Hicks: And how did you find these team members? Because this is a very specific and unique niche, indoor sports arenas… Obviously, when you’re talking to investors for multifamily – it’s not easy, but it’s not super-difficult to find a multifamily consultant. How did you find  an indoor sports arena consultant? And the rest of your entire team.

Ryan Enk: The biggest thing I can say is I kept on saying if the door closed, I was like “Well, what’s another door?” With consultants, I just did a Google search; I found this one guy, called him, he wasn’t interested. Then I found this website, USindoor.com. They had a bunch of consultants listed. I called them all, interviewed them all… It was gonna cost $15,000 for the consultation. Obviously, I didn’t have that, so I took a second mortgage on my house in order to pay for some of it, and then I offered the guy equity in the arena if we were to get it off the ground. That way, I could say to the bankers and whatnot, not just “This is my consultant” but “This is my business partner.” That gave them more confidence in moving forward with it.

And then as far as finding the other partners, I went around and I had this airtight business plan that my consultant had drafted. It was this 40-page thing, it was very good… And I got so excited about meeting with investors once I had that business plan, because it really made me look like I knew what I was doing. But then everybody started telling me no. So I was like “I’ve gotta have some sort of experience here”, because everybody’s looking at me like “Well, you are a teacher and a copier salesman. I have no confidence that you know how to run an indoor sports arena.” And to be honest, I would probably say the same thing, too.

So I started a daytime business for the arena called SoccerTots. Basically, it’s this small franchise — I don’t think it’s around now; I’ve since sold it. But it’s this child’s sports development franchise. You can rent out a gym, like a basketball gym, a local recreation center, or even a church gym, and pay them a percentage of your revenue, and just basically train two-year-olds and four-year-olds how to play soccer.

So as soon as I had that, I was like “Alright, I now have the daytime business for an indoor sports arena.” That changed the conversation, and I ended up connecting with this one guy, connecting me to another guy, and they pooled together some investors; then this other guy knew another guy, and it just snowballed once I had a couple of those pieces in place.

Theo Hicks: That’s a great story. You explained how you went from not necessarily having any experience whatsoever, it was just kind of a dream of yours based off of that money question, “What would you do if money didn’t matter?”, and then you kind of just hustled your way to get it done. Every time, as you mentioned, you faced one of those brick walls, you just figured out a way to overcome that. That’s great advice.

As you mentioned, all these strategies we’re discussing can be applied to any strategy… And if I’m being honest, it’s probably gonna be easier if you’re doing this for multifamily, as opposed to doing it for a sports arena. That’s awesome.

Ryan Enk: Way easier.

Theo Hicks: Yeah, seriously. So what types of returns are you getting on that deal? You mentioned how much money you invested… What’s the return factor that you use, the cash-on-cash return, or whatever, and how are you making money on this sports arena?

Ryan Enk: Yeah, the sports arena is mostly the business, and actually at first we got investors in just the business, and not necessarily — the real estate investor was separate. Three years into it, we’re like “Wow, this is incredibly stupid. I wish we would have thought of this before, to actually own the real estate, instead of just the business…” Because we’ve got an exit strategy with the real estate. With the business, you either sell it, and what is the market for that…

So three years later we ended up negotiating with the landlord to “Please, help us out and sell us the building.” He sold us the building for two million dollars. So he built it for 1.7, and three years later – he basically make 100k a year – sold it for 2 million.

We didn’t make any returns the first three years. In fact, we lost money. As soon as we started owning it, we were looking at closer to 20%-30% returns.

Theo Hicks: So how did those conversations go with your investors when you didn’t make any money those first three years?

Ryan Enk: It wasn’t fun. But we did have business projections… When you’re starting a new business like that, not a whole lot of people make money their first three years in business. I think they say that your first 3-5 years you actually lose money. So we actually projected losing money in our business plan. That being said, presenting that business plan, a lot of investors are like “Yeah, I understand, you’re being conservative”, but then they kind of expect that you make money.

So the first year all the silent investors were silent. By the third year, all the silent investors were not silent anymore. They were constantly “What are we doing here on this management?” So that part was not fun. But as soon as we owned the real estate, it changed things around.

Theo Hicks: And then on that second deal, did you apply all those lessons and did you actually own the real estate from the get-go?

Ryan Enk: Well, the second deal was a little bit of a different situation, where we didn’t have to own the real estate. We kind of took over a foreclosed business on the other side of the lake. It was a foreclosed sports arena, because the guy – I think he was a doctor – who bought it didn’t manage it himself; the people he thought were gonna manage it kind of ran it into the ground.

So we ended up being able to get the actual business – you’re looking at 380k to 500k just to start the business for the assets. We got the assets for free, and we took over a lease that was half the cost of our lease on the [unintelligible [00:15:13].24] building. Ideally, we would have liked to own the property, but because the cost to lease it was so little and we could get the assets for free, it was a little different of a situation.

Theo Hicks: Okay. And transitioning to the other business model, which is the RV rental fleet – do you mind telling us a little bit about that business plan?

Ryan Enk: Sure. I call it rolling real estate. It’s basically Airbnb, but for RVs. Once I had done enough with real estate — and the indoor sports arena was more of a passion investment; it is an exciting story and I’ve put a lot into it, but I had most of my success developing single-family and multifamily portfolios in real estate. That really gave me the comfort and the passive income to do all these other things… So once I’d gotten to a certain point, I told my wife that I wanted to buy a boat, a little cabin cruiser or something… And she was like “No, I’ve always wanted to do an RV trip.” So from that standpoint obviously we had to get the RV, because “Happy wife, happy life”, right?

So I didn’t want to just have a liability. I wanted to see — kind of taking the page from Rich Dad, Poor Dad, instead of saying “I can’t afford it. How can I afford it?” I could afford it, but at the time I was like “How can I make this into an asset, something that cash-flows, instead of something that I’m just wasting $600/month on a payment?”

So I looked into it, and there’s a couple platforms out there – RVshare and Outdoorsy are two of them. Basically, like the Airbnb or the VRBO of the internet world. It looked like there was some demand for privately-owned RV rentals. So I went ahead and got a class A RV, traveled all over the country with my family for a couple weeks, and then listed it on these platforms just to see “Alright, let me see if I can get enough rental income to cushion my payments.”

Well, I ended up making $32,000 in profit in that first year, so that’s when I was like “Okay, this could be a really great business model.” Kind of  a real estate play, but it’s rolling real estate; the same thing as the house, but on wheels, and you can take advantage of the trends in the short-term rental industry.

So I ended up getting three others in the fleet, but using other people’s money and other people’s RVs instead of putting my own capital towards it. It ended up being a neat little business.

Theo Hicks: That’s interesting. So you bought your first RV, and then once you had the proof of concept and saw that you were able to generate profit, you would reach out to other people who already had their RVs, and then rent their RVs out too, and sharing the profits?

Ryan Enk: Yeah, I basically said “Hey look, this RV is doing nothing but costing you in storage fees your monthly rent. We’ve got an airtight operation.” We basically outsourced and created a small little management company that was part-time.. And we were like “We’ve got a pretty good operation, so if you want to share in this trend and some of the rental revenues, then why don’t you go ahead and put it in our fleet. We’ll cover you on the insurance, and you can make money on this instead of losing money on it when you’re not using it.”

Theo Hicks: Wow, very interesting. Alright, Ryan, what is your best real estate investing advice ever?

