JF2440_ Building A Real Estate Business That Serves Your Life Goals With Lars Hedenborg

JF2440: Building A Real Estate Business That Serves Your Life Goals With Lars Hedenborg

Lars left a cushy corporate job to do real estate. One of the requirements of the job was having to travel a lot, and he couldn’t be a good husband and a dad doing that. In 2007, Lars got his real estate license, but he quickly realized that real estate wasn’t what he thought it was. He was hoping for flexibility and more free time with his family. Instead, he was facing the 70-hour workweeks again.

Since marketing and lead generation was his favorite part of the job, he started looking for ways to restructure his business to fit his interests and life goals.

Lars Hedenborg Real Estate Background:

  • Founder of Real Estate B-School; providing training and coaching to top producing agents and team leaders.
  • He went from working 70 hrs a week to one day a week through his trial-and-error development of a system driven-business
  • 13.5 years of real estate experience
  • Lars has helped facilitate 4,000+ home purchases since 2007
  • Based in Charlotte, NC
  • Say hi to him at: www.realestatebschool.com 

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Best Ever Tweet:

“Just cause you could hand-write an envelope and stick a stamp on something, doesn’t mean that it’s the best use of your time” – Lars Hedenborg.


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 Lars Hedenborg.

Lars, how are you doing today?

Lars Hedenborg: I’m doing awesome, Theo. Thanks for having me.

Theo Hicks: Thank you for joining us today. Looking forward to our conversation. Before we dive too deep into that, let’s go over Lars’s background. So he’s the founder of Real Estate B-School, which provides training and coaching to top producing agents and team leaders. He went from working 70-hours a week to one day a week through his trial-and-error development of a systems-driven business, so you better believe we’ll be discussing that. He has 13 and a half years of real estate experience, and has helped facilitate over 4,000 home purchases since 2007. He is based in Charlotte, North Carolina, and his website is https://www.realestatebschool.com/.

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

Lars Hedenborg: Yes, for sure. So I got into real estate as an investor. So I had hooked up with a local agent and I had just moved to Charlotte, North Carolina. And the numbers on investment properties here worked a whole lot better than where I came from, New Jersey. So that’s kind of how I got into real estate. I left a pretty cozy corporate job. I was doing acquisitions and strategy for an aerospace company. Really cool job, and I was traveling—one year I did 250,000 miles in an airplane. So I think that year I hit 28 countries, or something like that. So I got to see the world and just a unique experience, but it didn’t lend itself at all to any kind of cozy home life; I couldn’t be a good dad, couldn’t be a good husband… And traveling takes a toll on your physical body as well.

So fast forward to 2007—I actually got my license in 2006/2007. March that year I left my corporate job, and quickly realized that—and this is like anything you do; I quickly realized that real estate was not what I thought it was. What you learn in school is not what you actually practice on a day-to-day. So I had to learn how to generate leads, I had to learn how to pick up the phone and talk to people, and what to say to compel them to take action.

I got really good at the marketing and lead generation part of it, and I realized quickly that I worked up real fast to 70 hours a week and most of the 70 hours were spent doing things that I didn’t like doing them, and I could build a system to have somebody else do them. And that’s basically what I set out to do, is just build a business, versus a typical successful real estate agent who’s working 70 hours a week, and they’re selling a lot of homes, and they’re miserable. And it’s not a great life.

So that’s kind of the short version—the 4,000 families served, I did about 5% of those deals personally as the real estate agent. So I quickly built a business that could do the job of real estate agent, so I wouldn’t have to.

Theo Hicks: That’s great. So I’d love to dive deeper into that journey. Before we get into the specifics, maybe just high level… So you said you got your license around 2007, and that eventually, you were working 70 hours a week, and now you’re working one day a week. So from a time perspective, how long was it from when you started to when you sort of were working 70 hours a week? How long were you working 70 hours a week? And then how long did it take you to go from 70 hours a week to one day a week?

Lars Hedenborg:  It took me about six years total, from 2007, to me doing my last deal in 2012. So my last personal deal; my business did 248 deals in 2012, and I did one of them. Then we did 312 the next year, and then over 400 in 2014. In 2014 I worked 42 days. So if you look at 2007 and 2014, in 2007/2008/2009, that’s when I ramped up quickly and I got super-busy… Because I figured out lead gen, and I used a simple script and some Craigslist ads and the market was collapsing, so I was advertising distressed sales… So I figured out how to generate a ton of leads, and then I just surrounded myself with people that were willing to do the same thing that I was doing, other agents that couldn’t generate leads or say the right things or have any discipline or cadence and structure in their day. So it probably was a three-year period where I was working quite a bit of hours, and then ratcheted down from 2010 to 2014 from seven, six, five days, three days, two days one day, pretty rapidly.

And that’s when I started Real Estate B-School 2013. The B stands for business. So it’s essentially all the same stuff that we teach to top agents and team leaders across the country… It’s just leverage and systems and not doing every job; just because you can move paper around in a file, or if you’re doing mailers, like as an investor, let’s say you’re mailing defaults or something – just because you could hand-write an envelope and stick a stamp on something, it doesn’t mean it’s the highest and best use of your time.

Theo Hicks: Sure.

Lars Hedenborg: I just got really diligent and super ruthless about getting out of the things that were lower dollar productive tasks. I just did that for four or five years in a row, and I ended up to the point where there’s not a whole lot left for me to do.

Theo Hicks: So let’s kind of take it step-by-step. So you kind of talked high level how it’s accomplished, but I’m just curious to see how exactly you did it. So 2008/2009, you were working 70 hours a week and then you make a decision to want to reduce that time investment. What’s the first thing you did?

Lars Hedenborg: That’s a good question. So I slowed down a lot. So on the one hand, I was running and gunning. On the other hand, whether once a quarter or once a month or once a week, I would just step back from what I was doing and just look at, “Where am I spending my time where it’s out of bounds?”

Let’s say I would be willing to work Monday through Friday, 9-5; I was willing to work 40 hours. Where am I completely out of bounds on just time? And if we’re showing homes – so buyers want to look at homes in the evenings and they want to go out on weekends… So I would maintain the business relationship with the buyer, but I would have another agent show them homes.

I can pay an agent 20 bucks an hour to show homes and I can get those people to do that all day long. The average real estate agent, I think, makes 40 grand total a year. So that’s 20 bucks an hour, maybe even less than 20 bucks an hour. So I know for 20 bucks an hour, plus a little bonus if they write a contract, I can get out of all of that work. So that’s the first thing I did. But it came from me looking at my calendar. I would keep an electronic calendar, so I’d just go back three or four weeks and just look at what are all the things that are out of bounds. So that was the first thing that I got out of.

And then the second thing was the same thing with listings – I found myself going on listing appointments, a couple evenings a week and Saturdays [9:00], [11:00] and 1:00 pm. For a couple years, I would do three listing appointments every Saturday morning. And again, for me to get out of listing appointments, I just wrote down all the things that I did; how did I prepare for the appointment? What did I send in the mail beforehand? What did I say when I got to the front door? What presentation did I use? How was my paperwork set up?

So literally, just documenting our eight-step listing system, writing it down and then teaching somebody else to do it.

Break: [00:07:58] to [00:09:59]

Theo Hicks: I’m just going to go back to those first two. You told us what you did; you learned the process, hired someone. Where did you find these people? And how did it work? Was it just they’d do it and you’d slip them a $20? Or were they people that actually worked for you full-time? Or were the other agents in the brokerage you were working for at the time? Who were these people?

Lars Hedenborg:  We’ve done it both ways. When I first started, I started attracting agents, because I instantly got busy; I was a top producer, I had too many leads. So I brought — that year, 2010, that’s kind of when I launched my team and I had four agents that came into my team. So they wouldn’t get the whole commission check. I would take on the burden of spending money on leads and providing office space and all of that. I’m trying to remember your question. Your question was—

Theo Hicks: Who were these people? Where did they come from?

Lars Hedenborg: Yes, those agents would work on their own book of business, their own buyers, where they would earn a split on the commission check, but they’d also double as my showing agents. So I would just say, “Hey, listen, I’ve got a client that wants to go out Saturday to look at homes for two hours. Who can take it?” And typically, the agent that volunteered, they would just stay with that client for the whole time.

But then we’ve also done it where we’ve just had agents in our office or any agent with a license can provide a showing service for us, knowing that we maintain the relationship, and if they want to keep working with us that they can’t overstep their bounds on trying to own that relationship. Because money is money. And we would do it after the transaction; they would just account for their time, and a pretty basic system. It’s not all that complicated.

Theo Hicks: So these are the other agents that were in the same office as you? That kind of saw you being very successful and had all these extra leads, and you said, “Hey, do you want to do the showing, and I’ll give you 20 bucks plus a little bonus if you get the contract?”

Lars Hedenborg: Yes, most of it was they were really close to us. They were either on my team or they showed homes for me exclusively.

Theo Hicks: Okay. So these are the first two things you did. So you’re no longer doing the showings and you’re no longer are doing the listing appointments.  What were the next thing that you contracted out to other people?

Lars Hedenborg: It’s the same process. So getting out of the client-facing stuff. So once I was out of working with clients, naturally, there was just less drama, less weird phone calls on a Friday night when I should be relaxing with the family… So that brought it down to five days a week. And then I just made decisions, “So what am I doing? If I could only work three days a week, what would I have to shed from my calendar to work three days a week?” And it probably was managing our marketing. So I could hire a marketing coordinator for 20 bucks an hour and manage our Clients for Life Program, all of our social media; that was probably one day, maybe even more than one day a week. And then I probably wasn’t even working five days a week, I was just physically there five days a week. So I just challenged myself to go to three, then go to two and then go to one. And it was harder to go from seven to five than it was from five to one.

Theo Hicks: Huh… Okay. So now what do you do with your spare time?

Lars Hedenborg: I did the same thing in the coaching business, too. I went from 30 hours a week in the coaching business, down to three hours here just recently with the same philosophy. I was like, “Well, do I really need to do that?” We do a pretty high-quality video a day to YouTube, but I just record for 12 hours every two months. And then I have a team that slices up everything. So again, it’s just looking at my time. So that’s the real estate team, then the coaching company I’m down just to one-to-many stuff like this, or I have a training session with our high-level group after this… There’s a real estate company, a cloud-based real estate company called the eXp that I’m working with, that’s been phenomenally fun and really disrupting the real estate industry. So that’s the thing I’m working on most of my time now.

Theo Hicks: Okay. So kind of going back to the beginning, you decided, “Okay, I’m working seven days a week. And I look at my calendar, and I’m spending the most time out of bounds on showings and listing appointments. So I’m going to hire someone to do those for me.”

Now, how do I know when I’m ready to do that? Is it I’m listening to this, I can do it right now? Do I need to make a certain amount of money? Is there some sort of calculation you did and get to understand what your dollar per hour was worth? And then what types of things did you contract out? How should I be thinking about this? How do I know that I’m not jumping the gun in hiring an employee before I can even handle it?

Lars Hedenborg: Yes, it’s a really good question. So we have six stages of growth that we teach on Real Estate B-School. And if you go to https://www.realestatebusinessgrowth.com/, you could pick up a copy of The Real Estate Business Growth Navigator. It’s like a 16-page report that I put together, that takes you through all of the stages of growth. And it really just describes — most of the industry lives in start mode. It’s less than 100,000 of gross commission income. Most of the people come into our world 100,000 to 500,000 of gross commission income, and to move past that you need to shed everything that’s administrative. So it’s hiring a really good administrator that will get you to a million, then you’re probably hiring a showing agent or a buyer agent or two or three, which is the next phase of growth that’ll get you.

So there’s each step of the process, but it also is $1 per hour. I made $18 an hour, my first couple years in real estate, and the year I worked 42 days, I made $2,300 an hour. So it’s a combination — there’s only so many things in any business that’s really only I’m the one that can do this; like, nobody else can do this except me. So that’s a good resource. If there’s somebody literally that’s wanting to scale their real estate business that’s listening to this, I would definitely go and just grab that. You’ve got to give us your email address and we’re definitely going to not spam you, but we’re going to send you some more value once you opt in. But it’s a really good resource that would help anyone that really wants to — and really for anyone that’s growing a business, all the concepts are—

Theo Hicks: Exactly. That’s what I was going to say, it sounds like explanations as to why these other phases and when to move on to each is definitely going to be applicable to anything; you just need to be a little bit creative to apply it to something else. Thank you so much for offering that resource. We’ll make sure that we put that in the show notes.

So Lars, traditionally, we say, what’s your best real estate investing advice ever. But since we’re talking about scaling businesses, as it relates to scaling businesses, what would be your best ever advice?

Lars Hedenborg: This is going to be painful advice, but I’ll say it anyway… Our most powerful tool that we use with our members is to do a time study. It’s a two-week time study where you’re just figuring out where you spend your time, and then you’re being honest with yourself about are you really spending your time in the highest and best use areas in your business? And typically, it’s 80/20 in the wrong direction. Typically, it’s 20% of your time is spent doing your magic sort of superpower thing, and 80% is wasted or administrative in nature.

We work to flip that, so 80% of your time is in your sweet spot and 20% is doing anything administrative. So that’s one of our foundational tools that we have members do from the start. And then every 90 days we look at “What does a perfect week look like? And what can you delegate from that list of things you’re doing so that you can elevate?”

And that’s the best advice I could give somebody. If you’re not making the kind of money that you want today and you’re not working the hours that you want, and you’re responsible for where you spend your time, you’re just not spending your time in the $1,000 an hour work. And most entrepreneurial ventures investing for sure, I don’t know what it is, but there’s two or three things an investor can do that is probably $1,000 an hour work. And if you were honest with yourself over a month period, how many hours are you spending doing that? Yes, you may go top-heavy so that you can get enough cash saved up to hire the administrator as an investor, but when you look at it as a business, if I were going to build a $10 million real estate investing company, I would have to really be honest about what my superpowers are, what really drives this business and how can I do more of it. So that’s my best advice.

Theo Hicks: I love that advice. I was actually just the other day looking through an old notebook… Because I used to do that, where I would track my time for the week and I’m like, “Okay, well, I need to make some changes here.” Whereas if you don’t do it, you just don’t really know, you don’t think about it; you’re kind of getting that routine and the habit of doing the same thing every week, and you just seem to be using your time usefully, but when you actually review that for two weeks and say, “I just spent three hours doing something completely useless,” it definitely puts things in perspective. Thank you so much for sharing that, Lars.

So are you ready for the Best Ever lightning round?

Lars Hedenborg: Yes, let’s do it.

Theo Hicks:  Alright, let’s jump right into it.

Break: [00:18:32] to [00:19:10]

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

Lars Hedenborg: Oh, man, you threw “recently” in there. The best ever book to wrap your head around and leverage is E-Myth Revisited by Michael Gerber. But then the “recently” part of it – I can’t lightning round it. It’s so much pressure.

Theo Hicks: Don’t worry, E-book Revisited is totally fine. We’ll stick with that one.

Lars Hedenborg: Awesome.

Theo Hicks: If you think of it before the end, you can just blurt it out at random.

Lars Hedenborg: Yes.

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

Lars Hedenborg: If my business collapsed—I really enjoy helping business owners scale. I probably would do really high-end consulting. So I’d probably get five business owners to give me five grand a month to really help them scale their businesses. I think I could find 10 business owners that would allow me to come in and really get them massive leverage.

Theo Hicks: Okay. So usually, we ask about the best and the worst deals, but maybe I’ll change it a little bit… We’re talking about saving time… What’s one thing that you did that reduced your time spent working the most?

Lars Hedenborg: I think every quarter I go through a delegate and elevate. I look at a four quadrant, like “What makes me a lot of money and what makes me not a lot of money?” And then there’s a passion scale. So what are my high passion, high pay; low passion, high pay; high passion, low pay; and then low passion, low pay? All the low pay stuff, if you want to make a lot of money, I don’t care if you’re passionate about it… If you’re passionate about building websites and you spend 20 hours a week working on your website, I promise you’re not making a lot of money in your business. So that’s probably the tool that I would use consistently. And that’s all I’ve done every quarter, is kind of looked at my passion versus pay.

Theo Hicks: So you can answer this question one of two ways. The first one is what’s one thing that you delegated, that you immediately realized that you probably shouldn’t have delegated it and started doing it again yourself? Or if you don’t have an answer that one, what’s the one thing that you see real estate professionals or real estate agents doing that’s the biggest waste of time? The biggest low pay item.

Lars Hedenborg: I’ll answer both real quick.

Theo Hicks: Okay.

Lars Hedenborg: So the first one, when I first got out of listings – listings are the holy grail of real estate. Like, a top agent – that is the super bowl. So you would never give away listings. But I wanted to give away listings, because I didn’t want to work with people. So I gave them away and I completely abdicated out of it, and I let this guy go on 105 listing appointments before I looked in and looked at his conversion rates, and they were abysmal; they were half as strong as mine. So that was just a monumental fail. I learned a ton from it. We reconnected and I went back on 20 more appointments with him and we fixed the issues and we’ve moved forward.

One thing I see agents wasting time on – and this is every solopreneur who thinks they’re a business owner, but they’re really not – they’re spending way too much time on administrative.  80% of their day, they could pay someone less than $25 an hour to do. And if you want to make $250 an hour, which is 2,000 hours a year times 250 is $500,000… Most people would love to see a $500,000 income. 250 minus 25 – every time you’re working on a $25 thing for an hour, you’re losing $225. And most people don’t really look at their day that way. And when you start looking at your day that way, you’re like, “Huh, no wonder I’m stuck at 75 grand. It’s because I’m doing all these things that are only getting me paid 75 grand.”

Theo Hicks: Thanks for answering both those questions. You kind of already answered this, but I’ll ask it anyways – what’s the best ever way you like to give it back?

Lars Hedenborg: To give back – we’re super blessed financially, so as a family, we really challenge ourselves to place money, some of it anonymously with people that are just struggling, and we give to the church, we give to a bunch of different organizations… I don’t give up my time. So I kind of really carry a little bit of a burden around, like — I don’t know, if God is challenging me there yet. I feel like He’s blessed me to make a whole lot of money, and I just need to be a blessing to others… So I hold on very loosely to the money as it flows through me. So that’s the biggest way that I give back.

Theo Hicks: And then last question, what’s the best ever place to reach you?

Lars Hedenborg: I would think for your audience, it probably would be, as a resource, the http://businessfreedompodcast.com/, just like good business advice, the https://www.scaleordiebook.com/, I’m giving away the book for free, so there’s no trick there. But I think those are probably the best two.

Theo Hicks: Alright, Lars. Well, thank you so much. There’s a lot of advice you’ve given in this episode, very powerful. I think it’s really worth relistening to this again. Lars is a real estate agent, or I guess, he’s a real estate agent one day a week, and a lot of his concepts definitely apply to any sort of real estate, whether you’re a passive investor or an active investor; you can even apply these things to your full-time job, and the idea is focusing on how to reduce the amount of time you spend on those low dollar per hour activities, and outsourcing those and spending more of your time on those high dollar hour activities, to the point where you can drastically reduce the amount of hours you’re working every single week.

So that was basically the main focus of the episode. Lots of examples, lots of specifics, lots of step by step of how it worked for you, how it worked for others… But then also you gave away the free book, you said https://www.scaleordiebook.com/, your free 16 stages. The Navigator at https://www.realestatebusinessgrowth.com/. So make sure you check out both of those resources. What was the podcast again?

Lars Hedenborg: http://thebusinessfreedompodcast.com/.

Theo Hicks: http://thebusinessfreedompodcast.com. Lots of resources.

Lars Hedenborg: Theo, can I send you a PDF that you can share? I want to send you the time study exercise. It’s literally just a PDF for anyone that’s willing to take the challenge. I promise you if you print this document out and do what it says, and then shed off the administrative stuff and just do it once a quarter, your life will be changed forever.

Theo Hicks: I will definitely make sure we add that in the show notes. Thank you for sharing all this free stuff. We love free stuff here. So Lars, thank you again so much for joining us.

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

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JF2364: How To Go From A Commission Chaser To A Problem Solver With John Chin #SkillsetSunday

John cut his teeth as a traditional real estate broker. He escaped the “hamster wheel” of chasing sales thanks to a mentor who put him on the fast track to investing. That paradigm shift made him see licensed agents as problem-solvers for homeowners rather than just salespeople.

Now John teaches real estate agents how to leverage their license into creating 8-10 various income streams as opposed to relying on commission alone. In this episode, he talks about his lead intake process that helps licensees make the most out of their leads.

John Chin Real Estate Background: 

  • John and Ron are the founders of Investor Agent
  • Together they have done 2,800 rentals and flip properties (mostly short sales, foreclosures, and REOs)
  • Closed over $260 Million in residential investments
  • He currently manages over 470 cash flow rentals
  • Based in Orlando, FL
  • Say hi to him at www.investoragent.com 

Click here for more info on groundbreaker.co

 

 

Best Ever Tweet:

“You’ve got to look at your listing as just one tool in your tool chest. It’s not the main driver of your business ” – John Chin.


TRANSCRIPTION

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

John Chin: I’m doing awesome, man. Thanks for having me again.

Theo Hicks: Yeah, no problem. Thanks for taking the time to speak with us. And today being Sunday, we’re going to be doing a Skillset Sunday. We’ll talk about a specific skill set that can help you in your real estate business, and we’re going to talk about how you can go from being a real estate agent who chases commissions to being a real estate agent wolf. John’s going to explain what that means, where the word wolf comes from, because he told me a really funny story before we got on. I want him to tell again where it came from, to have this concept hit home for you. Before we get into that, a refresher on John’s background.

He is the founder of InvestorAgent, and InvestorAgent has done 2800 rentals and flips, mostly short sales, foreclosures, and REOs, closing over 260 million dollars in residential investments, and currently manages over 470 cashflow rentals. He’s based in Orlando, Florida, and the website is investoragent.com. So John, do you mind telling us a little bit more about your background and what you’re focused on today?

John Chin: Yes. I cut my teeth in traditional residential real estate brokerage. Then, like a lot of us who end up in the investment business, where we’re flipping houses, buying rental properties, building cash flow portfolios, and serving investors to do the same thing, there was a pivotal relationship in our past – we met somebody, and they kind of set us on a fast track of doing deals, and kind of got us off of that. We call it the sales hamster wheel, where you are in perpetuity unemployed and chasing the next closing or closings. So I was fortunate enough to have that kind of relationship, and pivot the trajectory of my real estate career to actually doing deals, and then using my license as a way or just a tool to solve problems for sellers. So it’s kind of a paradigm shift.

That whole wolf story came from Pulp Fiction, where we kind of liken ourselves to one of the characters in Pulp Fiction, Mr. Wolf. Anybody who’s listening who saw that movie, there was that accident in the back of the car, they ended up at Quentin Tarantino’s character’s house, and he was going through the roof, he was upset because he had a dead person in his garage… So the boss guy sent his problem solver to the house to fix that problem, and his name is Mr. Wolf. He shows up in the tuxedo at the front door, and he says, “Hi, I’m Mr. Wolf. I solve problems.” And he comes in and cleans up the whole situation. So that’s what we kind of do for sellers.

I think the biggest paradigm shift I had that helped me transform from being somebody who just tried to chase more closings and more listing and buying commissions, to somebody who was actually building wealth, was the paradigm shift from being a salesperson to being a true problem solver for homeowners or property owners. This means that you go from only being able to make money one or two different ways as a licensed salesperson, to actually being able to make money maybe eight to 10 different ways on a property, while solving problems for homeowners that are a little bit more flexible, that most licensed agents can’t do. So you end up making more money, you end up getting more deals for yourself, and you end up solving more problems for sellers.

Theo Hicks: Perfect. Then you were talking about in order to start this process of solving the homeowner’s problem is to properly doing the seller intake. You talked about a form that you have, that people use. Can you explain at what point of the process is this used? Is it when I find a lead? And then maybe tell us what people usually do if they’re not doing seller intake.

John Chin: If you get into the mind of a traditional licensed agent who’s working what we call the retail business,  that’s all they do exclusively – they work with buyers and they work with sellers. When you talk to a homeowner in that space, what you’re trying to do is turn that phone conversation into a listing presentation or an appointment at the seller’s house or at your office to list their property. And to do a CMA form a lot of times, you do your formal listing presentation… Basically, how I can help you sell your house as quickly as possible, for the highest net proceeds as possible, that’s kind of the goal.

Everybody heard the expression, if you’re a hammer, everything looks like a nail. Well, everybody looks like a nail to a licensed commission salesperson who’s just trying to do that all day. So we bring in this process like the number one thing that helps you shift from being a commission earner to being a problem solver dealmaker is when you do that initial intake call a little bit differently.

So if you just do this one thing really well, number one, you’re going to look a lot different to that seller… Because most people aren’t coming to them as an advisor/consultant capacity. What they’re really trying to understand from that seller, “Look, you’re at point A right now and you’re trying to get to point B in your life, and your house is a mechanism to help you get there.” That’s the difference, the way you’re looking at that situation with the seller, as opposed to somebody who says, “Okay, I know you’re just trying to sell your house as quick as possible, for as high proceeds as possible.” That conversation looks different than the former. So if you do a proper, what we call a lead intake consultation with the seller… And this is the template that we use. I’ll kind of walk through what we’re trying to accomplish in that template. But it’s just a different line of questioning.

If you follow that line of questioning in a specific chronology or a specific order, then number one, you’re going to sound like a consultant, a lot different than most agents, because you’re really trying to get deeper into the life situation of the seller. Then the house just becomes a tool or a mechanism to help them get from point A to point B.

Theo Hicks: That makes sense. Let’s talk about this lead intake consultation form. So just explain, if you’re on the phone with the seller, do just read straight through it? Or is there I guess a script that you do? Or is it like, if they say this, then you say this, like a logic tree type of deal? How does it tactically work?

John Chin: Okay, so it’s a worksheet. And I always have a paper copy printed up, and it’s a front and back worksheet. So I literally can just print one up and I can fill out the front and I can fill in the back. All of the students that we work with, our trainees and our licensed agents that we support, they literally fill this out, take a picture of it, the front and the back, and then they can send it off, and now we can huddle to figure out how to best solve a problem or turn that into a deal. Or maybe it’s a better short sale listing, or maybe it’s a better traditional listing… But the sheet helps you get there, to that if-then prognosis, if you will.

So to answer your question, you just start at the top of the sheet, you go down and you just fill in the blanks. Now, the blanks just prompt you of the type of information you want to ask. As you get skilled at using the sheet, the second and third-level type questions will follow the answers you get from just the blanks. In other words, the sheet serves as a wedge for you to get what we call first-level answers from these sellers.

For example, I could ask you, “Why are you selling the property?” and someone says “Well, because I just evicted the tenant. The place is kind of trashed, and I want to get rid of it now”, for example. Well, then I don’t just stop there, even though the sheet just prompts me to find out why they’re selling. What I want to do is then go second and third level, because that’s where the juice is, that’s where you get the real nuggets that are going to help you find out what the true problem is for that seller, and help you monetize that deal.

In that situation, it would prompt me then to not just leave it with that answer, but then for me to ask, “Well, tell me about that experience with your last tenant. What happened there? How’d you end up getting that as a property, as a rental?” So all kinds of solutions come out of the info you get when you go second and third level with the sellers.

It’s a huge paradigm shift, because most people want to just get facts. And a lot of investors too, they want to just get facts, because they want to get to understand is there equity in this house? Or is there no equity in this house? They just want to go for the jugular and they take five to 10 minutes, because they’re spending more time qualifying than they are actually trying to solve a problem for somebody.

So that’s the benefit of what we do as licensees are. We have so many tools in the tool chest; you’ve got to look at your listing as just one tool in the tool chest. It’s not the main driver of your business, for example. That’s the major shift from people who are on the hamster wheel to actually evolve into problem solvers and dealmakers. But you could almost look at this sheet as a marriage between what cash investors who are looking for motivated seller leads, what they do on the phone, combined with what your typical licensee does on the phone with the seller.

You combine the two because they both offer unique solutions that they both bring to the table. But even your cash investor who talks to motivated sellers – they’re a hammer too, because all they’re trying to do in most cases, they’re trying to find out how much equity you have, build rapport, and then make a lowball offer and throw a bunch of spaghetti against the wall with maybe 15 to 20 sellers to get the deal or the discount they want. Well, if you’re a licensee and you take a consultative of approach, you can monetize maybe three or four of those out of 15 or 20, as opposed to just one out of 15 or 20. That makes sense.

Theo Hicks: Yeah. So is that where the eight to 10 different ways of making money comes from? You’re going to have a higher success rate? Or are you saying that there are eight to 10 different ways to make money on a particular deal?

John Chin: Both. So the former is what we emphasize, because of the latter. In other words, because you’re able to solve a problem a few different ways with the seller, there could be two or three ways to make money with the seller. Now there’s only one ideal way that’s a happy marriage or medium between what they’re trying to accomplish in life and the profit motive you may have as a real estate professional. So you want to find that one highest and best answer, if you will. If you’re able to have multiple ways to do that and there’s a highest and best answer, then to the latter point there, you can take more leads and turn more leads into deals.

