JF2323: A Little Push Into a New Journey With Ragan Mckinney

Ragan Mckinney started her own brokerage in 2019 and for the year was named The Southern Ohio Association of Realtors “Top Sales Team”. Along with being recognized for having the most sales as a team, Ragan McKinney Real Estate was also awarded the Platinum award for the fourth year in a row. In the past 5 years, Ragan has been involved in over 600 real estate transactions and is focused on growing her business and becoming the local one-stop spot to service anyone’s real estate needs. 

Ragan Mckinney Real Estate Background:

  • Full-time real estate investor and broker 
  • Has been investing for over 20 years
  • Portfolio consist of 19 rentals, 1 vacation rental, and has flipped 11 properties a year 
  • Based in Hamersville, OH
  • Say hi to her at www.raganmckinney.com 

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Best Ever Tweet:

“Don’t fix them as if you’re going to live in them forever” – Ragan Mckinney


TRANSCRIPTION

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

Ragan McKinney: I’m good. How are you?

Joe Fairless: Well, I’m doing well, and I’m glad to hear that you’re good. A little bit about Ragan. She’s a full-time real estate investor and broker. She’s been investing for over 20 years, has a portfolio of 19 rentals, one vacation rental, and has flipped 11 properties, based in Hamersville, Ohio. With that being said, Ragan, you want to give the Best Ever listeners a little bit more about your background and your current focus?

Ragan McKinney: Sure. So I basically started when I was 20. My grandparents, they flipped houses before it was popular on HGTV and everybody was doing it, so I picked up a knack for it from them. I’ve always been self-employed, I come from a self-employed family, so that was a source of my potential retirement… And I just grew to love it. So spending Friday nights at Lowe’s or Home Depot, picking out tile and things like that has turned into a full-time gig over the last 20 years. I flip about 11 a year, and I did many more than that over the last 20 years… But basically got started from  – my grandparents who taught me how to do it, and I’ve just grown it from there.

Joe Fairless: So you at first started doing what, and then how has your investing approach evolved since then?

Ragan McKinney: So when I was 20, getting ready to get married, I wanted to go buy the standard house in a subdivision, with the white picket fence, that’s already ready… My grandparents steered me into a different direction, pulled up into a property; it looks like it should be a haunted house. The grass was four feet tall. And basically, they persuaded me to buy that. So we did.

We did all the work ourselves on that one, and lived there two and a half years, and flipped it and made 42,000. Basically that’s where I got my taste, applied that 42,000 to my next property, and I’ve just continued to do that with the home I live in, all the way up through. We’ve lived in six different houses since, and then and then started adding additional properties, doing the same thing. That’s probably one of the better investments I made. It was a nice profit on the very first one to get my feet wet. They’re not all that lucrative, but I’ve done better and worse.

Joe Fairless: Wow. Yeah, right out of the gate. After two years, 42k. What did you learn from that first deal, from a renovations standpoint? …if you can recall; I know it’s been 20 years.

Ragan McKinney: I do remember. So it’s “Don’t fix them all as if you’re going to live in them forever.” I still struggle with that, trying to go in and pick things not the best/highest dollar, versus picking out what I like.

Joe Fairless: What are some specific examples of that? Just to bring it to light a little bit.

Ragan McKinney: Everything from flooring, to adding details. Right now the modern farmhouse is in, so I tend to steer towards shiplap. I like the nicer countertops when we get into courts and things like that, but we can go with a lower grade granite. In the market that I’m in, the buyers don’t necessarily care as much about what type of granite or, whether it’s quartz or solid surface; they just care that it’s new and that it’s not Formica. So for me, I go in and tend to have — my dad would have always said, “Champagne taste on a beer budget.” So I’ve always went in and tried to pick out the nicer things, and things that I think I would like, and that at the end of the day for the bottom dollar isn’t profitable.

Joe Fairless: What’s the next step up from Formica that you can get by with?

Ragan McKinney: Probably a Grade C granite.

Joe Fairless: Grade C granite. And about what’s the price difference?

Ragan McKinney: Now things are starting to change, because some of the Formica is fantastic. Probably a couple of thousand dollars to go from picking the Formica to the granite. Now, where I really see the difference is when I go into the showroom and I start picking out countertops, for example, I’m gravitating to what I like first, which typically tends to be a Grade A. Now you’re talking several thousand dollars difference. And there’s just not a big enough return in selecting the higher grade versus the lower grade. So it’s not necessarily just a difference in Formica to granite, but coming down to what the dollar amount is and knowing how much more return I can get on a specific property based off of the countertops.

Joe Fairless: So what grade do you go with?

Ragan McKinney: Typically it’s C.

Joe Fairless: And the price difference is – you said a couple of thousand?

Ragan McKinney: No, that would be from Formica to granite. From maybe C to A you’re talking anywhere from eight to 12,000, depending on how many feet you need.

Joe Fairless: Yeah, how much you’re buying. Got it. Significant difference.

Ragan McKinney: Yeah, it’s a big difference especially when it’s coming out of your net dollar.

Joe Fairless: Approximately how many deals does it take to really settle in on “Okay, this is what the market will bear. And that I shouldn’t go over; this is right at where I need to be. So I need to be at grade C granite, versus something nicer, or something worse.”

Ragan McKinney: So you’re asking how many deals you need to do to figure that out?

Joe Fairless: Yeah.

Ragan McKinney: An honest answer to that is I think there are lots of people out there that are willing to help and lend advice. So if you’re working with a realtor, take that advice. That would lower your number. I’m a slow learner when it comes to that, because it’s been my way, but I would say it took me four or five years to figure out, “Okay, I’m not going to live in this property. This is just as nice, and it’s going to put more money in my pocket at the end of the deal if I choose this.” So I don’t know that for me it’s the number of deals, but more surrounding yourself with good contractors and with a good GC, or general contractor that’s going to help guide you and kind of… I always say he checks me on, “Hey, Ragan, you don’t really need to do this.” Because we know when we buy a property and then we go in and walk through, we know what it’s going to take. And we do allow for some areas, and if you get into something unexpected, we kind of pad it for that. They always say I tend to spend my budget in the tile shop and on the flooring store. [laughter]

Joe Fairless: So the first deal you mentioned, you killed it. And then you said, “Oh, but some have been better and some of them worse.” So let’s talk about those extremes. Let’s talk about the deal that you’ve lost the most amount of money on; tell us about it.

Ragan McKinney: Buying sight unseen. I eat, sleep, and breathe real estate, so if I’m not selling it professionally, then I’m looking online for a deal or an auction, or I’m going to the Sheriff’s Sales. So the one that I would say I got burnt on or lesson learned would be one that I purchased unseen. The first time we walked through, it didn’t look terrible, but when we started pulling away the drywall, lots of molds and rotten [unintelligible [00:09:44].17] It was basically a rebuild and I joke that I paid the people to buy that house. So it was definitely a loss – probably $18,000 in the red, without having that file right in front of me.

Joe Fairless: You paid people to tear down…

Ragan McKinney: No, it was — basically, that was my loss.

Joe Fairless: Okay. $18,000, you said?

Ragan McKinney: Mm-hmm.

Joe Fairless: In the grand scheme of things, in two decades, an $18,000 loss… Bravo to you. That’s pretty good, right?

Ragan McKinney: I don’t know. Like I said, my grandparents and then even my parents — I just feel like I’ve been super fortunate in being guided in the right direction… Whether it’s been houses or it’s been cars, my dad owns a salvage yard… And this kind of goes back a little bit off of real estate, but it kind of will give you a background of the way I think – we don’t go buy brand new cars; we would buy them, he would fix them up. So I’ve never paid full price for anything. And I’ve always been able — even with a car, I’ve been able to drive it, and then still make money on it. So the same thing with my houses – it was a really hard pill to swallow to come in and say, not only are you going to not make money, you’re going to lose money. That’s a lot. It’s more of mental for me and a blow to my ego than the dollar amount.

Joe Fairless: Mm-hm. You bought it sight unseen. How many properties, if you know, have you purchased sight unseen before?

Ragan McKinney: More than I should admit. In the 20 years, probably eight to 10.

Joe Fairless: Eight to 10. And about what number was this, on the eight to 10 range?

Ragan McKinney: This would have been right out of the gate probably the second one.

Joe Fairless: Okay. What were the circumstances where you bought it sight unseen?

Ragan McKinney: It was an auction, and there was people bidding against me, and I was younger, and I thought, “Well, if all these other investors want it, it has to be a great property. Somebody has to know something.” It’s really important, probably the biggest lesson I’ve learned, is to do my own due diligence. Yes, I have a big support system that I can bounce things off of, but I know how to make a deal and how to set it up to where I look like a fantastic buyer. But there’s a lot of mistakes I’ve made that have cost me, and that would be A, sight unseen, B, waiving inspections, not using my due diligence, period, things like that.

Joe Fairless: But one out of eight to 10, your batting pretty good there.

Ragan McKinney: Don’t jinx me.

Joe Fairless: Right. [laughs] So the sight unseen actually has been successful for…

Ragan McKinney: It is, and I’m not scared of it.

Joe Fairless: How do you mitigate that risk?

Ragan McKinney: Well, I don’t believe — and I know this is cliché, but no risk, no reward. I actually have one under contract right now. I’m steering kind of away from the residential, single-family, and getting into multi-family, and also into the vacation rentals. I just bought my second vacation rental on Norris Lake Tennessee, sight unseen. How to mitigate that risk is my contract allowed the due diligence period. I am getting the inspections and following it through top to bottom, just so I know what I’m getting into… Because I tend to operate on a deal based off of the purchase price and knowing what I can do… But I always like to forget that middle part of what it cost to get it there. It’s not enough to scare me, but I am being smarter about how I get there.

Joe Fairless: I want to spend a little bit of time talking about where you’re headed and why that shift in your focus. But before we do, I mentioned earlier, let’s talk about the extremes. Most you’ve lost, 18k. What deal have you made the most money on?

Ragan McKinney: Well, the most money I’ve made is — I buy and sell real estate all the time, so I have bought them and I have other investors that I work with that decide that they want to go ahead and flip it. So instead of me taking the time, I have to weigh my options of “Can I fix this?” And I now pay contractors to do all the work, wherein the very beginning, I was doing a lot of the work myself with my family. So to offset the cost, the best deal – and I don’t just weigh the net dollar, it’s how much work was invested, as you know, being able to buy something and then turn around and flip and sell it… And that was for $52,000.

Joe Fairless: $52,000. So you found the deal, and then you sold it to a client of yours who fix and flipped it?

Ragan McKinney: Correct. I actually bought it, and I was going to flip it. So I–

Joe Fairless: You bought it.

Ragan McKinney: Yeah, I bought it. Super sweet deal. I had bought a lot of the material for it… And then how that worked is they came to me, they were looking for one… I don’t have the time, now that I am where I am in real estate, so basically, the market had shifted. It did sit for a period of time, and then I sold it to them.

Joe Fairless: Got it. Okay, that was a sweet deal.

Ragan McKinney: It was a sweet deal.

Joe Fairless: If you got a $52,000 profit before they even touched it, and then they fixed it up, flipped it, and then my assumption is they made money…

Ragan McKinney: Oh, yeah, they made money. And then I get to list it as well.

Joe Fairless: Oh, bravo!

Ragan McKinney: Mm-hm, yeah.

Joe Fairless: Wow.

Ragan McKinney: So… Keep your investors happy.

Joe Fairless: Yes, it reminds me of the lease with an option to purchase, where people make money in many ways with those types of deals – on the front end, on the back end, and during the middle. Alright, so let’s talk about your shift in focus. You said vacation rentals and multifamily. I believe I heard that correctly. Did I hear that right?

Ragan McKinney: That’s right.

Joe Fairless: Okay. Why? You’ve got a good thing going, with flipping about 11 properties a year. You’ve got some rentals. You’re a broker, you’ve just opened the brokerage about a year ago. Why are you shifting?

Ragan McKinney: I just think the market is changing, and also, it’s for my own personal… The flips – everybody’s getting into flipping. When you turn on HGTV or TLC and everybody has a home renovation show… So there’s a lot of people out there that are just getting their feet wet. So the competition to buy the property at a price that you can go in and do the work to make the profit worthwhile – that’s the first issue.

The second issue is I have to look at, “Okay, if I’m going to take a smaller profit on a flip, can I make more money doing something else?” And right now I can’t selling real estate, because the profit margin for the flips just aren’t what they used to be.

As far as going from residential single-family into multifamily and the vacation homes, as far as single-family goes, I’m just really struggling getting really good renters. I feel like the turnover is starting to be more than I would like, and I can get more of a return on a multi-family. And the vacation rentals so far have been fantastic. And I don’t know if it’s due to COVID; more people were camping… And like I said, both of them are on North Lake, booked completely out. And not just for the summer months. People are doing this at Thanksgiving, they’re going just for a weekend getaway, something different than maybe the Gatlinburg or the Pigeon Forge. And it’s somewhere you don’t have to fly, because a lot of people are from Norris, or are coming from the [unintelligible [00:16:25].02] area, so a lot of locals. And the profits have been way better than my single-family, with less headache.

Joe Fairless: Let’s talk about the profit. So what’s the last vacation rental that you purchased, or are about to purchase?

Ragan McKinney: So the first one I purchased was two years ago, with no intentions to rent. It was going to be just our place to get away. To kind of recap I went in, bought it through an estate, got a really good deal.

Joe Fairless: How’d you find it? MLS?

Ragan McKinney: No… It doesn’t matter where I’m at, I’m always shopping real estate. So we were on vacation at Norris… And I want to know what’s for sale, and I go and I talk to people, and ask, and I ended up meeting with a realtor. He said he had this come in, it wasn’t yet listed, it was an estate. There were four kids that were split four different ways, so it worked to my benefit.

It did need work, but we’ve put a year and a half worth of just our sweat equity into it, and we started running it this year. It was a pretty decent experience, with the exception of one… But as far as what the return is, we started in March and we ran it through Labor Day… And it was kind of a test run, because like I said, this was designed to be my family lake home, so something where we could go when we want… And I didn’t like that it cramped my schedule, but as far as money goes, it was about 28,000.

Joe Fairless: 28,000 that you got in for rental income?

Ragan McKinney: Mm-hmm.

Joe Fairless: And what did you buy it for?

Ragan McKinney: I bought the property for 430k.

Joe Fairless: 430,000? And about how much did you put into it, knowing that it was you doing the work… But what about supplies and stuff?

Ragan McKinney: I would say 50k.

Joe Fairless: 50k, got it. So if you had hired a contractor, what – double that? 100k?

Ragan McKinney: 100k, yeah.

Joe Fairless: Okay. Two follow-up questions. You said something like it worked out except for one. Was there something that didn’t…

Ragan McKinney: Well, rentals can go either way. People are on vacation with their families, and they can go in and treat it like their own, or they can go in there and it can be like a frat party. So that’s kind of what the last one was. Luckily, we did get deposits and things like that. But you have to think about your time to go in. And that income – we didn’t fully rent it, because I did leave it open for myself. The one I’m purchasing is going to be strictly a rental. And right now as it sets with the current owner, it’s $52,000. That’s what their gross rental income is.

Joe Fairless: Oh, really? Over the course of 12 months?

Ragan McKinney: She doesn’t rent in the winter, because they go down. So that was from February through October.

Joe Fairless: Dang. And how much are you buying that for?

Ragan McKinney: 285k.

Joe Fairless: Wow. Yeah, that’s a killer.

Ragan McKinney: I found that one on my morning run. Yeah. So…

Joe Fairless: Okay, that’s what I want to dig into. We’re going to come back to the morning run in a moment. On the first deal, you said when you go places, you want to know what’s for sale, so you talk to people… You met a realtor, and then the realtor told you that he had this off-market thing that was coming up. Who did you go to? When you say you talk to people, did you just randomly come across someone, or did you look at the brokerages, and you make it a point to call them? What did you do exactly?

Ragan McKinney: So exactly what happens is we were down there, the people that we were renting the property from… Like I said, I always am talking about real estate just by default… So let them know that I’m a realtor. We were looking to book another weekend; everything was completely full, so when the kids were out at the lake and we were just kind of chilling, I was on my phone and looking for rentals so we could come back in a few weeks… And everything was booked. I come across an email, reached out to the guy, and just said, “Hey, do you have anything?” And he said, “Everything’s completely booked. But I have one I’ll sell you.” And I thought, “Okay.”

So the next weekend, we drove down just to look at that property. That one wasn’t a fit for us. However, we drove four and a half hours to look at one property that I had intended to write a contract on and turn around and leave… So we ended up getting a hotel and reached out to a few agents. It was a Saturday, and they said, “We’re booked.” And finally, I just called agents until somebody that could meet me an hour. “Hey, we have X amount of dollars to spend, and we’re here to spend it this weekend. What do you have?” And he was fantastic, “I’ll meet you in an hour.” He showed us two properties.

Then after meeting with him, he said, “Well, I have this one, but it’s not active yet. But we might be able to get you in.” So he did, and I knew it was a perfect fit. Wrote a contract, and then just maintained that relationship.

The one I just bought, now that I’ve owned that property down there for two years – you start to meet people in the community and you start to look for life changes. Some people are finished down there, or some people have outgrown, or need to downsize… So I’m always looking for life changes, as I like to call them. And I go for a morning run every day, and happened to notice a house that was needing a little love, so we started looking on the county websites, and who owns it, and I send a letter, or I Facebook message, and reach out, “Have you thought about selling?” And eventually, you get a hit. And then you look at it.

This one I haven’t looked at. I’ve seen the outside, because I have ran by it several times… But we are under contract. I am during due diligence period, and we do have home inspections. So hopefully everything checks out. But what I have found is people that have bought the vacation rentals, most of them have owned them for several years, and a lot of them don’t understand what the market’s doing… Or they’re just done. They don’t want to rent anymore. They don’t want to deal with the headache of that. Or there’s some kind of life circumstances to where they just want to get out of it.

North Lake is a place that real estate is just booming. It’s booming everywhere, but people that bought lots for 30,000 ten years ago are selling them for 300 today. So like I said, I don’t know if it’s COVID, or if it’s just the market, a combination of everything, but there’s a lot of activity. And not just North Lake, any of the ones you can get lakefront homes on.

Joe Fairless: Did you send this person a Facebook message, or did you send them a note?

Ragan McKinney: Both. I sent a note and…

Joe Fairless: Which one did they respond to?

Ragan McKinney: Facebook.

Joe Fairless: They responded to the Facebook message. Got it. Thank you for those stories. That is beneficial for people looking for deals in hot markets. Taking a step back, what is your best real estate investing advice ever?

Ragan McKinney: Don’t ever be afraid to go after what you want, or to ask for something. The worst that anybody’s going to tell you is no, and I feel like the best deals have always come from the most unexpected situations. And if you’re looking to do it per a playbook or how you think it’s supposed to be – yes, realtors (because I’m a realtor) can get you fantastic deals. But most of them are going to come from homework or just paying attention to your surroundings. A lot of times the best deals are right in your own neighborhood, and that’s where I really like to focus… And like I said, the vacation house is two doors down from my other one. Most of my deals are right here in the middle of my hometown… Because you know people’s life changes, and it just presents an opportunity.

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

Ragan McKinney:  I’m ready.

Joe Fairless: Alright. First, a quick word from our best ever partners.

Break: [00:23:36][00:24:16]

Joe Fairless: What’s the Best Ever deal you’ve gotten in the most unexpected way?

Ragan McKinney: Best Ever deal in the most unexpected way? I would probably say the lake house. I went down there expecting to get something, I immediately felt disappointed, and ended up with something better.

Joe Fairless: What’s the Best Ever way you like to give back to the community?

Ragan McKinney: I’m big, big into my local community. Big, big advocate for giving to the people that take care of me. I like to turn back and give it back. So police, fire or paramedics. I’m big on that, and then all of our military.

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

Ragan McKinney: They can check me out on my website at raganmckinney.com, or they can go to any of my social media, Instagram or Facebook.

Joe Fairless: Ragan, thanks for being on the show. I enjoyed our conversation. Thank goodness for your grandparents, and that conversation they had with you 20 years ago, when you were going to buy that white picket fence house, and look at the path that they helped you get on, and then you’ve blazed the trail from there.

I love hearing about the resourcefulness and just the tenacity for how you’re uncovering deals, and that will be helpful for a lot of people. And also the shift in focus, and why you’re shifting with your focus. So thanks for being on the show. I hope you have a Best Ever day and talk to you again soon.

Ragan McKinney: Thanks so much for having me.

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JF2321: Altus Investment Group With Kevin Dugan

Kevin started his journey down the real estate road by reading “Rich Dad, Poor Dad”. He left his full-time W2 in tech sales in September 2019 and is now a full-time real estate investor with 7 years of investing experience. He now has a portfolio that consists of 25 rentals and is a general partner in a 208 unit deal. He is currently the managing partner of Altus Investment Group, a fast-growing private equity firm with 35AUM that specializes in acquiring,  repositioning, operating, and selling residential and commercial properties that are underperforming.

Kevin Dugan Real Estate Background:

  • Left his full-time W2 tech sales job in September 2019 and is now a full-time real estate investor
  • 7+ years of real estate investing experience
  • Portfolio consist of 25 single-family rentals, 208 unit General Partnership side, and Limited partnership
  • Based in Los Angeles, CA
  • Say hi to him at: www.altusig.com 

Click here for more info on groundbreaker.co

Best Ever Tweet:

“People should buy based on how much cashflow a property will produce” – Kevin Dugan


TRANSCRIPTION

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

Kevin Dugan: I’m doing great, man. It’s an absolute pleasure to be on here with you today.

Joe Fairless: Well, it’s a pleasure to be speaking with you too, and I appreciate that. A little bit about Kevin, he left his full-time W2 tech sales job in September of 2019, and now he’s doing real estate full-time. He’s got seven-plus years of experience in real estate. He’s got a personal portfolio of 25 single-family rentals, and he’s a general partner and a limited partner on a 208-unit. He’s based in Los Angeles. With that being said, Kevin, you want to get the Best Ever listeners a little bit more about your background and your current focus?

Kevin Dugan: So you kind of hit all those bullet points on the head. I’ve been in real estate for a little bit of time now. But the traditional story, read Rich Dad Poor Dad back in the day, got inspired to run a business. Real estate was kind of the foundation, and then I bootstrapped on weekends and nighttime while working that high paying tech sales job. And then now I run a vertically integrated real estate firm based out of Chicago, but 100% remote from Los Angeles. So we have property management, general construction, investments, and it’s all based on cash-flowing rental properties.

Joe Fairless: Please talk more about your vertically integrated company.

Kevin Dugan: Number one, it’s a lot of work to create something from scratch out of state. So for a lot of people out there, property management’s definitely a challenging aspect of the business, but essential. It doesn’t get as much notoriety as some of the other elements, like raising capital or finding the deal. But that’s a strong component of what we do. We self-manage all the properties, and the properties for our clients. Also to add additional value, the general contracting component is really critical because that’s how you buy a discount, and then rehab, and create value into the property. So that’s something that also is another component. And then the last is more the fun part of finding a deal, presenting to investors, and actually nurturing client relationships to help them meet their financial goals. So we have all those components in-house.

Joe Fairless: You live in Los Angeles, and the company is in Chicago, correct?

Kevin Dugan: Yeah, that’s correct.

Joe Fairless: And the company manages your own single-family rentals, plus I think I just heard you also manage your clients’ properties, correct?

Kevin Dugan: Yup. That’s correct.

Joe Fairless: And how many properties is your company managing?

Kevin Dugan: It’s about 50 right now.

Joe Fairless: All in Chicago?

Kevin Dugan: All in Chicago.

Joe Fairless: What’s your connection to Chicago?

Kevin Dugan: I don’t have a real connection initially… But my friend who started me in real estate eight years ago now, he was from Gary, Indiana. He approached me and asked me if I want to flip houses out there in Chicago. I said, “The numbers make sense. Let’s go for it.” So we started that in 2012. Did that for about two years; it’s very difficult to run a flipping business from across the country, right off the bat. In 2015 I switched to rental properties. So that’s kind of the shift towards what I’m doing now.

Joe Fairless: You said you were working weekends and nighttime while having a sales job. Sales hours, at least from my experience, tend to be all over the place, depending on when your clients are able to meet with you. Do you have a significant other?

Kevin Dugan: I do, I have a girlfriend.

Joe Fairless: Did you have a girlfriend at the time?

Kevin Dugan: I did. Balancing that can be challenging. [unintelligible [06:28] kind of wheel of life distribution.

Joe Fairless: It wasn’t quite round, was it?

Kevin Dugan: No, no. It was like you distribute more towards the work end. But I’d also seen a lot of lessons where by it’s not all about the work. The work will always be there, the money will come if you put in the effort and energy into the right space. Relationships are really important. So I was always cognizant of it, but maybe I couldn’t give it my full attention. So it’s a juggling act, for sure. Challenging.

Joe Fairless: Any tips for someone on a wheel that’s a little lopsided right now, for how to just get through that time knowing that eventually, that wheel will smooth out a little bit?

Kevin Dugan: Yeah, for sure. So one big thing in life, in general, is communication. So if you are able to communicate effectively your current state – and maybe this state is a temporary transition – to your significant other, your friends, your family, they’re understanding that everybody has different types of hustles that are going on. So communication is really big. But also just effective scheduling, trying to block out specific times where you can hammer out specific projects or jobs. And I still struggle with this right now. But having specific blocks where you can accomplish goals allows you to frame your 24 hours every day a little bit more structured.

Joe Fairless: Let’s talk about the deals. 25 single-family rentals over a period of six or so years?

Kevin Dugan: Yeah, so the rentals started in March 2013. So about five and a half years.

Joe Fairless: Five years. Okay.

Kevin Dugan: Yeah.

Joe Fairless: You have them in Chicago. Tell us about how you qualified Chicago. I heard how you got introduced to the Midwest, but how’d you qualify of Chicago? Why did you double, and triple, and quadruple down on the Chicago market?

Kevin Dugan: So Chicago is a massive metro. My general advice, generally speaking, is to follow the numbers and follow the people. And that’s a moving target right now, especially with everybody’s relationship to COVID, and the work at home relationships. So people should have more focus on demographics, like where’s the best population growth, job growth, where the wage is going up, where it’s going down, the traditional stuff. Chicago doesn’t necessarily fit that mold.

Joe Fairless: Yeah, I was going to ask you about that. People are leaving Chicago.

Kevin Dugan: They are, but I invest in the suburbs of Chicago. And I specifically invest in Section 8 housing. So it’s been one of those elements where Chicago is the third-largest metro in the US, there’s the massive railway that goes through a lot of Illinois, there’s a lot of major corporate headquarters there… So technically, yes, there’s an exodus, but it was slower; it may be increasing now. But a lot of what we do is kind of the outside of the traditional Chicago mentality; it’s like suburbs of Chicago.

We’ve found that we buy rental properties out there that cash flow very, very well and perform above the 1% rule and it’s just a really solid target market that we’re in, within the larger Metro of Chicago.

Joe Fairless: Let’s talk about the first deal, and then I want to ask you about the last deal that you’ve purchased, single-family home-wise. So the first deal, what were the numbers?

Kevin Dugan: So the first deal, way back in the day with my first business partner, we were buying at 50k, putting about 50k all-in, and selling at 170. So fix and flips.

Joe Fairless: Okay, so the 25 single-family rentals – that wasn’t your first hold, though. That was a flip, right?

Kevin Dugan: Yeah.

Joe Fairless: Sorry. I didn’t communicate correctly. Tell us about the first of the 25 that you currently have in your portfolio. That purchase.

Kevin Dugan: Got it. So I still have it today, it’s appreciating in value, it cash-flows really well, so I’m just holding on to it. That particular property purchased at $75,000, and it was a traditional loan. So I didn’t feel adventurous enough to start rehabs and go through the whole construction process again, because it is technical, and not being on-site requires a lot of trust. But that property I bought [unintelligible [00:10:25].05] turnkey, ended up being more of like lipstick on a pig type situation, and hence the motivation for bringing in my own construction crew. So $75,000, and it rented for $1,650 at that time.

Joe Fairless: That’s pretty good.

Kevin Dugan: That’s really good.

Joe Fairless: And that’s Section 8, you said?

Kevin Dugan: Section 8.

Joe Fairless: Okay, what are the challenges associated with Section 8, if any at all?

Kevin Dugan: It’s definitely a more technical manage, for sure. And the world is about people, everything in this world and life is about people. So you have to understand that there’s a gradient to everybody on that program; there are those who are taking advantage of it, which you want to avoid. There are those who are kind of stuck and lost, but there are a lot of people who need that program – seniors with disabilities, single-family mothers with some sort of illness, or many children. There’s a lot of reasons why people would need assistance from the government where you need that help to be able to get back on your feet, to gain more momentum, to live the life that you want to live. And so it’s very detailed in like really knowing who the person is, reading between the lines of what their credit shows, and determining whether they’re going to be a good household and family that will take care of the place for a long time.

Joe Fairless: When you say reading in between lines, that’s got to be an art plus a science. So take a page of Tony Robbins’ book, right? It’s got to be an art and science. So can you educate us on the art and science of that?

Kevin Dugan: So there are simple items such as presentation. How does the person carry themselves? When they drive up to the house, is their car in shambles? Are they looking like they’re in shambles? Are their kids wild? Or are they well put together, are they respectful? Do they seem like a person that would treat the home like a great place? And then, of course, you ask a lot of questions about their background and why they’re moving, you get referrals to confirm what’s going on. You want to make sure that their story fits, and then you want to make sure that any red flags are covered. So if there are any types of potential evictions – that’s a huge one; you don’t want to go through that process, especially in that non-friendly eviction state like Chicago. That’s a place — especially when you have the eviction moratoriums that’ll last six months or a year. So it’s really having a conversation with the individual and just seeing like, “Hey, what’s their circumstance? How eager are they to move? Why are they moving?” And then making sure that there aren’t any holes in their story.

Joe Fairless: You bought that in 2015? How many times have you turned it over for a new tenant?

Kevin Dugan: That particular property, I want to say we’ve turned it over either once or twice.

Joe Fairless: Once or twice, okay. So that’s great, I would think, because that’s got to be the main expense. And I did some quick math; the 1,650 divided by 75,000. That’s 2.2% on the cash flow rule. So you crushed it on that.

What, if any, the challenge has come up for this property in particular, since you’ve owned it the longest as a buy and hold?

Kevin Dugan: So as I’ve mentioned before, lipstick on a pig. That particular property on surface-level looks fantastic; new floors, newer cabinets, backsplash, painted rooms, semi dated bathroom, but fairly clean. But come to find out there are a lot of issues hiding behind the walls. So that particular property was built in ’56, and with a lot of older homes, people need to look out for galvanized pipes; those will probably break around the 50 to 60-year point. So you want to make sure you get all the galvanized out whenever you can. But this one had a bigger issue – the sewer line collapsed. So the water is backing up through the entire house, we had to like excavate, we had to tear up all the new tile in the kitchen. This is a couple of years into it… And basically, we replaced that mainline out to the street level. That was a big adventure, especially…

Joe Fairless: Especially what?