Ryan Enk: I would say if I had to go back in time and slap myself around, the first thing that I would tell myself is that there is a difference between speculating and investing. Speculating is kind of like your flipping houses type thing, where you’re going in and you think you might be able to get this, but you’re susceptible for market crashes; you don’t know if you can get a tenant in there. You might research the demand and see that there’s a demand for rentals in the area, but you’re not sure. You’re not sure if you can sell; you think based on days on market you can… So that’s speculative.

And there is a way to do it in a low-risk way, but at the same time there are better investments out there, such as apartments and multifamily, where you know without doing any value-add or any improvements on day one – you know what you’re gonna make when you go in there and rent something… Because you see the T-12, you see the P&L statement. So on day one you’re getting the money that the property has been able to generate for the past 20-30 years.

That is the biggest advice that I give people when they wanna first get started in investing. A lot of them come up with all these ideas. “Let’s see the foreclosure sale, let’s see this…” – look, all those can be fun and lucrative, but they are still speculative. The best thing you can do with your capital is to invest it and not use it for speculation.

Theo Hicks: That’s solid advice. Are  you ready for the Best Ever Lightning Round?

Ryan Enk: Yeah, let’s do it.

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

Break: [00:19:59].24] to [00:20:40].29]

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

Ryan Enk: Recently read…

Theo Hicks: It can be within the past few years. Recent subjective.

Ryan Enk: I’d say my best ever book – not recently read; read like 10-15 years ago was Rich Dad, Poor Dad, by Robert Kiyosaki.

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

Ryan Enk: I would syndicate multifamily apartments.

Theo Hicks: How would start over today if you had little or no capital?

Ryan Enk: Little or no capital… I always say the biggest domino is to find the deals. So if you can perfect that skill, finding deals, I would go find deals anywhere in real estate. Once you do that, with little or no capital, the money tends to follow. Now, there’s strategies to find the money, but I would focus on getting out there and finding any real estate deal and then getting started.

Theo Hicks: What is the worst deal that you’ve done?

Ryan Enk: I can tell you exactly what it is. I started playing around with different strategies, and I heard that coworking was an up-and-coming trend. Like WeWork, and whatnot. So I decided to buy this million-dollar building in the downtown area where I live, which is on a very nice street… And the downstairs wasn’t occupied. Totally speculative, again. I planned on getting the same kind of rents that you could get for a coworking facility. Well, it’s a little town with a big ego, and I had the big ego, and nobody else really understood the concept. It had a few people that understood it, but most people were interested in just regular office space. I ended up hemorrhaging about $3,000-$4,000 a month on just that one real estate deal. So that’s where the earlier advice comes in on – know the difference between investing and speculating.

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

Ryan Enk: Best ever place to reach me… Probably on Facebook.

Theo Hicks: Well, Ryan, this has been a very fascinating conversation, a very interesting journey, and also very inspiring because of all the obstacles you overcame. Just to summarize what we talked about today – you talked about right now you’re focused on helping people achieve passive income in order to replace their full-time income, their full-time jobs. The way that you do that is you don’t just have a one-size-fits-all formula, you reverse-engineer a specific strategy based on this person’s specific current situation.

Then we dove deep into your indoor sports arena, and we discussed the most important question you asked yourself was “What would you do if money didn’t matter?” You decided on investing in this indoor sports arena. We talked about some of the numbers, and how much money you paid for the deal, and the investors… But more specifically, you talked about how you were able to complete the deal without having any experience in that indoor sports arena. This advice can apply to really any real estate or business niche in general, and that is to find someone who has done it before and leverage that person’s experience when you are going out to raise capital.

Specifically, you talked about how you found your consultant through a Google search, and just reached out to a bunch of people until someone was interested. And you actually had to take a second mortgage out on your house, as well as offer equity to the consultant in order to have them come on board.

Then you talked about once you had that business plan, you still weren’t able to get investors. They still wanted to see some sort of experience from you, so  you actually went and started a business just to gain that experience in order to raise that capital.

We also talked about how in business you expect to not necessarily make money those first few years, but for this sports arena, once you actually bought the building, you were able to achieve 20%-30% returns.

Then we also quickly talked about the story behind your RV rental fleet, and how you wanted to buy a boat, your wife wanted the RV, and you didn’t want a liability, so you decided to check out a way to make money off of that, and you ended up making about $32,000 a year  by renting out the RV to other people, in kind of like an Airbnb form, and ended up turning that into a business.

Then lastly, you provided your best ever advice, which is to know the difference between speculating and investing, and that it’s great to have all these ideas of what you can do with the property, and it’s fun, and it could work out, but at the end of the day, the best course of action is to invest in deals that you will know what you’re going to be making from day one.

Again, very fascinating conversation. I learned a ton. I appreciate you coming on the show and speaking with us today. Thank you to everyone who listened to the episode. Ryan, have a best ever day, and we will talk to you soon.

Ryan Enk: Thank you. And is it okay with you if I offer your audience my book?

Theo Hicks: Yeah, absolutely. You asked a question earlier about what would you do if you had to start from scratch – I actually wrote a book called The 7-day Real Estate Survival Blueprint: How to Create $10,000 Out of Nothing in Less Than a Month. It deals with wholesaling and sandwich lease options, and it’s basically an hour-by-hour, play-by-play of what I would do in seven days to make sure I had a check at the end of the month. So if your audience is interested in picking up that book, it’s got nothing but five-star ratings on Amazon. We’ve been selling these books like crazy. A lot of people are getting a ton of value out of them.

You can get it for free if you just cover the shipping charge at cashflowdadlife.com/7.

Theo Hicks: Alright, cashflowdadlife.com/7. We’ll make sure that the website will be in the show notes.

Ryan Enk: Perfect.

Theo Hicks: Alright, thanks for coming on, Ryan. We will talk to you soon.

Ryan Enk: Thank you.

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JF951: The Big Boy Passive Approach to Investing

Accredited investor? This episode is for you! Our guest only works with accredited investors who want to inject capital into a passive machine that renders returns! Realty Shares executive will walk us through the types of opportunities they offer and who’s investing, so learn about debt raising an equity raising and turn up the volume!

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Amy Kirsch Real Estate Background:

– Director of Investor Relations at RealtyShares
– Over 10 year of financial services experience
– Worked in wealth management for Merrill Lynch, Dearborn Partners, and JP Morgan’s Private Bank
– Based in San Francisco, California
– Say hi to her at www.realtyshares.com
– Best Ever Book: Shantaram

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passive investing with Amy Kirsch

 

Joe Fairless: Best Ever listeners, welcome to the best real estate investing advice ever show. I’m Joe Fairless and this is the world’s longest-running daily real estate investing podcast. We only talk about the best advice ever, we don’t get into any fluff.

We’ve spoken to Barbara Corcoran from Shark Tank, Robert Kiyosaki, the author of Rich Dad, Poor Dad, a whole bunch of others… With us today – Amy Kirsch. How are you doing, Amy?

Amy Kirsch: I’m doing well.

Joe Fairless: Nice to have you on the show, and looking forward to getting to know you a little bit. Amy is the director of investor relations at Realty Shares. She has over 10 years of financial services experience. She worked in wealth management for Merrill Lynch, Dearborn Partners and J.P. Morgan’s private bank. Based in San Francisco… With that being said, Amy, do you wanna give the Best Ever listeners a little bit more about your background and what you’re focused on?