So if you’re concerned, like a lot of us are, about our lead generation spend… Because you know, depending on where you are on the spectrum – if you’re a cash buyer, you’re spending anywhere from low competitive market $50 to $100 per paid lead, up to $200 or $300 per paid lead. If you’re in the retail sales space, you’re spending anywhere from 20 bucks a lead, five bucks a lead, on up to $100 or $200 a lead, too. So if you’re in a business that you’re trying to scale, and you’re sensitive about your lead gen cost, then you want to take as many of those leads and monetize as many of those leads as possible. Well, if you’re a hammer and you only have that one solution, whether it’s on a cash buyer side or on the listing side, you can’t monetize many of those leads. So it’s both.

Theo Hicks: Got it. I wanted to circle back to that… But I first want to hit on what’s actually on the form. I don’t want you to walk us through every single question, but what are some of the ones that are pretty unique, that maybe people don’t typically think about asking?

John Chin: Okay, let me give you the overarching philosophy here. We call it the four Ps. When you’re using the form, what the form does in two pages with about 50 different questions, or lines of questions, or fields that you have to fill in – what that does is it actually just answers or addresses four Ps that we’re trying to uncover. The first two Ps – and I’ll break them down, because it’s an acronym for four different things that you’re trying to uncover. The first two Ps you get done in the first few minutes of the phone call, and that’s “Is it a property type that I can deal with?” In other words, if you don’t do vacant land, then you don’t have solutions for vacant land or commercial properties, then you want to qualify that right upfront. It’s kind of a knockout question.

Second thing is, “Are you talking to the person,” that’s the second P, “who has control of that property? Are they entitled to the property? Or are you talking to a friend of the owner?”, for example. So you have to not waste your time and obviously address those right up front. Those are the two easy ones.

The second two Ps are a little bit more in-depth. And the sheet – it does a couple of things. Number one, because of this line of questioning, it allows you to build rapport with somebody by virtue of your seeking to understand them with a line of questioning they’re not used to from commissioned salespeople. You build rapport with them and it helps you agitate some pain and urgency, because you have to break this inertia of them doing nothing with their property, to get them to act… And that involves people getting emotional, and getting into what we call that negative fantasy that keeps them up at night when they’re worried about what this property, if they don’t get rid of it, is going to do to them in life.

The second two Ps are pain and profit. That’s what really takes up the bulk of the sheet. The magic behind the methodology is the profit is self-evident, it’s obvious. If I want to find out what kind of profit potential I have on this as a dealmaker, then I’ve got to understand what the cashflow opportunity is, are they willing to leave the loan in place, for example, on a subject-to acquisition? Is there potential, because they don’t need to sell it right, now for us to lease option it? What would the spread be between what market rent is and my carry costs on the property if I was going to structure something like that for a cash flow deal, for example?

So the profit potential, that line of questioning gives you permission and helps you build rapport naturally, and gives you the actual facts that you need to determine if there’s profit potential from a cash flow perspective and/or equity position.

Then the other P is pain, or urgency. The questions are designed so that you want to agitate the pain to build the urgency to get them off the couch, for example, to actually take action, whether that’s getting the property listed or getting it under contract. You have to agitate that pain, because if you’re going to get a deal, people only leave equity or cash-flowing deals if they’re making an emotional decision, so you have to stir the emotion. And that’s where I think people fail the most.

Our typical lead intake is going to take anywhere from 30 to 45 minutes, assuming we know the first two Ps we have checkmarks with – they are in control of the property and it is the type of property that we want to deal with, that we can monetize. If we know those first two Ps, then the rest of the conversation should take about 30 to 45 minutes if you’re doing it correctly. I’ll tell you that when it relates to the pain portion of the questionnaire, the type of questions that elicit that pain and agitate the emotions to get them to take action – I’ve asked somebody what they want to get for their property on the front end of the phone call, and I’ve compared it to what I can get them to sell their property for at the end of the phone call. It’s like a 10 to $15,000 difference, just by virtue of making that pain front of mind for them.

I’ll give you an example, coming back to your initial question, what are some questions on here that maybe somebody doesn’t ask; or maybe they do ask, but they don’t take it third level. So for example, somebody says they just inherited the house. You’re going to see a lot of that; we have two million houses in the probate pipeline with the boomers dying off right now. There’s a lot of heirs or siblings that don’t want to contend with those properties. If you’re talking to somebody, for example, who just inherited a house, they’re in another state, and they’re trying to unwind the legacy of this property owner, their deceased family member, or parent… And they’re telling you that that is how they have the property. Then what I’m not going to do is just leave it there. I’m going to say, “Well, what happens if you can’t sell it? Who’s helping you with this probate case, or to help liquidate all these assets?” And then they’re going to tell me — I’m going to uncover more of their pain and more of their situation that is going to be more agitating to them. So it’s not even the questions on the sheet, it’s kind of the mindset you have. The sheet gives you permission to go second and third level to agitate pain, to get them to take action.

Theo Hicks: Very interesting. You mentioned that once this sheet is completed, then what are the next steps? It sounds like for you, you have people that use this and they can kind of come back to you and your program and talk through it. What about people who don’t have access to this? What should they do once they’ve finished out their intake?

John Chin: That’s a good question. So as you evolve as a licensed agent, [unintelligible [00:18:55].07] having somebody you can link into that can help you put all this information together into a practical solution. I’ve never had that question before, because the people that we work with, we work with on a consistent basis. They’re around the country; so I don’t want to get into a pitch here, but… If you don’t have somebody that can help you put those tools together, I guarantee you the way you find them is you can just do on Google and find people who are spending big money for leads like this, that have dealt with sellers in urgent situations. So if you’re a licensee and you want a quick low-hanging fruit way to find those people, you can go to your local REIA meetings and find somebody who helps people with different deals, that does coaching programs. They’d gladly get on the phone with you to help you unpack one of these after you finish it, so that you can get their feedback on how to do it. Because a lot of times, they’ll either provide the funding for it, or they want to JV with it, or there’s an incentive there to turn into a deal, and to take you by the hand and walk you through that process.

Another way to do it is to go on Google and just type in “sell my house cash,” and you’re going to see all the people who pay big money for Google AdWords to be found by sellers who you’ve already started working with. You can collaborate with that person, and they’d be happy to do it, because the incentives are there to partner with you on a deal. I’d say that those are the two easiest ways to do that.

You could also just look at the mail you get at your own house. A lot of people get direct mail from people who will pay cash for houses. Or just google cash for houses in your local area and you’ll find people who market in your geography that want leads like this, that will partner with you. So I would say lean on somebody like that.

If I was in that situation, and I had one of these done… By the way, I’ll walk through the structure of the type of information you’re getting without going into the exact questions… If I had that already done and I could take a picture of it, the front and back of that sheet, and send it off to that experienced cash investor or that deal maker, and then I jump on the phone with them, they have everything they need right there to unpack the deal. Because I’m actually collecting more information than chances are they’re even getting on their intake phone calls.

Theo Hicks: That makes sense. I’m glad we talked about this, because I think this clearly applies to real estate agents, but as you kind of mentioned a few times, it really applies to anyone who’s talking to owners and attempting to get them to sell their house. So that applies to anyone who’s generating off-market leads.

Some of the big takeaways that I got is – first of all, this is kind of obvious, but making sure that right off the bat on the phone call, you’re asking the questions that will automatically let you know if you’re talking to the right person and if this deal meets your criteria. That way, you’re not going to waste time in the meaty part of the conversation which is the profit potential, and then the pain and urgency.

It sounds like, in a sense, you’re trying to tap into what would make them motivated to sell the property, or why they’re motivated to sell the property. It’s most likely going to be some emotional reason, that’s going to be an emotional decision, which is what’s going to help you not only get leads, but get the best types of deals. And then overall kind of shifting your paradigm from just intaking a bunch of facts and then leaving it there, as opposed to approaching and saying, “Hey, you said you’re at point A and you want to get to point B. Let’s figure out how we can use your house to get to that point.” And then going through a solid seller intake form, but not just relying on those questions only, but using those questions to catapult into the second level and third level questions. You kind of gave us an example of that.

Then you talked about how can you create this form, and then once you have this form, how do you know what to do with it? Well, you really need to find someone who’s the expert. I like the advice you gave, you can just Google “sell my house cash,” and you’ll find all the companies that are trying to capture these leads, and you can work with them. So John, is there anything else want to mention before we sign off?

John Chin: Yeah, I’ll give you one last juicy tactical nugget. It’s the setup of that phone call. So literally, when you first talked to that seller on the phone, my question is have you ever worked with a licensed professional who takes more of an advisory approach to solving problems as opposed to only listing houses? Right off the bat, that sets a different tone with you. So they say, “Well, no, I haven’t.” Because they never have. “Well, let me tell you what I do. I solve problems for sellers, in various situations, various scenarios, in various life situations, whether it’s divorce, or they’re missing payments on their house, especially in today’s environment. Sometimes listing your house isn’t the best thing. My intent with this phone call is to get as many of these puzzle pieces on the table of information about your situation where you’re trying to go and what you’re trying to accomplish, so that we can together put our heads together and figure out how to put these pieces together to get you from point A to point B. So with your permission, I’d like to ask you some questions about your house and your situation, and then we’ll be able to solve this problem for you. Is that fair?” That’s the intent statement that we use to set up that actual phone call. Then you have permission to go into everything, because they know what you’re trying to accomplish now, and you clearly are different than your competition.

Theo Hicks: Yeah. Instead of just going straight into the questions. That totally makes sense; making sure you have that solid intro to set the foundation for the conversation. Thank you for sharing that, John. Well, alright Best Ever listeners, thank you for listening. You can learn more about john at investoragent.com. Thank you for tuning in. As always, John, thanks again for joining me today. I enjoyed our conversation. Have a Best Ever day and we’ll talk to you tomorrow.

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JF2363: Losing Credit Last Second With Gary Beasley #SituationSaturday

Gary Beasley is the Co-Founder and CEO of RoofStock, a real estate investment marketplace. He was a previous guest on episode JF1129 where he shared more of his journey and start into real estate but today he is going to share a sticky situation where he was in the middle of a deal and lost his funding while in the middle of it and only had one month left of cash. 

Gary Beasley Real Estate Background:

  • Co-Founder and CEO of RoofStock, a real estate investment marketplace
  • Gary was co-CEO of Starwood Waypoint Residential Trust – which owned and managed 15,000 single-family rentals
  • A previous guest on episode JF1129
  • Based in Oakland, CA
  • Say hi to him at www.roofstock.com 

Click here for more info on groundbreaker.co

Best Ever Tweet:

“It’s amazing how resilient our industry is, especially after COVID19” – Gary Beasley


 

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 Gary Beasley. Gary, how are you doing today?

Gary Beasley: I’m doing great Theo. How are you doing?

Theo Hicks: I am well. Thanks for asking and thanks for joining us again. Gary was previously interviewed in an episode aired three years ago. We’re going to catch up with what Gary has been up to, as well as talk about a sticky situation because today is Saturday, Situation Saturday. We’re going to talk about a sticky situation that Gary was in, how we got into it, how he got out, lessons learned, that you can apply those lessons to your business.

But before we get into that situation, a little bit about Gary. He’s the co-founder and CEO of Roofstock, a real estate investment marketplace. He was also the co-CEO of Starwood Waypoint Residential Trust, which owned and managed 15,000 single-family rentals. His previous episode is Episode #1129. Make sure you check that out. Based in Oakland, California. His website is roofstock.com. So Gary, before we get into that sticky situation, do you mind telling us a little bit about your background and then what you’ve been up to since we last had you on the show?

Gary Beasley: Sure. It seems like ages since I was last on this show three years ago, a lot has happened. So my background, I’ve been sort of at the intersection of real estate and technology for the majority of my career. I started off in a somewhat traditional real estate capacity, doing financial analysis prior to business school, got my MBA, did some work in the REIT industry for a while, and really caught the entrepreneurial bug at Stanford Business School. I knew that ultimately, I wanted to do something a little bit more entrepreneurial. So Roofstock is my third real estate startup. Broadly defined, those early days at ZipRealty, which was one of the first online residential brokerages, and we were fortunate enough to take that company public in 2004. I was the CFO of that business.

Then my second real estate startup was called Waypoint Homes. We built a platform in the single-family rental space during the big downturn ’07 to 2011, and built that into a company that we ultimately took public in partnership with Starwood Capital. That was called Starwood Waypoint Residential Trust, and that’s where we’ll talk about a sticky situation that we had when I was at Waypoint.

So we took that public, and I was the co-CEO of that business, as you mentioned. We took that public in 2014, and then I left in 2015 to start Roofstock, which is really a marketplace for single-family rental homes. So think about it a little bit like Amazon for houses. As a retail investor, you can buy or sell properties that already are tenanted, much more like a stock or a bond, through our platform. We do a lot of work to get the home certified and break down those geographic barriers so you can make it much more like a financial transaction.

When we last talked in 2017, we were still quite small. We’ve grown quite a bit since then; we crossed over, at the end of last year, a couple of billion dollars of transactions through our platform, and we’ve continued to grow. We’ve had some interesting experiences through COVID where the business really dropped off a cliff in March and April, and really started to come back in earnest over the summer. So we’re now sort of back ahead of levels we were at pre-COVID. So one of the things we could talk about is the resiliency of the sector we’re in. But anyway, that’s kind of what I’ve been up to. We’ve got about 150 people into offices, and we’re active in about 70 markets around the country with our marketplace today.

Theo Hicks: Thanks for sharing that. So as you mentioned, the sticky situation… I’ll let you explain it in more detail, just at a high level. Gary’s company, Starwood Waypoint Residential Trust, had a big line of credit negotiated with a bank, and then it seems like they backed out last second. You only had a certain number of months worth of funds left to use for your company, so you had to come up with a solution to that problem. Do you mind telling us more detail, kind of set the context for the situation, and why it was so sticky, as we say?

Gary Beasley: Just hearing about it is making my blood pressure go up, so this will be cathartic. I haven’t talked about this in a little while… But as an entrepreneur, oftentimes you do face these existential threats to your business. We were one of the first groups to raise significant equity capital to buy distressed homes back during the last housing crisis. We raised 200 million dollars of equity from a company called GI Partners; they were a very high-quality, private equity firm based in the Bay Area. And because it was a new asset class really, the single-family rental homes at scale, there was really — at that time in 2012, when we were doing this, there was no debt market. You could get individual mortgages on properties for perhaps 50% of the value, but that was not very efficient. We were buying thousands of houses and we needed a credit facility that was similar to what was done for multi-family or other sorts of commercial assets.

So what ended up happening was, we were working with a large bank, and we had fully negotiated the deal. This was roughly a 200 million dollar credit facility we were negotiating. So it was going to be the first of its kind in single-family rentals. The bank was super excited about it, we were super excited about it; we thought it was going to take three to four months to put it together. It ended up taking nine months. It was extraordinarily complex and it ended up going to the very top levels of the bank, because it was new.  And I think it was because people wanted to sort of take credit for what a cool and innovative structure it was, so they wanted to get it really noticed within this bank, even though at that level it really didn’t need to go up that high. So it was ostensibly approved until the very end.

I remember this was during the London Olympics, and one of the senior bank members was at the Olympics. The decision was made at the last minute, and really kind of right prior to funding, that the bank just couldn’t do it because of the headline risks of funding a company that was building a business off of foreclosed home assets. So even though this had been discussed at some length, and we could legitimately say we were part of the solution to the housing crisis, we were not the problem. What we were doing is buying homes that needed capital, renovating them, and renting them to families who were looking for affordable housing products.

But that left us in a real bind, because what we had been doing is we built this machine to keep growing and we had our full team going, we had acquisitions, renovation, and property management people all over the country in addition to our corporate staff… And we were investing, call it 30, 40, 50 million dollars a month of capital. And because we were counting on this debt to be in place, we were investing all of our equity. So we had an expectation there’d be another couple hundred million dollars of capital available to keep funding the business and keep buying. So we’re kind of accelerating toward this cliff. And then the rug got pulled out from under us, and they said, “Sorry, guys. We just can’t do it.”

So because it took so long to do, we knew that it would be impossible to put another facility in place anytime soon, and we had literally a month, perhaps two months of cash available. So we really thought we were done. We said “Okay. Now, what could we do? Can we just become a property management company? Should we sell the portfolio? What can we do?”

And it’s funny how life works… The next day after this happened, we had a meeting scheduled with another very large lender, Citibank, who came in. It was just a call, that they came in kind of a courtesy call, to kind of see how they could be helpful, blah, blah, blah. At that time, I said, “Well, I’ll tell you how you could be helpful. You could give us a 50 million dollar bridge loan in 10 days. Close that, and then do a 200 million dollar facility within 60 days. That’s how you could be helpful.” [laughs] And I was almost joking about the bridge loan, but I figured I had nothing to lose. They looked around the table and they had a lot of the senior people from the bank there, including the head of credit from the real estate side and some senior bankers… And they said, “I think we could do that.” And they did. So it was really extraordinary. In fact, I think they close that bridge loan inside of 10 days, it was probably more like seven days. Worked with us incredibly constructively.

We went from being on the brink of really having nowhere to run to then having this great relationship that we developed there. They ended up doing even a larger facility, it was a 250 million dollar facility; it was pretty innovative so they’re the first to do it. They viewed it as an opportunity to step in and help us out and in the process, put themselves in a leadership position in the sector to develop the first facility of its kind.

What an interesting learning experience there was it was beneficial to both parties. We felt like we didn’t have a lot of options, they did not take advantage of that situation. What they saw was that the situation that we were in created opportunity for them. So that was a good learning experience – when you have these crises, how can you find a group out there that might view that as an opportunity for themselves and not just an opportunity to crush you, but view that as an opportunity to be helpful and forge a long-lasting relationship, which I’ve had with those guys ever since, even through Roofstock. It was really good all around.

So definitely had to get creative there. Had we not had that meeting on the books with those guys, I would have been making a ton of phone calls and trying to set something up. But I think the reason that we were well served there is even though we didn’t need to have that meeting with Citi, because we already had another facility, we were moving forward with, the idea of constantly staying in touch with lots of people in the industry, because you never know how things can develop… An old CEO of mine had a very wise phrase that I think about quite a bit – Mike Shannon, who runs KSL Capital. or used to… He said, “A smart mouse has more than one hole to run to.” Especially when you’re running businesses that can be too reliant on any one single thing happening, having optionality is good.

So I think just being able to cultivate relationships that you never know when you’re going to need to turn that into an opportunity… I almost canceled that meeting when we were moving forward with our other facility, and like why do we need to meet with these guys? Something told me to keep it and I’m really glad that I did. It was awesome.

Theo Hicks: That’s very fascinating. So you kind of hinted at this, but was it literally the next day? This meeting.

Gary Beasley: It was literally the next day.

Theo Hicks: Okay. So you already hinted at this… So let’s say we go back in time, and you either canceled the meeting with Citigroup because you assume that this other deal is going to go through, or you ask Citigroup for the bridge loan for the facility and they either say no, or they say yes, and the same thing happens again. What would you have done in order to rectify this situation and gotten capital?

Gary Beasley: We had a couple of different options. One was to go back to our equity partner and get more equity and say, “Hey, guys. You’ve given us 250 million. Can you give us another 50 so we could continue to fund the operations? We’ll slow our buying…” And that was our best alternative, is to go back to them; they were very supportive. Not sure that they would have been able to do that, because that was the full allocation that they had approved for our investments, so I’m not sure that we could have actually gotten that done.

We could have then gone out to other pockets of equity. But the problem with that would have been just going to another equity partner, it would have been impossible to get through any sort of diligence process that quickly. So it was really going back to our equity sponsor; that would have been really our only option to continue that way.

The other option was to literally stop our buying operation. We would have had to have furloughed or let go the majority of the people in the field who are doing those activities, and sort of been like a turtle that then goes in its shell. And at that time, stop our buying, continue the property management operation, while we worked feverishly to try to raise more capital to grow the business. That would have been really difficult for us, because as you’re building these businesses, a big part of it is getting the right teams in place and the right processes. So it takes a while. We were firing on all cylinders, and if we then had to let everybody go, and then a few months later having to restart, we would have lost enormous momentum, enormous credibility. I’m not sure we ever would have gotten back to where we were.

So it could actually have just ended the growth of the company. We probably would have ended up just having that existing portfolio and managing it, and ultimately selling it, and going to do something else. It would have been arguably a good real estate trade for the equity investors, but what it turned out to be is both a good real estate trade, but also it allowed us to build real enterprise value in taking the company public. So it created a lot more value, a lot more jobs, it was just good all around. So I think we were fortunate.

But as I think back on it, a big part of my role at the time was to try to be that steady hand during that crisis. When I think back on it, it was really scary. But being terrified internally was very different than what I needed to project to the team. I didn’t know if we’re going to solve it, but I said “We’re going to solve this and we’re going to figure this out. If it’s not with Citi, we’re going to go back to GI. But we’re going to do this.” But it was very clear – when you’re in those kinds of situations, people are looking for leadership and looking for somebody who’s going to be a steady hand at that wheel. So it definitely was a good leadership lesson for me.

You don’t want to be disingenuous with people, you want to be honest but optimistic. Because I think the only way as entrepreneurs, typically, if you’re successful, is if you have to have real optimism, because there are all these hurdles that you need to overcome.

There is a good story that a good friend of mine, Aneel Bhusri, who runs Workday; he founded Workday with Dave Duffield. A very successful company. I was talking to Aneel and he said… It was very funny. I asked him, “How are you and Dave Duffield different?” He said, “Well, we are different.” He said, “If I look at a glass of water, I’ll say that’s half full. Dave will look at it and have a totally different view; he’ll look at that glass and say it’s entirely full, not half empty.” So its optimism oftentimes that drives success, I think, of entrepreneurs who can see past those what looked like impossible challenges.

Theo Hicks: That was actually my next and, I guess, final question, which was keeping your cool during this type of – you called it an existential threat to the business. So you mentioned the reasons why you needed to stay cool, but how did you actually, in practice, do this? Was it just natural? You just told yourself, “Alright, I’m going to be cool,” and it just happened? Did you have outside help? Did it take some time to get into this groove? Maybe kind of walk us through that really quickly.

Gary Beasley: It’s the first time I ever meditated. I was willing to try anything… And I still do that. I think I’ve always had, for whatever reason — when situations dictate and the pressure gets raised, it increases my focus. So I can’t say that I crave that all the time. But when it does happen, I find that things sort of slow down and I can think clearly, where I know some people get more paralyzed by it. For whatever reason, the opposite thing tends to happen to me. I don’t know why that is, but it’s been the case ever since I can remember.

I think that’s one of the reasons that I enjoy starting companies and I enjoy being an entrepreneur, because that uncertainty and those challenges, I find very rewarding. I like trying to sort those things out and I don’t mind the unpredictability of it. I think part of it is you have to be realistic with yourself, but optimistic, and just be comfortable with the downside, and do some scenario planning, and sort of say “Okay, worst case, this is what happens.” You have to kind of make sure you figure out and mitigate, to the extent you can, if you can’t solve things, “This is what I’m going to do. It’s not going to be the end of the world, we’re going to make the best of it.” So you have that plan, and then you work like hell to not have to do that. So I think you have to think through those downsides, understand the implications, and then do everything you can not to have to go there. But at least you know you have a plan.

Theo Hicks: All right, Gary. Is there anything else that you want to mention about this situation? Or where people can learn more about what you’re doing now at Roofstock before we sign off?

Gary Beasley: I guess I would just say, if people are interested in learning more about investing in real estate for their own account, check us out. You can go to our site roofstock.com. What we’ve tried to do is take a lot of the learnings that we as a collective founding group and management team had from our prior lives, working for larger organizations, and make those tools available to individual investors. So you don’t have to be a big institutional investor, you can be anyone and get access to a lot of the same data, same tools, same types of inventory, and then access to the services that you need to start investing.

So I would just suggest, as you’re looking at investment options in this environment, whether it’s through Roofstock or not, I think investing in housing – it’s a pretty interesting asset class. It performed quite well during COVID, and because of the lack of supply of housing, and I think, the increasing importance of shelter for people and housing, there’s going to be a lot of demand for single-family homes. So it’s, I think, something worth looking at as part of your investment portfolio.

Theo Hicks: Perfect, Gary. Well, I guess your catharsis is now officially over.

Gary Beasley: I feel much better.

Theo Hicks: Good. [laughter] Don’t think about it anymore. I really appreciate you going into a lot of detail on what happened, and then how you were able to get through the situation. Really, the main takeaways from this – number one thing to do, as you mentioned, is worst-case scenario planning. What you will do if the worst-case scenario happens, and then making sure you do everything you can to set yourself up so that that worst-case scenario never happened, but if it does, you’re ready. But the other one, which is obviously the bigger one, as you talked about making sure that you are constantly proactively networking with people that might not necessarily be based off of something that you immediately need right now. Don’t just network when you need something…

Gary Beasley: Yeah, pay it forward.

Theo Hicks: …because you don’t really know when you’re going to need anything.

Gary Beasley: And I would say the last thing is don’t be afraid to ask for exactly what you need.

Theo Hicks: Very good. That’s a good point. Don’t be afraid to ask for exactly what you need. Obviously, lots of other great lessons in there as well. So Gary, I really appreciate it. I really enjoyed this conversation, I learned a lot. Make sure you guys check them out, roofstock.com, and his other episode 1129. So Gary, thanks again for joining me today. Best Ever listeners, as always, thank you for listening. Have a Best Ever day and we’ll talk to you tomorrow.

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JF2362: Cherry-Picking the Deals with Gary Spencer-Smith

Gary’s father’s death pushed him into the real estate investment path. In 2007, he emigrated to Canada from the UK, and that’s when he got serious about doing real estate full-time.

Utilizing his electrical engineering background, Gary became an owner and a contractor of several single-family properties. Through joint venturing, he managed to create a portfolio, eventually refinancing and moving on to a different phase of his life.

Gary Spencer-Smith  Real Estate Background:

  • A full-time investor for the past 8 years
  • 20 years of investing experience
  • The portfolio consists of 24 single-family homes, 5 cabin holiday resort, 110 person restaurant, houseboat, and converted a 24,000 sqft dealership into offices, storefronts, storages, and a warehouse,
  • Based in British Columbia, Canada
  • Say hi to him at: www.revnyou.com 
  • Best Ever Book: Sapiens

Click here for more info on groundbreaker.co

Best Ever Tweet:

“I looked at what real estate could do for my life, and that was like a switch.” – Gary Spencer Smith.


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 Gary Spencer Smith. Gary, how are you doing today?

Gary Spencer Smith: I’m doing fantastic. Thank you very much for having me on. I appreciate your time and effort to put this together for everybody.

Theo Hicks: Thank you so much. I appreciate you taking the time to speak with me today. I’m looking forward to our conversation. Before we get to that conversation though, a little bit about Gary… He is a full-time real estate investor for the past eight years and has 20 years of investing experience in total. His portfolio consists of 24 single-family homes, a five-cabin holiday resort, a 110-person restaurant, a houseboat, and a converted 24,000 square foot dealership, converting that into offices, storefronts, storage, and a warehouse. He is based in British Columbia, Canada. You can say hi to him at his website, which is revnyou.com. So Gary, do you mind telling us some more about your background and what you’re focused on today?

Gary Spencer Smith: Sure. I guess people will hear the accent and think that doesn’t sound Canadian… So I was born in the UK. I grew up normal. I say normal upbringing – normal in these days, with divorced parents; single mom… Didn’t have that silver spoon start that a lot of people have. I got to 18, thought I don’t know what I want to do. Ended up going into the military, served 11 years in the Royal Navy, served in the Afghanistan conflict, Iraq conflict, Bosnia… I got to go to over 100 countries in the world. That gave me a real perspective on, I guess, life in general.

My father passed away when I was 21, which enabled me, but it kind of started me on the real estate path ahead of the curve then. I managed to purchase a house. I did 11 years in the Navy, got injured while I was in service, and in 2005 I was pensioned out of the military. In 2007, I immigrated over to Canada. A couple of years after that was when I really started investing seriously, following a plan, and had a goal in mind when I was doing it. So that’s kind of my life in a nutshell.

Fast-forward to now, I’m a full-time investor, and I guess all my income is generated around my real estate businesses. I kind of get to live the life that I planned when I was 16 years old. So I’m pretty lucky and grateful for where I’ve got to, and the challenges I’ve had along the way, and the lessons they’ve taught me.

Theo Hicks: So when you first started to invest – you kind of went over your portfolio – what was your original focus?

Gary Spencer Smith: I’ll take a quick jump back. My first investing [unintelligible [00:05:52].13] impressionable age, maybe I was 18 or 19. He said, “Oh, such and such has rentals, and he gets X amount of dollars per month.” And something just triggered in my head.

