JF2245: FireFighter & Teacher Grabbing Hold Of Real Estate With Will Pritchett

Will Pritchett is a full-time firefighter and real estate investor with 8 years of real estate investing experience. He has a portfolio of 18 rentals, private lending, and a couple flips a year. His wife was a teacher but now runs their real estate portfolio full time and they both believe if a teacher and firefighter can do this, that anyone can. They started this journey into investing because they wanted to supplement their retirement and help for future college tuition however they quickly found out they can use this to change their lifestyle.

 

Will Pritchett Real Estate Background:

  • Full-time firefighter and real estate investor 
  • 8 years of real estate investing experience
  • Portfolio consist of 18 rentals, private lending, and a couple flips a year
  • Based in San Antonio, TX
  • Say hi to him at: www.homeagainsa.com/blog/ 
  • Best Ever Book: The Go-Giver

 

 

 

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Best Ever Tweet:

“The power of private lending is what changed our business and accelerated it dramatically” – Will Pritchett

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JF2233: 4th Generation Real Estate Investor Corina Eufingere

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

Corina Eufingere (u-finger)  Real Estate Background:

 

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Best Ever Tweet:

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


Theo Hicks: Hello best ever listeners and welcome to the best real estate investing advice ever show. I’m Theo Hicks and today, we’re speaking with Corina Eufingere.

Corina, how you doing today?

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Corina Eufingere: Yes.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Corina Eufingere: Yes.

Theo Hicks: All right.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Thanks again for joining us, lots of solid property management advice. Best ever listeners, as always, thank you for listening. Have a best ever day and we’ll talk to you tomorrow.

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JF2229: Wholesaling Deals With Emilio Basa

Emilio Basa is a full-time investor with 6 years of real estate investing experience who started off by wholesaling his first property within 4 months of learning how to wholesale. He consistently will wholesale about 3-5 a month and with this experience, he shares how he goes about growing his business so you can take the same steps.

 

Emilio Basa Real Estate Background:

  • Full-time investor
  • 6 years of real estate investing experience
  • Portfolio consists of 5 rentals, 2 flips, and over 30+ wholesales
  • Based in Detroit, MI
  • Say hi to him at: www.quickpropertysolutions.co 
  • Best Ever Book: Traction

 

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Best Ever Tweet:

 

“I network with other wholesalers to share deals and grow my business” – Emilio Basa


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 Emilio Basa.

Emilio, how you doing today?

Emilio Basa: I’m good, Theo. How are you doing?

Theo Hicks: I’m doing good as well. Thanks for asking and thanks for joining us. Looking forward to our conversation. A little about Emilio; he is a full-time real estate investor with six years of experience. He has five rentals, two flips and over 30 wholesales under his belt. He is based in Detroit, Michigan, and his website is http://www.quickpropertysolutions.co/.

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

Emilio Basa: Absolutely. I’ve been doing it for six years. When I started, I primarily was strictly wholesaling. When I first started, I say six years, but to be honest, the first two to three years, I was doing it part-time because I was always doing other businesses. I did web design. I was also a musician in the Detroit area, so I was still doing gigs and things like that. I really was doing wholesaling just to try it out and just to do it part-time.

And then just over the years, I just started realizing that—I kind of took to it really quickly. I think I did my first deal in—after learning wholesaling, I did my first deal in four to five months. It wasn’t like a big deal. For me at a time, it was a lot. It was a $1,000 assignment. I started doing wholesaling. And then what I started doing was I started gradually trying other investing methods like rentals and flips, and I’m actually doing my first note this year, and just trying different strategies. But the core of everything has always been wholesaling for me.

Theo Hicks: How many wholesales are you doing per year or per month or whatever frequency is you wanna say?

Emilio Basa: It really depends. Consistently, I’m doing three or four a month right now. I think in December and January, I think I did six a month. It comes and goes. I think with the COVID thing too, we kind of slowed down a little bit.

Theo Hicks: Sure. What’s your preferred method for finding these deals to wholesale?

Emilio Basa: Funny enough, 70% to 80% of my business was actually joint ventures. In my market, you’ve got to be careful with some wholesalers, because some of them are kind of shady and they kind of try and steal the contract from underneath you. But I’ve always been somebody really easy to do business with and I always worked really hard to get a deal sold. A lot of the times people just started bringing me deals, and then more and more, I guess word got out because people just started reaching out to me.

I wanted to say, the last two quarters of last year, almost all my deals were joint ventures. I focus on [unintelligible [00:05:48].21], joint ventures, direct mail… That’s been trailing off. I don’t really do cold calling. And then Lately, I’ve been doing text blasting, which has been working phenomenal, actually.

Theo Hicks: I definitely want to talk about the texting, but I want to circle back to the JV. You said that people are bringing you deals.

Emilio Basa: Yeah.

Theo Hicks: What does that look like? They’re coming to your house? They’re calling you up? How do they know who you are?

Emilio Basa: They just call me up. Yeah, they just call me up. What I do is, whenever I have a deal, I put it on every social media platform you can think of, and then people reach out to me. When people reach out to me, I’ll just ask; are you a cash buyer? Are you a wholesaler? Most of the time people will say, “I’m a wholesaler looking for deals for my client.” And then I really just kick it with them, and just talk about their business and how their wholesale deals are going. And then I just pretty much say, “Hey, I’m growing my buyers list and I’m very transparent. I’m fair.  I’m easy to do deals with.” And then I really just pitch the pros of doing deals with me, which that’s pretty much it. Everybody works hard together to get the deal done, and people just like doing deals with me. So people just started bringing me deals.

To this day — the one deal that we’re closing on now, it’s three houses, online contracts; that came to me from another investor that I did a wholesale deal with. They’re actually his houses, and we’re doing that deal together right now.

A tip for a lot of people too is if you’re trying to build your wholesaling business, whenever you see, “We Buy Houses” signs in the road,—I read somewhere some people take those signs and they take them out, they throw them in the trash. I call all those signs and then I just say, “Hey, are you a wholesaler? Because I’m a wholesaler and a buyer.” I call all those signs. And then a lot of the times you find some really good people.

Theo Hicks: Nice. Basically, you’re networking with other wholesalers, so that a wholesaler brings you a deal. And then you’ll put it on social media and then another wholesaler will reach out, and you’ll kind of JV together to sell that deal.

Emilio Basa: Yes.

Theo Hicks: Okay, I just wanted to make sure I had that right. Is it just a 50/50 split of the assignment fee?

Emilio Basa: It depends on what the deal is. That’s the thing. It’s like, when you’re doing a deal, you just wanna be transparent with everybody. Whoever has it in the first position, you say, “Hey, how much do you have it under contract for?” If they trust you and they want to do deals with you, they’ll tell you. At the end of the day, I’ll tell them, “I don’t care how much you make. You can make 20 grand, 30 grand. If I make two, then I make two. But if it’s a good deal, and I could find a buyer, then that’s what it is.” Because some people won’t tell me and then some people are like “I want 10k, and I’ll take nothing less.” I’m like, “Okay, that’s fine. Well, I’ll try and do this. And I’ll try and work the deal this way.” And then what I do is I have a JV agreement.

What I used to do was either splits, or I had two contracts; one was a 50/50 split, and the other one would be where I’d add my fees on top. And usually, that worked out pretty well, until sometimes with some deals, I’ve had up to six wholesalers on one deal. It was definitely—it was a daisy chain, that’s for sure, because one guy had it, and then another guy told me about it, so he wanted to cut… And then I told another guy about it, who told somebody else and that somebody else brought the buyer.

Theo Hicks: Oh, man.

Emilio Basa: I know, it was a big mess. The way I work out in my JV contract, I literally have six blank lines. And then I put down everyone’s LLC, and then next to the LLC, you write the amount down, and then at the bottom, it says ‘total’ and then everyone has to sign it. So then when you take that agreement, you send it to the title company. There’s two ways you could do it – everyone could get paid straight out of the settlement statement, or one person can take the lump sum check, and then pay everybody out. But that takes a lot of trust. A lot of people won’t do that. They rather would be on the settlement statement, on the HUD, and get paid out that way.

Particularly, I don’t like doing daisy chains, but sometimes some deals that’s what happens. It just unfolds that way. If you have a deal and no one else is buying, but this one guy found a buyer, but it’s not his buyer and it’s another one’s buyer, at the end of the day I’m like, “Dude, let’s work it out.”

Theo Hicks: Yeah, so it sounds like it’s pretty negotiable, right? It’s kind of like what people want.

Emilio Basa: It is. Yeah, yeah.

Theo Hicks: Okay.

Emilio Basa: The tricky thing is that when you’re dealing with two people like me and another wholesaler, our values pretty much match up. Everybody just wants to do a smooth deal. No one gets too greedy, things like that. And then the more people you add, the more personalities you add. So sometimes somebody actually might get really greedy. If you get one person that kind of messes up and messes up the deal, then that’s where it could kind of derail the deal. But for the most part, especially when they start finding out how many people are involved, there’s not a lot of meat on the bone, but everyone wants to get a deal done, so let’s get it done.

Theo Hicks: Sure. Let’s transition to talking about the mass texting you do. Walk us through that.

Emilio Basa: I just started doing it. I’ve probably been doing it for two months now. I’m not going to lie, I pay about $3.50 a bandit sign, and I used to put them up myself. But now I’ve got one guy that delivers them for me, so I pay him three bucks. So my cost per bandit sign is usually $6.50 or $7 a sign.

My response rate was, let’s say 10-15 percent, and sometimes I get some pretty good deals. But with text blasting, it’s 20 cents a text and you could send out 1,000 texts. If you just get one deal, the cost per lead is extremely, extremely low. You’re spending $200 to close out on a contract as opposed to doing like a bandit sign or direct mail. Let’s see, I’m closing one today and that was from a text blast from four weeks ago. I closed one, two weeks ago, that was also from a text.

Theo Hicks: Are these text to wholesalers or are these to the actual sellers?

Emilio Basa: The tricky thing is for text blasting wholesalers, a lot of them are already on my email blast. If ever I need a deal, I’ll either just send out an email blast and just say, “Hey, wholesalers, anybody got a deal that you’re looking to sell, reach out to me,” or when I call people on the bandit signs, I’ll say, “Hey, what’s your name,” and then his name’s Jason. I’ll put in Jason-wholesaler. So whenever I need a deal, I’ll literally go on my iPhone, type in wholesaler, and maybe like 50 wholesalers pop up, and I just text them all the same message. I just copy and paste it and I say, “Hey, I need a deal, what do you got?” And then I paste it to the 50 wholesalers, and you’ll get a deal by the end of the day for sure.

Theo Hicks: Nice.  So for the 20 cents per text, though—

Emilion Basa: That’s to the seller.

Theo Hicks: Because you’re going to find a deal to put under contract. How are you getting their numbers? Is there like a service that does it all for you, who you’re targeting? Walk us through that.

Emilio Basa: I just started using Prop Stream.

Theo Hicks: Sorry, what’s it called?

Emilio Basa: Prop Stream.

Theo Hicks: Prop Stream. Okay.

Emilio Basa: Yeah. Prop Stream is a software where you can look up different lists. As a wholesaler or as an investor, your best deals come from motivated sellers. What you want to do, instead of targeting a blanket area, let’s say you’ve figured out one county’s got 80,000 leads or 80,000 people that own homes. But then what you want to do is you want to find the motivated list out of there. There’s either pre-foreclosures, there’s bankruptcies, divorces, things like that.

With Prop Stream, what you could do is you could type in a county or a city and then you could start adding different attributes to filter down to your criteria of what you’re looking for. You could target specific lists, so you could target — absentee owners is a really popular one. You could do absentee owners. And then what you could do is you could filter down by—if you only buy three bedrooms and up, so you could filter that.

An important one that I do is I get rid of all the LLCs. I do individual owners only. So that filters out a lot of LLCs. And then what you’ll do is you’ll get a list at the end of it. What you could do is you could export that list. What I do is I take that list, and you can either skip trace it in Prop Stream, but whatever text blasting service you use, and there’s a ton of them. I think there’s one called Roar, there’s one called Sherpa, there’s Batch Leads… You could take that list, and then you could put it in your text blasting software, and then you just start sending it out and then see who’s interested.

Theo Hicks: So you’re having a lot of success with that. You’ve done two deals so far. What was the assignment fees in those?

Emilio Basa: One was 15 and this other one that was a double close, it’s a five.

Theo Hicks: How quickly are you able to get these deals under contracts after someone reaches out to you? Is it pretty quick? Is it that day? Or does it need a little bit more work?

Emilio Basa: No, it depends on their motivation and it depends on their situation. Ideally, I would love to get it under contract after the first call. But a lot of the times the sellers – some of them might be motivated, but they’re not really motivated to close that day. A lot of the times, you really have to work a lead by just following up with them, and then just building that rapport.

I’ve got a deal right now – it’s in Moore, Michigan. The lady, I probably called her four or five times. Really all it is, is just like you catching up with her to see how things are going. One thing that I’ve changed this year is I actually learned wholesaling from a few people, but the one that it’s honestly is like my mentor and my largest influencer is Sean Terry. A lot of people that know Sean Terry – that’s the Flip to Freedom students… With Sean Terry, he’s a really good salesman. I don’t want to say it’s the hard sell, but when he goes into an appointment, he’s leaving with a signed contract. That’s the goal. A lot of the times if somebody isn’t terribly motivated, or they’re in a situation where they’re kind of getting to that point, there’s no point in trying to do a hard sell.

What I’m doing lately is I’m actually not trying to do a hard sell. If listing it with an agent might be better for them. I actually don’t think I’m the right buyer for you. I actually think an agent is better for you. Have you tried being an agent? Have you tried doing this? Have you tried doing that? What happens is is that whenever you start suggesting them other options than you buying it—because they’re on pre-foreclosure list, they’re used to people bombarding them trying to really pitch him to sell that day. When they talk to somebody that honestly says, “I don’t think I’m the right buyer for you,” it kind of puts their guard down, and they could start talking to you as if you’re not trying to sell the house, you’re really just giving them your honest opinion.

They appreciate the transparency more than somebody that’s just looking for that person that’s truly motivated, because I think some wholesalers – if they’re not truly motivated, they’ll really probably just walk away from the deal. But a lot of the times, if you just build that rapport, and you’re there, and you call them up and just see how things are going, they appreciate that more than somebody that’s just trying to buy their house.

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

Emilio Basa: I would say be uncomfortable, which means I talked to a lot of newer investors, and a lot of them, they’re making that first call or they’re doing their first walkthrough, and sometimes — I know a ton of them that have a bunch of calls that they have to make and they just stare at the phone… Or bandit signs. They have to put up a bandit sign. I was just talking to somebody the other day. They ordered 50 bandit signs and they were ready to go and then they went out that night and literally they didn’t do it. A month later, the bandit signs are still in their garage, just sitting there. That’s the thing – be comfortable with being uncomfortable. Because when you start off with one thing like wholesaling, wholesaling is to me the—I don’t wanna say kindergarten. It’s like elementary. It’s like the basics of real estate investing.

What you’re going to do is you get out of your comfort zone and then when you start graduating up to other things, like when you start doing your first flip, or doing your first rental, you’re going to do things that are very uncomfortable, and you have to get used to that, because by you being uncomfortable, you’re stretching out and you’re growing as a person, as an investor.

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

Emilio Basa: Sure, do it.

Theo Hicks: Okay.

Break: [00:16:48] to [00:17:39]

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

Emilio Basa: A book by Gino Wickman called Traction. That’s a really, really good book. I just started it, I haven’t finished it, but it’s a really good book about scaling out your business and trying to put a team together and creating a vision for your business. It’s just been a great book so far.

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

Emilio Basa: I’ll be honest, I’d probably would start the same business. I’d just starting another same business. That, or — I was a musician before. If I could try and make money as a musician, then I might go back to that.

Theo Hicks: Tell me about your best wholesale deal, your biggest assignment fee. Kind of walk us through how you found it, who you sold it to, things like that.

Emilio Basa: Well, I got two that are tied. My biggest one was in Detroit. It was a double close. We made about 26k on that one. That came off of a bandit sign lead. That was an amazing deal because I didn’t even have to negotiate the price. He said his price and I was like, “Holy crap, that’s a really good price.” I was like, “I’ll meet you there tomorrow,” and he met me up there. I built the rapport… It took them a week to sign it, but that was a pretty good one.

But I think honestly one of my favorite deals, my best deal that I remember was – I do virtual wholesaling too, and I was doing deals out in Washington, out in Seattle. I wasn’t doing houses, I was doing vacant land. I remember I just bought the course on how to do virtual wholesaling land, and then three months later, this deal pops up and that one was a $20,000 assignment off of virtual wholesaling.

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

Emilio Basa: I give a lot of advice over the phone. I don’t really mentor, but I get a lot of wholesalers that are new to the industry, and I love to just talk to them about how to grow their business. Any advice I could give. Oh plus, I also have a YouTube channel where I cover Detroit real estate investing. It’s https://www.youtube.com/quickpropertysolutions. I also look out for out of state investors that are buying in Detroit, because a lot of them get burned or get their money stolen or something like that. I created a YouTube channel where I’m starting to give advice on that channel as well.

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

Emilio Basa: Probably just reach out to me — I think the YouTube. I’m very active on YouTube. If anybody was interested, they could go on there and leave a comment, or just go to my website, http://www.quickpropertysolutions.co/, or the YouTube, which is https://www.youtube.com/quickpropertysolutions. I’m on Instagram too and Facebook, so they could pretty much find me anywhere.

Theo Hicks: Well, thanks for joining us, Emilio. I really enjoyed our conversation; lots of interesting takeaways. I definitely like your mindset. It seems like you go against what most other wholesalers do, which is helping you be successful.

A few of the things I hold from this was I liked how you mentioned how some wholesalers see a bandit sign, they want to yank it out of the ground and throw in the trash, light it on fire.

Emilio Basa: Oh my God…

Theo Hicks: Whereas for you, you actually call them up because you found a lot of success doing joint ventures with wholesalers. It’s kind of like 70% to 80% of your deals have been JVs, you put your deals on social media, and you’ll have people reaching out to you that actually happen to be wholesalers, and those are people that will do deals with.

You also mentioned that you do text blasting, so you kind of walked us through that and why it is kind of a much lower cost per lead.

You said if you use a Prop Stream as a software, you talked about how to create the list, make sure you’re targeting a specific county, find motivated sellers list, like pre-foreclosures, delinquencies, divorces, absentee owners; you can filter by the number of bedrooms. You’ve personally filtered out all the LLCs, you only want to target individual users. Then you export that list into the text processing software that will send text messages to all those people.

I also liked how you said whenever a wholesaler calls you from a bandit signs or whatever, you’ll save their name in your phone as wholesaler. So whenever you need a deal or you have a deal, you just have your own kind of customized text blasts with your cell phone, you just blast all the wholesalers in your phone.

You also mentioned that when you’re talking to them, you don’t do the hard sale. Instead, you kind of just build a rapport and be honest, even if that means that you believe you don’t have the best option for them. By doing that, you found that they open up a lot more and are willing to work with you a lot more.

Lastly, your best ever advice, which was to be uncomfortable and you gave a lot of examples about that.

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

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JF2215: Rockstar Capital With Robert Martinez

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

Robert Martinez Real Estate Background:

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

 

Best Ever Tweet:

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


TRANSCRIPTION

Theo Hicks: Hello, Best Ever listeners, and welcome to the best real estate investing advice ever show. I’m Theo Hicks and today, we’ll be speaking with Robert Martinez.

Robert, how are you doing today?

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Robert Martinez: Yes.

Theo Hicks: Perfect.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Robert Martinez: Yeah.

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

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

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

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

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JF2188: Fake Rent Checks With Jack Gibson #SituationSaturday

Jack is the President & Co-Founder of High Return Real Estate and also a returning guest from episode JF1252. Before he started into real estate, Jack started off by selling products for a multi-level marketing company, taking him 9 months to make his first commission check of $14…and after sticking it through and learning the business his business is now generating around 20 million in sales. In this episode, he goes into a sticky situation that he recently ran into by working with a company and finding out he was receiving “fake” rent checks.

Jack Gibson  Real Estate Background:

  • President & Co-Founder of High Return Real Estate
  • Returned guest from episode JF1252
  • Portfolio consists of 80 turnkey properties
  • Based in Indianapolis, IN
  • Say hi to him at: https://highreturnrealestate.com

 

 

Click here for more info on PropStream

Best Ever Tweet:

“The number one lesson I have learned is to trust, but verify” – Jack Gibson


TRANSCRIPTION

Theo Hicks: Hello, Best Ever listeners. Welcome to the best real estate investing advice ever show. I’m Theo Hicks and today, we are speaking with a repeat guest, Jack Gibson. Jack, how are you doing today?

Jack Gibson: Great, Theo. Thanks for having me back. Appreciate the opportunity.

Theo Hicks: Thanks for coming back. I’m looking forward to our conversation. So today is Saturday which means it is Situation Saturday, so we’re going to be talking about a sticky situation that Jack was in, what happened, lessons learned moving forward, so that you can apply that to your business and not get in the same situation in the future in your business. But before we get to that, let’s talk about Jack’s background. So he’s the President and Co-Founder of High Return Real Estate. Make sure you check out his first episode, which was Episode 1252, where he talks about his turnkey portfolios; right now, his portfolio consists of 60 turnkey properties. He is based in Indianapolis, Indiana, and you can say hi to him at his website, which is highreturnrealestate.com. So Jack, before we get into your sticky situation, could you tell us a little more about your background and what you’re focused on today?

Jack Gibson: Yeah, I got started in entrepreneurship when I was 19; I’m 42 now. I was going to college, living in the dorms. My parents said, “Get good grades, study hard.” They checked up on me, went to all my parent-teacher conferences in college, if that gives you any type of idea of what household I grew up in. It was great, but there was high expectations.

One day, I get this flyer while sitting in my dorm room about an opportunity to sell nutrition products in a multilevel marketing company. At first, I thought, “Man, this is probably a scam, this isn’t gonna work, how am I going to sell this?” So I just threw the flyer to the side, and then I don’t know, something hit me and I said, “Why not just take a look?” This is how opportunities are found, is that you really could just take a look and research and see. So I looked into it and I was excited. So I signed up, and that business today– it was a rough start. I think it took me nine months to get my first commission for 14 bucks. So I was selling some products and making a little bit of money along the way, but I didn’t get my first official commission check until nine months in. But from that point, I started figuring things out and that became a million-dollar business by the time I graduated college. So I’ve been doing that ever since, and now I think this year we’ll probably hit close to $20 million in sales in that operation. So it’s been amazing.

So that allowed me the opportunity with a cash flow business like that with very little expenses to be able to invest into real estate, and that’s when I started about five years ago with a turnkey property myself. So I bought from a turnkey buyer.

Theo Hicks: Perfect, thanks for sharing that. So let’s talk about your sticky situation. So I’m just gonna let you tell us what happened. Tell us your story, and then once you’re done, I will jump in with some follow up questions. The mic is yours.

Jack Gibson: Yeah, I just finished this book by Keith Cunningham, I thought it was fantastic, called The Road Less Stupid. I feel by sharing this, I’m sharing the road more stupid. But look, I’ve found that sharing transparently and sharing your successes and your failures and your mistakes and your stupid decisions and all of the bad things that happened to you along the way – that makes you more relatable. People really like that, because they probably all have their own similar story, maybe at various levels of stupidity, and have bad, sticky situations. But that original turnkey buyer that I bought from was called OceanPoint, and they sent me a mailer, and at that time, I had just done a trip into Indianapolis about three hours from my house here in Michigan, and I was looking into just buying a property that was already done and already performing. Their price to rent ratios were incredible, so I started buying up properties. I got up to 15 units with the owner-operator and I was getting really nice rent checks, over 20% returns. So naturally, we built up a really good trust, a lot of relationships with people over the last 20 years of doing business, and they know how I show up and I said, “Look, this is working for me. This is a good operation; I went in and checked it out. I’ve met him a few times, I’m getting rent checks every month,” and I started posting that on social media and just telling colleagues, friends, family, neighbors, and I sold $5 million. I referred $5 million in cash business in the first 12 months just from that.

So that was about– I don’t know how many investors maybe 20 to 30, somewhere in there, and we had about 130 units, including mine altogether. So it turns out, none of us got inspections. Maybe there was a couple of people that did and those did check out, but the vast majority of us that bought, including myself, we didn’t get any inspections. We just trusted the owner, and it turned out a lot of the rent checks were fake. So he was operating a Ponzi scheme almost, and we didn’t even realize it; none of us. So once everything crashed, and eventually that’s what happens in those types of situations; it’ll eventually crumble. They run out of money to keep paying investors, or whatever happens. Once we all realized the condition of our properties and how much they had been neglected, it was just a disaster. So everybody was looking to me to fix their situation, and I took responsibility for that. I look back now and I’m like, “Man, I ruined two years of my life taking on so much responsibility.” But that’s when you operate at a high level of integrity, you take full responsibility and just figure out what can we do? How do we get out of this?

So over the course of about the last two years, we just went back in and got contractors, fixed up all the properties, found new management, and then we found another management company after that, because the next one didn’t work… The contractors, a lot of them screwed us over again. So it’s just a really tough situation because we were left with essentially all these properties that were in bad shape, that were not performing, and we didn’t have the connections and trusted resources to be able to fix them back up and get them performing again. So it was that whole process, literally… And the bulk of it, I got done in about 24 months, and I still have my very last property today, three months later.

Theo Hicks: Wow. So Oceanpointe, how do they operate? You said that once you figured out what was going on, you got new management, you got contractors in there… So you bought the properties through Oceanpointe, and then were they also full service, they were managing it as well?

Jack Gibson: Yeah. Well, when you buy a property at a tax sale for $10,000, and then you sell it for $40,000 with a promise to do $20,000, $25,000 worth of rehab on it, then instead of doing $25,000 worth of rehab, which to get the bones of the property fixed up, which of course be the major cap-ex items – the roof, the foundation, the electrical, the plumbing, when you don’t do any of that and you just put lipstick on a pig and make it look good on pictures, and then you’re sending rent checks out, he was able to hide the lack of quality of the property. So we would look at the pictures, the pictures looked great, but what we found out later is that not one property had working plumbing or electric. Not one property was fully functional. Almost every property needed a new roof, too. So those are very expensive items, especially if you’ve already “paid for them” when you bought the property. So now you have to do that all over again. So now you have to put another 20, 30 grand into a property, and now you’re way over market value.

Theo Hicks: Yeah. Were the properties supposed to be renovated already when you bought them?

Jack Gibson: Yes.

Theo Hicks: Okay. So you were told that hey–

Jack Gibson: Well, some of them, but a lot of them were — you’re buying them pre-rehab; say you’re buying it for $20,000 and you give them $20,000 in rehab, or whatever the case. Maybe you bought it for $30,000 and you gave them $30,000 in rehab for a duplex type thing.

Theo Hicks: So probably what’s happening was this, he was saying, “Hey, I bought this for 10 grand, you buy it for $40,000, and I’ll do 30 grand renovations,” but instead of doing the renovations, he was just paying you rent checks from that 30 grand.

Jack Gibson: Exactly. You got it.

Theo Hicks: Okay. So once you figured out what was happening, you told me that it took you some time. Well first, before we get into that actually, before I ask you questions about how you found the contractors, how you found the property management company and maybe tell stories about how you had issues there too, tell me from the time you figured it out to after you talked to all the people – how did those conversations go? Did they call you? Did you call them? What did you say? How did they react?

Jack Gibson: One day I, all of a sudden, got five to ten texts or emails from people that were “Will you buy my property back, or can you help me sell this?”, and I’m like, “What happened?”, and every single one of them, their rent had dropped by about 70% to 80%. So what happened was he didn’t actually have a property management license. It had been revoked a year or two or more before. So he was operating under the management license of another broker. Well, that broker got really uncomfortable with what he was doing. In some cases, not even turning water on for tenants; that’s documented. We know that to be a fact. So now, he pulls the management away. So now you’re left with “Okay, who’s actually really paying?” So all of a sudden, it just dropped like a rock. Everybody’s messaging me and I’m like, “What just happened?” So then we realized that it hit the fan. Everything had just collapsed all of a sudden.