Amy Kirsch: Absolutely. Thank you so much for having me today, it’s great to be here with you. I had been working, as you mentioned, about a decade in wealth management, and I learned a bit more about real estate crowdfunding. I was very excited about the opportunity, got to know Realty Shares a bit more, and just was very excited about all they were offering to investors, the opportunity to invest in a whole new way, and that’s what brought me over here.

Joe Fairless: Cool! So what do you do? What’s investor relations mean?

Amy Kirsch: I work with investors pretty much all day long, answering their question, helping them to understand real estate better, helping them through both the sales and the relationship process as they go through in any investments that they have with us on the platforms.

Joe Fairless: Can you get a little bit more in detail as far as maybe what are your specific responsibilities, what are some challenges that you came across, things like that?

Amy Kirsch: We have a team of seven; as we’ve grown, our investor base has become several thousand, so as you can imagine, we have all realms of the spectrum of investors. We’re guiding them, and often times just introducing them to real estate investing, and helping them to understand what it might look like if they did purchase a piece of an investment, what the returns would look like, what the risks are inherent in this sort of investing… That would be the introductory part.

Then, over the life of the investment, keeping them updated, helping them to understand if things are going well, if they’re not going well, if they are payoffs, and keeping them informed over the life of it. So it’s really a combination of both a sales and relationship management role for me and my team, and we have probably a thousand inbound questions a week from various investors that we’re responding to, which really completely range from about the company to about a specific investment. Anything you can imagine, we’re answering it pretty much every day.

Joe Fairless: A thousand inbound questions a week.

Amy Kirsch: Oh yes, easily.

Joe Fairless: Seven people.

Amy Kirsch: Seven people, a thousand questions.

Joe Fairless: Sounds like a blog post title, right?

Amy Kirsch: [laughs] A little bit, yes.

Joe Fairless: Seven people, a thousand questions a week… Everything from guiding them as far as the pros and cons of real estate, and then also working with them and communicating with them throughout the investment. This is interesting stuff, because you basically do what I do, and I’d love to learn more because you’re doing it on a much higher volume than I’m doing.

Let’s talk about who you’re speaking to. Are they all accredited investors?

Amy Kirsch: They are. Everyone that’s on the Realty Shares platform right now is an accredited investor. We have non-accredited investors asking us questions, and we’re hoping that we’ll be able to show them an offering sometime in the near future, but for now we’re only working with accredited investors.

Joe Fairless: Okay, so they’re all accredited investors. It sounds like you’re at the front end of the deal before they sign up to fund a portion of the project or you guide them in real estate investing. Are you giving them input on the actual investment itself, or the pros and cons of investing in real estate?

Amy Kirsch: A bit of both. As I mentioned, we have people who have never invested in real estate before in the platform, so they often have more rudimentary questions… They haven’t seen a waterfall before – what will that mean for them? What does a preferred return look like? Those kinds of questions, trying to understand the sponsor a bit more and the ABCs of real estate… So we’re talking about the platform at large, and then also specific investments, helping them to understand… Honestly, we can get into “What is the difference between debt and equity?” We answer that question all the time.

Joe Fairless: So your role is both the particular investment, as well as just education in general, on real estate?

Amy Kirsch: Absolutely. It’s absolutely a combination of both, and we really take a lot of stock in making sure investors are educated. We want them to really understand what they’re investing in prior to getting into an offering.

Joe Fairless: You said one of the common questions that’s asked is “What is the difference between debt and equity?” What’s your response to that?

Amy Kirsch: Wow, you’re getting me on my toes here… [laughter] [unintelligible [00:07:03].19] like you’d see at a bank, where you’re receiving… You’re acting like the bank; you can expect an interest rate payment monthly. It looks like a balloon mortgage, where you can expect a principal after the life of the loan. So that’s how I explain debt.

On the equity side, you look more like a business owner. You’re participating in the upside or the downside participation of the property, and should things perform well, you’ll have unlimited upside. Should things go poorly, you will part-take in that as well. With that comes a lot more risk, but a lot more reward, whereas on the debt side you know exactly what the outcome is likely to be, because there is a stated interest rate and you’re not gonna earn any more than that.

Joe Fairless: Are they secured the same way with debt and equity?

Amy Kirsch: That’s a great question. The debt is secured by a first lien loan, where should something go wrong, we’re able to foreclose on the property. If our assumptions are in line, then we should be able to fully recoup all investor money. On the equity side there is no lien on the property. Our measures are a bit different in what we could do should something go wrong. We would maybe able to kick out the partnership, we may be able to take over the property… It truly depends on what the underlying property is.

Joe Fairless: Okay, it makes sense. After I did my first deal, I was talking to some people and they were like, “Did you raise debt or equity?” I was like, “Um, I just raised money. I have no idea.” [laughs] I was so stupid at the time. I had already done one deal, that shows how green I was at the time… And people like you have educated me along the way, thankfully.

Amy Kirsch: Yeah… Like I said, it’s important for investors to understand the worst-case scenarios, just as it is the best-case scenario, when people are first participating in real estate, and we encounter a lot of people like you.

Joe Fairless: What are the most common risks? I mean, sure, there is about 20 pages in a PPM that outlines some obscure risks… But what’s the most practical couple risks that could come up in a real estate investment?

Amy Kirsch: I think the risks are a bit different for the different types of products, like I mentioned before for debt… And truly, our debt holders are often a little bit less experienced than our commercial, which can be great and bad, because we have that foreclosure opportunity should something go wrong. But what would happen there is that the sponsor (or the borrower, in this case) is not able to execute, and what happens then? They’re not able to sell it for the price that we thought, so they can’t pay off the loan in full. That would be the risk there, often times.

I think almost all of the time we have personal guarantees on our debt, so if they do not return money in full, then we can pursue them personally. So I think that’s a risk – the sponsor is not able to execute. A more likely risk is that the market turns around, so the market isn’t able to deliver what we had expected.

Joe Fairless: Let’s talk about equity, going into an equity example. I really think this applies to both debt or equity, it doesn’t really matter how it’s structured. Let’s just say the borrower isn’t able to execute and perform under business plan, and let’s just say – because I know you do different asset classes – it’s a single family house. What is a common reason, based on your experience, that they’re not able to execute the business plan? What do they overlook or not account for most of the time?

Amy Kirsch: I wanna start by saying that we have done – I believe the number now is 550 deals, and in that time we’ve had under ten where we’ve had significant issues with borrowers or sponsors on any side of the fence, debt or equity. So what we’re talking about now is very rare… But to your point, the reason I think sponsors most often don’t execute is simply from inexperience. They thought costs would be X, and they ended up being Y, and they were significantly more. I’d say that that’s what most often accounts for not being able to execute, and the way that we try to avoid those sorts of situations is by our due diligence process upfront, where we account for track records and look for the kind of experience that they have in the past, both with either their current company or in the past, as well as getting to understand what their business plan is.

Joe Fairless: Yeah, thanks for putting it into perspective. I was curious about why it wasn’t working, but thanks for giving some context as far as “Hey, this isn’t happening very often.” But as I know you know, that’s just a question that comes up for all of my deals – “Hey, what are the risks here?”, so I was just curious how you discuss those.
Now, on a different path, what’s the most common reason why an investor doesn’t decide to invest with you all?