When I had my house, the first house I purchased after my father passed away, and my wife at the time, I was like, “Let’s just rent this out when we move” and she said “I don’t want to deal with rentals. Rentals are a headache. You’ve got to deal with tenants,” that story that people say. I listened to it and I didn’t do that.

Then when I left the military, I had a house down the South Coast of England, and I’m like, “You know what? I’m keeping this and I’m renting it out.” It was purely a mathematical choice. It was just, I figured out where I’m moving to and renting, and what I would get for rent there, and I was like 200 bucks a month better off. There was no plan around it. Subconsciously, I wanted to have about three houses over my working career. Retire at 60, I would have my military pension and three houses. That was kind of my goal. I don’t know where that came from or how that was planted in me.

Then I emigrated to Canada. I bought a single-family townhome, and that was for my kid’s college. That was the idea behind it. My kids end up not going to college, and we can get into that a bit deeper if we want. But I guess I was looking for a way to create income within houses. I didn’t want to do the job I was doing when I emigrated. I just used that to get to Canada, which was a life goal. Then I’m like, “I don’t want to do this till I’m 60.” So I kind of looked at real estate investing and how I could generate revenue.

We started doing single-family homes and from those single-family homes, we would actually go in, act as the general contractor… Now, a little caveat to that, I do have some skills. I’m a qualified electrical engineer, so I have an ability (I’m a certified electrician) that I brought to the table, so I utilized those. I didn’t have money so I started joint venturing really early on. Through joint venturing, that’s where I managed to create a portfolio. We were doing like two to three single-family homes, buying them, [unintelligible [00:07:50].11] in them, and then refinancing and moving on to the next. The BRRRR type strategy; it wasn’t exactly that, but it was a variation of that.  That’s what got me to a point where I’m like, “Okay, I guess I’m full-time at this.”

Then in the last few years, again, you look at life, you get to each stage, and you get to each goal that you achieve. I was kind of like, rather than going out and looking for real estate, I looked at what I want real estate to do for my life. That was like a switch, and that’s how we ended up buying the resort that’s on the lake. Even though it’s a business, it was a real estate purchase, because the assets themselves, the land assets, the property assets are worth the same price as the business we were buying, effectively.

Now my focus looking forward is just to keep growing properties. But I have a different strategy. I’m not involved in the day-to-day real estate as much as just looking at the bigger picture stuff, and I guess cherry-picking the deals.

Theo Hicks: Thank you for sharing that. So after the single-family homes, the next non-single family home purchase was the holiday resort?

Gary Spencer Smith: No, it would have been the dealership. It was an old Ford dealership from the 50’s, so it had the car mechanic shop, the body shop, the paint shop, the warehouse, the showroom. The lady who owned that building… I was actually at a funeral and we’re sitting at the table, and I’m from a smallish town, people know everyone in it, 25,000 people in the town… And she said, “Oh, would you look at my property? I’ve been trying to sell it.” I was like, “Sure I’ll look at it.” Honestly, I was being polite. I was going to look at it, but I had no intention of buying it. I’m walking through the property and I’m just looking at the space going, “Well, this is a space that would rent individually. This is a space that would rent individually. I could put a mini storage here, here, and here.” So I’m just doing the math in my head is a walk around… And then we walked into this huge warehouse, like 3,000 square foot, 35-foot ceilings, and I was just like, “Wow.” I was blown away.

This building was made from all first-growth fir wood, so even if you knocked the building down, you could probably sell the wood and get back the money that we were paying for the building. And I was like, “Well, this makes sense.” So then I made a few phone calls to some investor friends I have, we each put in $100,000 and bought it for 500,000. So that was the next one after single-family homes.

Actually, when you deal with single-family homes, there’s a certain lifestyle that comes around that. Especially if you’re managing it, which we weren’t. We had a property management company, which looked after that, plus another 50 doors. The commercial real estate was just so much better. It seemed to be for me, for what I wanted to do for it to get some time back. The tenants are great, they’re all professional people in all the different spaces. We’ve got plumbers, electricians, roofers, they’ll rent different spaces within the building…

And the holiday resort, that came about a year after purchasing the commercial space. It was actually the local pub and restaurant on the lake where I was living anyway. It’s a houseboat marina, there are 12 houseboats that go out, there’s a marina… We knew the owner, we knew he wanted out, so we had a conversation, we looked at the books, and it made sense. It was like a switch, it’s like, “Okay.” Because we lived on the lake, but I didn’t enjoy the lake, because I was always doing something else, albeit real estate related… And I love what I do, by the way, don’t get me wrong. I’m not complaining about anything I’ve done. But this gives me the chance to actually live and work in the location that I want to spend my life.

I was like, “Wow, this is just a slam dunk. So why would we not do this?” So we got creative, we raised some capital privately, we had some joint venture partners, we got a vendor takeback on the mortgage, you name it, the strategies were involved in the purchase of that property. So it wasn’t very straightforward, but it was everything I’d learned from the single-family homes, that skillset that I could transfer to enable us to buy that business.

Theo Hicks: Going back to the old Ford dealership… It sounds like a lot of work. How did you know that “Oh, this would be good for stores. Oh, I could put offices here. Oh, storefronts. Oh, the wood.” You saw the wood. How did you know all that?

Gary Spencer Smith: I seen her outside, she was having a smoke outside and I was driving past, and I remember thinking in my head, “Oh, I said I will go look. So I should.” Because that’s what I said I do. So I just did a U-turn and went back, and it looks like three little single-story storefronts from the road that you drive past every day. So I thought it [unintelligible [00:11:52].14] in a strip mall, it looked like that.

Then I go inside and I’m looking, and they’re each individually located. So where the garage used to be where they’d repair the cars, that had its own unit; it had three big garages, its own office, its own washroom. Then the showroom had its own office, its own area… Then there was a middle room that I guess would have been management, like the middle building, and the same thing, had its own office, all broken down already. Then she showed me the outside space; it was under the deck that was the body shop, and I’m like, “Wow, this could fit six vehicles in here, at least. Or someone could use this space.” It’s actually a fabric company that’s in there now. But it’s a good usable space, and had its own office. So everything was already compartmentalized.

But what she’d been doing was using the main showroom for herself, just for her little sewing business, and then she’d been renting the warehouse out to fisheries. That’s all she has done with the building. Everything else, she was like “Oh, I’ve got some stuff in there. I’ve got a friend that’s got some stuff.” Then she showed me the middle floor of this building [unintelligible [00:12:55].04] side on side, butted up against each other. I know it’s fair, you can tell, and the time it was built… ANd I was just looking at it going “You could park a tank on this roof.”

So then we got the drawings to the building and I’m like, “Wow, the amount of material that is in this to create the strength, what they used at the time – there is huge value in that.” So I was, “Well, it makes sense.” I did the math and the building itself [unintelligible [00:13:16].25] six and a half, but I think you’d be running between 10 and $12,000 based on market rents. For $500,000, that 1% rule, it absolutely crushes that. So I was like, “Well, why would we not do this?” So we moved our personal offices into this and we set up our studio for doing our YouTube channel stuff, and then we rented the rest of the space out in the building to cover costs and make a profit. I wish I could say it was an open space and I designed the idea, but it was already set up.

Theo Hicks: Okay. So you bought it for 500k… How much did you put into it to get it ready to go?

Gary Spencer Smith: $200,000.

Theo Hicks: 200K. Okay. Who did the work? Was it just your contractors you had met through the single-family business, or did you need to find someone new? How did you find the people that did that work?

Gary Spencer Smith: I’ve got a pretty good team from doing the single-family homes. We got to where we were doing three or four properties a year, plus all the odd jobs that come with managing 50 to 60 units. So I’ve got my backup plumber, electrician, backup electrician, framer, drywall – all those people were in place. We did do some of it ourselves, Chris and my business partner, when it came to our office space. And when we were looking through the building, the old big glass sliding doors that they would have had on the showroom, they were actually downstairs in the storage. So we just framed up a two by six wall and put the big glass sliding doors in, and that’s our office. It’s through all these big sliding doors at the back of the showroom, so we have our own sectioned-off space. That’s the only thing we did ourselves, was set that up. But for the most part, it was pretty much set up ready to go. A couple of partition walls, and an upgrade on the hydro, and some new lights and escape lights for the separate spaces. That was it. It doesn’t sound like a lot, but that 200l – $70,000 of that was a new roof. It’s a huge space, and we did this silicone roof on it. It’s got a 50-year warranty. So that was a huge chunk of the money was that. And then hydro was probably about $30,000. So 100k just on those two things, and the rest $100,000 was pretty quick, once you do in flooring, and trim, and a little bit of work.

Theo Hicks: Got it. Very fascinating stuff. Alright, Gary, what is your best real estate investing advice ever?

Gary Spencer Smith: Actually, take steps and do it. Don’t sit and wait. Get some knowledge, which is free. You’ve got awesome podcasts like this that you can listen to. You don’t have to pay tens of thousands of dollars for the knowledge. Get the knowledge that you can for free, pay a little bit of money to get some more refined knowledge, and then go take action. That’s it. Action will teach you more than any mentor or coach.

The second tip would be to find a good mentor. You don’t have to pay for that. That would be someone that’s done it, successful, who is willing to let you take them for dinner, take them for a coffee, bounce some ideas. If you can get a good mentor, you’re going to jump leaps and bounds ahead of everything else, and listen to what they say.

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

Gary Spencer Smith: Okay, let’s go.

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

Break: [00:16:04][00:16:44]

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

Gary Spencer Smith: I so wanted to plug my own book right there, [unintelligible [00:16:51].05] which is about human evolution. I actually use that when I’m discussing with my JV partners, just about how we think; it’s a mindset. Because real estate managing, buying, it’s all about the mindset. I’ve actually used part of that book where he talked about human evolution to help people understand about where we’ve got to and why we do the things we do. People are like “Wow, that’s so good.” We didn’t even talk about real estate, but they became a joint venture partner through discussing that book Sapiens.

So it’s crazy – not a real estate book, but I think one of the best books is written by Julie Broad, called More Than Cash Flow. That book is fantastic. Because I think anybody who goes on their real estate journey, that is pretty much the journey that most people will go through. You read the books, you sign up for the courses, you pay some money, you make some mistakes, you keep going, you achieve success.

Theo Hicks: And that first book you said, I think I might have missed that. What was the first book?

Gary Spencer Smith: Sapiens.

Theo Hicks: Okay, Sapiens.

Gary Spencer Smith: By Harari. It’s actually about humanity and the evolution of us as a species. But I actually used parts of that book when I was discussing mindset with people who were looking to be joint venture partners. That conversation they even said to me, was a turning point for them, understanding their own belief systems.

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

Gary Spencer Smith: You know what? To start with, I’d go get a job at McDonald’s, so I’ve got some money, and I can have a roof over my head and have some food. Somebody said to me once, if you lost everything, what would you do? Not that there’s anything wrong with working in McDonald’s, but I’m willing to go do anything to put a roof over my head and put food in my mouth, and for my family. So if I’m willing to do that, why would you not take the risks to go try something better, and even big? So I would go get a job first, then I would start looking for new joint venture partners, and I would move the business on and start again; you just keep going. If it fails, you start again and keep going. It’s like picking yourself up from walking, right? Like what would you do if you fell over? You pick up and you keep going.

Theo Hicks: What is the Best Ever deal you’ve done?

Gary Spencer Smith: It was probably my first joint venture. That was the house I bought when I came to Canada. I bought it individually. I put $6,000 down, then joint-ventured with my cousin a year later; he gave me $20,000. There’s a whole story behind this, but he gave me $20,000. He didn’t have to qualify, I managed the property. But I use that money to take my family for a trip back to the UK and have three and a half weeks over Christmas. And that one transaction made me look and go “Wow, I put $6,000 in, I got $20,000 back a year later, and I still own half the property. That’s a 333% ROI.” I didn’t really understand ROI, but this opened my eyes to the real percentages you can make using real estate, using joint ventures, and that was it.

I just said myself “How do I do that more?” And that was that one there, my first property in Canada, because that opened my eyes to ROI and huge returns, and it ignited the fire.

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

Gary Spencer Smith: I had a leadership company — well, I still have a leadership company that we do from time to time, and I work with a lot of youth at risk. So I help the youth at risk develop their leadership skills, just so they can do simple things like go get a job, go find a place to rent. A lot of them I’ll talk about getting their first place to rent, and how they should show up, and how they should answer people, communicate with people, shake their hands.

So I like working with the youth at risk, those 15 to 19-year-olds that are on the verge of going one way or the other. Hopefully, if you can give a tiny bit of guidance to even one person like that, you have no idea how far that ripple can go, where it can change someone’s life. I know that was done to me at an early age, and that’s why I like doing it.

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

Gary Spencer Smith: I think if people email us at info@revnyou.com, or connect with us on Facebook, it’d probably be best.

Theo Hicks: You said you have a YouTube channel, right?

Gary Spencer Smith: We do, yes. Same as well – Revnyou With Real Estate. I think we’re about 7,700 subscribers right now.

Theo Hicks: Nice, good stuff. Well, thanks, Gary, for joining me today and going over your background and your journey to how you got to where you are today from in the UK, in the military, to moving to Canada and becoming a full-time real estate investor.

We talked about how you got started in single-family homes through JVs, as well as doing some of the rehabs yourself as a GC, as well as eventually the management company, which made you realize that commercial real estate was a better play for you. So you did the old Ford dealership, which you found at a funeral, of all places. And you talked about how much it cost, how you analyzed the deal when you’re walking through it.

And then after that was the holiday resort, which again, you walked us through how you got that deal as well, and how that made you start to think about how to use real estate to get what you want out of life. I thought that that was solid advice.

And then your Best Ever advice was to really just take action. Don’t sit and wait. Get some knowledge that you can now get for free pretty easily online. The different websites, and YouTube channels, and blog posts, and podcasts. If you need to, maybe pay a little bit of money to get some more refined knowledge, and then start taking action… Because that action will teach you more than any mentor or coach will teach you. But you still also said that it makes sense to get a mentor, but you don’t necessarily have to pay a lot of money. Just find someone who’s done what you are trying to do, and then the goal would be to take them out for dinner or coffee to pick their brain and get some advice on how to end up where they’re at.

So thanks again, Gary, for taking the time out of your day to speak with us today. Best Ever listeners, as always, thank you for listening. Have a Best Ever day, and we’ll talk to you tomorrow.

Gary Spencer Smith: Thank you very much, Theo. Have a great day, and it’s been a pleasure. Thank you very 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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JF2358: Reaching a Passive Income Goal With Brian Briscoe

Brian’s first experience with real estate started when he purchased his first house after reading Kiyosaki’s “Rich Dad, Poor Dad”. As an active duty Marine, Brian was relocated every couple of years. Every time he moved, he added a new single-family home to his portfolio. 

In 2016, he did the math and found out that he was nowhere close to his passive income goal. Looking for ways to scale, he jumped into multifamily units and formed a real estate investment firm with three partners. With his latest acquisition being a 167-unit property, he’s finally approaching his income goal and getting ready to retire from the Marine Corps.

Brian Briscoe Real Estate Background:

  • Active duty US Marine assigned to the Pentagon and co-founder of Four Oaks Capital, a multifamily investing firm
  • Host of a new podcast called “Diary of an Apartment Investor”
  • In 2007 he started in real estate with a single-family home, & in 2018 he jumped into multifamily 
  • His current portfolio consists of 5 apartment complexes; 250 units
  • Based in DC
  • Say hi to him at: www.fouroakscapital.com 

Click here for more info on groundbreaker.co

Best Ever Tweet:

“Wherever you’re at, just start small. ” – Brian Briscoe


TRANSCRIPTION

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

Brian Briscoe: Doing well. Thanks a lot, Joe.

Joe Fairless: I’m glad to hear that. And a little bit about Brian. He is an active duty US Marine. I appreciate everything you and your colleagues do for us, keeping us safe and protecting our freedom, first and foremost. Brian was assigned to the Pentagon and is the co-founder of Four Oaks Capital, which is a multi-family investing firm. He’s a host of a new podcast called The Diary of an Apartment Investor. In 2007 he started real estate with a single-family house, and in 2018 he jumped right into multi-family. Right now he’s got five apartment communities, and the total amount of units among those five is 250. Based in DC. With that being said, Brian, you want to give the Best Ever listeners a little bit more about your background and your current focus?

Brian Briscoe: Sure, absolutely. Thanks a lot. So first of all, to back up, I’ll start with when I was in college. I was going to college to be a professor. I was always really good at math, and I enjoyed teaching, and when you put those two together, I think the natural path for me was to be a college professor in mathematics. I’ve got a bachelor’s degree, a master’s degree and I applied to a PhD program. Following the “Get good grades, get a degree, get a good job” pathway. I applied to a bunch of the top 10 schools and I got into a couple of them.

So I started a PhD program at the University of Minnesota in August of 2001. And that’s significant, because it was just right before September 11. So like most people, I watched three airplanes fly into the World Trade Center and the Pentagon, and that event changed my trajectory significantly. I decided to put my studies on hold, and basically went down to a marine recruiter and said, “I want in.” And I’ve been on active duty ever since. It wasn’t the plan to stay active duty. The plan was actually to do a three to four-year tour, do my part, and go back to school. But I ended up liking it, I guess, a little too much. I’ve been on active duty ever since.

And along the way, roughly 2005 timeframe, like a lot of people – I’m very cliché – I read Rich Dad, Poor Dad. And that got me thinking on, “Okay, I need to start minding my own business. I need to start investing into income-producing assets.” And I realized as long as I was in the Marine Corps, I’d be moving every two to three years. So I did what I thought I could do, and that was, every time I moved, I would buy a house.  So 2007 was the first house that we bought. And we bought another one in 2008. And every two to three years afterwards, pick up and move again and try to rinse and repeat the process.

Several years later, I think this would have been late 2016, I realized that the light at the end of the tunnel of the Marine Corps career started growing bigger. I started looking at my portfolio, and I was not making a ton of money off the single-family properties that I had. I had a lot of trapped equity, but I wasn’t cash flowing like I thought I would be by that time. So I pulled out my handy spreadsheet… Once again, math background, pretty good at spreadsheets, and just crunched some numbers. I realized that needs 60 or so single-families to hit my goals. So I started looking for ways to scale.

Right around that time, I picked up a Bigger Pockets book on buying a 24-unit apartment building with little or no money down. and that really kind of lit the fire. Shortly after I found this podcast and a couple of others, and I just started consuming everything I could about multi-family. I was listening to the Best Ever daily podcast on real estate on a daily basis, I was listening to several others, I was reading everything else, and I decided that multi-family would be the way that I would basically start to create wealth and cash flow.

I started touring properties and realized that I needed more help than just what the podcasts were giving me. I think podcasts give you a lot of motivation, talk a lot about stories. But there’s a lot of skills that are not quite covered in them. So I bought an analysis tool, I started going to events, getting around people who were doing the same thing. Eventually, we got our first property under contract. I found a couple of partners on the way, formed the company Four Oaks Capital. I’ll let you dive in on any area you want later, but that’s just the broad brushstrokes. But got the first property under contract in South Carolina, we were able to close on that one, and this point right now we’re sitting with 250 units under our belt, and with another 167 apartment community under contract.

Joe Fairless: Well, congratulations on the 167. That is quite a jump from the 250 total units that you’ve gotten. We’ll talk about that. Let’s rewind a little bit, just to get a little bit more context. Every time you moved… Once you had the idea of “Hey, I want to do this”, and then every time you moved, you bought a house – how many homes did you end up with?

Brian Briscoe: We ended up with three. One point where lenders looked at my income to debt ratio, and they said “Single income… You don’t have enough income to buy another house, so we ended up with three, actually. And like I said, the cash flow coming off of those wasn’t great cash flow.

Joe Fairless: What was the cash flow?

Brian Briscoe: One of them was kicking out a couple hundred dollars a month. And one of them was actually sucking up about $500 to $600 a month. And the other one was breaking even. So if you look overall, for the first part of it, we were negative cashflowing. Towards the end, with the three properties together, we were breaking even.

Joe Fairless: Okay, help me with that — oh, towards the end. So initially, you were making 200, and one losing 500 to 600 on the other, and the third one you were breaking even. But over time, you eventually were about breaking even. You said you did an analysis, and you needed 60 single-families to hit your goal. What was your goal?

Brian Briscoe: My goal was to basically match my current income. So I figured that we were living a pretty good life right now, we had everything that we needed, and if my passive income could match my current income, we’d be set. And I was also calculating in that I will retire in about a year from the Marine Corps and I’ll get a retirement pension. So I think that number was about 120k to 150k per year, based on certain parameters.

Joe Fairless: So if it’s 150k, then it’s $2,500 a property a year. So that’s $208 a month that each property would bring in. Does that sound about right?

Brian Briscoe: That sounds about right. And the only thing I didn’t mention is I was also planning on putting 20% down, and everything else, and it was… Anyway, it ended up being a pretty daunting task once I sat down and looked at it. I’m like, “Yeah, that’s not going to happen in a long, long time.”

Joe Fairless: You went through the same exercise I went through. I had three single-family homes. Oh, four. I ended up with four. But I don’t know, at three or number four I realized, “Wait a second. How am I going to get the down payment for each of these to get the cash flow goal?” I think I was wanting $10,000 a month. So around where you were wanting…

Brian Briscoe: Right about the same.

Joe Fairless: Yeah, and I was like, “That’s going to take a long time and a lot of money, unless I do creative financing. And how am I going to do that? And, man, it’s going to be a lot of paperwork.”

Brian Briscoe: Yeah. I wasn’t creative at the time; I didn’t think I’d be able to use other people’s money effectively. And I figured, “Hey, if I scrimp and save and do everything I can, I can probably manage to do two per year.” And I thought, “Oh my gosh, I’m 40. That’s going to take me until I’m 70 years old to get this financial freedom thing.” I’m like, “That’s too long.” Maybe if I started when I was 20… But anyway, that’s…

Joe Fairless: Which doesn’t factor in the value-add plays, and then you do a refinance, and get money out, and then you put that into deals… So there are some things that, to be contrarian to our thought process, someone who is doing that, they might say, “Well, you’re not factoring in the value-add play and refinancing and rinsing and repeating.” Yeah. Fair enough.

Brian Briscoe: Yeah. That was before I heard about the whole BRRRR method. So it was a straight out one loan. And at the time, we had refinanced all of our houses several times, and our loan balance kept on creeping up. So that model, honestly – you’re right, it didn’t have all the factors in there, all the money-making things in there; it was just “Get a 30-year loan and start paying it down.” And that was the model that I built. But like I said, it was right when I was struggling with that philosophy that I ran into Brandon Turner’s book. I’m like, “Wow, if I can buy 24 at once, I can take this 30-year plan and turn it into maybe a 10-year plan.” So that really kind of opened up a lot of doors for me, just that one little paradigm shift of apartment buildings or something that’s accessible. I think prior to that my own limiting beliefs told me that apartments weren’t even accessible to me.

Joe Fairless: So let’s talk about the first apartment building. Well, before we do that, why was the second house losing $600 initially? What happened?

Brian Briscoe: We were living in San Diego, and when we moved to San Diego, fortunately, we didn’t buy when we did. Because we moved there in 2006. And I couldn’t imagine putting two kids into what we could afford in San Diego, which was about 800 square feet. So we started renting. And then the market crashed, and I thought “Oh great, real estate’s on sale.” And we were patient, we were looking around in our neighborhood where we wanted to live and we found a place. And the numbers on this one, at the time, made perfect sense. It was like, “Okay, this property was bought two years prior, at 450. And we can get it for 300,000.” So I was looking at the difference between the peak and where we were at the time, thinking “This is a great deal.”

And we bought the house, we moved into the house. And honestly, I was expecting on living there for three to four years at the time. And I ended up getting orders across the country, so we lived there for one year. So the bottom line is I didn’t really do my homework on what I would be making month to month after we moved out. I just wanted to jump in as quick as I could, and say, “Hey, real estate’s on sale. We qualify for a loan, we can get a house. This is building our portfolio.”

When we ended up moving out our mortgage at the time was 2400 bucks a month. And we rented it out at 1850 with a property manager. So we were out of pocket about six 650 for the first year. And then, like I said, we refinanced. The interest rate we had on it was 5.5%. We refinanced it twice. And when we sold it, we were coming out of pocket about $300 a month on that property. But when we sold it, we walked away with $150,000 in our back pocket. So it all worked out in the end, just – I think that house prevented us from purchasing more at the time.

Joe Fairless: The first apartment community was in South Carolina. How many units?

Brian Briscoe: 55.

Joe Fairless: 55 units. So you went from three single-family homes to 55 units. You were in Washington DC at the time, is that correct?

Brian Briscoe: Yep. I was in Washington DC.

Joe Fairless: Okay. You said “we” when you talk about buying it. Who’s “we”?

Brian Briscoe: My partners at Four Oaks Capital. So there are four of us total. And at the time, we weren’t Four Oaks. I was involved in a mentoring program. I met one of my partners through the mentoring program.

Joe Fairless: Which one?

Brian Briscoe: Michael Blank’s. Anyway, just being around other people with similar ideas, I think was really the key point to any mentorship program. But I met Eric, one of my partners, through the Michael Blank network, and he introduced me to the other two. But when we got that property under contract, it was me, Eric, and Brian Mallin that were going to run the show.

We sat down, we looked at the purchase price, we looked at what we needed, and we said “We need one more person to help us raise money on this” and Eric says, “I know a guy.” Eric introduced us to Todd Butler. And we decided that we would collaborate and go in on this one deal. And three or four months later, after working with each other, getting to know each other, we had a couple of times where we’ve all met together, we decided to form a company Four Oaks. So that’s how we all met, that’s how we got together, and every deal since has been the four of us collaborating, and so far, so good.

Joe Fairless: What went wrong on 55 units?

Brian Briscoe: The biggest thing that went wrong is we got pinched on our interest rate. Going in, our debt service ratio was tight as far as getting the proceeds that we wanted. But we closed just over a year ago… And if you remember what was going on, Fannie and Freddie were coming up towards their mandated caps. So they artificially increased interest rates to be able to slow down their lending. I still remember getting the call from my broker, saying, “Hey, I know we’ve been telling you to expect three point something interest rate… But rates went up, and we’re at a 5.2% right now.” So that was the biggest thing that went wrong, was we expect to get 3.0, 3.3, $3.4 million in proceeds at about a 75% LTV, and at the end of the day we got mid-60s on our LTV, because of the interest rate hike.

We ended up scrambling to close that. We dug into our back pockets and basically put a bunch of our own money in there to bridge the gap. But that was the biggest thing that we had to deal with through the whole thing. But we ended up bringing in one other partner, who brought in some money as well. And we ended up getting across the finish line, and it’s a performing asset now.

Joe Fairless: That one is in South Carolina. Where are the other four?

Brian Briscoe: The other four are actually all in South Carolina. The one we have in our contract is Augusta, Georgia. In general, we’re looking in the Carolinas and Georgia for our new deals.

Joe Fairless: Okay. What’s the size of the other four that you currently own?

Brian Briscoe: We’ve got a 33 in Columbia, we’ve gotten 80 just outside of Greenville, and an 82 right next to Clemson University.

Joe Fairless: Okay. Is it focused on student housing, I imagine?

Brian Briscoe:  It’s actually not, it’s about three miles away from the university, and the average person who’s living there is an employee of the university, not a student. So it’s not getting the same rents that the student housing would get. The rent points are a little lower than the ones that are focused on student housing, and by the bed. But mostly two bedrooms, one bathroom… But still a good little property.

Joe Fairless: Which one has performed the best?

Brian Briscoe: The one that is performing the best so far is one called Windwood. And that’s the one next to Greenville, 80 units. When we bought it, 72 of the 80 were rentable. And we’ve been able to push rents even through COVID on our renewals. We’ve been able to, on the renewals, transfer the centralized water billing to the tenants, and we’ve been able to bring, as of right now, three of the eight down units [unintelligible [00:18:08].19] and they’re occupied. So we’ve maintained a fairly high occupancy rate even through COVID, and we’ve been able to push the numbers up.

Joe Fairless: How’d you find these deals?

Brian Briscoe: These were all through brokers. Three of them were through one brokerage, and that’s Fireman Capital. One of them was a Marcus & Millichap broker that brought it to us, and the other was a broker with Aligned Capital. So all of them through brokers. And Eric, one of my partners is the acquisitions guy, and he’s the magic behind it. He’s the one that’s dealing with the brokers, calling the brokers every day and doing all the analysis and making the offers.

Joe Fairless: What’s your primary role?

Brian Briscoe: My primary role right now is outreach. I’m kind of the wide end of the funnel. We do the podcast, and like I’m doing right now, I go on other podcasts as well. But in general, content plus marketing.

Joe Fairless: You have four partners. I imagine that roles responsibilities need to be defined clearly, so that there are not people stepping on each other’s toes. If that is the case, how do you categorize the roles for individuals?