Theo Hicks: So you said you realized… So did you — at that point, once you started getting all these texts, did you call this guy? Did you go out to the property right away and see that they were in complete disarray? How did you actually 100% knew “Okay, this is bad”?

Jack Gibson: Well, we had some suspicions that things weren’t on the up and up, so at that time we were making plans with a new property management company to switch everybody over. So we knew that something wasn’t right, but we did not know by any stretch that it was to the level that it was at, because everybody was still getting rent checks. So if they’re still getting rent checks, we’re like, “Okay, I mean, we have no reason to believe that this isn’t real tenants paying. Why would anybody pay out fake rent?” Well, he was paying out fake rent to get people to buy more properties, to lure them in. So as long as the sales kept going, then he had enough money coming in to keep paying off the fake rents. Well, when the sales all of a sudden just dried up, his main guy stopped selling because he realized what was going on. Well now, he doesn’t have any income to pay out the rent.

So yeah, when that happened, I was calling him, texting him, but he wasn’t answering. He just went dark on everybody. We lawyered up and FBI has been to his home, and under indictment and probably got about 20 to 30 lawsuits coming at him right now. So that’s pretty extensive, the level of hot water he is in, but that didn’t do anything to make us whole. We had to figure it all out on our own.

So I went into town, got some contractors that I didn’t know, I started getting quotes from them. We had so many properties all at once that there just wasn’t a lot of time — we were under duress, so we didn’t have that much time to vet them as well as we would have liked. We’re just like “Here. You go here, you go here, you go here and let’s get these done and get these back performing again”, and that didn’t work, because they just took advantage of the situation and they didn’t really do a good quality of work. So then, finally I met up with a contractor. He’s my number one guy to this day. He is just an awesome guy. He’s a structural engineer and he went into every property that we still could salvage and he got them squared away.

Theo Hicks: How did you find this guy?

Jack Gibson: It’s funny. He bought a house on land contract from me… Because I was going to buy one of his houses that he had for sale. He had some back taxes on it and whatnot and he wanted to get that cleared. So he fixed up the house that I sold him on the land contract, did a great job, and I said, “If you ever do some jobs with me, I got plenty.” So it was about a few months and then finally came back, he’s like, “Yeah, I quit my job. They don’t appreciate me. I’d love to go to work for you.” So I just started giving them jobs left and right, and he slowly – I was very cautious this time around, but I gave them small jobs, and he did that well, and then started feeding him bigger and bigger jobs until the trust was established, and now I trust him as much as I do pretty much any human being on the planet. This guy, I can send him money and I know what I’m getting.

Theo Hicks: What about the property management? So you said that you had your suspicions before everything hit the fan, and you were already working with a management company to transition over to, but then you also mentioned that just like the contracting issues, you had issues with the next management company as well. So I’m assuming that that’s the management company you’re talking about. So maybe walk us through what happened there, how you found them, what the issues were, and how you ultimately found the management company that you’re using today.

Jack Gibson: They’ve done some acquisitions for us in terms of being able to find us houses that we could then sell, do a rehab and sell to investors. So we had a relationship with them, and they had property management experience, having their own portfolios in Indy. So they decided to start the management company to try to help keep investors happy that we needed to transition over promotion point. So they just couldn’t get the job done. I think they put a good effort in, but they were in way over their heads with the skill sets that they have organizationally. So I just had a lot of investors that just weren’t happy with the communication and the tenant placements weren’t being screened right.

So we went to a national company called Great Jones and they’ve been incredible because they have systems, they have technology, they are fully staffed, they have and so many resources, and they don’t mark up any construction. So that’s a very different approach and model compared to all the other property managers that we had interviewed in Indy. They all make– most of their money is by marking up tenant turns, marking up maintenance calls, marking up any construction costs… Which I don’t have any issue with that. That’s certainly– they’ve got to make money somehow. But with Great Jones, they have enough volume where they could just make the money off the 10% management fee and the tenant placement, and all the other stuff is just at the cost that they’re quoted. So that really puts all of our investors that we moved over there in a much better cash flow position.

Theo Hicks: If you could summarize for the listeners, what would be your top two to three to five lessons learned that you applied moving forward after going through this entire experience?

Jack Gibson: Well, I think that number one, the most important lesson is trust, but verify. So if we would have just done that and gotten these inspections, then we would have seen what kind of properties that we were dealing with. But I always tell– because I have younger guys that come to me because they know I have a pretty big real estate portfolio, and now it’s performing; it’s awesome. The rent checks that are hitting today are– it’s very exciting, but it took a while to get to that point. I tell them, “Look, you got to make sure that– there’s three major mistakes that you got to watch out for. If you don’t make these mistakes, then you should be in a really good position buying real estate.” Number one is don’t pay too much for the condition of the property. It’s okay to buy a property that needs a lot of work. You’re probably going to get your best equity position on those types of deals, but you got to make sure that you understand the market and understanding what’s out there and that you’re not overpaying… Because the stuff that we see, nine out of ten of them were passing on, because they’re just way too much, they’re not realistic for how much actual work the property really needs to get it to be a quality long-term property.

So then the second part is you got to be really careful with your contractors. There’s some great contractors out there and there’s some real shysters. So you can pay for a contracting, and then if you have to pay for all that same work a second time or even a third time – man, that’s crushing. So just having good quality contracting partners is critical, and then I think probably the third and most important thing for the long term performance of your property is the property management. They’re gonna make or break you on the cash flow with how they screen and place tenants, how they take care of their tenants, all the things that they do to get your property and keep your property performing.

So if you’re really paying attention to those three things– I mean, it’s not easy. If it were easy, everybody would do it. It’s much easier to just go buy stocks and just pray that they go up. That’s a lot easier proposition. However, I don’t like that plan because I’m not in control and I can’t control that much what’s happening, and the Board of Directors makes a decision and I just don’t have any say. So all I’m doing is just buying and praying that it goes up. Whereas with real estate, if I buy smart and get it rehabbed smart and have the right teams behind it, I’m gonna make some really nice cash flow every month and it’s going to be consistent.

Theo Hicks: Perfect. Okay Jack, is there anything else that you want to mention about this story, about your business that you haven’t talked about already before we wrap up?

Jack Gibson: Well, I think, it’d probably be good for me to at least show a little bit of positivity in terms of what we offer. Yes, we’ve made mistakes, but not only did we– I feel like, we stepped up to the plate in a big way and we took money out of our company and I took money out of my own account to help investors get funded… Some of them I gave back all of the commissions that I made when I sold the properties to the Oceanpointe, and partnered up with them. I gave all the commissions back and then some to the ones that really needed it in a bad way.

So I feel like, as far as doing business with us, we’re going to operate in the highest level of integrity. If something does go wrong, we try to stand behind it. Obviously with real estate, it’s never going to be perfect. You can do your best to put everything together the right way and it doesn’t mean you’re guaranteed, of course, any positive returns at any time, but you can put yourself in the driver’s seat where you have a really good strong chance of it…

But we learned a lot of lessons. We’ve got an awesome team and a lot of systems in place that helps us to make sure that the property is a very quality property. I mean, we put it through third-party inspections. It goes through the Great Jones test. They’re going in and they’re picking the property apart and finding all the things that need to be done prior to a tenant being placed. So there’s multiple steps of quality control to make sure that what happened with Oceanpointe never ever comes close to happening again. So those are the properties that we sell to investors. We are working very hard on scaling and creating our own portfolio, much more so now than before where we were focused more on the turnkey sales process. We still do offer turnkey properties, but we want to build up our own rent checks and our own holds. It’s shifted in terms of our focus. So if we do release a property, it’s something that we would be willing to hold for ourselves for the next ten years.

Theo Hicks: Perfect. Well Jack, I appreciate you coming on the show and being willing to share your story with all the listeners, as well as tell us your lesson. So just to quickly summarize the story… You bought turnkey properties from a person who ended up being a fraud, and once you found out that they’re a fraud after you and some of your colleagues had invested, you grinded to reverse the issues, to find contractors to resolve the issues, to find a new property management company, and then after all that is said and done, your top takeaways are one, the most important takeaway was to trust, but verify. A specific situation is applied to turnkey rentals is that make sure you’re actually doing the inspections and that not trusting the operator.

And then you also talked about the three mistakes to watch out for which was don’t pay too much for the condition of the property, which means, number one, you don’t necessarily have to buy a turnkey property because you can make a lot more money buying a property that needs a lot of work, but at the same time, just because the property needs a lot of work, it doesn’t mean that the price is still right. So make sure that you’re still buying right, understand how much money you need to invest into that deal so that you’re not overpaying. The second one was be careful with your contractors because just because you find someone who’s the cheapest option, if they don’t end up working out right, you have to pay someone else. So it’s better to pay maybe the middle of a higher option once then pay multiple people two, three, four times. And then lastly, you talked about how the property management company makes or breaks the cash flow at the deal. So again, Jack, really appreciate you coming on the show. Best Ever listeners, as always, thank you for listening. Have a best ever day and we will talk to you tomorrow.

Jack Gibson: Thanks, Theo.

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JF2183: The Texas Property Manager With Danny Webbers

Danny is a real estate broker, and owner of The Texas Property Manager and The Texas Builder. Danny shares his expertise in purchasing notes and how he plans to continue to grow his personal business. 

 

Danny Webber Real Estate Background:

  • Real estate broker, owner of The Texas Property Manager, and The Texas Builder
  • 15 years of real estate experience
  • Flipped approximately 150 flips, wholesale 40+ , 30+notes
  • Based in Austin, TX
  • Say hi to him at: www.myhomesimple.com  
  • Best Ever Book: Minimalism

 

Click here for more info on PropStream

Best Ever Tweet:

“Find a mentor, and pay him if needed. You need someone you can call anytime you have a question” – Danny Webber


TRANSCRIPTION

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

Danny Webber: I’m doing great.

Theo Hicks: Great. Thanks for joining us; looking forward to our conversation. A little bit about Danny – he is a real estate broker, the owner of The Texas Property Manager and The Texas Builder, he has 15 years of real estate experience and he’s done approximately 150 flips, over 40 wholesales and over 30 notes. He’s based in Austin, Texas, and you can say hi to him at myhomesimple.com. So Danny, do you mind telling us a little bit more about your background and what you’re focused on today?

Danny Webber: Sure. Background going way back in military and law enforcement. I’ve got an MBA in Business Management and Finance, lots of hands-on experience. I believe in getting dirty on job sites, learning how to do all the trades, which is one of the reasons I started the construction company. My focus today primarily though, is I’ve been liquidating a lot of rentals and getting cash-heavy, just with all the craziness going on in the world. I really have a lot of dry powder on the side, ready to deploy as deals become available. So focus for me right now is macro and micro economics and trying to take the big macro picture and drill down to how it specifically is going to manifest itself in Austin’s market because we’re a little bit of a strange market comparatively speaking to most other places in the US.

Theo Hicks: Let’s talk about that a little bit. So you said you have a lot of money and you’re in the researching, educational phase right now.

Danny Webber: Mm-hm.

Theo Hicks: Okay, perfect. So what are some of the things you discovered particularly about your market?

Danny Webber: Well, there’s a lot of dynamics going on, and obviously with what we’re going through with the pandemic and everything, and so what I’m doing right now is I’m following the macroeconomic picture, meaning the Fed money printing the financial stimulus and incentives from the government, and then how that’s affecting current mortgage market and real estate market, both nationally and locally. So for instance, in normal times, in a nondistorted macroeconomic market, when the Fed prints trillions and trillions of dollars, and then they’re deployed to the folks on the ground, typically you would see some type of inflation, or typically you would see some type of devaluing our currency, but we’re not seeing that because there’s such a shortage of dollars in the world, which is counterintuitive to a normal macro investor or even a real estate guy… Because as a real estate guy, when our currency devalues and you’re in fixed long term debt, that’s good for you. When a loaf of bread goes to $10 and the house that you paid $100,000 for five years ago, now costs a lot more just because of the devaluation of our dollar – it’s good for you, especially if you’ve got long term low-interest rate debt. So throw that in the mix with the deferments of the evictions, the foreclosures, and then add on top of that the fact that a lot of the lenders that did that are going to want three months plus one when the deferments are over.

The increased delinquency rates on both autos and home loans– I can go over 100 other macro and micro indicators, but you take all that information and you’re like, “How is that going to affect Austin?” because Austin’s one of the strongest real estate markets in the country. It’s been that way for probably a decade, and there’s no signs of that slowing. So some of the problems that we face in Austin, for instance, is our rental prices have not kept up with our purchase prices and sales prices. In addition to Austin not having state income taxes, we’ve got a high property tax rate. So if you looked on the MLS right now in Austin and specifically looked at single-family residents, and you were looking, “Hey, I want to buy a rental, I’ve got the traditional 25% down, going conventional. Let’s just say, four, four and a quarter percent interest rate”, you’re not going to find probably more than five properties in the entire MLS that would cash flow with their traditional 25% down investor purchase, which is a big problem for us. So we end up having to go further and further out in the concentric ring theory until we’re outside of Travis County proper, we’re outside of Williamson County. Although you can still get some deals in farfetched Travis, farfetched Williamson, but you need to go into two or three counties away to get deals that make sense for monthly cash flow.

Now, the flip side of that is that the appreciation often is pretty substantial compared to a lot of other places in the country. So some of the strategies the investors’ using this area is they’re okay breaking even every month or not making any money or even being upside every month because the appreciation rates are so high. I don’t necessarily agree with that, but that’s what a lot of folks are doing. The other thing we’re doing a lot down here, and we have been for years, but we’re really, really trying to acquire properties through non-qualified loan assumption strategies, and then doing mortgage drafts on them so that we’re carrying notes and not rentals. Does that make sense?

Theo Hicks: Yeah. Do you mind expanding on that? So you said, instead of buying the property, you’re buying the notes on those properties?

Danny Webber: Typically what we’re doing – I’ll give you generic numbers here – if we find a distressed home seller or even a non-distressed home seller, and they’ve got a $100,000 property, which is nonexistent in Austin, but we’ll just use that for simple math, and you do the research on the tax database and you find out that their payoff is approximately $87,000. So they’ve got $13,000 equity minus closing costs, commissions and everything. You would go to that person and say, “Hey, I want to take over your note, non-qualified loan assumption for five years. I’m going to give you $10,000 at closing and I’ll have the note paid off or refinanced in five years.” So what that allows you to do is it allows, number one, a quick closing, assuming title work and the property checks out. It allows a quick closing, no banks are involved, no approvals are involved, and you can put that property in whatever entity you want it to be in, so you can avoid the debt to income ratio hit on your normal credit. You’ve still gotta do the tax thing at the end of the year; there’s no tax implications, but you can at least avoid the debt to income ratio hit on your credit. So from there, say I have acquired a property in Company A, non-qualified loan assumption; I could then put it on the MLS the following week and sell it to Buyer B at $110,000, $115,000 because people are going to pay a premium for owner financed properties. I’m going to hold the note to the end buyer and I may have an underlying lien from the person I bought it from at for 4%, 4.5%. I’m telling it to the end buyer at 7%, 8%, 9%, 10%, 12%, whatever the negotiated interest rate’s going to be, and I’m pocketing the interest rate spread from the underlying lien to the rep note to Buyer B every month, and I’m avoiding the maintenance, late rent and all this other crazy stuff that I have to deal with. And if the person never stops paying, then I just foreclose on the property versus evict him.

Theo Hicks: Let me just say this back to make sure I’m grasping this properly. So you find out someone who owns a home and when you say they’re stressed, that means they’re delinquent on their taxes, they’re delinquent on their mortgage payments…

Danny Webber: It could be any and all the above. It could be notes, taxes, they got HOA liens, or the other thing we’re going to do a lot down here is people just want to sell the property quick. They don’t want people in their house checking it out, kicking the tires, nickel and dime; they don’t want negotiations. So they’ll just say, “If you bought my house today, how much would you give me and can I live with that?”

Theo Hicks: Okay. So you need to determine how much debt they have in the property. So in your example, you said a $100,000 house with $87,000 debt, and so you’ll go to them and you’ll say you’ll take over their note, you’ll give them some down payment, and then you’ll pay that note off in five years. So I guess one thing I have a question on is, are you just paying them, and then they’re paying their mortgage? Or are you actually paying the bank directly?

Danny Webber: No, I make it sound simple, but there’s a few moving parts. So when we sign the agreement and we’re at closing, we get obviously some really tight POAs and borrow authorizations to communicate with their bank. We typically want the login for their bank system, and then we change the address for all correspondences with the underlying lien and bank; and then from there, typically, what we’re doing in my operation is we’ll just set up the payments going out auto-draft every month so we don’t have to worry about them. But if we can’t set up auto-draft, then we’re just gonna hit a local branch every month. We’ve got a few that we do that with. We don’t like [unintelligible [00:10:46].04] reality. And we make the payments directly every month, and then the person that we sell it to, they pay us. So the selling point for the underlying lien holder borrower is that we’re going to help your credit. We’re going to have 100% on-time payments for the next 16 months.

Theo Hicks: Perfect. So you have some agreement with them paying you something on top of the mortgage payments? So the mortgages plus 4.5%, you said?

Danny Webber: Yeah, it’s gonna be a negotiated rate. Back in the day when QM came out, Dodd Frank and all that other stuff, there was a max overage for lending rate; I think was 3.5 APOR, which is the average rate of the day, and so you were locked into that. And then as Dodd Frank lost his teeth in the QM standards, they didn’t go away, but they’re just not enforced right now at all. So the last three to five years – not a specific time, but there’s a lot of national lenders that have non QM products, non Dodd Frank compliant products, and so everybody just went in that direction now, where if you ask somebody about Dodd Frank, QM compliant, it’s really not an issue, whereas before when it first came out, the world was ending, the sky was falling, and you couldn’t do owner-financed deals, you couldn’t do adjustable rate mortgages, you couldn’t do this over five years… So there was a lot of issues, people were scared, but that’s gone away now. I’m actually a mortgage broker in our [unintelligible [00:12:04].00], so I do a lot of the compliance side. If I get an industry that says, “Hey Danny, I know I don’t need to do this, but I want to make sure that this is as close to QM, Dodd Frank compliant as I can get,” and what we focus a lot on is focusing on the end buyers’ ability to repay the loan and making sure that if at some point you’re saying, “Hey, we didn’t take advantage of this,” but it wasn’t like the old days in California where they had the option arms and you could put out $300,000 yearly salary working at Walmart. So we actually dig deep, we verify income, verify assets, pull credit and look at atleast one or two years tax returns, and that gets the ball as close to Dodd Frank QM compliant as you can get, even if you are charging over the 3.5 APOR on an interest rate. I’ve got some investors I know that have done 12% interest with an underlying lien of 4%. So they’re pocketing 3%, 4%, 5%, up to 8% in interest per month in a note, versus $150 to $300 per month in rental income, minus vacancies, minus maintenance. So it’s a much stronger strategy to use. It’s a lot more hands-off, and to date – I’ve been doing this for about a decade – to date, I’ve had to take back probably three properties, and all three of them have gone the route of cash for keys. So here’s a couple thousand dollars, here’s a deed to sign the property back over to me.

I think the biggest part of the strategy that’s the most exciting for investors is you don’t stay out of pocket. On that same scenario, the $100,000 current value,  $87,000, let’s say that I give the underlying — so the $10,000 and then I’ve got another $3,500 in closing costs. So I’m out of pocket $13,000, let’s just say $14,000 for easy math. Typically, when I’m reselling that property on the MLS or [unintelligible [00:13:52].20] there’s a bunch of agents that do nothing but owner finance deals and so they’ve got buyers lined up… I will get back about 80% to 90%, sometimes 100%+ of my cash out of pocket on the deal.

So if I’m doing a $20,000 down payment – follow me on this – to the Buyer B, I’ve got to pay a commission out of that. So I’m a few thousand dollars out on a commission. I’m a broker, so I don’t have to pay sellers; they get commissions. But long story short – it’s about you pay a commission, I get all the money back that I put into the deal, meaning the first $14,000, I paid a $3,000 commission, and then I’ve got $1,500 in closing and I’m up to $18,000, $19,000 at the second closing. Well theoretically, I’m completely whole out of any dollars out of pocket, plus I’m a $1,000 above. I’ve made $1,000 plus, and I’m getting monthly cash flow in the form of a note versus rental income. So that happens less than 50% of the time, but it still happens where you’re made completely whole at the end of the transaction, the second sale, and the other time that it’s not [unintelligible [00:14:48].00] you’re out of pocket $3,000, $5,000, $7,000, $10,000, but the benefit is if I bought this property traditionally, I’d be out of pocket 25 grand upfront, just for the 25% down, plus closing costs.

Theo Hicks: I was gonna ask you, how do I find these types of properties to buy the notes off of?

Danny Webber: It’s the same process that you use to find properties in distress – delinquency lists, foreclosure lists, tax delinquent lists, and also what I consider a pretty advanced investor market compared to other areas that I have talked to folks in, is they’re still doing the door knocking and they’re still sending mass letters to areas, and one of the tricks is just to get on the MLS, and then there’s statistics out there that say people sell their homes an average of five to seven years after buying them, in most instances; some large number over, 50%. So if you just do a search on the MLS, the very neighborhood specific properties and areas that you want to be in, that property and just not the blanket, the whole city. Pick out a few areas, few neighborhoods, few zip codes, and just focus on those and just be the king of that area. So that’s what I’ve done.

I’ve got a few neighborhoods around where I live, really within walking distance of where I live, that I focus on, because it’s easy to reproduce success if it’s close. So you can just send out mailers, you can go bang on the door. As a traditional real estate agent, one of the big things I see in the industry is most people are just lazy. So if I walk to my neighborhood and just bang on every door on my street, just my street alone and said, “Hey, I’m Danny Webber. I’m a broker, I live down the street. I want to be the guy you call if you sell your house or you’re looking to buy another one. And oh, by the way, do you know what your house is worth?” 90% of people are never going to turn down an offer just to get a house value, because they’re gonna go to bed at night feeling better. “Oh, I guess that I’ve got $20,000 in equity or $30,000 in equity.”

Long story short is you’re just starting conversations, you’re building relationships. But at that point, once they say, “Wow, I would sell if I had $50,000 in equity,” and then you’re like, “Okay, let me run the numbers and see if you can walk away,” and long story short is you can’t walk away with $50,000 if we go traditional sales, because you’re paying 6% commissions, you’re paying closing costs, you’re paying that which is going to decrease– you’re gonna be 12%, 14%, 15% out of pocket at closing. But if you go on to finance, do a non-qualified loan assumption, I can give you $45,000, which is a net to you of $7,000, $8,000, $9,000 that you wouldn’t have in a traditional sales cycle. Does that make sense?

Theo Hicks: 100%. So it sounds like they don’t actually have to be distressed, either.

Danny Webber: They don’t.

Theo Hicks: So even without them being distressed, you just have to figure out how much cash they want to walk away with, and then see if it makes more sense for them to do–

Danny Webber: If you can make the deal work, yeah.

Theo Hicks: Yeah, exactly. This is very interesting, because I like the whole note idea. It sounds very, very complicated, and I think it actually is, but it sounds like once you do it a few times and you understand the process, you definitely talked about why it’s a lot more beneficial than going the traditional rental route.

Danny Webber: Yeah… And two things on that. So once you get used to doing these – number one, there’s additional disclosures, there’s additional paperwork. You have to go to a very specific title company that’s used to do these transactions, because most of your corporate title companies, if you brought them, they’ll say, “Hey dude, you’re crazy; you can’t do that,” and the reality is you can. You violate the due on sale clause, but there’s some disclosures that you sign from the seller that says, “Hey, we’re violating your due on sale clause because the property is changing hands,” and it’s really a who cares type thing, because at this point, it could change in the future. But at this point, banks are not calling notes due that are performing. They’ve got a performing Wells Fargo note that they’re paying on time every month at 4%. You’re not going to spend the $10,000, $12,000, $15,000 to foreclose on that property because you’re getting your money every month and there’s no delinquencies. So should that ever occur, there’s a couple of workarounds, because at that point there’s a defect on title, and the defect on title can be cured just by transferring the property back into the original seller’s names and Wells Fargo to approve, and then they go away, and then you can put it right back into your name. Again, I’m getting a little bit deep into this, but there’s a whole strategy and process behind it. It’s simple once you do it a few times and you see it laid out, but to wrap your head around it, the first time, you’re gonna have a million questions on how this actually works.

I’ve been doing it for a long time. I’ve got attorneys down here that do the transactions and they manage the transactions, they have their title companies, and it’s all pretty flawless. Mistakes are still made, but as long as you’ve got a good relationship with the seller, anything you need to get defined later or get done later, you’re not gonna have a problem.

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

Danny Webber: Best advice is to not think you are Superman because you went through a two-day or one-week course. One of the biggest problems I’ve seen – and it’s been that way for a long time – is somebody getting some business cards made that say, “I’m an investor”, they take a weekend course, they could take a one-week course that costs them $50,000, and then they fail. Being a real estate investors – it’s not equivalent to putting a band-aid on your kid’s finger because he’s got a cut and you’re a doctor. That’s not the way it works; it’s in-depth. So I think people fail to do proper planning, proper homework and proper preparation before they become an investor. They think it’s easy and it’s really not. Statistically, I think 60% or 70% of investors lose money the first year or two because they just don’t know what they’re doing and they just don’t have the right team of people around them.

I absolutely believe in mentorship. I think it’s the best money you can spend, I believe in finding a local mentor that’s in your market, that is doing the same strategies that you want to do, meaning if you’ve got a real estate investor that doesn’t do a lot of non-qualified loan assumptions, mortgage wraps, but they do a lot of flips and you want to do flips, well stick with the guy. But if you’re a long term investor and you want more cash flow, more notes, payments coming in, and you’ve got a ten year game versus a one year “I need cash” game, then you need to find that specific mentor and pay him. Mentors do not come free. If you want him to pay attention to what you got going on, then you’re going to have to pay him something whether it’s $100 bucks or $10,000, who knows? But you need a paid mentor that’ll answer your phone and answer your questions when you have them.

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

Danny Webber: Let’s go.

Break [00:20:41]:04] to [00:21:53]:03]

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

Danny Webber: I don’t have a best ever book, because I get a little bit of greatness from all the books that I have. I’d say a topic that I’ve been reading a lot about lately around last year is minimalism and how to filter out all the non-productive, the non-value added tasks and things from your day so that you can work less, but be a lot more effective and efficient while you’re working. So that’s a big body of knowledge that I’m really into right now and it’s already paid off, in my opinion.

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

Danny Webber: Well, in dollars, it’s probably going to a flip. I made a couple of times $100,000+ on flips, but what I think is a cool transaction, I did three wholesale assignments in one day at one time, and I made $20,000 per assignment. So this was back in the day when in Texas you could do an A to B, B to C, but the C buyer was paying off to A’s lien, a double closing. The title company just got away from those in Texas, but I made $60,000 sitting at a table with the title company, same title company, in probably about an hour and a half. That’s as long as it took me to buy three properties and sell three properties at the same table. I made 60 grand, without thought. It’s just a neat thing.

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

Danny Webber: Probably my email. The danny.webber@gmail.com is probably going to be the most efficient place, because I’m on that every day. danny.weber@gmail.com.

Theo Hicks: Perfect. Well, thanks for sharing your email address and also sharing your in-depth explanation of how to do note buying. I’m not gonna try to explain it again. I’m probably gonna have to listen to it again, just to make sure I fully understand it, because it’s one strategy that I personally haven’t talked to people about a lot. So I think this is gonna be a very valuable episode for Best Ever listeners, especially as you mentioned during these strange times. So Danny, I really appreciate you coming on the show 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.

Danny Webber: Yes, sir. Thank you.

Website disclaimer

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

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

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

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

Oral Disclaimer

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

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JF2166: House Hacking Together With Sam & Nick Riccio

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

 

Samantha & Nick Riccio Real Estate Background: 

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

 

 

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Best Ever Tweet:

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


TRANSCRIPTION

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

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

Samantha Riccio: Happy to be here.

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

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

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

Nick Riccio: Yeah.

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

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

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

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

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

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

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

Nick Riccio: It was $325,000.

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

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

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

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

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

Samantha Riccio: Yeah.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Nick Riccio: We found that on the MLS.

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

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

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

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

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

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

Theo Hicks: For how much?

Samantha Riccio: $6,000.