Amy Kirsch: You know, I hadn’t thought about that too much. I’d say the most common reason is because the parameters of the offerings that we have in a marketplace at that time don’t meet their investment objectives. That’s most often what — the hurdles often find upfront that we’re often able to overcome are the inexperience of the investor… So getting them to understand (as we’ve talked about earlier), educating them properly. But I’d say that’s most common – they’re looking for a 12-month offering, and we’re showing something that’s 8 years; they’re only looking for debt, we have equity…

Mostly, what we find is people take a month or two to review the platform if they don’t have any real estate experience, and then they invest after, in 30-40 days.

Joe Fairless: One thing I’ve found with investors who don’t invest is they wanna be active and not passive. They want control, they want to have their hands in it, they wanna be more involved, and I’m just not set up that way. They are passive too when they invest in your stuff, right?

Amy Kirsch: Yeah. We have heard that from investors before, but I hadn’t really thought about that as a common objective. What we find more often is that people are tired of being actively involved in the investment process. They don’t wanna manage the property, they wanna do it, so that’s why they’re coming to us. But I could see it on both sides… If they do wanna have a heavier hand in the process, we don’t offer that as well.
For pretty much everything else, if you are looking for passive investment, you can come to us and get whatever kind of offering you’re looking for.

Joe Fairless: You’ve just hired employee number eight on your team, congratulations! What do you wanna make sure that they know?

Amy Kirsch: What’s very important to us is that we went through a broker-dealer, and compliance is extremely important to us. Making sure an investment is suitable for an investor is, from day one, what we’re talking about. The second thing is getting — some of the members of my team have real estate knowledge, some don’t, so getting them up to speed on what kinds of deals we’re offering… We work very closely with the investments team, so working together with them to get a really good understanding of what we’re offering to investors – those are both imperative to being successful on the team.

And of course, being able to be patient, getting the same question over and over again. That takes a lot of… You have to be steadfast for that.

Joe Fairless: Yes, especially if you’ve got a thousand coming in per week. As far as the compliance goes, maybe I’m not thinking of it properly, but isn’t that already set up through your software, so if they come to you and your team, then they’ve already been qualified through the software?

Amy Kirsch: To a certain extent they are qualified up front; a part of it is qualification, but the other part is suitability, so making sure they’re an accredited investor is just 50% of the equation. We have investors that make very substantial investments with us – half a million, a million dollars concentrated in a deal. With that comes a lot of risk, simply because of concentration risk. So if they’re making a million dollar investment but they have 50 million dollars, we’re less concerned about that than if they are making a single one million dollar investment and they have two million dollars.

We’re really just trying to understand the objectives of the investor, and that they are properly suited for that particular offerings. That’s what we’re focused on when we’re reviewing deals or reviewing investors. It’s very important.

Joe Fairless: What would be the pros and cons when comparing investing in a crowdfunding platform like your company, versus a syndicator who has his own company, like mine? So if an investor were to come to you and be like, “You know what, Amy? I’ve got 100k and I wanna invest in one thing. I’m trying to decide between the deal that Joe’s got, where I know I can go directly to him and he is a one-company thing, versus a crowdfunding platform like yours.” What are you saying that would be a pro over what I’m offering?

Amy Kirsch: The largest pro is that we’re gonna have a more diverse set of offerings, because we’re dealing with sponsors all over the country in diverse product sets. So while a syndicator may specialize in a particular asset class or a particular geography, we’re gonna see that same thing repeated over our offerings, 20-something million dollars worth of opportunities over the course of a month, with a very diverse background of sponsors, geographies, asset classes, product classes. I think that’s a major differentiation you’ll see, and we’re being a low-fee provider… So with some of that relationship where you know the syndicator probably a little bit better, maybe you’re willing to pay a bit of a premium for that. We offer pretty low fees to our investors across other crowdfunding platforms, or one of the lowest.

Joe Fairless: And what are your fees?

Amy Kirsch: We charge 1% asset management fee across the board, and that goes to investors. On the sponsor side we charge in origination fee between 3% and 4% on equity and 2%-3% for debt.

Joe Fairless: And you don’t take any cut of the deal?

Amy Kirsch: We don’t take any cut of the deal, we take no participation fees.

Joe Fairless: So 1% asset management fee, and 3%-4% on debt that’s paid by the sponsor.

Amy Kirsch: Right.

Joe Fairless: And did you say something else? Was there another fee? Or is that it.

Amy Kirsch: Just the 1% asset management fee that’s charged to investors annually, as we provide the services… For updating you, K1’s, managing the property after the fact, after you’ve invested.

Joe Fairless: Those are very good fees.

Amy Kirsch: Yes.

Joe Fairless: What’s the plan for your company from this point forward?

Amy Kirsch: The plan is to expand what we’re currently doing. We have a lot of opportunities to grow in the various marketplaces that we’re in; I think that’s very important to us. The other thing that we’re really focused on is automation and tech. We’re a financial technology company; a lot of what we bring to the table is breaking down a business that’s pretty archaic and bringing it to the future. I think both of those things are what we’re really focused on, and we’re really excited about some of the new expertise that we’re bringing into the marketplace in 2017. Those are our two major focuses.

Joe Fairless: What is your best real estate investing advice ever?

Amy Kirsch: I would say… Let me think about this for a second. My best real estate investing advice ever is to think about your investment objectives and diversify. If you execute in that regard, I think you really have a great shot at being very successful in real estate investing.

Joe Fairless: Are you ready for the Best Ever Lightning Round?

Amy Kirsch: Oh, sure! I guess so…

Joe Fairless: [laughs] Well, we’re doing it either way, so I’m glad that you guess so. First though, a quick word from our Best Ever partners.

Break: [00:18:32].03] to [00:19:13].14]

Joe Fairless: Best ever book you’re read?

Amy Kirsch: Shantaram.

Joe Fairless: What’s that about?

Amy Kirsch: It’s about a criminal who gets lost in India. I was just there, and it was so incredible to see what he had — just kind of hiding throughout the streets of Bombay. It’s the coolest book ever and it’s based on a true story.

Joe Fairless: Shantaram… Okay, cool. Best ever personal growth experience and what did you learn from it?

Amy Kirsch: That would be moving from traditional wealth management into the fintech space. It is kind of exciting to go from the most archaic business of all time into breakthrough measures of doing everything. I’ve learned so much in the last two years… More than I have in the previous ten in the same(ish) industry.

Joe Fairless: What’s one specific thing you’ve taken away from it?

Amy Kirsch: That you don’t have to think small; there doesn’t need to be so many levels of red tape, and if you’re working with the right people, you can get a lot accomplished in a short period of time. You don’t have to do things the way they always have been done just because that’s what people say needs to happen.

Joe Fairless: Are you an investor? Do you invest in real estate, too?

Amy Kirsch: I do… I own property, but we’re limited from doing it on the Realty Shares platform.

Joe Fairless: Oh, of course. [unintelligible [00:20:26].10] Well, best ever deal you’ve done personally on a real estate front?

Amy Kirsch: I have flipped out of apartments in Chicago, and I think that’s because that’s where I’ve lived, and I’ve been successful in that regard.

Joe Fairless: Best ever way you like to give back?

Amy Kirsch: Part of the reason that I was in India was that I’m involved with a national philanthropic organization that gives money all over the world to help people recognize that they can be successful. This particular group gave money to women in India to help them be independent, so that their kids could go to school. It’s called the Gabriel Project and I’m really happy to be associated with it. It’s just doing wonderful things for empowering women in a very impoverished area.

Joe Fairless: Thinking about some of the deals that you’ve personally done, what’s been a mistake you’ve made on a particular deal?