Brian Briscoe: So Eric’s our Director of Acquisitions, Todd Butler does the majority of the asset management, Brian Mallin is handling the finance end, the bank accounts, the portals, the website, everything else. And the three of them right now are actually working full-time. And because I’m still about eight months away from retiring from the Marine Corps and still have a full-time job, my role is a little smaller for the time being. So like I said, podcast and outreach. I do a lot of the social media postings, and basically trying to bring new investors into the fold.

Joe Fairless: What’s been the biggest challenge that you all come across, practically speaking, on a property?

Brian Briscoe: The biggest challenge right now is none of us have a finance background. So we’ve struggled a little bit with that. We’ve hired a bookkeeper, we’re talking about bringing in a controller to be able to do our finances… But it was just one gap that we had. And we didn’t realize that it would be what it is, but right now, that’s our biggest challenge is trying to figure out… We know how much money we have in the bank. We know everything else. How much can we give as distributions and everything else. So we’re working with a couple of people, we’re interviewing a couple of people right now to come in and to be a part-time controller for us and help us with that piece.

Joe Fairless: Based on your experience, what’s your best real estate investing advice ever?

Brian Briscoe: I would say take action. I firmly believe that there is a virtuous cycle that can occur if you believe and you take action, and just keep on rinsing and repeating. You end up getting a little more confidence. And every time you take action, you’re stretching your own boundaries. So your belief gets a little bit bigger, I guess, and then you’re able to do more. So I would say wherever you’re at, just start small. Take action and keep on pushing the ball forward.

Joe Fairless: Do you still have those three homes?

Brian Briscoe: I’ve sold two of them.

Joe Fairless: Which one did you keep?

Brian Briscoe: I have one in DC.

Joe Fairless: Okay, is that the breaking even one?

Brian Briscoe: That’s the breaking even one.

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

Brian Briscoe:  Ready.

Joe Fairless: Alright, let’s do it. First, a quick work my Best Ever partners.

Break: [00:21:23][00:22:11]

Joe Fairless: Alright, best Ever resource that you use to do your job as it relates to a real estate investor.

Brian Briscoe: Best Ever resource – right now, I would say partly my podcast, because I’m able to talk to so many different people with so many different experiences. And a lot of times I’m able to contact these guys who are light years ahead of me and ask them questions.

Joe Fairless: Best Ever book you’ve recently read.

Brian Briscoe: You know, I’ve read or listened to hundreds. I think the one I keep on coming back to and the one that I read daily is the Book of Mormon; it provides clarity and focus for me. As far as business books, I would have to say Seven Habits of Highly Effective People by Stephen Covey.

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

Brian Briscoe: Well, I give 10% of all my income to charity… And like I said earlier in the program, I do like to teach. So I do spend probably several hours a week talking with aspiring apartment investors who want to learn more about the business, and I feel like that’s a good way to give back to people who are trying to do what I’m doing as well.

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

Brian Briscoe: The best places are our website fouroakscapital.com, or once again, through the podcast, Diary of an Apartment Investor, which is available on all major podcast apps.

Joe Fairless: Brian, thanks for being on the show. Thanks for talking about how you got started and the reasons why you transitioned, as well as how you got up and running, going from single-family homes to apartments. You’ve got an analysis tool, you went to events, and you found partners through those events and mentoring groups. So thanks for being on the show. I hope you have a Best Ever day, and talk to you again soon.

Brian Briscoe: Thank you so much. I appreciate you and your time today.

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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JF2357: Attacking Old Goals With New Methods With Matthew Faircloth #SkillsetSunday

Matthew is a returning guest from episode JF1432 and today he talks about figuring out new ways to accomplish old goals. Matt has been a full-time investor for 15 years and in that time has successfully completed projects involving dozens of fix and flips, office buildings, single-family homes, and apartment buildings.

Matt Faircloth  Real Estate Background:  

  • A full-time investor for 15 years 
  • Completed dozens of flips, office building, single-family, and apartment deals
  • He started with a 30,000 private loan and has completed over $40 million in transactions
  • A previous guest on JF1432
  • Based in Trenton, NJ
  • Say hi to him at www.DeRosaGroup.com

Click here for more info on groundbreaker.co

Best Ever Tweet:

“Move forward with faith and take action” – Matt Faircloth


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, Matt Faircloth. How are you doing Matt?

Matt Faircloth: I’m awesome, Joe. So great to be with you today.

Joe Fairless: Well, I’m glad to hear that, and I’m looking forward to our conversation. Best Ever listeners, because today is Sunday, we’ve got a special segment for you called Skillset Sunday. And first off, a little refresher about Matt, and then that will help tee this up. So Matt’s a full-time real estate investor. He’s completed dozens of flips, but also now focuses on office buildings, commercial real estate, apartment deals. He just had a rather large closing that he and his team done. Yeah, woohoo, nice work on that! And that actually leads into our conversation.

The conversation and the outcome of this conversation for you Best Ever listeners is to learn about some ways to have some stretch goals and to try new methods to reach old goals. So maybe you’ve been trying to reach certain goals, you have not achieved them – well, we’re going to talk about the thought process to take to try new methods to reach those same goals that you’ve been trying to achieve. So with that being said, Matt, what’s the best way to start out this conversation?

Matt Faircloth: Well, I’ll tell a little bit of the backstory to lead us up to the point where I hit that pivot where I said “Okay, I can stretch myself, or I can keep doing what I’ve been doing.” So let me give you a one-minute background story. So my company, as your business is too, we are regionally focused on specific territories. We are not a company that will buy anywhere in the continental United States. That’s not what we do. We are focused on North Carolina and Kentucky. That’s it. So a deal came up in a market we had been shopping in North Carolina, in Winston-Salem, and it came across our plate… And we have been a company that’s been able to put together say, I don’t know, maybe $5 million to $8 million transactions. In the apartment building world, that requires an equity raise of somewhere in the two to three million dollar range. We’ve gotten pretty good at that. So I’ve got a really good mechanism down for raising two to three million dollars for a real estate transaction, to the point where I can repeat it over and over again, as often as I need to, for deals. And we had built a pretty good wheelhouse of doing it.

So this deal in Winston-Salem comes up and the numbers work, everything checks the boxes, the location is phenomenal, everything’s awesome about it… And it’s an $18.5 million purchase, which is more than double anything else we’d ever put together before. 336 units, so more unit count than we’ve done, more equity we need than we’ve ever done, more loan amount than we’ve ever done, more everything.

Joe Fairless: What was the highest amount of equity you’d raised up until that point? On one deal.

Matt Faircloth: Just over three. Like three and a half.

Joe Fairless: Three. Okay. And how much was this one requiring?

Matt Faircloth: We’re doing this a little differently… This one is a total of $12 million in equity, but because the bridge debt world has changed and it’s very hard to get construction dollars from banks, what we’re doing is we’re going in with the Freddie floater product, which is a floating rate mortgage, lower loan to value, and we’re going to raise construction dollars as we need them during the process. So we don’t have all the money we need at closing, we’re going to get it as we go, which is an interesting process as well.

Joe Fairless: So in total 12… But how much to close it out?

Matt Faircloth: To close the deal. Eight.

Joe Fairless: Eight? Okay.

Matt Faircloth: To close the deal. Yes.

Joe Fairless: Got it. So a significant jump from three to eight, and ultimately 12. Okay.

Matt Faircloth: Right. There was some faith in there, and just crossing my fingers and knowing, “Okay, listen. I’ll just get in and do it.” That was the crossroads that I was at, Joe. It was the fork in the road to say, “Okay, do I tell my team that worked very hard to find this deal, do I say, “You know what, guys? A little too big, we probably should refer it to a larger outfit that can take down something like this, that has a long track record on taking down something like this.” And that conversation did come up. Are we okay? Do we want a stretch like this? And we decided to take it on and to go for it and we’ll figure it out. And that’s really what you and I were talking offline about, it’s about the growth that happens when you get into something where you’re not exactly 100% sure how you’re going to make it happen. But you got to move forward in faith that it’s going to work out. You’ve got to take action, too. But I decided to go for it and just had the confidence that me and my team would figure it out. I was just crossing my fingers.

And what’s interesting, Joe, is what happened was we put it under contract, and we tried the method, amd we went, “Okay, let’s go raise money.” Well, I used my method that I know to raise two to three million dollars. I did that, and guess what? We raised two to three million dollars.

Joe Fairless: What are the things that you do to raise two to three million like clock–

Matt Faircloth: There is a number of emails you need to send out to enroll people in your webinar. What we’ve been able to do is develop a pretty good magnet of people that reach out to us, that say “Hey, I want to invest in real estate with you.” So you call the last couple months worth of folks that called in… So the hot leads, if you will – we phone call those folks. We came in and we sent out two announcements to a webinar, and saying “Okay, we’re having a webinar.” We had 300 people show up on the webinar. Not show up, they registered. Because you know how these things go, right?

Joe Fairless: Yup.

Matt Faircloth: So they registered for the webinar. They watched the recording, and everything like that. Just webinar, and then present the whole deal, and then send out the recording, and that with some phone call follow-ups, in our world has been what we needed to do to raise two to three million dollars.

Joe Fairless: How many days in advance do you give them notice that there will be a webinar?

Matt Faircloth: We give them a week’s notice. About a week, a week and a half. And we just did a general presentation on the deal. “Hey, guys. This is what we’re going to talk about. Here’s the deal, here’s this, here’s that, here’s the opportunity, and everything like that. It was just here “Here’s everything.”

Joe Fairless: And you said phone calls, too. So you called the hot leads, but do you only call them? Or do you call everyone in your database? How do you approach that?

Matt Faircloth: We don’t call everyone in our database. That’s the two to three million dollar method, Joe. We didn’t call everybody in our database. We’ll talk about them…

Joe Fairless: Okay. Alright, alright. Cart before the horse. Okay.

Matt Faircloth: It’s okay. I love it. We can talk about the newly-discovered and soon to be patented $8 million methods that I had to come up with. [laughter] But the two to three million dollar method is you call your hot leads. Because I’ve had people that called me up that they were hot, and I didn’t have a deal.

This is a true story. I’ve never told you this story, but it’s a true story. A guy called me in August, and he was like, “Okay, I want a deal. Ready to go.” This isn’t this August. This was August a couple of years ago. And he said “I want to invest with you. Find me an opportunity.” That’s great. “Okay, listen. Hang out. I’m going to go find you an opportunity, my friend.” So October comes around. And not just for this person, but we put a deal under contract and I did my hot lead method and called back through my hot leads that had called the last couple of months… I had called this person up that called in August, and you know what he said?

Joe Fairless: “It took too long.”

Matt Faircloth: No, “I gave that money to Joe Fairless.”

Joe Fairless: Oooh… [laughter]

Matt Faircloth: I swear to God, it’s what…

Joe Fairless: So you did take too long.

Matt Faircloth: I said, “Well, it’s in good hands.” That’s what the point of that story is – that when people call, they’re not just shopping. Sometimes they’ll tell you this, “Well, I want to invest in a year or two.” But a lot of times when people call, they’re looking to place capital now. And if you don’t have something that’s available now… And it’s okay that you don’t. But if you don’t have something available now, they’re likely going to go — below Matt Faircloth’s name on the list is somebody else. And so if I don’t have anything at that time, they’re likely going to keep going. And that’s what he did. And God bless, he had money he had to put to work. And he did, and he put it to work. It’s in good hands, and all that. So I was happy for him. I said “Great. Joe’s a friend. That’s great.” But it’s that call the hot lead method that these folks hopefully have not gone somewhere else by the time you’d launched that webinars, so you let them know about it ahead of time; that was my two to three million dollar method. Then you do the webinar. Then you email everyone the recording to the webinar, and then you do a follow-up phone call to folks that were on the webinar.

Joe Fairless: So only those that were on the webinar that you were doing follow-up phone calls, for the first method.

Matt Faircloth: Yes.

Joe Fairless: Okay. Got it.

Matt Faircloth: Then you also had some sort of means for them to do a soft commit on a webinar. For us, back then, it was a Google doc saying like, “Hey, this is my name. This is if I’m accredited or not. And this is how much money we want to put in [unintelligible [00:11:02].00] list, whatever.” And that Google Form was the soft commit that they did. And that right there, given the database that we have, will get you two to three million bucks, and we had gotten pretty good at that. And also, the presentation on the webinar was solid enough that we could produce that. So we did that for this deal, and then we got two to three million dollars. And I said, “Oh, okay. We’re a quarter of the way there. That’s great. So now what?”

And we called that database again, and called the folks that are on the webinar again, and had another webinar, the same webinar, we just did the same show again. We had 50 people sign up this time instead of 300, because a lot of our database had already seen the first one, so why would they want to go to the second one? So we got it up a little bit. And my team and I, we had to drop back and punt and have a huddle up. We’ve got to try something different. So again, we’re in the middle of Corona, crazy, COVID, potential recession, all this other kind of stuff right now… So what we realized is some investors are looking for something that’s a bit of a hedge, or want to know a little more detail about the deal that has to do with how the deal is recession-proof, or how it’s COVID-resistant, and everything like that. So we said “You know what we’re going to do? We’re going to do a webinar that’s just on that – how is this deal COVID resistant and recession-proof” That’s an interesting conversation. So we came up with those bullets, and we came up with a way tighter webinar. The first webinar, the one with the 300 people, went two hours. That’s another mistake. That’s too long a webinar. With the presentation, with Q&A, it went two hours.

Joe Fairless: What’s the right amount of time?

Matt Faircloth: I think that you should be presenting the opportunity in 30 minutes or less. And then another 30 minutes for Q&A, and then wrap it up.

Joe Fairless: Got it.

Matt Faircloth: People are busy, man. Get to the point, don’t spend too much time on the fluff or on spending 10 minutes introducing your team and everything like that. Just get going, because people are busy, and you want to respect that. So we tightened it way up and did a 30-minute thing on COVID and the recession. Now, we had a way bigger turnout for that one, because people were curious about that.

Joe Fairless: So this is a third webinar?

Matt Faircloth: Yes.

Joe Fairless: This is the third webinar about the same deal. Okay.

Matt Faircloth: About the same deal, but we did two things. We cranked up our email activity. I went to my assistant and I was like, “I want you to do an email every other day. Just stay on people’s radar.” Because again, maybe we needed to just kind of — given everything going on… And maybe just to raise a lot more money, you’ve got to kind of scream and yell a little bit louder.

Joe Fairless: Were you concerned about people unsubscribing from your list as a result of that?

Matt Faircloth: Sure. And I’m sure they did, and that’s okay, because if they really are not that concerned — if they really don’t want to hear that much from Matt, then that’s okay, they unsubscribed. And I think it’s a risk you have to run if you’re going to wave your hand in the air. I think list attrition is something that happens all the time, if you use your list; not that you have to email every day, but if you email every couple of days or once a week or whatever, you’re going to have attrition. Because people just might not want to hear what you have to say. And you can’t make that a reason why you don’t send emails, I don’t think.

Joe Fairless: And how long did you email every other day?

Matt Faircloth: We did that toward the last 30 to 45 days of the deal. We were every other day emailing. And what we did – we took snippets of the COVID webinar… And I’m jumping around a little bit. We did a COVID webinar, and we did a tax savings webinar, because we’re doing a cost segregation study. We’re hiring Yonah Weiss, if you know him… We’re hiring Yonah to do the cost seg.

So we realized that some investors know what cost seg is, and some investors know how it helps, other investors don’t. So I interviewed my CPA and took some video clips from him, took video clips from an interview I did with Yonah, and I took those two video clips and assembled them into a dozen emails that we sent out on a drip campaign about what is depreciation and why is it important. We had one couple invest in this deal, they came in later, after we started this cost seg conversation… They had sold a business and the wife was filing taxes as a real estate professional. And we saved them $200,000, because they put a significant amount of money into the deal; they were able to pretty much save every nickel that they were supposed to pay in income tax; it got deferred through cost seg and through the negative K1. Incredible. What a difference we get to make in this business. So I touted that in the email, obviously…

Joe Fairless: I remember reading it.

Matt Faircloth: Yeah. Leaving the personal information out. Think about the tagline on that one. We got a big open rate on that email, because it’s interesting, “Wow, $200,000. That’s crazy.” Now, it takes a specific investor under specific circumstances to get those savings, but it’s still at least a good conversation.

So we started thinking outside the box on ways to get people’s attention. And I think that lesson learned, a few lessons I got out of this whole thing, was to raise a lot of money you’ve got to get a lot of attention. And people care about different things. So some people cared about the hedge, about like, okay, recession and COVID-proof. That webinar got over 100 registrants.

Joe Fairless: And it was the third one.

Matt Faircloth: Yeah. So my registrations went up…

Joe Fairless: Right. From the second one.

Matt Faircloth: …because we had this conversation. Yeah. And Joe, we had people that had gotten in after the first webinar. They increased their investments after that one, because [unintelligible [00:16:06].09] “I like what you guys are doing.” “I see what you guys are doing.” We had one guy go from 100k to 200k because they saw that we had really thought this thing out. And we had a lot of new investors come in.

But the biggest thing was being willing to have conversations with people in a manner that they cared about. “Yeah, I care about taxes; that’s my main thing.” And realizing that people that invest in real estate, they may want all the different things that real estate offers, but likely they want one thing or two things, and the other stuff is all just gravy. So we got connected to what people really want out of what syndicators can offer, so we pumped out emails that spoke to those specific conversations.

We also got a lot more personal. I got each of my team members to record a three-minute video and talk about what you love about this deal. And I got one of our investors, who is one of our larger investors, to record a three-minute video on what he loves about this deal. A lot of our investors are doctors, so he was in his scrubs, the mask, and everything, talking about what he loves about DeRosa Capital 11. So through all those efforts, we were able to clear a benchmark.

Joe Fairless: What are the categories of things that people care about? You mentioned you pivoted with the COVID-resistant, and recession-proof, and tax savings… What are they?

Matt Faircloth: Well, let’s go COVID-resistance beyond what that really is… Because people say, “I want something that’s recession-proof, or whatever.” What do you really want? You really want security. So I think that we as syndicators – and this is to your audience – if they’re able to address the security question on “Is my money safe?”, that’s really what they want to know. So if you can explain to them in their language how their money is safe – and in today’s world, that means are you recession-proof? Are you COVID-resistant? People ask the same security question. Maybe they’re asking in a different language, where they’ll say, “What kind of collateral do I have?” These are folks that have done a lot of private loans, but have never invested in equity, so they want to know, what kind of security do I have in your deal? What kind of collateral do I have? I don’t have a mortgage on the property; what do I have? So you explain what equity and ownership in an LLC gives you. So that was one conversation. Security.

And then the other thing is general taxes. Folks that earn a lot get it that it’s not about how much you make, it’s about how much you get to keep. So that tax level conversation is something that some investors don’t care about. Interestingly enough, anyone with an IRA was like, “Next, let’s talk about security. I don’t want to talk about taxes.” Because they know that the IRA does kind of defends them against that already. You have to watch who you’re talking to. If they have an IRA, don’t even bring up the tax savings, because they really can’t take advantage of it. So we went there; we tried some of the things ongoing to our personal story. Other people care about the market, because like, “Tell me why Winston-Salem, North Carolina is a great place to invest.” There were some folks that cared about that, too, so we did some e-blasts on why the markets amazing. So to answer your question, Joe, people also want to know why should they invest with you, the syndicator, and why should they invest in that market, and then why should they invest in that particular deal. And typically, it’s in that order that they want to know it. You can answer those questions in that order, and then there’s the security and the tax questions that come on top of it, too.

Joe Fairless: So I’m on your list, and I got 15 emails in the month of September. So it looks like you were doing it…

Matt Faircloth: We were busy.

Joe Fairless: ..,every other day. Yeah, you were busy. Every other day in the month of September, basically. Did you take a look at what your subscriber list was before and then what it was after, and just see what type of unsubscribe rate you got from that?

Matt Faircloth: What attrition we had. It’s good to know. I wish I could tell you that.

Joe Fairless: So it wasn’t a red flag with your team, like, “Hey, Matt… We can send out another email, but you realize we’re going to lose 20% of our database? Because yesterday we just lost 20%.” It wasn’t anything like that?

Matt Faircloth: No, I don’t think so. I don’t believe it was, and I don’t think that we lost anywhere near what folks would suspect that you would. Because at end of the day, people just auto-delete, skim through it, and everything like that. They tend to just look past emails, sometimes they go through the effort of unsubscribing, but at the end of the day, it does take a little bit to unsubscribe from something, versus just taking the time to delete. It’s not a big deal, you can just delete the email.

Joe Fairless: I ask that because I think some people would be concerned about the investors that we brought on to the list – it’s so precious, because we’ve worked so hard to get them, and then I don’t want to send them all these emails. But in your case, it worked. And that’s a surprising lesson that I learned from this conversation, in addition to other lessons, too.

Matt Faircloth: I have an admin that was sending out those emails, and I know she would have flagged it. And I’d be willing to bet that it was very low on attrition. If you give me one second, I’ll give you the number on what it was, because I’m able to log in here while we’re looking. You know what it is, Joe – I hope I can use this word when you show… People worry too much about pissing people off, and everything like that. And I think obviously, once folks are investors, you really don’t want to do that, but I’m thinking if people worry about from a marketing perspective about shouting too loud or anything like that… We obviously don’t want to be bold or audacious or too over the top on things, but at the end of the day, I think that we’re also looking to get noticed. And when you get noticed, it’s okay that some people are like, “I don’t want to pay attention to that guy.” So we lost about 4%.

Joe Fairless: That’s nothing.

Matt Faircloth: Yeah. Regular attrition is less than that. Maybe 1% or 2%. But we lost four during the lifecycle of that campaign. It’s okay, people are going to do that. Sorry, if I went there, but I think that people worry too much about ticking off people on your list. Because at the end of the day, if they’re just on your list out of general curiosities, they’re likely not going to do much with you if you email them a lot. If you email them a lot, they’re either going to get interested or they’re not. If they’re not interested, but they want to see what else Matt has to offer in the future, they’ll probably just delete the email and wait till the next one comes around.

I’ll tell you one thing – it did confuse some people that were already in the deal. “Hey, why are you still emailing me? I’m already in this opportunity.” So you can’t just do a general shotgun email everybody. You’ve got to watch to see who’s on your email list. Take the folks that have already…

Joe Fairless: Segment it.

Matt Faircloth: Yeah, we learned that one. People were getting confused. “I’m in, man. You already have my [unintelligible [00:22:28].02] thing. Why are you still emailing me?” We had to watch who we’d already emailed. We also took out people that had roundly said they weren’t interested, just out of respect. So we’ve learned that you’ve got to segment, you can’t just literally blast everybody.

Joe Fairless: This has been a productive and such an educational conversation because of you and what you’ve shared with us. Thank you so much for that, Matt. Before we wrap up anything that we haven’t talked about, that you think we should, as it relates to this topic?

Matt Faircloth: I think that you and I got into the nuts and bolts and all that, which is awesome, because I think your investors are going to get lots of great nuggets. I think the big thing for them to take home, in general, is that if you don’t stretch yourself, you’re not going to grow. There’s a book called The Way of the Superior Man; it’s good for everybody. But The Way of the Superior Man – there is a chapter in that book that talks about being okay with a little bit of fear. And people sometimes won’t engage in change or won’t engage in growth because it makes them a little bit afraid.

What I’ve learned through reading that book, and just by living my life – that if I’m not a little bit afraid, a little bit scared about where I’m stepping, that I’m not stretching myself enough. Because fear is the indicator that I’m beyond my comfort zone. And I was a little afraid of this deal, of being able to take it down, and what happens if I don’t… But because I move forward anyway, I was able to bring things to the next level in my company, and I think that a lot of people don’t realize that the only way you’re going to grow, is by feeling the fear and acting anyway. Getting into it and jumping in and figuring things out. And hopefully these nuggets here on how to raise your equity game, too. Yeah, I agree, this has been an awesome interview.

Joe Fairless: Yeah. And regarding the faith and being comfortable with fear, I’m coming at it from a logical perspective too, or standpoint, because you had a lot of pieces in place that gave you the confidence to be comfortable taking a couple of steps, really, that are beyond where you had been. Whereas if someone’s starting out, then they’re looking at a $9 million equity raise, then that fear is very healthy, because they don’t have those pieces in place that you had already had.

Matt Faircloth: You would say reasonable steps.

Joe Fairless: Reasonable steps. Right.

Matt Faircloth: But you’ve got to know that the possibilities are there somehow. So I’m not saying “never invest in real estate before you go take down a $9 million equity raise and figure it out.” Again, don’t hear what Joe and I are saying the wrong way here, audience. I think you understand you’ve got to take reasonable steps forward into growing your business, and that a little bit of fear is good. A lot of fear is probably a sign that you probably shouldn’t be stretching that far. So you’ve got to find that even marriage where it’s outside your comfort zone and it’s a little bit of uncertainty; that’s healthy. But too much of it is probably a sign you’re not ready. You’ve got to know the difference.

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

Matt Faircloth: They can get a hold of us at our website, which is derosagroup.com. Everything’s out there – copies of my book can be purchased, you can connect with us, you can learn from us, you can invest with us. Everything’s out there.

Joe Fairless: Matt, a pleasure, as always talking to you, and learning about what you’ve learned… I can be educated too, I love learning this stuff, so thank you for sharing that. I hope you have a Best Ever weekend and talk to you again soon.

Matt Faircloth: Thanks Joe, for having me.

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JF2352: Playing A Real Estate Version Of Moneyball With Kevin Clayson

A divorce moved Kevin to change his career path. After working in retail, he decided to try himself in the financial sector working with mortgages. In 2007, he started a Done For You Real Estate company together with his three friends. They make investing in real estate easy by educating their clients about the market and guiding them through the closing process. Their mission is to help people replace their income and secure their future by making a conservative investment that will hold no matter what the economy’s like.

Kevin Clayson  Real Estate Background:

  • Owner of Done For You Real Estate a multi-million dollar real estate investment company
  • 15 years of real estate investing experience
  • His company has transacted around 4,000 single-family homes
  • Based in Utah
  • Say hi to him at www.dfy-realestate.com 
  • Best Ever Book: Go-Giver

Click here for more info on groundbreaker.co

Best Ever Tweet:

“Leave people better off” – Kevin Clayson.


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 Kevin Clayson. Kevin, how are you doing today?

Kevin Clayson: Good, Theo. Thanks for having me, man. How are you?

Theo Hicks: I’m doing well, and thank you for joining us. I’m looking forward to diving into what you do. So Kevin is the owner of a Done For You Real Estate, a multi-million dollar real estate investment company. He has 15 years of experience and his company has transacted around 4,000 single-family homes. He’s based out of Utah, and the website is dfy-realestate.com. So Kevin, do you mind telling us some more about your background and what you’re focused on today?

Kevin Clayson: Yeah, sure man. I’ll be honest, I never thought I’d be here. I was not one of those kids growing up that was repackaging pixie stick powder and selling it to my friends at school, right? Like I was not entrepreneurial at all. I grew up in California, just right outside of Oakland, and I just grew up like a normal kid. My dad, he was always working sales jobs. I just thought, “No, I’m going to go to school. I don’t know what I’m going to do. I’m going to go get a good job somewhere”, right?

Well, I ended up graduating high school, went and lived overseas for a couple of years, came home, got married shortly after I came home. I was in my early 20s. And dude, three and a half years after getting married, I find out my wife is leaving me. It totally rocked my world… So I had this crazy thought. The thought was, “Oh my goodness. Maybe if I stop working retail and I go get a real job with my real college degree, maybe she’ll come back to me.” It didn’t work out, which was a good thing. But what I ended up doing is I ended up getting a job with Wells Fargo, doing mortgages, unsecured lines of credit, and doing auto loans. And the reason why that was such a crazy piece of the story is I had never even thought about setting foot in the financial realm whatsoever… And I found myself kind of liking the mortgage product. I’m like, “This is kind of cool.” I was kind of digging this idea of these amortization schedules, which I had never heard of before. And I was living in Utah at the time, I came back here to Utah to go to school, and here I am starting to do loans.

And so one day, I was prospecting. And I called up a buddy of mine who I knew was doing a bunch of real estate investing, and I’m like, “Hey, who does your mortgages?” And he’s like, “Well, I kind of have somebody… But dude, it’s been a long time. We should go to dinner.” Well, we go to dinner, and there were about four of us that decided to start a company to help people invest in real estate. So at the time – this was like 2007 or so when we started the company – the whole idea was we wanted to help people transact real estate instead of just pay for education. Because there’s awesome education out there, there’s awesome mentorship and programs. But we saw so many people that would spend tens of thousands of dollars to learn how to do real estate, but then would never go transact real estate. So we’re like, “Well, let’s fix that.” So we just started to help people do real estate. One of us would put a plan together, I’d do the mortgage, one of us would find the home, and then the other would help the person rent it out. And frankly, that’s what we’ve now been doing for 13 years. Now we’ve got clients from all over the country and we’ve done, as you mentioned, a good number of properties. So now, that’s what we focus on, helping hardworking Americans stay focused on what they’re best at, and then we help them by investing in simple and conservative single-family, residential real estate in some of the best markets in the country by doing all the work for them, so they can gain all the benefits from real estate without having to be an expert in without having to do all the work themselves.