Kevin Dugan: During the wintertime.

Joe Fairless: Oh, man…

Kevin Dugan: Yup, yup, yup, yup, Chicago.

Joe Fairless: The Chicago winter.

Kevin Dugan: Chicago winter. So lesson learned… And then on top of it that house had termites. So we started seeing little holes up in the ceiling; come to find out there’s like a massive termite infection on that property. So that’s one of those places where definitely have a third-party inspector come in. I still remember when I bought the house, [unintelligible [00:14:41].03] the doors, the doors didn’t close. I’m very big picture at times, and those details missed me when I was looking through this “beautiful” house.

Joe Fairless: So you didn’t have a third party inspector?

Kevin Dugan: On that one? No.

Joe Fairless: No. Okay.

Kevin Dugan: That’s for anybody first buying stuff – definitely get it.

Joe Fairless: How much did the sewer line collapsing and resolving cost?

Kevin Dugan: Fortunately, at that time, we had an in-house crew, so it’s probably about 5,000. But it was more the massive headache of having a tenant in there; we had to get them into a hotel. It was like a three-day process. And that was just the changing out of the sewer line. That wasn’t the initial exploration of why is there mold constantly behind the sink, what’s going on behind the sink, and this other wall over here. So it took us some time to decipher what was going on there and actually find it.

Joe Fairless: Tell us about how you already had an in-house crew on your first deal. Now, I know that you did fix and flips, so that’s probably where it originated from. But will you just talk about that evolution?

Kevin Dugan: So let me kind of take a step back. The first two deals were purchased as turnkey. The third one I purchased, I’m like, “Okay, I prefer to start building equity into these deals if I buy them at a discounted price.” So we started sourcing out all kinds of different contractors. I’ve gone through probably at least 10 at this point. Don’t hire anybody from Home Depot — or not Home Depot, Craigslist; stay away from Craigslist… For the most part; I can’t say that completely, but Craigslist has been a bad experience.

So this crew that I was able to [unintelligible [16:06] they were actually inherited from a GC that was a referral to us. That GC ended up moving to Arizona, left his crews, and then I kind of inherited them. So I’ve been working with them ever since. So they were able to help us out on this one. But it’s a process. Definitely, if there’s any type of red flags with your contractor, give them one warning, never overpay them past the work that they’ve done, and make sure that you have that leverage of the money; it will keep them motivated.

Joe Fairless: What’s your worst Craigslist experience?

Kevin Dugan: There have been various; some were more to the quality work, and especially doing things [unintelligible [00:16:44].16] is pretty challenging. But we had one guy that he spoke a big game. And that’s one thing about Chicago, people talk fast, but maybe don’t perform the way that they say they can talk about. And a lot of people, like contractors in general, say that they can do everything. And that’s an initial red flag, like, “Okay, you can’t do everything.” That’s very difficult to do.

But we had one guy who basically was falsifying the work that he did, sending us bad pictures or pictures that made it look like he was doing it, but it wasn’t actually installed. He asked for prepayments beforehand… This was one of my business partners [unintelligible [00:17:15].21] and he ended up stealing like close to $5,000 in labor materials. So… Tough.

Joe Fairless: Let’s talk about the last single-family home that you purchased. What are the numbers on that?

Kevin Dugan: The one I just closed on is an interesting project. We have three we’re closing on right now, but it’s already 90% completed. It’s just the original owner didn’t finish the electrical decode. So we’re buying it at 150k or 165k. We’re planning to put about 50k into it and sell it 290k. So it should be a really quick turnaround, like literally, like three weeks in, out, listed back on the market. And so…

Joe Fairless: Okay, so that’s a flip.

Kevin Dugan: Yup. Oh, a rental property?

Joe Fairless: Yeah, a rental property.

Kevin Dugan: Got it. Got it. So on the rental, one that we have right now my client actually picked up an amazing deal. I was under contract for it at $72,000. It fell through because it was right at the beginning of COVID. Literally, all the banks froze up because they couldn’t trade the paper anymore. And because of that, another [unintelligible [00:18:19].08] to offer, that deal fell through. So my client came in, she offered $50,000 cash and bought it at $50,000. We put 40k into it, so all-in 100k, and we’re going to get about $1,950 in rent on that.

Joe Fairless: How about the last one that you bought? The 25th property in your portfolio.

Kevin Dugan: Let me think about that one.

Joe Fairless: You’ve got a lot of transactions. I get it.

Kevin Dugan: Yeah. I lose track of them at some point.

Joe Fairless: You’re a big-picture guy.

Kevin Dugan: I really am, yeah… Which is the difficult part of being a vertically integrated company across the country. So the last one we bought was just a small townhouse. It was like $52,000 on that, super-light rehab. We changed our investment philosophy; as opposed to doing deeper rehabs right now in the current state of the economy to just kind of like doing a two-tier, almost what you see in multi-family. So we bought it 52k. It’s currently rented at $1,466.

Joe Fairless: Okay. And what do you mean by two-tier?

Kevin Dugan: So you can go all out with the rehab… I really love to definitely solidify the infrastructure. So like all the electrical plumbing, I want to make sure that’s just done the first time; HVAC, roof, like all the major systems, you want to solidify that. But then there’s like how far you can go with the kitchens, how far you can go with the flooring… So as opposed to doing flooring throughout the entire place, we’re like okay, let’s just do flooring in the main areas, carpet in the bedrooms… Instead of doing like super-sick cabinets and backsplash in the kitchen, let’s hold off on that type of rehab for phase two on a five-year period if we want to sell it as a portfolio or something like that.

So we started with the sticky backsplash from Amazon, which gets the message across for the kitchens; kind of resurfacing kitchen cabinets… So just ways to cut costs where maybe it doesn’t add as much benefit. But we’ve already done the major rehab where the house is still above; it creates a good energy for the resident to want to live there for a long time.

Joe Fairless: Will you give some other specific examples of how you’re saving money on the rehabs, but still making them look good from an aesthetic standpoint?

Kevin Dugan: Yeah, for sure. Vinyl’s really big; I highly recommend it to anybody who has a rental. Vinyl nowadays is a slam dunk, it’s pretty much bulletproof. So you can go that route. Let’s see… Same thing – as you’re doing more and more rehabs, the easiest thing to do to save on time, which is equivalent to money, is to try and do repeated material costs; we paint every house the same color, floors are all the same, cabinets are all the same. So that just helps eliminate the decision-making process.

When it comes to vanities, you can actually pop off the top of the vanity if the actual structure is good. You can keep that. With mirrors, you can put trim around the mirrors, that we’re finding… So there’s a lot of ways you can kind of recycle the old infrastructure and allow for the house to have a nice resurfacing, but not spend brand new costs on it.

Joe Fairless: That’s really helpful. And looking at that deal compared to the first buy and hold… Let’s put aside the economy and a pandemic, just for a moment let’s put that aside. What, if anything, did you change in your process, from the very first buy and hold to the last buy and hold? I know one of the things is now you have a third-party inspector. But what else, if anything, has been changed?

Kevin Dugan: Just my level of education across the board has changed. So my understanding with general construction — like, I never wanted to be a general contractor, but I understand the fundamentals pretty well. YouTube is a fantastic resource. For anybody out there, you can pretty much find anything. But what’s changed is having people in place that can kind of take on those specific responsibilities, so that I can take a step back and try and work on more of the bigger picture stuff.

We’re still in a growing phase right now, but I definitely have key team members that I can rely on to help push projects forward and make sure that they’re getting done with the quality that we needed to get done.

Joe Fairless: Speaking of big picture, what’s next for you?

Kevin Dugan: Right now continuing to build out the residential turnkey business that we have; since the product is good, there’s a lot of demand for what we have. We have a firm belief that this product will perform well and be desirable through the current type of recession we’re in… But I’m also trying to think about where the world is changing long-term, especially as people’s relationships with real estate is changing drastically, office spaces are changing. Retail has been dying; it’s going to come for reform. Hotels are in a lot of distress. So there’s a lot of commercial asset classes that I’d like to diversify into. But I need to not get — excited is a bad word, but be cautiously optimistic knowing that the world constantly goes through change.

Joe Fairless: Taking a step back, based on your experience, what’s your best real estate investing advice ever?

Kevin Dugan: I’m really big on cashflow. I truly believe that people should buy based on how much income that produces as the foundation. And you can make more money as a flip or development, but those really depend on market timing. You don’t want to miss timing, because you can lose your shirt, and more, if you missed out on a big asset class. But if you buy with cash flow in mind, you’ll be sitting pretty.

Joe Fairless: About how much cash flow does 25 properties earn on an annual basis? Buy and hold at this level?

Kevin Dugan: Net or gross?

Joe Fairless: Net.

Kevin Dugan: Net. There’s leverage on these, so it’s roughly in the $12,000 to $15,000 range. It’s complicated because I’ve been under multiple entities/structures… So I made things more complicated, like way too big picture. It should have been simple.

Joe Fairless: So about 12k a month or so?

Kevin Dugan: Yeah.

Joe Fairless: $180,000 a year is a great nest egg, that’s for sure. And some people might think well, “Okay, that’s great. But what’s your exit? Because are they appreciating? And if not, then do you just never plan to exit?” And clearly, 180k, then maybe there’s no reason to exit. But is there an exit plan?

Kevin Dugan: Yeah, there’s definitely an exit. The beauty about real estate — when you have enough cash and you free up your time, that’s where you get a lot of power. And I’ve gained my most momentum since doing real estate full-time. So that’s number one – free up your time, and you free up a lot. But yield is something that will continue to be searched for, especially in this unknown economic climate. So it’s very realistic to group a set of these together like a portfolio sale. I see a lot of it going on right now where people are just grouping together single-family homes. So I never plan to exit out of this cycle; this would be a great cycle to exit on. I like the cash flow for stability, but there are countries looking for high-interest rates, high-yielding, performing properties. They can also be resold to other people, and the tax benefits are also beneficial as well. So you get a lot of appreciation by just holding. And then there’s a lot of benefits to holding real estate [unintelligible [00:25:05].11] selling it immediately.

Joe Fairless: I love the tax benefits almost as much as I love dogs. It sounds like you’ve got a cute dog in your room too, so that’s… [laughs]

Kevin Dugan: She has a sensitive stomach, so I’m not sure what’s going on.

Joe Fairless: Oh, man… I raise you a sensitive stomach, and see you two sensitive stomachs; my dog just has a really sensitive stomach, so he’s got twice as sensitive as yours. I guarantee you. He’s on a hunger strike right now. It’s the only dog that I know of that does hunger strikes. We’re going to do a lightning round… Are you ready for the best ever lightning round?

Kevin Dugan: Yup.

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

Break: [00:25:40][00:26:20]

Joe Fairless: Alright, best ever deal you’ve done.

Kevin Dugan: A more recent one; pushed on it for a long, long time. I put it over the asking price. Basically fix and flip, offer 125k, put $100,000 into it, and got it under contract first day for 350k. So three and a half months, really solid product.

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

Kevin Dugan: Big on education. I really believe that it’s something that we all need and it’s something that I can actually contribute. And I like to help people just open their eyes to the power of real estate.

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

Kevin Dugan: I’m definitely more active on LinkedIn and Instagram. You can find me @KevinKDugan, or shoot me a text at 310-988-5081.

Joe Fairless: Kevin, thanks for being on the show, talking about how you’ve built your portfolio, getting into the specifics of your vertically integrated company, how that came about, the amount of money that is made on deals, and some lessons learned between the first buy and hold and the 25th buying hold. Appreciate you being on the show. I hope you have a Best Ever day, and talk to you again soon.

Kevin Dugan: Thanks a lot Joe. Have a good one.

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JF2317: InvestNext With Kevin Heras

Kevin is the co-founder at InvestNext, a software that modernizes the way real estate syndicators raise and manage capital. Prior to funding InvestNext, he was employee #2 at the college career network startup, Handshake, where he contributed to initial product development efforts. Handshake is currently valued at over $400 million and it is the leading college-to-career recruiting platform in the nation. Today, Kevin is honored to be part of the season team of software engineers and a real estate professor.

Kevin Heras Real Estate Background:

  • CEO & Co-founder of InvestNext, software that modernizes the way real estate syndicators raise & manage capital
  • 5 years of real estate experience
  • InvestNext platform has hosted 230+ syndications worth over $1 billion
  • Based in Detroit, MI
  • Say hi to him at www.investnext.com 
  • Best Ever Book: Crossing the Chasm

Click here for more info on groundbreaker.co

Best Ever Tweet:

“The benefit of InvestNext is being able to manage and raise your capital” – Kevin Heras


TRANSCRIPTION

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

Kevin Heras: Good, Theo. How are you doing?

Theo Hicks: I am well, thanks for asking and thanks for joining us. I’m really looking forward to this conversation. We’re gonna talk about Kevin’s InvestNext apartment syndication/real estate syndication software platform. So he’s the CEO and co-founder of InvestNext, a software that modernizes the way real estate syndicators raise money and manage capital. He has five years of real estate experience, and the platform has hosted over 230 syndications worth over a billion dollars. He is based in Detroit, Michigan, and you can say hi to him at InvestNext.com.

Before we get into what InvestNext is, do you mind telling us some more about your background and then what you’re focused on today?

Kevin Heras: Sure thing. To give context on InvestNext – as you mentioned, real estate investment platform geared towards your private network of investors, manager investors, on that platform. But ahead of InvestNext I was kind of going through the corporate track. I worked at a consulting firm and we implemented CRMs, ERPs, accounting systems and so forth… So I got exposed to a lot of different enterprise-level clients, as well as even real estate clients ahead of that… So that was kind of my systems background.

Ahead of that, really one of the most formative parts of my life was actually my time at Handshake. Handshake, for context, is basically what you might call the LinkedIn for college students. So it’s a career network. I was involved there when it was just a dorm room founded startup. Today they’re over a half billion dollar company. I was employee number two, working with the co-founders, building out the product, going to university career centers, getting shut down, going back, building more… The rest is history.

That being my third year of college was pretty formative in what I’m doing today, and I knew at that point that I really wanted to be involved in the tech space; I wanted to build something meaningful that solved a systemic problem.

Fast-forward to a few years back, when I met my co-founder, Michael Gisi; he was working on this interesting side-project, working for a real estate investment firm that was really just trying to streamline the way they interacted with their investors, they were they reported and communicated to them. It was a tool that was meant to be a one-off tool for that firm, but we got people knocking on the door, saying “Hey, would you mind deploying something like this for our group?” And we’d been talking about it for a while, and that was kind of the a-ha moment, and pretty much the founding moment of InvestNext. We realized at that point that there’s a massive gap in this space, how people go out and they syndicate and manage their capital partners and investors. From that point on, the rest is history.

Theo Hicks: Sure. And then InvestNext – was that five years ago when it started?

Kevin Heras: Yeah, proof of concept, product – that would be five years ago; we were really just getting into this space, exactly.

Theo Hicks: Okay. Are you a coder?

Kevin Heras: I’m on the product team. I stay away from the code. I did the design portion of it. I let Michael and his team work through that stuff, but I am heavily, heavily involved in the side of the workflows and the product.

Theo Hicks: So he was essentially working for an existing company, created something for them, and then other people were asking for the same things, so that’s where you identified the need.

Kevin Heras: Exactly. It was pretty serendipitous from that standpoint.

Theo Hicks: How did you meet the co-founder.

Kevin Heras: I think back to how this all came together, and really, at my last company where I worked at, it was an indirect connection. One of my customers said “Hey, my good friend’s working on a side project. Maybe you guys might be able to connect, or interact on this.” So there was really no presumption on what we’d be working together, or especially on what we’d be  building.

He just happened to know that I had experience with Handshake, I’d been in the startup world, and perhaps I could lend some advice. So an indirect connection, and then we really just hit it off from that point.

Theo Hicks: Nice. I always like hearing about how partners met each other, because it’s traditionally pretty random.

Kevin Heras: It really is… And again, something I always think back to is just the serendipity of it all. You really just never know the doors that you can keep open, and you never know who you meet… So absolutely.

Theo Hicks: Exactly. Perfect. So let’s talk a little bit about InvestNext now. I have experience with syndications, so in my mind, when it comes to investors, it’s really finding the investors, and then it’s getting the money from the investors, or raising money for a particular deal or for a fund, and then the investor relations part. Obviously, your business focuses – from what I’m understanding – on helping with the actual process of raising the money for a particular deal or  a particular fund. Then once that deal is closed on, helping with the investor relations portion.

Let’s start with the raising money part first, and then we’ll talk about the investor relations second. So how does InvestNext help the syndicator raise money? You do help them find more money, but help them manage that process.

Kevin Heras: Yeah, so the concept around this is that whether  you’re a first-time syndicator or you’ve already done this many times, our intent with the platform is you have a single workspace to manage the very beginning lifecycle of that syndication to start with. So that’s everything from you have a CRM, of course, to manage prospective investors, capital partners, just people that you are interacting with. That ties in directly into what we call an online deal room. So when you’re ready to go live with your offering or your deal, it’s really housing that digital tear sheet, that presentation. You can send it out to your groups, they can view that full offering, and then of course, commit online, run the entire transaction, subscription docs and everything through the actual deal room.

So that’s the big, major component to begin with, is just streamline that entire initial transaction with the investor, and of course, saving you time at the end of it all.

Theo Hicks: So it has a CRM that I have to track all my investors that I have. Would that also be like “Here’s ones that are potential, and here’s ones that have invested, here’s how much they’ve invested, and here’s the deals that they’re in”?

Kevin Heras: Exactly. It’s really being able to manage your entire pipeline of prospective capital. And again, it’s from the very onset; we work with groups that are doing their first deal, and they know that “Okay, perhaps we may not land on something for the next few months”, but at the very least they wanna start building up that pipeline, building those relationships. So they’re just tracking those relationships in the CRM, tracking their pipeline. And then of course, when the deal hits, they put together all their collateral, all their documents in the deal room, and of course, when they’re ready to actually present that, it’s as easy as sharing that.

Theo Hicks: So you said there’s an online deal room. So I have a  deal… A big thing is obviously keeping your investors up to date on where you’re at, when are funds due, when do you need to submit the documents, getting that information to them. So is there some sort of email service you’re connected to, that I can say “Okay, I want to send an email every week to remind them about funding. People who have funded will get one email, people who haven’t funded will get another email.” Is it capable of doing all that stuff, too?

Kevin Heras: That’s exactly it. So when you go live with the deal — first and foremost, what we wanna present to the investor is… Call it that kind of single source of truth. So they can go back to the deal room and say “Hey, what’s the status of anything that’s happening?” And within that deal room they can see all the updates of what’s been going on. So that’s kind of the inbound approach, so the investor knows — instead of digging through their email chain and looking for what was the last update, it’s all in one place.

The second part to that is yeah, there’s the intelligence built behind this, so that when the sponsor goes out, they market the deal, they have all their commitments in, they can transact the capital, transact the funds… And of course, who’s left in the previous sequence to that. So then from there, there’s intelligent reminders to follow up with those investors. That’s a very common scenario that we see, especially when you go on a capital  raise.

Theo Hicks: As an investor, how am I getting access to this?

Kevin Heras: Multiple ways. Different groups have different approaches to how they’re gonna interact with their investors. Some groups are very “by invitation only.” Of course, this can live behind a security layer that you can only be granted access to the deal room, and of course, once you’ve been verified, you can go in to view the deal. Other groups – call it maybe like a 506 open format fundraise; you can literally open it up to the internet as a whole. So varying groups do varying open access to the deal room.

Theo Hicks: So would I need to share a link with my investors, or would I input their email into InvestNext and then they’d get the “Here’s  how you set up your account” email from InvestNext?

Kevin Heras: Both ways. Basically, imagine if you’ve had a mass communication out  to a group of investors – you could actually grab that shareable link; you can say “Hey everyone, feel free to access the deal room right at this link.” And of course, when they jump in, they can view all the details there.

On the other side of that, whatever you wanna do with that – you can post it on your website, you can send it out… And of course, back to that “by invitation only”, you can select a certain group of investors and directly send them an invitation to that deal room.

Theo Hicks: Perfect. Okay, so I think we hit on that front part pretty well… So deal is closed, investors get the email that the deal is closed, and then now let’s talk about the investor relations aspect. So how does InvestNext help me manage my communication, and then getting the proper information to my investors about the deal?

Kevin Heras: That ties in directly into what we call the investment part of the product. First of all, that’s all connected. Once you’ve actually received those contributions, those investments, that’s now being tracked on the cap table. You can now set up your waterfall structure around this. So it’s a full drag-and-drop builder, exactly as you see it in your operating agreement; you model it right in the system, and then moving forward, when you’re running your distributions, whether that’s monthly/quarterly schedule, that’s being all run through the system. Investors are getting paid out.

On the flipside of that, on the investor relations side, of course investors gain access to their portal, they can view their full portfolio with you, distributions to date, return metrics etc. So that’s where we now carry into the investor relations part.

Theo Hicks: What about reporting? So do I upload my own reports? Am I inputting individual line items for data? How does that work?

Kevin Heras: One of two ways that can be done. Individual investor reporting… Since InvestNext houses the entire investor transaction data – so again,  contribution amounts, distributions – we are now the calculation engine for a lot of the investor performance metrics. So maybe you’re sending out a quarterly batch of statements out to your investors… You can generate those in the system; those can get placed outbound to the investors. Or the investors can log in at any point, as they would with their Charles Schwab account, they can view those in live… And then the other side of that is if you have any sort of property-level reporting or any sort of asset-level reporting, we’re working through integrations with systems.

So if you have an asset-level — we’ll call it your standard property management software, we can actually connect right into that and marry that data into your reporting. That’s especially useful for groups that, again, maybe at scale you’re working with multiple property managers, and each one of those may utilize a separate system. So what we need to be able to do is connect the data from each one of those systems and then aggregate those up both for internal reporting, as well as external reporting for investors.

Theo Hicks: So you’re saying that InvestNext can connect to ABC Property Management Company’s software, so that you’ll have instantaneous access to the reports for my property…? Like rent rolls, profit and loss statements, and things like that.

Kevin Heras: That’s exactly it. We’ve facilitated many of those integrations in the past, and that’s really the vision around all this stuff – again, we aggregate the very asset-level data, and not only for the sponsor, but for the investor, that’s now presenting an added layer of transparency, exactly.

Theo Hicks: And then the last question – so not sending distributions, not sending the reports, but sending monthly or quarterly update emails with specifics on current occupancy rates, and renovation updates, things like that… So would I need to do that somewhere else, and manually type in my explanations of what’s going on, or is there some sort of automation for that as well?

Kevin Heras: Yeah, so we have this — and maybe I’ll get a little into the nuts and bolts or techy about this, but we have this concept known as merch variables. The idea here is that when you’re drafting up a new communication, or even in our system, what we call a post, you can actually carry in as part of your natural language, as you’re typing out your summary or so forth, you can actually include metrics that you can embed into that paragraph line. So it could literally pull metrics in from the system that are already being automatically calculated. Of course, you can set that as your template moving forward when you’re doing your monthly or quarterly cadence reporting… And again, two different formats, as I just mentioned.

One way is I’m gonna send out a mass communication or mass email out to my industrial park investors. Of course, the system already knows who your industrial park investors are, it knows their actual reporting metrics… But then the other side of that is we have this concept of posts. When you do that, you basically can post an update to the investor portal; the investor logs in or they can receive that on their phone and they can view it in a rich-format text, as you would an online blog.

So it’s kind of the historical concept where maybe you sent out a mass email, you attached a PDF or an Excel, just kind of saying “Hey, this is what’s going on.” It’s a bit more of a richer format, where you can even embed YouTube videos or whatnot.

Theo Hicks: Like pictures, and stuff?

Kevin Heras: Yeah, exactly.

Theo Hicks: This is very neat. Alright, Kevin, what is your best real estate investing advice ever? Or your best advice ever for running a business?

Kevin Heras: I always say “Focus.” It seems pretty standard, but for me personally, focus has been an incredible paradigm to go after. Just understanding that when you’re building something, it’s really about becoming really good at what you do… And it’s, again, just staying focused on the core problem you’re trying to solve. And again, that’s from the paradigm of a problem-solving platform and a software. So focus is my big statement here.

Theo Hicks: Perfect. Alright, Kevin, are you ready for the Best Ever Lightning Round?

Kevin Heras: Sure thing.

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

Break: [00:17:26].14] to [00:18:17].21]

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

Kevin Heras: I’d say one I’ve revisited is “Crossing the chasm”. Again, primarily related to product building, product development, but I think it’s extremely applicable to any business. So it’s just about as you’re getting started, it’s being able to handle that initial growth, and at the same time it’s being able to keep yourself disciplined on what the problem is that you’re trying to solve. You’re not gonna build a business that solves everyone’s problems. They use the landing beach analogy; when you land on your beach, focus on that area, really own that area, and then of course, later on you can always expand your business. So… Crossing the chasm.

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

Kevin Heras: I would definitely have to ask myself what led to the point that the business collapsed. After that, it’d just be a matter of reflecting on what led to that moment, what inflexibility caused the business, unless some act of God… But if the business fell apart, I’d say I’d still be in real estate, I’d still be solving the problems in that space, because for us I think it is truly the final frontier for a lot of the stuff that’s happening in the world economy around real estate.

Theo Hicks: Besides this particular need of apartment syndicators needing technology for managing investors, what’s the other biggest pain point or biggest need that could be solved by tech that you see in real estate?

Kevin Heras: We really think that the entire transaction of real estate still  is yet to be disrupted, because just the process of acquiring real estate, all of the stakeholders involved, we have literally barely  scratched the surface on that side… And I think that’s very much so open for disruption. So the whole acquisition side is a very interesting problem to solve.

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

Kevin Heras: As you stated earlier, we’re a Detroit-based company, and we’ve made it our internal mission — Detroit is our home, and when people think about Detroit, you get this sense of “It’s seen better days/It’s grungy” and whatnot… And it really is, for us — I’m a transplant to this city, I’m not a Detroiter, but I’ve moved here five or so years ago and I’ve seen the place rebuild itself. A lot of big tech companies moving in; they’re seeing the opportunity. So our focus is hiring local talent, as well as just giving back to the local community here. So that’s kind of our mission locally.

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

Kevin Heras: Best ever place – you definitely can reach me directly at my email, at Kevin@investnext.com. Of course, you can hit me up on the website; there’s a little chat bubble and you’ll likely see my mugshot on there. Likely me or one of the people on our team that will get to you… But yeah, kevin@investnext.com is the perfect place.

Theo Hicks: Awesome, Kevin. Thanks for joining us today and walking us through the capabilities of the InvestNext platform. Very fascinating. We’ve talked about, first of all, how you met the co-founder of the business, and how it was kind of just random, and keeping in mind — this is pretty common, that I get people who have partners and just realizing that really any relationship that you have, or any action that you take could lead randomly down the line to a deal, to a partnership… You never really know. So keeping all of your doors open is always a smart play.

And we talked about the two main areas that are addressed by the InvestNext software – the raising money and the investor relations. And really, it covers everything that I can possibly think of, that is involved in the raising money part of it, from when you first touch someone who’s interested in investing, to the deal closing, and then from the investor relations standpoint, once a deal is closed, until the deal is sold. It’s seems as if it’s capable of covering all of that in one centralized location.

So anyone who’s interested in raising money, or has raised money, or is currently raising money, definitely check out this InvestNext.com. So definitely check that out. I’ll be checking it out as well after this interview.

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

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JF2316: Rentals & ATMs With Billy Keels

Billy has been working as a sales executive for a market-leading application software company and is a real estate entrepreneur, long-distance investing expert coach, and mentor. He currently has 361 doors as well as ATM machines. 

Billy Keels Real Estate Background:

  • Full-time Application Software Sales Executive
  • Bought his first rental in June 2013
  • Portfolio consists of 361 doors as well as ATM machines
  • Based in Barcelona, Spain
  • Say hi to him at: www.billykeels.com 
  • Best Ever Book: The Creature From Jekyll Island

Click here for more info on groundbreaker.co

Best Ever Tweet:

“It’s about always making sure that your capital is always working out.” – Billy Keels


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 Billy Keels. Billy, how are you doing today?

Billy Keels: Theo, I’m doing fantastic, and really looking forward to today’s conversation.

Theo Hicks: Yes, me too, and thank you for joining us today. A little bit about Billy – he is a full-time application software sales executive. He bought his first rental in June of 2013, and his portfolio now consists of 361 doors, as well as ATM machines. He is based in Barcelona, Spain, and his website is BillyKeels.com.

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

Billy Keels: Sure, Theo. You highlighted a couple things there, and I guess a very typical software sales executive, I’ve done leadership as well in the software sales arena… And I’ve been living in Europe for the last 19 years, actually. I didn’t even plan on doing that… And when I was here, I was fortunate enough to enjoy three different countries; I lived in France, I lived in Italy, and most recently in Spain… And I guess one of the reasons, aside from working in large multinational enterprise leading software type of companies, I had some experiences that were not so nice in the stock market crash in 2000… And then the same thing happened in 2008. So one of the things my parents always told me – if something happens once, it’s shame on them; if it happens twice, shame on you. So it was at that point, 2008, that I started really looking for some new alternatives… And that’s when a couple years later I actually found real  estate.

I was one of those people who just very much wanted to continue to climb the corporate ladder. I was doing everything to get the next raise, to get the next promotion… And as I went through that, I started realizing that I was going around and around and around in circles. And I remember one morning in October that my older son was turning 3, and I remember getting on a plane that morning – I was supposed to go to Germany, and when I flew to Germany, I thought “Well, something’s not right. I’ve been doing all this work”, I wanted to do all these things so that I could spend more time with my family, and I was flying away on my son’s third birthday.

So that’s when I really started focusing on how I could take more control of my financial life; that’s what I was thinking about then, and that’s how I started getting into real estate. I thought that I was gonna buy real estate here in Spain, because I read this little purple book, Rich Dad, Poor Dad, that kind of changed my life… And one thing led to the next, and as a US citizen who was living abroad, someone said to me one day “Well, why don’t you buy a property back in the United States?” and I thought that was the craziest thing I’d ever heard… But after listening to a couple people and doing my own research, that’s exactly what I decided to do.

So that’s how I got into real estate, that is what I’m enjoying, and now really having real estate as a vehicle that can help myself, and now even other investors that are alongside me get closer to our goals and our dreams, so we can really live the life that we want to.

Theo Hicks: Thank you for sharing that. So those 361 doors – are those all in the U.S.?