Amy Kirsch: I think one of the things I’ve learned is to not be too emotional. This goes to investing in general, but very particularly with real estate. You can get too involved, hold on too long… Something I’ve learned over time is to try to be less emotional when it comes to any kind of investing. I was investing in the markets in 2008 – not in real estate – and then found that some of my clients as well were making decisions because they couldn’t see through the trees… I think that’s good to overall investment advice.

Joe Fairless: Where can the Best Ever listeners learn more and get in touch with you?

Amy Kirsch: They can come to RealtyShares.com, or e-mail us at invest@realtyshares.com. We answer a thousand questions a week, so we’d be happy to answer a couple hundred more.

Joe Fairless: [laughs] Pile them on, baby! Well, Amy, thanks for spending some time with us talking about your role and the challenges you come across, as well as your responsibilities, from you and your team — what were you gonna say?

Amy Kirsch: I just wanna say thank you so much! It’s so exciting to talk to others in the similar space, and it’s just great to be here!

Joe Fairless: Yeah, especially with your particular role… It fascinates me, because I’m doing similar things to what you’re doing, but not on your volume – by no means am I doing the volume of a thousand inbound questions/week; that’s insanity. But because you’re doing the volume, it’s interesting to hear the varying degrees of questions, from what is a waterfall and preferred return, to the difference between debt and equity, all the way to the risk associated to it, and maybe more sophisticated things like “How is my money secured if this scenario does happen?” and you talk through all that… As well as your focus on compliance when you hire a new team member, and just getting them up to speed on the business model and the different opportunities.

Thanks for being on the show. I hope you have a best ever day, and we’ll talk to you soon!

Amy Kirsch: Thanks so much, Joe.

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JF947: You’ll Lose MILLIONS If You Don’t Understand These Tax Principals

The IRS is merciless, and if you don’t understand how real estate investments and the tax laws work together, you could be at a loss. Focus on understanding self-directed IRA’s and the entities you use in the purchase and sale, and don’t just rely on a cheap custodian to help you. This is a great episode!

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John Hyre Real Estate Background:

– Tax attorney, accountant and real estate investor
– 19 years of experience as a tax attorney/accountant and 14 years of experience as a real estate investor
– Investor in low income rentals and small mobile home parks
– 95% of his clients are real estate investors
– Prior to owning his company, he worked for two of the Big Five accounting firms and for several Fortune 500 companies
– Based in Columbus, Ohio
– Say hi to him at http://www.realestatetaxlaw.com
– Best Ever Book: Grit by Angela Duckwork

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tax principals with John Hyre

 

Joe Fairless: Best Ever listeners, welcome to the best real estate investing advice ever show. I’m Joe Fairless, and this is the world’s longest-running daily real estate investing. We only talk about the best advice ever, we don’t get into any of that fluff.

With us today, a tax attorney, an accountant and a real estate investor, John Hyre. How are you doing, John?

John Hyre: Very good, thank you much!

Joe Fairless: Nice to have you on the show, my friend. John has 19 years of experience as a tax attorney/accountant and 14 years of experience as a real estate investor. He’s an investor in low-income rentals and small mobile home parks, based in Columbus, Ohio. With that being said, John, do you wanna give the best ever listeners a little bit more about your background and your focus?

John Hyre: Sure. My focus is making sure you keep it, because you earned it. Most of my practice is tax-oriented, it’s mostly real estate investors, small businesses and self-directed IRA investors. I do the attorney part now, I refer the CPA work, meaning the tax returns and the bookkeeping out.

I also invest on the side, just sort of building a little bit of wealth on the side, mostly high cash flow, low income, which is a whole separate podcast and story onto itself. Those are the basics.

The client base is nationwide, and I’ve been at it for a little while now.

Joe Fairless: What’s the typical client hire you for?

John Hyre: That’s a hard one to break down…

Joe Fairless: Top three categories for why they hire you.

John Hyre: The top three categories… I’ll tell you, the self-directive IRAs, the self-directed 401k practice is absolutely exploded over the last three years. I won two tax court cases and word kind of got out there on that. So I do a lot of that work, and a lot of people call in and say “Look at my whole structure, top to bottom.” Entities, books, taxes, everything. And usually we figure out a fixed fee and then I save them a ton of money.

Finally, a very specific question – someone might call in with a very specific, very pointed question, which I will of course keep the discussion to the parameters that they define. I would say those top three define it.

Joe Fairless: What do people hire you for with self-directed IRAs and 401k’s? Because I’m under the impression – but obviously, it sounds like I’m wrong – that you can just go to a custodian, like iPlan or Pensco or something, and then they’ll handle everything for you.

John Hyre: They don’t handle everything. They won’t do planning advice or structuring, or at least they’re not supposed to. If you read their paperwork, it says they don’t do it, and if they do it’s not their fault if it’s messed up. A lot of the people you talk to on the phone there, while they mean well, are also salespeople and also just don’t have the expertise.

I get a lot of referrals from those custodians that send me people. For example, people will ask “We wanna setup a checkbook LLC. Can we lend money to our uncle? Can we invest in such and such project? How do we avoid prohibited transactions?” Those are a lot of the questions that I get, and I’d say about 70% of my referrals come straight from straight from the custodians, questions they really don’t wanna answer.

Joe Fairless: You won two tax court cases… What was the case about, if you can talk about it?

John Hyre: I’ve actually won more than one, and by winning, we didn’t go to trial. The IRS decided instead of going to trial, they would just tell my client they no longer owed them any money, and could we just call it even and walk away… Which I consider a bigger victory than going to trial, because you avoid the expense. The two cases are specifically self-directed IRA cases.
The first time we had a guy that was a rehabber mostly, with his IRA, and he had done some things in there that were questionable; they were grey, but we convinced the IRS that “No, that’s okay.”

I’ll give you an example… His IRA ran out of money on a rehab, so he put some of his own personal money in there, which is usually a no-no, but we managed to show the IRS some rulings and some case law that indicated, “You know, we have a fighting chance. Do you really wanna go to court with this?” so they decided to back off.

The second guy had a very large Roth IRA and did a lot of investing. We’re talking rentals, buy and sell, lending, a private equity investment… He did all sorts of things, so there was a lot for them to look at. We spent a lot more time on that one because of the number of transactions. We went through a lot of different things, but ended up in the same position. It was kind of like the Obi Wan Kenobi moment, “These are not the droids you’re looking for.” “These are not the droids we’re looking for” – they agreed with that, and so ultimately we got a very happy ending. There was a half a million in taxes at stake, and we got him out for — I think my fee on that one was in the very low five-figure. He was extremely pleased.

Joe Fairless: Just so I’m clear on that second one… It was the same issue that was being discussed, mixing personal money with IRA money?

John Hyre: That one had a multiplicity of issues. For example, he had a trust that the IRA invested into, that he controlled the trust through a friend who was the trustee, so the IRA was arguing the trust was illegitimate, they argued that you can’t have a friend act as a trustee, which – yes you can, as long as it’s done correctly… They also tried to argue that certain transactions were illegitimate based on the details. Those I won’t go into. Bottom line is we persuaded them that they were wrong.

It took a while. The auditor didn’t wanna listen, the appeals people, who are usually pretty good, didn’t really understand IRAs, which is normal, so we didn’t really get any traction until we talked to the lawyers. I do audit and tax court representation all over the country, but what we do is we bring the cases here to Ohio, we have the trial in Columbus, and the attorneys are actually out of your hometown, Cincinnati. So I know who they are; they come up here, and I’m used to dealing with them. Actually, I have to say, they’re pretty reasonable, the IRS lawyers. They can be aggressive, but they’re pretty reasonable.