Theo Hicks: Wow. It’s always interesting when I hear people’s conception stories starting business, and it always just seems to be, “Oh, I just met some dude I hadn’t talked to in years, and then we started a company together.”

Kevin Clayson: That’s the power of networking. Right?

Theo Hicks: Exactly. Yeah. I can’t tell you how many times I hear that… So it definitely reaffirmed the power of networking. Okay, we’ve got the four people, we’ve got the planner, the mortgage person, the home finder, and the person who rents it out. So Done For You Real Estate, obviously by the title, is a turnkey company.

Kevin Clayson: Yes, it is. It’s turnkey, but with a kind of like a little bit of a difference, right? So a lot of turnkey companies, if you go to the website, it’s “Hey, here’s properties, and it’s ready for you. Buy it.” That is not what we do. Everything we do is purely custom. We always specialize in a certain type of real estate, right? It’s got to check the boxes.

We have teams on the ground in multiple markets throughout the country. We get clients that come to us from all over the country that just wants to buy real estate. So we can help people buy real estate in states they don’t live in, assuming that the real estate is a good fit for them. So we take our clients to different states, into different teams, and look at different price points of properties, at different cash flow targets, based on what they’re trying to accomplish. Because for us, we try to help our clients replace their income, one property at a time.

So it’s very much like they’ve got money in a 401k or an IRA, or maybe they’ve got home equity, and they’re looking at it and they’re going “Oh my gosh, the math isn’t going to add up.” So then based on wherever they are and whatever assets they have available, we can create a custom income replacement plan, and then begin to transact real estate with them in an order that gets them to total income replacement, hopefully within the next 10 to 15 years. So it’s simply conservative long term real estate, but there’s a plan to it, so that you will organically grow the portfolio over time.

Theo Hicks: So when you say there’s a difference between what you guys do and what the traditional turnkey company does, it’s that you kind of enter into the process a step earlier, and rather than just presenting a bunch of properties, you start at what’s a good fit for them based on what they’re trying to accomplish and what they are capable of. So from my perspective, if I want to do this, how does that work? Am I paying you money to do the plan? Or is that something that kind of comes with assuming I’m going to buy a property? How do you know who to do this plan for? Is it anyone who comes to you, or do you need to see something first?

Kevin Clayson: No, what we do is we always do kind of an introductory call. So we’ll just talk to people and we’ll make sure that they’ve got assets and ability. And if they have assets and ability, and they think that they want to move forward with our company — we actually own a mortgage brokerage. We’ll do a full pre-approval in-house. We effectively underwrite the file in-house before we ever shop a lender, so we know how many pieces of real estate they can buy, which markets we ought to target for them, and what their cash flow projections, what they need to look like. Then we assign them an individual to work with them and introduce them to our teams in the market, help them evaluate properties, they get properties under contract, we go through and do the loan for them… And then where we make money is we charge a flat, per-property fee. It’s a separate buyer-paid commission, only charged at closing, of $4,995, on the closing documents. And we include that in all the calculations; we’re trying to determine whether or not ROIs are going to fit. We’re saying what’s our total out of pocket expenses, we’re going to take everything into consideration from the downpayment to what our fee is, to potential rehab expenses, and then we’re going to look at projected rents on the property, and projected appreciation, and then we’re going to just do the calculation and say, “Does this give us the kind of projected rate of returns that our clients are looking for?” Once we know that that’s the case and they put the property under contract, go through that process, we get them closed… We also own a little insurance company, so a lot of times we can do the policy for them. Then we’ve got our property managers that work with our teams in the market, that then find the tenants and rent them out.

Now, the other place where we differ, it’s not only the customization on the front end of putting a plan together, we don’t charge anything until someone closes on a home with us. We’re $0 until you close on the home; that means we’ve got to perform. And that, I think, is why our clients come back again, and again, and again. Because they’re not paying us an upfront fee. We just go to work and do the work.

So that kind of customization of showing them properties that are custom fit for what they’re trying to accomplish, that’s one aspect that’s unique. Another, the fact that they can work with our teams in multiple markets simultaneously, as opposed to just look at a list of homes and kind of pick the one they want best, combine that with the hand-holding we do throughout… And then where we really are quite different is most turnkey companies, once you close on the deal, it’s kind of like “Cool, good luck. I hope it rents well.” We continue to work with our clients, year after year. In fact, annually, we put together annual property and market reviews on their property. We pull the numbers, we see how it’s performing, we see what the market is looking like, so that they know when it’s time to refi, when it’s time to sell, when it’s time to just kind of hang back and hold tight.

So we continue to work with our clients year after year, because the way we’re successful as a company is when our clients do multiple transactions over a number of years. When they sell one, and 1031 exchange it into a couple more.  So that’s kind of the way that we approach it.

Theo Hicks: So it sounds like it’s pretty customizable, and I’m sure the answer is it depends, but what type of single-family homes are you targeting? Are they already fixed up and turnkey? Or are you finding distressed properties and then fixing them up? Or is it a combination of both?

Kevin Clayson: Good question. It does depend by market. The acquisition strategy depends on the market. But generally speaking, we’ve got some new construction products that we do in Orlando, because we work with builders out there. Indianapolis is another one of our markets. We’re largely looking at recently published MLS deals. Sometimes in Memphis – we do a lot there – we can get pre-MLS deals because we have a reputation and people kind of know. And then we’ve got a couple of other markets we’re opening later this year. So it totally does depend, but they’re always in the same box. Here’s the box – three or four-bed, two-bath, middle-class type neighborhoods, two-car garages, ranging in purchase price from $160,000 to $230,000. They’re going to cash flow anywhere from $300 to $600 net cash flow a month after you pay everything out. So it’s kind of like blue-chip real estate. Slightly higher quality. We’re not doing really low-end stuff, we’re not doing really high-end stuff. We’re frankly doing the kind of single-family residential real estate that is in the highest demand across the board.

And the reason that we do slightly nicer properties and slightly nicer neighborhoods – and these are neighborhoods that are primarily owner-occupied, neighborhoods with a handful of rentals, the reason that we do that is usually the tenants, they’re in a position where maybe after they rent from you for a few years, they may be the ones that buy your property; now you have a chance to sell that property, do the 1031 exchange to potentially grow your portfolio. So the quality of tenant that we attract by targeting these types of homes in these neighborhoods is a higher quality tenant, which means your rent is far more dependable, and usually, your properties are taken care of much better. So usually any of these properties across the board – we don’t do massively distressed properties. We’re not doing stuff where we got to go and throw 100 grand or 50 grand at it. It’s like a few thousand dollars, lipstick and paint, get it ready. Because usually by going and finding deals with our teams on the MLS – and our key is we just we are super zoned in on our neighborhoods in our zip codes and our criteria, so we can take action on deals quicker than a lot of people can, just because we have the buyer pre-approved ready to go. So we know we have everything in front of us to be able to go.

But what’s cool about that is if we get homes off the MLS, which we do a lot of the times, those are homes that were listed by a primary residential owner, so they usually try to get it pretty nice. They try to get it looking good. So that means we can go in and just do the most essential critical things that mean it’s going to rent as quickly as possible, for as much as possible.

Theo Hicks: And again, I know it depends, but what’s the range of rents on these types of homes? Just to make sure I’m understanding…

Kevin Clayson: So you’re probably between a thousand and 1,500.

Theo Hicks: Okay.

Kevin Clayson: That’s probably the range for the vast majority of them.

Theo Hicks: And then you mentioned the MLS and then developers. What else are you doing to find deals? Is it just MLS and developers, or are you doing other things as well?

Kevin Clayson: We used to do a ton of auctions, but auctions just aren’t quite what they were during the great recession. There’s a lot of institutional capital, it’s really hard to kind of compete at the auctions… And to get the stuff that we want to get, it’s just not always as available at the auction like it used to be. So it’s primarily MLS, new construction, and sometimes pre-MLS stuff. But we don’t do foreclosures, we don’t really do short sales or anything like that. It’s really just super-boring, straightforward real estate, that works, and works, and works.

Theo Hicks: Do you ever have an issue with the deal flow? Are you able to keep up with the demand of your clients pretty well just through those?

Kevin Clayson: Yeah, it’s awesome. We’re totally able to keep up. And the main reason is because we just have awesome teams. And we’ve got multiple people in our teams, on the ground, in those markets. So having developers and stuff that you can work with from a new construction standpoint – that can ease some of that. Because look, nobody else is looking at those deals, right? Those are things that we’re able to do because there’s effectively a portion of that subdivision earmarked for Done For You Real Estate clients, because we want it to be primarily owner-occupied in that neighborhood. But that gives us a little bit more flexibility, so we don’t necessarily have that supply problem, even if demand is high. And that’s been really awesome, for our clients, especially.

Theo Hicks: How many deals do you guys do on average per year?

Kevin Clayson: We’re not a huge company. We probably do between three and 500 deals a year. And those are purchase transactions. We’ll probably help our clients sell another 200 or so deals a year. It fluctuates, but that’s pretty common. And in fact, one kind of cool thing that we do is on our website – you can go to dfy-realestate.com – there’s a tab that says see the results. I don’t know anybody else that does this… We post our annual transaction reports. So you’ll be able to see every transaction we did. So we give these partial addresses; it’s not full addresses, but you can see what the purchase price was, how long it took to get the property rented out, what the cash flow was on the property… When our clients are listing and selling the property you can see how much equity they were able to capture when they sold the property. We put it out there by market, so that that way, we could just be super upfront and honest and stand on our track record and say, “Look, this is who we are, this is what we do.” And we like that, because we don’t know a lot of other people that do that. But we’re happy to, because we keep track of that anyway, so we might as well share it with the world.

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

Kevin Clayson: Oh, dude, that’s one of my favorite questions. Okay… Do you remember the movie called Moneyball? With Brad Pitt and Jonah Hill.

Theo Hicks: Yup.

Kevin Clayson: Okay, so I grew up just outside of Oakland. So I grew up an Oakland Athletics fan. And I didn’t know Moneyball was going on until the movie came out. And if you haven’t read the book, you should do that as well. But if you remember, what happened was the Oakland Athletics were trying to compete with the New York Yankees. The New York Yankees had like one of the largest payrolls in all of Major League. The book and movie specifically chronicle the 2001 season. And the A’s didn’t have that much money, but they had to compete with the big boys. So what they did is, instead of spending a ton of money on flashy, expensive players that maybe would fizzle out, maybe they go and get you a whole bunch of home runs, there’s a little bit of a gamble, a little bit of a risk, what they did is they bought dudes that could get on base; good at taking walks, good at bunting, good at hitting singles. And they called it Moneyball. It was the idea that they were paying for on-base percentage more than they were flashy, big-name players. The best advice I can give anybody when it comes to real estate, especially when you’re starting out, is don’t go try to hit home runs. Go play real-life Moneyball with real simple real estate. Hit real estate singles.

So so many of us want the big deal, right? We want to get up there, we’ve heard about how much money you can make in real estate, and we just get up there, we swing for the fence. And then you’ve got gurus out there that’ll say “Oh, whatever — you miss 100% of the shots you don’t take.” Or “Babe Ruth, he struck out more than anybody. But he had more home runs than anybody.” And we use this thing that we kind of use as psychology to make somebody feel guilty if they don’t swing for the fences. But here’s the difference between you and me, maybe, and I don’t know about you, Theo, but me and Babe Ruth… The difference is this is – when Babe Ruth got up and he swung for the fence every time, if he struck out, he had another at-bat coming in an inning or two later.

For most folks that have worked really hard to get money saved up for their future, if they get to the plate and they swing and miss, they may not get another at-bat. So what we say is just go hit real estate singles. And that’s that simple and conservative real estate, right? Maybe you’re getting a 30-year fixed loan; you’re going to own it for three, or four, or five years before you sell it. It’s not going to be a traditional BRRRR property where you’re going to try to turn it over really quickly. You’re not going to try to target massive cap rates and massive cash flow. You’re not going to try to go and do a massive rehab. It’s like simple and conservative, super-boring, predictable, but it works. You hit enough singles with enough velocity over enough of a period of time, you win every single game you play. And that’s the way we approach real estate, and it’s what served us well, so that no matter what the world is doing and no matter how many financial crises we have to go through, our clients succeed, the company succeeds and we change people’s lives one property at a time.

Theo Hicks: That’s solid, solid advice. Alright, Kevin, are you ready for the Best Ever lightning round?

Kevin Clayson: Let’s go!

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

Break: [00:20:24][00:21:12]

Theo Hicks: Okay, Kevin, what is the Best Ever book you’ve recently read? Besides Moneyball.

Kevin Clayson: I’ve got to give you two. One is the Go Giver by Bob Burgh and John David Mann. It’s a little business parable that’s game-changing. The other is a little bit more kind of a business book. It’s called Give and Take, by Adam Grant. Those books changed my perspective on everything.

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

Kevin Clayson: It’s funny, I’m actually an author, and I do motivational speaking, and I go and I speak at middle schools and high schools and help kids know how to be happy in the middle of really tough circumstances… And I’ve got a book that’s sold in 26 countries throughout the world… So I would just double down and write more books and go speak at more schools and go try to serve more people that way if I wasn’t doing real estate,

Theo Hicks: What’s the book called?

Kevin Clayson: The books called Flip The Gratitude Switch.

Theo Hicks: Congrats on that success.

Kevin Clayson: Thanks.

Theo Hicks: Let’s see… What’s the best deal you’ve done with a client?

Kevin Clayson: It’s hard to say that there’s a single best deal that we’ve done with the client, because they all kill it. But here’s what I’ll tell you. I look at a deal that we did with a kid who had saved up money to get one little investment property before he went and served a church mission. This was back in 2009. The dude put 25 grand down, which was a 20% down payment on a property in Phoenix. He went and served God for two years, he came back he built 60 or $70,000 of equity, was able to refinance it out and go get a second property.

Then he was able to use the equity from those properties, and go buy another property or two, which funded his law school education at Harvard… And now he’s graduated from Harvard, and he’s got this real estate portfolio that could pay off all his student loans if he wanted to, but he just wants it to keep growing. So one simple deal with 20 grand down 10 years ago has transformed this kid’s life. That one I think about it a lot.

Theo Hicks: That’s a good Best Ever deal. What’s the Best Ever way you like to give back?

Kevin Clayson: It’s kind of a philosophy that I try to live by, and it’s not some sort of grand gesture, it’s this – it’s only four words long, it’s “Leave people better off.” And all I mean by that is you think of what this world would look like if every one of us walked into it every single day realizing that all we got to do is leave people better off than we find them. How much better would our marriages be? What would it be like in our relationships with our kids if inside of every small, tiny interaction, we tried to leave them better off? And then what about our clients? And what about the stranger that we meet at the store? What would this world look like if we didn’t try to compete and shout louder than one another, but we just had to leave people better off? So my little contribution is every day, in every way I possibly can, inside of every single interaction I have, I try to leave people better off than I found them.

Theo Hicks: And then lastly, what is the Best Ever place to reach you, and anything else you want to mention before we wrap up?

Kevin Clayson: I want to mention that you’re awesome. Thank you for having me on the show. The show was awesome. If you’re listening, you’re awesome. And the best place to find us is dfy-realestate.com. And also – listen, if you’re listening to this and you’re a podcast fan, we actually have a podcast called Replace Your Income, where we go through our strategy, and go through deals, and talk about what we do with our clients. It’s not nearly as good as this show, but if you’ve got extra time on your run or walking your dog and you don’t have anything better to listen to, give Replace Your Income and listen. And otherwise, social media is always a good place to find us, too. Done For You Real Estate USA.

Theo Hicks: Perfect, Kevin. Well, thank you for joining us today. I can definitely tell you do those kinds of talks, you’re a very good speaker and very animated.

Kevin Clayson: My hands, man. I know we’re like on a zoom call and you’re probably getting motion sick. My wife always makes fun of me. She’s like, “What would you do if you had to keep your hands in your pocket?” I’m like, “I don’t think I can speak if I can’t move my hands. I don’t think it’s possible.”

Theo Hicks: But I can see the passion for sure.

Kevin Clayson: Thanks, man.

Theo Hicks: Thanks for joining us today. I enjoyed this conversation a lot. And really what it kind of comes down to, your Best Ever advice really summarizes everything we talked about, which is you don’t need to hit the grand slam, do the crazy deal that makes you a million dollars or $100,000. It’s just consistent, simple deals over a long period of time. As you mentioned, you work with people to reach your financial goals in 10 to 15 years, not in a week, or a year, or two years even. So in order to do this, you talked about doing the single-family rentals, you were very specific on the type of property that you target…

We talked about how your company is unique, in that it essentially starts earlier on in the process, and doesn’t just give them a menu of roles to choose from and then say “Alright, good luck.” You work with them from the beginning to figure out what their goals are, and then you will match the correct property type and market for their goals. And then you’ll help them through the entire transaction process. And on the back end, you have the property management in place, you do the annual market property reports to help them sell it as well… So it truly is a full service done for you real estate business.

Something else interesting you said that I liked was you focus on following the simplicity, focus on the MLS, as well as new builds. And you focus on new builds because you want to focus on the owner-occupied areas. Because you’ll be able to not only get renters faster, but you might also have the possibility of selling it to that renter on the back end, since most people own the homes that live there. So it kind of increases the chances of you selling the property, or at the very least increase the chance of you selling it faster, once you decide to go time. Plus, you don’t won’t worry about getting the tenant out of there and all that other stuff that delays the sales process.

Kevin Clayson: It makes real estate more liquid when you do that, at the end of the day.

Theo Hicks: Exactly. And then I loved all of your lightning round responses as well. So Kevin, thanks again 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.

Kevin Clayson: See you, guys.

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JF2338: Laid Off to 200 Single Family Homes With Sakar Kawle

Sakar is originally from India and immigrated here in 1997 to pursue MS in Clemson University. He is a full-time real estate investor who started back in 2000 after being laid off. He now has 20 years of experience and a portfolio of 200 single-family homes so some would say his “laid off” was a blessing. 

Sakar Kawle Real Estate Background:

  • Full-time real estate investor since 2001
  • 20 years of investing experience
  • Portfolio consists of 200 single-family rentals
  • Based in Ellicott City, MD
  • Say hi to him at www.premiumcashflow.com 

Click here for more info on groundbreaker.co

Best Ever Tweet:

“You will find the scalability plays in the investors favor the more you study multifamily ” – Sakar Kawle


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, Sakar Kawle. How are you doing Sakar?

Sakar Kawle: I am good, Joe, thank you. I appreciate you inviting me on the show.

Joe Fairless: Well, of course. And I’m grateful that you’re on the show. A little bit about Sakar. He’s got 20 years of investing experience. Portfolio consists of 200 single-family rentals. That’s 200 single-family rentals. He’s based in… Oh man, I forgot the pronunciation. How do we pronounce this city in Maryland?

Sakar Kawle: Ellicott City, Columbia area.

Joe Fairless: Ellicott City, Columbia area. Thank you for that. Sakar gave me the pronunciation before. I even spelled it phonetically in my notes, but I butchered it either way. Ellicott City, Maryland. And with that being said, Sakar, do you want to give first the Best Ever listeners a little bit more about your background and your focus, and we’ll get into it a little bit?

Sakar Kawle: My story is a typical immigrant student who comes to US in 1997. I did my [unintelligible [00:03:55].20] in Clemson University, and after a brief working stint for a couple of years, I got laid off. I shifted my focus to cash flowing rentals, and basically, since I got my full-time job here in Maryland just outside the Baltimore area, I discovered that Baltimore was a cash-flowing state. Very good city to invest. So I pretty much started investing in Baltimore back in 2001 or so… And slowly but surely been accumulating houses – one, two, sometimes a lot more; in the post-2008, 2009 crash we were accumulating probably 12 to 14 houses a month at that time. So collectively, we are at about close to 200 houses and some midsize apartments and things like that as we stand right now. So that’s in short, you can say, my snapshot.

Joe Fairless: All in and around Baltimore?

Sakar Kawle: Correct. So it’s majorly concentrated in probably four or five zip codes here in Baltimore, which gives us a decent scale from a management perspective and things like that. So it just helps out in terms of lots of things, as you can imagine.

Joe Fairless: What’s the average house value worth?

Sakar Kawle: Sure. So average values worth here are depending on the area, Joe – anywhere between 160k to 225k, and things like that. So if you want me to clarify some acquisitions, and things like that…?

Joe Fairless: Sure. Please.

Sakar Kawle: So back then, you know, we bought houses anywhere between let’s say, 50,000, 55,000 to 70,000, 75,000. There were some houses I bought for close to 100,000 as well. But that’s just the acquisition. But then in every single house, we would spend anywhere between 20,000 to 30,000 just from a renovation standpoint. So we would have completely new kitchens, bathrooms, refinish basements, and things like that.

So that gives us a good position that you kind of harden all the surfaces and stuff. And once you do the house right, as you know, tenants stay longer, their satisfaction level is great, your maintenance also is much less. So that helps out in a lot of respects, basically.

Joe Fairless: Let’s talk about the model. What is your business model with the direction of the portfolio? Is it what you just described, where you’re buying at 55k to 75k,  you put in 25k or so and then you just hold on to it long term? Or is there something else that you’ve been doing?

Sakar Kawle: Sure. So typically, Joe, my mindset always had been buy and hold for the longest time. And then as I was collecting houses and the cash flow numbers were going up, there were many years I would see that I would have lots of cash in my bank. So back in 2018, we ended up purchasing about 15 units, two apartment buildings right next to each other, right at the heart, right next to the university, and things like that. Then again, turned around in three, four months, bought another 66-unit portfolio, all by myself. And during that time is when I saw that, yes, you can place a large amount of capital as well in multi-family buildings… As you can imagine, like someone who’s been sort of rehabbing and renting houses for a number of years.

But when I came to multi-family, you’re dealing with smaller units, of anywhere between 600 to 900 square feet and things like that, you’ve got one-level apartments. So here you’ve got a house guy who’s been doing renovations, and when you throw me into a small box of apartment, if I may call it, I got really excited. I said, “You know what? I mean, such a small place – we can turn it around.” And just the whole dynamic about commercial valuation versus house valuation comps, and things like that… That really resonated with me. And the more you study multi-family, you find, yes, the scalability, the management and things like that, the best days, as I said, the commercial cap rate evaluations and stuff like that – that really sort of plays into investors’ favor.

So as far as the direction of the portfolio goes, Joe, since I have held on to the houses for a much longer time, my LTV is quite less right now. So eventually, we might sell it and maybe completely transition into multifamily as well. But since I have such a larger portfolio, I recognize that it may not be as easy as boom, you shift gears and sell off two, three houses, or 10 houses, and off you go, in six months you will transition off completely. It may not be like that. There may be a transition of two, three years where we are slowly unloading and perhaps, you know, moving forward.

So that’s what I would say. But the nice thing also, Joe, is that we own and manage everything ourselves, right? So we can always say that, yes, there is a bit of overhead involved as well. But the cash flow, the type of renovations that we have done, and stuff like that – we have no qualms or misgivings about the portfolio that we currently have. It’s just that, yes, multi-family will probably give you more bang moving forward; that may be the direction. But again, as we know, we are in such a low cap rate environment. Even if let’s say the multi-family ramp up takes a little longer, I still have my good bit of all this portfolio by myself, that we can still bank upon and move forward. So those would be the general points, I would say, for all of this.

Joe Fairless: Boy, we have so much to talk about. I love this. Let’s first talk about the loans that you have on the single-family homes. Is it one, or do you have one per property? How do you structure it?

Sakar Kawle: Sure. That’s a good question. So, Joe, typically when folks are newbies, they wouldn’t recognize the power of your credit unions or nearby banks, and things like that. But the more you start in this business, you realize that you don’t have to go to your typical big banks, Bank of America and Wells Fargo, and things like that. In fact, it’s quite the opposite, that the bigger the banks you go, they do not know how to do the investment portfolio financing.

So coming back to the portfolio that I have, my loans are mostly commercial loans. They are probably portfolio loans, as you can call it. So they are pretty much held on by credit unions or smaller banks, and things like that. And they’re all mostly loans comprising of, let’s say, 10, houses, 12, houses, eight houses, things like that. So that’s how it is.

When I initially started, I did smaller loans, maybe three properties, one loan, four properties, one loan, and things like that. But as things started to ramp up, I would pretty much discover that I’ve got to scale big, and then I would present a much larger loan package. So for example, just to give you a brief snapshot, you would bundle let’s say, 12 houses for, let’s say 800k, 900k. And as you can tell, on a per-house basis, you’re mostly less than 100k of sorts. So from a cash flow perspective, even from a debt balance perspective as well, it’s very conservative. So it really is a win-win for everyone, honestly.

Joe Fairless: Let’s say you have a lender and they say, “Okay, Sakar, I’d like to lend to you. But we need at least 10 properties.” Well, you’re looking at property number one, and number two, but you don’t have properties three through 10. So in that case, are you just getting a one-off loan and then transitioning it into a portfolio loan later?

Sakar Kawle: Sure, that’s a good detail there. So what happens, typically, Joe, is that you would acquire them first. And you have to have the properties. There’s no such thing as you’re starting a loan package of 10 and you don’t even have the properties ready. So just to give you an idea how it played out on the street for us is that I would buy properties from my own cash, or perhaps through hard money loans, and things like that. And as we were renting them out, and things like that, we would go approach the bank, saying that we are looking at eight to 10 properties loan. And how that would play out is that typically, we play a lot into Section 8 and [unintelligible [00:12:18].06] base programs.

And the reason I bring that up is that the inspections and by the time you rent the house, typically you’re talking sometimes maybe two months by the time someone submits their paperwork, and you’re going through inspections, and you sign a lease. Typically, it can take one and a half to two months easily. And in that case, what would happen is that in that hypothetical example of 10 properties that we were discussing, you would have eight properties ready, but looking forward, you would submit the package to say that, “Yes, we have these other two properties that are coming on the books in the next 60 days or so.” And you would present that.

So the answer to your question is that you definitely need properties upfront. You cannot have a fictitious case where you are doing a 10 properties loan, but you don’t even have tangible assets to present or show to the bank, and things like that.

Joe Fairless: Cash flow. When listeners hear about 200 properties they’re thinking, “Wow, what does that bring in a month?” So what does 200 properties bring in a month in cash flow?

Sakar Kawle: It’s crazy, Joe. I honestly haven’t even counted, because one of the biggest things that I’ll tell you – maybe you can understand this in this manner… Just the property management alone, I probably make $15,000 to $17,000 just on the property management fees. I’m not even talking net cash flow or anything.

Joe Fairless: Those fees are coming from who?

Sakar Kawle: From our own portfolio. So we own and manage ours, right? But at the same time, I want to make sure that… Sometimes you know how numbers get all sort of commingled and you don’t realize what’s happening, and all of that… Although I have these eight to 10 entities between all this portfolio, right? So sometimes you don’t know how numbers are playing out. So it’s very important to sometimes just make sure that not only you’re doing it right, but at the same time from an accounting perspective, that management fees and some of the utilities and all of that that come with all of this, you’re accounting it correctly.

So maybe three, four years ago, I wasn’t doing this, thinking that, “Hey, this is my own portfolio. Why do I need to do it?” But then suddenly, you start to realize that when it comes to the time of taxes and things like that, you realize that, “Geez, there are all these details that are asked”, and you’ve got to account for them properly.

So I started to do all of that, and then suddenly I realized that hey, you know what – we were doing management the whole time ourselves, but we were not really paying ourselves, because we were constantly renovating and pulling the cash out and putting it back into businesses, and things like that, right? So we were not doing that. Bust to answer your question, just property management alone is upwards of 15k to 17k just on the fees itself.

Joe Fairless: That’s awesome.

Sakar Kawle: And then probably over well over 50k or so in pure cash flow, and stuff like that. And my story is a slightly different, Joe, wherein I am very debt-averse. So what I also do is just the power of compounding and writing the debt down really. On every single loan that I have, I typically pay a minimum of $1,000 every month extra principal. That’s just automatically that goes to the bank. And those are the things that I don’t even see. So sometimes I’m okay with not having that much cash flow. But to me, as we all know, that all the banks review their loans quarterly and on a semi-annual basis, and things like that… And once they see the performance of some of the investor portfolio – boy, really good things happen when they start to see that, hey, not only their portfolio is performing well, but look at the amount of writedown that they’re doing on their loans, and things like that.