Billy Keels: 100% in the United States. They are, Theo.

Theo Hicks: Okay. And then can you maybe give us a breakdown of what those doors are? Are those single-family houses that you bought by yourself? Are you raising money for larger apartment deals? What’s that portfolio and what’s your main focus now?

Billy Keels: Yeah, I love that question. So what I have today is a mixture. So there are properties that actually 100% my company owns… And then I also found out – because I didn’t really know – that you could invest with and through other people’s syndications. So I’ve done a mixture of the two of those to get to the 361 doors, as well as the ATM.  So I’ve actually done active, as well as passive investing…

And as it relates to where I’m going now, even though I’m working in a very large multinational, my focus is really on building out the syndication part of the business, to be able to do that and do that in a way that is done full-time… Because one of the things that I really love, Theo, that I’ve found, is that I can use a lot of the same skillset that I’ve been building in the multinational, and I can do that to actually bring value to people that I know, and that know, like and trust me… And that is something that’s given me a lot of emotional satisfaction and fulfillment, and that is definitely where my heart and my mind is moving me, is to add more value in that way, as someone who is able to syndicate different types of opportunity.

Theo Hicks: So just to confirm – your company owns a portion of those, and then another portion of those are you passively invested into other deals… And then moving forward, you wanna start transitioning into raising money from other people for your own deals.

Billy Keels: Absolutely correct.

Theo Hicks: So what would you say is the number one thing you’ve learned, or the number one piece of advice you would give to someone who wants to invest while  not living in that country?

Billy Keels: This is one of the things I really like to focus on a  lot, and have been focusing on a lot lately, and speaking to people, and doing a lot of that even on my podcast… But this really is about helping people to understand that whether you’re tens of thousands of kilometers away or you are 30 kilometers/miles away from a property and it’s not in your backyard, at the end of the day, when you want to be able to scale and sleep well at night, it comes down to making sure that you understand why you want to invest in something, whatever that something is… And then when you’re doing it, if you wanna scale, it’s make sure that you’re in the location that’s going to provide you what it is that you’re looking for. That could be cashflow, that could be appreciation, that could be privacy; it depends on what the person’s looking for. And then the most important element is, without a doubt, in my experience, the team.

Make sure that you understand the team, make sure that you understand the track record of the team, understand what they’re very good at, understand where maybe they need to rely on others to complement what they’re doing… But I would say without a doubt, especially if you’re looking to place capital, or even if it’s your own team, it’s to make sure that you have a very strong team.

Theo Hicks: Let’s talk about ATMs. How does investing in ATM work?

Billy Keels: This is one of the things that I’ve found out as a passive investor; I guess when you’re really busy and you’re in a multinational and you’re thinking to yourself “Well, you’ve gotta bet on the stock market, you’ve gotta do this, you’ve gotta do that”, and one day it looks like you’ve got a lot of money, because it’s on paper, and then three days later some things happen, or someone’s said something or done something and you’re in the hole again… So one of the things that attracted me to ATMs, or at least the ones that I’ve invested in passively, is it provided a very predictable stream of income. There was a portion of my portfolio that I needed to just provide very predictable streams of income.

So building our relationships, understanding, getting to know more about the person who is syndicating, as well as the team that was delivering their track record, how many successful ventures they’ve done – it  was something that made sense for me, because as I mentioned, I was looking for a portion of my portfolio to provide very predictable streams of income. ATMs are a real asset at the end of the day, it’s a  real asset play, and it’s something that everybody understands. You walk up to an ATM machine, you take money out, and when you take money out, you typically see at the bottom there’s a little transaction fee… So there is a portion of that transaction fee that goes to the person that owns the machine, there’s a portion that goes to the person that’s renting it in the space, the restaurant or whatever place you’re in… And then to the investor.

So it was something that really made sense, it was really simple, and it fit into what I wanted that part of my portfolio to do.

Theo Hicks: Can you maybe walk us through an example of one of your ATM investments? How you’ve found the actual team that owned the ATM, and then what the compensation to you looks like. You don’t have to get specific if you don’t want to, but just to understand how much money I can make investing in ATMs, and then how do I find these ATM deals.

Billy Keels: So just explaining how it works, the mechanics behind it? Is that right?

Theo Hicks: I’m more thinking how do I find these people, and then how much money will I make.

Billy Keels: Perfect, I love that. So it’s much like most things  – you have to be in the right place t the right time, and you need to be able to find the people. So you’re asking the right questions – I’m sure people will want to know how do you find out more about ATM machines; as I’ve mentioned, I’ve done this passively.

One of the things I think is really important, Theo, is to continuously go out and look to build relationships. I know it’s something that you believe a lot in as well. And I have done that not only living in Spain, but you meet a lot of people doing things remotely, on Zoom, or Skype, or Teams, or whatever the case may be… But I actually spend a lot of time where I invest my own capital to fly back to United States. So going to a number of events in the United States, I was able to meet people, and a lot of times, in a lot of these different events, there are people that have certain types of opportunities. It can be self-storage, it can be multifamily, it can be ATM. I didn’t know much about ATM, but it was something — just like you’re asking the question now, it’s like “Okay, let me find out a little bit more about this. I don’t have any idea about it.”

So through a number of different relationships and getting to meet people over the span of a year, I was able to find out specifically about the ATM opportunity. So having taken action, gone to the U.S, met someone at an event, when I was there at the event; we had a conversation then offline. I had a chance to meet them offline back in the United States, and then found out more about the specific ATM opportunity.

Basically, the way that the ATM works – and this is different for different people, but this specific ATM works… Is you put a certain amount of money – this is typically for accredited investors; I believe it’s accredited investors only, this particular one… But you place your capital; you have a seven-year lease on the ATMs. For the use of your capital during the seven-year period you get a predictable stream of income every single month. So every single month for the use of your capital, for a period of seven years, you get the exact same amount of capital, that you can see from now until seven years from now.

Going back, it’s really about being able to build relationships, meet people, ask the right questions, and find out about the opportunity; that was done offline.  We went online, and eventually offline, and it was something that made sense for me and that specific portion of capital in my portfolio. So hopefully, that is clear, how we built the relationship, and also the way that this particular ATM works.

Theo Hicks: Something else I wanna ask you, too – we talked about before you were in real estate you were doing the stock market, and how the values kind of fluctuate, you’re not really in control, and so you knew that you needed to transition into something else that gave  you more control… But it sounds like you’re kind of investing your own money  into your active business, you’re investing money passive into real estate, you’re investing money passively into ATMs… How do you decide what portion of your money goes into what? Or maybe a different way to look at it is  am I gonna invest in ATMs next, or am I gonna invest in my own deals next, am I gonna invest in this next? Or was it kind of just as opportunities come up? How do you know what to invest in and how do you know what portion of your capital should go into what?

Billy Keels: Okay, I love that question. And I guess this is maybe just giving you a little bit more about my background and how I grew up. I grew up in a family where we didn’t have lots of excess capital, so one of the things as I started to get to know myself  even more – I really fell in love with being able to see money in the bank, because that gave me a sense of security, and a sense of satisfaction.

Up until recently, I really was one of those people that believed “Just have more and more capital.” And as I’ve continued to get educated more and more, it’s about making sure that my capital is always working out. It’s always on the treadmill and moving. So at the same time, I wanna make sure that there is always a portion of my capital that is in the bank, so that I can sleep well at night no matter what.

And then from there, it’s going through a process of saying “There is a portion of my capital that I know that I want to be able to actively manage”, for a couple of reasons. Number one, because I want my business to continue to grow; so through that business and placing capital and building the relationships I’m able to make sure that that capital will also get the highest financial return, as well as educational return, I believe… And I have that portion of my portfolio that isn’t active.

And then there is a lesser portion of my portfolio that I know that I don’t want just sitting in the bank, Theo, because that’s something that I did for a really long time, and I realized that that wasn’t it. I’ve been in an area where I wanted to know more about multifamily investing, so I knew that I wanted to place capital in at least one or two other passive investments. So it was more about the quantity of investments in multifamily assets. I knew that I wanted to do something that was development, so I placed capital on development, and then there was just additional capital.

So the ATM play was really the wild card that went beyond the multifamily, and went beyond development. So it wasn’t any more sophisticated than that, but I knew more than anything that there was a portion of my capital that I just wanted to be in the bank, so that I can sleep well at night; the other portions of my capital were specifically there to be able to invest. A larger portion for direct investment, to build out my business, and then the others were to gain more experience and have that capital working.

Theo Hicks: And then really quickly – you don’t have to give me exact numbers, but if you had 100% of your money, what percent is that security blanket, what percent is being actively managed, what percent is being passive invested? If you had to give me ballpark percentages.

Billy Keels: For me it’s 15% that is just sitting there, that I know just needs to be there to help keep me fine in the evening. Then there’s gonna be about another 45%-50% that is actively for my business, and then another 35% that is moving or investing through and with other people.

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

Billy Keels: So one of the things I believe is that you need to surrounding yourself with the right  team of people that are where you want to be, so that they can always inspire you. And most importantly, you need to take action. And take action before you’re ready; don’t be like I was many years ago, and I’m still fighting through this as a recovering perfectionist. So don’t wait for things to be perfect before you get started, or you will lose so much time. And time is really what is the most important thing. So start before you’re ready I guess is probably the best thing.

Theo Hicks: Alright, Billy, are you ready for the Best Ever Lightning Round?

Billy Keels: I am. Let’s go!

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

Break: [00:17:21].05] to  [00:18:10].23]

Theo Hicks: Okay, Billy – if you guys are watching on YouTube, you’ll see the beautiful bookshelves behind him, so… What is the best ever book you’ve recently read?

Billy Keels: Wow, the best ever book I’ve recently read… It’s one that I talk about a lot. It’s called “The creature from Jekyll Island.” I say “recently read” because I’m rereading it again; it’s by G. Edward Griffin. It’s just amazing if you really wanna understand what is happening what is happening, how the money system works, debt… It’s “The creature from Jekyll Island.”

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

Billy Keels: The first thing that I would do is, number one, make sure that I have a clear plan, and reach out to my network.

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

Billy Keels: Wow. So I definitely lost money on a deal; the one that has been the most painful is I lost $25,000 because I did not take the time to read a home inspection. I got the home inspection done, but once I got the home inspection done, I didn’t read it and really understand it. I just felt good because I got  it, and it cost me $25,000 on some roof issues… So the lesson is if you’re gonna take the time to get the inspections, make sure that you or somebody on your team understands what the potential risks are. That cost me $25,000 about seven months into owning the property.

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

Billy Keels: Without a doubt it’s — my company purchased a mobile home park in the Charlotte MSA. Without a doubt, it was the best opportunity, primarily because it was one where the owner – he was really skeptical of owner financing, and once he understood, because myself and the broker would really spend time helping him to understand the advantages for him from a taxation perspective, he got his accountant involved, and it was something that really worked out well for him, and it also worked out for my company as well. So that was without a doubt the best ever opportunity.

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

Billy Keels: Really two ways. Number one is there’s something that we do every year, where we actually donate capital to a local children’s school just outside of Barcelona. At the same time, I also love spending time helping people to understand, especially really busy six-figure salary employees to understand more about finances by playing Cashflow 101. It’s one of my favorite things to give back.

Theo Hicks: So we have a few more minutes, and there’s one thing I wanted to ask, and I wanted to make sure I have enough time… So you do work full-time as an application software sales executive, and then you’ve got half of your money in your active real estate business, buying mobile home parks, and rental properties… You’re passively investing… When are you doing the real estate aspect of your business? Do you have a job that allows you to do it during the day, or are you waking up really early, or doing it at night, or only at weekends? How does that work?

Billy Keels: Yeah, great question. One of the things that I’ve been very blessed with is that I sleep very little. So I love – and I like to share on different social media platforms as well – to wake up in the morning. I don’t have an alarm clock or anything like that, but I’m usually up somewhere between [4:30] and [5:30]. For where I live, that’s really early… So I go through meditation, reading in the morning, getting things done, and then I can focus on my business before my boys wake up and get ready for school.

So between about [4:35] until 8 o’clock I really have time to focus on myself, on getting my energy right, and also looking at the business. Then I’m working typically from about 9 until 6 or so, and then afterwards I like to spend some time with my boys. It doesn’t always happen every single time, but I do like to get some quality time with them, and then typically once I have dinner, I’m going back and I’m working on building relationships, I’m on the phone, or specifically looking at the properties, and then I’m in bed somewhere around [11:30], 12. [unintelligible [00:21:44].09] and I try to maximize every single minute that I can between family, my own business, and definitely with the company where I’m working, where I continue to overachieve, again, some of the objectives.

Theo Hicks: Thank you for breaking that down for us, I appreciate that. I’ve always wanted to try the getting up early, but I definitely cannot survive off of that little sleep… Maybe it’s something you just kind of get used to.

The last question is what’s the best ever place to reach you.

Billy Keels: The best ever place to reach me is basically on my website, which is BillyKeels.com, which you’ve talked about before. If anyone wants to learn more about long-distance investing and some of the things that you can avoid and a lot of the mistakes that I’ve made, you can also go to billykeels.com/seven-mistakes-to-avoid, and we’ll be in touch. I’ll get you a PDF so you can avoid the mistakes that I’ve made.

Theo Hicks: Perfect, Billy. Well, thank you for joining us. A lot of solid info, I think, in this interview. Really, we kind of focused a lot on two things. Number one is how do you do your full-time job and invest at the same time? For you, you don’t sleep a lot; for other people it’s obviously working in the morning, working at night, or working on weekends…

And then in the actual investment arena we’ve talked about diversification and the balance between the different types of ways you can invest… And then the benefits of each of those different types. So you’ve talked about you’ve got your money that kind of just sits there for security, and you’ve got the money that you actively manage for your financial reasons, but also for educational reasons; passive investing – same thing… It’s like, “Okay, I might be interested in doing this type of thing in the future”, so rather than just doing it for a year, you’re going to just passively invest in a deal and see what it’s like. I really appreciate you talking about that.

Then also you went into a lot of specifics on investing in ATMs, which I thought was very fascinating. Billy, 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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JF2313: Tennis To Investor With Sunitha Rao

Sunitha works in corporate financial planning for a biopharmaceutical firm while investing on the side for the past 2 years and currently has a portfolio consisting of 6 properties with a total of 9 doors. She shares how she dropped out of school to pursue tennis and eventually realized tennis wasn’t for her so she pivoted and went back to school to get a degree and now she is working full-time and building her wealth on the side part-time. 

Sunitha Rao Real Estate Background:

  • Works in corporate financial planning for a biopharmaceutical firm while investing on the side
  • 2 years of real estate investing experience
  • Portfolio consists of 6 properties with 9 door rentals
  • Based in Indianapolis, IN
  • Say hi to her at www.Griffixpropertygroup.com 

Click here for more info on groundbreaker.co

Best Ever Tweet:

“You have to add value in everything you do” – Sunitha Rao


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, Sunitha Rao. How are you doing, Sunitha?

Sunitha Rao: Doing well, thanks. And yourself?

Joe Fairless: I am doing well, and thanks for asking. A little bit about Sunitha – she works in corporate financial planning for a biopharmaceutical firm, while investing on the side; she’s got two years in real estate investing experience. Her portfolio consists of six properties with nine doors, and she’s based in Indianapolis, Indiana. With that being said, do you wanna give the best ever listeners a little bit more about your background and your current focus?

Sunitha Rao: Sure. My background is a little different from many people, especially those in the investing world. I spent actually the first ten years of my “professional life” as a professional tennis player.

Joe Fairless: Nice!

Sunitha Rao: I turned pro when I was 14, that’s why the air quotations are there. I retired at 23; no money, no education. I dropped out of school after sixth grade. I was basically a train wreck, right?

Joe Fairless: So don’t have my daughter do that then, huh?

Sunitha Rao: No. Don’t. Keep her in school. [laughs]

Joe Fairless: Okay.

Sunitha Rao: So at that point I was all about “Let’s get a good job, let’s make that stable income, let’s get going with life. There’s no reason to be poor and broke for the rest of my years.” So I went back to school, I got my bachelor’s, I got a job at a Fortune 500 company, in their management training program; it was a rotational program meant to breed leadership… And I thought life was great. But as time went on, I realize — and by “time” I mean like two whole years. It didn’t take me too long to figure out what was going on, I think. I was giving so much of my time to this company, and I just wasn’t seeing the same returns back for the time invested… And I started thinking “There’s got to be a better way to invest my time so that I can have more financial freedom, and maybe even earn back some of that time in the future.” And that was when I started looking into different areas of personal finance; I found actually Bigger Pockets and real estate investing, and just kind of dove in head first, studying basically any free moment that I had… Because I was also getting my MBA and working full-time at that time. I like to have a full plate.  [laughs]

Joe Fairless: Clearly.

Sunitha Rao: And then it took me about two years to save up a little bit of money, and then I started investing in Indianapolis, after I’d saved up that money and gotten a little bit of that knowledge base. However, at this time I was still based in Boston, still working that full-time job, still trying to make ends meet, figure things out on a single W-2 income salary. So that in itself was a really interesting process.

After that first investment, spring of 2018, a little over two years now, I’ve gotten up to nine doors using a variety of strategies, from BRRR, long-term buy and hold, I have an Airbnb, I’ve house-hacked, I’m still house-hacking, I’ve done seller financing, investor financing, you name it. I’ve had to use a whole variety of strategies in order to make the most of my W-2 income, so that I can grow this business as safely and as quickly as possible.

Joe Fairless: Wow, you have just been resourceful and made it happen. When you left the tennis world at age 23, I think I heard you — you said you went back to school. Now, I imagine you already had your high school degree, right?

Sunitha Rao: Uhm…

Joe Fairless: No?! Okay, tell us about that. So you’re 23 years old and — what do you mean when you said you went back to school?

Sunitha Rao: So what I had was a GED, which was an equivalency diploma.

Joe Fairless: Yeah, that checks the box, right?

Sunitha Rao: Yeah, but this test is so easy; I feel like if you’re even halfway literate… I dropped out of school after sixth grade; I didn’t know any high school math. I didn’t even finish middle-school math, yet I don’t know how I was able to get a high school equivalency diploma when I didn’t do anything after that, essentially… So yes, I did have a high school degree, but when I went back to school, I enrolled in local community college and I had to take 6-8 months of remedial English and math classes to get myself back up to a college level. Then I started from there.

Joe Fairless: Okay. And then you got your undergrad?

Sunitha Rao: Yes. I eventually got kind of an academic merits scholarship, which is hilarious…

Joe Fairless: Wow.

Sunitha Rao: …and so weird, at a private school up in Boston called Babson College.

Joe Fairless: Oh, yeah.

Sunitha Rao: They focus on business and entrepreneurship. So I was really lucky to have landed that spot, and ended up getting my undergrad from there.

Joe Fairless: And how were you paying for school?

Sunitha Rao: Through scholarships and merits, and I was also working all the time; I was teaching tennis on the side, I was bartending on the side, waiting tables… I dog-sat, I baby-sat… I didn’t like kids then. [laughs] I did basically anything I could to fund my existence during that time.

Joe Fairless: So then you saved up some money and you bought your first place… What did you buy and how much money did you save up to buy it?

Sunitha Rao: I think at the time I had about $60,000 saved up. I bought — there were two homes on the same parcel. They weren’t attached, it wasn’t a duplex. It was a single-family home with a dethatched carriage house, and it was in one of the more affluent counties in Indianapolis, while not being in the most affluent city. So I was getting a lot of the run-off with people who couldn’t afford to be in the best area, but still wanted their kids in the best school district, and they wanted to be in a low-crime neighborhood, and that sort of thing. So it was a really good situation to have found; I found this while I was still half a country away, essentially.

So the numbers – the purchase price was 95k. I spent about 11k in initial rehab, and got that rented. Since then, I have transformed this property; it’s much more profitable now. At that time I rented the main house for $800 and rented the carriage house for $500. So it was still about 1.3% price-to-rent ratio. But since then I’ve had to invest probably another 13k, but I turned the dethatched carriage home into an Airbnb. It’s this 400 sqft. level home that is just so awkward and weird… But it’s been great as an Airbnb. I’ve been doing it about a year. I’m grossing between $1,400 to $2,000 amount, so that’s netting at least 1k a month after all of the  holding expenses, and stuff.

Joe Fairless: Wow.

Sunitha Rao: So it’s a little over 2% in a very good area.

Joe Fairless: And it’s been over a year since you’ve been doing the Airbnb. How has the impact been over the last 3-4 months?

Sunitha Rao: It’s actually not been too terrible. When Covid initially hit and the travel started to die down, and the quarantines were in place, I actually shifted to a medium-term rental, so like one month here, another person who wanted two months… So I was really lucky to have found it; it’s not like I went out searching for it, they just reached out to me via VRBO or Airbnb, and we’re like “What can you do…?”

I definitely had a little bit of a hit in terms of profit, but it’s still way more profitable than a long-term rental, so I consider that a win.

Joe Fairless: You bought it for $95,000… What type of financing did you get?

Sunitha Rao: Conventional. That was my first deal. There’s no way I was going into it with cash; not that I had it, or any other options… So yeah, I did the conventional route. But it’s actually helped me out getting into it with a little  bit more equity, because about a year and change after I purchased the property I refinanced that and a couple others into a commercial mortgage… And that property actually ended up appraising for about 140k. So I already had 20% equity, it appraised for 140k, and I was able to get a line of credit as a second position, that I’ve since been using to fund other rehabs and other acquisitions. So I actually didn’t mind in the long run having a little more equity in that property.

Joe Fairless: I’d like to talk more about that in just a brief moment… But first, you were in Boston at the time, and this is in Indianapolis… Are you from Indianapolis?

Sunitha Rao: No, I have never been to Indianapolis before doing that deal… [laughs]

Joe Fairless: Really?

Sunitha Rao: Yeah…

Joe Fairless: How did you come across the deal?

Sunitha Rao: MLS.

Joe Fairless: MLS, but how do you know — were you looking at MLS’es in a bunch of cities, or what?

Sunitha Rao: No, I was focused on Indianapolis. I’m a visual person, and what I did was I built out this map of where the Trader Joe’s were in the city, where the good school districts were, where certain crimes were happening, so I  could get a visual depiction of exactly which neighborhoods I wanted to be in. Then when I looked at the MLS, I would look at it in the map view; and when something popped up in my price range in the right area, I could pull that trigger really quickly and know what I was looking at.

Joe Fairless: And how did you have access to the MLS?

Sunitha Rao: Through a broker.

Joe Fairless: Through a broker, okay. So you were working with a real estate agent… And did they give you access  to the MLS? Or were they looking–

Sunitha Rao: They would just send me the drip feeds whenever something came within my criteria, and that’s when I would use the map view.

Joe Fairless: Okay, cool. Well, I wanna talk about what you just mentioned… You refinanced that and a couple others into a commercial mortgage, and then you got money out… Plus, you got a line of credit.

Sunitha Rao: Yes.

Joe Fairless: Please elaborate on that. Next level.

Sunitha Rao: This is one of my favorite things.

Joe Fairless: Yeah, next level is what it is.

Sunitha Rao: Thank you. [laughs] So a lot of people talk about having “dead equity” in the smaller residential area, and I don’t think that’s 100% true because of what I’ve been able  to do. It also, I think, highlights the importance of not only buying for cashflow, but also buying with plenty of equity and for appreciation in good areas. I’m a firm believer in balancing the two, and that it’s possible.

So I found a lender; it was a local portfolio lender. This was one of the benefits in terms of moving to Indiana, because then I was able to network and build the relations I needed to meet these people. But I’ve found this lender who would take a minimum of five doors — it didn’t even have to be five properties, just five doors… And they would appraise it. They would have to have first-lien position. So they would have to have the primary loan under their name, but then for whatever equity was left over after whatever they loaned on, they would give a line of credit. It’s essentially like a HELOC, but it was under my LLC, so it was kind of like a business equity line of credit; I don’t know if that’s actually a name, if that’s the actual name for it…

So I went with them, I refied, and even though it was on a 20-year amortization schedule, they were able to offer a lower blended interest rate that actually brought my payments down. At this point I think it’s like $200/month lower, despite being on a shorter amortization schedule.

Then they did the appraisal. There were three properties, five doors, and they said “Okay, you have this much equity. We will lend–” I think it was 80%. I forgot if it was 75% or 80% of that, in this line of credit… Which you can basically use as a credit card. I don’t use it a lot of time, but when I need to have the cash for a BRRR, or now that I’m paying that off, if I want to acquire, I can just pull on that cash and be a cash buyer, which is so impactful, and also really helpful, because on my single W-2 income it’s not like I’m gonna have hoards of cash sitting around. I’m just trying to figure this out and basically get by and grow this as time goes on. So having just this little pile for an acquisition fund is so beneficial.

Joe Fairless:  Oh, it’s empowering, because you know you’ve got that in your toolkit, and should you choose to exercise it, then you have the ability to close on deals that you wouldn’t have… But just the confidence in knowing that you’ve got that in your backpocket, it’s gotta be awesome.

Sunitha Rao: If you told me two years ago that I would have X thousand dollars just sitting in cash, doing nothing, until I want to do something with it, I would have told you you were crazy. But there’s a  way to achieve things if you just keep plugging along.

Joe Fairless: So on that refinance where you put it all under a commercial mortgage with a portfolio lender that’s local to Indianapolis – just so I’m clear, you didn’t get any money out, just that money that you would have gotten out was a part of equity that you have a line of credit against up to 75% or 80%… Is that correct?

Sunitha Rao: That is correct. I didn’t look into options for cash-out refi, because I didn’t want one.

Joe Fairless: Why not?

Sunitha Rao: So let’s say I could cash-out refi for 200k – then I could pull that cash out and it would also be sitting there, but then regardless of whether I am using it to earn a return or not, I’m paying for that. I much preferred with where I am at this point in my investment journey  to not have to incur extra costs while I’m not using the money.

Joe Fairless: And what do you mean by you’re paying for that in extra costs?

Sunitha Rao: Because it’s essentially a loan, right? So if it’s a cash-out refi, you’re taking out that 200k, you’re taking the money from the bank and you are keeping it. And if you get to keep the money, they’re like “Sure, you can keep it, but you’re gonna be paying that in a larger loan value.” Now I only took out, let’s say, 150k, so I’m only paying for 150k until I wanna use that 50k. When I use that 50k and I can earn a return with it, then I’m like “Okay, I’ll pay the bank for it, because I’m making money off of it anyway.” But the rest of the time, I don’t have to.

Joe Fairless: Do you remember what the interest rate is?

Sunitha Rao: Yes. Initially, it was 5.5% for the primary, and I think the HELOC (or the BELOC) was 6%, but then when interest rates dropped this year, I went back to them and I brought them like a bunch of business, and we’d all become buddies, and I was like “Guys, help me out here.” They were like “Okay, let me talk to underwriting.” Because it was a portfolio lender, because they did everything in-house, a week later they came back and they were like “Okay, we’ll lower your rates.” And I didn’t have to pay a dime or do anything else.

So now I’m at 4.75% on the commercial/primary, and 4.75% on the business line of credit.

Joe Fairless: Good for you. Wow, they lowered both.

Sunitha Rao: Yeah.

Joe Fairless: I could see them lowering the line of credit rate, but you’ve got some power of persuasion to have them lower the other one… It wasn’t fixed, was it?

Sunitha Rao: Five-year balloon.

Joe Fairless: It was a five-year balloon… Fixed interest rate?

Sunitha Rao: Until the five years, and then we’ll see after that.

Joe Fairless: Yeah. So they lowered a fixed interest rate?

Sunitha Rao: Mm-hm…

Joe Fairless: Wow. [laughs]

Sunitha Rao: It pays to make [unintelligible [00:17:42].02]

Joe Fairless: That’s me clapping right here. That’s me clapping. Wow… Okay. So let’s talk about what you did right there with the lender who you had a fixed interest rate with, but yet you go to them and you somehow convince them to lower your fixed interest rate. I’m not sure the right question to ask, other than I’ll start with how did you convince them to do that?

Sunitha Rao: It’s everything else. You have to add value. If I hadn’t worked on building those relationships… I make it as easy as possible for them to work with me. They’re working with me because they make money off of me. And if they need information when they’re trying to get something to work, I am on it right away. I answer emails, I don’t make them wait, and then as time goes by, when I find people who I think will be a good fit, I’m always looking to connect people. And if I can find people who will be a good fit, then I connect them right away. Sometimes it works, sometimes it doesn’t, but I try to make sure that it will work before I meet with them, so that I don’t waste anybody’s time.

Joe Fairless: What are some examples of how you added value to them in the past, other than you business?

Sunitha Rao: I brought them other investors who were looking for similar products in the area, and who I thought would also be easy to work with and enjoyable for them to work with. It’s not enough that they just bring money if the guy’s a complete jerk. So I’m very careful with the people I connect. I like to make sure that they’ll be able to execute, and they’ll also just be generally good people.

Joe Fairless: And how many customers have you brought them?

Sunitha Rao: Quite a few. I don’t know the exact numbers, but these aren’t people who have one home or two homes. These are also portfolios of dozens of homes, or millions of dollars etc. So I bring them the gamut, and then I also work to help them on their residential space; there are other people I know who are trying to have HELOCs – I’ll connect them. So then I have an overall holistic, strong relationship with the bank.

So even if I’m like “Hey, I haven’t done anything for a minute for you, but I talked to the other lady on the residential side and I heard things are going well. She’s gotten a couple HELOCs” etc. So they want to keep working with me because I’m bringing value to them personally, but also to the bank.

Joe Fairless: It makes sense. So if you had to guess or estimate about  how many referrals you’ve sent their way… Give it your best shot, if you wouldn’t mind.

Sunitha Rao: Probably at least two dozen, at least.

Joe Fairless: And they’re highly qualified, based off of what you’re saying.

Sunitha Rao: Oh, yeah.

Joe Fairless: Say you’ve got a new referral today. Are you sending it to the same person you’ve been speaking to all along and have a relationship with, or are there a couple people that you make sure always copy it on the emails, and they see that you’re hooking them up.

Sunitha Rao: I try not to flood anyone’s inbox. So the people who will directly benefit are the ones who will have that connection.

Joe Fairless: Okay. So do you have one point of contact there?

Sunitha Rao: It depends on the need. Within that specific bank there are two points of contact, and I’ll loop in whoever is needed at that point.

Joe Fairless: Okay, so there’s two different people who you have a really strong relationship with.

Sunitha Rao: Yeah. And you also have to really know what they’re looking for and what they can offer. If someone comes to me with a cash-out refi, wanting a contact for a cash-out refi for X property, and I know someone at that bank – if one side of that bank is not gonna work, I won’t even go there, because that’s not gonna be in the investor’s best interest. It is  a warm lead for the bank, but the bank might not be able to execute on that, so why would I wanna waste their time?