The client was in Florida, and ultimately we went through the transactions one at a time until they decided “This really isn’t a good case for us, never mind.”

Joe Fairless: Does that mean that we can mix our own personal money with a self-directed IRA and be okay?

John Hyre: You can, I don’t recommend it. If it’s done, it has to be done in a very specific way. It creates complexity and it creates subtle traps, which is why I recommend people, if they can, just not go there. Keep your IRA and personal investments separate. That’s ideal. With that said, can they be mixed if it’s done in a certain way? Yes. Typically, either an undivided interest, especially if we’re dealing with a note, so maybe the IRA lends 70k, I lend 30k, and it’s 100k total.

I’m oversimplifying… There are some tricks and traps in there that we have to watch for. The biggest one is we have to prove that we did not need the IRA money to enter into a personal deal. You can never use an IRA as assets or income to benefit yourself personally, no matter how small or indirect that benefit. So if you needed the IRA to get into the deal, for example, that would be an example of using the IRA to benefit you, so the first thing we do is try and create a record that “Hey, I could’ve done this deal myself. The reason I brought my IRA in was not because I needed it – I have other sources of money – but because it was a good deal for the IRA.” That’s one example.

Sometimes we’ll do joint investment of personal and IRA money through an LLC. Really, it just depends on the nature of the investment and how much time we’re gonna be in the investment and how much liability there is. For example, I’m more inclined to use an LLC where low-income rentals are concerned, because those are high-liability items. But if there’s a loan, lending money is not really high liability. People don’t tend to trip and fall on notes, so usually just a cheaper joint investment, the same way you might invest in a house as tenants in common is a cheaper, more efficient way to do things. Because we don’t wanna overcomplicate or over-bill the client if it can be avoided.

Joe Fairless: What are some issues that you see your clients or prospective clients have from a tax attorney standpoint that can be avoided?

John Hyre: Tons. That’s two or three podcasts right there.

Joe Fairless: You’re booking me up for the month right now.

John Hyre: Yeah, we’ll fill you up. Let’s see here… In terms of IRAs, it’s not getting help ahead of time, listening to the custodians and being cheap and thinking that you know it. The IRA rules are complicated, and the penalty for the IRA for screwing up is death. The IRA dies if you commit a prohibited transaction; that can be horribly expensive. So usually, even if you do some research, get a little bit of help; get an attorney, talk to them about what you can and cannot do. Put some time in up front.

With general taxes, I would say the biggest issue by far that clients have is horrible record-keeping. They’re entitled to deductions, but they never back it up. They never do what they have to do to make it legit in the eyes of the IRS to be able to prove it. I happen to be married, and I can tell you there’s a big difference between being right and being able to prove to your spouse that you’re right. That second step is where investors mess up. They don’t do what it takes to prove to the IRS that they’re right. Scanning receipts, keeping a good set of books, especially for QuickBooks… And it’s normal; entrepreneurs are normally gunfighter/cowboy/can-smell-a-deal-a-mile-away, and they’ll do the bookkeeping work maniana. And maniana becomes maniana-maniana-maniana, and there’s the issue.

Joe Fairless: I’d love to learn a little bit more about the proving — well, I wrote my notes “Prove to your spouse that you’re right…” [laughs] The intention behind that, which is make sure that we can prove to the IRS that we are right and that we have accurate books… You mentioned scanning receipts and having a good set of books. Let’s say we hire a bookkeeper; he or she is taking a look at our credit card transactions, our bank accounts, and putting them in a spreadsheet. So we have that allocated. What do we need to do with the receipts? And do we need receipts at all if we have them in the credit card statement?

John Hyre: You do need the receipts. In fact, because the IRS has had its budget cut and audit rates are down, they’re getting sneakier and trickier. They’re sending out letters that say “Show me February and May receipts for this business.” And then let’s say you’re missing 60% of them, they just allow 60% of all your expenses on the return. You need to have receipts. The best way to keep them – scan them.

What we do is we pay our children to do it. There’s a tax angle in paying your kids. You get a tax deduction; your kids almost certainly will not pay any tax on the income, because their standard deduction is bigger than what you’re paying them, and if you pay them through not a corporation, so any entity, but something that’s taxed as a corporation… If you pay them through not a corporation and they’re under 18, they also don’t pay social security tax. So you’ve shifted money within the family. You still have indirect control of the money through the kids, you’ve gotten a tax deduction… Once they scan your receipts, save them in three or four different places, and name them by the date. I name my receipts – today would be 030117A, 030117B. I don’t even put what it was for, because I will never look at them again unless I get audited, but I can find them by date. If I get audited, I’m gonna show my QuickBooks to the IRS, and they’re gonna say “Show me February receipts for car expenses”, and I can just pull all the receipts for that month and have a VA or somebody go through the receipts and figure out which ones were for cars, and hand them over to the IRS.

Joe Fairless: Do you use a particular app for that?

John Hyre: I don’t. I probably should, and I suspect that kids are out of the picture… The cheap, easy labor of those kids are my app. I don’t even know what app they use to scan things, frankly. They deal with it. So once I don’t have the kids around, I will probably have to discover one of the better apps. I know there are a ton of them out there. Same thing for tracking mileage. There are a ton of apps that will doing if people would just take the time and implement it.

So once you’ve got the receipts, ideally you keep things in QuickBooks; I’d prefer that to a spreadsheet – it’s a lot better record keeping system. As long as the receipts tie to the QuickBooks that tie to the banks statements – man, that’s gonna be a short audit.

Just last year I had my shortest, cheapest audit ever. I charged a guy $1,300 to do the audit and it made me sick to charge that little. But he had a flipping business — more really an assignment business on the side… So he had a day job, he had a side business on schedule C; he was an engineer, he listened well to directions, he took directions well and he was detail-oriented. That audit lasted about 15 minutes of me showing the IRS agent the receipts, and about an hour and forty-five minutes of me flirting with her and passing the time.

Joe Fairless: [laughs] Let’s say you get the letter that states “We need to see your receipts for February and May” and you don’t have the physical receipts. Have you heard of a case where the IRS is “Well, really? Then how about you show me for the rest of the year, too?”

John Hyre: Absolutely. The whole point of those audits is to see if they’ve got an easy target. The faster and the clearer you respond to that letter, the more likely they are to be done and gone. So first rule with the IRS is “Never lie.” The second rule is “Don’t answer questions that were not asked.” The third rule is “Don’t let the audit metastasize”, and that is precisely what you described, how an IRS will metastasize. They smell blood, they spot weakness, they expand the audit.
Joe Fairless: What was the second rule?

John Hyre: Don’t ever answer a question that wasn’t asked. People do that all the time, that’s why we don’t like clients talk to the IRS. They wanna talk and show the good faith and how innocent and wonderful they are, and the IRS agent shuts his mouth and listens, and gets a lot more information than you want. When they ask a question, no matter how stupid or irrelevant you think the question is, you answer the literal question, with the truth, nothing more, nothing less. You don’t expand.

Joe Fairless: Alright, let’s switch gears to your investing in low-income rentals. What’s the last low-income rental you purchased?