Theo Hicks: Oh, wow. Are all the properties in the same market or are they different neighborhoods in Boston? Obviously, it’s a big city, so one street over might be a little bit nicer than the next street. So I’m just curious, because $6,000, as opposed to $2,000, is a pretty big difference.

Nick Riccio: Yeah, they’re really close. But yeah, one of the neighborhoods– the condo and the triplex are in a neighborhood called East Boston, which is now a really up and coming area, which is why we chose it, but it hasn’t matured yet. The duplex is in a neighborhood called South Boston, which is your young professionals, lots of buyers, lots of restaurants, beaches, really close to downtown. So it’s a hotspot for the young professionals.

Theo Hicks: So you guys are moving around a lot. Do you guys plan on continuing to house-hack, or at some point you will you stop doing that and rent or buy your own home and then start buying this straight up regular traditional loans? Just curious.

Samantha Riccio: Yeah, we’ve definitely moved quite a bit, especially now jumping back to my parents’ house. We lived with Nick’s parents for a little bit during our last renovation, so we’ve moved a lot. We’re planning on staying in the duplex for a little while, and maybe exploring some different financing with commercial loans and trying to maybe dip into the condo conversions here. It’s pretty big in the Boston area, and then be able to use that profit to roll into more rental properties, and then as far as us, we talk all the time – who knows where we’ll land; but we’re definitely open to continuing to house hack as we find the properties.

Theo Hicks: How are you affording the down payment? So you said you got $325,000, 5% down, you’ve got a $630,000 plus the 80k renovations, and I think you said that was FHA, so I’m assuming that’s 3.5% down, and then you’ve got the $840,000 purchase price with 130k in renovations with 3.5% down. So how are you covering the down payment and how are you covering the renovation costs?

Nick Riccio: That’s a good question. So they’ve all actually been 5% down. So the FHA allows 3.5%, but with the competition here, most sellers, we’ve found they’re not happy with the 3.5%, so we’ve been forced to go to 5%. But most of the down payment and the funds have come from us just personally saving, and then credit cards and things like that, and then now we’ve recently started to use a home equity line of credit. So we’ve been able to use that for some renovations, then we were able to use that actually for a portion of the down payment for our most recent acquisition.

Theo Hicks: Are the renovation costs? Because I know the first one was turnkey, but with that second one and the third one, the 80k renovation and the 130k renovations – are those included in your FHA loan, or are those on top of the FHA loan, and you paid out of pocket?

Nick Riccio: Those are out of pocket. So the numbers I gave was just acquisition.

Theo Hicks: Alright, Sam and Nick, I want you guys both to answer this question – what is your best real estate investing advice ever?

Samantha Riccio: Alright. So mine’s definitely going to be network.

Nick Riccio: And I would say mine is focus on your plan, don’t get caught trying to compare yourself to others with it being so easy now with social media. Just stick to your plan.

Theo Hicks: Any tips that you have for creating a real estate business with– I’m assuming you guys are married, right?

Samantha Riccio: Yes.

Theo Hicks: Any tips on how to successfully navigate creating a business with your husband and wife?

Samantha Riccio: There’s a laundry list, but I definitely think communication is key. We over-communicate to a fault even sometimes, but there’s a lot of moving parts every single day, especially with all these projects going on. I think keeping each other in the loop, keeping a to-do list that we can both have eyes on, cc-ing each other on emails. We start the day talking about what we want to get done and we need to get accomplished and we end the day doing the same things, and in middle of that day [unintelligible [00:14:18].13] we both feel like we’re on the same page.

Theo Hicks: Anything else to add to that?

Nick Riccio: I’d say that’s really it, and the biggest thing is the communication. We’re moving towards trying to just use the same inbox, because it’s hard just constantly relaying messages to each other when you’re getting a ton of them a day. So I think just being able to always have each other in the loop is probably the biggest thing.

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

Samantha Riccio: Yeah.

Nick Riccio: Let’s do it.

Break [00:14:47]:09] to [00:15:55]:03]

Theo Hicks: Okay. So I’d like both of you guys to answer each of these questions. First one is what is the best ever book you’ve recently read?

Samantha Riccio: Rich Dad, Poor Dad.

Nick Riccio: The One Thing.

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

Samantha Riccio: Start it back up tomorrow,

Nick Riccio: Start networking as soon as possible.

Theo Hicks: Out of all of these deals you’ve done so far, which one did you make the most money on? Let me take that back. What was the best deal out of these three deals, and it could be money or something else? Why was it the best?

Samantha Riccio: I’m going to go with the duplex, because we’re getting a great living space out of it, definitely the best we’ve had, and money-wise, we’re thinking we’re going to have hopefully $500,000 of equity in it. So we’re feeling like that’s a pretty good deal.

Nick Riccio: Yeah, and I’d say the triplex, just because it’s shown us how powerful the cash flow piece is and it’s allowed us to take more risks moving forward.

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

Samantha Riccio: Definitely connecting with our audience on Instagram. We started our Instagram account not too long ago and have really connected with a bunch of people on there and talking to new investors and current investors. So I just think that free knowledge and networking is a big part of it.

Nick Riccio: For us, now that we’re seeing the power in real estate, we’re actually trying to bring our parents into the fold so we can help get them prepared for their soon to be retirement.

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

Samantha Riccio: Probably Instagram. Like you mentioned, we do have our website but Instagram is @renosandrealestate. We’re on that every day checking our direct messages and love connecting with people there.

Theo Hicks: Perfect. Alright, Sam and Nick, I appreciate you guys coming on this show and sharing the details on all of your house hacks. So we talked about your first condo that you bought for 5% down, $325,000 turnkey property, lived there for seven months and then ended up buying the duplex/triplex that was on the other side of the same building as you, and you spoke to the neighbor and they said that the landlord was selling and you contacted the landlord and ended buying that one for 630k, and then did a two-stage rehab where you first converted the larger upstairs unit into two units, and then once the bottom tenant moved out, rehabbed their unit, and you mentioned that you were able to get $1,900 dollars for two of those units and $2,200 for your unit once you moved out, and then when you moved out of that condo, you were able to get $1,900 at first and now you’re getting about $1,950 in rent. And then next the duplex you’re working on now which you found on the MLS – a larger project, 840k purchase price, 130k renovations, you are converting the basement into an additional three bedrooms and one bathroom, I believe, and then you already have a lease signed for $6,000; it’s great to hear. And then you plan on staying here as [unintelligible [00:18:39].00] for a little bit longer and then are potentially exploring some condo conversions. How you’re funding all these is all 5% down and it’s just personal savings, credit cards and then you did mention that on this most recent deal, you’ve been able to use a HELOC loan for the down payment.

We talked about your best ever advice. Sam said networking, Nick said to focus on your plan and don’t get caught up comparing yourself to other people, and then your main tip for creating a business with your significant other, husband and wife, is to make sure you have very good communication, which I’m sure is good for relationships in general, but especially when you’re doing business together.

Sam and Nick, I really appreciate you coming on the show and sharing your journey with us. I wish you the best of luck with this current duplex and on any other future house hacks that you do, as well as teaching your parents how to do the same. Best Ever listeners, as always, thank you for listening. Have a best ever day and I’ll talk to you tomorrow.

Samantha Riccio: Thanks so much.

Website disclaimer

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

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

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

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

Oral Disclaimer

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

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JF2164: Tips for Creating A Compelling Property Management Incentives Program | Syndication School with Theo Hicks

In today’s Syndication School episode, Theo Hicks, will be going over some tips on how you can create a property management incentives program. He will be giving you the process on how to go about creating your program and advice on the type of incentives you can offer.

 

To listen to other Syndication School series about the “How To’s” of apartment syndications and to download your FREE document, visit SyndicationSchool.com. Thank you for listening and I will talk to you tomorrow.

Click here for more info on PropStream


TRANSCRIPTION

Theo Hicks: Hello, Best Ever listeners and welcome to another episode of The Syndication School series – a free resource focused on the how-tos of apartment syndication. As always, I’m your host, Theo Hicks. Now we are gonna start airing one syndication school episode every single week in addition to another show we’re starting off with me and Travis. I don’t have a name locked down yet, but it’s gonna be focused mostly on passively investing. So whether you are a passive investor listening to this or an active apartment syndicator listening to this, I think these episodes will be valuable whether, again, from a passive investor perspective learning the tricks and tips for that, as well as the active syndicator, understanding what it is that passive investors are actually looking for. But this is going to be Syndication School to talk about the specific aspect of the apartment syndication investment strategy. We’ll continue to release free documents in syndication school when it makes sense as well.

Today, we’re going to talk about property management incentive programs. So we’re gonna be talking about how to create this program for your management companies. This will be a post closing or I guess, at the earliest, post due diligence phase step, and the reason why you want to do an incentives program is because it will create an additional alignment of interest between you and your property management company, because the better they perform, the more money that they make.

So we’ve talked about other ways to create an alignment of interest, bringing on a team member, an experienced team member creates alignment of interests between you and your investors, and then with that team member, from lowest to highest alignment of interest, you have them getting an equity stake in the deal, which is a little bit lower than the next one, which is them investing their own money in the deal, where they have skin in the game. Above that would be them investing their own money and/or bringing on their own investors, and then above that would be them signing on the actual loan. So this incentive program falls probably in between you just bringing them on and giving them equity in the deal, but this is still a great way to create alignment of interest, because based off of whatever your incentives program is, they achieve that goal, then they get paid more.

So what is an incentive program? Simply put, you give your property management company an objective and if they complete that objective, then they are given a reward. That’s the simplest way to explain what an incentives program is. The incentives programs are going to fall into one of two categories. So for the purpose of this episode, we’re going to call them Type 1 programs and Type 2 programs.

So Type 1 incentive programs are incentive programs that begin at acquisition, and then they end at sale. So these are the types of programs where the objective is not necessarily never fully accomplished, and we’ll give some examples, but this is something that whatever reward they get, the possibility of continuously getting that reward every month, every quarter, every year, or all three. So that’s the Type 1 program – start at acquisition, end at sale. The Type 2 would be the one-off incentive programs that starts and end over a fixed amount of time.

So what are some examples? So for Type 1 incentive programs, the most obvious would be the property management fee, which is technically an incentive. It’s going to be used all the time, but that is considered an incentive. The objective is for them to effectively manage the property, to make sure the property’s occupied, make sure expenses are kept low, and their reward is their property management fee. The reward is also not getting fired if they do a poor job. So that’s the base level incentives program that everyone is going to have.

Other ones are them investing their own money in a deal. So the objective is they invest their money, the reward is they get the compensation given to the limited partners. If you’re getting a loan guarantor – same thing, they’ll get either a chunk of equity or a one time fee. Bringing on their own investors, same thing, they’ll get a chunk of equity. So the reward for all these are more equity or more cash flow. So those are kind of like basic, simple incentive programs.

These next ones are what you would probably consider incentive programs. So you can create these Type 1 incentive programs based off of KPIs, the Key Performance Indicators, and we’ve done an episode in the past on the property management weekly performance reviews, and in that series, we offered a free document which was that KPI tracker. And on that document, you’ll have all of the various KPIs that you will want to track on a weekly basis at your property. Of those KPIs, you can create various Type 1 and Type 2 incentives programs. So for example, the objective for an incentive program could be to grow revenue by a certain percentage each year, or maintaining or exceeding a specific occupancy rate, like 95%. So that could be something that you have an agreement with your property management company from the get-go, that as long as revenue grows by 5% every single year, then you’ll get an extra 1% bonus; or if you are able to maintain a 96% occupancy rate, for every month you exceed that, you’ll get some bonus. So those are examples of Type 1 incentives programs; so the KPI is revenue growth and occupancy rate.

Now make sure that when you are doing these Type 1 incentive programs that the objective actually makes sense and actually results in alignment of interest. So for example, a really bad incentive program with a bad objective would be to grow the occupancy by a certain percentage each year, because there is a limit to the occupancy growth. Once they’ve achieved 95%, 96%, it’s gonna be very, very difficult for them to achieve a 5% growth without, in their mind, sabotaging, reducing occupancy and then bringing it back up again. So just occupancy fluctuating up and down so they get paid more. So that’s why having an occupancy threshold that they need to maintain or exceed is a much better objective when you’re using an occupancy KPI. Same thing for total revenue growth. Setting a total revenue growth goal of 20% is too unrealistic and is not going to accomplish what you set out to accomplish. So those are examples of Type 1 incentive programs.

Type 2, again, are the one-off incentive programs. So these are ones where you can target a specific underperforming KPI. So let’s say, for example, your occupancy rate drops to just below 90%, then you can create an incentives program, and the objective would be to achieve a specific occupancy rate within a specific timeframe… Say, 95% occupancy within two months. And you can apply this to many of the other KPIs too if they fall below whatever your projections are. So if you do the KPI right away in the beginning to maintain the 95%, or you can do this in addition to that already incentives program. If your occupancy or some KPI falls below your projections or it doesn’t necessarily have to be below your projections, it could be non-stabilized or something else, you can set up a just one time Type 2 incentives program to get that number back up. Once they’ve achieved that occupancy rate, then they receive the award and that incentive program expires, and then you’ll do another one or not do another one, depending on how the property performs.

So let’s compare these two. Both can be very beneficial. The Type 1 incentive programs will create that alignment of interest from the get-go, and then the benefit of the Type 2 incentives program is that they can be used during the business plan to target and improve a specific lagging KPI. Of course, you might be saying, “Well, Theo, why don’t I just do all Type 1 incentive programs? That way, I don’t have to worry about a KPI ever lagging.” Well, as I mentioned before, one reason why is because if you set an objective to increase the occupancy rate by percentage, it’s not going to actually create an alignment interest, but the second point is that you need to be very, very careful and mindful when you’re creating these incentives programs, because you have to make sure that it’s actually incentivizing the management company and it’s incentivizing you; that it’s a win-win scenario.

So I already gave the example of the occupancy rate percent increase each year could potentially result in the property management company purposely sabotaging the occupancy, so that they can then be the knight in shining armor, increase the occupancy rate by that 3% they need to increase it by, and then getting that bonus.

Another example would be if you set an occupancy-based Type 1 incentives program. Let’s say, it’s to maintain a 95% occupancy rate. Well, how are they going to accomplish that 95% physical occupancy rate? So that’s just the number of units that are actually occupied. It has nothing to do with the rents demanded for those units, the concessions that were given for those units… So setting a Type 1 physical occupancy goal or even a Type 2 physical occupancy goal is probably not the best incentive program, because the property management company can sacrifice other aspects of the P&L in order to get that number to 95%.

So a much better KPI would be the economic occupancy rate. Another example would be a number of new leases based incentive program; 20 new leases every single month. Well, what’s stopping them if that’s the goal from letting in unqualified renters to inflate those new lease numbers? So you have to be very, very smart when you are creating these incentive programs, because you don’t want to shoot yourself in the foot. So Type 2 incentive programs are gonna be really good for the KPI based objectives. So if a KPI is lagging, then you’ll want to target that with incentives, and then the Type 1 incentive programs are gonna be much better for these non-KPI based objectives, like the property management fee, and then other ways to create alignment of interest like them investing in the deal and things like that… Because again, you don’t want to incentivize the management company to do things that actually hurts you.

So a few other best practices when creating an incentives program – first, you want to make sure that the objective set is realistic and attainable. We’ve already given examples of what would be realistic ones, but an objective to, say, raise the occupancy just below 90% to 85% and you set an incentives program to increase occupancy to 100% in two weeks – that’s unrealistic, very difficult. I mean, obviously, it’s possible, but very difficult to accomplish. So a  really good strategy to ensure that the incentive programs are practical is to actually plan a brainstorming session with the key members of your property management team and discuss objectives, metrics for those objectives, and then the actual rewards. What do they want? Which brings me to my second best practice, which is to be creative with your rewards. So maybe, after the brainstorming session, you realize that the property management company just wants money. They just want a cash bonus or a gift card, but other rewards would be dinners with you or someone else in your company. You could offer them an extra paid vacation day. It could be a free education or training course which helps you and them. It could be a special trophy or plaque that gets passed around every single month. Just be creative about your rewards, make it fun. Not only incentivize them to do it for monetary reasons, but also because it’s fun; it’s a competition.

Then lastly – and this is really important – you do not want to create an incentives program that actually punishes the management companies for failing to achieve the objective. So when you set incentive programs, you want it to be, “Here’s the objective. If you achieve the objective, you get rewarded. If you don’t, then you don’t get rewarded,” which, in a sense, could be considered a punishment, but you don’t want it to be, “If you have achieved the objective, then you get a 1% raise in your management fee. If you don’t, then you get a 1% decrease, and if you fail three objectives then you get fired.” That’d be a really bad incentives program, because that’s not creating an alignment of interest, that’s just helping you in a surface level, but also, it’s not necessarily helping you because your management company is not going to achieve that incentive, they might get fired and that is going to affect the operation that’s your property. So don’t reduce management fees, don’t give out any punishment if they don’t achieve the objective. The only time you necessarily want to punish your management company is when you actually fire them, and I believe we did an episode on how to approach firing a property management company. Actually, it was a Follow Along Friday that Joe and I did, where we went over how to fire a property management company. If you go to YouTube and say ‘how to approach firing your property management company’. It was released July 26, 2018. Joe and I went through that process.

So obviously, it’s not that you never want to punish your management company, but you’re not going to fire them for not achieving the objective in an incentives program, you’re gonna fire them for other reasons. So maybe incentive programs would be a good way to give them a chance to not get fired, and then in that sense, you might fire them after an incentives program failure, but overall, you don’t want to punish them over an incentives program.

So overall, these incentive programs are a great way to create that extra alignment of interest with your management company, as well as help you target specific KPIs that start to lag. So right now, amidst the pandemic, right now might be a great time to implement a fun, engaging, realistic, attainable incentives program. Even if they don’t meet that goal, that push up in economic occupancy or revenue or whatever, it could be very helpful.

Anyways, that concludes this episode, that is how to create a compelling property management incentives program. Make sure you check out some of the other syndication school episodes and those free documents at syndicationschool.com Thank you for listening. Have a best ever day and we’ll talk to you tomorrow.

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JF2159: Creating Software For Landlords With Laurence Jankelow

Laurence is the Co-Founder of Avail, an all-in-one software solution designed for DIY landlords. He initially was handling his real estate investment process with excel spreadsheets and after a while, both he and his partner figured there must be an easier way to be a landlord. They searched for different software and found that the majority of the ones out there were made for bigger landlords, so they decided to create their own for the smaller landlords. 

Laurence Jankelow  Real Estate Background:

  • Co-founder of Avail, an all-in-one- software solution designed for DIY landlords
  • Long-term real estate investor with a passion for 3-unit multi-family properties
  • Portfolio consists of two 3-units and 1 Car wash
  • Based in Chicago, IL
  • Say hi to him at: https://www.avail.co/ 
  • Books: measure what matters

 

 

 

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Best Ever Tweet:

“You make all of your money essentially on buying the right properties” – Laurence Jankelow


TRANSCRIPTION

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

Laurence Jankelow: I’m doing well. Thanks for having me on. How are things going with you?

Theo Hicks: I’m doing great. Thanks for joining us, looking forward to our conversation. A little bit about Laurence’s background – he is the co-founder of Avail, an all in one software solution designed for do-it-yourself landlords. He’s also a long-term real estate investor with a passion for three-unit multifamily properties; current portfolio consists of two three-units and a carwash. He is based in Chicago, Illinois, and you can say hi to him at his website, which is avail.co. So Laurence, do you mind telling us a little bit more about your background and what you’re focused on today?

Laurence Jankelow: Absolutely. So my background– thanks for mentioning the three-flats. I’ve been a real estate investor for a while; the portfolio, it shifts and changes. Before I got into that, I had started down the finance track after college, now probably 15 or so years ago, and started with business in risk consulting, did that for just under five years, going from company to company, just taking a look at their operations in using data analytics, would try to help them determine where they can improve their business. From there, I went on to Goldman Sachs and did somewhat much the same for their portfolio managers and supported their hedge funds, alternate investments and private equity groups. I did that for so long that at some point, I wanted to try to get out of corporate America. So I tried to do the Rich Dad Poor Dad strategy, which was start building up some passive income through real estate, and almost worked my way through those quadrants; I can visualize it in that book now… I added the real estate and then eventually I thought, “You know what, the recommendation is to become a business owner.” So I started to think about, “Do I want to take my real estate from the six units to 1,000 units, or do I want to do something different?” and at that time, I saw that the way I was managing my rentals was totally ineffective, and I saw an opportunity to leverage software to make it better, and found that the best path for me was to quit my job at Goldman and focus on building a business around providing landlords of my size software that they otherwise didn’t have access to.

So that’s what I focus on now at Avail, is providing the tools and process and education for smaller landlords; those with nine or fewer units, to help do the day to day tasks of being a landlord and including listing syndication, to finding tenants, screening renters by hooking into TransUnion for credit reports, background checks, letting the tenants pay their rent online, drafting and signing leases online, those kinds of things. I spend a lot of my time just evolving that software.

Theo Hicks: So you mentioned that this company grew out of your own inefficiencies in management. So do you mind walking us through what those inefficiencies were, and then for each of those, how you were able to use software to solve those problems?

Laurence Jankelow: Yeah, it’s actually almost embarrassing now when I think about what I used to do. The person I started Avail with, Ryan and I used to share Excel files back and forth, and we’d make an Excel file where I’d merge cells together and paint them, and that would be our rental application. We’d print that out, we’d hand that to tenants, and that was how we screened them; we didn’t even realize that we should be pulling a credit report or eviction checks and those kinds of things… And it all evolved from that. At some point, we realized, “Hey, this is not working. Excel doesn’t make sense.”

We went looking online for software that would do what we wanted and we saw stuff like Yardi, which was really powerful, but Yardi’s really designed for a landlord with 1,000 or 10,000 units, which I’ve got six, Ryan had two, and the starting price of Yardi’s something like $10,000 a month. So that’d be more than our combined gross rents; it didn’t make sense. So we felt like if we wanted to solve these problems for ourselves, that there’s probably a business to be had here for others of our size. So that’s what we set out to do, really targeting, helping landlords with nine or fewer units, I’d say.

Theo Hicks: Perfect. So you had all these issues with your property, you went online to see if you could find an existing software, and there were software out there but they were too much, too much money or it’s for these larger buildings, whereas you wanted to find something for smaller. So take me from there to the start of the business. Did you and your business partner just sit down together and say, “Hey, here’s all the pain points of smaller landlords,” and then, “Okay, so here’s the different software that could potentially resolve those. Okay, let’s focus on these [unintelligible [00:07:17].27] ” How does the process of creating this type of company work?

Laurence Jankelow: Well, creating a company is pretty hard, and I think we didn’t realize that going into it. Everyone tells you it’s really hard, and then it’s something you don’t really acknowledge till you do it. But we started this in 2012; that’s when we quit our jobs. We quit with nothing but an idea on a napkin. We felt that we didn’t want to work on it while full-time. It wouldn’t really go anywhere if we had a full-time job elsewhere, and it wouldn’t be fair to our employer or ourselves to let our dream sit on the side. So we quit and we started day one, and then what we tried to do is find an engineer to help us build it, and you can imagine, we couldn’t find an engineer who wanted to build our dream for free or for equity, which was worth nothing at that point.

So Ryan and I decided we were going to have to build it ourselves, and we had no experience in that. So we ended up having to roll up our sleeves, we taught ourselves to code. In 2012 to 2014, I essentially wrote the first 500,000 lines of code that allowed us to syndicate listings to Zillow, or Trulia or hit the TransUnion API to get a credit report or those kinds of things… And we spent that first two years fumbling around, I’d say, trying to figure it out, really took that just do what it takes mentality. End of 2014, we felt like we had a pretty good product and we started getting traction, started getting customers, started hiring our first employees, really started seeing it as a business and starting to grow, and then from 2015 to 2020, we really saw some growth,. We’ve now got 600,000 landlords and tenants who use our system for the everyday purposes of being a landlord.

Theo Hicks: Wow. So what did you do for money in those two years while you were doing all that fumbling around, as you said? Did you have money saved up ready?

Laurence Jankelow: Yeah. Ryan and I consider ourselves to be super privileged in a way. I was at Goldman Sachs and he’s at a different investment bank. So we had some savings, not as much as you would assume you get out of investment banking, particularly because we were just coming out of the financial crisis of 2008. So we didn’t really get bonuses those couple of years, but we had enough where we could each put $20,000 into starting the business, and that $20,000 was essentially, for us to live on for those years. So those two years were very much the ramen noodles years, but we at least had something to feed ourselves. But I don’t look back on it as regret. I feel like we’ve learned a lot. I think learning how to code was probably one of the greatest achievements for me. It completely changed how I think about almost everything I encounter now.

Theo Hicks: Did you self-teach yourself on Google or did you take courses?

Laurence Jankelow: Taught myself. This is probably a popular programming language for anyone who does this, but it might not resonate with some of your listeners. I taught myself Ruby on Rails, I downloaded a tutorial, and essentially that tutorial just walked me through creating my own Twitter from scratch, and replicating that. What was awesome about it is you really start to realize, “Look, I’m getting stuck at this point. There’s no one to help me, and I can either give up or I can spend four weeks trying to solve something that a real engineer could probably do in two minutes,” and you spend those four weeks trying to solve a two-minute problem, you tend to grow by leaps and bounds, I’d say. That’s what happened for me, and I feel like that just fueled my hunger for learning more and attacking harder and harder problems.

Theo Hicks: Wow, that’s awesome. Did your business partner write any code or was it all you?

Laurence Jankelow: I’d say I wrote 95% of it, and Ryan did do 5%, but Ryan also had a really challenging task for him as well. So while I was writing that code, he had to convince a bank to allow us to pull money out of any account in the United States, essentially, to do withdrawals. Tenants want to pay their rent. So yeah, we have to get approvals from those tenants. It has to be super documented. So he had to work on convincing a bank and figuring out that process of what that has to look like, how does it meet regulations, all those things. He had to convince TransUnion to allow us to pull credit reports and sensitive data on people, and we’re not famous, we don’t have a pedigree to go and earn these things just by nature. So he really had a lot of convincing yet to do. So I applaud his efforts on doing that. It sounds impressive for me to go write 500,000 lines of code, but honestly, for him to convince people to take a chance on us for those other pieces – much more impressive.

Theo Hicks: So you said around the end of 2014, some of the code or the software was written, you started getting customers and hiring employees, and then flash forward six years, you’ve got 600,000 landlords. So you got your code written, the banks allowed you to pull money out of anywhere in the US, TransUnion allowed you to pull credit reports. How do you find your customers?

Laurence Jankelow: That’s always been a challenge for us. Our customers are the smaller landlord, nine units or fewer. So they’re not listed in a phone book. It’s not like I can go find them somewhere and oftentimes, they don’t identify as landlords. I didn’t either when I was at Goldman. If I went somewhere and people would ask me what do I do, I’d usually tell him I work at Goldman Sachs or I would not even mention Goldman because at that time, and even now, there’s just a lot of animosity maybe towards some of those investment banks. So I tell them, I work in finance. I would never mention I’m a landlord. So it didn’t resonate with me as that’s who I was as a person. So that’s always been a challenge, and so what we’ve had to do is figure out where are landlords going, looking for help, and I think in some ways, we’re lucky because they go to the internet for that.They’ll go to Google and they’ll search for ‘what should I do if my tenants’ rent is late’ or ‘how do I get a credit report on a tenant?’ or– I’m in Chicago, so this resonates with me, ‘how do I get a Chicago standard lease agreement?’, and we put out so much educational content that they’ll often find us through those Google searches. We tend to think of our product having a sixth arm in a way or sixth major service, which is the educational component, and we spend as much time on our educational piece as we do on any other part of the product. So they’ll typically find us by– it’s commonly called inbound marketing; that way.

Theo Hicks: So you didn’t pay for any Google Ads. It was all just SEO. You said you figured out what these type of people will be searching for on Google, and then you just wrote those articles, and then eventually, over time, people started finding your blog posts, and in theory, from your blog post, they found your service.

Laurence Jankelow: Yeah, our go-to market strategy has evolved a lot. So it started off with content marketing, which is geared at some of those keywords that they search for organically, and we don’t have to pay for it, but it did evolve. We do pay for high converting keywords now. We can recognize which ones are likely to be profitable for us. So we do pay for those now, and then we continue to pay for those. But by far and large, most of our customers are coming from some of that educational content.