So it’s about looking through and evaluating each individual with their unique needs, and figuring out how to help them, and that in turn somehow helps you… I don’t know. But it’s worked.

Joe Fairless: Oh, absolutely. I have a relationship with a local bank, and I have not once asked them  “What types of customers are you looking for, who maybe I can bring them to you?” I’ve never asked that. Never even thought to ask. And I pride myself on — I have a vision board, and on my vision board in the middle it says “The secret to living is giving.”

Sunitha Rao: I love that.

Joe Fairless: But I’ve never even thought of asking the questions that you were asking them, and then connecting those dots…

Sunitha Rao: It’s not just that either… So when I talk to the residential broker there, I’m like “Okay, so if I bring someone to you, what’s the most efficient way to get them through your process and to give you the information?” And she’ll be like “Okay, if this is the situation, just send me an email. If this is the situation, they can apply online. Here’s the link.” That also makes it more efficient for both the banker and the person trying to reach out for the loan product.

If they are larger investors, usually I connect them personally, so that both sides can build that relationship, because there’s more possibility for a long-term relationship in those situations.

Joe Fairless: Yeah, that is beautiful. That is absolutely beautiful. I will today email my point person at my local bank and ask her — in so many words; I’ll wordsmith it, but “Who can I introduce you to? What are you looking  for to help your business?” And then as a follow-up, what’s the best way to do that, so that I’m not (as  you were talking about) flooding someone’s inbox and not becoming a nuisance when I’m trying to help; I don’t want it to backfire on me.

Sunitha Rao: Exactly, exactly.

Joe Fairless: Well, taking a step back, what is your best real estate investing advice ever?

Sunitha Rao: It is to think outside the box. I’m paraphrasing a Steve Jobs quote that I saw somewhere, but it has to do with getting ahead. If you want to succeed or get ahead, look at what others are doing, but do it differently. And I think investing is no different. When we invest in real estate, it’s the same thing like buying a stock. You’re trying to identify a mispriced asset. And if you are looking at everything in the same way that everybody else is, if you’re looking in the same place that everybody else is, doing things the same way, you’re shooting yourself in the foot.

So that’s in terms of investing… But then also, looking at what others are doing who might have the same goal. My goal is financial independence, and I have a lot of friends in the FIRE arena; one of them was like “Yeah, you have to go to FinCon.” FinCon, for those who haven’t heard of it, the tagline is “Where money and media meet.” It’s the largest personal finance conference, geared towards those who put out financial content – financial advisors/websites etc. When he told me that, I was like “You’ve got to be out of your mind. I don’t have a website.” I didn’t have an Instagram at that point. I had three houses. I was like “What am I gonna do?” But I trusted that he knew what he was doing, because he was so much more successful. And I went, and it was one of the best decisions I could have made for my investing career. I met so many people, got so many ideas… It was amazing.

So don’t be afraid to do things differently than  maybe you initially saw yourself doing.

Joe Fairless: Story of your life, right? Tennis from 14 to 23, and then just making a very dramatic pivot at that point…

Sunitha Rao: Yeah, basically. Thanks for connecting those dots. I hadn’t seen that until this point.

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

Sunitha Rao: Yes, I am ready. Let’s do it.

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

Break: [00:24:46].11] to [00:25:27].00]

Joe Fairless: Okay, what deal have you lost the most amount of money on?

Sunitha Rao: I don’t think I’ve lost money on any deal just yet. However, I did just finish a BRRR. I literally refinanced three days ago, completed the refi… And that was not as successful as I had hoped, because — we all make rookie mistakes; I made rookie mistakes on this go around. I didn’t factor in holding costs, because it leased and rehabbed during the time of Covid, so we had trouble getting materials, it took longer… So I didn’t take that into account. I didn’t take in to account refinancing costs, etc. So I definitely ended up leaving more in the deal than I had wanted. I still would have done it, but that was a little bit sad for me.

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

Sunitha Rao: I am very passionate about social causes. At this point I’m a little bit formant in my activities, but in prior years I’ve been heavily involved in women’s causes, diversity and inclusion initiatives at my workplace, LGBTQ community stuff, presenting at workshops and just doing anything I can to help those who I think don’t have as strong a voice, or helping those who may not have allies. That’s really why also I’m in real estate… I really want to be involved in non-profit work as a long-term goal. I just can’t do that right now with my job in real estate.

Joe Fairless: Any non-profit in particular?

Sunitha Rao: Yes. One is the National Coalition of Domestic Violence Against Women. I am a survivor, so that is something that means very much to me. I’m also after my time in my LGBTQ [unintelligible [00:27:00].04] at my prior employer; I’m also really passionate about that. I have many friends who are in the LGBTQ community and have seen how they have suffered and been treated unfairly, and not been able to have the same experiences and opportunities as many of those who have the privilege of being straight, or in more of a majority position. So those are two areas I’m particularly passionate about.

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

Sunitha Rao: I have a website and I have an Instagram. Both go by the same moniker, GriffixPropertyGroup.com. And then my Instagram goes by that handle, @griffixpropertygroup.

Joe Fairless: Sunitha, it was a pleasure having a conversation with you and learning from you and your path, and your resourceful ways about getting deals done… Which we didn’t get into a whole lot, but I’m confident that we got into some stuff that was at least equally as valuable, which is adding value, and specific ways to add value to lenders, so that you can build that relationship and ultimately save money on what is likely your largest expense for the deal.

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

Sunitha Rao: Thanks for having me.

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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JF2309: Beginning Their Investing Journey With Ambrose & Chidi Ozieh

Ambrose and Chidi Ozieh are both young real estate investors who have been investing for the past 6 years. Ambrose left her education job to focus on real estate investing and being an active agent. During these few years, they have acquired 5 rental properties and currently work together to continue to grow their portfolio.

Ambrose and Chidi Ozieh Real Estate Background:

  • Ambrose recently left her education job and is now focusing full-time on real estate as an active agent and investor
  • Chidi, her husband, is an artist and investor part-time
  • 6 years of real estate experience
  • Portfolio consists of 5 rental properties
  • Based in Brooklyn, NY
  • Say hi to them at amaproperties09@gmail.com 
  • Best Ever Book: Richest Man in Babylon

Click here for more info on groundbreaker.co

Best Ever Tweet:

“Just get started” – Ambrose & Chidi Ozieh


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 have two guests – we have Ambrose and Chidi Ozieh. How are you both doing today?

Chidi Ozieh: We’re doing great. You know, we’re in Covid, but we’re good.

Ambrose Ozieh: Thank you for having us, Theo. We are doing well.

Theo Hicks: That’s good to hear, and thank you for joining me as well. A little bit about their background – Ambrose recently left her education job, and is now focusing full-time on real estate as an agent and as an investor. Chidi, her husband, is an artist and an investor part-time. They have six years of real estate experience with five rental properties. They are based in Brooklyn, New York, and their website is AMAprops.com.

Starting with Ambrose – do you mind telling us some more about your background and what you’re focused on today?

Ambrose Ozieh: Yes, so I was born in Ghana, but my family moved to the U.S. when I was very young, to Philadelphia, so that’s where I grew up. I followed the advice that most parents teach their children – go to school, get good grades, become an employee. So I went to Penn State, [unintelligible [00:04:20].26] and after that I worked in the non-profit world. Then I eventually moved to New York for me to go to grad school at NYU.

In Philly, that’s where I met Chidi, my husband, who had just recently moved to the U.S. from London. I always knew that I didn’t want to work 30 or 40 years forever as an employee, but really didn’t know what I wanted to get into until we decided we didn’t want to pay the high rents of New York anymore… So we started saving as much as we could to have a down payment to buy a house. But this was even before we learned what real estate investment was. We just wanted to buy a house to live in.

Chidi Ozieh: Yeah. And mine is a similar story, just in the opposite side of the pond, in England. I was born and raised in London, and I grew up with a similar thing – go to school, get good grades, get a 9-to-5 job, work, retire, and then die, that kind of a thing. But I saw my parents – they were entrepreneurs, they had their own business, so I always knew there was a difference between having a business and having a regular job.

Eventually, I knew I want to start a business, didn’t know what that was gonna be… So I got the opportunity to emigrate to the United States in 2008 during the height of the credit crunch and the recession – which is a great time to emigrate anyway – and I met Ambrose in Philadelphia the year after I emigrated. We decided to move to New York two years later, and we kind of fell into real estate accidentally, for the want of not wanting to pay high Brooklyn rents anymore. So that’s our background.

Theo Hicks: Perfect. So was the first piece of real estate you bought your personal house in New York?

Ambrose Ozieh: Yes. Our first property was also an investment.

Theo Hicks: Okay. Maybe walks us through that then.

Ambrose Ozieh: Yes. So around 2013 we decided that we had saved enough where we could buy a property, but we actually didn’t really know the different ways we could go about it… And again, this is New York, so the price point is quite high… So we talked to different mortgage brokers and we decided that we were gonna be able to buy a property with FHA. It took us about nine months from when we decided to actually go and find the first property.

We were coming from work every night, going to see properties, every weekend going to open houses.

Chidi Ozieh: Getting outbid a lot.

Ambrose Ozieh: Yeah. We were newbies, we didn’t even know how things worked. We would emotionally invest in a property, and then we would get outbid with a cash buyer. So it took us a while… But because it took us so long, we learned exactly what we needed to buy. Our main goal was to buy a property that had a lot of rooms and square-footage, because we knew we wanted to rent some of the units.

So once we found our first property, we knew that that was the property, because it was large, it was three floors, two units, and a lower-level floor. We found it off-market actually, through an agent that we had come to; he told us he was the wholesaler, but also an agent… So he told us he had just sold this property to a flipper; so if we wanted to meet the flipper before he fixed the house.

So he set up a time, we met in the office and we negotiated the price… So by the time we went into contract, to closing  it took about eight months, because that’s how long it took him to renovate the house. It was a large house.

So yeah, we learned from that, and because we knew the seller before he renovated, we had a lot of input in terms of what we wanted inside the unit. So we were able to pick our cabinets, our countertops, the type of floors we wanted…

Chidi Ozieh: And just to add to that – it’s a three-family house, and there’s two larger units and one smaller unit. We decided to live in the smaller unit, because Ambrose said “We’ve been saving since we met to purchase the property”, and that frugality carried us through to want to live in the smaller unit and rent the other two out.

And by doing that, we kind of fell into what’s called house-hacking, without knowing what it meant to be house-hacking… And getting our first two renters, we were like “Wow, this is like magic. You basically just sit and get rent checks.” [unintelligible [00:08:33].02] any maintenance. We didn’t have any roof leaks or any things for maintenance to get, so we were just getting rent checks and we were able to save our W-2 income, all of it, in the bank. That feeling of being able to save 100% of your money is an amazing feeling when you have a W-2 job.

That kind of changed the game for us, and that made us understand that real estate is something that we wanted to pursue full-on.

Theo Hicks: Sure. So you had this deal, the house-hack deal… What was your next deal?

Ambrose Ozieh: So our next deal, again, we were constantly saving… After we bought the first one, in about a year the house had appreciated enough where we could take out the equity. So again, we talked to a mortgage person who did the math and he told us how much we could pull out. It had appreciated about 30%-40%…

Chidi Ozieh: Actually, about 50% or 60%, because what happened was — again, Ambrose said we were looking for nine months… We actually got word that a certain part of Brooklyn was being rezoned, and it hadn’t been announced yet. So we bought in that area before the mayor rezoned the area for more development… So that made the prices of all the properties go up the year after we bought it a lot. So we were able to capitalize on that.

Theo Hicks: How did you come across this information?

Ambrose Ozieh: A lot of research, and just by talking to a lot of people. So going to the open houses, reading, constantly every morning reading the news about the real estate market and the different areas of Brooklyn… So we knew about the rezoning before — the seller didn’t know that it was going to be rezoned, and he found out after we were already in contract, and he tried to get out of the contract, but he couldn’t.

Chidi Ozieh: Yeah. And also, the area that we were in is an area called East New York, and it’s the last transit hub left in the city, where all the trains meet… So it was kind of inevitable that eventually it was gonna get rezoned for higher-scale development… Because in New York – I don’t think many people know, but it takes them two lifetimes to build a subway line here… So it’s very transit-rich. It’s like 20 minutes from LaGuardia and JFK. It was a no-brainer that it was gonna get rezoned eventually. It was an outlying area in New York City.

Theo Hicks: Sure. Do you mind telling me exactly how you found  this out? Did an article get released one morning and you’re like “Oh, this is amazing”? Or did someone talk about it at an open house? How did you come across the information specifically?

Ambrose Ozieh: So while we were looking, we were able to connect with our local council member. And we weren’t friends, but we became acquaintances with him. So he also told us that they were considering rezoning the area. So we got that info from him. But the local media – they were also covering it, but it was not like a sure thing, because the city still had to vote on it. So it was something that the city was considering. There was some media coverage, but it wasn’t as known until much later.

Chidi Ozieh: Like Ambrose said, having that information really made us look more aggressively at that area, and [unintelligible [00:11:33].10] that was undervalued in there… Because we kind of knew that within 12-18 months the appreciation would be enough that we could pull money out and purchase the next one. So that’s what we did.

Theo Hicks: Alright. So you pulled the money out of that property to buy your second deal. So what was your second deal? Same thing – how did you find it, what was the business plan, things like that.

Ambrose Ozieh: The second deal was listed on the MLS, so it was listed on all the different websites – Realtor, Zillow. So we found it, we contacted the agent, we went to see it… It was a two-family. There was one tenant, and they tried to sell it to us with a tenant, and we insisted no. We needed it vacant. So we were in contract about 3-4 months before the tenant moved out. Then after the tenant moved out, the contract price included the whole building being renovated. So we waited for the seller to renovate it, similar to what we did with our first house. So they renovated it, and we closed. When we closed, it was rent-ready. We were able to rent it right away.

What is great about that property is it was really — even more than the second one, the stepping stone, we got a tenant right away who paid two years upfront of a New York City rent. So we had a large sum right away to be able to invest again into another property. So that property really helped us to get to the next level.

Chidi Ozieh: Yeah, that property really helped us start off our investment fund that we now use to BRRR (buy, renovate, rinse, repeat). And as Ambrose said, that tenant paying all that rent upfront really galvanized that. Not only that, we were still riding the waves of the appreciation, so even that property has greatly appreciated… Because it’s actually bigger than our primary residence, so it’s really appreciated a lot even since we bought it, and everything else; so it’s really been a great deal that one.

Theo Hicks: How did the renovations being included in the contract – how did that work? I think I’ve heard of that before. That’s amazing, but let us know how that transpired.

Chidi Ozieh: What happened was the person that sold us the second property – he disclosed to us that he needed the money to buy a building. I think  he had a portfolio; he was selling off two or three other buildings, and he was stuck between a rock and a hard place because he had renovated the top unit [unintelligible [00:13:52].13] selling the building, and then the first floor tenant didn’t wanna move; so he then tried to sell it with her in it. So he was kind of stuck and needed to sell it. He [unintelligible [00:14:00].01] to us. I don’t know why he did that, but he did… And we used that as leverage, and said “Okay, we’ll meet you at your price, but you have to renovate that unit too, and get the tenant out within a certain timeframe.” So he did all that, and we kind of leveraged him to do what we wanted, which is very rare in New York.

Theo Hicks: So you kind of just said that “I want you to renovate the bottom unit the exact same as the top unit…” How did you come up with the purchase price then? Because obviously, since he’s investing more money into that unit. Was it just the original purchase price plus whatever he told you the costs were? Did you get receipts for this, or did you just kind of say “Hey, we’ll give you 10k extra”? How did that work when it came to the contract price?

Ambrose Ozieh: First we made the offer. It was lower than what he wanted. So we went back and forth between him and his agent, and we decided that “Okay, we can go up close to the number that  you want, but then it needs to be delivered vacant, and it needs to be renovated.” So he agreed to it, and we had a great lawyer and she put it in the contract – that it was gonna be delivered vacant, it was gonna be renovated to the standard of the top floor…

So we agreed to it that way… And to be honest, even with him, he tried to get out of it, too. It seemed there was some miscommunication between him and his attorney when he tried to get out of it and realized that he couldn’t. So it was all in the contract, he agreed to it… But like Chidi had stated, he also needed us to close as soon as possible, because he needed the money to buy a larger property.

And if you have someone who’s ready to go with 25% in New York City, and even if you’re good to get out of the contract, it may take you a few more month before you can sell it, to get maybe a few thousand dollars more. So for him – it was also worth it  for him to stay with us and close, so that he can move on to the bigger thing that he was looking to do.

Chidi Ozieh: And with that too, I believe also even at closing – because we had an inspection report a week before the closing… [unintelligible [00:16:07].28] we had a very good real estate attorney; she put in there “Subject to inspection a week before.” So we got all of our guys to come in there and inspect it, and then we found a hole in the roof, we found debris… So we got about 8k at closing off the contract price, which was great.

So it was a sweet deal, that one.

Theo Hicks: Yeah, those are two very interesting, unique deals, especially for your first two. Alright, starting with Ambrose again, what is your best real estate investing advice ever?

Ambrose Ozieh: I will say just get started… Because even with us, you can read all the books, listen to all the podcasts, go on YouTube… You can learn, you can study as much as you want, but it’s the first step. Just get started. Because once you start, that’s part of the education. You cannot know everything before you start. Starting is part of the education process.

Chidi Ozieh: Yeah, I would echo that, but I would also say actually have a date that you’re gonna start. Put things down on paper; don’t just say “I wanna  start, I wanna do it.” Actually have a date and set goals. And also, don’t get emotional when it comes to property. Our first house – we wanted new cabinets, we wanted granite this, we wanted this color, this kind of paint on the front of the house… If you’re gonna house-hack, it doesn’t really matter as long as on paper your tenant is paying your mortgage and  you make a little bit of money on top. It doesn’t matter if the house is bright green, and it has pink strips around it. It doesn’t really matter. All that matters is that the house is cash-flowing, and at the end of the month you walk away with some money in your pocket, and you haven’t got to pay your mortgage out of your own W-2 income. That’s all that matters.

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

Chidi Ozieh: Yes!

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

Break: [00:17:53].21] to [00:18:33].29]

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

Ambrose Ozieh: I would say for me not recently, but I go back to it time to time, is the classic “Richest Man in Babylon.” I like that book because a lot of the lessons and principles are now in some of the books, even Rich Dad, Poor Dad. A lot of the lessons such as paying yourself first – those are all lessons that are in that book. So I love that book. You can read it in one sitting, and there are a lot of lessons, and even a five-year-old can read and understand it.

Chidi Ozieh: And I would say Think and Grow Rich. Think and Grow Rich, even though it was written in the 1900s, I think that the lesson sit teaches are ubiquitous among everything, in terms of business, and how to really be training your mind to approach business and finances in a different way.

There’s also in that book a lot about having a   mastermind team, and how the mastermind really is important. I think that having a mastermind is something that people try and do or think about, supposedly, but don’t actually implement in their actual daily or weekly lives.

I think Think and Grow Rich is a great book in terms of changing your perspective when it comes to money in general.

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

Ambrose Ozieh: So like you mentioned in the intro, I am now a licensed agent in New York. I work with mostly investors who are looking — because I always find great ways of making deals work. Other than our first property, the next four were all listed on the market. It depends on your negotiation skills and the price point that you buy it at. Because a lot of people think all great deals have to come off-market, but it’s not true. We’ve found all of our properties, which were great deals, all listed on the market… So it depends on how you negotiate and the price point that you buy.

I work with a lot of investors to help them find properties, and we’ve also started to teach and coach people who want to get into the real estate game, especially for New York, because there’s a lot that you need to learn… So we’ve been doing that.

In addition, like I said, I was born in Ghana, so there’s a school in a town called Kumasi where Chidi and I – we help support, especially when it comes to girls’ education. It’s something that’s been very fulfilling, being able to contribute to that part of the world, and especially when it comes to education and girls.

Chidi Ozieh: Exactly what she said. [laughs] That’s the way we give back. We have started coaching, and also we love to support back home.

Theo Hicks: Perfect. And then the last question is what is the best ever place to reach you?

Ambrose Ozieh: You can reach out to us at AMAprops.com. People can also reach out to me directly, 347-471-1804. I’m always ready to chat and help other people who are interested in real estate, especially for the New York market. If they have any questions, they can always reach out to me.

Chidi Ozieh: And if you wanna email us directly, you can go to info@amaprops.com. That’s our email address on our website there. Or fill out the Contact form on the website.

Theo Hicks: Well, thank you both for joining us today and walking us through your first two deals. Very unique. The takeaways that I got was your first was patience, because you waited a long time to make sure you found the right property… And you waited long enough, since you had the information and the education to know what the right property even was.

Another lesson – a great way to get started is house-hacking, and if you’re gonna house-hack, consider living in the unit that will generate the least amount of rent, so that you make the most money. And then also, that you’re able to buy this deal from a flipper before he actually did the flipping aspect of it, so you had a lot of input into the renovations.

And then your second deal was also very interesting, and it teaches us a lesson on constantly staying up to date on the market we’re investing in, consistently networking with the big players, the decision-makers in that market, because you might come across a piece of information that can help make a deal work, or a lot better. I guess that was technically the first deal, but you said also the second deal as well, about the rezoning… And then also, leveraging information that the seller gives you, if they are motivated to make the deal even better for you.

For this example, the owner needed to sell, and you used that as leverage to get the property not only vacant, but also completely renovated and vacant. You also added in a contingency that the contract was subject to an inspection a week before, which allowed you to [unintelligible [00:23:20].18] because you got that 8k credit at closing…

So again, two super-unique deals. I really appreciate you guys sharing that with me and the Best Ever listeners… So thank you both for joining us again. Best Ever listeners, as always, thank you for listening. Have a best ever day, and we’ll talk to you tomorrow.

Website disclaimer

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

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

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

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

Oral Disclaimer

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

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JF2308: Build to Rent With Austin Good & Loe Hornbuckle #SkillsetSunday

Austin and Loe are partners in Good Horn Capital with a focus on “Build to Rent” developments. Loe’s background is in assisted living and memory care while Austin is a full-time real estate developer. Together they have been tackling their new venture and today they will be sharing it with you.

Austin Good and Loe Hornbuckle  Real Estate Background:

  • Partners in Good Horn Capital
  • Loe is CEO and Founder of Sage Oak Assisted Living and Memory Care
  • Austin is a Real Estate Developer
  • Loe was on episode JF1674
  • 89-unit, $20 million townhouse development
  • Both are based in Dallas, Tx
  • Say hi to him at www.goodhorncapital.com 

Click here for more info on groundbreaker.co

Best Ever Tweet:

“You have multiple exit strategies with build to rent communities” – Austin Good


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 have two guests – we have Austin Good and Loe Hornbuckle. Austin and Loe, how are you guys doing today?

Austin Good: Doing great, thanks for having us.

Loe Hornbuckle: Doing very well. Thank you for having us, Theo.

Theo Hicks: Absolutely, thank you both for joining us. Today is Sunday, so we will be doing a Skillset Sunday, since Loe was a previous guest… So make sure you check out Loe’s first episode, which was episode 1674. The skill that we’re going to talk about today is the build to rent strategy.

Before we get into that, we’ll quickly go over Austin and Loe’s backgrounds. They’re both co-partners in GoodHorn Capital. Austin is a real estate developer, and then Loe is the CEO and founder of Sage Oak Assisted Living and Memory Care. They are currently working on a 89-unit, 20-million-dollar townhouse development, following this build to rent strategy.

They’re both based in Dallas, Texas, and their website is GoodHornCapital.com.

Starting with Austin and then second with Loe, could you tell us some more about your background and what you’re focused on today?

Austin Good: Sure, absolutely. I got started in real estate in late 2008, early 2009. Prior to that, I was raising capital for oil and gas drilling projects; kind of like you see  on Wolf of Wall Street, Boiler Room sales tactics… Pretty high burnout businesses, that I did quite well in, but just got burnt out.

At the time, my brother was a residential real estate agent for several years already, and he had been asking me to come join him, and join forces and put together a company. So I got my license, and we formed our residential real estate sales team, the good home team which we’ve grown, and we should do about 1,5 million in commissions this year. My brother still operates that side of the business.

At the same time that we were growing that business, I started purchasing single-family rentals and flips. At first, just here and there, but as we went on, we started doing that at a pretty high level. By 2012, we actually had an opportunity to purchase our first development, which happened to be a 72-unit build-to-rent duplex community in Texas, which we still own to this day.

After that worked out for us so well, we decided that build to rent was sort of the future. We’re in various stages of two more as we speak. We’ll go more into the benefits of build to rent, but let me kick it over to Loe, so he can get his intro.

Loe Hornbuckle: Thank you. My background – I actually started in business in a car dealership, if you can believe it or not… So I spent the better part of 10 or 11 years working in a car dealership, and spending a lot of time in the finance department, which was very relevant, because you learned about loans, and underwriting, and you learned about risk, and talking to lenders, and negotiating with lenders… So that was a really important part for me.

I got into real estate in 2007. I started off in single-family, acquired a decent single-family portfolio. I thought I wanted to get into multifamily, spent a year being a property manager of a 400-unit complex. I didn’t love it; it was okay, but I really found my passion in assisted living and memory care, and so we started converting large houses into small, assisted living facilities. That’s ultimately how Austin and I met. I’m a man of few talents, but definitely terrible at construction…

And I saw a guy like Austin, that’s got some development and some construction skills, and approached him after we were introduced about partnering up, and kind of bringing my sales skills and his construction and development skills and our operation skills together to sort of form a great partnership and a great team. Then from there GoodHorn Capital was born, which is our company that raises private equity for our projects.

Theo Hicks: Perfect. Thank you both for your backgrounds. Austin, you mentioned at the end of your background that you wanted to get into the benefits of build to rent… So can you explain exactly what build to rent is, the step by step process from A to Z? You don’t have to go into too much detail, but just kind of the main steps in the process.

Austin Good: Yeah, so single-family build to rent – it’s not a new concept, although it’s gaining popularity. It’s kind of the buzzwords now. But basically, it’s taking tracks of land that you find, and either building let’s say a duplex, or a townhouse, or a single-family [unintelligible [00:08:04].24] communities there, and running them like multifamily properties.

In this country there is a big fragment of owners of single-family rentals, mom and pop owners, if you will. There’s starting to be some consolidation from the big REITs and whatnot, but there’s still a lot of opportunity there for professionally-managed single-family rental communities due to the fact that [unintelligible [00:08:33].24] But I always say that lately, the American dream – some say it’s dead; I don’t think it’s dead, I think people still want to live in a house, and have their house in their name, but I think they’ve shifted towards wanting to necessarily rent it, for various reasons; that might be out of necessity, but a lot of times it’s not out of necessity, it’s out of choice. They’d rather rent. A lot of it has to do with perhaps the millennials seeing their parents get foreclosed on, and things of that nature… But it’s just a big demographic shift that’s going on right  now.

Theo Hicks: So you find land, you build single-family homes, and then instead of selling them off,  you keep them and then you rent them out and manage it like it’s an apartment community, basically.

Austin Good: Yeah, you  have multiple exit strategies with a build to rent community, which is another reason why we like it so much… Because you could sell it one at a time to retail clients, or you could sell it one at a time to investors. Or you can sell the entire project, just like you would sell a multifamily property. And lastly, you could refi out your initial investment and just keep it, which is my preferred way of doing things.

Theo Hicks: So, start from the beginning and kind of tackle each step one at a time. You’ve already hit on why you selected this strategy, and that’s because you’ve identified people still wanting to live in a single-family house, as opposed to multifamily… But now they’re choosing, or by necessity renting instead of owning it.

Obviously, you’re targeting a specific demographic, and so when you’re looking for land, how are you picking the market? What are some of the metrics you wanna see in a market you’re buying land in?

Austin Good: For what I’ve actually done, it’s a little bit different than most build to rent communities, in the sense that I’ve kind of found a lot of luck and strength in  college towns that also have great underlying economics for just regular folks who are in the workforce that wanna rent. That provides an extra layer of recession resilience for essentially what is a step down from student housing. We don’t call it student housing, but that’s kind of what it is. That’s been a big pillar for us.

But generally speaking, if you’re just looking for a build to rent market to enter, it doesn’t have to have a college population at all; you’d wanna look for obviously a lot of population growth, and you would want to look for the best school districts. That’s kind of the way that you would pick a market.

Theo Hicks: And then once you’ve selected that market, what types of strategies are you using to find land? Is it just the same way anyone finds land, or is there a special kind of land you want, that’s zoned a certain way? Or is there anything we need to know about the type of land that you’re buying?

Austin Good: Well, there’s various strategies… For me in particular, I don’t like to take a whole lot of entitlement risk. I don’t wanna typically go in and try to rezone. I’ve had some situations where a rezone made all the sense in the world for a particular development, just to meet opposition at city council… And not necessarily community opposition, just a city council member who really didn’t like it, and everybody got behind him, even though the planning and zoning commission was all about it. So I stick to properties that are by right.

Now, it’s becoming harder and harder, and a lot of times you have to be careful, because unfortunately with these cities, they don’t really want rental housing stock. Even though there’s this big affordability problem out there, every city seems to think that they want bigger lots of regular single-family houses, and for nobody to ever rent them out.

So it’s kind of important that you find cities that will work within the existing zoning codes, so you don’t have too much trouble getting what you’re wanting, and not having to ask for a whole lot of specific use permits. However, that’s getting harder and harder, so we’re looking at several different potential developments right now, and the majority of those are going to require a plan development, which is basically you going in and dictating “I want this”, and negotiating with the city, and hoping that you can get what you want.

Theo Hicks: And then how are you finding your land deals? Is there a broker that you work with, or you’re finding them online, off-market?

Austin Good: A little bit of everything. Once you kind of get entrenched in certain communities, there’s what I like to call the good ol’ boys network, and any sort of properties you see on LoopNet in Denton, for example, the prices they want for those properties I would never, ever pay… Just because in the beginning I didn’t really have much of a choice — I kind of lucked into the first deal, and then from there leveraged that deal into relationships with other key players, and land owners, and developers… And it helped that I had a mentor that was really deeply entrenched in the community, so I was able to kind of get this good ol’ boy pricing… Because they knew I was able to close, they knew they weren’t going to have somebody trying to retrade at the last minute… So I’ve been fortunate there.

But now, I’ve been expanding and looking for new opportunities, and it’s been quite challenging; of course, I have wholesalers that bring me deals, which most of the time they’re not even close to being what they need to be… And I’ve also looked at CoStar… I’ve found a couple opportunities here and there, so they can still be found through places like CoStar here and there… But it’s getting harder and harder, especially because right now, despite all this Covid here in DFW, there is still a housing boom going on… And it’s very difficult to compete with build to sell developers for a build to rent project. You need a unique type of market, where the rents are high enough to get you to the valuations where you can pay the same amount that the build to sell developers are paying.