So that puts you in a lot of good position in front of lenders, because all this game of cash flow, in general, all of this, it’s a kind of a close-knit entity where you’re not running too far from the known players. It slowly pretty much starts to become a close-knit circle where bankers, the VPs, and all these folks know each other, and they’re talking about, “Hey, I know this investor, he’s great” or “He’s not so great.” “I love him”, and things like that. And the more you mature, you start to realize that these are the aspects that you really have to look forward to, you know… You know, how you communicate, how you behave, how you’re servicing the loans, or communicating, even with the back office people at the bank, and things like that. And that goes a long way, and you suddenly start to open doors or get things done, which otherwise would be quite difficult.

Joe Fairless: Oh, absolutely. And thanks for going into those details. It’s good for the listeners and myself to just learn from someone who’s got this size of portfolio with single-family rentals. Let’s talk about – you and your team do your own management, so God bless you for that. Let’s talk about some bad deals. What deal have you lost the most amount of money on?

Sakar Kawle: Sure. So we have had tough times, many times. Typically, our pain has always been is that, gosh, it’s taking so much time to renovate. We would sit on renovations for like four months sometimes. And it sounds crazy, but the right thing that I have learned is that you’ve got to do the right thing in terms of renovations, and stuff like that. And in that aspect, Joe, as far as losing the money and stuff like that, I clearly remember there was one time where we were very close to getting the house done, and then we found out that the mechanical inspector had changed upon us. Some new inspector came along, and he had us change a lot of plumbing and HVAC as well. We ended up losing about almost 35,000, 40,000 on that deal because  we  were redoing all of that. And we were big enough at the time, meaning we had lots of things going on…

So in those cases, your run rate goes down; you don’t suddenly collapse to the ground. But it’s just a headache sometimes. And like you have people who’ve been doing the business for 30 to 40 years, who are doing the plumbing, HVAC, electric, and then as you know, a lot of municipalities, you’ll notice that all these young inspectors who show up with the rulebook, and they think they know better than the 30-year veterans who are doing the job. So it’s one of those classic cases that we had gotten into, and we were like, “Fine, let’s just do what is told, and let’s just move on.” So that ended up costing us a lot of cost overruns, and things like that. That’s kind of what you call the tip of the mountain, so to speak. That’s the most we have seen. But otherwise, as you can relate, in real estate, in renovations, and things like that, if your cost overruns are not happening – boy, you’re really doing something wrong… Because cost overruns are like always the everyday norm, you know…

Joe Fairless: Yup. And as far as management goes, did you always manage your own properties?

Sakar Kawle: For the large part. And when I say that Joe – I started full time doing this, I was doing pretty much double duty with my W2 almost until 2014 and 2015. That’s when I quit. But during the interim years, I think around 2009 or so, we took a brief detour where we hired a property management company for a year, a year and a half. But then we quickly realized that not that we were out of the woods at the time; we were still present. But since we were already doing the renovations and managing the tenants to some extent all the time, we discovered that whatever properties we have given to the property manager, we would do the management or even the maintenance and things like that much better. So we took that property management from the other company also in-house at that time.

So you can say that, yes, we’ve been managing mostly in-house. If you want to maybe say the staff, in general, we have about four maintenance people and about two back-office people right now. And that’s good enough. Not everybody’s so busy, because the properties are fixed up very well, so we don’t tend to always have folks running around and doing different things, and things like that. So it’s been a blessing for sure.

Joe Fairless: Let’s pretend you’re still buying single-family homes. When you first started buying them, to what you know now, if you were to go back and tell yourself, “Hey, keep in mind these things. Because I’ve learned these things over the last 20 years”, how would your buying criteria have evolved?

Sakar Kawle: Sure. So over time, what I have matured into, Joe, is that… And these were tough learnings, quite honestly. These were natural intuitions that I got, and I gravitated towards that… And now they have become my strong beliefs. And it goes by saying that anybody lives in a neighborhood first, and then a house.

For example, you can get a cheaper house in a not so great neighborhood – you wouldn’t be successful. So for someone listening or watching the show, I would say that, it’s always better to pay more to be in a good and better neighborhood, rather than just looking for a deal. That deal can sometimes really crash and burn you and you would probably lose your shirt, and things like that. So sometimes stability and having that occupancy sort of ride you out; that behooves you and works in your favor for the long term… Rather than just looking for the highest cash flow and ending up in a not so great of a neighborhood. That’s what I would say. And that’s what I kept on doing.

Initially, I was buying properties for 40,000, 50,000, then slowly, I discovered that I’m buying for 60k, 70k. And until the time I was actively buying the properties, those select properties, I still bought for about almost 90,000 a door, and things like that. And as long as the cash flow works conservatively, that’s the good matrix.

And then of course, in your career  sometimes you can say that “Hey, I’m looking for slightly greater cash flow”, so you’re buying not that great of a neighbor, but still safe neighborhood type of property. That also works. Where you don’t want to swing the pendulum is that it goes completely the other way and just buy really bad properties in really bad neighborhoods.

Joe Fairless: So if you have to choose between a better neighborhood with less cash flow, or a worse neighborhood with better cash flow, you’re going to go with a better neighborhood with a little worse cash flow?

Sakar Kawle: Sure. And close second also comes, Joe – real quick I’ll say also that you have to do the renovations correctly… Because maintenance, vacancies, turnovers, as everyone can relate – that kills this business. So once you acquire, if you can renovate it in a great shape, and keep that maintenance down, that itself is extremely powerful for you. Because the cost of not only the maintenance, but the opportunity cost of if you’re doing something X and then you have to move your maintenance folks to all over the place, that has a lot more premium as well; you don’t want to be running [unintelligible [00:23:18].01] fixing just maintenance problems. And that quite frankly becomes one of the bigger points why people don’t scale, or people hate single-family rentals as well… Because people would have done the business in the wrong way, and they would have probably done very sub-standard work, and things like that, to begin with.

Joe Fairless: Based on your experience. What is your best real estate investing advice ever?

Sakar Kawle: I like to always say, Joe, that it’s a people business. Keep on learning all the time, networking, and podcasts like this, or mentors, and things like that. Those are actually the pillars of your success. Sure, you have the real estate side of it, but the whole mindset about how you can improve yourself, have great people around you… Sometimes it’s not the resources, it’s really your resourcefulness to gain information or gain an edge into learning and things like that. So I always say that you have to keep learning different things and learn from the experiences of different people. That to me stands out the best and greatest above all.

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

Sakar Kawle: Sure.

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

Break: [00:24:33][00:25:22]

Joe Fairless: Okay, we talked about the deal you lost the most amount of money on. Now let’s talk about some fun stuff. What’s the Best Ever deal you’ve made the most money on?

Sakar Kawle: Back in the days I bought a single-family home, typical foreclosure and stuff like that, for around $62,000 that had been rented for a long time. And then I decided to sell it. And recently, I sold it for about $210,000. So I guess I made some money along the way. I had my own share of headaches as well, so… It goes. But that’s what I would say. And then recently, when I bought the portfolio of 66 houses, the average price on that was about 78k a door. And now when I’m selectively selling some of those houses, those are also I’m selling for around 200k a door. So it’s been great. I lucked out in some cases, for sure.

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

Sakar Kawle: I love to network and share advice. Here in Baltimore, where I’m based, I started our own community organization way back in 2008, and 2009. So we celebrate festivals, do all the giving back activities as well. So we do that. I donate a lot as well. So there are a lot of different ways how I give back to the community as well.

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

Sakar Kawle: My website is premiumcashflow.com. Folks can learn all the information there. I’m readily available on Facebook, LinkedIn, Instagram, and things like that. So if viewers want to reach me, drop me an email at info@premiumcashflow.com. There I host a podcast as well, focusing on commercial real estate, premiumcashflow.com. That’s where a lot of experts come on share their advice as well. So that would be another great place to learn some information as well.

Joe Fairless: Sakar, thank you for being on the show, talking about how you’ve built your portfolio, how you approach the cash flow, the debt, the business model for how you’ve evolved your approach to buying properties, put a premium on the better neighborhood over cash flow… Thanks for being on the show. I hope you have a Best Ever day and talk to you again soon.

Sakar Kawle: Great. Awesome. Thank you Joe. I appreciate it. Thanks a lot.

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JF2335: Focusing On BRRRR With Anam & Aamir Hashambhai

Anam and Aamir Hashambhai are a husband and wife team. Anam is a marketing director for a local luxury auto group while Aamir runs a family dry cleaning business with several locations. They have been focusing on the BRRRR strategy, completing 19 properties so far, and have a goal of continued growth. 

Anam & Aamir Hashambhai  Real Estate Background:

  • Anam marketing director for a local luxury automotive group
  • Aamir runs a family dry cleaning business operation with several locations
  • They have 3 years of investing experience
  • Their current experience is with purchasing 19 properties and have completed 15 BRRRR; currently have 4 going through BRRRR progress
  • Based in Dallas, TX
  • Say hi on Instagram @rehabrental 
  • Best Ever Book: girls stop apologizing

Click here for more info on groundbreaker.co

Best Ever Tweet:

“Get started and focus on creating the best product for the best price ” – Anam & Aamir Hashambhai


TRANSCRIPTION

Theo Hicks: Hello Best Ever listeners and welcome to the best real estate investing advice ever show. I’m Theo Hicks, and today I’ll be speaking with two guests. We’ve got Anam and Aamir Hashambhai. How are you guys doing today?

Aamir Hashambhai: Great. How’s it going?

Anam Hashambhai: Good.

Theo Hicks: I’m great. Thanks for asking, and thank you for joining us today. A little bit about their backgrounds – so Anam is a marketing director for a local luxury automotive group. And Aamir runs a family dry cleaning business operation with several locations. They have three years of investing experience in real estate. Their current experience is with purchasing 19 properties. And they also do BRRRRs. So they’ve completed 15 BRRRRs, and have four in progress. Based in Dallas, Texas. You can say hi to them on their Instagram page, which is @rehabrental. So starting with Anam, can you tell us some more about your background and then what you’re focused on today?

Anam Hashambhai: Yeah, absolutely. So after graduating high school, I went to SMU, which is a private university around the corner from where I grew up. I went there for business school. Graduated with a degree in marketing advertising, and went into the field of marketing and advertising, and I’m currently in that field.

When it comes to real estate, basically, we sat down three years ago, and we were like “What do we actually want to do for the rest of our lives?” And we both kind of have a passion — he loves numbers, and I love designing. So real estate was kind of the path that we wanted to go down. So that’s kind of what I do now. I do a lot of the leasing, the designing, helping with what the best layout is, and stuff like that…. And then he’ll go into detail what he does, but he does numbers, that I don’t like doing.

Aamir Hashambhai: The way I got started – while I was in high school I was always helping out with my family business, and actually, throughout middle school, high school, I was helping out with my family business. Went to community college for about a year or a year and a half or so; I didn’t finish up over there… I just completely took over with the family business and ran that, grew it as much as I possibly could. After that, we decided that we wanted to kind of do something for ourselves… Because we were dating for a while, and like, we started talking about stuff like that.

We stepped into real estate, and we fell in love with it from the beginning. It was tough in the beginning, because it was a good learning curve… We really liked that it was like our own, and we started on our own, without the help of anybody else…. And we just took off with that.

Currently with real estate, like she said, I’m running most of the numbers, out on the field as much as possible, managing our contractors, the maintenance calls, anything to do with getting guys to where they need to be, getting materials to where we need to get them to, stuff like that.

Theo Hicks: Perfect. So can you explain in a little bit more detail why you picked real estate? You guys mentioned that you wanted to figure out what you were going to do with the rest of your lives, and you guys knew what you were good at, but for example, why didn’t you go into an interior design business or something? Why specifically real estate? Maybe tell us how you became aware of it.

Anam Hashambhai: So both of us actually grew up in a family that had family-run businesses, as in various service-based businesses, which meant you were there from 7 am to 7 pm, doing things on the weekend. It was just a lot of labor-intensive — and service business, so now you had people you had to please. Over the years, it’s done very well for both families. We became jaded a little bit. What people learn is we like people, but we also like being by ourselves and doing things in the background. But what business can we do that still projects us, we still interact with people, but on our own terms, on our own time, from anywhere, essentially, which is one of the reasons we decided to go that route.

Theo Hicks: That’s interesting. Yeah.

Aamir Hashambhai: And after the initial rehab, and the whole processing of getting the money together, getting the project completed, getting the backend financing – after all the major work is done on each of these projects, it’s very hands-off. Because it’s a smooth process kind of after that. You’ve got a couple of maintenance calls here and there and there’s some paperwork to do on a monthly basis, but other than that, it’s a very hands-off business.

Theo Hicks: Perfect. So you guys landed on real estate… And obviously, there are probably literally a million different types of strategies. So it sounds like you guys do BRRRRs. So the 19 you two have, were those all BRRRRs? So you bought them, rehab them, refinanced, rented, and then repeated? Or did you buy some turnkey properties and then get into BRRRRs? Or have you always done BRRRRs?

Aamir Hashambhai: We have specifically [unintelligible [00:07:26].10] BRRRRs. It just makes sense to us because you’re going into a property where you’re going to add some value to the property. You’re buying it in a very distressed condition, that’s why you’re getting deep discounts. And then you’re going to go in and add value, whether you’re adding square footage, or whether you’re just renovating it cosmetically, or whatever it is. And then you’re going to pull your money, most, if not all; you’re going to pull most of it back out doing a refinance because of the added value.

Theo Hicks: So you picked a BRRRR because of the value-add and the ability to pull money back out?

Aamir Hashambhai: Correct.

Anam Hashambhai: Basically.

Theo Hicks: Okay. So you’ve got four BRRRRs going on right now. Have you always done multiple at a time? Or did you start off doing one?

Aamir Hashambhai: This year was kind of a weird year where the first half of the year we had no idea what was going on with the world. For the last two years, we’ve done probably five or six, on average. The first half of this year, we only did one, because after March or so everything basically shut down. Some of our refinances that were in progress completely got halted. So a lot of our money was actually stuck in some of the deals.

We also didn’t know what was going to happen, whether we were going to get our rents on time… And then we had a couple of projects that we had to hurry up and quickly get done, so that we can get somebody in there to start getting some revenue back in. After July or so, when we kind of felt like okay, because the rents are coming in on time, and the lending market kind of opened back up, we completely jumped on in and I think we picked up five or six.

Anam Hashambhai: Six. We picked up six in three months. Yeah.

Aamir Hashambhai: Yeah. We picked up six units in the last three months. So it’s been a busy second half so far.

Theo Hicks: Are these all single-family homes?

Anam Hashambhai: All of them but our most recent purchase. We actually just purchased a duplex. So everything but those two are single-family rentals.

Theo Hicks: Is the plan moving forward to continue to do duplexes now? Or it was just kind of like a unique situation?

Anam Hashambhai: That particular deal was a super unique situation. We do want to eventually get into multi-family. Whether that’s another duplex, triplex, or bigger, like a 40-unit. I think in the next year we most likely will probably jump into one of those — like, it’s not big, but small multi-family, like 20 units plus,

Theo Hicks: When you got started three years ago, how much money did you guys start off with? And then where’d it come from? Was it money you guys had saved up from your jobs?

Aamir Hashambhai: So we had very little of our own capital. We did have some savings off our personal, but we opened up a lot of different credit lines and stuff, to get money for the deals. So what we did was for the actual purchase of the units we opened up a business line of credit against our business, and then we opened up a home equity line of credit against our home, so that we can use that for the purchase money. We opened up a couple of different credit cards for the renovations, so we could purchase the materials on those, and then basically with the money that we had saved, we use that for our labor costs. So a little bit from everything.

Theo Hicks: Okay, perfect. Is that how you still fund the deals, is with those lines of credit? Or are you using the money that was made from those deals?

Aamir Hashambhai: We amplified it now a little bit… Because in the beginning, in a way, we were kind of risk-averse, because we weren’t going to have interest payments on our personal capital, and very little on the business lines of credit, because they were given to us at like 4% or 5%, very low interest rates. But now what we did was we amplified that. We still use the same cash, but we also couple that with some of our private lending or hard money lenders, so that we can do more deals at the same time.

Theo Hicks: How are you guys finding your deals?

Anam Hashambhai: We are probably on a hundred different list of wholesalers in the DFW market. We almost pretty religiously just purchase from wholesalers; we don’t try to do it ourselves. Someone else can do that for us. And I think we probably look at 10 to 15 deals a day. We probably offer multiple offers a week, and then usually something comes to light from there.

Theo Hicks: So basically, you’re on these lists, the emails come out, you look at every deal, and then you send the offers on ones that makes sense. And then you [unintelligible [00:11:10].00] the ones that you get awarded?

Anam Hashambhai: Yeah.

Aamir Hashambhai: We know the areas that we want to stay specifically into, and then the areas that we completely don’t want to buy in. So the first thing is just to judge it out by the areas. There’s a specific price point that we’d like to stay in, which is the sub 120k or so on the purchase price. So any deals above that, we don’t dabble into. There are a couple of other items that you look at also.

Anam Hashambhai: So we basically use an acronym called AREA. We’ll basically scan it very quickly when it comes in our emails, using that. So literally, the AREA is “Is there investor activity?” We look at is there a lot of retail near? Is or Walmart? Is there Starbucks? Is there Chick-fil-A? Because that warrants a lot of foot traffic, which means the property would be rented easily. We look at education in terms of how close the school is. We like buying in neighborhoods where one of the schools are at least walking distance or super close. And then it’s a formula. If we buy at a certain price, but the ARV is a certain price, we don’t really even consider it. We will never put ourselves in a position where we’re stretching. We always run our numbers at worst-case scenarios, just to protect ourselves.

So it’s fun analyzing a bajillion deals a day when you also have full-time jobs at the same time… But the cool part is we’ve gotten so good at it by practice that we almost never look at any of the homes we actually offer on, and the ones we even buy. There’s some of them we will never look at, as long as it fits our criteria and the numbers work for us.

Theo Hicks: What was the first A?

Anam Hashambhai: The first A is area. Actually the area, so we look at the area.

Theo Hicks: Oh.

Anam Hashambhai: I know it’s kind of confusing. The acronym is called AREA, but the first A is area also.

Theo Hicks: It’s perfect. So, area, retail, education, ARV?

Anam Hashambhai: Yes.

Theo Hicks: Perfect. So you did mention not wanting to look at a bazillion deals while working full-time jobs. I’ll ask that in a second, but one other question that I had is – so whenever you’re looking at a wholesale deal, and this is for the ARV in a sense, so how do you know how much money you’ll have to invest into the rehab costs without seeing the property?

Aamir Hashambhai: Most of our cosmetic rehabs over the years – it’s very, very cosmetic, and barely anything to do. We’re roughly coming in around 10 bucks a square foot. If it’s cosmetics plus maybe a component here or there, like an AC, or foundation, or roof, we’re probably in the $15 to $18 a square foot range. And then if it’s a very heavy rehab, where we’re doing A/C, roof, foundation, full cosmetics…

Anam Hashambhai: Down to the beams.

Aamir Hashambhai: Yeah. Then we’re talking about somewhere between the $20 to $25 a square foot. So when we look at pictures, we can kind of get a pretty good idea of which ballpark it’s going to be in, and then we’ll run our numbers based on that.

Theo Hicks: That’s very helpful. The last question before the Best Ever question… So maybe tell us for each of you how your weeks are structured? So when are you working at your full-time jobs, and then when are you doing real estate stuff?

Anam Hashambhai: So for me, I have a more corporate job, so it’s super structured in terms of timing. I go in, I’m at my day job from eight to probably [5:30], 6 o’clock. So real estate for me is very much nights and weekends. We start our weekends at 7 am, we work Saturday and Sundays, just because I like touching and feeling our properties and making sure everything passes my personal design inspection. [unintelligible [00:14:33].04]  I don’t think it would always be what I want it to be. There are times if something comes up in the middle of the day, I’m able to handle it. I have a very great job that allows me to be a little flexible, but most of [unintelligible [00:14:43].09]

Aamir Hashambhai: Yeah, I like to start my mornings early off at my family business, and then as we need to, I just make adjustments. So like whether it’s meeting contractors, or appraisers, or the city officials, or whatever it is, I’ll structure my day accordingly. But usually, my mornings start off right around six or seven at the family’s business, and then probably in the afternoon I’ll go back to the real estate side between 12 and 4, 12 and 5, I’ll focus on that, meeting guys on projects, or whatever it is. And then I’ll end my day back at the business.

Theo Hicks: Alrighty. Starting with Aamir, what is your best real estate investing advice ever?

Aamir Hashambhai: The best advice ever is to get started. There’s a lot of people who just focus on reading and learning as much as they can, but you’re not going to get the experience until you fully get going, until you jump in.

Theo Hicks: And then Anam?

Anam Hashambhai: You want to be the best product at the best price. You never want to be at the higher end and you never want to put too many high-end finishings if the area isn’t warranted. So mine is the best price for the best product, for the area.

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

Anam Hashambhai: Yeah, we are.

Theo Hicks: Perfect. Alright. First a…

Anam Hashambhai: [unintelligible [00:15:52].07] lightning speed here.

Theo Hicks: I think I said the Best Ever lightning round, at lightning speed, so I guess you didn’t understand me. Alright. First, a quick word from our sponsor.

Break: [00:16:02][00:16:52]

Theo Hicks: Okay. So we’re going to do Anam and Aamir, for each of these in that order. So Best Ever book you’ve recently read?

Anam Hashambhai: Actually, I’m in the process of reading Girls Stop Apologizing book. It’s a self-help book.

Aamir Hashambhai: I don’t think I’ve ever read a full book. If I do read, I’m reading articles and just blog posts. and stuff like that. Just on items that I’m looking for.

Theo Hicks: What’s your go-to source of these articles and blogs?

Aamir Hashambhai: Bigger Pockets.

Theo Hicks: Bigger pockets? Okay. Let’s see. If your business were to collapse today, your real estate business, what would you do next?

Anam Hashambhai: Sleep on it. Think about it, and probably start back up the next day.

Aamir Hashambhai: Yeah. Alcohol, sleep and then get back started. You can’t lose your mind. So you figure out what you need to do. So if you’ve lost everything, you would just basically go, start day one, and get restarted. It’s not that big of a deal.

Theo Hicks: Exactly, yup. The concept of the first million is the hardest. And after that, you know how to get it. Okay, what is the best deal you guys have done so far?

Anam Hashambhai: That we’ve actually finished? Our best deal would be one of our Fort Worth deals.

Aamir Hashambhai: Yeah.

Anam Hashambhai: Yeah. I guess it’s a shared answer.

Aamir Hashambhai: Yeah. It was the Fort Worth deal. This was one that came out to us early in the morning and we were able to lock it up like five minutes after it came out. We purchased that one for 80,000. It took us about two weeks on the renovations. The renovations were super light; I think we came in at 12,000 on the renovation budget. So we were all in, with closing costs, renovation, everything, for about 95k. The appraisal came back at 160k, so we were able to pull out not only what we were in it for, but an extra 20 or 30,000 on top of that, and get it rented and still cash flow about 500 bucks.

Theo Hicks: Have you guys lost any money on any of your deals?

Aamir Hashambhai: Technically, we do a BRRRR strategy, so it would just be leaving more money into the deal. So technically, no. Our appraisals have never come in lower than what we were in it for it, if that’s what you’re asking.

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

Anam Hashambhai: I like to give back by being very active on our Instagram. I like giving advice to people. We occasionally do calls here and there just to get newbie investors started, because sometimes they just need that extra push to make it feel real. Real people that are similar to them in age are doing what they want to do.

Aamir Hashambhai: Yeah, she handles Instagram. But a lot of our callers will just call me or text me if they know me, and just be like “Hey, I got a quick question on this.” And then we’ll hop on a call or answer any questions in text or whatever.

Theo Hicks: Okay. And then lastly, what’s the Best Ever place to reach you? I think I know the answer to this, but go ahead.

Anam Hashambhai: You can reach out to us on our Instagram @rehabrental. We’re not very active anywhere else.

Aamir Hashambhai: Definitely, that’s probably the best place to reach us.

Theo Hicks: It’s like a solid Instagram handle. You think that’d be taken, but I guess it wasn’t.

Anam Hashambhai: Yes, I would have liked it to be @rentalrehab but that was taken.

Theo Hicks: That was taken? Okay.

Aamir Hashambhai: She also had DFW on there, which we dropped that, because it made no sense.

Theo Hicks: A good point. Alright Anan and Aamir, thank you for joining us and kind of going into a lot of detail on your strategy, as well as how you guys started. So we talked about why you guys chose real estate in the first place – kind of jaded from growing up in service businesses, and so you wanted to find something that was your own, but you can choose your hours and choose when you have to deal with people. And then it’s hands-off on the back end, once the actual deal is completed.

We talked about why you selected BARRRR — or BRRRR… And that’s because of — I’m not sure where the A would be, I think I’m getting ahead of myself with AREA. [laughter] The BRRRR strategy, because it’s the best value-add play, you’d pull all the money out, and rinse and repeat. We talked about how you’re funding the deals. Originally, you guys really just did lines of credit to do it. Now you guys have some private lending you use.

Deals are all through wholesalers. We talked about your AREA acronym for when you quickly analyze deals. So thank you for sharing that. Again that’s the area, so the geographic location, the market, you know your market very well, so you guys can do that pretty quickly… Retail, so what’s the retail situation nearby – Walmarts, Starbucks, and

Chick-fil-A’s. You said education, so schools within walking distance. And then the ARV.

I really liked how you broke down the rehab cost, so you said $1 per square foot for those three different categories, that’s very helpful. Because when you do look at the pictures,  you can kind of gauge and estimate what the rehab costs are going to be.

Then we talked about when you are actually able to work on real estate. And since you guys work a lot, so nights weekends for Anam, and then for Aamir – your job is a little more flexible… So you kind of have both situations going on. And then Best Ever advice – Amir was education is important, but you’re not going to make money by just reading books. And then Anam was “the best product for the best price”. Don’t have the best house in the block, don’t have the worst house on the block. Find that sweet spot. So thank you again both 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.

Anam Hashambhai: Thank you.

Aamir Hashambhai: Thank you. See yah.

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JF2321: Altus Investment Group With Kevin Dugan

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

Kevin Dugan Real Estate Background:

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

Click here for more info on groundbreaker.co

Best Ever Tweet:

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


TRANSCRIPTION

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

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

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

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

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

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

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

Kevin Dugan: Yeah, that’s correct.

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

Kevin Dugan: Yup. That’s correct.

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

Kevin Dugan: It’s about 50 right now.

Joe Fairless: All in Chicago?

Kevin Dugan: All in Chicago.

Joe Fairless: What’s your connection to Chicago?

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

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

Kevin Dugan: I do, I have a girlfriend.

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

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

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

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

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

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

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

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

Joe Fairless: Five years. Okay.

Kevin Dugan: Yeah.

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

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

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

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

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

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

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

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

Kevin Dugan: Yeah.

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

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

Joe Fairless: That’s pretty good.

Kevin Dugan: That’s really good.

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

Kevin Dugan: Section 8.

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

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

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

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

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

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

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

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

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

Joe Fairless: Especially what?

Kevin Dugan: During the wintertime.

Joe Fairless: Oh, man…

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

Joe Fairless: The Chicago winter.

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

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

Kevin Dugan: On that one? No.

Joe Fairless: No. Okay.

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

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

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

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

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

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

Joe Fairless: What’s your worst Craigslist experience?

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

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

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

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

Joe Fairless: Okay, so that’s a flip.

Kevin Dugan: Yup. Oh, a rental property?

Joe Fairless: Yeah, a rental property.

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

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

Kevin Dugan: Let me think about that one.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Kevin Dugan: Net or gross?

Joe Fairless: Net.

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

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

Kevin Dugan: Yeah.

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

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

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

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

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

Kevin Dugan: Yup.

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

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

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

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

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

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

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

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

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

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

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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JF2314: Jump In and Learn With John Evans

John works as a supply chain manager and a part-time investor. He has been investing for a little over a year and already has a portfolio of a duplex, a single-family, one flip, and two commercial properties. He shares today how he has recently started and why he quickly sought out an experienced mentor to help him through his first multi-family property.

John Evans Real Estate Background:

  • Works as a supply chain manager and part-time investor
  • Has been investing for 1.5 years 
  • Portfolio consists of 1 duplex, 1 single family, 2 commercial properties, & 1 flip
  • Currently partnered with a local investor to complete his first multi-family property with 30-60 doors
  • Based in Florence, SC
  • Say hi to him at john@bedrockinvestmentgroup.net
  • Best Ever Book: Go-Giver

Click here for more info on groundbreaker.co

Best Ever Tweet:

“Surround yourself with people who are doing it” – John Evans


TRANSCRIPTION

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

John Evans: I’m doing great, Theo. Thank you very much for this opportunity and having me on the show today.

Theo Hicks: Oh, no problem. Thank you for taking the time to speak with us today. A little bit about John – he works as a supply chain manager and as a part-time investor; he’s been investing for a year and a half, and his current portfolio is a duplex,  a single-family, two commercial properties, and he has done a flip. And he is currently partnering with a local investor and they’re looking to complete their first multifamily property, between 30 and 60 doors. He is based in Florence, South Carolina, and you can say hi to him at his email, which is john@bedrockinvestinggroup.net.