Theo Hicks: Who is writing your content? Is that you and your business partner or is it somebody you hired?

Laurence Jankelow: Well, that’s also evolved. 2012 to 2015, 2016, Ryan and I pretty much wrote most of it. Around 2015 we hired some writers to help us, and you could see a huge improvement in the quality of writing when we hire people. The hard part is oftentimes you’ll find a writer and they don’t know much about landlording and Ryan and I just knew so much about it. So then the challenge is how do you impart a lot of that learning to the writer so that they can write really high-quality, effective content? Because last thing you want to do is put out 2,000 words of dribble. It has to add value, it has to solve a problem for someone.

Theo Hicks: How does your company make money?

Laurence Jankelow: That’s actually interesting. So our software is free. You can have unlimited number of units and use our software for all the features. So tenant screening, listing syndication, the leasing, payments, all that’s free. We do have a premium tier. So if you need a little bit extra, then it’s $5 per unit per month and extra meaning something like you want to set up automatically fees. So if a tenant is more than five days late, it automatically charges 50 bucks. On the free tier, you’d have to log in and manually do it. So there’s a whole bunch of things like that, that push someone into the premium tier or the plus plan as their business evolves, and they need more automation.

Theo Hicks: So the only way you make money is on that premium tier, subscription-based model?

Laurence Jankelow: We have a bunch of ways; that’s our largest way.

Theo Hicks: Okay.

Laurence Jankelow: We also make some money on some of the transactional stuff. So when we pull a credit report, tenants will oftentimes pay $55 for the credit report. Now the benefit to them [unintelligible [00:15:05].09] so it doesn’t hurt their credit report, and then they can also share it with other landlords, so that a tenant isn’t having to pay $55 for this landlord and $55 for another. They can pay it once and share it with any landlord, even though it’s not on our system.

Theo Hicks: Was the premium model the plan from the get-go, and then also, obviously curious, how do you know what’s included in the free plan and what to include in the premium plan?

Laurence Jankelow: That’s evolved a little bit, too. So initially — our pricing has changed a little bit, but we tend to think of breaking the tiers down by landlords who have essentially one unit, and those who have two or more, and tailoring the plans to them. So although the plans are both for unlimited units, we tend to see that landlords with one unit on the free plan or landlords with two or more are on the premium plan, and the reason for that is just how you think about your rentals. For Atlanta with one unit, oftentimes, they’re an accidental landlord or it’s just something they have, and then maybe they’re dabbling, they’re not sure if they want to be real estate investors or not. But folks with two or more units tend to be more deliberate. They didn’t just happen to become a two-unit landlord or more. So they may view themselves as a business a little bit more, and realize that tools and software are part of business, part of how you reduce expenses and maybe push up income. So for that reason, those folks tend to want a little bit more out of the software, a few more features and are also willing to pay. So we bifurcate it that way.

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

Laurence Jankelow: So many things to choose from here… I guess, I would start with– because we tend to focus on novice landlords or new landlords… Best real estate investing advice is when you buy the property. So one obviously, if one of your life goals is financial independence, then getting a rental property is great to do that, but you make all your money essentially, on buying the right properties. And if you’re looking into getting into it, you should really buy properties that are going to be cashflow-positive for you. There’s a tendency if you’re a first-time rental property purchaser to purchase in a manner where it’s akin to if you were buying a single-family home or something that you’re going to live in, and oftentimes those are emotion-driven. Here, you really want to focus on the numbers. So buy a rental property where the gross rent covers all of the operating expenses and the debt payments and has enough of a return where that’s your best usage of the cash, I would say. And if that property isn’t that, you put the cash somewhere else or in another property,

Theo Hicks: Okay, Laurence. Are you ready for the Best Ever lighting round?

Laurence Jankelow: Yeah, let’s do it.

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

Break [17:31:04] to [00:18:29]:06]

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

Laurence Jankelow: Well, I mentioned Rich Dad, Poor Dad, but that’s from a long time ago. So recently, the best one for us is Measure What Matters, and that’s essentially about a goal-setting framework that was developed maybe 30, 40, 50 years ago at Intel, and it’s essentially a structure that you can use to set up goals and how you measure the success towards that goals. And just for me at Avail, that was a pivotal moment for us adopting that framework and setting goals. And even if it’s not Avail, if it’s with your rental properties, you should set goals for the rental properties and how you want to measure them. So the key takeaway from that book is the measurement of those goals and making sure you have something that has a strict KPI in that measurement.

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

Laurence Jankelow: Great question. Well, I’ll probably start another one. Once you get bitten by the startup mosquito, you tend to want to get bitten more. So if Avail fail today, man, you’d have to take a hard look at why I failed, because I think we’re doing all the right things. But I would start the next one. I don’t know if it would be real estate, but I’ve got some ideas around investing in stocks that are similar to what we do for real estate, but for a stock investor. I think you’d have to keep going and keep building. Once you’re a builder, always a builder.

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

Laurence Jankelow: I’ve got two kids, a six-year-old and a four-year-old, both little girls, and for me, I try to teach them some things. One of the things that we try to do now that’s really small is we take the little red wagon and we go around our neighborhood and we use one of those little claws to pick up trash. We walk around the neighborhood and we pick up trash and we try to fill up a trash bag every so often just to clean up the area.

As far as real estate, I try to participate in online communities. I feel like there’s a lot I’ve learned just from the six units, but then also, from seeing how our 200,000 landlords manage their properties there’s a lot that we’ve learned, and I try to take the knowledge we’ve gotten there and I try to push comments out. We have our own community on our website that I try to get it to some of those Facebook communities where you see a lot of landlords trying to interact and figure out what to do.

Theo Hicks: What’s the best ever place to reach you?

Laurence Jankelow: You can learn anything and everything you want about what we do at our main website avail.co, but I also like people reaching out to me directly. I’m always happy to have a conversation. So if anyone wants to do that, they can reach me at my email laurence [at] avail.co. I encourage anybody to do it. I’ve done a couple of podcasts now and not one person has reached out to me and that’s disappointing.

Theo Hicks: Best Ever listeners, make sure that you reach out. I might have to email him just to make sure someone reaches out, but I think one of our Best Ever listeners will reach out especially after listening to this episode; very powerful. I really enjoyed the conversation.

I stopped taking notes in the middle of it, and was just asking questions. It was so fascinating to me how you’ve been able to build this business and learn how to code and go from really having no idea how to write software, how to run your own company to having 600,000 customers; that’s great to hear. So definitely worth re-listening, just to hear his process from quitting with an idea on a napkin, to learning to code, to his business partner working with banks to figure out how to let them pull money from any bank, and working with TransUnion to pull credit reports, to finally 2014 when you started getting customers.

We talked about how you were able to get customers through content, so through your thought leadership. It was always great to hear because we talked about that on this show a lot. Then you mentioned eventually you ended up evolving to paying for stuff, but that’s like a theme, where you start off doing everything yourself and eventually it evolves into being able to outsource some things. And then your best ever advice was if you’re gonna buy real estate, realize that you make money on the front end and that needs to be cashflow positive.

So Laurence again, I really appreciate you coming on the show, I learned a ton, and I’m sure the Best Ever listeners will as well, and if they have more questions, take advantage of him giving you his email address. It’s not every day that our guests do that. So Best Ever listeners, as always, thank you for listening. Have a best ever day and we’ll talk to you soon.

Laurence Jankelow: Thank you so much.

Website disclaimer

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

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

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

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

Oral Disclaimer

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

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JF2154: Understanding Your 401k and LLC Management With Jennifer Gligoric

Jennifer is the Co-Founder and COO of Leafy Legal Services, she has a great backstory, going from homeless to owning her own company. Her goal is to protect investors who are growing their business and to prevent them from getting sued and losing it all. She gives tips on what you should do to protect your assets and how to utilize your, LLC, to invest in future deals and she also shares how you can utilize your 401k to your benefit.

Jennifer Gligoric Real Estate Background:

  • Co-Founder & COO of Leafy Legal Services and co-host on Leafy Podcast
  • 20 years experience in real estate
  • From Galveston, TX
  • Say hi to them at: https://www.leafyassets.com/

Click here for more info on PropStream

Best Ever Tweet:

“Treat your real estate investing like a business” – Jennifer Gligoric


TRANSCRIPTION

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

Jennifer Gligoric: I’m doing great. It’s really wonderful to be on the show.

Theo Hicks: Absolutely, and thank you for joining us. I’m looking forward to our conversation focused around the legal aspects of real estate. So Jennifer is the Founder and COO of Leafy Legal Services, based in Galveston, Texas, and she has been helping entrepreneurs and real estate investors get started for over the last 20 years. She has a very harrowing back-story; she found herself homeless as a teenager and managed to put herself through college and become a successful business owner despite the odds against her, and she attributes her success to a mindset of abundance and paying it forward as the means to happiness. If you want to learn more about Jennifer and her company, you can go to leafylegalservices.com. So Jennifer, before we get started, do you mind telling us a little bit more about your background and what you’re focused on today?

Jennifer Gligoric: Yeah. Well, I actually have a pretty long background. My background started in crisis intervention for businesses. Well, I say that… I worked as a young kid. My mom had the longest-running employment agency ever type here in Houston, Galveston Metroplex. So I was the kid that would set up the secretaries that had cigarettes hanging out of their mouths, because that’s how they did it back then, instead of my [unintelligible [00:04:10].17] typing tests and things like that. So I already knew how to interview for a job, how to do the paperwork to get a job, which, if you’re a parent, teach that to your kids. They’re not teaching it in school, and I gotta say that that’s pretty critical. So I already knew how to do basic secretarial stuff and that, but the money was in sales. The money’s always going to be in sales. So I was very driven by the money. So I went into telemarketing and sales, and long story short, I ended up into crisis intervention for businesses.

With a heavy background in HR, I would get in and they would hire me to fix their widgets or, “Oh, we need more brochures. Our pitch is crap, redo it,” and then I’d get in there and it was never that; it was always HR that was tanking the company. They were hiring people at the wrong rates, putting them in the wrong positions, having them do the wrong things. So that was my career, is going in and fixing companies, but really I was fixing small business owners, teaching them how to be better managers, teaching them how to have better systems, how to hire people they can trust and let run to take a break every now and then.

Many small business owners, you ask them, “When was the last time you took a vacation?” or real estate investors, and they just give you this blank look, because they really are always working. Well, that’s not good. Some of your biggest breakthroughs in life are when you take a little bit of a break. You’re just going to run yourself into the ground and you’re going to drive everybody around you nuts when you do that.

About a decade ago, my specialty turned into helping companies scale using entirely remote workforces, but top talent; not $3 an hour VAs, people that had left the corporate world, and for whatever reason, they needed to be at home. Sometimes they wanted to raise children at home, sometimes they survived an accident that they were never meant to survive, or an illness that would’ve kill them five years ago, and they can’t be in commute. And I thought what’s better for the environment than helping people not clog up our roadways, adding to carbon emissions, to not having to build and do this sprawl. People can stay in their own houses. And it’s better for the local communities, it’s better for local businesses, and it’s better for the economy as a whole.

So I did some big scale-ups. I actually met the person I brought on to be my CEO because he hired me to scale up a very large digital marketing firm, and during that time, he was a real estate investor; I was getting into real estate investing because we were dealing with the likes of Than Merrill, Kevin Harrington; we were working with people that were putting them on stage, we were working these huge events, and scaling up very large, well-known marketers. Our first company, we took from three people to 221 people in 21 countries within 18 months, and that’s the power of virtual workforce when you don’t have the ridiculous overhead that you have with offices and everything else, and when you’re hiring the right talent; that’s also key.

Then about three or four years ago – I lose track of time – I was tasked to scale an asset protection law firm. Having already been in the real estate space, and working with some of the top names, it was a natural fit, and as I did that, I realized, “Wow, there is just a lot better way to do it. It can be a lot more cost-effective,” and I have a love of real estate investors and entrepreneurs that are just starting out, but also, there are people that grow and they start getting 10, 12, 13 houses, and they’re getting them all in their own name, and then they lose everything because of one lawsuit. So we have a mission to help unburden the nation’s court system from these vexatious lawsuits, which really piss me off. The idea that someone’s making money by suing other hard-working people really grinds my gears. So if I can stop that and make it very difficult for those people to operate, I want to do that.

So then we started Leafy Legal, and now we have this amazing team. We have attorney relationships across the country and we have the best paralegals with 98% of our clients are real estate investors; the other 2% are entrepreneurs, and we help them hide their assets, protect their assets, have the right structure in place so that they’re operating compliantly and legally, and they’re able to scale in structures that are meant for real estate investors, and then we help them tie that into some incredible estate plans. Plans that are made for people who are young and working, not something you slap together for 50 years from now or if you ever pass away. And then we help them become their own bank and think about money differently by having solo 401ks or SDIRAs. So that’s what I’m doing and I love it.

Theo Hicks: Okay. So let’s focus on the first part first, which is the asset protection and you mentioned how it really grinds your gears about the fact that people make a living off of suing other people. So what are some of the top tips, top strategies that people can start implementing or should start implementing, that maybe most people don’t necessarily know about? What are some of the hidden gems?

Jennifer Gligoric: Well, I think that most people know they’re supposed to have an LLC, at least, but yet they’re still doing things in their own name, and their name is on the LLC. Well, if your name is on an LLC, I can look it up. It’s public record, I can see that you’re a member of that. You want to operate using anonymous structures, and then you want to hold your assets in structures that are not tied to you. You want to have an asset holding company that has arm’s length agreements away from you; that you’re holding in another structure, and the way you operate and you do business and where you hold your assets are two separate places that someone can’t get to.

Theo Hicks: Okay, because I know when I was making an LLC for a property, I was like, “Well, I can just google the LLC, and then my name comes up,” and I don’t understand how that protects me. So can you explain that process for us from A to B? So I create an LLC, and then what am I supposed to do?

Jennifer Gligoric: Well, you’re supposed to go to a company that helps you create an agent trust that is listed on the LLC so your name is not a part of it. You are a beneficiary of that trust, which is a private document, so that’s not filed with the state. So [unintelligible [00:10:41].24] the name that you can find on the state is the name of your anonymous LLC, and you can do it in almost any state. Real estate investors, what you’re going to hear of most, you’re going to hear of Delaware, Wyoming, Nevada and Texas; those are the top four. Most real estate investors, if they’re any bit savvy, you’re going to live events and you’re talking to asset protection people, it’s going to be one or if not all those states. So we create entities in any of those states.

The way you scale your business depends on a couple of things. You need to write down “This is where I live, this is where my homestead is, my house, and this is which state or states I have property in, and this is where I want to grow my business, and this is what type of real estate investing I want to do.” Depending on your answers to all five of those depends on what structure is best for you and it’s different for everyone. Because there’s a million different ways to skin a cat for someone, depending on of course, your budget and where you’re looking to scale and what you’re looking to do.

Theo Hicks: Okay. So I have my agent trust, and then I have the LLC that I buy a single-family home with. Do I use that same LLC to buy all my properties, or do I always create a new LLC for each property?

Jennifer Gligoric: No, you want to use your fundable entity, which I’m assuming is that LLC that you’re trying to create a professional borrow profile with that’s not tied to your social security number, as your professional entity. If you’re still buying in an LLC, but everything’s tied to your personal social security number, you’re defeating the purpose of why you’re using an LLC for that, and a lot of people do that.

So a fundable entity is an entity that you create with the idea that you’re going to have your own credit and you can walk into a bank and you can get a fundable business line of credit up to $500,000, a million dollars, and it’s not tied to your personal credit, and that’s something you need to work on. So we help people create fundable entities, and then your operating company is your anonymous LLC. And then when you get that property, you immediately want to transfer it out of your name and into a trust.

Theo Hicks: Okay, perfect. And then the other thing you worked on was about, you said, being your own bank, and you talked about the 401k. So do you want to walk us through that process as well, if I want to get started being my own bank today?

Jennifer Gligoric: So if you have a solo 401k, you cannot have any employees. So that’s very important; you don’t qualify for this. So this is a specific financial instrument that is available to self-employed individuals who do not have employees, but you are allowed to cover a spouse. And in 2020, you can make a contribution up to $57,000 into your solo 401k, which is five to ten times the normal contribution limit that is for a normal traditional 401k.

For the solo 401k products that we use, you can roll everything but an IRA into a solo 401k. The reason that you want to use a solo 401k if you’re in real estate investing is that you can be your own bank, you can loan money to yourself on your own favorable terms. Because you’re your own bank, you have to pay yourself back; you have to pay it. You have to make the payments, you have to make the payments back on time, but you’re keeping all the interest. You’re also the one that has checkbook control on this. So unlike being pigeonholed by someone else controlling the 401k, say, the reserve, the mutual funds you’re allowed to invest in, these are the stocks you’re allowed to invest in, and here are these limited amount of products you’re allowed to look at, with a solo 401k, you can invest in real estate, you can hold a property in the name of the solo 401k, you can give yourself up to $50,000 or half the total value of your solo 401k, whichever is less (because the cap is 50) and then you can take that money however you need it. So let’s say someone comes to you and says, “I want to start a marinate business, and I just need $10,000, but they want to charge me 13% interest.” Let’s say your rate’s 3%, you charge them 6%, you’re keeping all the extra interest, and now you’re investing in the business.

Theo Hicks: Okay. So I get the 401k to not only buy my own properties, but I can use it to invest in someone else’s properties.

Jennifer Gligoric: That’s right. You can do it in other properties. There are certain restrictions on it. It’s not just the gamut of what you’re spending money on, but considering what is left to a regular W-2 401k, it seems like you can do whatever you want. So there are some prohibited transactions and we have a list of those, and prohibited persons, but for the most part, you can pay off high-interest loans, and then use that same payment at favorable rate and then you keep the interest for yourself. You can bypass UBTI tax and unrelated business tax by using a solo 401k, which is a huge tax benefit. You can invest in other types of businesses, you can invest in Bitcoin. A lot of instruments are available for you that are not available. So it’s very powerful. I was on the Chris Naugle show, the Risky Builders, and he does a money show and he’s like, “Stop having your money sit on the couch,” and I’m like, “Yeah, it’s just eating Cheetos, getting fat doing nothing. You want to make your money work for you,” and that’s a mindset too. That’s the difference between that poverty mindset and then the mindset that really rich people have. They think about money differently, they use money differently. That is not a scary thing for them. They’re like, “Oh, heck, yeah, I’m gonna use that instead of this other one.” But we are given so many fear tactics on money throughout our lives that gives us limiting beliefs. “Pay everything off; you don’t want to have any credit card debt, you don’t want to have any debt at all; you just want to buy everything and pay it off.” And then you go to get a loan and you have this credit score of 820 or 840, and you can’t get anything over $3,500, and you’re like, “How come?” Well because you’re a professional consumer who they’re not going to make a penny out of. So the 80 algorithms that they track you with have said, “You’re not someone that they’ll give money to.” And then you’ll see 680 walk in, and that person walks out with a $200,000 line of credit. Because your credit score is meaningless; it’s your borrower behavior. So when you start to change that and you start using a fundable entity and you start thinking about things different, you have a better structure. With your real estate business, you’re protecting your assets. Those are borrower profiles that are tracked, that are very attractive for banks and lenders; tier one banks and lenders, which is the ones you want.

Theo Hicks: Okay, so we’re gonna cite everything you’ve said so far because I’m sure a lot of that stuff is definitely best ever advice and I’m gonna have to listen to this again because this is a lot of new information and I don’t know how much I can grasp, but I’m sure it’s normal in a 15-minute fitting… But besides what you’ve said so far, what is your best ever real estate investing advice?

Jennifer Gligoric: Treat your real estate investing business like a business. Don’t shirk in the very beginning by getting your entity and everything set up and protecting yourself. So it is a business that you plan on being successful. Because of that, you need to protect yourself because you’re a successful business person. The people who do that ahead of time and get things set up, and they don’t skip step A and go all the way to step F, those are the people that are less likely to lose later on, and they’re more than likely to get respect with different institutions and the people that you work with, and you’ll be more successful.

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

Jennifer Gligoric: Okay.

Break [00:18:31]:03] to [00:19:27]:09]

Theo Hicks: Okay, Jennifer, what is the best ever book — well, I usually we say recently read, but what’s the best ever book to learn more about what we’ve talked about today? We’re changing that up a little bit.

Jennifer Gligoric: Okay. To learn about what we talked about today, go to my website, leafylegalservices.com; you get a free ebook and it tells you all about it.

Theo Hicks: Leafy Legal Services free ebook.

Jennifer Gligoric: Yeah, that’s right.

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

Jennifer Gligoric: I would just keep the podcast. I have a really good podcast that I’m doing. I would probably monetize the podcast more, and I would keep my same team, because they’re amazing. I’d figure out a way to keep my same team. I don’t know; I’d just morph it.

Theo Hicks: What’s the podcast called?

Jennifer Gligoric: Leafy Podcast.

Theo Hicks: Boom, Leafy all around.

Jennifer Gligoric: Yeah.

Theo Hicks: What deal did you lose the most money on, and how much did you lose?

Jennifer Gligoric: Oh, it was a contracting deal, and the most I’ve ever lost was over $150,000. And the reason I lost it — and it was contracting with work with a client, and I lost it because I stayed working with someone that I kept thinking, “They’re not really going to screw me over. They won’t really do this to me. Look at how hard I’m working for them. Look at what I’m doing,” and I was waiting for months for them to be a different person than what they were showing me they were consistently, on a daily basis. Because they would give me these little hints of “they’re not evil”, and I think, “Oh God, you’d have to be evil to screw me over like this,” and the thing is they gave me every single red flag and I needed to go with my gut and I should have cut the cord a lot sooner. So my advice now is when you know it’s rotten, it smells rotten, it looks like rotten, cut the cord. Don’t wait for someone to automatically be a better person than they’re showing you that they are.

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

Jennifer Gligoric: Through work in jobs, like helping people with work in jobs, and then I give back– because I was homeless, so I give back to the homeless shelter that helped me so much – Covenant House. So anytime I can, I’m willing to help them.

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

Jennifer Gligoric: leafylegalservices.com. You just go there you can set up an appointment with me. If you want to talk to me, I give a free consult to anybody. I just want to help people.

Theo Hicks: Perfect. Best Ever listeners, make sure you take advantage of that. Alright Jennifer, I really appreciate it. I don’t think I’ve ever learned as much in 15, 20 minutes as I learned today about asset protection.

Jennifer Gligoric: I get that a lot.

Theo Hicks: So first, you broke down your background and you’ve definitely done a lot. You started as a young kid working with your mother’s company and you talked about the skill sets that you learned, learning how to interview and do basic secretary work that you recommend parents teach their children because they’re not getting taught in school. You went to telemarketing sales, transitioned to crisis intervention for businesses, which is where you ended up meeting your CEO, and you talked about all the different companies that — basically, you’d go in there, you’d help them know how to run a business.

Jennifer Gligoric: Yeah, and that’s what I do now. Even what I’m doing with asset protection right now with real estate investors, many of them, I’m just helping them run their business better. All of these structures – yes, it’s money and it’s a structure, it’s boring, la-la… But once you get it set up and your accounting gets set up with it, the right structure will streamline a lot of things for the investor and protects them, and therefore it allows you to be safer to make more calculated risks, and that really can springboard you not only, but then the money things that we teach them as well. So yeah.

Theo Hicks: Yeah, we’ll definitely have to bring you back for a Skillset Sunday class. I wanted to talk about that today, but we ran out of time. So maybe we can bring you back for another episode to talk about how to scale a business more step by stepwise.

So then we talked about the asset protection, and go back and listen to what she said, but you want to make sure that you’re not creating LLC with your name on it. So you want to create that agent trust that is listed on the LLC, which is a private document that people can’t get access to and see your name. You talked about some of the top states for asset protection – Delaware, Wyoming, Nevada and Texas. You went through some questions that you need to ask yourself to determine what the best asset protection structure is for you – Where do you live? Where do you want to invest? What types of property do you want to invest in?

We talked about the fundable entity so that you can start working on building up a reputation so that you can get a line of credit that’s not tied to your personal name or personal credit. We moved on to talking about the solo 401k which helps you be your own bank. We talked about how it’s for people who are self-employed who don’t have employees, but you can cover your spouse contributions up to $57,000 a year. You can roll everything into that IRA, you can loan yourself money, and then you can pay yourself back and keep the interest, and then you have complete– well, not complete; there are some restrictions you said, but you have complete checkbook control. So you can invest in real estate, you can hold a property in the name of the 401k, you can take a loan against your 401k, and then use that to buy real estate, invest in other business, buy Bitcoin, you said, and you bypass that UBTI tax.

You briefly touched on the mindset and about limiting beliefs of thinking that “Well, I need to pay everything off and have this really amazing credit score, but then going into a bank and I can’t get a loan because I’m a professional consumer”, and the algorithms say, “This person cannot get money.” Whereas someone comes in with a credit score that’s 200 points less than yours and they get a massive loan… And I like what you said – the credit score is meaningless; it’s all about your borrower behavior.

And then you gave your best ever advice, which is to treat your real estate investing like a business and set up the asset protection from the beginning and have the mindset that I am a successful investor who needs his asset protection from beginning, and by doing so, you’re protecting yourself, but you’re also getting the benefits of getting more respect from different people you want to interact with. So that’s just brushing the surface of what we talked about.

Jennifer Gligoric: You take the best notes. That is incredible. That is amazing. You must have been so good in school.

Theo Hicks: I did okay. I appreciate it. I’m gonna do a podcast on the best ever way to take notes in an interview.

Jennifer Gligoric: Seriously, that’s great. That is like the bestest. I love that. I love that thoroughness.

Theo Hicks: Well, I appreciate it, and I appreciate you for coming on the show and giving us all this solid asset protection and being your own bank. Just really solid, just personal advice as well, with the limiting beliefs; I liked that as well. Best Ever listeners, as always, thanks for tuning in and listening. Have a best ever day and we will talk to you tomorrow.

Jennifer Gligoric: See you later.

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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JF2148: Self Storage Classified As A National Park With Scott Krone

Scott is the founder of CODA Management Group with experience in architectural design and development. Scott shares his journey in real estate and the reasons he determined to shift towards self-storage and now he owns a self-storage space that is now a national park location. He shares how he was able to get his building under the national park registrar. 

Scott Krone Real Estate Background:

  • Founder of CODA Management 
  • Has 25 years of development and design building experience
  • Portfolio consists of over 47 syndications, and 400,000 sq. ft with 2,750 storage units under management
  • Based in Wilmette, IL
  • Say hi to him at: https://www.codamg.com/ 
  • Best Ever Book: 

 

 

 

Click here for more info on groundbreaker.co

Best Ever Tweet:

“Simplicity of product, we took the Henry Ford model, “you can have any color car you want as long as its black” – Scott Krone


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, Scott Krone. How are you doing, Scott?

Scott Krone: I’m doing well. Thanks for having us.

Joe Fairless: Well, I’m glad to hear that. It’s my pleasure. A little bit about Scott – he’s the founder and director of development for CODA Management Group. They focus on self storage facilities, and in fact, not only do they focus on it, they develop them. They’re in the process of closing on their eighth self storage facility. They have about 2,000 units right now with about 3,000 that are coming online soon. Based in Chicago, Illinois. With that being said, Scott, do you want to give the Best Ever listeners a little bit more about your background and your current focus?

Scott Krone: Sure. I’d love to. My background began in real estate when I began getting my masters of Architecture, way back in 1991. So I’ve came online just as we were in the midst of the recession back in ’91, and I was involved heavily in multifamily at that point in time, and then 1998, I started CODA and we were a development, design-build firm, and we focused on single-family, multi-family, mixed-use apartments. Now, since ’13, we’ve been focusing on self-storage as our investment portfolio. So during that time, I’ve obviously seen the ’91 and the 2001 and 2008 recession, and it certainly looks like we’re heading into it at this point in time.

Joe Fairless: So development, design, build; originally focused on multifamily and single-family homes. Did I hear that correct?

Scott Krone: That is correct. When I got my master’s degree, I was working for a developer who owned an architectural design-build firm as well, and my master’s thesis was a 400-unit development that we worked on for six years, and I did other multifamily for him during that period of time.

Joe Fairless: Okay. What did you learn in that process that focused on multifamily development, design-build that you’re applying now with self-storage?