Theo Hicks: I know for apartment communities – when you’re developing an apartment, you’re not only building the individual units and all the interior amenities and things like that, and the mechanicals, and the roofs etc. but also shared amenities. So do you guys do that tier as well? Is there a clubhouse, and a shared pool, or is it really just individual units?

Loe Hornbuckle: I think it’s probably something I would love to chime in on, because it’s kind of what got me attracted, in part, working with Austin on the build to rent project… In multifamily, especially in some of your nicer areas, you kind of have this amenities arms race. It’s basically just this situation where all these apartments are offering more and more and more amenities. Some of them can be turned into revenue streams, but a lot of them are just expenses. So pools, and gyms, and things like that.

What’s really great about the build to rent model that Austin has successfully executed is that you don’t have to have as many amenities. Obviously, you have a place to walk dogs, things like that, but we don’t have any pools, or any clubhouses. The main reason why is because families are really oftentimes more so comparing us instead of with apartments, rather other single family homes. So they’re looking for a small yard, because maybe they have a small dog, or they don’t want any upstairs neighbors, they’re looking for 3-4 bedrooms…

So even though we manage it operationally like a multifamily projects, it often really more so  competes with other single-family homes. We do of course get cross-shopped, but the type of person that wants the 3-4 bedroom townhouse or duplex is not necessarily cross-shopping us with multifamily, and it allows us to stay out of the amenities arms race, so we don’t have to participate in that sort of escalatory “I’ve got dog yoga/I’ve got dog washing stations” and so on and so forth, and spending tons of money.

Theo Hicks: Dog yoga. That’s funny.

Austin Good: And I think there’s a limited time period where that’s going to be the case, because build to rent has become such a national obsession now with the big guys… They are adding in amenities; not quite as heavily as apartments… They’ll drop a very small — not even a clubhouse; it’s just a pool with a  little, tiny clubhouse, and maybe a dog park. But as competition in this field increases, there is going to become a time where we’re going to have to fight that arms race. In the meantime, while the going’s good, we’re getting after it.

Theo Hicks: So once the single-family home or the duplexes are built, could you walk us through the last aspect, which is renting? What are some of the best practices that you guys are using to fill these units, and what does that process look like?

I’m assuming for multifamily you can’t really rent anything out until the whole thing is done. So do you need for every single  unit to be created, or like a single-family development where it’s built to sell, where they are selling them one at a time? Or do you have buyers beforehand, and you’re building for a particular buyer?

Austin Good: No, that’s the big advantage that this has… Typically, a [unintelligible [00:18:37].01] is on a unit-by-unit basis, not the entire facility. So we are able to get income quicker. Typically, just to give you an idea, let’s say I’ve got an 89-unit townhouse development, which is one of the ones we’re doing right now… We’re doing this one in phases. In the first phase we’re bringing on 30 units, and we may after six months drop the first eight units, and then the next month another eight units, and then another eight units, and then another eight units, and six units. So we’re able to kind of stagger/stair-step income there. You don’t have to wait till the  very end.

And as far as marketing and things of that nature, although we do certain marketing, a lot of online marketing, and this being student-oriented as well, that we have some listing with some of the student housing books that are given out on campus… But because the amenity itself the fact that you have a single-family home, with a yard, is huge… Because pet ownership, especially dog ownership is increasing, and it’s one thing to have a park, but it’s another thing to have your own backyard. We’ve found that in a lot of our models, backyards are kind of essential to this model.

Theo Hicks: Is there anything else that, Austin or Loe, you wanna mention about this rent to own strategy? We’ve hit the starting point, find the land, to building on the land, to renting on the backend… So is there anything else you wanna mention before we wrap up?

Loe Hornbuckle: Yeah, I think it’s always important to talk about the ways that various investments are sort of de-risked. One of the things that’s really great about what we do is all the units are individually platted. What that does is if you sort of imagine let’s say ten years from now, and we’re going to consider selling our project, we have three options. We can sell the community to someone else that wants to buy the income stream, wants to buy the business, like a multifamily transaction… We can also sell individual units or blocks of buildings to investors; so you have an investor that says “Hey, I’d love to own ten townhouses or ten duplexes, but I can’t afford the whole thing.” You could break it up and sell it in chunks, and maintain common management.

Another thing that’s kind of great about the model is that you can individually sell them to individual homeowners? So you go in, do a minor flip on them at the end of ten years, make a couple improvements… If homeownership is all the rage in 2030, and everyone’s wanting to buy houses and not rent, then we have the option to do that as well.

So it’s an investment that has a lot of exit strategies that aren’t always possible in sort of traditional multifamily or single-family; because of the way we’ve set it up, it’s got a great de-risking profile to it.

Austin Good: It’s worth mentioning taxes are typically lower whenever [unintelligible [00:21:32].20] Furthermore, on a build to rent project things like cost segregation and long-term capital gains, versus build to sell are subject to ordinary income taxes. So there’s a lot of benefits there as well.

Theo Hicks: Yeah. Austin and Loe, thanks for joining us and walking us through the build to rent strategy. I’m saying it right this time; it’s not build to own, it’s build to rent… And you guys went through the benefits and the step by step process for how this strategy is implemented.

If you guys wanna learn more about Austin and Loe, again, the website is goodhorncapital.com. Thank you guys again for joining me today. Best Ever listeners, as always, thank you for listening. Have a best ever day, and we’ll talk to you tomorrow.

Loe Hornbuckle: Thanks, Theo.

Austin Good: Thank you.

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JF2303: Insurance Broker and Investor With Nathan Britten

Nathan is a full-time insurance broker and part-time real estate investor with five years of experience. He went to school to study entrepreneurship and eventually found a calling in insurance which led to insuring houses to now focusing on growing his own portfolio while working full-time. 

 Nathan Britten Real Estate Background:

Click here for more info on groundbreaker.co

Best Ever Tweet:

“Find a project with the lowest barrier of entry and with the highest return” – Nathan Britten


TRANSCRIPTION

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

Nathan Britten: I’m doing great. Thanks for having me on, man. I appreciate it.

Theo Hicks: No problem. Thanks for joining us. A little bit about Nathan, he is a full-time insurance broker and a part-time real estate investor with five years of real estate experience. His portfolio consists of two flips and one rental. He is based in Oklahoma City, Oklahoma, and his website is www.pi-ins.com/nathan-britten. Just go to the show notes and click on his website. It will be easier that way.

Nathan Britten: [laughs] Yeah, I’m sure everybody’s writing that down, letter for letter.

Theo Hicks: Alright, Nathan, do you mind telling us some more about your background and what you’re focused on today?

Nathan Britten: Yeah. So I graduated from OU in 2014, with a degree in entrepreneurship, and that’s not a very common degree, but generally speaking, it’s kind of general business… Essentially, we started companies basically each semester and pitched to investors and banks and tried to prove viability, stuff like that. So that gave a lot of good background and training into sales and general business. After I graduated, I started a CNG conversion business with my dad, which was converting vehicles to run on natural gas. We sold that about two years once oil and gas was going down, and got out of that.

I knew of a guy who worked in insurance in Oklahoma City, and I was just kind of exploring all my different options, and interviewed with them. It was kind of the entrepreneurial spirit of being able to create your own book and go out and build your own thing, but kind of under the scope of a company, but have a lot of freedom and a lot of freedom to do whatever you do in a great business. So with that, I got into running a lot of property for insurance, a lot of single-family investors, large schedules, apartment schedules… And being in Oklahoma, that’s a little bit more challenging than other places to ensure things. So with that, I met a lot of good contacts, I got involved a lot in real estate investing groups, and kind of learned from them and picked up some things along the way, and decided to kind of do my own things.  It really came out of needing a place to live… And it’s like, “Well, I guess we’ll just buy a house.”

[unintelligible [00:05:40].21] I guess what brought me to there, but I got into a deal that was a short sale. It was terrible, kind of a drug house almost, not in good condition; I turned that into basically a flip property. That was my first endeavor in that, and that’s kind of where it got me to this point of what I do now… And obviously, full-time as an insurance broker for a lot of property risks… And then now I just basically do it in my free time, just looking for deals and flips and other rentals.

Theo Hicks: So for your insurance job – that’s providing insurance for real estate, right?

Nathan Britten: Primarily, yes.

Theo Hicks: Interesting. It’s the first time I’ve heard of someone getting into real estate through insurance.

Nathan Britten: It’s an unusual path, and really, because a property is not everyone’s favorite thing to do for insurance. It’s just something that I was kind of naturally drawn to. We’ve got a really great program now that we write nationwide; we probably have about 20,000 rental properties in there, and a great apartment program as well… So I’ve got to get my own plug in here – anybody looking for single-family rentals or apartment quotes, I’m your guy.

Theo Hicks: So when people are kind of first starting off, there are usually two philosophies. The one philosophy is after they’ve gotten interested in real estate, their main focus is to quit their job and then do real estate full time. And then there’s the other philosophy that’s “I’m going to keep working, and then do real estate part-time, because of the benefits of having a full-time job.” So from your perspective, is your plan to eventually do real estate full time? Or do you plan on doing it with this full-time job? And then whatever your answer is, why do you select that route?

Nathan Britten: I think there’s a line that you cross once you either have a certain amount of funds, or you have a model that you’re going after, and a situational job that would force you to go full time into real estate investing. Insurance is one of those, where – as I was mentioning earlier – there’s a lot of flexibility, a lot of freedom. And that’s what allowed me the two flips that I’ve done thus far. Granted, they were pretty close to my office, but I was spending primarily all my time during the day managing contractors and projects at the houses, and I can still get most of the insurance stuffs done through my phone. So it gives me that kind of freedom.

But eventually, I do enjoy investing in real estate and doing those types of projects more than insurance… But that’s the thing that provides me my money to do that. So there’s a line, I think it’s probably a money line; not to say you can’t go out and raise some money and partner with people, different ways to do that. But for now, what works best for me, and kind of how I see it for the foreseeable future is to keep the insurance boat rowing, and invest in real estate on the side, and kind of have the best of both worlds.

Theo Hicks: What would be your recommendation to someone who wants to get started in real estate, and they have a full-time job, but it’s not like yours, where it’s very flexible. Let’s say they have a full-time job and they’re in an office; they have a non real estate related full-time job. They’re in an office – I guess not now technically not in the office, but they need to be in front of their computer or in an office starting at eight o’clock, and they can’t get off until five o’clock. What would be your recommendation to them to get started?

Nathan Britten: Well, you’re going to have to delegate a little bit; if you buy a rental, you’re probably going to have to hire a property manager. I don’t have a property manager personally, just because I’ve just got one rental and I handle that pretty well, and they’re five minutes from my office if they ever needing anything. You’re going to have to put in some overtime. You can’t be looking for deals and meeting with people during your work hours. That’s a little bit of conflict of interest. The boss probably wouldn’t appreciate that.

But after hours – the internet is 24/7, so you can get a lot of stuff done on the internet, I’m sure you know, Theo. And as far as a lot of those real estate investing clubs – they meet after hours, and you can learn a lot there. Obviously a lot of books and articles and websites like BiggerPockets, where we connected… You can get a lot of information that way. As far as if you were to do a flip, that’s pretty tough, because I personally like to be very hands-on… And I don’t know everything off the top of my head, to tell you, “Hey, go do this and do it this way.” I need to be there. And if you ask me a question, I can answer it, say how I want it. But that’s going to be a lot more hands-on, so I probably wouldn’t go with the full flip… Otherwise, it’s going to either take way too long, or it’s going to be way too troublesome, I think, if you’re not actually there.

Theo Hicks: So obviously, it’s very difficult to do the flip. So if you did not have this insurance job, would you have not done the flip? Or would you have been willing to change to a more flexible job to do flips?

Nathan Britten: I would have found a way. I’m just kind of a problem solver by nature; this just happened to be the way I did it. I think if I was tied to a desk, eight to five, I don’t think I could do that for very long. I would probably be out in I would say less than a month, of that kind of situation. And I think I would have gone more towards drop that eight to five, go full-in on real estate, because obviously, I’m young, I can take a few more risks… I would figure out a way to raise some money and partner with people, and… I’m just a problem-solver by nature, so whatever situation I feel like gets thrown at me, I’d figured out a way to solve it and make it work.

Theo Hicks: Let’s talk about your rental. So you mentioned the first flip – did you go in with the intention of living there and it turned into a flip?

Nathan Britten: Yeah. I actually did live there for a bit.

Theo Hicks: Was it like a live and flip?

Nathan Britten: Yes. I got it on a short sale, which I had no idea what that meant, and I don’t think my realtor really did either. So I wasn’t very well-prepped for it. And I had a lease ending this month, and it ended up taking much longer to get the property actually closed. And once we did, I was like, “Man, we were right on the line here.” [unintelligible [00:11:48].18]  $30,000 and basically a full remodel of this place into one month. And we ended up doing it. And I was there pretty much all day, every day. It was definitely trial by fire… And I really enjoyed it, I thought it was awesome. And then it turned out exactly how I wanted it.

I kind of combined a few different of the entryways into real estate investing… I had a buddy who’s in med school, he was renting from me and basically paying my mortgage for it too at the same time, once we got it finished. So we did that for a couple of years and ended up selling it for basically double for what we had into it. So it was a good deal.

Theo Hicks: And then after that flip, was the rental next, or was the rental the third deal?

Nathan Britten: The rental was next. It was actually a place next door, and I just had been keeping tabs on it. It was a great area. I essentially did my exact same deal of how I bought this house, the first flip, and just bought the one next door. It was in even worse condition, and I had a little more time to evaluate the area… And obviously, now I have my contractors that I trust and know they can do good work, and more of an idea of what it would take to do this. So I got that fixed up and ready. Not as nice as the first one, because I knew I was going to be renting it, but I’ve had pretty much the same tenants in there for coming up on three, four years now.

Theo Hicks: You said it was next door… Was this something that you kind of just waited for it to go on the market? Or did you actively pursue this deal?

Nathan Britten: I did actively pursue it. I knew that they were renting it, and I didn’t like the neighbors. I didn’t like the renters. They were terrible. I think it was a drug house. And it was just a situation poorly kept, and I just reached out to the guy who owned it, found him online and was like “Hey, man. I live next door. I like this house, I’d like to buy it from you.” And it just turned out to be a situation where they were kind of a hassle for him. So we bought it, got some new renters in there and it worked out. But I definitely had to pursue him.

Theo Hicks: Did you use the same contractors on that deal that you used in your first deal?

Nathan Britten: Most of them. They’re not general contractors, but I just know a lot of people that do a lot of that type of work. As for bigger companies, I’d say ‘Hey, man. Do you know anybody that can do this?” And then they would refer me to someone that way. But for the most part, it’s kind of the same crew; a couple of different changes, but kind of the same crew.

Theo Hicks: So those contacts – that was from your insurance shop?

Nathan Britten: I’ve grown up in Oklahoma City my whole life, and my dad was in sales, so he just knows a lot of people around town… And that’s kind of how I came into contact with other people. And then they were nice enough to say “Hey, yeah. This guy’s great for this. Go ahead and use them.” It wasn’t really interfering with their business; he was one of their subcontractors,

Theo Hicks: Circling back to the rental really quick. So you call the guy, was he “Yeah, I’ll sell it to you right away”, or did it take some convincing?

Nathan Britten: Oh, it took some convincing. And I really kind of overpaid for what I thought was market, but it was a deal I saw long-term value in. I knew there was a commercial development going into the end of the street, and really that was my main driver. I was like, once this actually gets approved, then everything on the street – it’s really going to increase the value. So I was like “Well, I’ll overpay now for the market value, and I’m going to hold it for a long time, and I’ll be covering my holding costs anyway…” So yeah, it made sense to me.

Theo Hicks: That was my next question – so eventually he agreed to sell it. How did you determine the price? You said it was a little bit over the market. So a two-part question – how did you figure out the market, and then where did that over-the-market price come from? Was that just what he wanted?

Nathan Britten: I’m not extremely educated in real estate. So there’s a lot of terms, and outside factors, and equations, probably that I’m not familiar with… What I always boil it down to is, okay, what’s our average price per square foot around here of what sold recently, and then what’s on the market below that? And I’m not scared of an ugly-looking house, where nothing works. I think the two that I’ve done are some of the worst that you can do, as far as keeping the existing structure, and not just knocking the thing down and building it back up. So that’s never deterred me at all.

So I really just look for the worst house in the neighborhood, and if the price per square foot is right, then what I’ve done in my past is basically use a construction loan to do the costs. And then I know that my after renovation value is going to be enough to get my equity, and I’ll be set that way. So I boiled it down to price per square foot in the area and tried to find the crappy ones, and then go from there.

Theo Hicks: And what about the rehab cost? Do you typically know that before you buy? Or is that something that’s more narrowed down after you put the property under contract? Or is it not until after you buy it?

Nathan Britten: I can ballpark it before, depending on the projects that are needed. A lot of stuff you can research online and make a couple of calls to your contractors, and if you have the right people come out and inspect it beforehand, you’ll know exactly what you’re going to do before. And I try to jam in as many people as possible. Realtors hate me, because I try to jam in as many people as possible in that inspection period, and I try to extend the inspection period for as long as possible, so that way, I’m basically risk-free in my evaluation of this house, and I can just basically have all my guys come in and bid it during the inspection period. So that’s my plan about it.

Theo Hicks: Yeah. And then the construction loan, the down payment – is that just money you have saved up from work?

Nathan Britten: Yeah. I’ve got saved up from work and we sold our business, I had some funds there… And I just always lived pretty cheap as it is, so yeah. And I’ve got pretty good banking relationships as well around here, so been kind of flexible with me on down payment stuff as well. So it’s really just — if you find a good banker that can do that kind of stuff for you, that’s really, really valuable.

Theo Hicks: Okay, Nathan. What is your best real estate investing advice ever?

Nathan Britten: I could go basic and say buy low, sell high, but… I guess figure out the lowest barrier of entry, with the highest ceiling at the end of the project; that’s probably what I would say, especially just starting out. And anybody who invests in real estate kind of has the same mindset of “I want to make money in a way that’s passive. I want to make money in a way that is a little bit unconventional.” So the end goal, I think, for most people is making money. So if you’re just starting out especially, just find that lowest barrier of entry with the highest upside… So that’s the expanded buy low sell high.

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

Nathan Britten: Let’s do it.

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

Break: [00:18:34][00:19:17]

Theo Hicks: Okay, Nathan, what is the Best Ever book you’ve recently read?

Nathan Britten:  Recently read… I kind of went back into the archives a little bit and re-read How to Win Friends and Influence People, Dale Carnegie. And that’s not necessarily real estate focused, but the practices in there of dealing with people – you have to deal with a lot of people in real estate and just in life in general, and learning how to understand people and how to treat them, that’s key.

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

Nathan Britten: So if insurance collapsed… Yeah, I think I would probably partner up with my family and we would probably start a real estate empire. I’d just go full bore at it.

Theo Hicks: What is the Best Ever way you like to give back?

Nathan Britten: Probably my favorite was Big Brothers, Big Sisters. Great national organization, still really involved in Oklahoma. It’s just awesome giving back to kids that haven’t been really been given a fair shot, for whatever reason, and being able to mentor them, and just be there for them to talk to them. Really cool, really rewarding.

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

Nathan Britten: Probably my cell phone. 405-802-9930.

Theo Hicks: Alright, Nathan, thanks for joining us and walking us through your journey from entrepreneurship degree in college, to insurance, to real estate. We talked a little bit about how to navigate getting into real estate while you have a job. So if you have a flexible job, then you’ll be able to work on things like flips during the day. If you don’t have a flexible job as a nine to five, and you’re not like Nathan, you [unintelligible [00:20:52].23] at the desk, then you have to put in time after hours, put in overtime, have property management. But if you’re like Nathan, you don’t like nine to five, and you’re young, and you can take risks, then you could just not work at all and go straight into real estate.

We talked about a few of his deals; his first deal with a short sale, a kind of live and flip that he sold for two times what he had into it, and his next deal was a rental that was actually the property next door. So I don’t think I’ve talked about this in a long time, but a really good way to find off-market deals is to buy the property, whether it’s a single-family or massive apartments, buy a property on that same street, because you kind of already have that credibility from owning something there. So they can look at this property –  and I’m sure in Nathan’s case, seeing a dump turned into a really nice property, they’re more willing to sell to someone like that than some random person they’ve never met before.

So he kind of walked us through his business plan with the construction loan, bringing as many people as he can during the inspection period to make sure that the rehab costs are super accurate, having good banking relationships to get those good loan terms, and then to determine the offer price using the average price per square foot on recent sales. So the sales comparable approach, in a sense.

And then lastly, his Best Ever advice was for those looking to get started, find that lowest barrier of entry, so that $30,000, $50,000 house that’s in horrible condition, because it has not only the lowest barrier of entry, but also the highest best potential exit, and the most upside. And then he gave us his phone number; if you want to learn more about him and his business, talk to him, text him.

So Nathan, thank you for joining us. Appreciate it. Enjoyed our conversation. Best Ever listeners, as always, thank you for listening. Have a Best Ever day, and we’ll talk to you tomorrow.

Nathan Britten: Awesome. Thanks, Theo. I appreciate it.

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JF2295: Sterling Rhino Capital With Chris Roberts

Chris has been investing in real estate for 7 years and runs a property management business that controls his own rentals. He is also the minority partner in a Point of Sale software company (High Trek POS). Chris has a proven track record of building successful businesses and each of his rental and or flips have realized returns well above the market average. He has renovated, flipped, built, or held 12 single-family residences and raw land with funds from private individuals and or with his own personal capital. Chris is a General Partner or investor in over 752 units across the country. 

Chris Roberts  Real Estate Background:

  • Full time entrepreneur and investor since 2007
  • Has been investing in real estate for 7 years and now owns a property management business 
  • He is also a GP or investor in over 2000 units across the country
  • Based in Washington
  • Say hi to him at: www.sterlingrhinocapital.com 
  • Best Ever Book: TEDTalks

 

 

 

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Best Ever Tweet:

“People have to get out of their own way” – Chris Roberts


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 Chris Roberts. Chris, how are you doing today?

Chris Roberts: Great, Theo. Thank you so much for having me. I appreciate the opportunity to chat with you.

Theo Hicks: Absolutely. Thank you for joining us. Looking forward to our conversation. A little bit about Chris, he is a full-time entrepreneur and investor since 2007, and has been investing in real estate for seven years, and now owns a property management business. He is also a GP and an LP in over 2000 units across the country. He is based in the state of Washington, and his website is sterlingrhinocapital.com. So Chris, do you mind telling us some more about your background and what you’re focused on today?

Chris Roberts: Yeah, absolutely. Thanks, Theo. So I started out my life at a pretty young age, being on my own and kind of just had to figure things out, so that sort of entrepreneurial bug was planted long ago. Worked lots of odd jobs and kind of worked my way into a professional sales career that gave me the opportunity to start investing and diversifying, whether be in stocks or real estate or even partnering in other businesses. And that just kind of caught fire in me and I really enjoyed that creative process, the challenge of taking businesses and building them or investing in something and watching it grow. And then as I grew in my professional career I had a lot of conversations about real estate kept coming up, coming up, and at that point, I decided I really need to learn a little bit more about this real estate thing. Bought a few single-family homes, duplexes, some land, a little construction stuff, and then started taking that leap into the larger multi-family space. And now that’s one of my primary focus is, the larger multi-family space. I still run a few businesses, but multi-family space is really what my focus is today.

Theo Hicks: You said that you own a property management business – so is that business the one that manages the properties that you own? Or is that something where you manage other people’s properties?

Chris Roberts: Currently, I don’t have a real estate license, and in the state of Washington – I’m not sure how it is nationwide with regard to running a management company, but you have to have a real estate license to do that here. And one of my partners had a real estate license, but we really didn’t want to manage other people’s properties, so we really developed it to run our own properties, a handful of duplexes, single-family, things of that sort. It also gave us great insight into how to manage the managers of the larger multi-family assets later. So the property management company we run is really just for our own personal assets, which we’re allowed to do, and we use Buildium software to run that, and it works pretty flawlessly, all digital and everything. So we really enjoy that.

Theo Hicks: So out of those 2,000 units, how many of those are you as a GP?

Chris Roberts:  250.

Theo Hicks: Okay. How many properties is that?

Chris Roberts: Two.

Theo Hicks:  Two properties? And what’s your role on those deals? What are your specific responsibilities as GP?

Chris Roberts: Sure. On the first deal, 104 units, and then I’m the investor relations manager. So when I was brought into the deal, my partner at that time really didn’t have a process for investor relations, so I took that by the horns and developed the software implementation, the communication, the email systems, the back and forth obviously, the funds collections, and things of that sort. So I basically developed that system, and I’m second in line in GP on that deal, and then on our latest deal I’m first in line, majority owner of the whole GP team, and I’m the CEO and founder of Sterling Rhino Capital.

I wear many hats, but primarily my role would be to find the opportunities and then do the 30,000-foot view thing, which is basically putting all the pieces together. I still deal with investors and I manage some of the software, but I have team members that pretty much handle everything else. We have an asset manager and someone who is now kind of dealing with a little more of the investor relations, communications things of that sort.

Theo Hicks: So for your deal, you’re more of a CEO, but for this other deal you’re just strictly the investor relations guy?

Chris Roberts:  Yup.

Theo Hicks: So you said that he didn’t have really any process for investor relations, more specifically for communications… So can you maybe walk us through what he was doing, or if he was doing anything at all…

Chris Roberts:  Yeah. Absolutely.

Theo Hicks: …to communicate with investors and then what you implemented for your communications process?

Chris Roberts: Sure. I guess it’s technically my first deal; I had a deal before that, but it took so long to negotiate that deal that I actually got another one and closed it in the meantime. And he brought me in because most of his opportunities where JV deals; even though they were larger – 2, 3, 4 million, 5 million dollar deals – they were larger in this base of JV deals, they didn’t require any real major syndication or investor relations process.

So when he found this – it was a 10 million dollar deal – he just really didn’t have a system in place for that. And I brought it up and I said, “Well how are we going to manage all these investors?” And he said, “Well I’m not sure, I figured we would just figure it out as we go.” And I listened to a lot of your podcast and Joe’s conversations and seminars and things like that and thought “Man, this is a major undertaking with these investors in the syndication process and we need to start implementing systems that can help us automate all of this stuff and organize it.” So we brought on obviously AppFolio — well, they’re one of the property management systems, and there are many others, but we brought in AppFolio to manage the investors and then we brought in ActiveCampaign to manage communication and then we used Google Docs and a lot of automation to funnel in soft commit forms and things of that sort. So really, it was just a matter of breaking everything down and saying “Okay, first things first. What’s the most important thing?” And it’s knowing “Okay, who wants to put money in our deal? Okay, that’s really important.”  And then, okay at that point, who’s committed? Who’s not committed? And then how do we communicate with them when they filled something out?

Same thing as it relates to documents, the PPM agreements. We found that that was a very cumbersome process and I’m passively invested in 1,700 doors so I can tell you I filled out lots of them. We decided “Well, we’re going to shop every one of these signature companies and figure out which one is the most fluid, which one has the easiest automation, which one is the most simplistic to work with for our investors, where we’re not going back and forth with phone calls.”

And I’d say on the second deal we eliminated 60% of the conversations back and forth with just the right signature company for our documents. So things like that, those are processes I’m really good with; I love problem-solving and diving into things and just making them better, whereas sometimes there’s little detail work that maybe my partner might be good at, or let’s say negotiating a deal – the other partner is good at that. And that’s why it’s really important to identify your strengths and weaknesses and just really focus on those things. So I hope that answers the question.

Theo Hicks: Yeah. Just a quick follow up question. Basically, you said that you went in there and you said “Okay, what are the most important steps? And then what are the most cumbersome steps from the perspective of the passive investors?” and then you searched out software technologies that could address that to reduce that cumbersomeness, if that’s even a word, to streamline these important things. So maybe just to focus on one thing, let’s focus on the ActiveCampaign, I’m assuming it’s the ongoing communication… So how does that work?

Chris Roberts: Sure. Well, it’s a great question. So ActiveCampaign is a pretty dynamic program. There are a lot of really good syndicators that use it. I’m not sure currently if Dan Hanford and some of these other folks use it but I know many of them did. What’s great about ActiveCampaign is it’s like a MailChimp on steroids, if you will. It allows you to track literally everything. You can put all these automation in and these triggers that will identify and notify you of different actions that are taken within the system.

For example, someone goes to your website, like if they go to our website and they sign up for our investor calculator where they can figure out how they want to retire, what number they need to retire, they download that, we’re notified on what they downloaded, where they went, and there’s automation that is in place to send them things through that process. So if we ask them to fill out a form, we’re notified of when that form was filled out. And then it puts them in a funnel, so they’re accredited, they’re not non-accredited, are they interested in a deal, not interested in a deal…

So it’s very, very important to have systems like that because who has the manpower, especially if you’re running another business, to manage and micromanage all that stuff? So really the sky is the limit with their automation and systems you can put in play.

And what’s really great about — let’s use ActiveCampaign for example… I started setting all that up, and then I realized, “Boy, even just setting it up is fairly time-consuming.” So I hired an assistant through Upwork, and I have virtual assistants I’ve worked with as well. But I had an assistant who’s actually in San Diego, and speaks English, and is fluid… Because sometimes you’ll get a language barrier if you hire someone in the Philippines or whatever… Although the price is really good. I wanted someone that was here, because dealing with financials and things, I wanted to make sure everything was dialed and organized. So I hired her to help me implement all the automations. And then we also recently brought in a company, if I may I just like to mention their name, is that okay?

Theo Hicks: Yeah, totally.

Chris Roberts: Okay. GoodEgg is a company we brought on recently, and they’re really really good at working with ActiveCampaign and helping with all those automations. So we hired them to bring in all the automation, and they allow us to just download those and put them right into our ActiveCampaign system, which saved us a tremendous amount of time.

So a combination of hiring the right people to help facilitate maybe some of the weaknesses or the time constraint issues, and then to bring on a virtual assistant who could do some of the data entry work. And then as far as running the financials, as far as like let’s say running bank accounts and confirming things with investors, that’s stuff that I take very seriously, and there’s obviously security and you don’t want their data getting out there. So I personally run all of that information. But by outsourcing and building off the strengths and weaknesses of you and your team you can 10x it, for sure.

Theo Hicks: So for the ongoing communications to your investors each month, each quarter, whatever – do you have a VA that does that?