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

John Evans: Sure. Recently, I’ve just ended up partnering with a guy that basically — since I’m new to this, coming in and using leverage with him understanding and knowing the market. He is a realtor for the state [unintelligible [00:04:19].01] and also an appraiser, so he has some of the knowledge that I don’t have.

When I started really looking at doing this, I got on Bigger Pockets and a lot of good websites, obviously I used your guys’ website a lot, took the advice to learn for at least a year or so. I read a lot of books, educated myself, and then decided to partner with someone in the real estate space as a professional… And then also, we have recently just joined a mentorship with Robert Beardsley. So we’re doing that now, and I’ll tell you, that’s been a real big help for helping us understand really how to go about looking at the data and letting the data speak. I think it’s very important in this space – whenever you’re going out to raise the money, you definitely don’t wanna make a mistake with someone else’s money, including your own, because we’re gonna invest right beside our investors. So getting in that mentorship has been very key, and that’s what we’re doing right now.

We’ve also been kind of gearing up our social media presence, if you will. That was one thing that Rob has led us to do. You have to make sure you’re  telling people what you do, and the connections, and that’s been very important recently for our plan of action.

Theo Hicks: Perfect. So the local investor you’re partnered with, the realtor and the appraiser – the plan would be to buy a multifamily using other people’s money, correct? So you’re going to syndicate.

John Evans: That’s right.

Theo Hicks: Perfect. Okay. So let’s focus on that aspect of the business first. To start, how did you meet your partner?

John Evans: We’ve been friends for a while, we’ve met through some mutual friends. Our wives actually know each other as well.

Theo Hicks: And then how did the partnership come to be? Did you just one day ask him “Hey, I wanna do multifamily. Let’s partner up”? Or was it organic? Maybe walks us through how that happened.

John Evans: Sure, that’s a good question. He basically heard me talking about it one night; we were all together, and he had always wanted to buy an apartment complex on one campus, basically. So when you hear talking about an apartment complex, and then also doing syndications, and raising money to be able to help go and give someone else a return on their money – for someone who may not wanna actually be in the day-to-day operations of owning an apartment complex, that really intrigued him. He was like “You know, I’ve always wanted to do that.” So he said “Tell me what you know about it.”

I started explaining to him all the math, all the finance behind everything I’d learned, and then I started talking about Bigger Pockets. He didn’t know anything about that, so he started doing his own research. It was probably about a month after we initially talked about it, and he called me up and he said “Hey, let’s go out to dinner one night.” So we did. We had a quick meeting. We went out and we kind of discussed what our goals were and what we wanted to do, and then just kind of took from there.

Theo Hicks: What are the roles that you two are playing?

John Evans: It sounds like? Is he getting more of the money, and you’re gonna be more of the worker?

Theo Hicks: I actually do the finance underwriting piece, or the day-to-day process, or the day-to-day driven operations, and he’ll do more of the market type analysis, and then doing a lot of the research, finding the deals… It was kind of integrated; we both kind of play — not necessarily the same roles, because you can’t as you know, but he knows more the market side of things, and I know more of the finance and day-to-day operations types of things.

I manage my current duplex as well, and he’s actually managed his portfolio in the past also.

Theo Hicks: Did you break up those duties based off of who was better at what, basically? That’s what it sounds like.

John Evans: Exactly. We talked about what we both thought we’d be good at. I have more of an engineering/operations background from the manufacturing sector, and he’s always owned his own business, so he kind of has a good mix of knowing real estate, and also knowing how to operate a business.

I have an MBA, and majored in finance as well, so I kind of have the numbers side of the game, but I also don’t mind getting my hands dirty, doing the day-to-day operations as well.

Theo Hicks: So you mentioned that one of the things that your mentor focuses on is the data, so I’m assuming that means understanding how to underwrite the deals. So without getting into too much detail, because underwriting is a very complicated process, maybe tell us what’s the number one or the top few things that I should be looking at when it comes to data when I’m underwriting an apartment deal.

John Evans: You wanna look at definitely the return on investment for your investors, especially if you’re raising money. As far as before you even start underwriting, you wanna look at neighborhoods, you wanna look at demographics, you wanna look at the rents history of that area, and also crime rates; we look at that. We kind of have a five-step process.

Then once you go into the underwriting, you wanna load your data – we use his software. So it’s really good – you go and plug all your numbers in, and then you get an output. So you wanna go look at that output and see if the deal actually makes sense. Is there gonna be enough meat on the bone there to actually raise the money from someone else in order to give them the right returns? So it’ll give them a good picture of what they’re gonna make on their money; it’s one of the biggest things we look at.

Theo Hicks: You said there’s a five-step process… So step one was looking at the market. Step two was loading the data, and step three was looking at the output. What are the other two steps?

John Evans: So then we look at — if the deal makes sense, we go into submitting an LOI. That would be the next step. And then after that, if that offer comes back and it’s accepted, we go straight into due diligence pretty quickly. So that would be the next step.

Theo Hicks: And then the other thing that you mentioned  — well, you didn’t really mention this, but for raising the capital for these deals… So you guys are actively looking for a deal. Do you have some verbal commitments from investors already, and that’s how you determine the size of deal you can take down, or is the plan to get the deal first and then leverage that deal to raise capital?

John Evans: We have friends and family currently. There’s a group of around four people that we do know, that have a lot of interest in what we’re doing and they wanna place some money. Basically, they’re kind of done with the stock market and the volatility.

So when we started going and talking to them about what we were doing, they were very interested in it. Two out of the four definitely said they wanna do it. So we have friends and family, and then those two, and then two more potential already.

Theo Hicks: So you said family and friends, and then you’ve got the group of people that want to invest, that are differentiated from the family and friends… So how did you meet these people? Or how did they learn about your business?

John Evans: Knowing them from our local area, we approached them and told them what we were doing. And then we knew their background as well from being around us in the area… But once we approached them and laid out what we were doing, they were in.

Theo Hicks: And something else you mentioned – you’ve been focusing on the social media presence. Maybe walks us through that – that types of things you’re doing, what works, what doesn’t work, and what’s the ultimate purpose of the social media presence.

John Evans: Yeah, so usually, using Facebook it’s putting yourself out there. But first it was — and it still is a little bit – it kind of gets you out of your comfort zone. So it’s kind of challenging… I like it because it’s a challenge, and it makes me think… So meeting new people, creating a network is the main reason we’re using it right now, and just meeting a lot of people that’s actually doing this; surrounding yourself with the ones that are doing it, so you can learn more.

I really use it as a two-sided type deal, because I’m adding value to someone else, and I’m looking for the value they’re adding to me as well. I always go into our conversation with someone that I meet on, say, LinkedIn, because I’ve had some success in meeting a lot of syndicators on LinkedIn, and also some passive investors, which – I utilize that to be able to find out what are they looking for, what do they want out of a return from someone that’s actually syndicating and pulling them into their deal.

Theo Hicks: What types of things are you doing on LinkedIn and Facebook to add value to other people?

John Evans: One, for Facebook it’s posting non-traditional type thoughts. What I often find – I’ve had a few people that reached out to me lately – is they’re in the traditional mindset; go to school, get a job, all the good stuff that the Rich Dad, Poor Dad tells us that we should think differently; it kind of change our  mindset, which is one way that I was able to obtain the mindset to go out and try to do something non-traditional, so to speak.

I’m posting things that are non-traditional; I’m trying to get them thinking of a different way, and also adding value by doing like  a Thursday book recommendation based around investing, based around real estate, and then also the Best Ever Apartment Syndication Book – that type of stuff, that maybe someone that I know in my network that wants to do this, but they’ve never really studied it and they don’t really know about all of the tools and tricks that are out there in order to do some of this.

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

John Evans: Surround yourself with people that are doing it. When I first started, my banker owned real estate, my attorney owned real estate, down to the guy that I used to go in and fix the air conditioners in our units if they ever go out – he actually owns real estate; my CPA owns real estate. Interview people, find out what they’re doing, find out how much they know about this stuff, because you can gain a lot of value from those individuals, and they’re always willing to help you is what I’ve found.

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

John Evans: Absolutely.

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

Break: [00:13:01].10] to [00:13:51].06]

Theo Hicks: Okay John, so you mentioned you did the Thursday Book Recommendation, so this should be a pretty easy answer… What’s the Best Ever book you’ve recently read, or recommended? Either one.

John Evans: Absolutely, Theo. The Go Giver is my go-to. That book has changed my life. It’s by Bob Burg and John David Mann. The Go Giver book.

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

John Evans: Start another business, always. There’s a  lot of opportunity out there, a lot of things that are being done today that you can go in and make better, and I believe that’s exactly what I would do. I’d follow the same path and start another business.

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

John Evans: I’d say the duplex that I currently own in the portfolio. I’m right at about 27% ROI on that one, and it cashflows $280/door.

Theo Hicks: If you’ve lost money on any deals, how much money have you lost and what lessons did you learn?

John Evans: I haven’t lost any money. That’s rule number one, don’t lose money.

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

John Evans: Going to community events that’s for a good purpose, that align with our purpose and our way. And then another thing we really like to do – and a lot of this is silent – I love to give back to feeding the hungry. That’s one of my purposes; it really touches home.

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

John Evans: You can reach me at John@bedrockinvestmentgroup.net. Also, I always like to give out my cell. It’s 843-858-1274. I’m also on LinkedIn and Facebook.

Theo Hicks: On LinkedIn and Facebook it’s just your name, John Evans?

John Evans: That’s correct.

Theo Hicks: Alright, John, thank you for joining me and walking us through your journey and what you’re focused on today. We talked about partners and how your business partner is someone you had known for a while. They’re a realtor and appraiser, and have a lot more knowledge than you, and you were able to get them on board with your multifamily plan by being educated and really telling him what you plan on doing, your knowledge about apartments or raising money, and then you mentioned that the duties were split up based off of your strengths. Some of those are overlapping, whereas some of the stuff is only done by you, or only done by him. He’s more of a marketing guy, and you’re more of the underwriting, number cruncher.

You talked about your five-step for underwriting deals, analyzing the market, looking at things like demographic, rents, crime rates, loading that data into a customized cashflow calculator which you got from your mentor, analyzing the output, and the important number to look at would be the ROI to the people who are investing, and making sure that it reaches their investment goals. And then step four was making an LOI, step five would be the due diligence.

You talked about raising money, how most of it is family and friends, plus a group of people that you’d met in the past, you approached them, told them what you were doing, and at least two of them are very interested in investing.

We talked about your social media presence and how you use Facebook and LinkedIn to not only add value to other people through things like posting your non-traditional thoughts, getting people thinking in a different way, different types of themes to post, like your Thursday book recommendation, but you’re also using it to add value to yourself, to educate yourself by meeting with apartment syndicators, meeting with passive investors and seeing what they want… And then this kind of links into your best ever advice, which is to surround yourself with people who are already doing what you’re doing. So in your case, surrounding yourself with other syndicators who have raised money for apartment deals in the past.

John, I appreciate it. Thank you for joining us. Best Ever listeners, as always, thank you for listening. Have a best ever day, and we’ll talk to you tomorrow.

John Evans: Thank  you, Theo.

Website disclaimer

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

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

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

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

Oral Disclaimer

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

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JF2296: Bad Start but Strong Finish With John Dessauer

John has a rich history as an entrepreneur and has owned many companies in various industries. John has transacted hundreds of deals in real estate in different sectors such as apartments, office buildings, retail, single-family homes, and condominiums all within his personal portfolio.

John Dessauer Real Estate Background:

  • Full-time entrepreneur 
  • Has over 22 years of real estate investing experience 
  • Portfolio consists of over 2 million sq ft. rentals/retail 
  • Based in Chicago, IL
  • Say hi to him at: www.johndessauer.com 
  • Best Ever Book: Spin selling

 

Click here for more info on groundbreaker.co

Best Ever Tweet:

“The best benefit for having multiple companies is having multiple sources of income for when unfortunate events happen” – John Dessauer


TRANSCRIPTION

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

John Dessauer: I’m good, Theo. How are you?

Theo Hicks: I am well, thanks for asking. And thank you for joining us, looking forward to our conversation. John’s background – he’s a full-time entrepreneur and has over 22 years of real estate investing experience. His current portfolio is over two million square feet in rentals and retail. He is based in Chicago and you can say hi to him at his website, which is johndessauer.com. So John, do you mind telling us some more about your background and what you’re focused on today?

John Dessauer: Yeah. So thanks for the interview and the introduction. I guess my background started growing up here in Chicago, just outside now, but up until the point I left for college I had always grew up in apartment buildings, so I had a unique perspective of that business from the inside looking out, rather than — a lot of people that get involved in real estate investing, they learn it from the outside looking in.

So after I graduated from college and I got out into the workforce and realized that the corporate world wasn’t for me, I kind of went back to my roots and said “I liked it when the rent guy would come once a month and pick up that rent check.” That was something that I’ll never forget, around 10 years old I’d have that happen all the time. I was like “Ma, why is this guy here again?” “He’s here to collect the rent.” But yet I’d see my mom go to her nine to five, or nine to nine really, to make that rent check happen. So I never forgot that. 27 years ago, when I started this, I said “I want to be the rent guy. I love my mom, but I want to be the rent guy” at that point. So I started out about 20-some years ago, at 22, and I haven’t looked back since.

Theo Hicks: Perfect. So maybe walk us through how you started. You mentioned that you wanted to be a real estate investor since you were a kid. You said you went to school, and then came back to this area. Maybe walk us through how did you get into your first deal.

John Dessauer: So what was interesting about the whole thing was when I first thought about being a real estate investor, you don’t think about all the dynamics that are involved in actually doing it, from financing, to property management, and all the things that you’ve got to do. What you think about is the luxuries and the ton of money that you’re going to make, right? That may not happen, by the way, but that’s what you think about.

So my first deal was a duplex; it was a street that I was interested in buying real estate on, and lo and behold I was driving by one day and I see the realtor pounding the “for sale” sign in the front yard, and I thought “Hey, that’s something I would be interested in buying.” So I pulled over, talked to the real estate agent… And what was interesting about that first deal, which I made a terrible mistake on, by the way, is I was way over-leveraged on the deal, because I bought the thing with 80% bank financing, and at that time I was able to use 20% seller financing. So it presented a situation where I came to closing with zero money out of my pocket. So I thought “Man, I’m the next real estate mogul. I’m unstoppable now, if this is how every deal goes.” But what I realized pretty quickly within 30 to 45 days is I was over-leveraged. I not only had a mortgage, but I had the operational expenses of the duplex, and I had an empty unit on one of the units, and the other unit – the gentleman was paying about $300 in a $700 market. So I had all this money going out, but not a lot of money coming in.

So that was my first deal. I learned pretty quickly that really kind to understand the financial dynamics of the deal and how important that is, and even more importantly, just because you can buy a deal with no money down, or even buying it creatively – because there’s a lot of that around today – doesn’t mean you should. So those are my lessons there.

Theo Hicks: That was a great lesson. So let’s flash forward to now… So what’s your business model today?

John Dessauer: Yeah, good question. What’s interesting, I studied a lot of guys from the industrial revolution. I don’t know what it was, but Chicago was a town that had a lot of these guys in it; Pullman, and Marshall Field, and some of these other guys… But the guy that I drew a lot of interest in was not from Chicago, he’s from Pittsburgh, Andrew Carnegie. And what I realized about him was his original business was not steel, his original business was a telegraph business. And he started on the telegraph business and got to steel because they would put telegraph lines along railroads. So he got interested and started buying railroads so he could place his telegraph lines a little bit better and save money by doing that. And the biggest expense of a railroad is steel… And the rest was history.

So by no means am I saying I’m in Andrew Carnegie but it’s kind of the same thing in that all of my business today has been related to that initial business that I got into, which was real estate investing. So today we have a real estate investing company, we’ve got a full real estate brokerage, so we have real estate agents, both residential and commercial, we do asset management with that, we are managing assets for ourselves and other people as well, apartment buildings, retail, office buildings, things like that… And then we have a marketing company, too. And one of the things that I have learned in my career is marketing in sales are so important in the real estate investing world. That’s one of the things that I think people don’t really think about… But that’s kind of where our business model is; it falls into our investment company, our brokerage, our asset management company, or our marketing company, and all of those are kind of related, they have a symbiotic relationship with each other… And that’s kind of our model, we stay with that core real estate theme.

Theo Hicks: Could you walk us through the progression of when those were brought on and then kind of how it happened? Obviously, it started with investing in real estate. So you said you’ve got an investing company, the brokerage, the asset management company… The asset management — is that the property management company?

John Dessauer: Yeah. Yup. Property management.

Theo Hicks: Okay. So brokerage, asset management, marketing company. In what order did you bring those on, and when, and why?

John Dessauer: Obviously, the investment company started first, and that was basically at first buying and selling all types of real estate, everything from single-family houses up to 350-unit apartment complex kind of thing. So the very next thing that came was the brokerage. And the reason that that came is I would sit at closings as the owner-operator, I was buying a hundred-unit apartment complex, and I’d sit at the closing and I would see the work that the agent that represented me and the agent that represented the seller in the deal, and no offense what they were doing, but I saw the checks they were getting and I thought “Wow, that’s pretty amazing for them to be partaking in this deal where I’m bringing the capital, the equity, and the debt to the deal, and they’re taking a chunk.” Now, granted, they found me as the seller – or sometimes the buyer in that case – but I did like that process, so I thought it would be interesting to get a licensed and create a  firm.

Now we’re in four states – Illinois,  Indiana, North Carolina, and Florida – and we buy and sell a lot of real estate through that. As an investor myself it helps, because I do get an inside look on real estate as it comes through, but also I am able to participate my real estate commission in my deals. So I start saving 3% to 6% off the top before I even get rolling with that.

The next was the asset management firm. We were probably at one time one of the fastest-growing firms in the south part of Chicago, and the reason for that was we were acquiring a lot of assets… And as you know, Theo, that management is probably one of the most important aspects of that; for you to have a successful real estate investment it’s got to be successfully managed. So we started doing that for ourselves and other people as well, so that became an income string to us.

And then finally the marketing side, and I think I was mentioning this before… One of the biggest things that I think people underestimate when they want to become a real estate investor is they underestimate the skillset of sales and they underestimate the skillset of marketing. So we created the marketing to get leads for our deals, and we also do marketing in other areas, but that was the real premise initially for that.

Theo Hicks: Okay, so you kind of mentioned where you got this idea (from Andrew Carnegie) of starting your original business, and then from there seeing what your expenses are and rather than paying those, basically starting that company or buying a company that does that. Is it possible to do too much? Because there are 20 different ways you’re paying money; how do you know when you should stop? Should you bring everything in-house? Like contractors, mortgages, financing… How did you know when to stop, or how did you know which one is to bring in? Not necessarily in what order, but… I know you kind of  explained why you picked these particular ones, but just a larger level… If I’m this investor right now, should I base it off of what I like, what I’m good at, maybe when I’m spending the most money on, based off my market? What type of things should I be thinking about?

John Dessauer: I think initially — and by the way, I don’t want to sound cliché, that is a really good question for an entrepreneur, because one of the dangers is of bringing on too much, and taking in too much. But the idea of where I was going with that was I would look at where we were spending money, and I would look at where I didn’t have a lot of control.

So let’s take property management, for instance – we were spending money on a property management firm or third party firm, but yet I didn’t have necessarily direct control in that firm. And that was a real sensitive thing for a real state that we were buying, because a lot of times we were buying assets that were assets that needed a value-add to it. So we would come in, do a little renovation, increase the rents, lower the expenses, and that really takes an experienced manager. Initially, I didn’t have the time to educate some of those property managers, so I thought we would shorten that curve and create that ourselves. Now, that is a little more difficult, and we do need to bring on some people for that, but you’re either going to outsource the property management or asset management to a third-party firm, or you’re going to outsource it to a firm that you own, that you have employees too. And for us, that was a decision that we made, and 22 years later it was probably the best one.

Theo Hicks: So you’re getting to my next question, which is – so I’ve got my real estate investment company I’m in charge of, and I guess technically the COO, too. So you said the first company that you started was the brokerage. So here walk me through specifically for that, or just kind of in general… Am I then the CEO of that company, too? Or am I hiring someone to run that company, and then trusting the company to this individual? And if so, how does that work? How do I pick someone? Does that make sense?

John Dessauer: Yeah. So for us, it was interesting in that my wife – I know she’s better looking than me, but she’s probably smarter than me as well. So as a married couple, I’ve got a little bit of an advantage over somebody that’s starting off on their own. So we have two people, type-A personalities, instead of just one person. So when you have a couple of different entities, number one, there’s a synergy that goes on between all of them. And there are some tax advantages in different things that you can do as well through having multiple companies like that.

The best benefit of having multiple companies is you have the ability to have multiple streams of income. And a good example of why that’s important is March of 2020. When COVID hit, a lot of things shut down, and a lot of income stream shut down for a lot of different people. And while it was unfortunate, I think one of the things that I’ve realized over my twenty-some years of doing this is that always happens. It’s COVID today, or it’s 9/11 yesterday, or it’s the great recession, or whatever it is, it always happens, and it comes in cycles. So one of the things that we’ve realized with the way that we are set up is when an income stream shuts down, another one is there, or turns on. So for us, that’s been a real blessing.

Let me get back to your question on structure; the structure can happen really any way that you need to see fit with that. What I would suggest is don’t overburden yourself and take on too much where you’re ineffective at all things. Only taken on is much you as you can really kind of handle, and you’re going to know that for yourself, your listeners are going to know that for themselves. I knew for me that I was able to take on a role on the brokerage and on the asset management side, because we were already doing it. I was already taking that responsibility. So I had a little experience there. If I didn’t have any experience with that, I would probably looked or lean on some other people to bring in to kind of run that show, if you’re that big. A lot of times you are starting on small and you can’t do that.

And that’s probably the third thing I would mention, is instead of bringing on all these people and creating all these entities and all this workload, make sure there’s a reason for it, make sure there’s a journey for it. Ask yourself, number, one, why you’re doing it, how is this going to make you money or save you money, save you time rather than spending time… That’s number one.

And then number two, make sure that you are growing financially in a way that you can kind of bring on that. There’s no sense in creating all of these things if financially it’s not in the cards yet. So that might be out of your 18-month plan. That might be your three to five-year plan, but not your 18-month plan. Your 18-month plan is to get to a certain revenue or income scenario, and then make the decision once you’re there what we do next, whether it’s a brokerage, and asset management firm, marketing whatever that is.

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

John Dessauer: My best real estate investing advice is there’s a lot of places that you can go and spend a lot of money to get educated. For me, the best education was some of the mistakes that I made early on. And I’m not saying not to get an education because I do think there’s a definite spot for that, and bringing on a mentor or a coach and things like that is a definite help. I wouldn’t be where I am today without that. But what I would say too is don’t be afraid to take a little action. If you’ve got a duplex, call that agent. If you’ve got a six-unit building or a retail center or office building, call that agent, start talking to them, start getting information.

So this is the advice part, surround yourself with people that are doing it now in any way that you can. Either go to their meetings, take them to lunch, do a deal with them, whatever it takes, but surround yourself with the people doing the things that you want to do, and all of that would rub off on you.

Theo Hicks: Perfect. Alright, John, are you ready for the Best Ever lightning round?

John Dessauer: I’m ready.

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

Break: [00:18:34][00:19:24]

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

John Dessauer: I read a lot. The Best Ever book that I have read recently is called Spin Selling by Neil Rackham. And it’s interesting, and I was mentioning this earlier – as a real estate investor I think we don’t focus on how important sales is to the real estate investor, where you’re selling that agent, you’re selling that tenant on paying you rent on time, or you’re selling a contractor to get the job done in the right amount of time, at the right cost. You’re always selling. So for me, that was a really impactful book on how to organize your sales process. So Spin Selling by Neil Rackham.

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

John Dessauer: That’s an interesting question. I would probably work — I would go right back and work on an advantage we have today that I didn’t have when I started, and that’s technology. And what I mean by that is, for instance, the way that we find our leads today is purely tech-based, and we do that by… Instead of searching for a property, instead of searching for a person, like a real estate agent, we search for problems. So problems in real estate – when there’s a piece of real estate for sale, there’s always a problem to solve. If I can get there before that owner says “I need to reach out to a professional”, I’ve got a leg up, whether it’s pricing, or deal structure, things like that. So that’s what I would do, I’d go right to my tech source for that, and we would start down the marketing way like that. I know without a doubt if it failed today I would be back up in no time.

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

John Dessauer: I would say — I’ve done a lot of good deals, I’ve done some deals that weren’t so good; I’m sure you may be asking that, too. But one of the best deals that I did was I bought a property in Lafayette, Indiana, and I bought it for 3.15 million bucks. So within 18 months, I turned that into 5.4 million. The way that I did that was by a technique that I worked a lot on, I call it “divide and conquer”. I buy at wholesale and then I piecemeal it off and sell it retail, and I can drastically change the value of the real estate in a very quick way by doing that. So I would say that was one of the better ones.

Theo Hicks: Well, you were leading me, you know exactly where I’m going next – what’s the deal that you’ve lost  money on? Give me the most money, or just the biggest headache type deal… And then what lesson did you learn?

John Dessauer: So everybody likes to talk about their wins right? They don’t want to talk about their losses. But I think in your losses is where you learn more.

I bought a 48 unit apartment building, it was made up of two twenty-four unit buildings. And the way I bought it was I had a contact that was a real estate broker at a national firm, a big firm, and he said “Hey, I’ve kind of got this pocket listing that if you want to buy, it’s yours. I think there’s some upside here. It’s been managed improperly.” So I looked at it, I had the equity to buy the two buildings at least, so I went for it. And the lesson that I learned was bad management sometimes leaves a scar. And what I mean by that is when you’ve got a single-family house that has bad management, you can change that pretty quickly. When you’ve got a 48-unit building – even though there are two buildings… When you’ve got a 48-unit that you’re buying, of bad management, it really does take a longer time to get that straightened out. And my fault was my ego got in the way and I said “Hey, I’m John Dessauer. I’m going to get back in there and I’m going to change this around in 6 months. I’m going to have a performing asset.” Well, that didn’t happen. I ended up selling the building after a year and a half and losing money on that. But that was a lesson learned, and I haven’t done that since.

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

John Dessauer: We do a lot of things. We’ve been involved a lot with the country of Haiti. Haiti is a couple of hours off of the US coastline of Florida, and it’s really a forgotten about country; they’re in a really really challenged economic scenario for most of the country. The government is a little bit in chaos. They don’t govern the best there, let’s just say that, for the people.

So that’s always been a focus of mine… I was on a board of directors for a foundation that we’ve built 23, actually 24 sustainable villages down there. So that’s always been something that’s been on our radar and something that we’ve participated in over the last, say, 10 to 15 years.

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

John Dessauer: You can reach me at johndessauer.com, that’s probably the best way. I’ve written some books on real estate investing; one in particular I think your listeners and watchers would be interested in is the one called Apartment Confidential, where I start to talk about some of the strategies that I’ve used, like the one property with my biggest upside [unintelligible [00:24:22].22] so I used that strategy in that book. But that would be the best place to find me, johndessauer.com.

Theo Hicks: Awesome, John. Thanks for joining us and giving us your Best Ever advice. Some of my big takeaways – your first deal, you talked about that over leveraging and these creative financing strategies… Even if you can do that legally or the seller is willing to do it, it doesn’t necessarily mean that you should always do it. You gave the example of your first deal being zero money down, but that also increases your monthly outgoing payments, and the property couldn’t support those payments… But obviously, lesson learned.

You talked about your business model, which I really liked. I had an interview with someone a few weeks ago who does something kind of similar… So you have your initial business, and then you look at things that you’re spending money on and then things that you don’t have a lot of control in, and then rather than continuing to use that third-party, you bring it in-house, and you either create your own company, which is what you did, or [unintelligible [25:22] just bought an existing company that did that, so bought asset management companies, things like that, and just took them over. And so the benefits are synergy between all those businesses, there’s tax advantages, and then obviously, you are able to reduce your risks if something bad were to happen, because you have these multiple income streams that are hitting the deal from all different angles. And you kind of walk through during your journey when you brought each of those on.

So it started off with obviously an investment company, next was the brokerage because you saw the money that they are making for not really doing that much, or at least that much as you were doing… And then next was the property management company, because that’s was more of a control issue. And you did the marketing, because marketing is something that people underestimate, the skillset of sales and marketing; that’s how you were able to get your leads.

And you talked about the mindset of when to bring them on, making sure not bringing on too much, not overburdening yourself, making sure you can handle it from a time perspective; if that’s something you’re good at and experienced at you can bring it on, if not consider, finding someone else and bringing them on… And then making sure you know exactly why you’re bringing this type of thing in-house, and making sure you’re at the point financially that you can bring it in.