Scott Krone: Well, the way I view it is self-storage is just a more simplistic version of multifamily; it’s an apartment without toilets and sinks. But we have a greater diversification within the product type, but what I did learn is obviously, the importance of understanding the capital stack, how to leverage the capital stack in a conservative manner, but also to enhance our investors’ rate of returns, how to acquire, how to develop efficient designing of the units and the layouts so that we can maximize the rentable square footage of the building, and then obviously, I also learned throughout the construction, the best practices for building and how we can apply that to self-storage.

Joe Fairless: Well, let’s talk about a couple of those things that you mentioned – how to leverage the capital stack in a conservative manner, but also help yield good project returns to investors. Can you give some specifics on that?

Scott Krone: Absolutely. A few things that we’ve done is that we’ve acquired assets that had cell towers, and we’ve sold off the cell towers, other buildings that we’ve been able to acquire historic tax credits. So those historic tax credits get funneled back to the investors. We’ve done PACE financing, we’ve done opportunity zone funds. We’ve created two funds for our investors on that, so they can shelter their capital gains. We’ve worked with IRA investors… And the other one is obviously cost segregation. So something that we can do with cost segregation on an apartment or self-storage facilities that we couldn’t do with condominiums.

Joe Fairless: For the efficient designing of the layout to maximize the rent per square foot and just not overbuild unnecessarily, what are some things you learned there?

Scott Krone: Well, efficiency is the most important thing when we’re looking at something. So minimizing length of hallways, how to create variation within the unit product type. So the more regular the building that we have and the more regular the common spacing, the more efficient that we can get. So we have to balance the building code with the travel distances and egress and all those sorts of things, but how to lay out the units so that we can reduce those hallways and those travel distances so that we can get more square footages of rentable square footage of the building.

Joe Fairless: With what you’re doing now, self-storage, as you said, you look at it as a more simplistic apartment community; it’s an apartment that toilets and sinks. Why switch over to self-storage and why switch over at the point in time that you did?

Scott Krone: Well, we were coming off the crash of 2008, 2009, and everyone was jumping into multifamily. I felt that there was huge cap compression going on and there was a lot of competition within it. And when I began studying the self-storage, I couldn’t find a distressed self-storage facility. I could find plenty of distressed apartment buildings, but I couldn’t find a distressed self-storage. So that alerted me that something was different with this asset class. Once I got more involved with them, then I understood more of the demographics and how we can study the market to determine which areas need self-storage and which ones are oversaturated, and so it was easier to monetize or put a number to the product than it was within multifamily in terms of demand, where the supply is and what those indices were.

So what I see is that one, it’s a reduced risk because we can analyze it better; two, my operational costs, my capital expenditure’s about 10% of what it would be compared to multifamily to get the same number of units, and then the third one is it’s the simplicity of product. We take the Henry Ford Model that used to be famous for saying you could have any color car you want as long as it’s black. So with self-storage, I don’t have to worry about if the counters are the wrong color or the tiles the wrong color or the carpet is. You can have a white locker or you can have a white locker.

Joe Fairless: How do you determine the demand for self-storage? You were talking about that earlier; I would love to learn more.

Scott Krone: The metric is the number of square feet a locker per capita, and there’s services out there that can provide that, and it’s based upon a one, three and five-mile radius. So for the most part, across the country, the saturation level of square feet of lockers per capita is seven, and higher density markets like New York or places in Florida, it might be nine, or the South– the South is becoming very saturated now.

Joe Fairless: You said most markets. Is that based off of a one, three or five mile?

Scott Krone: Yes, they’ll look at each of those. So for instance, you might be high within one mile, but if three miles and you’re good, then they’ll broaden it to the three-mile, because most buyers are within three miles in a heavily urban setting. In a more rural setting, there’ll be five to seven and a half miles. Most people won’t travel more than seven miles to go to a self-storage facility.

Joe Fairless: Alright. So it’s number of square feet of locker per capita, and it’s based off of a one, three and five-mile measurement, and you said most markets are 7,000 square feet or what– you said, 7.

Scott Krone: 7 square feet of lockers per capita.

Joe Fairless: 7 square feet of lockers per capita. Got it. Okay. Give us some extremes for what would be above that, like a rural area, and below it, what those numbers are. What would New York City be, versus Green River, Wyoming be?

Scott Krone: Without knowing where Green River, Wyoming is —

Joe Fairless: I know the former mayor of Green River, Wyoming. That’s why I brought that up. [laughter]

Scott Krone: Okay. I’ll give you an example. We were at a conference one day and I was talking with a woman who was a multifamily and single-family developer in the Austin, Texas market, and she learned what we did and she goes, “Oh, I have a property that’s five acres. I’m planning on building 100,000 square feet of self-storage there,” and I said, “Have you done a saturation study? Have you done a feasibility study? She goes, “No, I figured when we do it, they’ll just tell us what we have to build,” and I said, “Well, before you start going venturing down this path too far, you might want to make sure what your saturation level is, because if it’s too high, then you’re gonna be wasting your money. In fact, you’ll be risking losing all your money.” So I said, “Where is it?” She gave me the address. So I plugged in the address in Austin, Texas, and immediately 18 facilities came up within three miles; I sent it off to our people that do our reports for us, and they came back and said it was nine without her facilities. So if her facility comes online, it would be around ten. So what that means is that you’re going to have slower absorption rates, you’re gonna have lower pricing and it’s going to put a lot more economic pressure on your feasibility model.

To put it in perspective, when we went into our market in Chicago, we had half a million people within three miles and the feasibility report came back at two. So if I’m going into a market at two compared to nine, I’m certainly going to take the market that was two. Now you might say, “Well, I see plenty of self-storage facilities in Chicago.” That’s true, but within three miles of this location, there was only two square feet of lockers per capita.

Joe Fairless: You said when you got her address or zip code, you plugged it in, and then you got initial information, then you sent it to your feasibility people. What are you plugging it into? What software program?

Scott Krone: Well, it’s very highly complex detail.

Joe Fairless: You’re setting me up. What have we got? Google? What are you doing?

Scott Krone: [laughs] Google Maps was my first.

Joe Fairless: Okay.

Scott Krone: It’s my first indicator. And when I do that, it’s always just to get a sense… Because everyone says, “Oh, there’s no self-storage around me,” and then I ask for the address and I put it in, and inherently, it’s a type of thing that people are not aware of. It’s like when you say you’re going to buy a blue car, then you notice every blue car around the neighborhood, but until that point in time, you’re not recognizing how many blue cars are out there. So the first step is just for me to plug it into Google Maps, and I put in self-storage near that address. I can’t do the zip code because that’s not even specific enough. I have to put in that specific address. So when I just look at it, if I get a sense of how many are around there, if there’s two or three, I’m like, “Okay, makes sense.” If I see it’s 10, 20 and it’s not a really urban area, then I’m going to think this is way too much, and that’s just the thumbnail test before we start really digging into the details and the nitty-gritty of the due diligence. If it doesn’t pass that first litmus test, then I’m not going to do it.

The second litmus test is then I’ll turn it to satellite and see what the product of housing stock is around that neighborhood. So if I see a lot of empty yards like farm country, this and that, or not a whole lot of homes or apartment buildings, that’s also another indicator. Take your Wyoming city, if I plug that in and I see it’s mostly rural and there’s five facilities, that’s not going to look real good for you, but if I say it’s incredibly dense area and there’s five facilities, then there could be probabilities or it could be possibility there.

Joe Fairless: One, put in the address and then look for self-storage nearby, then do a follow-up and see what type of housing is around it. Do you want more apartments than homes?

Scott Krone: What we want is density. So it doesn’t have to be necessarily apartments per se. So for instance, our property in Chicago– when the city of Chicago did away with public housing per se, like Cabrini-Green and Robert Taylor homes, etc., they went from this 60-story, 10,000 people per square mile density and they put them all in row houses. In Chicago, there used to be a three-story house and then they converted them to three apartments per house. So our project in Chicago is surrounded by homes like that. So we have 500,000 people in predominantly what we would classify to look at it as single-family homes, but they’re really apartment buildings because they have three units. So if we see a lot of tight clustered housing stock in and around there, then we’ll get a better sense of the fact that it’s a dense area. So for our Class A facilities, we’re looking for anywhere from 100,000 to 500,000 people in the radiuses, depending on what the saturation level is. If it’s only 100,000 people and it’s at seven, then it’s going to be very hard to fill it up. If we have 500,000 people, and it’s a two, then it’s going to be very easy to fill it up.

Joe Fairless: Then the next level analysis is, as you mentioned, sending it over to the team that does your feasibility study. So what are they looking at that you’re not?

Scott Krone: They just pull more resources. They’ll pull census’ tracks, they’ll pull what the growth is, what the medium income is and what the segment of the population is, and the reason why we do that is because the medium income and the other demographics, renters versus owners, will give us a sense of what type of locker to put in there. So the more affluent the community is, the larger the demand for bigger lockers. The less affluent the community is, then there’s a greater demand for smaller lockers. So we’ll get a sense of what configuration we need to do to put in that building in order to maximize the marketability, the saleability of our product.

Joe Fairless: What’s considered a large locker versus a small locker?

Scott Krone: An average locker is 90 square feet. So if you’re median income, 90 square feet is the average. So that would be a 10 by 10 as your basis point for what a typical locker is. We go up to 20 by 30, and we go as small as 5 by 5.

Joe Fairless: So let’s say it’s in a more affluent — or we’ll talk specifics. Let’s talk about the facility that you have that is in the most affluent of your areas, based off what you own. What’s the configuration there?

Scott Krone: Well, that’s a great question because we specifically went through this. We were having trouble leasing them up, and when we were talking with the sales team, they were saying, “We’re sold out of the 10 by 20s,” and we said, “We need more larger lockers,” and we were looking at the configurations, I said, “What happens if we convert the 10 by 10s into 10 by 20s?” and they said, “We will have that much more success.” Even though the person is renting the same amount of square footage, there was something in their mind that just said, “Okay, I need a 10 by 20.” So we took out the metal walls and we leased up all the 10 by 10s, [unintelligible [00:17:34].04] we convert them to 10 by 20s.

Joe Fairless: Wow. What does it take to do that conversion?

Scott Krone: Well, when we’re dealing with Class A, we’re taking existing commercial buildings, either office or warehouses or retail, and we’re converting them into self-storage, which means that our lockers go up to 8 feet. And once you get to 8 feet, then there’s chicken wire across the top, and the reason why we have chicken wire is we need to be able to get light, heating and more importantly, fire suppression in each individual unit. So all it is, is a corrugated metal wall. So it was a sill track that’s tapped into the concrete of the flooring. So it’s a matter of removing the wall, screwing that wall to the end wall and pulling up the track and keeping the track in the unit as well. So we had the ability of converting it back, but it was just a matter of relocating the single corrugated metal wall.

Joe Fairless: What’s the largest conversion you’ve done?

Scott Krone: Square-footage-wise?

Joe Fairless: Yeah.

Scott Krone: Well, to date, the largest one is our one in Milwaukee where we got historic tax credits, and we went through the process of converting that into a national park. So we will charge tickets if you want to– if you’re on a national tour of the Grand Canyon Yosemite, you can stop by our self-storage facility. That was 100,000 square feet.

Joe Fairless: Wait, timeout. What did you say?

Scott Krone: It’s in a national park. It’s gonna be registered. When you make a building historic, you get historic tax for it. You go through the Department of Natural Resources and they make it a national park.

Joe Fairless: Your self-storage facility?

Scott Krone: Our building that is now self-storage is going to be on the National Park register, yes.

Joe Fairless: Okay. There’s the trivia question… What was it prior to you doing this renovation?

Scott Krone: It was the first fireproof building in Milwaukee, and they used it for hard data files. So everything from banker boxes to election ballot tickets, all those sorts of things. Obviously, when people are going from a paper world to a digital world, companies didn’t need to run big floor spaces of storage because they had it all on a computer in a gigabyte or trillion byte or whatever the latest measurement of computer storage is. So by dividing it, then we can rent smaller spaces to the residential community as well as its commercial community, and so we’re just finishing up that process right now. We got SBA Financing on it, and we’re going to be finishing up in the next six weeks to get this thing done.

Joe Fairless: What’s the total square footage for that one?

Scott Krone: That one’s 102,000 square feet, and the project that we just went under contract for in Lowell, Kentucky is actually going to be 140,000 square feet, and we’re gonna make it a combination of mixed flex space, as well as self-storage. So we’ll have about 80,000 square feet-ish of self-storage and about another 60,000 square feet of flex space.

Joe Fairless: What was that building prior to what you planned on doing?

Scott Krone: Originally, it was a candy factory, and right now people have been using it for storage. They’ve been using it for making envelopes. They still make envelopes there with these presses from the 16th century, which is crazy, and I don’t know who they get to repair those things, but they have a Xerox copier there… We actually also have a church that is inquiring with us to begin planting the satellite campus at that location.

Joe Fairless: Taking a giant step back, what is your best real estate investing advice ever as it relates to your area of expertise?

Scott Krone: Well, I don’t think it’s just limited to my real estate expertise, but my mentor always told me to look at best case, worst case, and what most likely will happen. So I think a lot of people look at best case and then maybe what most likely will happen, but with stress tests and looking at the downside, if we can make it work with worst case, then that’s what we go forward with.

So we always try to be conservative and making sure that our numbers are accurate and as good as we can possibly get them, so that we have that worst case in mind. So that might be multiple exit strategies, that might be looking at if we lose rent, if we lose market share, each of those things, to make sure that we’re still able to perform.

Joe Fairless: The challenge I have with worst cases, regardless of however you’re modeling it in worst case, it’s never going to be the actual worst case, because I guarantee you someone – and I could probably come up with – but what if this happened on top of that? So how do you really identify when you say worst case? It’s never really the true worst case, but where do you stop? Like, “Okay, this is a reasonable worst case,” whereas that other worst case, you’re tripping on some drug and that’s never going to take place.

Scott Krone: Well, I think that’s part of the experience we’re going through now. We’re not quite into this fourth recession right now, but it’s all indications leading that it’s going to be heading that way. So I’ve been able to see what worst case looks like. The crash of 2008 was really, incredibly devastating from a lending perspective, and we had to alter and shift very quickly in order to survive during that period of time, but we also didn’t get over-leveraged and that was one of the things that kept us afloat. So with this one, I think, are we in a worst case right now where there’s no definitive timeframe of getting back on the highway here? There was a clear exit ramp, but there’s not a clear entrance ramp.

So if we’re going to look at what it takes to cover our debt service– so typically, before this new environment, we would say “How much product could come into the marketplace that would drive down our costs?” and that’s where we go back to our due diligence on the front end. And then in that case, what is the likelihood or the probability of a property getting rezoned, or the ability for another product to come up and be part of the competition? So we look at what are the barriers to entry in that marketplace and seeing how much resistance there is to that product.

For instance, in Milwaukee, we knew that they were not going to allow any new self-storage to be rezoned. So we were fortunate that our property had the zoning when we bought it; we didn’t have to go through that rezoning process. So what we do is, we look around there and say, “Okay–” So we will then look at raising the cap rate and seeing what the margins would be once we do that.

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

Scott Krone: Sure.

Joe Fairless: Alright, let’s do it. First, a  quick word from our Best Ever partners.

Break: [00:24:18]:03] to [00:25:02]:08]

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

Scott Krone: Well, one of the ways in which I do it is I’m part of a nationwide organization of about 35,000 people. We have a private Facebook group community, and I do a weekly Tuesday Tip. I go on there and people post questions, they post victories, they post what we call Celebrate Wins. So I go and just look for ways in which I can answer questions based upon my experience of now being in the street for 30 years, I bring a little bit more than most people have in that community. So I offer a different perspective. That’s one of the ways I enjoy doing, is just taking some time and answering people’s questions or helping them up or calling them up and just helping them through their challenges.

Joe Fairless: What’s a deal you’ve lost money on?

Scott Krone: It was a single-family house. The market crashed and we paid off the bank in full, but we didn’t get all of our equity back, and so that was a tough one.

Joe Fairless: What is the best ever deal you’ve done?

Scott Krone: Well, the best ever deal, from a percentage point of view – and this is going back to before the crash and the crazy economic structure that was there – we bought a house for $600,000, I put $400,000 to build a new house, and I sold it for $1.6 million and I only had $60,000 down. So I did the whole thing, a $1.6 million house, I did with $60,000. So the rate of return on that one was phenomenal.

Joe Fairless: How can the Best Ever listeners learn more about what you and your company are doing?

Scott Krone: Our webpage is www.codamg.com. And you can certainly send us an email at info@codamg.com. One quick story about that house. I took my oldest daughter, we went and watched The Big Short, and she’s like, “Did that stuff really happen?” I’m like, “Yep, and it’s paid for your college right now.” [laughter]

Joe Fairless: Your timing was good on that one. Well, Scott, thank you for being on the show; I enjoyed our conversation. Thanks for talking about your self-storage tips and getting into the specifics of capital stacks and how to leverage capital stack, as well as feasibility studies and how to take a look at self-storage and some different considerations as well. So thanks for being on the show. I hope you have a best ever day. Talk to you again soon.

Scott Krone: Thank you very much.

Website disclaimer

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

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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JF2145: Property Management Focus With Peter Tverdov

Peter is the Founder and CEO of Tverdov Housing, a management company in Central New Jersey. Peter goes into how he got started into real estate management and he gives some tips that may help you manage your own properties. 

Peter Tverdov Real Estate Background:

  • Founder and CEO of Tverdov Housing  
  • 6 years of real estate investing experience
  • Based in New Brunswick, NJ

Click here for more info on groundbreaker.co

Best Ever Tweet:

“Don’t invest in a market you don’t know. Start in the area you live in.” – Peter Tverdov


TRANSCRIPTION

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

Peter Tverdov: Good, Theo. Thanks for having me.

Theo Hicks: Yep, absolutely, and thanks for joining us. A little bit about Peter – he is the founder and CEO of Tverdov Housing, he has six years of real estate investing experience, he’s based in New Brunswick, New Jersey, and you can say hi to him at tvdhousing.com. Peter, do you mind telling us a little bit more about your background and what you’re focused on today?

Peter Tverdov: Sure. So I worked on Wall Street for 11 years, and in the middle of that got into real estate investing, and as soon as I got a taste of it, I absolutely loved it like a lot of real estate investors out there. I liked it so much that I began trying to come up with multiple income streams in addition to the passive investing that real estate offers. So long story short, I started doing property management for people on the side in my neighborhood. I didn’t really think anything of it, and grew it very slowly, deliberately, on purpose. And as I did that, when you think about it, it speeds up the experience you get as a landlord or a real estate investor, because you deal with so many different houses and so many different tenants and situations. And long story short, earlier in 2020, I left my job on Wall Street to run that business full time, and it’s absolutely exploded from that point, and I’m very happy with the decision I made.

Theo Hicks: So your full-time job now is running the property management company and you also mentioned that you passively invest in deals. So are you saying you passively invest in other people’s deals, or are you saying the deals that you buy is passively investing?

Peter Tverdov: I should probably clarify. So when people think of passive investing, it’s investing in other people’s deals, being a hard money lender or just owning your own property. I happen to own my own real estate investments and in addition to that, that’s when I also created the property management business for other people. So that’s what I meant by creating another stream of income.

Theo Hicks: Got it. So what type of properties do you own and manage?

Peter Tverdov: I realized early on that the riches are in the niches. So it took me a while to figure out what I wanted to do on the management side. So for management, we strictly manage single-family, two to four-family, small apartment buildings, probably no more than 25-30 units, and we only do that in three counties in Central New Jersey. So it’s Middlesex, Somerset and Union County. I know it might sound a very niche actually for an audience from a larger state, but between those three counties, there’s about 3 million people. So a lot of tenants to find, a lot of clients to make happy and so that’s what we do on the management side.

For my own personal investing – and this is how I started – everything I invest in is student rentals, because that is really all that I knew from a real estate investing perspective; but that stuff is still single-family, two to four-family. So it fits in with what we do on the management side as well.

Theo Hicks: And then how many doors do you manage and how many student rental doors do you own?

Peter Tverdov: I own ten doors, it’s all students, and those doors are included in the management business. The management business right now – we’re at about 110 doors and hoping to hit 120 to 150 by the end of the year. We’ve grown nicely and I’m looking to continue to do that.

Theo Hicks: What types of things do you do to grow your management company when you’re first starting out? So I know you mentioned that you started off by managing properties of people in your neighborhood. So maybe walk us through specifically what you did to get those properties under management, and then we can go on the next steps from there.

Peter Tverdov: One of the first things I would say is it helps to live in an actual rental neighborhood. So a lot of investors I come across, they make the mistake of buying a townhouse, for example, and they don’t want to sell it and they move out of state and they want to rent it and they barely cash flow on it. That was never meant to be a rental to begin with. So the neighborhood that I bought in, it was all multi-family. It was two families, three families, four families and some single families. So the zoning in that town was already encouraging rental properties, and because of that there was just for-rent signs everywhere, and after a while, I would just go up and down the streets and cold call people and say, “Hey, I saw your sign’s been for rent for a while now. I live in town, I do a really good job, I could do XYZ for you. Let me help you out. What have you got to lose?” and slowly I built up my client base that way, just good old fashioned cold calling; it didn’t cost me anything out of pocket either.

Theo Hicks: Is that how you found the majority of those 110 doors or is that just what you were doing that first?

Peter Tverdov: That’s what I did to start out. Frankly, I didn’t really spend money on advertising until this year. I do have to give my brother in law credit. Last summer, he mentioned digital media marketing to me and I really took to it, and that’s where I got more active on Instagram, I started to use an SEO company to help with my SEO on my website and get my ranking to be increased on Google and on Bing and search engines like that. So that has certainly helped a lot, and then we do a little postcard marketing.

So we use a lot of the same theories that people use when they’re trying to find deals, like the yellow letters, cold calling… It’s just we also do that for property management, because no one else is really doing that. Oftentimes, I wind up having decent conversations with these folks, and they remember my name and I check in on them periodically, and some clients, I’ve been speaking with them for two years, and they finally reach out to me and they say, “Hey, Pete, let’s do it.” So it’s something that’s taken a while, but the way I always think of it is that I’m planting lots of seeds. So the seeds that I’m planting today, I hope they result in a crop six months from now, a year from now. So in my mind, it’s always important to continue to plant seeds every day if you want to find clients, find deals or really find anything of value.

Theo Hicks: What type of things are you doing on Instagram?

Peter Tverdov: I’m kind of open kimono, I try to make it interesting for the audience. So I’ll do before and after pictures of rental rehabs that we do, I’ll do before and after pictures of my own property if I’m working on it. I’ll do instructional videos for tenants on how to read a gas meter, what to do if your power goes off, how to turn off the main water shutoff, or I’ll show architect drawings, I’ll show site plans, really anything that’s involving my business to engage the audience and also educate them. I’ve really taken a liking to it, because again, that’s another thing that’s free when it comes to marketing, and it’s helped my business become pretty well known in New Brunswick, and I look forward to continue to do that and to help that grow even more.

Theo Hicks: Is there a specific strategy you implement? I [unintelligible [00:09:52].26], but I know that there’s hashtags and stuff. So do you hashtag the specific areas you’re in to make sure you’re targeting that area?

Peter Tverdov: Yes, some of the staples are you have to post at certain times, and I guess that varies based on your industry. The hashtags are very important. I would say the most important thing is the photo. It has to be engaging, it has to be interesting, and that gets harder and harder, and frankly, it’s really time-consuming. A lot of the bigger people on social media, I’d say they probably have a VA doing that for them. I’m not there yet. I don’t really think I’ll be there for a while, which is fine. That’s not why I do it, is to have 50,000 or 100,000 followers. But for somebody just starting out, I would suggest using lots of hashtags and posting at critical times during the day. So first thing in the morning, or when people are getting off work or lunch break. That’s when people tend to look at Instagram the most, myself included.

Theo Hicks: What are some of the biggest management mistakes that you’ve either done or that you see other people doing that anyone who’s wanting to start their own property management company should avoid?

Peter Tverdov: I’m going to answer the question a little differently. I would say the biggest management mistake anybody makes and it’s usually a mom and pop landlord is, they just don’t know how much it costs to run a rental property correctly. So I’ll give a couple of examples. I have a client who likes to use local electric and gas companies warranty contract. So if the tenant has an issue, that company will come out and they’ll put paper clips and band-aids on the problem. So it doesn’t really solve the problem, and then when it becomes a massive problem, they throw their hands up and say, “Hey, this is not our issue to solve.”

What people don’t realize about property management– so let’s say you hire a handyman and the guy’s done work for you before and he’s really cheap and he gets the job done. So when we bring out a new client, the person will say, “Hey, can I use my handyman?” and I’ll tell them, “No. If you want us to use them, then they need to be onboarded properly. Have you gotten a criminal background check on your handyman? Because we have to do that with ours, because there’s stories of people pulling a knife on somebody in a house. Or in one town, there was a guy who was a handyman, he was in prison for a decade. Oops… Didn’t know that, right?” So things like that, your typical mom and pop landlord don’t think about, or things as simple as fire safety inspections. Part of what we do is we do quarterly inspections, and the reason why we do is we check the smoke detectors, we check the carbon monoxide, we make sure the fire extinguishers are full. So each year– I shouldn’t say each year, but the regulations on that stuff always change and you have to be on top of it; and if you’re not and if you don’t have the ten-year smoke detectors in your house or if you haven’t gotten a fire safety inspection, you could have a major fire if there’s a fire, or God forbid, something worse.

So there’s a lot of attention to detail when it comes to property management that your average client doesn’t fully understand, but the good thing with my business is I’m also a real estate investor. So I get it. This is not a charity. You do this to make money and to create passive income for yourself, but at the same time, you just have to do it correctly. You have to spend the proper amount of money, and frankly, you have to buy at a good enough price where you’re not running a business on a shoestring budget because that’s just not gonna work in the end.

Theo Hicks: What is your best either real estate investing advice or property management advice ever?

Peter Tverdov: The best real estate investing piece of advice I would give to people is don’t invest in a market that you don’t know. If you want to be a real estate investor, start at your hometown, or start where you live now, and study the holy hell out of that area. That’s what I did, and I only personally invest in one market; and maybe that’ll change, but what I did is I wrote down every home sale for two years and what the rents were and what the price sold for. And obviously, there’s some variables based on the condition of the house, but based off of that, I knew what investors considered value in that town, and that’s going to vary. Value is different in New York, Detroit, Memphis, Atlanta, but if you’re investing in Memphis thinking that it’s the same value as in New York, you’re going to get smoked on a deal. And conversely, when you see a deal, you’re going to know it’s a deal because it’s going to be lower than what the average home prices are or the cap rates are. So that’s something I always tell people when they’re first starting out.

On the management side, I would say just do things right the first time. Don’t go cheap; you don’t have to get the most expensive guy — and I learned this myself from being a real estate investor and it came back to bite me in the butt, but don’t go cheap, do things correctly and you’ll have less headaches down the road.

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

Peter Tverdov: Sure.

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

Break: [00:14:35]:04] to [00:15:18]:02]

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

Peter Tverdov: One of my favorites that I like to recommend to people is called How Rich People Think, and it explains the difference between people who are multimillionaires and people who are not, and really the answer is right smack in front of you; it’s a book that I love. I’ve given that one to my younger brother to read. I gave it to him two years ago. I’m still waiting for him to finish up here. So hopefully if he got this far in the podcast, it’ll give him some motivation to finish, but it’s honestly a fantastic book. I would recommend that to anybody.

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

Peter Tverdov: Fight. Fall down six times, get up seven. Honestly, I’d probably make some calls in the investment banking world where I used to work and see if I can make something happen there, but I’ve always been a fighter and someone who just scratches and claws and just refuses to lose and I don’t think that’ll ever change.

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

Peter Tverdov: I played football at Rutgers for four years, and when I played, we went to four straight bowl games. We were AP top 25, 17 weeks in a row. My senior year, we knocked out eight starting quarterbacks. The last game I ever played was actually against Russell Wilson, and the dude was so fast, I had a cough for two weeks after the game; it was nuts. But we knocked his ass out too actually, and we won the game. That’s when he played for NC State. But anyway, I probably donate way too much time and money to Rutgers Athletics and the football program and gymnastics because it’s my wife who was a gymnast there, but I love the place, I love dealing with student athletes. I think they’re some of the best people you could hire. They’re tough, they’re coachable, they know how to work with different people… So it’s something I just really enjoy doing.