Chris Roberts:  Yeah, we use some of the content from GoodEgg, and then we set up automation for most of that, but she’ll set up all the automations. So I’ll tell her I want to send out four newsletters and I want to post some stuff on Facebook. Then I’ll share some personal stuff with her that I’ve written around what I want to put out there, and then she’ll post a lot of that stuff for me or set it up on automation. So yeah, absolutely, using those tools is a lifesaver… Because when we can focus on finding deals and working the banking and all that stuff, it’s more important, in my opinion.

Theo Hicks:  So something that you mentioned before that I wanted to also talk about briefly – you said you’re working on a heavy value-add deal that the owners, I think you said they haven’t tracked financials or anything for 35 years, or whatever. I wanna hone in on a very specific aspect of that, because I get this question a lot, so I’d love that pick your brain on it, so it speak. So I want to raise money for an apartment deal and I find a mom and pop owner — how many units is the property you’re looking at?

Chris Roberts:  This one is 112.

Theo Hicks:  112. A hundred twelve unit property, and I reach out to them I say “Hey are you interested in selling?” And they say “Of course.” I say “Okay, can you please send me the T12 and the rent roll, so that I can run the numbers?” and they’re like “I don’t know what that means. Here’s a napkin that I have from 30 years ago.” How do I know what offers to submit on that deal?

Chris Roberts: Yeah, that’s a great question. And that’s basically, exactly what I was dealing with. And it’s across the country. So it’s one of those things where you have to first identify, does this thing make any sense, let’s say from the asking price? And you break it down like anything else, right? You put it into a spreadsheet; I happen to use an SDA which is from Michael Blank’s program – that’s fabulous.  I can plug in some quick numbers and identify if the deal makes sense.

So you look at the offering price, or whatever, because oftentimes they’re not going to have an offering either; they’re not going to have a fancy PowerPoint. Maybe they’re listing it themselves or a broker, but this deal didn’t even have a sales deck. All we had was a price. And I came in on this deal with someone else that had offered a little bit lower price than what they were asking for, and they got it under contract. And then I quickly realized there’s no way to steal a pencil at this. So how do you get the answer out of them, that’s the question. The answer is, first of all, you have to dummy it down for people, because as we’re talking about this, you can only imagine what it’s like to actually build a T12 from scratch, a rent roll from scratch, financials for a lender.

We’re going through Freddie Mac on this deal. We’re actually closing on this deal tomorrow, after nine months’ worth of negotiations, back and forth, numbers, four flights out… It’s been an absolute grind, 350 hours of my own personal time in this deal. And that’s all because I had to understand the seller.

The bottom line is I had to actually deal with the seller directly at one point, because we couldn’t make it happen. So finally, the seller, after going back and forth and going out of contract and in-contract, started dealing with me directly, and that’s how we started solving problems… Because I basically said to him, “Do you know what a T12 is? No. Do you know what a P&L is? No.” I’m like, “Okay, well here’s what I need you to do – I need you to go down and get a CPA to come down there. I want to buy your building; all I need you to do is get them to come down there for four or five hours and just go through some of your paperwork, and here’s the paperwork I want you to provide for them.” “Okay, great.”

So he did that, and he got me a generic P&L. Okay, great. “What’s a T12?” I sent him a sample of a T12 and I said “Here’s a spreadsheet, this is a sample of a T12. All I want you to do is take this information out of the P&L and I want you to update it regularly, and this is your T12. And then I want you to certify it just by signing it and acknowledging it that it’s your information and not my information.” Because lenders don’t want you to provide them a T12 or a rent roll, or P&L; they want it to come from the seller. So as long as they input the data, you can assist them and bring them along, and then they just sign it and acknowledge that that’s actually their data that’s gone in. So that’s what the first few steps, does that answer the question?

Theo Hicks: Yeah. So you said — going back to it, looking at the offering price to see if it makes sense… Are you kind of doing some rule of the thumb type of stuff with that?

Chris Roberts:  Yeah, there is probably — I know I’m exaggerating, but there are a hundred thousand processes in a multi-family deal, especially one that’s all manual, right? So you have to problem-solve. One of the things I absolutely love is problem-solving. I love the challenge. I don’t get afraid or fearful; I dive in. And this was an amazing deal and I looked at is a great opportunity to learn.

So I started thinking, if I was the seller, would I be overwhelmed? Yeah. If these people ask for all the stuff and there’s no way I’m going to sell my building without it, would I be overwhelmed? So I have to be a friend to him, and I had to say “Look I’m going to go through this with you.” And at one point I would say — and Theo, this is really funny… When I flew in and I sat down with him, you would not believe these pictures; I’ve got to share them with you maybe after the episode… It was unbelievable how much paperwork he had stacked [unintelligible [00:16:33].12] files. And I said to him “Here’s what I need from you.” And he goes “Well, I’m not going to do your job.” And I said “My job? You’re trying to sell the building. I’m trying to help you. We need to do this thing together. If you don’t pull this data out for me and let me help you, there’s no way we’re going to get to the finish line.”

So I told him, “The first thing we need to do right away is understand that we’re working together and we’re helping each other to get to the finish line. This isn’t about you, this isn’t about me, this is about closing the deal.” And then he finally put his guard down and then we started going to work, right?

So it’s funny, as much as brokers keep you away from sellers, I think sometimes if you can just get to the personality of somebody and understand their way of thinking, see it from their perspective, you can start to problem-solve. And you’d be amazed, Theo… The original guy who runs this deal said “There is no way we can get a dollar under 4,899, or 4,866, or something like that.” I ended up getting this deal at 3,875 million, so I negotiated another million dollars off the sale price. It took me eight months, but we got it done. And it was all because I ended up working with the seller, we had a lot of communication, sometimes daily, back and forth.

The broker at one point even said “I literally feel like I’m not earning my money, is there anything I could do?” I said, “No, just stay out of the way, because the seller is really comfortable with me, and we’ve just got this vibe going, and it was one document after another and now we’re thousands of documents later, and we’re about to close.”

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

Chris Roberts: I would say, for the most part, people have to they have to get out of their own way. We have a lot of roadblocks, and what I hear from people most of all is all the things that are in their way, what’s going on, the challenges… And I think for all of us, we have to focus on where we want to be, what we want to do, and how are we going to get there, and not focus on all the naysayers and the stuff that creates roadblocks in our lives and fear. We just have to push through and understand our value proposition and how we can add value to the world and go after it.

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

Chris Roberts: Yes, sir.

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

Break: [00: [18:27][00:19:16]

Theo Hicks: Okay Chris, what is the Best Ever book you’ve recently read?

Chris Roberts: May I give two?

Theo Hicks:  Sure.

Chris Roberts: Okay. Chris Anderson, TED talks, and Ray Dalio, Principles. And I read lots of books, but I’m going to tell you why I like these two books. The reason I like those is because those books talk about speech, they talk about stories from some of the most profound individuals in the world, and how they told their stories, and how you can articulate your stories. And then Ray Dalio’s book talks about principles in business, and success, and strategy, and implementation, and it’s a really long audiobook. But the reason those are important, and I’ve read hundreds of real estate books, is real estate is people, it’s not just property. And if you can understand people and psychology and communicate well, you can bring investors in, you can bring partners in, and you can close deals, and [unintelligible [00:20:05].08] deal is a perfect example of that. So I really focus on the people and that’s why I really really like those two books. Recently I’ve listened to them.

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

Chris Roberts: Well, currently I’m fortunate enough to own and be partners in several businesses and diversify across all kinds of real estate platforms, but I would probably just take a look at where my strengths were and try to focus on something that compliments my personal strengths, and that for me is communication, and sales, and dealing with people. So I would probably just dive into some other element of real estate if it collapsed… But again, I’m so diversified, so I’m really not concerned about that.

Theo Hicks: Well, since you’re so diversified, tell us about one of the best deals that you’ve done.

Chris Roberts: I have single-family duplexes and multi-family… Honestly, I think the deal I’m working on right now that I’m closing is going to be the best deal we’ve ever done. But I did buy a property once for $50,000 that I had to buy through the Japanese Consulate; that was worth about 130k and today it’s worth 280k. And all I had to do basically was pay the back taxes on the property. So that at the time was probably the best deal, bu currently, I think we’re about to close on the future best deal.

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

Chris Roberts: Giving back is very important to me. I stood in food lines when I was a kid, I struggled, I was homeless for a period of time at a very young age, so giving back and feeding people is really important to me. So I partnered with Feeding America. I wrote a book, and all of my profits, 100%, have gone to Feeding America, and they will indefinitely. And to date, we fed almost 118,000 people, with the goal of feeding a million. And every dollar that we donate, Tony Robbins matches through my partnership with Feeding America; it’s an enterprise partnership, and I’m actually on their national website, and stuff. So feeding people is really close to my heart, among other things; that I’ve done charities with the City of Hope and Wonder Warriors… But yeah, that’s very, very important to me, and we’ve got a pretty audacious goal.

Theo Hicks: I know that not everyone is watching us on YouTube, but I have to ask – what is the purpose of the little frog guy you’ve got back there?

Chris Roberts: You know, it’s really funny… I don’t know why, but I like little frogs. When I was a little kid, there were little frogs in Southern California in our little creek in the back, or whatever — it wasn’t a creek, it was like a storm drain or something… But I always played with little frogs, and I would talk about it when I was a kid, and my mom would joke about it as I got older.

So people will buy me these stuffed animals, and I probably have 30 of them around, just wherever… So I thought it’d be really funny to put one of my little frogs up in the office. I figured people would ask, but you’re the first person to ask, and it is really funny. I just like them, they’re cute and they’re a fun conversation.

Theo Hicks: That’s what I was gonna ask you, if anyone had asked, because I know usually when people will have their offices everything is intentionally put there for a specific reason. I saw that little guy right in the back corner, and I had to ask about that frog at the end. Alright, Chris what is the Best Ever place to reach you?

Chris Roberts: You can reach me at sterlingrhinocapital.com, or you can email me directly at chris@sterlingrhinocapital.com. We’re on Instagram, @sterlingrhinocapitalone, and many other places, like Facebook and LinkedIn and so on and so forth. But you can reach right out through me directly or check us out on the website.

Theo Hicks: Perfect, Chris. Well thank you for joining us; I’m sure if we could talk a lot longer. You dropped the buying a property from the Japanese Consulate at the end I was like “I wish I could ask more”, but unfortunately we are running out of time… But thanks for joining us.

Just to kind of quickly go over some of the main takeaways, for me it was three. The first was you talked about how you were able to solve the investor relations communication challenge for one of the deals you were a GP on, and really this strategy can be applied to any part of your business. That’s basically to identify what the most important tasks or concepts are, and in addition to those, what are the most cumbersome for your customer, your client, the investor, whatever, and then investigate various technologies or automations that can address those. So basically, make the most important steps, the most important tasks, the most cumbersome task as smooth as possible. For you, you gave the example of AppFolio, Active Campaign and then Google Docs to automate the communications for your investor relations process – that’s number one – and then also having the right people and hiring VA’s as well to help execute on those technologies.

The other one was underwriting deals where there aren’t any financials, which 99.9% of the time they’re going to be off-market deals, because there were on-market [unintelligible [00:24:15].00] So you said to first look at the offering price and use some rule of thumbs to make sure if the deal makes any sense whatsoever, and then try your best to bypass the broker and work directly with the seller, that way you can get to know their personality and let them know that this is a process where you’re working together and helping each other out. And you gave an example of them saying “Why would I do all this work, why am I doing your work for you?” and you said “Well, no. If you want to sell your deal, I’m going to need this information. And if you want to sell your deals, let’s help each other out.”

Basically, you had to walk them through what all of these things were and group them up with the right person, the CPA, to put together the P&L and then sending them the templates, so can update it regularly to have [unintelligible [00:24:57].03] T12. You built a rent roll and T12 from scratch, and ultimately had a pile of thousands of documents, back and forth negotiation for nine months, and then finally got to do that deal. So there’s no shortcut when underwriting deals and financials, I guess is the point.

The third thing would be your Best Ever advice, which is to get out of your own way, don’t focus on the negatives, the obstacles, your fears, and just focus more so on how to push through, how to break through those things.

So, Chris, again I really enjoyed our conversation, I learned a lot. I’m sure Best Ever listeners learned a lot as well. Best Ever listeners, as always, thank you for listening. Have a Best Ever day and we’ll talk to you tomorrow.

Chris Roberts: Thanks, Theo. You guys have a great day.

Website disclaimer

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

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

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

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

Oral Disclaimer

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

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JF2287: Raising Capital Using Crowdfunding Platforms With Chris Rawley #SkillsetSunday

Chris has been a real estate investor for more than 20 years, investing in single-family, multifamily, commercial properties, and income-producing agriculture. He’s the CEO of Harvest Returns, a platform for passive investments in agriculture.

Chris Rawley Real Estate Background: 

  • Full-time real estate investor and CEO of Harvest Returns, a platform for passive investments in agriculture
  • Has been an investor for over 20 years
  • A previous guest on JF1665
  • Portfolio consists of single-family, multi-family, commercial properties, and income-producing agriculture
  • Based in DFW, TX
  • Say hi to him at: https://www.harvestreturns.com/ 

Click here for more info on groundbreaker.co

Best Ever Tweet:

“If your putting together a syndication before you go and pay an attorney a lot of money, just look into crowdfunding platforms” – Chris Rawley


TRANSCRIPTION

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

Chris Rawley: I’m doing great Theo, thanks for having me on.

Theo Hicks: Oh, absolutely, and thank you for joining us again. So Chris was previously interviewed on this show by Joe. And that episode is 1665. Make sure you check that out to learn about Chris’ background. As a refresher, he is a full-time real estate investor and CEO of Harvest Returns, a platform for passive investments in agriculture. He has been an investor for over 20 years and has a portfolio of single-family homes, multifamily, commercial properties, and income-producing agriculture. He is based in Fort Worth, Texas and his website is harvestreturns.com.

Today is Sunday, so we’re doing the special episode of a Skillset Sunday. And the skillset that we’re going to talk about today is raising capital using a crowdfunding platform. But before we talk about that, Chris, do you mind telling us what you’ve been up to since we interviewed you about a year and a half ago?

Chris Rawley: Yeah. I primarily focused on building our business and developing new agriculture deals and bringing on new investors. We recently passed over six million dollars that we’ve raised to help farmers across America, and actually across the world. So that’s kind of our passion, it’s helping farmers continue to farm, as well as providing investors a way to get into that asset class.

Theo Hicks: Perfect. Let’s talk about the skillset. So I’m going to let you say what you want about the best way to raise capital on a crowdfunding platform, and then I’ll ask some follow-up questions to dive more into details on that. So take it away, Chris.

Chris Rawley: Sure. So at some point during our investment careers, if we’re investing in real estate or whatever you’re investing in, you tend to run out of your own money. That’s when we start to look for other sources of capital, and one of the ways to get capital is you can reach out to your friends and family members… But those wells run dry after a while as well, so then you might want to look up a larger pool of investing.

Since around 2015, there have been a number of real estate and other equity crowdfunding platforms that have sprung out all over the country, and dealing with all sources of asset classes. So just looking at the real estate side, you have everything from people who want to raise money to do single-family fix and flips, you have more established investor syndications that are doing multifamily or large commercial office buildings, you have people that are doing notes, you have — in our case, we’re doing agriculture. So pretty much any kind of asset class, any type of real estate you can think about, there is a real estate crowdfunding platform out there. So if someone decides they want to raise money on one of these platforms, the first thing you need to do is a little bit of research and decide, “Okay, this is what I do. I’m a fix and flipper, or I’m a wholesaler etc. Is there a platform that can help me put together a project and raise funds for that project?” So do some research, you’ll see that there are literally dozens and dozens of platforms. Some of them have different criteria for investors, so the best thing to do is to reach out and say, “Hey, what’s your criteria for someone who wants to put together a syndicator project?”

They’re going to provide you with a lot of guidance along the way, but just in general there are some things you need to put yourself in the right mindset… And the first thing is, what are investors looking for? So chances are if you’re raising money with a crowdfunding platform, you’ve probably invested yourself, so you kind of understand that. But four things that people are always thinking about before they write someone they don’t know potentially a check is, “What is my risk here?” So identify your various types of risk. People don’t like to lose money, first and foremost. What are my returns? Is this sponsor capable of producing returns that he or she is promising? Is this project viable based on location and timing, the plan, what they intend to do? And also, what are potential tax benefits? How is it structured? How am I going to save money on capital gains or income? Am I going to receive various sorts of beneficial tax laws? It’s that sort of thing. And people are also looking for a connection.

In our case, we do farm projects, so people like being part of helping somebody raise something or grow something, produce, be part of the food system. And the same thing can be true with just about any other kind of real estate; it’s like, “Hey, I want to help this local community. I want to help this person bring jobs to this particular neighborhood.” That sort of thing.

The next thing you need to kind of dig into is looking at your numbers. The crowdfunding platforms are going to go into various types of due diligence; it might be as basic as, “Just put up your listing on a platform and pay us and we’ll promote it to our investors” to “We’re going to really dig into a sponsor’s background, we’re going to dig into the numbers, we’re going to dig into your track record, we’re going to dig into your structure.” It’s always easier to raise if you’ve already done it before. So before you come to a crowdfunding platform with, “Hey, I need to raise five million dollars,” it’s probably best that you put together a smaller sort of syndication on your own or with some other partners, or piggyback with someone who has done this before.

And you’ve got to have a team. Most people don’t want to invest with a single person, because if there’s risk there. So whether that team consists of your CPA and your attorney, that’s important; or you know, other sorts of business partners. But having a team is something that investors really look for.

So then it comes down to what does the crowdfunding platform wants you to do. Sometimes they want to put your deals in front of these particular investors that are qualified, and that comes into what sort of regulations you’re going to do. And this is kind of the beauty of crowdfunding platforms, and I strongly recommend this. If you decide, “Hey, I just want to put together a real estate syndication on my own,” the first thing you’re going to have to do is understand securities and security regulation. And there’s a number of different entities that are involved with that. The SEC, the IRS, FINRA, state security agencies… And there’s a whole new definition; you’re going to have to go out and hire a security attorney, and spend a lot of money upfront putting together your private placement documents, and things like that… Whereas if you go straight with a crowdfunding platform, they’re going to do that for you or they’re going to help you with that process. And again, it varies from platform to platform.

In our case, we actually have spent all that money upfront with our securities attorneys and we help our sponsors put together that thing, and it saves them a lot of money because we’re essentially amortizing the cost of putting together securities documents. But to me, the two biggest hurdles are getting over the regulatory learning curve, and the second is getting out the pool of investors. The beauty of crowdfunding platforms is that they have a built-in pool of investors, and they’re jumping right into your offering, and it’s getting up in front of their eyes… And hopefully, if you you’ve done all your homework and put together in an appealing plan, they’ll be able to raise the money rather quickly.

Theo Hicks: Thank you for that detailed breakdown. So I want to go back to start from the beginning, and then work my way through. So the first thing you said is to find the right platform. So I’m a fix and flipper, I am obviously not going to want to go on an agriculture crowdfunding platform and vice versa. You mentioned that there are a lot of fix and flipping crowdfunding platforms out there. I’m sure there might be a little bit less when it comes to agriculture, but I would imagine that for a lot of these more common strategies like multi-families, there’s going to be a lot of different platforms. So I Google it, I’ve got a list of 20 different platforms… How do I pick the right one?

Chris Rawley: Great question. You’re going to have to do some digging. There are some sites where you can do reviews of crowdfunding platforms, but they’re mainly designed for the investor side, not the sponsor side. So dig through a few that look like they might be right, and then just definitely reach out to them and their sales or marketing team will get out to you and give you basic criteria. And some list very specifically, like “Hey, we only want to work with these types of sponsors who are doing these types of projects, and maybe have this track record.” And it’s all going to really vary there. Some of them are very specific, some of them are a little bit more open to having conversations; a lot of that depends on how long they’ve been in business and how large they are. The more established platforms are going to tend to have more formal criteria for listing a project.

Theo Hicks: So basically reach out to them and figure out if you even qualify for that platform. But for the one that I do qualify for, is it just whichever one I’ve got a good feeling about? Is it based off of some metric they have, that they’ve got this many investors looking at it? Am I allowed to list it on multiple crowdfunding platforms? Am I only strictly stuck to the use of one?

Chris Rawley: Great question. Can I answer your last one first? Generally, most of them are going to only want a single raise, just for regulatory purposes, on their platform. They’ll sign some sort of exclusivity agreement, unless you’re doing a very large deal that has institutional money and other slices of capital. But for a first-time person reaching out to a crowdfunding platform, you can ask for a reference. So say, “Hey, can I talk to another sponsor that had a good experience?” And we definitely do that for our new sponsors that come to us, and any crowdfunding platform that wouldn’t give you a reference, I would be suspect of.

Theo Hicks: Okay. And the next step was to determine what the investors are looking for, and you broke it into four different steps – the risk, the returns, the tax benefit, and I think it’s the connections, or being helpful. Is the reason why they’re doing this is because ultimately this information has to be included on an offering posting? …like, you can have like four sections, an FAQs type of thing. Or is this more “You need to know because these people are going to ask you questions about this, and if you can’t answer it they’re not going to invest with you”?

Chris Rawley: It’s a little of both. When they set up [unintelligible [00:13:02].13] but when they set up your offering on their platform, there needs to be some way to distinguish it from all the other offerings. Most platforms are going to have multiple offerings running at the same time, so if you’re an apartment complex in Oklahoma City, that’s different than a commercial office building in South Florida, which is different than a fix and flip in the West Coast. So those basic facts need to be up there, and [unintelligible [00:13:27].20] platforms are going to tell you what they need. They may ask for a business plan, or a pitch deck… And those things are similar whether you’re raising money for a fix and flip, or whether you’re doing a start-up and you’re creating some sort of app or something, and there are some platforms for those as well. So if you’re not a real estate person but you want to raise money on a crowdfunding platform, there are also platforms for those start-up types of companies.

And then the other part is they want to be able to just tell the investors what they’re getting, and as many details as possible. If  the crowdfunding platform asks for it, it’s important. And you will get questioned. And once the raise is ongoing, that’s kind of the next piece. Some platforms, they do it all for you, some want the investor to be more actively involved, some will want you to do a webinar, depending on how big your offering is.

We do a lot of webinars, and they tend to work well with presenting some sort of tangibility with the deal… Because you can kind of see the numbers on the thing, but unless you hear the sponsors voice and you see how this is a real person or he’s got a real team, you have more confidence in trusting him with your money.

Theo Hicks: I did want to ask about the listing… So you kind of gave us a few examples, but is there any secret sauce that people can do to make their listing stand out compared to all the other listings that are on there? Or is it just doing what the crowdfunding platform wants you to do and just stopping at that?

Chris Rawley: It really depends on what you’re trying to raise money for. In our case, our farms can be very unique. I tell people that if you’re kind of seeing one multi-family apartment complex syndication, you’ve seen them all… But with farms, if you’ve seen one farm, you’ve seen one farm. These are very unique, and not only are we talking about different crop types and different locations, but different ways of growing things.

So, if you’re on a real estate platform, people are looking for returns, but they’re looking for the track record. I know when I invest on a real estate crowdfunding platform I have more confidence — location is important in a specific marketplace; there are some places I just want to invest. But assuming you are in one of the places that I’ll invest, I generally want somebody who’s got an experienced track record, and that takes some time.

Theo Hicks: So crowdfunding is not for someone who’s just getting started, right? In the beginning, you said they start out with their own money, they go through that, next is the family and friends, and once they’ve gone through that, then they consider crowdfunding?

Chris Rawley: I think that’s important… We’re all going to make mistakes in our investing career, and putting together a deal or a career. As an investor, I’d rather not invest in somebody else’s mistakes, I’d rather them have a little bit of a track record. Let’s say you’re a fix and flipper. “Hey, have you done a handful? Okay, maybe I’ll trust you with my money if you seem to have a pretty good track record of doing that.” So, it’s hard work as well all know; there’s no free lunch in investing or putting together real estate deals.

Theo Hicks: And then I’m sure you talked about this in your other episode with Joe. I would like to ask just a few questions about agriculture. So I’m someone who’s interested in investing in agriculture, obviously. I’m not going to be able to do this myself, I don’t know anything about it. So a crowdfunding option is a good way to go. What types of returns should I expect when investing in agriculture? In my mind, I can compare it to fix and flipping and multi-families, I’m more familiar with.

Chris Rawley: Yeah. On our platform, it’s fairly similar. In fact, given that I was a real estate investor before I was an agriculture investor, we tend to structure the deals quite similarly. So we have debt deals, so think of like a hard money lender, and those are 7% to 12% on the debt side, roughly. On equity deals, you’re going to be talking teens. And then we have another category that I could classify as your AgTech, that are more high risk, but potentially higher return, where we could see a 20%, 30%, 40% IRR based on just what the type of project it is.

So we do a number of indoor agriculture projects; this is like vertical farms, hydroponic farms… It’s a very big space right now and growing space, because people are realizing that, one, they want locally grown produce, because they want to know how it’s grown, and it’s also a sustainable way to produce. But two, after COVID, people are seeing that “Wow, the food supply chain is not all that robust as we thought it was, and trucks don’t always run, and supermarket shelves can empty of meat and produce”, and having food produced closer into where people live makes a lot of sense. So with those you’re going to see a higher return.

Theo Hicks: And then I know for crowdfunding the minimum is really low. Is that the same for your crowdfunding platform? Or do I need to have a hundred grand? Or can I invest with five grand?

Chris Rawley: Our starting minimum is five grand. Most deals are about ten thousand minimum ticket size. We have people that will invest a hundred thousand or two hundred thousand on a specific deal, but we would like to keep that low, because we believe in diversification, not only across asset class, but across offering. So if you invest a single platform or multiple platforms and you have many small investments, that’s a really good way to diversify your portfolio, whether it’s real estate, or agriculture, or any other asset class.

Theo Hicks: Alright, Chris. Is there anything else that you want to mention about raising capital using a crowdfunding platform or any other call to action you have before we wrap up?

Chris Rawley: Just obviously if there are any farmers listening to this and they want to talk to us, we would be happy to talk to them about how we can raise money. But if you’re putting together a real estate syndication, before you go out and pay an attorney a lot of money – you’ve probably seen in, there are a lot of seminars out there – just look into the crowdfunding platforms, because you might be able to save yourself a lot of money and heartache and leverage the work that somebody else has already done before you put that investment in yourself.

Theo Hicks: Awesome, Chris. Well, thanks for joining us again and walking us through some of the tips for raising money using a crowdfunding platform from the perspective of the sponsor, obviously. So we talked about you start with your own money, and then you’ll go to your family and friends next, and then after that, once that money has run dry, you’ve got the experience. The next potential step would be to raise money on a crowdfunding platform. And then you walked us through the things to think about.

First is to do research to find the right platform, because not every single platform is going to cover all investment types. For most of these platforms, you initially reach out to someone and see what their criteria is, and you can find websites that do reviews, which are kind of the perspective of the investors, but still it could be helpful. And then you can also ask them for a reference. You can talk to another sponsor and see how were they able to raise money from this website, how was the process, things like that.

And then you mentioned that you can typically only have your deal on one website at a time; you can’t have your deal on 30 different crowdfunding platforms. From there, the next step is to determine what your investors are asking for regarding risk, returns, tax benefits, and the connections. Make sure you’re including that in your listing.

Obviously, you want to look at the numbers and make sure that the deal makes sense, because the crowdfunding platform might actually go into a lot more due diligence on you and your deal. Plus, it’s easier to raise money that way. And then make sure you haev your team in place, and then make sure you understand what the crowdfunding platform wants you to do. So, Chris thanks again for joining us. To learn more about Chris, you can go to harvestreturns.com. Best Ever listeners, as always thank you for listening. Have a Best Ever day and we’ll talk to you tomorrow.

Website disclaimer

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

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

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

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

Oral Disclaimer

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

 

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JF2275: Fast Growth With Dan Perez

Dan is fairly new to real estate investing and yet has already accomplished owning 27 rentals, 5 flips, and also a limited partner in a 32-unit complex. He shares how he initially started from developing proof of concept to building a team and process that have enabled them to scale in a short time period. 

Dan Perez Real Estate Background:

  • Full-time corporate tax accountant for Qualcomm
  • Started investing in 2018
  • Portfolio consists of 27 rentals, 5 flips, and a partnership in a 32-unit complex
  • Based in San Diego, CA
  • Say hi to him at: danieljperez562@gmail.com 
  • Best Ever Book: Tax-Free wealth

Click here for more info on groundbreaker.co

Best Ever Tweet:

“Stay consistent, keep underwriting deals, keep learning because when the right opportunity comes, you will be ready” – Dan Perez


TRANSCRIPTION

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

Dan Perez: Doing great, Theo. Thanks for having me on.

Theo Hicks: Awesome, well thanks for joining us. A little bit about Dan. He is a full-time corporate tax accountant for Qualcomm and started investing in real estate in 2018. His portfolio consists of 27 rentals, 5 flips, and a partnership in a 32 unit apartment complex. He is based in San Diego, California and you can say hi to him at his email, which is danieljperez562@gmail.com. So Dan, do you mind telling us a little bit more about your background and what you’re focused on today?

Dan Perez: Definitely. Yes, my wife and I live in San Diego, California, and we primarily invest out of state in Indianapolis, Indiana. We started at the end of 2018 and we’ve really grown since then. We went into real estate investing primarily for rental properties, but based on the market we’ve also taken down a couple of flips over that amount of time.

Based on the amount of capital that we have available to us, we actually used the BRRR method to start out using other people’s money to invest in rental properties, buy them, fix them up, add some value and appreciation to the property, so that we can refinance the money out and continue to scale. Our goal going into this was to allow us a bit of financial flexibility moving forward. We plan to have kids in the next couple of years, and our whole goal in real estate was let’s generate some passive income to help us out down the line, if one or both of us would like to stay home and raise our kids, or just provide another opportunity for us; we figured this would be the fastest way to get us there. And as you mentioned, we’re not only in Indianapolis with single-family rental properties, but we are also limited partners in a 32 unit apartment complex in Kansas City, Missouri, which is going well, and our goal moving forward is just to keep generating passive income.

Theo Hicks: Thanks for sharing that. So your first deal, did you use other people’s money?

Dan Perez: For our first deal we actually used a Home Equity Line of Credit on our primary residence. We actually did that on our first three properties; what we did is we want to have a proof of concept where we can work out the kinks and also just be ready for anything that maybe we didn’t think of going into this investment journey. And for us, after going through 3, potentially even 4 deals with our own money, what we did is then we were able to take our concept and pitch that to other investors to give them some comfort around, “Hey, here’s what Dan and Kelly are doing, it’s working. They’ve worked out some of the kinks.” You know you can’t figure out everything on your first couple of deals… But at least we were able to give them a level of comfort that says “They know what they’re doing, their process works, they’re going to get better and better with each deal. We’re ready to invest with them and they’re also making a good return on their investment.”