John Hyre: It’s not really a rental… I got one I’m about to flip. The last low-income rental – I bought one if my 401k back in May. I am so busy with the practice I’m not out actively looking, but some of my clients are wholesalers and they bring me things. A wholesaler brought me a low-income rental here in Columbus… It’s not a war zone, but it’s not a beautiful area either… But this was a great deal.

It was 15k. I think he made 5k on it. The lady had been in there for 12 years, the rent is 620/month; it needs about 10k to rehab, but not today. I’ve had this thing now for almost a year, and we’re now getting ready to replace the roof with about how half of my net cash flow.

It’s been a great property. The only real quirk with the property is the tenant has been there so long, she’s hard to train. I have a property manager, because when you have something in an IRA or 401k you don’t wanna run it yourself; there are tax problems with that. You really need to have an outside manager.
For her, the manager needs to show up on the third Thursday of the month, and text her on the third Wednesday of the month. She gets her government check the third Wednesday. You have 24 hours, and she will pay you in cash. If you wait 48 hours, that money will be gone. So you have to show up and pick it up from her. She’s incapable of writing a check. That’s the only real quirk. But if you do the numbers, it’s a sweet deal, and it’s perfect in my 401k. I don’t pay tax on it, I’ll continue to reinvest the money.

Joe Fairless: And you’re using the money from the rental to improve the property? Is your goal to sell it in a certain amount of time, or is this a long time hold?

John Hyre: This is a cash flow property. I could sell it right now in this market for probably 30-35. Maybe if I had a California or a foreign investor maybe 40. It’s funny, I tell my California investors “Be careful, don’t tell people you’re from California, because if they hear that, they charge you more, and you pay.” But no, I’m gonna hold that for the cash flow. I am cash flowing about 5k/year on that property, which if you figure I had 15 in it, that’s great.

For the first four years I’m gonna reinvest about 2,500/year into updating the property. For example, the roof really needs replace. It’s still functional, it’s not leaking, but I can tell it’s gonna go, and I’d rather just deal with it now. Plus, keep her in there. If she’s been in there 12 years, le’s make the place a little nicer. It’s a swell return.

Joe Fairless: Based on your background as a tax attorney, is there a particular reason why you choose to do fix and flips, or low-income rentals versus other opportunities?

John Hyre: You know, some of it is based on the tax law, but some of it — it’s a long story how I got into it. Bottom line is I bought a book called Deals On Wheels by Lonnie Scruggs, almost 20 years ago. And to experiment, I started buying mobile homes really cheap and turning around and selling them on payments, and I got to know the low-income way of doing things. It was a hard lesson… I used to be a really nice person, and dealing with low-income tenants will fix that problem quick.

I learned you have to be really firm, you have to be careful with those guys… But I love the cash flow. I love the cash flow – that’s the real reason I do it. One of these days I may look at other types of rentals, but as long as I can find decent management — because I have learned I don’t wanna manage that. I will probably get arrested if I manage for too long, and they’ll find bodies everywhere. “Who’s the tax attorney that took [unintelligible [00:19:41].13] the water tower in this low income neighborhood?” “Oh, that was Hyre.” So we can’t have that. We make sure that other people manage them for me.

Joe Fairless: [laughs] The number one challenge, at least from what I’ve heard, with low-income rentals is the maintenance and the high tenant turnover. Have you experienced challenged in either of those areas?

John Hyre: Definitely. We’ve gotten better at picking tenants. Now, I’m if Hispanic background. I grew up speaking Spanish, my wife’s from South America, so we do like dealing a lot with immigrant tenants, especially of Latin background. Politically incorrect as it is to say it, the first generation comes here to work, the second generation – not so much. So we really like first-generation… They’re gonna bust their butts, and if you take care of them, by and large they’re gonna take care of you. I do find you get a better result when a woman is present. If it’s all guys, that’s really hard on the property.

You’ve gotta get a feel for their job history and background, are the kids in the local schools…? How itinerant are they? Because they can be very itinerant, but if you take care of them, it’s a good property, they tend to stay, they tend to be very good about referrals… You have to be careful with in particular Latino immigrants. They fix the property up for you — and put that all in quotes, “they fix it up for you”… They think it’s nicer and they think they fixed it up, and you look at it and think, “Oh dear lord, I’m gonna have to tear that down and just start from scratch on whatever it is they did.”

They have a different way of looking at saving money, and they really believe they’re saving you money. And based on my experience overseas, living in Chile, for example, that may work there. That approach just doesn’t work here. You really have to control what they do with the property, drive by it periodically, make sure that half their extended family isn’t living there.

Joe Fairless: John, what’s your best real estate investing advice ever?

John Hyre: Tax-free investing. Don’t pay taxes. Do it through an IRA, an HSA, a [unintelligible [00:21:35].09]  savings account, a 401k… There are not deductions that are bigger, and we’ve gotten a reprieve. There was a bill in Congress – in the Senate, specifically – that showed the Democrats game plan for taking apart IRAs. They don’t like Roth’s in particular. And seeing those, how they figured they’re gonna win and they laid out their game plan – everybody was of course surprised by the result – we’ve gotten a reprieve, and we have some time to use this technique and this device before Congress decides it’s losing too much money. It would be lunacy to pass it up.
And I walk the walk. I invest in my properties whenever I can through one of those devices. I don’t wanna pay the tax.

Joe Fairless: With the 1031 exchange you can continue to defer the gains until you die. Help me clarify something… Whoever picks up your property after you die – it can continue to be up until what… Is it 13 million dollars in there…?

John Hyre: We’re mixing taxes, and it’s easy to do. On the income tax side, if you 1031 till you die, which I think is a great strategy, your kids inherit property – or whoever it is that you have inheriting – and you get what’s called “the basis step up”. So let’s say you bought it for 100k, depreciated it like crazy for 28 years or more down to zero. They inherit it, and let’s say when they inherit it it’s work 300. The day they inherit, they have a basis of 300. They can sell it that day and not pay income tax. So that’s the income tax side.

Then what you’re talking about is the estate tax. You can have up to 11 million in your estate with no planning. This is assuming you’re married – otherwise it’s about five and a half million. You can have 11 million with a little bit of planning in your marital estate and not pay estate tax – which is very high. Estate tax is up there around 50%, so you don’t wanna pay any.
Once you get past that 11 million, you need to do some planning in order to not pay estate tax on the remainder.

Joe Fairless: Thank you for clarifying. Are you ready for the Best Ever Lightning Round?

John Hyre: Hit me!

Joe Fairless: Alright, first a quick word from our Best Ever partners.

Break: [00:23:44].12] to [00:24:26].07]

Joe Fairless: Best ever book you’ve read?

John Hyre: Let me think a minute. Best ever book I’ve read? I read so much that I’m starting to smoke through the ears. The best most recent book I’ve read, the one that comes to mind – there’s a book called Grit, and it is about persistence and toughness and just pushing through. That was a brilliant book.

Joe Fairless: Best ever deal you’ve done?

John Hyre: Probably that little rental I’ve just described. I really like that deal. I’ve done stuff that’s close to that, but not quite that cheap.

Joe Fairless: What’s the best ever way you like to give back?

John Hyre: Two things: volunteering as a debate coach. I coach kids debate; I teach verbal violence, and it’s just fun to see the light come on and the confidence in their eyes. Second, there’s a school here in Columbus, St. Charles School For Boys that we like to give to. I plan ultimately on funding a scholarship; they’re a wonderful school, they change lives.

Joe Fairless: What’s the biggest mistake you’ve made on a deal?