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

Peter Tverdov: The easiest way to reach me is on Instagram. My Instagram is @tverdovhousing, and besides that, you can reach me on our website, just use the contact form. I’m happy to help investors or potential clients. That’s why I started my business, was to help people either on the brokerage side, on the management side, and we’ve also started to get into a little construction management as well. So at the end of the day, if someone’s interested in real estate and interested in having somebody guide them, then I’m more than happy to help.

Theo Hicks: Well Peter, thanks again for joining us today and walking us through how you started and grew your property management company. A few of the big takeaways for me is one, you talked about your strategy to start a property management company, and number one was it is important to live in a rental friendly neighborhood, and you talked about a good indication of that would be seeing for-rent signs everywhere. So you went up and down the street and cold-called the for-rent signs to get your business going. You mentioned it was a free strategy. So anyone out there who wants to start a management company, that’s definitely a free way to do that.

And then you mentioned how you’re transitioning now into paid advertising, digital media marketing, and you talked about what you’re doing on Instagram, the types of things you’re posting, how hashtags are important, posting at the right time’s important, the photo is important, making sure it’s engaging and interesting.

We also talked about the fact that you’re doing the things that investors do to find deals, but you’re doing it as a management company and not a lot of people aren’t doing that, so there’s not a lot of competition… Whereas there’s lot of competition for those using those strategies for actually finding deals. We talked about some of the biggest management mistakes, which is not understanding how much it costs to run a company. Rather than solving problems, people just put band-aids on them, letting clients use their own people without the proper management company screening them properly, and then you mentioned not doing quarterly inspections.

And then your best ever advice, which was for investing – invest in a market that you know very well, that you live in and study that area. You mentioned how for two years you wrote down all the sales, how much they sold for, the rents… And on the management side, you said do things right the first time. So again, anyone who’s listening that wants to start a management company, you got all the tools right here. Peter gave you his Instagram information and said he likes helping people, so definitely take advantage of that. So thank you for that, Peter. Thanks 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.

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JF2142: Improving Tenant Renewal Ideas With Brian Davis

Brian started investing before the 2008 crash and at the age of 24 had acquired 13 rental properties and ended up losing quite a bit during the real estate crash of 2008. He goes into how he was able to purchase 13 properties at such a young age and how he was able to recover from his loss and move forward. He shares a great idea of what to ask your tenants to help incentivize them to renew their lease. 

Brian Davis Real Estate Background:

  • Co-Founder of SparkRental.com
  • Has been a landlord for over 15 years
  • Based in Philadelphia, PA 
  • Say hi to him at https://sparkrental.com/
  • Best Ever Book: 

 

Click here for more info on groundbreaker.co

Best Ever Tweet:

“One way to improve and increase tenant renewal is to think what upgrades will add value to your property while also improving the tenant’s experience in living there” – Brian Davis


TRANSCRIPTS

Joe Fairless: Best Ever listeners, how are you doing? Welcome to the best real estate investing advice to 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, Brian Davis. How are you doing, Brian?

Brian Davis: I’m doing great, Joe. Thanks for having me.

Joe Fairless: Well, I’m glad to hear that, and it’s my pleasure. A little bit about Brian – he is the co-founder of sparkrental.com, he’s been a landlord for over 15 years. He and his family tend to travel a whole lot and we’ll talk about that; his company is based near Philadelphia, Pennsylvania. So with that being said, Brian, you want to get the Best Ever listeners a little bit more about your background and your current focus?

Brian Davis: Sure. So I got interested in financial independence with real estate from when I graduated college onward. I graduated college in 2003, so a little while ago now, and I was working for a mortgage lender, and specifically, I started doing hard money loans for them, for real estate investors; and this of course, during the bubble in the mid-2000s, and I started thinking to myself, “These guys are all making passive income from real estate. Why couldn’t I do this? Why can’t I invest in rental properties?” So I went on, bought a whole bunch of rental properties and overspent, and then lost a bunch of money when the bubble burst.

Joe Fairless: You and a lot of other people.

Brian Davis: Yeah, I got overzealous with it as a 20-something. I didn’t really know what I was doing, but I came out of that with a lot of lessons, many of them, learned the hard way, and I started working for a company that provided legal forms for landlords online. I was with them for a long time, and then–

Joe Fairless: What company?

Brian Davis: EZ Landlord Forms is the company that I was working for. So I managed EZ Landlord Forms for about eight years, and then in 2015, my wife and I decided that we wanted to move abroad. Now I was telecommuting when I was working with EZ Landlord Forms. So I figured it’d be no big deal to move abroad. My wife is an international school counselor, so we moved to Abu Dhabi. And right after moving, things just went downhill between me and EZ Landlord Forms. So I left and I talked to a former colleague of mine, [unintelligible [00:05:02].12] and we decided to split off and create our own company, Spark Rental, which focuses on helping everyday people build passive income from rental properties on the side of their full-time job with the idea of eventually building enough to be able to pay their bills and reach financial independence. So we do a bunch of different things on that behalf.

We do a lot of education, we have online courses about financial independence from real estate, we have online property management software that we feel is the best in the industry, or at least is about to be; that’s a long story in itself, which we can get into later maybe. So that’s a quick background on me and where I’m coming from.

Joe Fairless: So let’s talk about Spark Rental, and then let’s also talk about your 20’s, because there’ll be some interesting things to learn there. So we’ll focus more on Spark Rental but first, would love to learn more about how big was your portfolio and how much money did you lose?

Brian Davis: So my portfolio at the time of the bubble bursting was 13 properties. These were single-family homes in Baltimore City and they were largely in not very good areas in Baltimore City, and that’s one of the many lessons that I came out of that with, is just how the numbers on paper, especially in lower-end neighborhoods, don’t necessarily reflect the reality of what you’ll earn… Because particularly lower-end areas have some hidden costs that just don’t show up in your average cashflow analysis. So things like vandalism and crime, and even though in a normal cash flow analysis, people look heavily at vacancy rate, I think it’s very easy to underestimate vacancy rate, particularly in tough neighborhoods… And you end up underestimating the turnover and evictions and the costs associated with those turnovers and evictions.

So one of the things that Danny and I are really big on educating new rental investors about is how most of the expenses and most of the labor involved in owning and managing rental properties comes during turnovers. So a focus of ours is minimizing those turnovers, and especially in some areas– I’m generalizing a little bit here with lower-end areas, but there can be a combative relationship between landlords and tenants, and sometimes tenants will damage the property out of spite. I’ve had that happen many, many times in the midst of a very combative eviction.

Joe Fairless: Why don’t they like you? Why do all of them try to trash the place? What are you doing to these people?

Brian Davis: You’re just trying to collect the rent, but I’ve had a lot of professional tenants over the years, all of which has really turned me off of some of the lowest end real estate. Now granted, this was ultimately my fault for thinking that I was smarter than everyone else out there when I was 24 and going in and finding these great cap rates, and these deals that look fantastic on paper, not really understanding some of the hidden costs that come with these properties.

Joe Fairless: How did you get 13 properties as a 24-year-old?

Brian Davis: Well, it was over the course of a few years. It wasn’t all when I was 24, but it helps that I worked for a mortgage lender. So I had relatively easy access to capital, and I was living in a very and extremely affordable home. I had a pretty low-cost lifestyle, and that’s actually something that I still try to maintain to this day; I still do maintain to this day, is a very high savings rate. So I was making reasonably good money, but not spending a whole lot on my lifestyle. So I was able to funnel a lot of money into real estate investments.

Joe Fairless: So let’s talk about Spark Rental, because one thing you said about the lower-income areas that resonated with me is the cost of turnovers, and you said that your focus or one of the areas of focus is to minimize the amount of turnover that takes place at a property, and you said one thing that you do with Spark Rental was education. So what are some tips that you have for minimizing the amount of turnover that we have at our properties? Whether it’s– I don’t know if your tips are lower-income specific or if it’s just in general, but however you want to approach that question, I would love to hear your thoughts.

Brian Davis: Sure. Some of it is just about building a relationship with your tenants, and it doesn’t mean necessarily a personal relationship, and you don’t have to go out and friend them on Facebook and I don’t recommend that you do, but having a very courteous and kind and professional relationship with them. So things like we urge our students to just keep a very brief file on each of their tenants so that they can pull up whenever they pick up the phone to call them, and things like their children’s names, maybe you have their hobbies or what they do for a living, just so that even if it’s just 30 seconds of small talk when you first pick up the phone and call a tenant, “How is your son Bobby doing? Is he still playing baseball?” whatever it is, just to send the message that you consider them a human being and not just a source of a paycheck, and there’s a lot of things you can do to keep that relationship.

One of the things that we recommend is that landlords are extremely responsive. Even if you can’t make a maintenance request right away, for example, the important thing for your tenants is to stay in close communication with them so that they don’t feel like they’re being ignored, so that they don’t feel like you’re an absentee landlord who hasn’t heard them or haven’t gotten the message that there is a leak in the property or whatever it is… But just say, “Hey, I got your message. I’m sending someone over as quickly as possible. It may not be until tomorrow, but I am on top of it and I will stay in close contact with you.” So responsiveness goes a long way with building that relationship with your tenants and that trust.

We also recommend that landlords find incentives to extend their leases as long as possible with their good tenants. Now obviously, every landlord has some tenants that are not as good and you probably want to replace them when it’s convenient to do so and when you’re not going to end up in an eviction scenario, but just building those relationships, incentivizing your lease renewals and sending holiday cards, whatever you can do to build, that trust that professional relationship between yourself and your tenants.

Joe Fairless: What are some examples that you implement to incentivize the resident to extend their lease?

Brian Davis: One idea that landlords can do is they can offer to lock in either today’s rent amount or they can offer a less steep rent increase for renters who renew for a longer term, such as two years or even longer, or added flexibility. Sometimes what tenants really want is a month-to-month lease, and it’s the difference between them either exiting right now or staying with you on a month-to-month basis. So some of it is just about feeling out what is most important to that particular tenant. In some cases, it’s about repairs and upgrades to the property. So landlords can approach their tenants and say, “Hey, I can’t make any promises, but if you could wave a magic wand and have three repairs or upgrades made to the property that would really make you want to stay here, what would those three things be?” And then you can look at those upgrade ideas and pick one or two or whatever that will actually increase the value of your property, increase the market rent for your property and incentivize your tenant to renew longer.

Joe Fairless: What has been something that’s been– they’ve had that magic wand and they’ve waived it and then you reviewed? What’s something that you’ve done?

Brian Davis: Well, let’s see. One time, I actually put in central air for a tenant which– that was not a minor one, but I felt that the neighborhood was up and coming and the expense was justified. So I did end up pulling the trigger on that. But it could be anything from replacing the carpets which, in many cases, you’d have to do anyway if that tenant left, to painting to upgrading the kitchen or bathroom.

Joe Fairless: So replacing carpet, painting, upgrading the kitchen or the bathroom or just installing central air.

Brian Davis: It depends on the property and the neighborhood and the tenant. What makes sense for that property, what’s an upgrade that will add value to the property that will boost the market rents even if this tenant were to leave six months or a year later? So you just have to take it case by case with each tenant and each property.

Joe Fairless: Are the three main components of Spark Rental education, courses and property manager software?

Brian Davis: Yes, those are our main components.

Joe Fairless: What’s an example or course that you’ve got?

Brian Davis: Our flagship course is our Fire From Real Estate program. It’s all about reaching financial independence and retiring early with rental properties. So in that, we’ve had three main focuses. The first focus is on maximizing your savings rate, because if you spend every penny that you earn, then you don’t have any money to invest with. So whether you use real estate as your vehicle for reaching financial independence or something else, like index funds or dividend-paying stocks or whatever, your savings rate matters because that is what enables you to invest money in any income-producing asset. So that first section focuses on savings rate and areas where you can boost that. The second section is all about real estate investing and particularly investing in rental properties that generate maximum passive income or semi-passive income because rental properties aren’t 100% passive, as you know.

Joe Fairless: Sure.

Brian Davis: But yeah, so that second section is all about rental investing, property management and that side of the business, and then the third and final section is about preparing to take that leap to pull away from your full-time job if you’re ready to do so, to pull that trigger.

Joe Fairless: On maximizing your savings rate, identifying areas to save, what are some tips you have there?

Brian Davis: Well, if you look at government data from the Bureau of Labor, the three things that Americans spend the most money on are housing, transportation, and food, and those make up between two thirds and three quarters of the average American household, usually around 70% of the American household spending.

Joe Fairless: What percent?

Brian Davis: It’s around 70%; it fluctuates between around two thirds and three quarters of the average Americans’ household spending each year. So those three things offer the greatest room for maximizing your savings rate; the greatest opportunity for savings. So we focus first and foremost on saving money on housing. We get into house hacking and all of the many different ways that you can house hack. So for example, I’ve had housemates before when I was a young professional living downtown. I bought a house and rented out rooms housemates to cover the majority of my mortgage. Now, my wife and I live overseas and her employer actually provides us with free furnished housing. So that’s one way of getting free housing. My business partner Danny, she actually house-hacks with a foreign exchange student. So she has a Chinese high school student who lives with her and the placement service pays her a monthly stipend that covers most of her mortgage payment, and she’s done things like renting out storage space before, but you can do the traditional house hack of buying a small multifamily and renting out the other units. There are many different ways to house hack and not all of them are appropriate for all people, but the idea is to get creative with your housing and find a way to have someone else pay for it.

Joe Fairless: I love how you took the approach of hey, here’s what the Bureau of Labor statistics says we spend most of our money on, and those are obviously the main ways to take a look at to see if you can save money. So that’s housing. What about food? Make your lunch?

Brian Davis: Well, yes. It sounds simple and it is simple, but food that you make yourself costs a tiny fraction of food that you pay someone else to prepare for you. So if you make your own lunch every day, you’re looking at a cost of usually in between $1 and $2 or $3.50 or whatever cost to make your own lunch and bring it to work with you versus paying $7 to $15 to go out to even a cheap restaurant near your office; even if you go to Subway or whatever, you’re still probably going to spend $7, $8, $9, $10 dollars. So yes, you can save a massive amount of money by making your own food, and that goes for every single meal of the day. So we urge people to classify meals out or even meals in that you order like delivery or whatever. Any meal that you don’t prepare yourself, that should be classified as an entertainment expense. And there’s nothing wrong with that; I love dinners out as much as the next guy, but it falls under our entertainment budget. We don’t try to sugarcoat it in our budget by calling it food because food is necessary. Going out to a fancy restaurant is not necessary; it’s entertainment. So making every single meal or at least the overwhelming majority of your meals, breakfast, lunch and dinner, is an easy way to save on food and there’s a lot of other things you can do with that to get a little bit more creative.

My wife and I make enough dinner each night to have leftovers the next day for lunch. So I just take that with me for lunch the next day. One favorite thing that we’ve done before is we have Tupperware exchanges with friends where each person will make a big batch of food. For example, a huge batch of lasagna or some other meal that it saves well in Tupperware, and then you get together and you exchange all those Tupperware so that you don’t have six nights worth of lasagna for dinner in a week, you have one of five or six different things that you can just exchange with other people, and you can freeze whatever your don’t eat and get creative with it like that, and that saves time, too. You have one big batch that you cook, and then you have meals for the entire week.

Joe Fairless: Keeps it fresh too, because everyone’s got their own cooking style and you can taste different stuff.

Brian Davis: Exactly, and get some ideas for new recipes of your own.

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

Brian Davis: One of the main things that we focus on first, at least with new investors, is learning how to accurately forecast cash flow for any rental property; because if you get that wrong, then you open yourself up to negative cashflow, bad investments and a lot of lost money. So we actually make it a free tool on our website. We have a very detailed rental cash flow calculator that’s available for anybody to use; no login required, no email submission required. It’s just there on the website for anyone to use, because that is such an important thing, maybe to me in particular, because I got that so wrong when I first started investing. So we focus heavily on accurate cash flow forecasting, because if you get that right, then you’ll never make a bad real estate investment in your life again. You’ll always know the returns, at least the yield, that you’ll earn on a property before you buy it. So if I were to pick one thing, that would be my one thing. I can go on, but–

Joe Fairless: No, it’s good. Thank you. I know you said you had 13 properties in Baltimore City and they weren’t in good areas and you learned a lot of lessons as a result of what happened. How much money did you lose would you estimate?

Brian Davis: That’s a figure that I never went and calculated exactly–

Joe Fairless: Too painful.

Brian Davis: –because I didn’t want to know, but I would guess that I lost in the $150,000 to $200,000 range from that round of properties.

Joe Fairless: Psychologically, if someone is experiencing something like that, you’ve been through it, you’ve come out the other side, what advice would you give that person who is, say, in the middle of it?

Brian Davis: Well, first thing I would say is that all things come to an end; it’s going to be painful in the short term, but you’ll come out of it okay ultimately, and the most important thing is to learn from those lessons. That person just learned a very expensive lesson, it would be a shame to let that lesson go to waste; it’s tuition that you’ve paid for education. So in my case, I went on and I continued buying properties, of course, but I could have felt burned by real estate and said, “I’m never going to touch real estate again,” but that would have wasted on all those hard-earned lessons that I had learned. So I would urge people to consider it the cost of tuition. They will never make those same mistakes again because they got burned so badly. So they will be a much more conscientious investor moving forward.

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

Brian Davis: I’m ready.

Break [00:22:13]:05] to [00:22:56]:04]

Joe Fairless: What’s the best ever book you’ve recently read?

Brian Davis: The best ever book that I’ve recently read– this is a business book, not a real estate book, but it’s Traction by Gino Wickman, and it’s all about systematizing your business so that it becomes less dependent on any one person, including you, and something you can scale and you can automate without having the business collapse if one person pulls away or it doesn’t require you to work 80 hours a week for that business to function and succeed. So Traction by Gino Wickman.

Joe Fairless: What is the best ever deal you’ve done?

Brian Davis: Best ever deal I’ve done. This was a property that I bought originally to live in, and I bought it to eventually keep as a rental. This was in Fell’s Point in Baltimore, and it was an estate sale. There was one block from the harbor in the Marina. It had a rooftop deck overlooking this beautiful Marina with yachts. So I bought that for $150,000 and I – it’s a separate story – ended up putting a hot tub on the rooftop deck just for fun… And then we moved out and we rented that property for $2,400 a month in rent, and eventually, we sold it in the mid two-hundreds a couple of years later. It just ended up being more hassle than it was worth keeping with us being overseas, but it was fine. I had a lot of fun living there and then I went on to earn some good money on cash flow on it.

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

Brian Davis: Free education is one thing. So we recently did a free webinar with no sales pitch at the end. It was just pure education that was about the impact of the coronavirus pandemic on real estate investors, which is something that people kept asking us about and were desperate for more information about. So we did a two hour completely free webinar with no sales pitch whatsoever, and we got an incredible feedback from it of people just thanking us for spending all the time to put that together. But we have an extremely comprehensive blog with hundreds and hundreds of free articles; all of them very long.

So when I give money, I give it to libraries. I’m very big on the free transmission of knowledge, free education and particularly, in a human-driven way; and the internet is wonderful, but it’s no substitute for getting knowledge from a fellow human being.

Joe Fairless: This isn’t something I usually ask, but I know based off of our conversation before we started recording, you’re in Brazil. So do you typically travel, and if so, how are you able to do that?

Brian Davis: Sure. We try to hit around ten countries a year; we do a lot of traveling. This particular year is different because of the coronavirus pandemic, and because my wife is pregnant, so we can’t travel as much as we normally do. But there are so many ways to travel inexpensively beyond just staying at Airbnbs and trying to eat at locals’ restaurants. We use tools like Skyscanner to find inexpensive locations to fly to places that we never would have considered otherwise. So a quick example, we were living in Abu Dhabi for a few years and we just pulled up Skyscanner and said, “Alright. What are the cheapest flights from Abu Dhabi to anywhere in the world?” and then one of the cheapest ones that popped up was Bulgaria, and my wife and I looked each other and we said, “Well, what’s in Bulgaria?” We looked it up and we were like, “Oh, this is intriguing. Let’s go.” So we got round trip, nonstop flights for something like $150 a piece, and had an amazing week-long vacation in Bulgaria that, to this day, it generated a love for us for Eastern Europe, and we actually want to move to Eastern Europe at some point, that’s how much we love it.

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

Brian Davis: Connect with us either on our website, sparkrental.com, there are contact forms all over the site; they come directly to me or my partner or our immediate staff members, most of whom are either friends or family. We have very much a family business here. You can also connect with us through social media. We have a huge presence on Facebook. We actually have the largest Facebook group for landlords, with 30,000+ members and investors on there. But Spark Rental on Facebook, @sparkrental on Twitter, @sparkrental on Instagram or through our website, sparkrental.com.

Joe Fairless: I notice the pattern there… [laughter] Thank you for being on the show talking about the deals that did not go right and talking about what you’re currently focused on and how you’ve evolved from learning those lessons while you were in your 20s, and now what you’ve created with Spark Rental, and the lowering turnovers parts. Some very tactical things that we can do. Just be a human being with the resident, get to know them, hobbies, kids’ names, etc. Not to have a fireside chat with them, but just to make sure that they understand that we’re all in this together and that you care about them at some level, and then be extremely responsive and then give incentives to extend leases, and you talked about the magic wand and you said that you should always put a central AC in every unit regardless if that makes financial sense and I have to applaud you for that. [laughter] So thank you for being on the show; I enjoyed it. I hope you have a best ever day and we’ll talk to you again soon.

Brian Davis: Joe, thank you so much 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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JF2141: Short Term Rental App With Jon Crosby

Jon is the CEO and Founder of Click2Flip, a mobile app to instantly analyze rentals and short term rentals. Jon loves to create streamlined processes that help make his short term rentals pretty much self-automated. He shares all of the automation he has done for friends, clients, and himself to create a smooth process and experience for both him and his guests.

 Jon Crosby Real Estate Background:

  • Founder and CEO of Click2Flip
  • Started investing in 2015
  • Owned and managed 4 short term rentals
  • Limited partner in 2 multi-family LLCs and 1 air medical hanger commercial investment
  • Based in Rockland, California
  • Say hi to him at https://clik2flip.com/
  • Best Ever Book: 

 

Click here for more info on groundbreaker.co

Best Ever Tweet:

“I created the app to quickly instantly give me a high-level return to see if the deal was worth investing in further” – Jon Crosby


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, Jon Crosby. How are you doing, Jon?

Jon Crosby: Good. How you doing?

Joe Fairless: I’m doing well, and I’m glad to hear it. A little bit about Jon – he’s the founder and CEO of Clik2Flip, he started investing in 2015 after a company that he worked for ended up being purchased, he owns and manages four short term rentals, he’s a limited partner in two multifamily LLCs and one air medical hangar commercial investment, based in Rocklin, California. With that being said, Jon, do you want to give the Best Ever listeners a little more about your background and your current focus?

Jon Crosby: Yeah, thanks again for having me on the show. It’s an honor to be here. Currently, I, as you mentioned, own Clik2Flip mobile app. It’s a mobile app to instantly analyze flips, rentals and short term rentals. Also, in addition to the real estate investment that you mentioned, I’m also a partner in an assisted living facility project here in the Sacramento area, which has been a bit of on hold at the moment because of what’s going on with the COVID crisis. So my day job is a technology consultant for Fortune 100 companies where I focus on app development management, managing app dev teams, and I did that in my previous career in the company that sold. So I was laid off from that job. It gave me the opportunity to bridge my passions, and I brought technology and real estate passions together with the Clik2Flip app. I created it because I wanted something that was in between the 1% rule and 70% rule, but I didn’t want to have to do full underwriting on all the properties I was looking for. So I created the app to quickly, instantly give me a high-level return to see if a deal was worth investing in further.

Joe Fairless: You said between the 1% and the 70%. Is that 7-0 %? What is the 70% rule?

Jon Crosby: It’s the 1% rule for flippers. So that is yet to be a really good one for the short term rental markets. I’m hoping Clik2Flip can actually help bridge that gap as well.

Joe Fairless: What is a 70% for flippers? Will you educate me? I might have heard of it, but I can’t remember what it is.

Jon Crosby: Yeah, the 70% rule just says that the max allowable offer should be 70% of what you expect the ARV to be, the after repair value.

Joe Fairless: Okay, got it. And then, Best Ever listeners, 1% is taking the rent that you’re getting on a annual basis and dividing that by the all-in cost. Is that right?

Jon Crosby: It’s the monthly rent versus when you purchase, the purchase price of the property in a nutshell.

Joe Fairless: Okay, monthly rent.

Jon Crosby: Back in the day, we were left in– it used to be the 2% rule, but it’s whittled down to the 1% rule, and in California, you’re not going to find any 1% rule.

Joe Fairless: Right. I remember when I had my single-family homes, I only had, at most, at one time, but then I had 3 for five to seven years, however long it was. They were all around 1.3%, which is nice, until someone moved out. Then I don’t know where that percent would have plummeted, but that’s why I’m doing what I’m doing. Let’s talk about you and your short term rentals. Do you currently own four short term rentals?

Jon Crosby: Yes, I liquidated two of them. I have one, and the other one was one that I helped manage with somebody else. So I’m down to one right now. I was trying to liquidate, get some capital for this next round that I was hoping was coming… Because I wanted to expand. I was mostly focused in the Lake Tahoe area. So I wanted to be able to diversify a little bit, but I currently still have the one, that’s doing well… Not right now. It’s turned off up there at the moment, but I believe after this crisis is over, we’ll have quite a bit of pent up demand. So I’m taking the time to do what my other passion is, and that’s creating business automations. So I’ve built a lot of automations into my short term rental models so that literally for any booking, I don’t spend more than 30 seconds.

Joe Fairless: Really?

Jon Crosby: Yeah, I plug it into two spots, and then I have email communications, I have door locks to trigger, I have comms back and forth to my housekeeper setup, and I did bare-bones almost online. I’ve done some pretty complex ones for some friends that included even a signed addendum that once they signed it versus in a DocuSign, it automatically sent their instructions to check-in and can coordinate the door locks. So it can get really sophisticated and I just love doing that stuff. It’s really fun to optimize those processes when I can.

Joe Fairless: Now when you said you spend 30 seconds on each rental, is that literally?

Jon Crosby: I timed it once. It’s more like a minute, maybe a minute and a half and that’s just me plugging it into a calendar, and then the rest happens on the back end. Now don’t get me wrong, if toilets break and somebody doesn’t know how to work a door lock, you’re going to get a phone call. But I’ve easily gone five to six bookings in a stretch without ever even knowing anybody was up there.

Joe Fairless: What were the main timesucks that you automated?

Jon Crosby: One was communication. So notifying guests – going to Tahoe can have some treacherous travel, so I wanted to have consistency so that everyone had the same pre-travel communications. So that helped there as well as just–

Joe Fairless: What did you do? What did you do exactly with that?

Jon Crosby: For that one, I set up an email that goes out the day before their check-in, and it provides them with the information. It provides the links to Caltrans to click this button, make sure you check your travel, any road conditions before you head up the hill. Here’s another link for weather conditions… Just as much info as I could that I had found I was giving them personally before I built this, and I just laid it out in an email template.

Joe Fairless: Okay, and you send it the day before they check in. You don’t send any other automated emails prior to that?

Jon Crosby: No. I do have one company called Evolve that handles the initial booking and payment processing piece that they get an email for. So I take over managing as they approach the check-in time, and so that’s where I’ve focused all that email communication; but I can build it if we didn’t have that piece with its own. I’d do it for the whole process.

Joe Fairless: So is there anything check-in related the day before the check-in that sent that they might be wondering prior to the day before, that they’re asking you about? And I’m thinking of my wife in this example, by the way. We rented a place in Florida and she was reaching out to the host, because my wife had questions about the check-in process and other things, and she was wondering about that weeks before, not a day before check-in. So I’m wondering, to address curious cats like my wife who wanna make sure everything’s set up properly, do you communicate with them before that?

Jon Crosby: Yeah, so they get something 30 days before check-in, that’s a little bit high-level. It has my contact information as well as my wife’s that they would use if they have any questions, and I do [unintelligible [00:10:10].25] things like that that they want to know; should they pack coffee, or things like that. So that we can certainly answer for them; and then on the day of check-in, they also get a full welcome email. Go check the binder on the coffee table, this is where you can have all your information. Here are some of our favorite restaurants… All the stuff that they need to be successful and relax once they get there.