Theo Hicks: So you said you started in 2018 and you owned 25 rentals and then 5 flips. That’s like 32 and it has been 2 years, so what is that? 16 per year? So one per month. So I’m just curious, are you doing multiple deals at once now? Have you always been doing multiple deals, or did you do one at a time upfront first, and then did multiple deals?

Dan Perez: So at the end of 2018 where we actually spent most of our time was building out our teams. We’re both very meticulous in how we put together what we’re doing, our process and procedures, and then also we’re extremely picky about who we surround ourselves with, because we know that could really make or break what you’re doing in the investment market.

So for us, what we did is we spend about 3 or 4 months just building out our team, meeting people, calling other investors, asking them who they worked well with, who they didn’t work well with, and why. Because everyone works differently with their vendors. So for us, at the end of 2018 we actually didn’t even take down our first deal, it actually happened at the beginning of 2019. But just the amount of time and effort we put into building our team allowed us to scale at a fairly quick pace.

We actually picked up — I believe it was 20 or 21 deals in 2019, and we were doing multiple deals at once. So the first few we took a little while; we had to get comfortable with our teams and we had to figure out, “Okay, how quickly do we want to go?” Because we do have W2 jobs as well. So we didn’t want to take on too much at once. But once we had our team built out and were familiar with their processes, I think our busiest month we took down 9 properties at once and all 9 had rehabs going on. So that was probably our busiest month, it was august of 2019. But by that time we were comfortable with our team, they knew how to work with us, and it was difficult at times but we got through it.

Theo Hicks: How much money did you make have when you first started, that you used for those first 3 deals?

Dan Perez: So we had a home equity line of credit, I believe it was $180,000 to $200,000. But the house is in Indianapolis; you can pick up some solid three-bed, one-bath properties that need some work in the range of $40,000 to $55,000 in 2019; the prices have grown up a little bit since then. So that gave us the ability to take on those homes and the rehabs with our own money. So that is the beauty of the Indianapolis market – it’s very affordable to get into the market, and the rental rates are strong as well. So it is very conducive to having rentals.

Theo Hicks: Yeah. So if that for the first 3 to 4 months you focused on building your team… Who did you bring on? And then since you weren’t actively doing deals that time, and you hadn’t done a deal in the past, what type of things did you say to them to bring them? Or did they just say, “Yeah, I’ll work for you.” Or did you need to sell to them, in a sense, on your ability to actually do the deals, since obviously, they get paid whenever you actually do deals?

Dan Perez: That’s a great point you bring up. It was difficult with some of the vendors I was reaching out to without having done a deal. It is difficult sometimes to get people’s attention, because there are so many investors reaching out to agents, wholesalers, property managers on a day to day basis. A lot of times if you haven’t done a deal, some people  quite frankly do tend to not take you seriously, as compared to if you have done a deal or two. So keeping that in mind, I tried to respect that; I know everyone is extremely busy, and so if they didn’t have the time to work with me at that given time, so be it. I would have to move on. But at least I would try to pick their brain a little bit and say, “Here are a couple of questions. Can you at least help me to answer them or point me in the right direction?” So if I at least got them on a call, I wanted to make the most of that time with them.

But when we started out, I tried to keep my calls as short and succinct as possible, because I did not want to waste their time upfront. I knew as a new investor I could come off with doing so. So what I did is I had a list of vendors that we wanted to bring on to our team, starting with the property manager, deal finders, agents, and wholesalers. We needed to find someone that could provide insurance for us; contractors are in an extremely big one when you are using the BRRR method.

So we wanted to start with our core solid team, and what I did is I just had a generic set of questions that I would ask each, to figure out who worked well with us, who didn’t. But I think what I actually gained the most value was speaking with other investors, who are my competitors as well, in the Indianapolis market… Just saying, “Who’s working well for you?” Because I think that’s where you’re actually going to get the most honest feedback. What I’ve found is anytime you call a vendor, they tend to have pretty good answers for you. And everyone sounds good over the phone, but you get the most honest feedback from the investors that are actually working with these vendors.

Theo Hicks: And then it sounds like the other person on your team is your wife you said?

Dan Perez: Correct. Yup.

Theo Hicks: What advice do you have on making sure that that goes smoothly?

Dan Perez: That’s a good question, Theo. For us, what we did is we said we’re going to segregate the duties, so that we’re not stepping on each other’s toes, but also so we’re not duplicating work. The point of us going into this together is one, we both really enjoyed real estate. But the other thing is we want to make it as easy and seamless for us as possible, so it’s not necessarily a burden. It’s supposed to be as passive as possible, which takes time and effort, but with the two of us, I think it has honestly allowed us to scale a little quicker than maybe if you’re going in on your own.

So what we did when we started out is we said, “I am going to be more on the acquisition site, and managing the property managers, managing the day-to-day rehabs.” Whereas Kelly was going to be more on the back end; she’s a corporate controller, so she’s managing more of the finances, the re-finances on our properties, which is a huge undertaking. She’s managing the books, she’s working with our CPA’s, she’s doing a lot of the business side on the back end. We always joked that I get all the glory up front, and I get the Facetime with all the fun people, and then she’s on the back end doing the difficult task. But it takes a lot of pressure off me and allows me to scale with the deals that we’re taking on.

Theo Hicks: And do both of you have full-time jobs that are structured 9 to 5? Or do you have some flexibility that allows you to work on the business during the day? Or is it just all at night and weekends?

Dan Perez: I would say that our jobs are pretty structured; with both of us being in accounting, I would say our typical hours are about [8:30] to [6:00], or [6:30] at night. So we’re working about 50 hours a week. But what we do is with us being in San Diego, our team being on East Coast time, we’re able to wake up early in the morning, get the necessary emails. We prioritize any emails that we need to get out immediately, we get those out the door before we start our day jobs. And then we tend to sync up with our teams during our lunch break. And then after work, even though our team is probably home and eating dinner with their family, we’re catching up on other emails that maybe weren’t as urgent. So we do fit it in around our day jobs, but in the morning is typically when we get the most done.

Theo Hicks: And how are you finding your deals? You mentioned the agents and the wholesalers – are they the ones who are solely sending you your deals? So MLS and then wholesalers?

Dan Perez: Correct. When I started out, I was looking at Redfin I would say 30 to 45 minutes a day. One, just to see what deals are out there. But two, I was practicing my underwriting, trying to get comfortable with the rent rates in certain neighborhoods. Figuring out what the ARV’s might be, because that’s extremely important for using the BRRR method. So for us, looking at Redfin, looking at Zillow, figuring out rent rates and what homes are going for, I felt like it gave me a competitive advantage, because now I can look at a map of Indianapolis or any market that I’m looking at, I can more or less tell you if it’s a good deal or not upfront.

Now of course things can come up in due diligence, but at a high level I can usually run a real within 2 to 5 minutes and say, “Yes, this is one that we at least want to look into.” But after doing this for 6 to 8 months, and I became comfortable with it, my team started pretty much sending me every deal. I no longer have to look at Redfin or really go on any sites. My real estate agent will send me deals that he knows meets our criteria, and then we’ve made good relationships with wholesalers in the Indianapolis market, and now they send us deals that they know we will take down. And I think that that all goes back to we built the relationships upfront, and we say what we’re going to do, we act on it; we don’t drag our feet. If we liked a deal, we say “Yes, this works for us.” And we deliver on it. I think that the Indianapolis wholesalers now respect us for that, and they know that we will take down deals if we say that we want it.

Theo Hicks: But for your first deals, did you have those yourself on Redfin and Zillow?

Dan Perez: Correct. I would say the first 5 or 6  deals I found on Redfin. I sent it to the agent we were working with at that time, saying we’re interested. He helped us draft up the purchase agreement and then we worked with our contractors and our inspectors to get in there, do due diligence. You might need to go back and forth with the seller a little bit, based on new information that became available during the inspection, to get it to a price that now works for you. And then from there we would close on the deal and start the process. But yes, the first couple were deals that I was just looking all over Redfin, Zillow, Trulia, and I reached out to my agent and said, “Can we please draft up an offer?”

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

Dan Perez: I would say my best real estate investing advice would be to stay consistent and take action. I think a lot of people think that taking action only means putting in offers and buying properties, but there are other ways that you can take action. You can really build your team, build your network, you can learn. I know with COVID going on right now sometimes the deals might slow down. So I would say stay consistent, keep underwriting deals, keep learning, and when the right deal pops up, you’ll know that it’s a great deal to take down, and you’ll be ready for it.

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

Dan Perez: Let’s do it.

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

Break: [15:27] -[16:08]

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

Dan Perez: Tax-Free Wealth by Tom Wheelwright.

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

Dan Perez: I would figure out what I or my team did wrong, figure out how we can fix it, and I would go right back to doing the same thing I am now, picking up rental properties.

Theo Hicks: What is the Best Ever deal you’ve done? Either in terms of money or something else?

Dan Perez: I would say it was actually one of our first couple of deals. The agent we were working with identified a deal, more or less right up the purchase agreement for us. By the time I got into the office at 9 in the morning, it was in my inbox. I signed it, we had it under contract about an hour later. We were all into the property for $59,000 and it’s renting for $1,025.

Theo Hicks: Something I forgot to ask you earlier… Have you visited the market?

Dan Perez: I have. I’ve been three times and I’m actually flying out in a week.

Theo Hicks: Okay. And then on the other end, tell us about a time that you lost money on a deal. How much you lost and what lessons you learned.

Dan Perez: Fortunately we have not lost money on a deal. But I would say our most unsuccessful deal was a deal that we went into – it was a larger property that we were looking to flip. It was with an agent we were working with in the beginning, that we’re no longer working with. We went into this property as a flip, so we did very nice finishes on this property; it ended up not selling or even getting offers anywhere close to what would work for us. So we actually had to pivot and turn it into a rental property, which we’re not making the rental numbers that we would hope to, but we’re still cash flowing a small amount each month. We will look to either flip it in the future, or figure out another strategy with it. But I would say that that was the deal that went the most in the wrong direction of the deals we’ve done so far.

Theo Hicks: What is the Best Ever way you like to give back?

Dan Perez: Speaking to new investors, hands down. I love talking with new investors, helping them underwrite deals, helping them learn the market, helping them build their team… Whatever I can do to help give back. I had a lot of experienced investors that really took me under their wing when I was first starting out, and Kelly and I like to give back by having quick calls or Zoom sessions with newer investors and try to provide as much guidance and knowledge we can to them.

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

Dan Perez: The Best Ever place to reach me would probably be on Instagram. It’s @paperrouteinvestments. I tend to check that pretty frequently. And if people have questions I’m happy to give back to them and help however I can.

Theo Hicks: What types of things do you post on the Instagram page?

Dan Perez: We’re still building it out, but for now, we’ll post our properties that we’ve purchased, the areas that they’re in… Sometimes I’ll post the other interviews that I’ve done with different companies. So we try to post things here and there. I’m still getting better at that; I would say it’s probably one of the weaker parts of our investment journey right now, but in the future we’re going to work to build it out. Maybe post some case studies on BRRR deals that we’ve done, and anything that can provide value to people.

Theo Hicks: Awesome, Dan. Well, thanks for joining us and walking us through your journey of how you were able to build up this rental portfolio while working a full-time job, with your wife of course. So you went over how you’re funding your deals, especially with the HELOC on your home. And then you did that to create a proof of concept with your own money, and then you were able to pitch that to other investors for the rest of your deals.

You mentioned that you didn’t just jump in right away and do deals. Instead, you focused on building the team first, building that foundation, which is what allowed you to scale so quickly. And you mentioned that the best way to find these team members and to pre-qualify them is to reach out to your competitors, other investors, and see who they’ve worked with in the past and if they worked that well, and then ask them why, to make sure that you [unintelligible [00:19:42].29] with them.

You gave us some tips on working with a significant other, which can be really be applied to just business partners in general… Which was making sure you’re segregating the duties, you’re not stepping on each other’s toes, but you’re also not replicating the exact same things; as you mentioned, the breakdown of duties between you and your wife.

You mentioned how you were able to spend time on the business while working a full-time job… So waking up early, working during your lunch hours, and then working at night. And then finding deals upfront, you were finding your deals online, Zillow, Redfin, but you were also looking at those deals to practice underwriting as well. Those were your first 5 deals. And after that your team members, the agents, and the wholesalers you’ve built a relationship with would send you deals, because you were known to not drag your feet and would do what you say you’re going to do.

And then lastly your best ever advice, which was to stay consistent and take action, and realize that action isn’t just putting in offers. Action is learning, action is networking, action is building a team. Those small steps that are ultimately leading you to doing a deal. So Dan, 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.

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JF2272: Experience Gives Perspective With Arn Cenedella

Arn Cenedella started his real estate career in the 1980s after graduating from the University of Michigan. During this time he invested locally and remotely in Charlottesville, VA and Austin, TX. After 36 years as a broker, he decided to leave Silicon Valley and head to Greenville, SC with his girlfriend in November of 2014. He now has 8 rental properties, 3 subdivisions, 2 condo conversions, and 3 residential lots permitted for single-family development. 

Arn Cenedella Real Estate Background:

  • Full-time real estate investor
  • 34 years of real estate investing experience
  • Portfolio consist of 8 rental properties total 13 doors, 3 residential lots, 15 completed flips, 3 subdivisions, 2 condo conversions, and 4 passive investments
  • Based in Greenville, SC
  • Say hi to him at: www.investwithspark.com  
  • Best Ever Book: Building a Story Brand by Don Miller

Click here for more info on groundbreaker.co

Best Ever Tweet:

“I believe if you approach real estate with a long term perspective, you can ride out the inevitable ups and downs of economics” – Arn Cenedella


TRANSCRIPTION

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

Arn Cenedella: I am doing great, Theo. Glad to be here and pleased to have the opportunity to talk to your Best Ever audience.

Theo Hicks: Absolutel,y and thank you for joining us. Before we hop into that conversation, a little bit about Arn’s background. He’s a full-time real estate investor with 34 years of experience. His portfolio consists of 8 rental properties (13 doors), 3 residential lots, 15 flips, 3 subdivisions, 2 condo conversions, and 4 passive investments. So he has done it all. He is based in Greenville, South Carolina, and his website is investwithspark.com. So Arn, do you mind telling us some more about your background and what you’re focused on today?

Arn Cenedella: Sure, I’d be happy to. So like many of your listeners, I went to college, I planned to become a scientist or an educator, got a master’s degree in chemistry from the University of Michigan, but then I went into the real estate business back in 1978. So I had the good fortune to grow up on the San Francisco Peninsula, basically above Silicon Valley, and went to work for my father who was a great mentor, taught me the brokerage business as well as the investing aspect of real estate… And I had the good fortune to work there for 35-40 years in probably one of the best real estate markets in the world.

Theo Hicks: So you have seen a lot of market cycle ups and downs, so I think maybe a good place to start would be how do you see what’s going on right now, since we’re recording this on August 19th… So how do you compare what’s going on right now to previous recessions? And maybe kind of talk to us about the mindset you have after experiencing a lot of these recessions, as opposed to someone who just started investing in real estate in 2009 or 2010 and has only experienced growth, and hasn’t seen the other side?

Arn Cenedella: That’s a great question and hopefully I can help your listeners feel okay about what’s going on. So certainly, COVID is something new to me. I think it’s new to all of us. But I can tell you, I bought my first house in 1980 and paid 11 and 3 quarters percent on my mortgage. And I was happy to get 11 and 3 quarters; it seems like a lot today, but 6 months later rates were up to about 16%. Been through the dotcom boom, through the dotcom bust, various cycles, Resolution Trust… Not many people remember the S&L crisis, I believe, in the early 1990s.

So there have been various cycles, and in general, I’m an optimistic person and I believe if you approach real estate from a long-term perspective, you can ride out the inevitable ups and downs of economics and just what happening in the world. So I’m optimistic about the future, I’m continuing to invest. Fortunately, my rentals have done well on collections and have had no issues there, and I think by and large from what I understand, rent collations on most residential multifamily properties has remained pretty good, even though the COVID issue.

Theo Hicks: So kind of three options – you either don’t do anything, you don’t buy, you don’t sell, you just chill. The other option is to sell something or all of it. And the other option is to buy. So based off of your experience again with these previous real estate cycles, what are you doing and what would be your advice to people?

Ard Cenedella: So first of all I would say, “don’t panic”, that will be rule number one. And I think hunkering down, getting a read on what’s going on is good, but I also believe that there are always opportunities to buy and sell, depending on your particular situation. I would say if you’re in good real estate investments, cash-flowing, you’re properly capitalized, you can ride out the downtimes while still be looking for opportunities. Right now, what I’m doing is I’ve started to transition my actively managed rental portfolio into passive investments. So over the last 6 months I’ve probably made 4 passive investments in multifamily syndications, primarily in the Southeast, but also elsewhere in the United States. And I generally sold one of my rentals and made a passive investments. So I think there are opportunities to transition one’s portfolio at any time, and I think it’s just a matter of keeping your wits about you and evaluating and making good decisions.

Theo Hicks: Before I ask you about the passive, you’ve mentioned something about– you said if you approach real state from a long-term perspective, then you’re going to be able to ride out the ups and downs. You kind of mentioned cash flowing and being properly capitalized… Is that what you mean? …that you buy properties for cash flow and don’t be over-leveraged. Is that what you mean by long term?

Arn Cenedella: Well, what I would believe is if you invest in real estate and you have a long-term perspective, which is 5 to 10 years, I would say the overwhelming majority at the time those investments will prove to be a positive factor in your life. Certainly, you don’t want to get over-leveraged, because if you are in a situation where you’re over-leveraged, you may be put in the situation where you have to sell when the market is not ideal, and I believe people can get themselves in trouble that way. But if you have good, solid properties, properly leveraged, that are paying for themselves, then yes, time is on your side and you can just ride out the down cycle.

Theo Hicks: So as I mentioned in the intro, you’ve got your active investments, but you also have passive investments. You said that you made 4 passive investments recently. So is this something that you’re doing because you just don’t want to be an active investor anymore, or you’re doing it because you think that’s it’s a better use of money being invested passively in this larger apartment syndications, as opposed to doing your own deals?

Arn Cenedella: It’s a great question, and I would say it’s a combination of both. I’m 65 years old now, and I do not want to be as involved in the day to day management of the property. There are a lot of things I want to do. I have several passions that I enjoy. I’ve loved actively managing my real estate portfolios over the last 30 years. But I’m just at a point in my life where I want less day-to-day responsibility.

So I think freeing up my time is one part of the answer. The other part is – generally coming from the San Francisco Bay area, most of my investments have been more in appreciation markets than cash flow markets. And in looking at my return on my equity on a cash flow basis, it is lower than what I can achieve through the multi-family syndications. So my purpose of transitioning my portfolio is to free up my time and also increase my cash flow. So those are the two main things. And I’d like to help other investors who have a similar history to me. I’d like to help them perhaps consider transitioning into more passive multi-family investments.

Theo Hicks: Are you able to do these passive investments? Because you said that you sold a property. Is that a 1031, that is the passive investment? Is that kind of like your strategy?

Arn Cenedella: It’s pretty difficult to 1031 into a passive investment, so I have to pay Uncle Sam a little bit of money. But we pay Uncle Sam on every dollar we ever make, and real estate gets taxed less than our typical ordinary income. The other thing that will help me is most of these syndications I’ve invested in have a large first year– I believe it will be called bonus depreciation… Where in the first year I’ll receive a K-1 with a relatively sizeable tax clause. Since I am considered an active real estate professional, I’m able to apply that passive laws against any other income. So in my particular situation, I’m hoping the bonus depreciation, which by the way expires I believe in a year or two, will be used to offset some or most of my capital gain. Yes.

Theo Hicks: I just interviewed someone – he’s a GP, and he had a deal under contract before the COVID outbreak, I think he said February. And then COVID happened and he lost the previous lender, and he was able to get an agency loan with a really low interest rate, but he was also able to negotiate a pretty large discount in the purchase price. So from your perspective, when you’re analyzing these passive investment deals, and I’m assuming they’re doing the same thing, they’re getting a discount in there, and they’re assuming some sort of reduction in income that first year or something, do you think that the returns that you’re seeing projected are going to be lower than what you actually see once things turn around?

Arn Cenedella: Well, that’s a 64 million dollar question. And of course, it all comes down to the skill and integrity of the operator, of the syndicator, and how he or she goes about his or her business. So I would say most of the passive investments I’ve made, price reductions have been able to be negotiated. Probably not as big as people think. What I’m kind of seeing is maybe 3, 5, 7 percent off pre-COVID pricing. So there’s no fire sale, at least not yet; there’s no panic. So I believe the prices have been negotiated down a little bit. I think the underwriting has been tightened up. I’m looking at one possible investment now where the operator’s projecting a decrease of $100,000 year one in rental income. So not only are they projecting flat, they’re actually projecting a decrease, and I appreciate the integrity of an operator who does that.

I think what counterbalances is it all out is the unbelievable interest rates you can get on agency debt. One of the partnerships I’m in I believe we got 2.88%, ten years, with maybe 3 or 4 years of interest only. So I believe the rates — and again, I bought my first house at 11 and 3 quarters. So when you’re talking 2.88%, 3%, it’s like they’re giving money away. So I think the financing available now compensates for the potential issues. Eventually, we’ll work our way through COVID, and I’m optimistic about the future. So even with these passive investments, I’m looking more 5, 7,10 years down the road, where am I going to be. Not as concerned about what’s happening 3 months from now.

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

Arn Cenedella: My Best Ever real estate advice – and this may go counter to many of the people on your podcast – would be slow and steady wins the race; consistent investment over time will lead to financial freedom. In my investing, I focused on solid [unintelligible [00:15:43].28] base hits. I’m not interested in the grand slam. I kind of don’t trust that. I’d rather do it slow and steady. So I believe there’s kind of a logical sequence to investing, to gaining knowledge, and that sequence is beneficial over time.

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

Arn Cenedella: I think so.

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

Break: [00:16:11][00:16:50]

Theo Hicks: Okay Arn, what is the Best Ever book you’ve recently read?

Arn Cenedella: Well, since I’m starting a new investment group, Spark Investment Group, the best book I’ve recently read is Building a Story Brand by Donald Miller, which gives some good advice on how to best brand oneself and so forth. So it is a fascinating book and is been a big help for me.

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

Arn Cenedella: Honestly, and I say this without trying to be flippant, I’d probably go play golf. Because after all isn’t the point of this real estate investing, passive investing, is to create a passive income, to create financial freedom.  And over four decades of real estate investing I’ve been fortunate enough to be able to do that. So I’d probably get bored playing golf at a certain point, and then maybe go back to selling houses like I did 20 years ago.

Theo Hicks:  Tell us about the Best Ever deal you’ve done?

Arn Cenedella: The Best Ever deal was a flip that a wholesaler sent me. The property was an old beat-up house, fairly good size, but it was on an acre. And I had a good feeling it could be subdivided, so I bought the house, we subdivided the land, created two additional lots, fixed up the house, sold that… I sold the two lots I created to builders, and probably had about a 30% return over 18 months. So that was one of my better ones.

Theo Hicks: What is the Best Ever way you like to give back?

Arn Cenedella: Well, I’ll return to golf; so I’ve played golf since I was 8 years old, and it’s a passion of mine, so I now volunteer at the First Tee of the Upstate, which introduces young kids to golf, but even more importantly, uses golf as a way to instill core values, principles, character, integrity, honesty. So it’s a great program and I love being involved with youth in sports.

Theo Hicks:  And lastly, what is the Best Ever place to reach you?

Arn Cenedella: Best ever place would be my cell, 650-575-6114, or my email which is arn@investwithspark.com.

Theo Hicks: Alright Arn, thanks for joining us today and proving us with your wisdom on how to–

Arn Cenedella: Not sure about that, but okay. [laughter]

Theo Hicks: …how to continuously thrive in real estate through the various ups and downs. So you talked about you bought your first house at an 11.75 interest rate. And then you said that it actually went up 16. I knew that but it is just funny, because now you say that you’re in a deal where the interest rate is at 3%. So it’s a huge difference between what you started off, to where you are now. And you said you went through all the various ups and downs and that it’s really about having a long-term perspective on real estate, thinking in terms of 5, 10 plus years, as supposed to thinking what’s going to happen a few months from now.

So you said that it means not being over-leveraged and it means making sure the property can at least pay for itself, so you’re not forced to sell. In regards to what’s going on now with COVID, you said that hunkering down is totally fine, but you also think that there are always going to be opportunities, to sell, depending on where you’re at in your business. And you mentioned that right now you’re transitioning from active to passive; you made 4 passive investments in the past year… And that the reason why is: one is to free up your time, but two, because a lot of your deals are in this appreciation markets.

The cash flow that you get in these markets is not nearly as high as the cash that you can get on these vacation deals, so that’s why, as you mentioned… And sometimes it makes sense to buy, sometimes it makes sense to sell, or do both during these types of economic environments.

We talked about what these sponsors are doing to conservatively underwrite their deals, price reductions, underwriting, lower year one incomes compared to T-12’s, and then the fact that the interest rates are just insanely low.

And then your Best Ever advice was, “The slow and steady wins the race.” Being consistent over time, following that logical sequence will result in financial freedom. And that you’re a base [unintelligible [00:21:11].18] kind of guy as opposed to the home run grand slam. You don’t trust the grand slam; you like the consistent, steady investments.

So, Arn, I appreciate you coming on and speaking with us today. Best Ever listeners as always thank you for listening. Have a Best Ever Day and we’ll talk to you tomorrow.

Arn Cenedella: 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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JF2268: Nice Guys Buying Houses With Terry Burger

Terry is a full-time real estate investor with 19 years of real estate experience and founder of “Nice guys buying houses”.  Terry will be sharing some great information around how to find leads, to strategies in how they separate themselves from other real estate companies such as focusing on the Better Business Bureau and focusing on a specific customer. He also was open to sharing how he comps markets by focusing on micro-markets, schools, and other ways. 

Terry H Burger Real Estate Background:

  • Full-Time real estate investor
  • 19 years of real estate experience and 5 years of investing
  • Portfolio consists of 6 rental properties and flips 30-40 per year
  • Based in Atlanta, GA
  • Say hi to him at: https://www.niceguysbuyinghouses.com/ 
  • Best Ever Book: Traction

Click here for more info on groundbreaker.co

Best Ever Tweet:

“If you have that warm fuzzy feeling when you find your first deal but not sure about the numbers, then you need to be careful” – Terry Burger


TRANSCRIPTION

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

Terry Burger: I’m doing great, Theo. Thanks for having me on today.

Theo Hicks: Absolutely. Thanks for joining us, looking forward to our conversation. A little bit about Terry. He is a full-time real estate investor, with 19 years of real estate experience and 5 years of investing. His portfolio consists of 6 rental properties and he does 30 to 40 flips per year. He is based in Atlanta, Georgia and his website is niceguysbuyinghouses.com. So Terry, do you mind telling us some more about your background and what you’re focused on today?

Terry Burger: Yeah, no problem. So I am a trained classical musician, turned middle school band teacher, turned realtor, turned real estate investor. So I spent about 9 years teaching public education and then went into residential realty or real estate for about 16 years, and then made the transition around 2013 to investing full-time. And that’s a little bit of my background. Kind of my claim to fame is my superpowers comping property and knowing what the consumer wants.  I have probably walked through 10,000 properties, I probably had 5,000 moms in my car at any given time. So I kind of feel like I’m the house whisperer when it comes to knowing what the retail consumer wants. So that helps me in my flips for sure.

Theo Hicks: Well we’ll definitely talk about those two things. So the comping properties and the knowing what people want. But before that, so you do flips and you do rentals. So which one is your main focus?

Terry Burger: So we flip to buy and hold. We like to generate cash through our flips and then we can save the best ones with the most cash flow as a rental properties. So we’d pick up two, maybe three a year, if we can.

Theo Hicks: What’s your main way to generate leads?

Terry Burger: Let’s see, the main way to generate leads is direct mail at this time; we buy some online leads as well. Those are our two primary.

Theo Hicks: You buy online leads. Do you buy like lists?

Terry Burger: Yeah. So there are companies out there that have great organic traffic. So you could either do Google pay per click – we have done that before – and drive traffic to your own site. Or you have these companies out there that have really great SEO and they appear in top search results in just about every market and they get plenty of leads. So we basically just pay for leads from them.

Theo Hicks: Interesting. So you have like an ad on their website? Like if I go on a website, on the corner it will have an ad for you buying houses, or how does that work exactly?

Terry Burger: No. It’s not an ad at all. It’s kind of like they go in, and because these companies have national SEO presence they just go in, and let’s say somebody clicks Greenville, South Carolina, I have a house to sell in Greenville, South Carolina, then I buy that lead.

So if you think about how Service Master does it for storm-damaged and water-damaged houses, it’s just a national website and it’s a lead collection service, and then there are a multiple of people that buy leads. I can give you the company names if that would be helpful, Theo.

Theo Hicks: So you buy it and then they will send you a list of people who said “I want to sell my house in this market”?

Terry Burger: Yup. Let’s say Suzy Smith hits their website, and they know that I’m going to pay X amount of dollars for this lead, call it a hundred bucks, a hundred and fifty, two hundred dollars… Then they send that lead over to me and they just ping my credit card per lead.

Theo Hicks: Okay, and what are some of the websites that do this?

Terry Burger: There’s a needtosellmyhousefast.com, is the most common one, and then fasthomeoffer.com is the other. A lot of people, I think, have heard of fasthomeoffer.com.

Theo Hicks: And then for the direct mail, what’s your criteria for that? What type of people are you mailing to have you found to be the most receptive to direct mail? And then what type of messaging are you putting on these letters?

Terry Burger: I think the best messaging is just consistent messaging. What is it that your company has that might separate you from other people? So we have done a really concentrated effort to get Better Business Bureau reviews. So we leverage those Better Business Bureau reviews against our competition, and we hear this all the time, “We went with you because you were BBB rated,” or “We called you because you were A+ rated on the BBB.” That seems to help us a lot, so that kind of messaging – we get that out all the time. And then in terms of the type of person that we mail to, just like everybody else, they need to have equity, and we’re just trying to figure out who is motivated.

We have personally, I don’t think, ever bought a house from anybody under 40; so we go 40 and up. We just kind of look at our avatar customer, who is it. The problem with us sometimes is – I remember buying a house from an attorney couple one time. So typically he wouldn’t be our avatar customer, but they hated realtors. Really, honestly, Theo, that’s really what it boils down to. If they don’t like real estate agents, they call us. And I think from an investor’s perspective, a lot of times that’s what makes the investor a really good option for people, is because a lot of people have this bias against real estate agents sometimes. And that usually stems from a bad experience along the way.