John Hyre: Partners. I’ve almost never bought a bad deal, but I’ve gotten involved with bad partners, I didn’t do my due diligence. In one case I didn’t do the due diligence on the spouse, and it turns out that she was two scoop-fulls of crazy, and it caused a lot of problems, big time. It cost me way more money than they property ever could have.

Joe Fairless: I enjoyed the two scoop-fulls of crazy. I haven’t heard of that, I have a good visualization, so thank you for the metaphor. How do you qualify partners and partner’s spouses now for future stuff?

John Hyre: I don’t partner anymore. I don’t have the need to do so, and for now I don’t. If I were to qualify them, I suppose I would do more due diligence, asking around, looking at history, ask for credit record… This one would have been pretty hard to spot. In hindsight, the only way I could have spotted her condition was talk to enough people who dealt with her, because what’s funny is after the feces hit the rotating blade device, a number of people came up and said, “Oh yeah, she’s nuts!” I just wish I would have talked to those people, but it’s the only way I think I could have discovered it, because she was kind of like high-functional crazy. It’s not like I came home and there’s a rabbit’s head boiling on a pot of water on the stove… You really had to dig to figure her out.

Joe Fairless: What’s the best place the Best Ever listeners can get in touch with you, John?

John Hyre: Two places that go to the same website: iralawyer.com or realestatetaxlaw.com. It’s a primitive little website – I’m so busy I haven’t had time to make it nice. One of these days I will.

Joe Fairless: Well, we will have that link in the show notes page. John, thank you for being on this show, thanks for talking through the tax issues and challenges that investors will come across… Keep our receipts, and also the three rules for dealing with an IRS audit – number one, “Don’t lie”, number two, “Don’t ever answer a question that wasn’t asked” and number three, “Don’t let the audit metastasize”, so don’t let it snowball into something; immediately address it.

And the 15k flip, flip/hold that you’re doing, where you’re getting $620/month in rent; it’s worth about 30k, so it’s really not about the money you’re making on the sale, it’s more about the cash flow, and why you invest in low-income producing properties. Thanks so much for being on the show, I hope you have a best ever day, and we’ll talk to you soon.

John Hyre: Take care!

 

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JF293: Why the Most Important Return on Your Investment is Your Return on TIME

Today’s Best Ever guest is probably going to run a marathon after today’s conversation, but listen up while we have him because we discuss some fascinating loans that he has used to buy properties, and how to use equity to make sure you have NO liability. We also discuss how important your ROT (return on time) truly is.

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Keith Weinhold’s real estate background:

–          Founder of Get Rich Education focused on passive real estate investing

–          Passive real estate investor

–          Based out of Anchorage, Alaska

–          Bought a four-plex and lived in one unit rented out the others

–          Listen to his podcast at Get Rich Education

–          Regularly does running and cross country skiing marathons

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JF111: The 10 Rules of Successful Real Estate Investing

Just what the title says, my friend. Today’s Best Ever guest shares with you the 10 Rules of Successful Real Estate Investing. What? You just wanted ONE piece of advice? Sorry Charlie. You get 10 golden nuggets in this episode!

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Marco Santarelli’s real estate background:

–        Founder of Norada Real Estate Investments, a nationwide of turnkey property rentals

–        Started business in 2004 and is based in South Orange County, California

–        Been investing in real estate for over 20 years

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JF55: Creative Alternative to Just Renting Your House

Today’s Best Ever guest had a problem. She could sell her house so she was forced to turn it into a rental. But instead of simply renting it she did a lease with option to purchase. Listen to hear how that turned out…

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Holly Williams’s real estate background:

–        Successfully done a lease with purchase option contract (that turned out really well for her)

–        Creatively financed Manhattan apartment

–        Passive investor in tax liens and multifamily syndication

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JF 54: Pros and Cons of Passive and Active Investing

Today’s Best Ever guest shares with you what he has learned from actively investing in real estate and comparing that to passive investing in another investor’s deal.

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Pedro Duquesne’s real estate background:

–        Passive investor in a large multifamily syndication

–        Active investor in a 6-unit multifamily building

–        Still working his fulltime job in the fashion industry while doing real estate investing

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JF47: Follow the Well Worn Path to Success

Learning the ropes from those who have successfully done it before is a proven success model. Today’s Best Ever guest speaks about that and shares with us details on how successful deals he has done.

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Jeff Greenberg’s real estate background:

–        Managing Partner of Synergetic Investment Group

–        Invested in over 700 multifamily both as an active and passive investor

–        Runs three REI clubs in California

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Best Ever Show Real Estate Advice

JF46: Discover the Two Keys to Successful Passive Investing

Let the other person do the work. Today’s Best Ever guest shares his secrets on how he has become a full-time passive income investor. He lets other people put the deals together and he brings the money to participate. He has to be very selective with whom he invests and he shares his tips on how to pick the right person.

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Jeremy Roll’s real estate background:

–        Investor in 50 different opportunities worth over $350MM

–        Focused on being a full-time passive cash flow investor

–        President of Roll Investment Group

–        Over 12 years experience investing

Subscribe in iTunes and Stitcher so you don’t miss an episode!

Sponsored by: Door Devil – visit http://www.doordevil.comand enter “bestever” to get an exclusive 20% discount on your purchase.

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Best Ever Show Real Estate Advice

JF40: Love is in the Air

Meet the real estate matchmaker. Today’s Best Ever guest shares with us her approach to investing and the unique way she makes money with real estate investing.

Ali Boone real estate background:

–        Founder of Hipster Investments (http://hipsterinvestments.com/)

–        When she started she bought 5 properties in a year and a half

–        Focused on matching investors with buying opportunities

 Subscribe in iTunes and Stitcher so you don’t miss an episode!

 

Sponsored by: Door Devil – visit http://www.doordevil.comand enter “bestever” to get an exclusive 20% discount on your purchase.

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JF32: How to Collect the Most on an Insurance Claim

You’re standing in 4 feet of water. What’s your next step to getting the problem fixed and reimbursed for the damages? Today’s Best Ever guest is a public adjuster who represents property owners when they file insurance claims. Tune in to listen to his Best Real Estate Investing Advice Ever! Les Weitman’s real estate background: –        Works as a public adjuster representing property owners who file insurance claims –        Became a real estate agent at age of 18 –         Host of popular real estate investing podcast called Life on PIRE Subscribe in iTunes and Stitcher so you don’t miss an episode!   Sponsored by: Door Devil – visit www.doordevil.comand enter “bestever” to get an exclusive 20% discount on your purchase. 

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Joe Fairless Best Ever Real Estate Investing Advice banner

JF32: How to Collect the Most on an Insurance Claim

You’re standing in 4 feet of water. What’s your next step to getting the problem fixed and reimbursed for the damages? Today’s Best Ever guest is a public adjuster who represents property owners when they file insurance claims.

Tune in to listen to his Best Real Estate Investing Advice Ever!

Les Weitman’s real estate background:

– Works as a public adjuster representing property owners who file insurance claims

– Became a real estate agent at age of 18

– Host of popular real estate investing podcast called Life on PIRE

Subscribe in iTunes and Stitcher so you don’t miss an episode!

Sponsored by: Door Devil – visit www.doordevil.com d enter “bestever” to get an exclusive 20% discount on your purchase.

Follow Me:  
FacebooktwitterlinkedinrssyoutubeinstagramFacebooktwitterlinkedinrssyoutubeinstagram


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