Joe Fairless: So that is one part of the process that you automated, the guest communication, that was taking up a lot of time. What else?

Jon Crosby: The other part was the housekeeping communication. So the housekeepers, as soon as they get a booking, an automated email goes out to them that says, “Hey, Joe Fairless booked May 5th to May 9th, please schedule and reply once you confirm it’s locked in.” So that way, I get confirmation that they got confirmation that they have it in their system, and we’re often running on that part, and then the other part is the automated door locks. So every guest that I have, it’s always their code to get in is the last four digits of the phone number they booked with. So creating that consistency makes the automation much easier to facilitate, as well as the email communication part.

Joe Fairless: Got it? How do you program the lock?

Jon Crosby: There’s two tools. Usually [00:11:29].07] is the actual hardware, and then we can connect it through Nexia, which is a home automation hub. But a newer one that I’m using, I can actually automate totally seamlessly now. Whereas, the Nexia one, I had to actually spend an extra 30 seconds to go plugin. But on this one, I can actually even skip that step, and that’s using the Samsung SmartThings Hub. So that one’s fully dialed in.

Joe Fairless: A rough segue into something that I mentioned at the beginning in your bio – you’re a limited partner in one air medical hangar commercial investment. Please talk to us about that.

Jon Crosby: Yeah, that’s an interesting investment. It’s a friend of mine who’s a commercial real estate broker named Greg Geary, great broker out here in the Sacramento area. He started a niche building out these air hangars that were needed for medical lifeflight helicopters and planes and such and crew quarters. So what he built was this system or, I guess, process, by which they can be built very quickly. He’s partnered with some construction company that allows these to be built very quickly. They’re even mobile to some extent, so that if they want to take it down and move it somewhere else, that’s possible, and then rest of it’s a lease commercial investment type scenario with payouts. There’s cash flow in the lease payments, and then there’s equity buyout after I think seven to ten years.

Joe Fairless: What gave you the confidence to invest in that and how long have you been an investor in it?

Jon Crosby: I’ve been in about six months now. They’ve already spun up their first hangar and lease payments have just started flowing through. So that’s been really positive. I think with most investments, it’s the operator. It’s the person running the investment. Greg, I’ve trusted him, I’ve seen his track record. He was actually part of the real estate team that was part of the company I worked for for 20 years as well. So there was trust, and he just has some great experience and insights in the industry.

Joe Fairless: Let’s talk about your company. Clik2Flip. You mentioned what it does. It initially helps with initial analysis of flips, short term rentals and rentals. I think that’s what you said when I was taking notes. What differentiates it from an online calculator that if I googled quick flip analysis spreadsheet?

Jon Crosby: The difference is, as far as I know, it was the first of its kind to not require any data entry. I built it so you can walk up to a house, geolocate, hit the address and it will go pull all my API data and feed it back in to give you the high-level return cashflow analysis.

Joe Fairless: Wow.

Jon Crosby: Yeah, so some of the magic is in the API. To get even more accurate of a return, you would at least go into your settings one time to just program your particular investment metrics. So things like, if you’re a flipper and you have an average price per square foot for rehab costs, you want to put that in there rather than use the default that it has. Or if you have a property manager that’s only charging you 5% and it defaults to 8%, those are the little things you’ll want to just fine-tune one time, and then every time you analyze a property thereafter, you’ll get that instant analysis.

Joe Fairless: Now, a lot of the times, someone’s not going to be in front of the house, they’re gonna be in front of their computer. So how is it working then?

Jon Crosby: It also has an address lookup.

Joe Fairless: Just punch in the address.

Jon Crosby: Yeah, you just punch in the address, and even it will do — you can even put in parking numbers as well and it’ll pull those down for you. Additionally, we added the ability to view up to 20 local comps for the property, as well as a place for an itemized rehab worksheet if you want to get in that level of detail.

Once again, as I mentioned, it’s not a full underwriting tool, but it’s a tool so that you don’t have to go do a full underwriting on every single property that you’re interested in. You have a smaller subset to go take it to that next level of underwriting.

Joe Fairless: I like that; that is a true differentiator, and you’re clearly positioned as “Hey, this initial analysis and it’s going to save a lot of your time, and then you can go do your more extensive analysis should it check out.”

Jon Crosby: Yeah, and I’m actually excited. I’m adding one more component later this month, and that’s the ability to send a postcard mailer.

Joe Fairless: Wonderful.

Jon Crosby: Yeah. So I think that’ll be a really nice one-two combination. You see a property, you get a really high level “Hey, this looks good. I’m going to go ahead and just send a mailer out right now while I go into due diligence”, and so you can just stay ahead of the competition as much as you can.

Joe Fairless: That’s great. I definitely see a need for it, and the way that helps investors save time and now connect the dots whenever you have the mailer component. What has been the biggest challenge with this app?

Jon Crosby: I think what I learned is double down on your strengths and pay people to do the other things. I tried to do too much. I tried to learn everything I could about marketing, I tried to learn everything I could about UX design, just things that I’m not either passionate about or didn’t even have the time to try and focus on. So I probably wasted more time than I needed to going in and getting help on those pieces.

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

Jon Crosby: Whatever the pro forma says is never going to come to; it’s never going to be like that. So trust in– do your due diligence on the operator, because that’s going to be where the successes and plan for probably either a six-month delay in whatever payouts you see, or definitely not as quite as the rosy returns that are showing in the pro forma; and if you still want to do that deal and you still think it has a good risk to reward ratio, then go for it.

Joe Fairless: What’s a deal where you’ve lost the most amount of money on?

Jon Crosby: I don’t want to say I’ve lost it, but — I haven’t lost it… I’m in a note deal right now that the principal is due back in January, and that still has come back.

Joe Fairless: Okay. So it’s delayed.

Jon Crosby: It’s delayed.

Joe Fairless: So for everyone listening, that’s about four months from the past.

Jon Crosby: So that kicks into a whole new cycle that– I had confidence that will come through. I actually like those note investments; but I’ll say that my biggest loss has been — and it wasn’t too bad, but it was the assisted living facility I was working within was broken up into a real estate component and the actual business component, and I ended up liquidating the real estate side, which I didn’t want to but I wanted to use those funds to continue my short term investments. So I did take probably from the equity side a 10k-15k hit on that.

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

Jon Crosby: I am.

Joe Fairless: All right, let’s do it. First, a quick word from our Best Ever partners.

 

Break [00:18:12]:06] to [00:18:55]:03]

 

Joe Fairless: What’s the best ever book you’ve recently read?

Jon Crosby: Raising Capital for Real Estate by Hunter Thompson; I had great insights.

Joe Fairless: Best ever deal you’ve done?

Jon Crosby: My first short term rental.

Joe Fairless: What’s a tactical mistake you’ve made on a transaction?

Jon Crosby: Not getting a plumbing inspection; always get a plumbing inspection.

Joe Fairless: What happened?

Jon Crosby: I can’t tell you how many things were going on there, but I had put in an entire hardwood floor only to find out there was a root in the middle of it, had to rip it all out, dig 16 inches through concrete to fix six inches of pipe, and then put the floor bathroom.

Joe Fairless: It sounds like it’s still painful for you to talk about.

Jon Crosby: It is. I’ll never make that mistake again.

Joe Fairless: Well, just to pour a little salt on your wounds, how much total did it cost you?

Jon Crosby: I think it was more ego than anything, but it still costed a good 6-7 grand.

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

Jon Crosby: You can check me out at clik2flip.com. I’m also on Facebook, Twitter. You can find me at LinkedIn. Just search for Jon Crosby.

Joe Fairless: Well Jon, thank you for being on the show. Thanks for talking about your business, Clik2Flip. Thanks for talking about different ways you’ve automated your short term rental business model with guest communication, housekeeping communication and the door locks as well as the note deal and how to qualify the operator or really how to qualify a deal. It’s primarily the operator based on what your feedback is, and how to think about it from a limited partner standpoint was your best advice. So thanks for being on the show. Hope you have the best ever day and talk to you again soon.

Jon Crosby: Thanks, Joe. Appreciate it.

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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JF2120: Jumping In The Market With Patrick Menefee

Patrick served in the army for 6 years and is the founder of Invest DGP. Patrick started investing in June of 2019 and has acquired 12 units. Patrick is very open to sharing some of the hard lessons he learned from jumping in the market quickly and how he was able to improve his units and double his rent collections. 

 

Patrick Menefee Real Estate Background:

  • Founder of Invest DGP
  • Served in the Army for 6 years
  • Started investing in June 2019
  • Owns 12 units
  • Located in Charlotte, North Carolina
  • Say hi to him at : https://www.investdgp.com/ 

 

 

 

Click here for more info on groundbreaker.co

Best Ever Tweet:

“Never have your inspector and appraiser go out to your property at the same time.” – Patrick Menefee


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, Patrick Menefee. How you doing, Patrick?

Patrick Menefee: Hey, Joe, I’m good. How are you?

Joe Fairless: Well, I’m doing well and looking forward to our conversation. A little bit about Patrick – he’s the founder of Invest DGP, he served in the Army for six years – so thank you, Sir, for that – and he started investing in June of 2019. He owns 12 units, and he’s located in Charlotte, North Carolina. So with that being said, Patrick, you want to give the Best Ever listeners a little bit more about your background and your current focus?

Patrick Menefee: Absolutely. Thanks, Joe and thanks for having me on. So like you mentioned, six years in the Army right out of college, and then I ended that in about February 2018, transitioned into financial services consulting, working with banks, financial institutions, traveling every week for the last two years. As I moved and transitioned to Charlotte, that was when I realized that I wanted to get involved in real estate in some facet or another; I just wasn’t quite sure what. So I turned 30 towards the end of 2018, and that was when I started setting some goals for myself, realized what I wanted to get to, and I spent a lot of time over the next six to seven months doing a lot of education, networking, listening to podcasts, meeting as many people as I could, reading all the books that I could get my hands on… And it was in, as you mentioned, June of the following year 2019 that I really decided to start taking action, and then within about five weeks, I had 10 units under contract. They were all small multifamily; one of them a fourplex, another one was a portfolio of three duplexes that were all side by side. The fourplex, I did it down by myself and then the duplexes were all with a partner.

So once I had a little bit of a foundation, once everything was– I actually made a decision to take action. Everything happened rather quickly after that. So as you mentioned, now I own 12 by the end of the year. The other two units are also small multifamily with a partner as well, and that’s really been my focus right now. It’s been small multifamily property. Ultimately getting into some of the bigger commercial, but primarily small for right now.

Joe Fairless: You were doing a lot of education, and then when you decided, okay, now it’s time to rock and roll, in five weeks, you had 10 units under contract. What was the tipping point where you made the decision now it’s time to go buy some property?

Patrick Menefee: Actually, I’d purchased my own primary residence back in March, and the company and the guy that I bought it through, they were having a networking event. I still remember the day; it was June 6th, and I was networking with people, talking to some people. I had my plan initially, which was going to be to use the VA loan and [unintelligible [00:05:36].02] houses and slow roll it and live in a house for a year, rent it out; that was my plan, and maybe pick some up along the way that made sense. But there was one couple that I was talking to. I can’t even tell you exactly what they said, but it was the exact conversation that hit me, and I realized that they had a couple of condos that they were renting out. They were actually doing what I wanted to do, and something right there just really kicked me and said, “Why aren’t you just taking action?” After that conversation, I doved in, and that was when I found– I actually had the fourplex. I technically didn’t get under contract until July, but I found it about a week later and started the negotiations with the seller. So it happened very quickly.

Joe Fairless: Okay. So it sounds like you had just built up knowledge and things were bubbling, bubbling, bubbling, and then there was some breaking point, and perhaps in retrospect, it’s an insignificant conversation. Maybe it was similar to other conversations that you had previously, but you were just ready. It was just that time and this conversation just happened to be at the right point and place and time where it just made you have that decision.

Patrick Menefee: Yeah, it definitely did. I probably had some more conversations, five or six times a month before that, but that one just did it.

Joe Fairless: Well, let’s talk about your purchases, those 10 units. You did the fourplex yourself, you said, and then you got three duplexes side by side with a partner. How did you structure those transactions with the partner?

Patrick Menefee: It was interesting. It was a mix of– by accident when that finally worked out, and then just some overall planning. I was looking for a partner on it, and I’d been doing a lot more networking and branding to let people know what I was doing. So as a result, some people from work were interested in working together on a deal.

So I was talking to one of my really good friends that I was in the army with, and we were talking through some of the options for how I might split this up and how I might pull off a partnership with him, especially because the guy was going to be someone out of state, was primarily just going to be investing cash. We worked out some terms that we thought made sense, and then at the end of it, I could work with this guy, but I didn’t even think to ask, “Do you want to do this and do you want to get involved instead?” and he said, “Sure.” So we worked out the terms, he brought the majority of the cast to it, and I did everything else. So it ended up– because it was six units, and this was something I wasn’t totally prepared for at the time, but since it was six units, I couldn’t get a conventional mortgage, so I had to get a commercial loan; and then on top of that, the way that we worked out the negotiation, the way we worked out the partnership was he was providing the majority of the cash, but I was going to be primarily on the loan. So that was not something that I could typically do going through most of the normal Fannie/Freddie loans, because if you provide that money, it either needs to sit in your account for two months, or it needs to be from someone who’s also on the loan. So we structured it that way, and then we split the equity accordingly. Me doing all the management and all of the activities and all of the primary effort and some of the bigger portions, but we worked it out in a way that worked out perfectly for both of us.

Joe Fairless: Reminds me of the saying, “If you ask for money, you get advice. If you ask for advice, you get money.”

Patrick Menefee: I have to write that down. It’s a good one.

Joe Fairless: That’s what happened here, right? You’re asking him for advice, and you got money.

Patrick Menefee: Yeah, that’s absolutely what happened.

Joe Fairless: Well, you said you got a larger portion of– is it each of the three deals based off of your responsibilities?

Patrick Menefee: Yeah, it’s very close to 50-50, but yeah.

Joe Fairless: How do you structure it? So 60-40?

Patrick Menefee:  It’s 55-45.

Joe Fairless: Okay, got it. Very close.

Patrick Menefee: Yeah. We, on this one — it worked out really well. We said– based on the fact that I was going to be doing all the work, we set the all-in cash as a percentage of the investment. So we said, “50% of the investment is going to be for the cash. So if you bring 100% of that, you get 50% of the deal. If you bring 50% of that, you get 25% of the deal.” So that was how we worked it out. He brought 90% of the cash and got 45% of the deal.

Joe Fairless: With the three duplexes – are they located in Charlotte?

Patrick Menefee: They’re just North of Charlotte. They’re about 45 minutes north in Statesville, North Carolina.

Joe Fairless: Okay, and what about the fourplex?

Patrick Menefee: That one’s just west. All of mine are just surrounding the Charlotte area, just because multifamily is hard to come by with solid cash flow within Charlotte. So the fourplex is in Gastonia.

Joe Fairless: Okay. How did you come across the fourplex?

Patrick Menefee: It was on the MLS, actually. It had been sitting on the MLS for almost six months.

Joe Fairless: Why do you think it wasn’t snatched up?

Patrick Menefee: As I’m still dealing with it, because it was a nightmare. They had it listed way too high. It was an older couple that had a large portfolio that they were selling. So this was one of them. They had it listed at $210,000. I ended up– after negotiating with them, I ended up getting it down to $160,000, which was fantastic, but they [unintelligible [00:10:29].22] did $210,000. Yeah, I think that was a big part of it, too. A lot of people saw $210,000 and said, “Absolutely not. I’m not interested in that,” because it was way overpriced at that, but at $160,000, it worked out. So I think that was a big part of it; and it’s also a 100-year-old house. They didn’t take care of it all too well. It just got neglected over time, and it was an old farmhouse that got converted into a fourplex. So it was the perfect storm of not too great, but a great opportunity.

Joe Fairless: So, talk to us about some challenges that you’ve had with it?

Patrick Menefee: Oh boy, where do I start? How long did you say we have? [laughs] I had problems from the acquisition part initially, not even getting into what the house was. So after I got it under contract, I started going through the due diligence process. I got it under contract at the beginning of July and was supposed to close at the end of July; I wound up closing on September 13, instead of July 29. Yeah, I almost lost the deal a couple of times. I had four closing dates scheduled and I had three different appraisals done.

Joe Fairless: What’s going on?

Patrick Menefee: The first time around, the first appraiser, I learned one very important lesson that I will, at any point, share with as many people as I can, and that’s – never have your inspector and your appraiser go out to the property at the same time. I now will base all of my properties around that, because the inspector looked at some of the stuff at the house. He was just having a casual conversation with people that were around them, pointed out a bunch of problems…

Joe Fairless: They love to talk.

Patrick Menefee: But he happened to point–

Joe Fairless: They love to share their knowledge.

Patrick Menefee: Yeah, and he’s a great guy, and he’s inspected all my properties, but he just said it to the wrong guy.

Joe Fairless: Yep. He was doing his job. He was inspecting the property and documenting everything, right?

Patrick Menefee: Yeah, absolutely. Unfortunately, the appraiser also documented that. So I had it under contract for $160,000, and he appraised it at $160,000, but he appraised it as– I think it was a C4 or a C5, so it was in too poor of a condition for banks to loan on; and I went in the inspection report, and it wasn’t like he cited specific things, he just cited comments from the inspector. So aside from getting it reappraised, I couldn’t go fix a certain thing and then get it back. So I went a different route, got a different appraiser. The next appraiser did the inspection. I actually went out and got the inspection done, and then no one ever heard from him again; just fell off the map. Very strange.

Joe Fairless: That is very strange. Okay…

Patrick Menefee: And then I finally got a third one. He did do the inspection; was very slow about all of it. He actually submitted the report, but when he submitted the report, he left the address off, which then took another week to get.

Joe Fairless: Goodness gracious!

Patrick Menefee: I don’t know how he left the address off of the report. Yeah, that could have been a sign upfront of things to come… But finally got it closed. It had tenants in it, which I thought at the time was a good thing, because I could go one by one and keep producing cash flow while rehabbing each one of the units. That turned out to be a huge problem. I evicted two of them. Dealing with the units themselves has been definitely challenging just because of how poorly they were taken care of, and then one of the tenants, on the way out, she, I think, I would say out of spite, she never registered any maintenance requests or anything like that, but on her way out, she called the city and registered a complaint. So I had a city inspector out there and all that stuff.

Joe Fairless: What was the complaint?

Patrick Menefee: It was just a general complaint of code violations. I had interacted with her before when I was out there doing some other work, and she had also said in other cases, she had talked about the lease and said how the lease was full of landlord-tenant violations. I have a other property manager that manages all of that, and I was asking her about it. It’s not something that we want to do… What’s wrong with it? What do we need to do? She said, “Well, it’s just old.” So it’s one of those lessons in dealing with tenants. So there’s nothing that’s ever going to be right.

Joe Fairless: Yep, some people you can’t please, no matter what.

Patrick Menefee: Yeah.

Joe Fairless: Alright. So where are you at with the business plan right now?

Patrick Menefee: Overall, on the six units, we initiated the refinance yesterday.

Joe Fairless: On the three duplexes?

Patrick Menefee: Yes.

Joe Fairless: Right. No, I’m talking about the fourplex. You were talking about the fourplex before, right?

Patrick Menefee: Oh, I’m sorry. Yeah, I’m sorry. When you said the business, I thought you meant overall.

Joe Fairless: Oh, sorry, yeah. So with the fourplex, where’s the business plan at?

Patrick Menefee: That one, I have two units that the rent has been increased. I made modest updates to them. I would eventually like to go in and do a little bit more, but kept the current tenants in and got a pretty good ROI on the improvements that I did make. I almost doubled the rent for each of those two units.

Joe Fairless: Tell us the numbers, please.

Patrick Menefee: Yeah, so when I took over, all four units were at $350 a piece. So $1,400 dollars a month total rent. I’m now getting from the two units that I did — I put a probably about $3,500 into those two units, and increased rent to $1,350 between the two. So pretty solid return on investment.

Joe Fairless: Wait, I want to make sure I’m hearing that right. You put in $3,500 per unit, correct? So $7,000 total?

Patrick Menefee: No, no, I’m sorry. $3,500 total.

Joe Fairless: Okay, even better. So you put $1,750 total, and… Let’s just do unit by unit. That one unit is now renting for how much more?

Patrick Menefee: One unit is up to $650. The other unit’s up to $700.

Joe Fairless: Wow, that’s incredible.

Patrick Menefee: Yeah, it’s a pretty solid return on investment.

Joe Fairless: Yeah, so let’s just do the $700 one. So that’s doubling your rent from $350 to $700. Wow, it’s quite the increase. If you hadn’t improved those units, and you just turned them over to a new tenant, could you have increased the rent at all from $350, and if so, by how much?

Patrick Menefee: Yeah, I could have. I probably could have turned them to about $500 or so.

Joe Fairless: There was already value-add built into it.

Patrick Menefee: Yeah, there absolutely was. Those units had been– I mean, I think the rent had been kept the same for– I can’t even speculate. I have no idea– for a very long time; that hadn’t been touched in a while. So there was definitely room to start with.

Joe Fairless: Nice. So you increased the rent $350 and you put in $1,750, correct?

Patrick Menefee: Yes.

Joe Fairless: So that’s 20% return on those renovation dollars. Nice job.

Patrick Menefee: Yeah, I can’t really complain about that. The other ones are getting to be a little bit more — and the one thing that I will say as a caveat is because they are lived in, there was a lot of stuff that I wasn’t doing. So I didn’t rip out and replace all the cabinets. I just updated what was there, and did some stuff in the bathroom, and replaced flooring where I could and all that stuff. But doing a full sweep of it, it will definitely, when I eventually get there, it’ll cost a little bit more, but it’ll also further increase rent by probably another $50 to $100 a month.

Joe Fairless: That area supports those additional rent increases?

Patrick Menefee: Well, I guess, given the current situation, I don’t know how much rent increases are gonna happen, but generally, yes.

Joe Fairless: Okay, got it. Well, now I interrupted you on the financing for the three duplexes. Will you pretend I did not interrupt you? What were you saying about that?

Patrick Menefee: Yeah, sorry about that. We had gone through the commercial loan — because they were all three on the same property when I bought them, the first thing that I did was subdivide them. So they’re all each on their own property now, and that way, I have a lot more flexibility if I need to sell one off to recoup some cash or whatever I need to do. So I’m refinancing them also into a 30-year fixed. So I initiated a refi last night; it’s definitely not a full BRRRR. Neither of them are going to be. Definitely not going to pull out everything that I put into it, but on this one, and especially that the six units, because I only put in 10% of the down payment to start with, I’m not going to see personally a big return, but I’m going to get my investor about somewhere between $15,000 to $25,000 back. I know that’s a– I had to give him a range, but with the whole electronic appraisal and everything that they’re doing with the virus, I’m less confident in my numbers now than it was a couple of weeks ago.

Joe Fairless: Yep, and just for the Best Ever listeners, we are recording this in the middle of the Coronavirus pandemic. So I recognize that this episode airs many months after we actually record it. So when he says virus, that’s what he’s referring to.

So the interesting thing that I heard, or one of the interesting things that I heard from you is that one of the first things you did was subdivide the three so that you have more flexibility. I thought I heard you say that you got a commercial loan on it initially. If I heard that correct, how did the conversation go with the lender where you said, “Hey, I know I’m getting this commercial loan, but I actually like to subdivide it and break it up”?

Patrick Menefee: That’s a great question. The one that I used is a regional lender. So I had the conversation with him upfront. I let him know what ultimately I was trying to do, and weighed out essentially the full roadmap. I’m looking to purchase these, I’m looking to subdivide them, I’m looking to rehab them and then ultimately look into refinance into a fixed loan. So I’ve had multiple conversations with a lot of different lenders before I settled on this guy, and a lot of places weren’t okay with it and understandably so, but as long as– it was, as long as when I refinance, everything is done at the same time, and they’re made whole on the back end, everything was A-OK.

Joe Fairless: What gave you the idea to subdivide?

Patrick Menefee: That’s a good question. I knew the conventional 30-year fixed route, and I knew that that was a way to get there. So that was really the only plan that I really had all along. But as far as what triggered it out at the very beginning, I think it was just because that was mostly what I knew, and I realized that it was a possibility that would likely add value, but also give me a lot of flexibility.

Joe Fairless: Absolutely. In my opinion, it’s an advanced thought process for you to think that way. So bravo to you on that, and it’s always good to have more flexibility than less, and especially if you can get more favorable residential financing even better… And get some of your money back out. I mean, there’s so many instances — and I would guess that more than 50% of investors would miss that part of the process and not subdivide; first off, not think about it, and then secondly, if they thought about it, not go through the process that’s required in order to subdivide. So bravo to you on that.

Patrick Menefee: Well, I appreciate it. I think that’s one of the big takeaways for anybody. I had no experience with subdividing, I had no idea what I was doing, but everything is easy enough if you just start taking action and figure it out. So I made a couple of calls and I started asking people and–

Joe Fairless: Who was your first call?

Patrick Menefee: I called my real estate agent and asked him if he knew anybody that did subdivision or anybody that he had worked with as a surveyor. Then next call after that was to the city to ask them what they recommended and what needed to be done.

Joe Fairless: And then who ultimately was the point person that you got a lot of help from?

Patrick Menefee: Everything after I had that initial conversation with the city planner, and she just laid out what needed to be done, I used the contact that my real estate agent gave me, who was a surveyor, and he took care of everything. He went out, and about the only involvement that I really had– my initial thought was, I didn’t even necessarily know if I wanted to separate all three individually, and I wasn’t sure if I could because of some of the setbacks. So we had a couple of conversations on that and he just showed me some of the property lines from before – because it used to be split as well. So he showed me some of those options and said that we can just revert back to what it was; and not only did I get all three split out, but I also saved money from what I thought I was going to pay, because he just went back to the previous one. So credit the enemy, did a great job and took care of all that for me.

Joe Fairless: Bravo. Based on your experience today, what’s your best real estate investing advice ever?

Patrick Menefee: I think the biggest thing is what I mentioned before, just dive in and start taking action. You can spend all day trying to figure everything out like I did before, but the second that you jump in and decide to start taking action, a whole different world opens up to you and you learn a lot as you go.

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

Patrick Menefee: Yeah, let’s do it.

Joe Fairless: Alright, let’s do it. First, a quick word from our Best Ever partners.

Break: [00:22:48]:05] to [00:23:41]:04]

Patrick Menefee: Best ever book you’ve recently read.

Patrick Menefee: Tribe of Millionaires. I just finished it a couple days ago. I read it about two hours, couldn’t put it down. Speaking about the importance of accountability and mastermind and really being involved in something bigger than yourself. So it’s got me on the path to start some accountability groups.

Joe Fairless: What’s a mistake you’ve made on a transaction that we have not talked about already?

Patrick Menefee: On that fourplex, the one thing we didn’t talk about is I didn’t listen to what the inspector said. I think I got a little bit excited and blinded by the first deal and the numbers on paper. His recommendation was to get everybody out there, all the contractors out there, plumber, roofer, electrician, all of that. I didn’t end up getting all that stuff ahead of time, and now I’m working through all those pieces as I pull some of the other two units apart. So definitely not listening to an inspector.

Joe Fairless: Best ever deal you’ve done so far.

Patrick Menefee: I think those three duplexes have got to be the best one. They’ve produced consistent cash flow the entire time. Having six units, if I have a vacancy, I’ve got five other units to cover it up, and it’s really been a very solid investment and a very good learning experience between the subdivision, the partnership, the commercial loan, the refinance. I’ve really run the full gamut on that one.

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

Patrick Menefee: Probably the two best places are going to be my Instagram account. I try to post on there regularly with lessons learned and always respond to anybody that I can; so that’s @investDGP. And then my website, investdgp.com, where I try to share a lot of what I’m doing; and then also anybody can reach out to me at any time, patrick [at] investdgp.com.