And look, I was an agent for 17 years, I sold over a thousand houses, and I was a really good agent, but did I make everybody happy all the time? No, I didn’t. So that one person that I didn’t make happy, or they didn’t have the experience they thought they would have, they may reach out to an investor.

Theo Hicks: So, you’ll have on the direct mailing a stamp that says “A++ Better Business Bureau”? [unintelligible [00:08:33].23]

Terry Burger: “And if you hate realtors, call me.” No, I don’t put that on there.

Theo Hicks: Well it’s funny, because I talked to people before who would put that they’re an agent on there, and say that’s like a benefit to them that they’re an agent. But it’s interesting, they said sometimes people don’t even like agents. That could potentially hurt you as well. So thank you for sharing that.

So you send out your direct mail and leads start coming in. Now you said that you are the master comper. So how are you able to determine what the offer price is without having to go and inspect every single property?

Terry Burger: Yes, so during COVID-19 we have switched over to in-person and phone appointments, and I think a lot of people have shifted that way, right? So our biggest obstacle is how do we evaluate the property when we can’t see it. So, I’ll tell you what we do.

Let’s say we put a house under contract over the phone.. Then of course I teach comping to my team so they kind of get how to comp a property; we could talk more about comping if you want, but the process that we used to do it virtually like this, especially during their phone appointment era that we’re in, is we send our home inspector there and we also send our photographer at the same time.

So we give our photographer a big checklist of things to look for, in addition to just looking for problems in general. So our home inspector is there going all over the house, and it takes a couple of hours for him to do that. And then our professional photographer is in there with wide-angle lens and  micro-lens, and she’s shooting videos, she’s shooting photographs, and she sends them back to us in high resolution. So I can get on my Mac or whatever and I can zoom in really, really tight on things; as long as you get that stuff back in high resolution, you can zoom in on something really detailed without having to be at that house. And that’s how we do it right now.

Theo Hicks: Okay, can we take a step back… Because this is what you do after you got it under contract, but how do I know what that contract price is, how do I know what to offer?

Terry Burger: So, the way we comp properties is our philosophy is we comp in micro markets. So if you think of the city of Greenville, South Carolina, that’s kind of micro-market to the whole country right? But it’s more of a micro-market regionally… So we drill down a little deeper and say, “Okay, this neighborhood right here,” Judson Mill for example, “is its own micro-market. It has its own set of values, its own set of people that live there, they buy there, and all that”, right? So one of the easiest micro-markets that we use are main roads; we won’t cross over a main road, we’ll stay within the boundaries of main roads and we’ll try to stay inside of a little neighborhood pocket that we know is how are we going to grab our comps.

The second trick that I teach people – this is an old agent trick… You’re going to at your values based on the elementary school. So you could do a zip code search which gets you kind of big picture, you could do an elementary school to search, which kind of drills you down a little deeper… Or if you want you can go into the MLS, or PropStream or whatever program you’re using, and you draw out a little polygon based on the area that you want. So we employ the polygon method, and we employ that elementary school method, particularly when you’re in the suburbs.

Theo Hicks: And then is that… Is the number like dollar-per-square-foot? Is that what you are looking at?

Terry Burger: If we can find houses that are all very very similar, we look at the values and we can ballpark it. But yes, very wildly in square footage, which in some of our areas they do… Then we are looking at 2 values – the market value cost per square foot, which would mean a normal residential retail sale, and then hopefully sometimes we can find current condition comps of houses that needed to be fixed up and sold in the MLS.

Theo Hicks: So my second question, how do you know without seeing the property if it is going to need $5,000, $20,000, $30,000 in renovations?

Terry Burger: We use a home visit sheet that I came up with. It’s got a lot of the numbers on it; so if our acquisitions manager is looking at the comps and they see that the ARV includes new kitchens and it’s basically flips, if they see that, then we are going to estimate our rehab based on those comps. We only look at the comps when we estimate rehab.

Theo Hicks: So you just assume that if the comps have a new kitchen, then you’re going need to put in a new kitchen; if the comps have whatever else, you’re going to need to do that. Okay.

Terry Burger: Yep. It’s interesting, in some markets they just paint the cabinets white. They don’t put in new kitchens. In Atlanta a lot of new kitchens go in, but in Greenville, they just paint the cabinets. So we look at those comps and go, “Okay, two out of three of the comps have painted cabinets. Why don’t we just paint the cabinets?”

Theo Hicks: What about the major cap-ex things like a roof, or painting the outside a house, air conditioning, HVAC – how do you know if you’re going to need to replace any of that stuff?

Terry Burger: So in our home visit sheet, HVAC for example – is it older than 10 years? If it is, we automatically replace it; we budget for a replacement. The same thing with the roof – if it’s a 30-year architectural shingle and they’ve got 20 years on it, we’re going to budget to replace. If it’s a 15 and has 10 years on it, we’re going to budget to replace.

Theo Hicks: Who does the home visit? Is someone from your team doing this? Or are they sending this to the owner to fill out?

Terry Burger: So our lead intake people do it during that screening call that comes in, and then our acquisitions department goes a little bit deeper on the phone, asking them questions like that.

Theo Hicks: So the next thing that you’re an expert in is knowing what a buyer wants. So if you’re flipping most of these, and you’re keeping some yourself, what do you mean when you say that you know what they want? And what step in the process does that come into play?

Terry Burger: Well, I’ll tell you a funny story… Clients are always asking me, would you buy this house? And that’s one of the most popular things real estate agents get asked by their clients. Would you buy this house? And over the years, what I’ve seen, particularly in the residential suburbs, – so I’m in the North West suburbs of Atlanta, and then we’re in the suburbs of Greenville, we’re also in downtown Greenville as well… But I asked three words; so I said, “If I’m sitting on my deathbed in a hospital and somebody asks me what’s the secret to real estate, I have 3 words for you: backyards sell houses”, period.

So in Georgia, for example, we are in a very hilly area, in North West Atlanta, kind of the foothills of the North Georgia Mountains, so there’s a lot of topography changes. So you’ll have a big family-friendly, 2-story traditional house, but your kids can’t pick a soccer ball in the backyard, because it’s hilly, or it’s steep, or whatever. So I always told my clients, “Look for a nice backyard first. You can fix up the house, but that piece of dirt is always going to sell that property.” So that’s the biggest one for us, particularly around here, is a nice backyard.

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

Terry Burger: A lot of people say this, but gosh, it’s so true, Theo. You’ve got to buy it right, and you cannot get emotionally involved in the buy. You have to keep your wits about you, be numbers focused only, and buy that house right.

Theo Hicks: In your agent days when you were dealing with clients buying a home, this seems, at least from my perspective, to be more relevant when someone’s buying a single-family house. How do you communicate with a client who is emotionally invested and wants to buy this house that’s either overpriced, or it’s going to cost too much money to fix up? What’s some advice that you’d give to them, and then think that you’re talking to a Best Ever listener who might be emotionally involved in a deal and how to get them to relax a little bit and calm down.

Terry Burger: Yeah, those first few deals are pretty emotional. I remember my first deal, the butterflies were in my stomach; I ran the numbers on a napkin at a Chick-fil-A… But I knew it was a great deal. I think inside, at least for me that first deal or two, I was so giddy about the deal, I couldn’t wait to get the ink on the paper, because the deal was so good.

Now I’m numbers-oriented; that’s not everybody. So I was emotional about it because I knew I had a great deal, because I analyzed the numbers. So if you have that warm fuzzy feeling because you found your first deal but you’re not sure about the numbers, you’ve got to be careful there.

I would always tell my retail real estate clients, “The numbers don’t lie.” So for example, if you’re going to buy a home for you and your family Theo, you’re going to look at it and go, “Well, this one is priced $20,000 more than the one that sold down the street last month. Why? Why is that?” “Well, it has a pool.” “Okay, so how much was that pool?” “It was a hundred thousand dollars.” “So you’re telling me I can get that pool for 20 grand?” That’s a good deal if you want a pool.

So it’s just looking and comparing the facts with all of the houses, just like an appraiser would. And just looking at those things and analyzing them. And knowing your numbers, knowing what stuff costs.

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

Terry Burger: I’m ready.

Theo Hicks: Okay. First, a quick round from our sponsor.

Break: [16:57]-[17:33]

Theo Hicks: Okay Terry, what is the Best Ever book you have recently read?

Terry Burger: Right now I’m reading — we have a pretty big team so I’m trying to learn how to lead my team better… So I would say lately, in the past 6 months, two:  Traction by Gino Wickman, and then the Who Method For Hiring by Geoffrey Smart. Those two.

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

Terry Burger: Oh, wow… Thanks for planting that seed in my brain. I would figure out how to do it better. I love real estate; I’d figure out how to do it better so it didn’t collapse again.

Theo Hicks: What is the Best Ever deal you’ve done?

Terry Burger: My first deal was really sweet. The guy had an old Porsche 911 that he wanted to fix up. The house sat empty for 9 years after his ex-fiancé moved out… And he had just got a wild hair that he was going to fix up this 911 and it was going to cost him 40 grand, and he needed 40 grand. So I gave him 40 grand for a house that was worth a lot more and fixed it up. And even to this day — we have made $65,000 on that property. Probably one of our best flips ever.

Theo Hicks: I wanted to ask you one more question – who is your favorite classical musician, classical composer, and classical artist?

Terry Burger: Composer would be Gustav Mahler. And I was a trumpet player, so my all-time favorite trumpet player is Philip Smith in the New York Philharmonic. He teaches at the University of Georgia now.

Theo Hicks: When you said that in the beginning, I wanted to ask that question, because I always listen to classical music while I work.

Terry Burger: Mahler is like the Led Zeppelin or The Kiss of that era. It’s just lots of brass music.

Theo Hicks: How do you spell it?

Terry Burger: M-A-H-L-E-R.

Theo Hicks: Okay. What is the Best Ever way you like to give back?

Terry Burger: My wife and I like to give. She’s a giver, and I like to make the money so she can give. So we support our church, we support missions organizations… One time we were trying to give away 20% of our income. It might be that way now, I’m not sure, but we give away a significant portion. I am passionate about Operation Underground Railroad. Their sole purpose is to free children from sex slavery or any other type of slavery all over the world. And that’s one of the causes I really care about right now.

Theo Hicks: Do you know who Bill Allen is?

Terry Burger: Yeah. He’s a good friend of mine, in fact, I’m now the Chief Operations Officer of 7 Figure Flipping.

Theo Hicks: I just talked to him right before we got on.

Terry Burger: Oh, that’s awesome. I talked to him earlier today too, he didn’t know I was going to be in your podcast.

Theo Hicks: Wow. And then I talked to someone else on his team yesterday, Beka Shea. It’s a small world.

Terry Burger: Yeah, good friends of mine. And Mike Simmons… Those guys, we kind of grew up in this business together, Bill, Beka, and I.

Theo Hicks: Small, small world. Alright, last question. What’s the Best Ever place to reach you?

Terry Burger: The best place to reach me, probably Facebook. For somebody who’s just reaching out to me it’s Facebook; just private message me, Terry Burger, and you can reach out to me there.

Theo Hicks: Perfect, Terry. Well, thanks for joining us and walking us through your step by step process for flipping homes, starting from your direct mailing strategies, as well as buying leads from websites like needtosellhomefast.com and fasthomeoffer.com.

We talked about how you create your offer, which is by doing comps based off of the micro-market, so a neighborhood with the major roads as the boundaries, as well as looking it up by elementary schools. And then from there, you do phone conversations with people once these leads come in.

The biggest obstacle is evaluating without seeing the property, so you will send the inspector as well as a photographer who will have a checklist of the things you look for, and then make sure that they take high definition pictures, so when you get the pictures you can zoom in to see any issues that you want to investigate further.

And you mentioned something else too about knowing what the buyer wants, and that the secret to real estate is backyards sell houses. You can’t really renovate a house and add a backyard, unless you cut the house in half. I don’t know what you would do. So look for the backyard, and then you can make the inside of the house really wherever you want it to be.

And then the Best Ever advice was to buy it right and don’t get emotionally involved on your numbers. Act as if you were an appraiser. So thanks Terry, again, for joining us. Best Ever listeners, as always, thank you for listening. Have a Best Ever day and we will talk to you tomorrow.

Website disclaimer

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

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

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

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

Oral Disclaimer

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

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JF2264: Investor Agent With John Chin

John is the co-founder of Investor Agent where they have done 2,800 rentals and flips. He started at 19 in the military by picking up real estate courses where he could barely understand the terminology but through perseverance and hard work he now manages over 470 cash flow rentals.  

John Chin Real Estate Background:

  • John is the co-founder of Investor Agent
  • You’ve done 2,800 rentals and flip properties (mostly short sales, foreclosures, and REOs)
  • Closed over $260 Million residential investments
  • Currently manage over 470 cash flow rentals
  • Based in Orlando, FL
  • Say hi to him at:  www.investoragent.com 
  • Best Ever Book: Power vs Force

Click here for more info on groundbreaker.co

Best Ever Tweet:

“Start working with investors, one investor client will change the trajectory of your future” – John Chin


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 John Chin.

John, how are you doing today?

John Chin: I’m doing good, man. Thanks for having me.

Theo Hicks: Absolutely. Thanks for joining us. Looking forward to our conversation. A little bit about John. He’s the co-founder of Investor Agent. They’ve done 2,800 rentals and flip properties, mostly distressed residential properties. They’ve closed over $260 million worth of residential investment and they currently manage over 470 cash flowing rentals. He is based in Orlando, Florida, and his website is www.investoragent.com.

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

John Chin: Yeah, man. So we have a traditional brokerage background. I’ve been doing traditional residential sales for a long time. I started when I was 19 years old while I was in the military, serving in the Air Force, didn’t like turning wrenches that much, didn’t see myself doing that forever… Although it was a good experience, I wanted to get into real estate investing.

So I think a lot of us — to kind of date me a little bit… A lot of the listeners know Carleton Sheets and picked up that ‘No Money Down’ course; it was when it was like a three-inch thick package of audio cassette tapes. And I couldn’t get past the first chapter, because I didn’t know the language as a 19-year-old; I’d never bought or sold the house. So I got my real estate license to learn the course. And then started accidentally selling houses to my military friends.

Then had kind of a fortuitous pivotal moment when I sold a house to an investor who had multiple rental properties. And he kind of took me under his wing and that kind of changed the trajectory of my career in real estate, which is now about 25 years. And I just focused at that point forward on residential real estate properties.

So you fast-forward to today and now we work with licensed agents who want to get into the residential investment space, so that they can do more closings with clients who want to buy rental properties or flips and that sort of thing.

Theo Hicks: So you said that you want to help them work with investors, or you want to help them invest themselves?

John Chin: We helped them to work with investors first, and as a byproduct of working with investor clients and being in that space — it’s kind of like being in the commercial world, but in a residential space… Then as a byproduct of that, you pick up key relationships with investors who then you do JVs with, and you start investing yourself; capital doesn’t become an issue anymore, you have unlimited funding, essentially, with your deals…

And so licensed agents, typically who have an interest in real estate investing will, in our opinion, do it the wrong way. So they start trying to learn how to invest in properties, do coaching programs… You could spend 20 $40,000 pretty easily trying to learn how to invest in real estate and not ever make a penny.

Well, our view is, if you’re a licensed agent, you have access to the MLS, and we teach you how to hack the MLS to find deals; then you work with investors first. You learn as you go, you’re making money as you learn, and then you keep the cherries along the way. So it’s like joining the military, you get to make money while you learn a trade, and then you get out, as opposed to going to college, where you’re paying to learn,  and then you’re trying to make money after you graduate. It’s a little bit of a paradigm shift.

Theo Hicks: Yeah. I was actually talking to someone earlier this week who has a corporate job. She caught the real estate bug, she wants to get out of that job, and her thought is to become an agent, start up being an agent in order to generate income from selling homes in order to make enough money so she can quit her job, and then ultimately start investing. It sounds like you work with people who are already agents, but would you recommend that if someone is in that position, if someone wants to get started in real estate and they have no experience whatsoever, they’re working a job and they want to get their feet wet – do you recommend their first step being getting their license?

John Chin: Yeah, 100%. It’s funny, there’s two schools of thought about that. A lot of estate investors don’t like to get their license, because they like to operate in what I call the gray, where they don’t want to be liable or be in front of a judge saying that, “Oh, you’re taking advantage of the public, you’re a licensed professional,” and they don’t want to deal with the disclosures, and all that kind of stuff. But our school of thought around that is that if you’re a licensed agent, you have that kind of educational base and all the tools to access inventory, like the MLS and you have a broker to guide you and keep everything compliant… That’s, in our perception, a good foundation to start from.

And then if you’re doing investing the right way anyway, then you shouldn’t be afraid of disclosures and investing in real estate as a professional. So that’s our take on that. And if you start that way, with the intention of doing residential sales, but then focus on working with investor clients and—there are cash investors right now that are closing multiple transactions a month on almost every MLS in the whole country. So if you find out how to identify those people, why not work with less clients, do more transactions, not have to deal with buyers and sellers who have finance contingencies and a lot of the hiccups that you deal with emotional buyers and sellers? …that by the way, they’re only purchasing every 7 to 15 years, right? When you think about somebody who’s buying or selling a home.

And if you’re a licensed agent, you’re lucky if you get both of those transactions, the buy and the sale. So why not work with cash investors who are buying a lot of times sight unseen, that don’t have any finance contingencies and they’re closing multiple transactions a month? So we try to accelerate somebody’s success and their money-making opportunity by working with investors, as opposed to your traditional retail client is what we call that.

Theo Hicks: Sure. So you said two things there. One, was identifying the cash buyers, and then two was – you said this earlier, I think, about hacking the MLS. Let’s talk about the ID and the cash buyers first. I kind of got two questions there, answer both or whatever… But the first one is, from an agent’s perspective, how am I finding these types of cash buyers? And obviously, that’s going to apply to wholesalers or anyone who needs to find cash buyers in general.

John Chin: Yeah. Yeah.

Theo Hicks: But then secondly, kind of flipping it around. If I’m an investor and I want to work with an investor-friendly agent, what types of things are agents looking for in their ideal investor client? Will they take anyone who says, “Hey, I want to invest”, or are they looking for a specific person with a specific background and specific ability before they begin to work with them and give them access to their hacked deals?

John Chin: It’s interesting… I think the second question is a lot easier and faster to answer. And the answer there is to anybody who’s been on floor time as a licensed agent who got a call from a “investor”, you want to run the other direction, because most of them are tire kickers. They have you on this wild goose chase and you’re sending them MLS listings and you have no idea, number one, what to look for. You don’t know how to qualify them. But if you know how to qualify an investor right – it’s basically  just two things. They have a track record and a history of closing on deals. If they have a track record and history – that’s the first thing we’re asking them on the phone – and they have realistic criteria on what they’re looking for, then yeah, they’re worth working with. But we’d rather work with someone we don’t have to qualify.

That comes back to your first question, is how do you identify these cash investors that are buying multiple properties? Well, on any MLS search, you can do a search for cash transactions. If you know how to on the MLS pull up all the cash transactions within a certain window – we like to go back like 60 days, 90 days – and then you then append that information with absentee owners, so where the mailing address is different than the property address, and you see someone doing that three and four times the same party, then you know they’re an active cash investor in most cases. Unless you’re in a place like the mountains of Tennessee or in Orlando, for example, or maybe Vegas… Chances are those aren’t vacation rentals. Those are probably long-term rentals and they’re building a portfolio. So then it’s just a matter of contacting those folks, finding out what their criteria is.

And here’s the thing. The number one turn-off with investor clients for licensed real estate agents is that they have unrealistic expectations and they want huge discounts, which as you know, today’s competitive environment seller’s climate, you’re not going to find those kinds of discounts.

So what’s nice about working with people who have tons of transactions and a history of cash deals on the MLS is you’re talking about inventory that’s on the MLS. You don’t have to be a specialist at finding off-market deals, which my partner Ron and I have a lot of experience with that.

Ron’s background is wholesaling, where him and his group – they were closing 50 to 60 transactions per month wholesaling, right? So that’s his background. You complement that with my background, taking possession of properties and full-cycle flipping them, and funding them and so forth… All of the stuff that we’ve done in the past has been a mix of off-market and on-market MLS deals. But when we’re working with licensed agents, we’re helping them utilize a tool that they already pay for, the MLS, to find those investors and find the deals already buying that’s on the MLS.

Theo Hicks: So let’s transition into that… You told me how to find the investors… How do I find the deals now on the MLS?

John Chin: It’s easy. Literally, if you do the first part – we call it our investor launchpad sequence. Picture that a rocket ship is taking off. You’re newly licensed and you want to work with investors, you don’t know where to start. I’d tell you to start by looking at the MLS, doing the search I just described; that surfaces the active cash investors that are buying multiple properties. Well, by virtue of those search results, you see the kind of properties they’re buying. So if you contact those investors and find out that, okay, these are the addresses they bought, that translates usually to a yield requirement they have.

So if you look at what they paid for the properties, and you can easily research what they rent for, those are the same assumptions that these guys are making to get to their yield requirement… And you know that, okay, they’re looking for at 12% gross yield, for example. That’s kind of a rule of thumb to start your search.

There’s a misconception that a lot of agents have – it’s that to work with these private equity firms and companies that are doing these transactions, you have to be very sophisticated with analysis. You don’t. Because they have all their own people that crunch the numbers, right? All you have to do is find the addresses that meets at most a gross yield, which to you and me, we don’t think a term of gross yield; we think cap rate or net income, right? Or cash on cash return if we’re doing a leveraged purchase and financing. But these guys think in terms of, “Look, the only burn I’m going to put on that agent is you just research a realistic [unintelligible [00:13:14].10] number and an address and a price that meets a certain rent multiplier. Send that to us. We’ll do number crunching and get granular with it and then we’ll give you a yes or no.

Theo Hicks: So I’m just trying to make sure I’m getting this right. So I search all these cash buyers, I find the types of properties that they’re buying, and then from that, I know what yield they want. So what’s the next step from there? Going through the MLS and looking for properties that match that criteria? Is that what you’re saying?

John Chin: Exactly. So they’ll have some input process or a team that will take the addresses that you want to send them and then they’ll do further analysis on them. And then they’ll tell you yes or no, and then you represent them on the transaction on that buy.

It’s so overly simple that it’s mind-boggling that agents aren’t doing more of this, right? So if you don’t know what their yield requirement is, you will literally just put an address in, and then you’ll have some sense of what they’re looking for, based on what they’ll tell you their gross yield requirement is… And most institutional investors today are going to be anywhere between the 12%, maybe 15% gross, and then they’ll have some geographic criteria they’ll have on where they won’t buy. Usually, it’s exclusionary. They won’t tell you where they will, but they’ll tell you where they won’t.

So based on that geographic criteria, usually they’ll tell you their requirements on the specs of the house; maybe minimum three bedroom, they’ll have a vintage or a year built requirement. They won’t go back more than 15 years. They won’t do heavy rehabs maybe. They’ll have their exclusionary geographic criteria, but they’ll tell you what that criteria is. And because there are so few agents who know how to work with them, for you to be able to approach somebody like that and say, “Look, I’m a licensed agent. I want to work with you. I can help you find these properties,” they’ll send you their template or their “buy box”.

Theo Hicks: So essentially how that works – you search MLS, cash transactions, absentee owner, multiple transactions. I call them, say, “I’m an agent,” say, “I want to work with you, what’s your criteria?” They send me their criteria and then I search the MLS, I find a list of all the properties that I think meet their criteria, send them an Excel spreadsheet and then it kind of goes from there?

John Chin: Yeah, they’ll usually have one point of contact that you’re working with, somebody on the ground, and sometimes it’s even another agent; or maybe it’s somebody internal, at their ivory tower. And they’re never, by the way, local. Maybe if you live in Phoenix, you’ll be working with them locally or something like that. But usually, there’s five investors that have probably purchased 30% of — we’re in Central Florida, right? So in central Florida MLS, we have about 30,000 property listings; of all the cash transactions, they’re probably purchasing between 25 and 30 percent of all these cash transactions, five different buyers. And they all operate very similarly to what we’re describing right now.

Theo Hicks: And then at what point as an agent — how long they do this for until I start to transition into doing my own deals?

John Chin: If you are into wholesaling — and I have to kind of switch hats for a second here. I’m so into working with licensed agents who are working on the MLS and they have to conform with the brokers requirements and that kind of stuff… But if I’m starting with an investor’s perspective, somebody who’s potentially wholesaling deals and they know that game, then a lot of times it’s a matter of you just contracting the properties yourself. And a lot of times, these buyers – they don’t care how they get them, they just want to get their yield requirements. So if you have to do an assignment or a double closing, they’re fine with that, because they’re paying cash, there’s no underwriting requirements… It’s a pretty easy game. You just have to make sure that their rehab numbers aren’t out of this world and they meet what you expect them to look like.

So if you’re a wholesaler, to answer your question, if you want to get into doing your own deals, what ends up happening is you come across in this exercise of serving that investor and making commission’s on them, you start coming across cherries that you end up wanting to keep yourself. What also will surface is your mid-tier investor clients and your Mom-and-Pop investors who also want to play that game, but not to that scale, that you’ll end up serving and finding deals for as well.

So in our experience, when you’re working with those Mom-and-Pops and those mid-tier folks, they end up becoming JV partners on deals… Our own flips – we never fund or put any money into our own flips. We never even do hard money loans. By virtue of working with these investors that trust us, and they know we have contractors and property management operations in place, and we have all the mechanisms on the assembly line to take that residential property and to monetize it as a flip or rental property, they want to fund our deals.

So we get 100% funding, we typically offer these investors—because think about it, you’re a cash buyer and you’re looking to build a rental portfolio. And let’s say today, a good cap rate might be 7% or 8%, if you’re in a decent area. Do I want to do that and make 7% or 8% on my cash at the end of the year, or can I give Theo,  an investor agent, some of my cash for him to fund a flip? Maybe be exposed to 80% of the ARV so I’m pretty safe, I have some margin of safety there. But I give you 100% funding and you give me in return — our typical term is about 8% interest preferred return on my money, and maybe a 15% clip on the profit beyond that. So it’s kind of like a CD with a lottery ticket attached to it as a little bonus, right? Profit kicker.

And then now if you make me 10% in a six-month span, and you can do that for me twice in a year, I’m at 20% return on my cash. Why won’t I just keep doing that and be completely liquid after every transaction? So it’s very easy then for you to graduate from being an investor agent – good credit, bad credit, no money, maybe you have some money, but to convert a lot of these investors into private money.

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

John Chin: It’s easy. One investor client will change the trajectory of your future because of what they teach you, the access to resources and how they shorten your learning curve. So if you’re working with investors, you make friends, and one or two of those friends are going to become your mentor. So just start working with investor clients. Don’t worry, everything else will take care of itself.

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

John Chin: Yeah, let’s do it.

Theo Hicks: Alright.

Break: [00:19:07] to [00:19:54]

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

John Chin: That’s easy. David Hawkins, he wrote the book Power vs. Force. The more recent book is The Pathway of Surrender: Letting Go, by David Hawkins. It could be the most important book you could ever read and the only book you ever need.

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

John Chin: I’d throw a dart at the map, and as long as I had a phone and a laptop computer, I’d probably go out there, start finding some cash buyers and then start finding deals for them and reverse wholesale.

Theo Hicks: Is there a time that you or a client you work with lost money on a deal? How much did they lose and what lesson did you learn?

John Chin: Many times, actually, including myself. The most recent one I’m thinking of is about $80,000 on one flip that we’re still contending with right now, because after the transfer of the title – because we purchased the property subject to – the IRS filed a tax lien even though there wasn’t one in place and we’re still contending with that, with an IRS that’s shut down right now, in some of the departments. So anyway, we do it all the time.

And the lesson you learn from it is, in every single case, the common denominator on losing money on a flip is because I put too much trust in somebody and never validated. And I didn’t control it and micromanage that deal with somebody maybe that I haven’t done business with before. Almost every case, whether it’s contractors who messed up, competence or character-wise, or it’s somebody who was overseeing a rehab… It always comes down to someone who in many cases are well-intended, but incompetent.

Theo Hicks: On the flip side, what about the best ever deal you’ve done, either monetarily or some other reason why it was the best deal?

John Chin: The best deal I’ve ever done was probably — we love lease option sandwiches, just controlling an asset and not having to deal with the rehab; we do quite a few of those. None of them stand out. One of them where we made about $80,000 when you combine the option money that we got up front, the spread and the cash flow for the year and a half we had it, and then the amount of money we made on the sale price between our buy and the sale… That one comes to mind. It wasn’t the most money we made on a deal, but it was so easy. So those are the ones that kind of stand out.

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

John Chin: Well, Ron and I, we both are coaches, youth coaches, that is. I coach the lacrosse, ron coaches football and soccer… And both have young kids. And number two is we kind of take our coaching to a level that [unintelligible [00:22:16].26]  just the games and things like that. So we kind of serve as mentors of the kids that we coach and love.

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

John Chin: The easiest place to find us is https://www.investoragent.com/ because we’re offering credentials, the content and the tools and the community to support to a licensed agent who wants to get their foot in the investment world.

Theo Hicks: John, I really appreciate you coming on the show today and walking us through this very simple but very effective step by step process for new agents to not only grow their real estate agent business, but also ultimately transition into doing deals themselves.

And essentially, the process is that you go to the MLS, you look up the cash transactions with an absentee owner, so they don’t live at the property they bought, and they’ve done multiple other transactions in a month or in a year. And then you reach out to that person, because you assume that they’re an investor, confirm they’re an investor, determine what their criteria is, and then go through the MLS and find deals that meet their criteria, send them the address, send them the price, and send them the rent you’ve done, and they’ll take it from there.

And if you do this process enough, you’ll start to build up relationships with people, you’ll start to learn what a good deal is, and then eventually you can start to cherry-pick those deals yourself or start to partner with people, start to have people invest the capital into your deals, assuming you’ve kind of got the relationships with the contractors and the lenders and the property managers. And it is that simply, you said.

And you said that if your business were to collapse today, you would just throw a dart at a place on the map and just do that there.

John Chin: Pretty much. I would say too another way of saying what you just said – because that was a very good summary – is focus on the who, the investors. The what and the how – that comes as a by-product of just serving investors. It’s very simple.

Theo Hicks: And then your best ever advice was to, as you mentioned, focus on the client. And that one client, one mentor can change the trajectory of your future. Like for you, that person can be your one mentor, two mentors, three mentors that guide you towards whatever your investing goals are.

So thanks, John, for joining us and sharing this fantastic strategy with us. I’ll definitely tell the person I talked to listen to this episode. Perfect timing. This is exactly what she was looking for. So I can just say, “Hey, listen to John’s episode.” And anyone else who wants to do the same thing, who wants to get started in real estate, can just listen to John’s episode.

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

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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.

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