Joe Fairless: Patrick, thanks for being on the show. Thanks for talking about some moves that you’ve made in your real estate ventures, one of them being buying three, side by side duplexes that were all on one lot, and then subdividing it and maneuvering around the financing, as well as partnering up with a friend of yours to get those deals done; and then also your business plan for the fourplex and the 20% return on the renovations that you’re doing and the challenges that you overcame in order to get to that point with the inspectors and the appraiser and a couple other things. So thanks for being on the show. Hope you have a best ever day. Talk to you again soon.

Patrick Menefee: Thanks Joe. Really appreciate the opportunity.

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JF2112: Verifying Applicants Through Software With Stephen Arifin

TRANStephen is the founder of The Closing Docs, a software company based in Seattle that provides automated income verification for property managers and lenders. He explains how he evolved his software over time to cater towards property managers, he explains how they started inserting certain pieces of data to help provide more clarity and reliability for the lenders and managers.

 

Stephen Arifin Real Estate Background:

  • Founder of The Closing Docs, a software company based in Seattle that provides automated income verification for property managers and lenders
  • They handle income verification for over 600,000 properties and growing
  • Based in Seattle, WA
  • Say hi to him at https://www.theclosingdocs.com/ 

Click here for more info on groundbreaker.co

Best Ever Tweet:

“We’ve tried a lot of things to find what works and now we see a compliance rate of 97%” – Stephen Arifin


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, Stephen Arifin. How are you doing, Stephen?

Stephen Arifin: Hey, Joe. I’m doing great.

Joe Fairless: I’m glad to hear that, and looking forward to our conversation. Stephen is the founder of The Closing Docs, which is a software company based in Seattle that provides automated income verification for property managers and lenders. They handle income verification for over 600,000 properties, and growing. First, Stephen, do you wanna give the Best Ever listeners a little bit more about your background and your focus, and then we’ll go from there?

Stephen Arifin: Sure. My name is Stephen Arifin, and my focus right now is taking technology to help automate tasks in the real estate industry. I was born  in Texas and lived there for 21 years, and now I live in Seattle. I’ve spent several years at Microsoft as a software engineer, and learned how to build and scale software. Now I’m taking my learnings into the property management industry. Now I’m building The Closing Docs, where we’re focused on automated income verification for property managers during the tenant screening process.

Joe Fairless: What brought you into real estate and property management in particular?

Stephen Arifin: To be honest, I had no background in property management. I was really looking for a business idea and how I can use technology to streamline an outdated industry. I usually look for industries that have a lot of paper and pencil processes, and I know that there is a lot of innovation in those industries. So I knew that it was this upcoming tech where financial data providers and banks are opening up their information to the consumer, with their consumers’ permission, so I figured that there might be an opportunity here in the lending space to help verify income using this new technology.

And while I started in the lending space, there was a lot of regulations that I could really dip my feet into, so I went into property management. I found a partner who is also based in Seattle and owns a property management company. We partnered together and I wrote the software for his property management company to verify income, and he became our first customer. Once we nailed the product down, we started selling it to property managers all across the nation.

Joe Fairless: Ah, good for  you two. That sounds like a very logical progression. When you first created the software, what did it do or not do, compared to its current state today?

Stephen Arifin: Let’s see… That was ways back.

Joe Fairless: How long ago was it?

Stephen Arifin: It was about 2,5 years ago.

Joe Fairless: Oh, come on. That’s nothing. [laughs]

Stephen Arifin: That’s true.

Joe Fairless: Many iterations ago though, right?

Stephen Arifin: Right, right. It took a long time to get the data that property managers wanted to see in a report. So I was new to this industry back then, and I was learning as I went… And I learned what type of data property managers wanted to see when they were verifying an applicant for income. For example, we would just print out the annual net income for an applicant. The annual net income and the monthly net income. But we didn’t really have the data to back it up, or we didn’t show that data in the report. So as we got more feedback, property managers were like “Hey, I see this number, but I don’t really see where is the proof of this number.” So we started adding in all of the transaction  data and the direct deposit data to back up that claim. That was one of the ways that we helped improve the product.

Another way was that the applicants themselves – we were a little bit hesitant, because in order for you to use our service, it’s consumer permission data, so the applicant has to give permission to pull the data from their bank. And we were like “Will any applicant do this? Is it easier for them to get pay stubs, or W-2’s, or the traditional ways of verifying income?” and we found that with the correct messaging and many iterations the applicants actually love it, because it’s super-easy for them. They don’t have to dig around for pay stubs, or W-2’s or bank statements, and it takes them about 30 seconds. So we think we really streamlined the income verification process.

Joe Fairless: I imagine that messaging was pretty tricky, because you’re basically asking “Can we get access to your personal bank account?” Right? That’s basically what you’re asking.

Stephen Arifin: Correct. Just read-only access. We just take a snapshot. But yes, it was tricky.

Joe Fairless: How does that work? Do they have to give you their password?

Stephen Arifin: Yeah, so essentially we’ve partnered with a lot of data providers that handle this, so we actually never see sensitive credentials… But the way they authorize their bank for us to pull data is that they just log in to their bank account. Sort of like Mint. I’m not sure if yo’re familiar with Mint.

Joe Fairless: Yeah, I am. I signed up for Mint more than ten years ago. I don’t use it anymore… But remind me how that works again, with Mint.

Stephen Arifin: So Mint is a financial aggregator and an investment aggregator. You can see all of your investments and your accounts in one place. They’ve fixed the issue for manual data entry by just automatically linking to your bank account. So you can sign into your bank and then they will consistently pull transactions, and Mint will show you an overall snapshot of your finances.

I think that sort of helped our service with the acceptance, because more and more people are starting to realize that this is actually a thing, and they’re more willing to authorize their bank for us to do this.

Joe Fairless: What messaging at the beginning did not work?

Stephen Arifin: I think it would be easier for us to say which messaging did work, because we’ve tried a lot of things…

Joe Fairless: [laughs] A lot of it didn’t work, and then you landed on the right messaging, and now it’s pretty smooth?

Stephen Arifin: Yeah, we’re actually seeing a compliance rate of 97%.

Joe Fairless: Wow…

Stephen Arifin: It’s blowing my mind as well.

Joe Fairless: What did it use to be, in the worst of the days?

Stephen Arifin: We didn’t explain to the applicant really what was going on. We were sort of like “Hey, sign into your bank. Okay?”

Joe Fairless: “Trust us.”

Stephen Arifin: And everyone was like “What the hell?” But now what we do is we help educate the applicant of what’s going on…

Joe Fairless: How do you do that? I understand the wording you said… You train the staff, or do you have a pamphlet, or is it an email, or what?

Stephen Arifin: So during the income screening request, how it works is that the property manager sends a screening request, and what that does is it sends an email or a text to the applicant, and they get directed to our site. And before the actual screening request occurs, we break down this process; it’s a three-step process. The first thing you do is you connect your bank, and you do that by authorizing your bank account by logging in… And then once you connect your bank, we’ll actually show you the income report and the income data to the applicant. They’re not able to change it, but we show it to them, for one, to comply with FCRA, and also number two, it gives them more of a reason to authorize their bank.

So it’s like, “I’m gonna authorize my bank… I’m gonna see my data first, before the property manager sees it, and I’m gonna make sure it’s all correct.” And once the applicant confirms that their data is correct, they produce the report, which gets sent to the property manager, and a copy gets sent to the applicant. And really, just breaking down those three steps in the very beginning has really helped a lot.

Joe Fairless: So let’s talk about income verification and what specific things that you provide. You mentioned that you provide the proof needed to show the annual monthly net income… What if someone does not have a typical salary/direct deposit job? Is there any way that you can verify income through a non-traditional employment?

Stephen Arifin: That’s a great question, Joe, and we get that question a lot. So we have algorithms running, and it can classify which deposit streams are regular deposits… And those are usually the easy  ones. The pay stub every two weeks, like clockwork. But a lot of renters don’t have that steady income, and they could be receiving income by check, they could be cash-based earners, tip-based earners, like waiters and waitresses… And we actually have a classification in our income report called Irregular Deposits. So what that does is it classifies all of the deposit history that don’t come in at a regular time. This can include tax returns, alimony deposits, and check deposits. So we try to classify which deposits are recurring, but we don’t filter any other deposits out… Because I think it helps paint a better picture. Not everyone makes a paycheck every two weeks.

Joe Fairless: What’s a couple other updates that you’ve made recently, if any?

Stephen Arifin: We’ve added the ability for the applicant to add a comment or an explanation to the income report, and that really helps, where they can say “Hey, I’ve been on vacation for the past three months” or “I’ve been paternity leave for the past three months, and that’s why you see a gap in our income between these dates”, which just helps the property manager spend less time… Because the property manager would ask “Hey, I see a gap. What’s with this?” and then they would have to have a whole email correspondence. Instead, the applicant can just put in some comments, and it would appear on their income report. We’re all about trying to have the property manager save time.

And a change that is in the works is that we want to support multiple banks. Many people split up their direct deposits between different financial institutions, and we want to be able to collect the whole holistic picture of their financial snapshot. So that’s coming in the works.

Joe Fairless: When someone works with your company, how much does it cost?

Stephen Arifin: Our retail price is $10/report.

Joe Fairless: And when you say “retail” – I guess there is a bulk order, or how do you structure that?

Stephen Arifin: Yes, we partner with a lot of software companies, and they look at us and say “Hey, everyone’s got credit screening, everyone’s got background screening, but we wanna include your income verification into our products and be able to provide that to our landlords and property managers. So that’s how we grow really fast, and doing wholesale sort of partnerships where they can order our income verification from their software. It’s a really tight integration.

Joe Fairless: Anything that we haven’t talked about that you think we should as it relates to the income verification process that you all provide?

Stephen Arifin: I would say the biggest thing that really made us take off and our customers start to love us is when we started building integrations with other property management software companies, like AppFolio, Buildium, Yardi, RentScreener – all the popular ones. We made it so that property managers can request income screening requests directly from, let’s say, AppFolio. So they no longer have to open a new window, just have some sort of disaggregate workflow. It can be directly from AppFolio’s site, and that makes it really easy to train their staff about this new tool… Because every time you use a new tool, you have to change your process a little bit. And I think what has helped the uptake with our income verification tool is that it’s so simple. It’s really simple, so we wanna keep it that way.

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

Stephen Arifin: They can email me at Stephen [at] theclosingdocs.com, or they could just go on our site, and we have a contact form there, at theclosingdocs.com.

Joe Fairless: I enjoyed learning about this. I always love talking to entrepreneurs. I have a lot of respect for entrepreneurs, and the process in which you came to this point is such a natural evolution, and it makes sense for why you’re offering what you’re offering, and clearly there’s a lot of need for that… As you said, you looked for paper and pencil processes and ways to automate that so it’s not the case, and it saves us all time and money, and actually could make money too on that.

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

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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JF2104: Financial Samurai With Sam Dogen

Sam Dogen is the founder of Financial Samurai and has been providing content to the world through his free blogs and articles around topics that will help you with your financial literacy and goals. He Has also been in the real estate investing experience for 17 years and shares some of his experiences with this and his personal journey.

 

Sam Dogen Real Estate Background:

  • Founder of Financial Samurai
  • Has 17 years of real estate investing experience
  • Owns multiple properties in San Francisco, Honolulu, and Lake Tahoe
  • Commercial real estate portfolio consists of 15 properties
  • Based in San Francisco, CA
  • Say hi to him at: https://www.financialsamurai.com/ 
  • Best Ever Book: Thinking in Bets

 

 

 

 

Click here for more info on groundbreaker.co

 

Best Ever Tweet:

“I love the green marble theory.” – Sam Dogen


TRANSCRIPTION

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

Sam Dogen: Good. How are you?

Theo Hicks: I’m doing great, and thanks for joining us. A little bit about Sam – he is the founder of Financial Samurai. He has 17 years of real estate investing experience, owns multiple properties in San Francisco, Honolulu and Lake Tahoe; he has a commercial real estate portfolio consisting of 15 properties. He’s based in San Francisco, California, and you can say hi to him at his website, FinancialSamurai.com.

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

Sam Dogen: Sure. I actually grew up overseas, all across Asia and in Africa, because my parents were in the U.S. Foreign Service. I came to high school in the United States, and then I went to college at William & Mary in Virginia. Then I went to work on Wall Street in 1999. So I worked in finance, mainly international equities from 1999 to 2012, and in 2012 I decided to negotiate a severance and get out of there… Because after the global financial crisis in 2008-2009 it just wasn’t fun working in finance anymore. We were always the bad guys, even if we had nothing to do with the housing market.

Again, I was in international equities, specifically Asian equities, and it just didn’t feel good to work in that field anymore. Also, the pay wasn’t commensurate with the performance anymore. You could have done really well with your clients, generate a lot of business, but you wouldn’t have gotten paid commensurately, because Wall Street finance was busy subsidizing a lot of money-losing departments. So I decided “You know what – it’s been a good career.” Originally, I wanted to work until I was 40, but instead I left the industry when I was 34, and I decided to travel, spend more time with my wife, and focus on FinancialSamurai.com, which is a personal finance site I started during the depths of the previous financial crisis, in July 2009.

Theo Hicks: So Financial Samurai is like a blog where you post personal finance advice… Does that tie into real estate? Is your advice for people to go out there and buy real estate, or is it dependent on their personal situation?

Sam Dogen: FinancialSamurai.com is a personal finance site. I talk about everything from investing in stocks, to real estate, to early retirement, to career, to negotiating your layoff, to family finances, insurance and so forth. So I try to cover every aspect of what someone would think about in their lives. And money really touches upon all of us.

Real estate is about 40% of my net worth, and is something that I’ve been doing since 2003, in San Francisco… And real estate is my favorite asset class to build wealth, because it’s a tangible asset, it generates income; it’s pretty sticky on the way down during tough times, and you get to benefit from the upside, and it provides utility.  What an amazing asset class to be able to enjoy it, to provide shelter for your family, experience great memories, and maybe even make some money in real estate. So real estate has been my favorite asset class to build wealth.

Second has been stocks. I was in the stock market, in that business for 13 years. However, I think my favorite after stocks is online real estate, so owning web properties such as FinancialSamurai.com.

Theo Hicks: Nice, I never thought of it like that, online real estate; I like that terminology. Okay, so you have 15 commercial properties… Is that your entire portfolio? Are those the ones that are in San Francisco, Honolulu and Lake Tahoe?

Sam Dogen: No, the property that I owned in San Francisco, Honolulu and Lake Tahoe are physical real estate properties that I’ve bought, and that I enjoy, and I use, and I rent out, and I’m an active landlord there. And regarding my commercial real estate portfolio, it’s essentially through real estate crowdfunding, where after I sold one of my main San Francisco rental properties in 2017, because I wanted to simplify life and diversify out of San Francisco, I basically invested in a fund that had 17 commercial real estate investments, and two have exited, and there’s still 15 left.

So my thesis was to diversify across the heartland of America, because back then I was thinking to myself “Well, the cap rates are so low in San Francisco…” We’re talking 2% – 3% cap rates… And it’s just so expensive here, and I have so many investments already that I needed to diversify.

So with the proceeds that I got from the sale, I decided to diversify across the nation, and the thesis was that work from home would be more and more prevalent, telecommuting, people would be able to go to lower parts of the country to still earn a similar amount of income, but save a lot on costs. And with the lockdowns and the global pandemic I think that trend is definitely accelerating, and I’m excited to see what happens next.

Theo Hicks: How did the returns from that fund you invest in compare to your rental properties?

Sam Dogen: In San Francisco real estate has been going up; at least since 2012 it’s been a bull market. Real estate is about 80% to 100%, and now it’s probably plateauing right now… So San Francisco real estate probably increases by 6% to 7% a year. It has been. And that’s been pretty good. Obviously, let’s say with 20% down, so you have leverage… So a 6% return times five, that’s 30% return on your cash… So that’s great. But it slowed down in 2018, and 2019 was kind of “Meh…” and it started picking back up at the end of 2019. In early 2020 it was pretty good, until everything started getting locked down. So now everything’s in a wait and see mode.

In terms of commercial real estate, since about 2015-2016 when I started investing – because I invested before; I’d sold my main San Francisco rental property in 2017 – the returns have been around anywhere from 12% to 16% a year, which is great, especially if you don’t have to manage the property. And that’s one of the things that I like about investing in these properties – because it’s 100% passive income; you’ve got a professional manager there, you’ve got the lawyers and all those people doing the stuff, and  you just collect income and then you have to file the taxes.

Now, in 2020, things have obviously changed a lot due to lockdowns. So I will have some losses on properties that are in the hospitality space. For example a hotel. Surely, that property’s gonna be going down in value because nobody’s going at the hotel. It’s like an airport hotel, a Sheraton in Dallas. But the portfolio is 15 properties, so I’m assuming there’s gonna be some losses, but overall I think it’s gonna do well. If we can rebound and get out of this lockdown phase sooner rather than later, hopefully third quarter of 2020, I’m optimistic that things will get back on course.

Theo Hicks: Just to confirm – that fund of 15 properties, you’re getting 12% to 16% per year?

Sam Dogen: Yeah.

Theo Hicks: Wow. How did you find that fund?

Sam Dogen: Well, there’s a lot of real estate crowdfunding platforms. Financial Samurai is a relatively large website; it’s got about one million visitors a month organically… So there’s a lot of opportunity; you just have to go wade through a lot of opportunity. But there are many real estate crowdfunding platforms out there. I’ve been able to talk to a lot of the top ones and a lot of the big ones, and some of them don’t make it, frankly… But some of them do. And the assets they allow you to invest in are separate LLCs that continue to go on regardless of what the platform does.

So in the old days you would basically invest in a real estate fund through your network. You have a friend who’s in real estate development, he wants to raise some money, you participate, you’re a limited partner etc. Today you can go online, you can obviously buy REITs, you can buy private REITs, and you can go directly through these platforms that connect you with other sponsors.

Theo Hicks: So you’ve found this deal through your website. Someone came to you with the deal, or someone posted it on your website?

Sam Dogen: Yeah, through my website, for sure.

Theo Hicks: One thing that we stress a lot is about building a brand – our’s is a podcast website – for building a real estate company. You talk about personal finance. Is that something that — you also mentioned owning online real estate, owning websites… So what’s some advice you have for someone — well, I guess then you also have a million organic views per month… So what’s your advice for someone who wants to start getting into what you call the online real estate and owning a website? Should they build their own, should they invest with someone else’s website? What does investing in someone’s website even look like? …things like that.

Sam Dogen: I think one of the key things you have to do is own your brand and build your brand. You don’t want another platform to own your brand, for example Facebook, Twitter, LinkedIn, whatever. They are already huge companies, and they’re getting rich off your content and your brand. So instead of spending all your time tweeting about random stupid things on Twitter, build your own brand and start your own website, and start talking about all the things you care about on your website. It’s the green marble theory that I like to think about and say, and that is if you have a green marble, maybe it’s the ugliest green marble in the world; you put it on eBay and someone will find that green marble and wanna buy it. So if you put yourself out there, based on your own brand and what you care about, you’re going to find your tribe organically eventually. Google obviously has been around for over a decade now. They’ve done their algorithms very well. They’re gonna help people who are looking for stuff that you like, and connect. And that is really key, to build your brand and do it on your own platform.

The other thing is you need to be consistent. You can’t give up before the roses bloom. Too many people I see just work for six months, maybe a year, and then they stop doing it… But they stop right before things start getting good. So I believe the secret to success is to do something very consistently, for 5-10 years. After about three years you should definitely start seeing some results, but too bad people can’t stick with things for more than one or two years, because they just want instant gratification. But this is a long game, and if you plan to be alive for decades, then you have plenty of time to build your brand.

Theo Hicks: That’s really good advice about building your website, but specifically the 5-10 years, thinking in terms of decades rather than days and weeks and months. So you did mention about not going out there and tweeting your thoughts, as opposed to building your own website and then you’ll [unintelligible [00:13:37].23] organically. So do you recommend just posting on the website and that’s it, and then letting people find you on Google organically? Or should I still be sharing the content from my website on social media?

Sam Dogen: Of course, you create the hub. You create your pillar, awesome content, whatever it is you wanna talk about. If you wanna talk about real estate, go ahead. If you wanna be a real estate specialist, go ahead. If you wanna be a personal finance generalist, or just focused on stocks and real estate and family finances… Whatever you wanna do. The world is big enough; there’s billions of people on the internet. Focus on what you care about and you are best at. And then the spokes are social media; make sure what you’re doing on social media is helping you build your brand, not hurt your brand. A lot of people have blown themselves up on social media saying things and then just getting fired, or just crushed.

So think about the spokes after you build your hub, your own brand. So the spokes are maybe doing a podcast, getting on a podcast like this one. Social media. Maybe speaking at conferences, if they ever come back. But focus on the hub.

Theo Hicks: Okay, Sam, what is your best real estate investing advice? You can also apply it to personal investing advice too, but what’s your best ever investing advice?

Sam Dogen: In terms of real estate, I would say be patient. Every time you see an amazing property, it’s just human nature to get all excited and say “I’ve gotta buy this. This is amazing. Please, nobody else bid against me. I’ve gotta buy! Buy, buy, buy, buy!” But the reality is if you miss this one, it’s okay; there’s gonna be another amazing property that’ll come along. So I really stress patience and running the numbers, especially during a turning point where we don’t know what’s gonna happen with the economy, with 40 million-plus people unemployed. Is the government really gonna support us indefinitely? Are we gonna find a vaccine within the next 12-18 months? There’s a lot of uncertainty, so right now patience is a virtue. Don’t rush, don’t go panic-buying, don’t go panic-selling. You’ve really gotta run the numbers and think things through. If you miss out, it’s okay; there’s gonna be other opportunities along the way.

Theo Hicks: Alright, perfect. Are you ready for the Best Ever Lightning Round?

Sam Dogen: Sure.

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

Break: [00:15:53].00] to [00:16:42].07]

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

Sam Dogen: Let’s see… I have been recently reading Annie Duke’s “Thinking in Bets.” I think it’s an excellent book and an excellent way to think about investing. There’s never a 0% probability or a 100% probability. There’s always going to be some kind of grey area, and you’ve gotta think in bets, think in percentages.

So right now, with the S&P 500 at 3,000, for example, it’s rebounding by over 32% from the mid-March lows… What is the expectation or probability that it’s gonna go up back to its record high, another 10% up from here? I would say maybe 30%. But that also means 70% is not gonna get there. So in that regards, I position my portfolio according to the probabilities that I believe in. So thinking in bets.

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

Sam Dogen: Right now I have about 250k-265k in passive income, excluding my website, except for 50k. 50k comes from selling a severance negotiation book… So if my website collapsed today, I would have about 200k to 215k a year in passive retirement income. So that would be a 20% loss to my passive retirement income. Then I would basically look at my budget and make sure I’m spending within my means… Because that’s obviously the bottom line of personal finance – spend within your means.

Now, in terms of the active income I was making from Financial Samurai through advertising and so forth, I would first take a moment to grieve, because I’ve been working on this for 11 years, and then I’d take a moment to be thankful that it’s given me so much back in terms of community, in terms of learning from other people, in terms of doing something that provides me joy… And then I’d think about maybe taking a six-month break, and then I would think about maybe starting something else better or newer, and learn from my mistakes.

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

Sam Dogen: In terms of giving back, I think the best way to give back is to write on Financial Samurai. Every single article is free, there’s no paywall. I talk about highly, highly pertinent things in our lives right now, whether it’s “What should you do after the stock market has rebounded by 32% from the bottom? Should you buy, hold, sell?” I talk about “Should I apply to pre-school and spend $2,000/month? Yes or no. Should I save x amount in my 529 plan so my child can go to college in 18 years, when everything will be free and college will be completely not worth its value?” I talk about these important things for free, and to help people engage and to encourage the audience to share their perspective, so that we can all learn from each other… Because nobody knows everything, and we all only know from our experiences and how we can do things better.

So I think that’s the best gift – to share what you know, consistently, for free, to as many people as possible? Because so many people will just go through and live the same thing that you went through just the past 5, 10, 15, 20, 35 years, and they could avoid all those landmines if the experienced people spend some time sharing what they did wrong and what they did right. That’s my plan.

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

Sam Dogen: Oh, just financialsamurai.com. I’m always reading the comments, you can always leave a comment. It doesn’t matter how old the post is, I’ll see it. You can go on Twitter if you want, but Twitter is something that I try not to spend too much time on. Basically, those two places are probably the best.

Theo Hicks: Perfect. Sam, I really appreciate you coming on the show today and providing your best ever advice. I think the biggest takeaway for me was your advice on owning websites and your analogy of the wheel, and how you don’t want to let other larger online platforms own your stuff. So you don’t wanna just be posting on Facebook or LinkedIn or (as you mentioned) Twitter. Instead, you want to be the hub yourself, so have your own website, focus on what you care about and what you’re best at on that website. And then the spokes are the secondary outlets, things like social media, podcasts, getting on a podcast, speaking at conferences. So those things are not the hub. The hub is you and your own website. So start working on your own brand and building your own brand, and make sure you’re the owner of it.

And then how to actually grow that – you talked about the green marble theory; you’ve got a green marble, and even if it’s really ugly, you put it on eBay and someone’s gonna want that green marble. So if you put yourself out there and you talk about what you care about, and you do it consistently, and you don’t give up before the roses bloom — and by consistently you mean 5-10 years… Not giving up after a year or two years or three years – then eventually you’ll find your own tribe organically.

And then obviously you talked about your real estate portfolio, the types of returns you’re getting on it, how real estate is your favorite asset class to build wealth, followed by stocks, followed by owning real estate… So again, Sam, I really appreciate you coming on the show. I look forward to reading through some of your content. I really liked what you said about the college thing; I hadn’t thought about it like that before… But again, thanks for 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.

Sam Dogen: Great. Thanks a lot.

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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JF2102: From Military to Millionaire With David Pere

David Pere is a full-time active duty Marine and the founder of “From Military to Millionaire”. He has bought and sold 54 units, holds 13 rentals, and is a general partner in a 146-unit apartment. He discusses one of his deals that he had a headache within creative financing and shares what he would have done differently. David also goes into his process of mailing to absentee owners.

 

David Pere Real Estate Background:

  • Active duty Marine
  • Started investing in real estate in 2015
  • Founder of “From Military to Millionaire”
  • Has bought and sold 54 units (one of them being a 40 unit), holds 13 rentals, and is a general partner in a 146-unit apartment
  • Based in San Diego, California
  • Say hi to him at: www.frommilitarytomillionaire.com 
  • Best Ever Book: Like Switch 

 

 

 

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Best Ever Tweet:

“Stuff isn’t always going to go your way, don’t invest money you can’t afford to lose.” – David Pere


TRANSCRIPTION

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

David Pere: I’m doing well, brother. I appreciate you having me on. I love your show.

Joe Fairless: Well, I thank you for that, and I’m glad to hear it. First off, you’re active duty marine, so thank you, sir, for everything you do, and you and your colleagues letting us have this time to be free and have these conversations… So first and foremost, I have a lot of respect for you and all of your colleagues.

Dave started investing in 2015. He’s the founder of From Military to Millionaire. He has bought and sold 54 units, 40 of those 54 being a 40-unit property. He holds 14 rentals and is a general partner in a 146-unit apartment community. Based in San Diego, California. With that being said, do you wanna give the Best Ever listeners a little bit more about your background and your current focus?

David Pere: Absolutely, brother. As you mentioned, I mentioned the Marine Corps in 2008. Sometimes, I would say a lot of the world, like it’s a great thing, sometimes I’d say too much of the world… But I had a lot of experience just with people in different cultures. In 2015 I was a recruiter in the Midwest. Someone handed me the book Rich Dad, Poor Dad, I told them I don’t read, kind of joking… Like, “I am a marine… What do you think? I’m hard-headed.” And the guy literally pulled a CD disk out of his pocket and was like “Well, you spend a lot of time driving in your car, so here you go.” And I was like “Ahh, he got me. I’ve gotta listen to this.”

Within three months I had closed on a duplex, house-hack – living in one side, renting the other, doing that good thing… And then about six months later I got orders to Hawaii. I was like “Man, it’s a lot more expensive over here.” I got a bunch of offers declined, I couldn’t find anything that worked to buy… So I just kept buying in Missouri. I started a long-distance thing. I had the duplex, then I bought a single-family that we did the BRRRR strategy before I knew what that was. We renovated it, then we rented it out, and then a few years later — we didn’t refinance, we pulled a HELOC on