And then lastly, your Best Ever advice was that obviously education is important, book education, but you’re going to learn a lot more by the mistakes that you make. So just kind of surround yourself with people that are at where you want to be, so that if you do make those mistakes, you’ve got someone to help you quickly resolve those… But even also leverage that experience to maybe increase your confidence to get out there and take some action. John, I really appreciate it, thanks again for joining us.

John Dessauer: You got it.

Theo Hicks: 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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JF2294: How to Buy PreREOs With Jorge Newbery #SkillsetSunday

Jorge is a returned guest who was previously on episode JF1342. Jorge owned about 4000 apartments across the country and a natural disaster happened and caused him to lose everything he had and put him millions of dollars in debt. Then in 2008 when he saw that many Americans were losing their homes he decided to create a company that could help them by buying mortgages from banks in pools. Today he will share what a PreREO is and why he focuses on this.

Jorge Newbery Real Estate Background:

  • CEO of preREO LLC, AHP servicing LLC, and a partner in Activist Legal LLP
  • 30 years of real estate experience
  • A previous guest on episode JF1342
  • Portfolio consist of 10,000 purchased defaulted mortgages, owned 4,000+ multifamily units, and brokered thousands of properties
  • Based in Chicago, IL
  • Say hi to him at: www.preREO.com 

 

 

Click here for more info on groundbreaker.co

Best Ever Tweet:

“Local investors have advantages because they can see the work that is needed and typically have a local team they know and trust” – Jorge Newbery


TRANSCRIPTION

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

Theo Hicks: Good, thank you. Thanks, Theo, for having me on the show.

Theo Hicks: Absolutely, thanks for joining us again. So Jorge a repeat guest; make sure you check out his other episode, which is Episode 1342. So today is Sunday; we’ll be doing a skillset Sunday where we’ll talk about a specific skill set that our guest has, and as you can tell by the title, we’re talking about how to buy pre-REO’s, not REOs but pre-REO’s on the internet. So Jorge, can you tell us, first of all, what pre-REO’s are and then how you can buy those from your house on the internet?

Before we get into that, Jorge’s background… So he is a CEO of pre-REO, as well as AHP Servicing, and is a partner in Activist Legal. He has 30 years of real estate experience, a portfolio of 10,000 purchased defaulted mortgages, he has also owned over 4,000 multi-family units, and brokered thousands of deals. He is based in Chicago, Illinois and the website is prereo.com. So Jorge, do you mind telling us just a little bit more about your background and what you’re focused on today?

Theo Hicks: Sure, I’ll give you a brief history. About 16 years ago I owned about 4,000 apartments across the country, a natural disaster devastated my largest holding which was 11,000 units in Columbus, Ohio, and it gutted me financially; I ended up losing everything, and over 26 million dollars in debt. That story created a huge amount of challenges for me at that time of my life; actually, enough that I wrote a book about it called Burn Zones.

But I rebuilt myself through a company called American Homeowner Preservation, and this was 2008 when the financial crisis was devastating America and millions of families were at risk of losing their homes… And I saw that many of these families were going through the same things that I was going through. So I started a company called American Homeowner Preservation. And what we started doing was purchasing the defaulted mortgages at big discounts from banks and other lenders, and when we could, we would share those discounts with the families in the form of affordable modifications so they could stay in their homes. So that’s what American Home and Preservation has done. We bought over 10,000 mortgages in the last decade.

But when we bought from banks, we’d often buy pools, and those pools will include some that are occupied and some of them were vacant. Sometimes we got lucky on the vacant ones; we could find the homeowner and we’d pay them cash for a deed in lieu and we’d sell the property. So that’s great. But other times we could not find the family; maybe the homeowner was deceased, or was divorced, and no one could agree on what to do, and we would end up having the fore-close on a vacant home. So we’re the mortgage holder, there’s a property owner, but they’re not living in the home, and it’s sitting there vacant.

Now, in many cases there are great challenges; the returns often on that component of the population and often times was not that good, and I’ll tell you why… As a mortgage holder, if the property owner is not taking care of the property, the mortgage holder needs to, and that  includes anything from cutting the grass to shoveling the snow, to boarding up the property… And sometimes code enforcement, the local city will go out there and say “Hey you need to bring everything up to code. The roof is leaking.” So we have to do it; we don’t own the property, but we’d have to pay for that work.

And then in extreme cases like where I am in Chicago, if the property became a nuisance because people kept breaking in there and whatnot, then the city would actually require that we posted a night watchman. So every night we’d have to pay for a security guard to guard the property. And obviously, that becomes extremely expensive. And we’re still just sitting on a vacant property that’s losing value, in many cases, because it is deteriorating.

So in my mind I was saying “How do we rectify this? We have homes that could be rented out and generating income, but we don’t own the property, so what can we do?” And I guess the opportunity and the challenge is that the situation I described for AHP is the same for all the other hedge funds and mortgage investors across the country that do this nationally; they all have similar situations with a portion of their vacant properties.

So the solution that we came up with is pre-REO. And people say “What is a pre-REO?”. A pre-REO is a first mortgage that’s in default, that is secured by a vacant property; and actually, it could also be secured by a tenant-occupied property, but by and large, is by a vacant property. So what we offer is for hedge funds and other holders of these mortgages to put them on pre-REO, the local investors can bid to buy an interest in that mortgage, and that interest will allow them to follow a strategy that we’ve come up with, which is to work with our law firm Activist Legal to continue the foreclosure, number 1, so they can eventually get title to the property, but also to appoint a receiver, which is typically a local real estate agent who can repair and rent the property while it’s in foreclosure.

So it’s not yet owned, but the court will allow it, because it has been abandoned in many cases, to appoint a receiver to repair and rent the property and start generating income while the foreclosure is continuing. So that is the strategy that we’ve come up with, and so far we are getting a good reception.

Right now we have hundreds of properties on the platform, I anticipate by the end of the year we’ll have thousands. So it’s just a huge demand from lenders, and now we’re trying to reach out. One of the reasons I’m on the show is to let buyers know about the opportunity. It’s in many cases a fantastic opportunity for local investors to buy these at significant discounts to what they would buy REO’s.

Theo Hicks: So from your perspective, the deals that are on there are notes that your company owns, as well as other companies that do the same thing, that have the same issue with a portion of the vacant deal. So someone already owns these notes already, right?

Theo Hicks: Correct.

Theo Hicks: Okay. So from my perspective as a client, as a person who wants to buy these, I go to your website — I went to your website and saw that info on there. What types of things do I need to do in order to figure out how much I should pay for these things, if it’s worth paying for this…? What’s the due diligence that I need to do on my end?

Theo Hicks: Sure. Because it’s vacant, it is truly destined to be an REO in almost all cases. It would be rare that a homeowner would pop back up and say “Hey, you know, I want to pay off my mortgage, or re-instate”, or something like that. So in time, there’s a high likelihood that these will become REO. So I think investors should look at it as “What do I really think this property is worth as an REO?” And as is, where is.

And our guidance to sellers is to price it at 75% of the REO value. So they think the property is worth 200k, offer it at 150k. So there’s a $50,000 equity that’s there to be captured by going through this process. And the sellers – the sale to them is “Hey, you get your money a year or more early, you’re going to save all the legal fees, all the taxes, insurance, boarding up cost, night watchman, all that stuff is gone.” And for the local investor, they’re going to put a tenant in there who could be paying them, call it a thousand a month or something like that during that year, so they pick up $12,000, plus they do the repairs while it’s still being foreclosed upon. And when it’s foreclosed upon, they can choose to either sell it as an REO or to keep renting it.

Theo Hicks: So that offer is to you and these hedge funds, right?

Theo Hicks: Correct. Right now the offers all go to us, and then we share them with the hedge funds. But ultimately, they’re making the decision on “Hey do we accept it? Do we counter it? And how do we respond to this?” So to be clear, all the asking prices on there are simply just that – they’re asking prices; you can offer more, you can offer less, and we do see both of those. We see people who are offering full price, people where there are maybe five or six bids, but they’re all 10% or 20% low, which means that maybe the hedge fund opinion of values may be higher than it should be, and vice versa. There are some times that somebody is selling for a little bit more than what the asking prices are. So pay what you think is fair, offer that. Right now, we’re highly attentive to trying to get these things sold to prove out the models. So we’re trying to broker… In some cases, in the end we’re almost on the phone between the buyer and seller to try and bridge the gap to a price that makes sense.

Theo Hicks: Okay. So if I submit my offer, you mentioned that your company, for the pre-REO, has a system that I can use. So that system is up to the actual foreclosure; then it’s in my hands, right? So you’re saying that you help the second I take over that note to the foreclosure, and then the main thing in between there is appointing the receiver.

Theo Hicks: Appointing the receiver. You, for instance, could choose “Hey I know a friend who is a real estate agent. They are really reliable, I want them to be the receiver.” That’s fine. But the court will have the attorney propose to the court that that agent is appointed as a receiver.

Theo Hicks: Why aren’t the hedge funds appointed the receiver?

Theo Hicks: Because this is very local; we’re in Chicago, so when we’re having to pay for these repairs on properties I know we’re not getting in best prices. The local person will maybe have their own crew or have their own relationships and contacts where they can get stuff done at a better price, done faster; they can also be there watching “Hey this is what the work is, and you’re getting the bid for this.” That makes sense. And besides, we’re a thousand miles away from the bid and we don’t really know; we get photos and sometimes people — they always think it’s a bank or a hedge fund,
“They’re not going know the difference whether it’s 2000 or 3000, so bill them 3000.” We got this clean-up bids sometimes for like $3,000 and $4,000. I’m thinking, if I had a small crew, I’d be out there with the dumpster and get it all done for 500 bucks. And then they say “We’re bonded, we’re insured, and that’s why we’re $4,000.” Sure, that’s important, but the local investor can always do these things better. Also, selecting tenants, making sure they pay…

So I think what pre-REO is trying to bridge is the local investors absolutely, in this case, have the advantage. They know the market, they can watch the work get done, so they are doing that portion of the work and they’re adding value because they have transactions as a result. The hedge funds can never compete with a local investor in that regard.

Theo Hicks: Yeah. Plus, they’re not real estate investors either.

Theo Hicks: They’re not. We got offers on our REO’s, there are always people sending us the photos of like the worst thing in the house, making it look as bad as possible… And again, we are thousands of miles away sometimes so we don’t really know the difference. So local guys can say “Hey this thing is worth $300,000.” Or it’s worth whatever the number is, and if somebody is crying about a little repair that needs need to be done, hey I’ll get that done and they should be paying full price.

Theo Hicks: I’m not very familiar with this. So appointing a receiver – is that something that always happens? There’s no risk of the court say “Well no, you can’t do this, from my perspective.” Who are the receivers?

Theo Hicks: Sure. So that typical receiver is appointed on an office building, a hotel, a property that’s generating revenue, and if they’re not paying the mortgage or the other debt then, the lender can request that court to appoint a receiver to collect the rent, pay the expenses on that type of property; even they put him at sometimes retail stores or whatnot. But those receivers are often times attorneys or other high-priced professionals, and it would not work to use that type of receiver for a single-family residence.

So we were like struggling with who do we use, and who’s going to make sense here… And the receivership is very much akin to property management, with a couple of extra reporting steps with the court; so a local real estate agent makes a ton of sense. And they are doing it — maybe collecting rent, maybe 10% of the rent collected, and that’s okay, but I think what the agents are really looking for is hopefully some of these ends up being listed once they are foreclosed, they’re going to want to sell it, and then I’ll get the listing; so they’re building a pipeline of future listings. In turn, the receivership is usually high cost; we’ve made it affordable for this segment of the market, single-family residences and other small properties.

And then the other part is if real estate investors just call the local attorneys and say “Hey, appoint a receiver on a single-family”, it’s going to be “I’ve never heard of that.” So we have one firm [unintelligible [00:14:35].17] which I’m a partner in, which facilitates default services nationwide; so all of these we recommend that you go through Activist Legal, and Activist Legal will co-counsel with the local attorney in their network to complete the foreclosure and to get the receivership appointed.

And you’ll think “Well, how much is the receivership?” To appoint a receiver, estimated hours maybe a thousand dollars in legal fees. When the receivership is completed, maybe a couple of hours and maybe $500. And your question, which is a good one, “Is this definitely going to work? Is the court definitely going to appoint a receiver?” And the answer is we expect that they will, but we don’t know. There may be some judge who just says “I don’t get this. It doesn’t make sense to me. I’ve never seen it before.” We haven’t run into that yet; we’ve been able to so far convince judges that this makes sense. And the reality is if a judge is going to look at it from a public policy point of view and say “Is it better to leave a home vacant for a year, or better to appoint a receiver and have a tenant in there? Which is better?” It’s clearly to have it occupied; if it’s vacant it either is or could be of blight on the community, so it’s just so much better to have it occupied. The neighbors would appreciate it. So it does make sense, but we do anticipate at one point or another we may have [unintelligible [00:15:41].18] We’ve had this concern enough as we keep going to different jurisdictions to prove out the concept; if a receiver  could not be appointed, our fund would buy the asset from the pre-REO buyer. We expect that to happen one in a hundred times; it hasn’t happen yet. And if it does, then we simply know that in a jurisdiction we can’t do it, and we’ll keep trying. It makes sense, so we expect at some point the judges will all be on board with this.

Theo Hicks: Another question I have from a very limited knowledge of the foreclosure process – I know it’s usually not always the exact same length from when it is initiated to when it’s actually completed, so how do I know when looking at a deal what spot in the process we are at?

Theo Hicks: That’s a good question, because if there’s a sale date next month and you already have a judgment, then you’re just going to say “Skip the receiver, I’m going to get the deed to this thing in a month or two.” So we are trying to provide information on our site; it’s not where we want. Sellers – it always seems like they have to go to the servicer, go to the attorney and get the current updates. So we are trying to improve that. If a property is of interest, and you think of bidding on it and that’s important to you, which it should be, then before you bid, say “Hey, what’s the status of the foreclosure?” And someone will get you that information.

Bear in mind though, the way we’ve structured pre-REO is accepting the ones that are towards the end of foreclosure. If it’s kind of mid or earlier, then it’s going to be months if not years in some cases, so it does make sense to appoint a receiver. And the passage of time, which usually negatively impacts the returns of a mortgage holder using pre-REO, where you’re generating rent during the term for the foreclosure, then the passage of time is no longer a negative drag on your returns.

Theo Hicks: So if I have a receiver, and I get fixed up, I can put someone in for rent before? That makes sense. I was kind of confused. I saw on there in your website, that you could do loans on this as well.

Theo Hicks: Yup.

Theo Hicks: So I put the down payment, obviously I’m paying that loan, because I’ve got an outgoing payment, but with a receiver, I fix it up, I put a tenant in it, the tenant could pay me before I actually own the property.

Theo Hicks: Correct. Now, a big asterisk to all that. The receiver needs to coordinate the work, so the court’s going to allow the receiver to do the work, and they can hire contractors. So you couldn’t actually do the work yourself; you could coordinate it through the receiver. You could tell the receiver “Hey, I recommend that you use this contractor.” Ultimately, you’re the one funding the work. And the rents that are collected would need to go to the receiver, they need to go to the servicer, and then they come back to you. That way it’s fully documented for the court and there’s always a record if they ever ask. In the end, we accomplish what you’re just describing.

Theo Hicks: So you said that rents go to receiver, and then who is this servicer? Is that you?

Theo Hicks: Yeah. But that’s the AHP servicing.

Theo Hicks: Okay.

Theo Hicks: So almost all the states in this country require that a licensed servicer is the one that usually collects the mortgages, interfaces with the bar, facilitates foreclosures… So AHP servicing is a national servicer; we can fill that role. In fact, in pre-REO you can say “Hey, it’s a great way to generate business for AHP servicing, [unintelligible [00:18:29].07] and you’re right. But also, without those two components, it would be very difficult to replicate. Because otherwise, you’d have to go to a servicer, go to a law firm and try to put these pieces together, and that I think would create a challenge. So here I’ve created the roadmap, and the companies and resources that you can utilize along the way, so you just follow the steps for the particular pre-REO that you’re working on.

Theo Hicks: So you say this is pretty passive compared to other strategies. Is that like entirely passive? But it sounds like it’s passive, because a lot of the steps – kind of communicating with the receiver, it sounds like once you’ve bought the deal and then sending the money out for the loan… So those are passive?

Theo Hicks: Yeah. I don’t know if I’d say very passive. You still have to be the quarterback, maximize your success. You want to be very involved [unintelligible [00:19:13].24] you’re right, you’re having to work through others to help execute the strategy.

Theo Hicks: Alright, Jorge. This is very fascinating stuff. It’s from the perspective of buying this, but also just from your perspective in identifying this need and starting a business. Of course, we couldn’t focus on it that much, but I think we did get a lot out. Is there anything else that you want to mention about buying pre-REO’s on the internet, or anything else before we wrap up?

Theo Hicks: No. I think we’ve covered most bases. You mentioned the financing – we provide 75% of the money, so the local investor just needs to come up with 25%. We’ve tried to make it as similar to doing a normal real estate transaction, except here you’re just buying earlier in the process, at a greater discount. So I think we covered all the bases. I appreciate the question, and thanks for having me on today.

Theo Hicks: Absolutely. Thanks for joining us and talking about how to buy pre-REO’s on the internet. So if you want to look at actual live deals, prereo.com. And there you can kind of click and see some details about those deals.

Overall, just to summarize what the process is, you are buying the first mortgage that’s in default, as secured by a vacant property, from a hedge fund or some other company that’s already bought that. And then you being the local investor will be able to add more value to that deal than the company that’s thousands of miles away.

Once you buy the note, which you said that the starting offer price would be 75% of whatever that value is, then you request that the court appoints a receiver, and then this receiver, which your company helps find, will be the person who can coordinate the renovations on that vacant property, putting a tenant in that vacant property, so you are able to make money before you actually foreclose on the property. That sounds like the overall strategy. Obviously, there’s a lot more that goes into it than that, but that’s the overall strategy.

Jorge, thanks again for joining me. It was great talking to you. 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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JF2289: Shifting Focus to Turnkey With Alexander Cruz

Alexander aka “Xander” is a full-time real estate investor with 7 years of experience. He is also the director of CR of Maryland where they have 350 single-family properties in Baltimore owned and under management and will currently rehab and sell 140+ turnkeys in 2020. 

Alexander Cruz Real Estate Background:

  • Full-time real estate investor for 7 years
  • Partner of CR of Maryland a real estate company
  • CR of Maryland Portfolio consists of 350 single-family owned and under management, sell 140+ turnkeys in 2020,  completed 400+ flips, and 400+ wholesales
  • Based in Baltimore, MD
  • Say hi to him at: https://crofmaryland.com/ 
  • Best Ever Book: Relentless

 

Click here for more info on groundbreaker.co

Best Ever Tweet:

“Focus and stick to one area” – Alexander Cruz


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 Xander Cruz. Xander, how are you doing today?

Alexander Cruz: I’m doing great Theo, how are you?

Theo Hicks: I am well, thanks for asking, and thanks for joining us today. A little bit about Xander. He is a full-time real estate investor and has been for seven years. And he’s a partner of CR of Maryland, which has a portfolio of 350 single-family homes that are owned and under management. They also project to sell over a hundred and forty turn-keys in 2020, and they’ve also completed over 400 flips and over 400 wholesales. He is based in Baltimore, and you can say hi to him and learn more about his company at crofmaryland.com. So Xander, do you mind telling us some more about your background and what you’re focused on today?

Alexander Cruz: Sure. I’ll take you all the way back, I’ll keep it brief. I got into real estate back in 2011; I actually was hired by chance as an admin position for a broker. Quickly found out I wasn’t cut out for admin work, but I fell in love with real estate really fast. I did that for about a year and then I was an independent agent for about two years. And then that’s when I met my current business partner, who I still work with today. At the time that I met him, he was creating a new company in Maryland to be known as CR of Maryland, which is where we’re both from, we’re both Baltimore residents. At the time, our focus was just fix and flip. So at that time, it was me, Craig, and a project manager, and we were going out trying to buy homes, get them rehabbed, and then sell them.

So that grew a lot over time, we evolved a lot along the way. We went from being just a fix and flip company to focusing heavily on buying and renovating rental properties that we would keep for ourselves, so we built a pretty substantial rental portfolio here in Baltimore, and then of course also grew our property management team to oversee and manage it. And then that led us to last year, where we were reaching our intended limit of how many rentals we would personally have… And somebody said to us, “Well, why don’t you keep buying and renovating them, but instead of keeping them you can turn-key them? So you’re selling the property to another investor, but you retain the management.”

So it kind of clicked in our head and we made a big shift in our company, and that became our main focus. So probably about 90% of our time and energy is put into what we call our turn-key business. And like you said, we’ll deliver over 140 single-family properties this year in 2020 to turn-key investors from around the country, that we will buy ourselves, renovate ourselves and then continue to manage for many years to come. So it’s a really exciting part of the business… And we cover a lot of other aspects, we have a wholesale division, we have a retail real estate team… But our primary focus really is the turn-key business and property management.

Theo Hicks: How did you meet your business partner?

Alexander Cruz: Good question. Also a little by chance. So taking one step back again to the beginning… When I was in the admin role, I wasn’t good at it, but I worked hard and I maintained the relationship with my broker. So she’s the one that about two years later or whatever it was, that introduced me to Craig… Because I maintain a good relationship with her even though at that time I was no longer working for her; I was an agent in her office and she said, “Hey, I’ve got a guy coming in. I want you to meet him.” She had known him for years and she said, “I think you guys will work well together. I want you guys just to meet and talk and see what happens.”

And then over seven years, we became business partners, and depending on the day, our relationship can vary from best friend, to father-son, to business partner, and everything in between. But we have a really good relationship and it was all because of that introduction.

Theo Hicks: If you don’t mind diving deeper into that… So he obviously was doing his thing and you’re doing your thing, you guys came together, how did you decide how to structure the partnership in regards to compensation, and roles or responsibilities and things like that?

Alexander Cruz: Yeah, I would compare it to — not to sound weird, but let’s compare it to dating. So we didn’t go straight to a marriage. So in the beginning, our relationship was almost exclusively like agent and investor. Although we were working very closely together, I would get paid a commission when we would buy something and sell something. That’s how it started. So eventually it evolved, and we quickly figured out which of us was good at what. Again he’s a little bit older than I am, so he already had a pretty good base knowledge, but needed boots on the ground. We really had to hit the streets and find homes, and deal with contractors, and just do all the stuff that happens along the way. I was doing more of, I’ll say, that kind of heavy lifting, and I was the front-facing person, so I would deal with customers, agents etc, and he was more on the back end, building the business. So it was relatively easy for us to kind of define the roles, and then from there it just grew into a partnership, and we re-arranged pay and ownership and everything like that at the time.

Theo Hicks: So you were admin, and then you were a broker, and then you were a part of this company. And that’s when you started buying deals, right? So how does CR fund their deals? Maybe walk us through the evolution of that, so how you were doing it at first, and then what you’re doing now, and then how you got from A to Z.

Alexander Cruz: In total honesty, the blessing of my partner was that he had come from the business world already, and we had a pretty big amount of capital to work with. So for us, raising capital wasn’t the issue, it was more so how to use it and how to use it successfully. So that’s where the challenge of finding deals and having the right strategy in place to profit off of the deals – that was honestly the biggest challenge, because we’re in a competitive market and it has always been that way for as long as I’ve been in it.

Theo Hicks: So when you partnered up, he had a big book of people that he could just reach out to whenever he needed money?

Alexander Cruz: Correct. So I actually — and part of what I skipped in this story was he already had built and was running and owned a successful flipping company in Pennsylvania; even though he was from Baltimore he worked up there, because that’s where his previous business life was. So he was basically coming down here to recreate the same company, and already had a person in place, a PA that was running it day to day. So he didn’t have to be there every day, he spent all his time here, and wanted to do it in Baltimore. So that’s where it got grounded and started. So fortunately for us, the funding was in place.

Theo Hicks: Okay. So the harder part was finding deals to place that capital in. And so what is the best way to find deals, in your opinion?

Alexander Cruz: Yeah. And one thing that just caught my eye as you said that – the hard part was finding deals, but then also just growing, it’s really hard. We went from me, him, and one project manager, and today we have about 28 employees and team members. So this growth is super challenging; you hit that wall over and over again, and you have to revamp and adjust systems, and improve and implement systems. So in the beginning we had no systems.

Aside from that, the question was how do we find deals… So when we first started it was a lot easier, you could still find deals on the MLS pretty regularly. That quickly changed I’d say in 2014 or 2015; that’s when we started doing our off-market marketing is what we call it, so direct to seller marketing. The best strategy I can say is to cast a wide net. There are some months where certain things work better than others, and obviously, if you have the ability to market, you’re going to have to spend money on marketing. If you’re going to do that, I would talk to people who are already doing it and find out what’s working for them and what their strategies are. Don’t try to reinvent the wheel. There’s plenty of guys doing it and probably talking about it in podcasts or wherever else, so you don’t have to start from scratch. But we still do some mail, we still do some skip tracing, we do some outbound calls and texts, we have SEO, we have Pay-Per-Click, we have a Facebook page… Facebook you don’t really get many more seller leads from, but you can still create some awareness. So you have to cast a wide net and then constantly be evaluating your numbers. We look at numbers every single week, so we can tell what’s working, what’s not working and we can tinker and adjust. But you have to be consistent, you can’t just do something for a month and then give up.

Theo Hicks: Have you seen an increase or decrease in leads over the past six months?

Alexander Cruz: It’s been a bit of a wave. When COVID hit in March – I’m sure everybody talked about this, but it got pretty quiet for a few weeks to a month. And then right after that it, seemingly just started to spike back to normal again. I mean, it’s been very consistent for us for the past few months.

Theo Hicks: So out of all things you’ve mentioned over the past, say, six months, what’s been the number one source of deals?

Alexander Cruz: I think we’re getting our best value out of outbound right now. And when I say outbound, that’s calling and texting people. It seems to get the best response. We still do get a response from mail, and what’s interesting is actually some of our best overall deals sources back to mail. And I think a lot of that has to do with that we’re a legitimate operation. So it sounds silly, but our postcard has the Better Business Bureau logo on it, because we’re registered, or affiliated, or whatever it is… And that makes a difference to some sellers. And then they google us and they can see it, “Okay, they are a real company. They have 200 reviews and a website and everything else.” And at that point, there is a comfort level that you don’t always get out of everybody else.

Theo Hicks: Do you think that people can still replicate this professional persona without having to have a full-fledged company? Like what are some things they can do to gain that credibility if they don’t have a company like yours?

Alexander Cruz: Yes, sure. The biggest thing is just professionalism. We’ve talked to so many people over the years that say they called three other investors that never called them back. If you’re going to pay for leads, you’ve got to answer the phone and call people back. And then on top of that, you have to create a follow-up system. There is a local wholesaler we know well that he’s doing a ton of deals right now, and he doesn’t have a big operation; it’s like him and two other guys. But they are meticulous and I would say obsessive about their follow up. That is the biggest part of success, especially in the competitive market. Because half of it is just timing and luck. It’s when does the seller answers the phone, and then once you have them on the phone, are you doing a good job with them?

So you don’t have to have a big operation to establish legitimacy; you just have to treat people right, know what you’re talking about, and pick up the phone and call people back. If you say you’re going to call somebody, you’ve got to call them.

Theo Hicks: Is selling the turn-key deal in the back end a challenge at all, or is it pretty smooth?

Alexander Cruz: I’d say it’s pretty smooth. I don’t want to say that the product sells itself, but the combination of the product. So we have a really good market, the rent to sale price ratios are great, the returns are really high. And then on top of that, we go really crazy on our renovations. So we target homes that need everything, and then we do everything. So it’s as close to new construction as you’re going to get. These are full rewires, they have all new ductwork, brand new roof, windows, plumbing, and then of course kitchens and bathrooms are always brand new. So you have good numbers, you have a really solid product, and then the last part of it is you have us that’s going to properly manage it, and we’re local, we already own and manage well over 300 properties, we understand what has to happen, we have the systems in place, and we have the people in place.

Theo Hicks: What type of returns are these people who are buying these… If I want to buy a turn-key house from you, what should I expect to pay? And then what ROI should I expect?

Alexander Cruz: Our typical price point for a renovated house is going to be between $140,000 and $200,000. And then in that price point — when we build out our portfolio we actually show a 5% vacancy and a 5% maintenance and reserves. So we’re taking 10% off the returns off the top. Even after that, our cash on cash returns is typically 12% to 14%. So they’re pretty strong numbers, and I’m told consistently by potential buyers that our numbers are pretty much on the top that they see as they shop in different markets around the country.

Then the other nice thing is our market actually does have some appreciation. It’s nothing crazy like Dallas and Tampa and some of these other really hot markets; we’re pretty modest, 3% to 6%, but it’s a good number to have in addition to your cash flow.

Theo Hicks: Do most people, most of your clients, are they in Baltimore, or do they just buy it, it’s sight unsee, and they never even see the property and just kind of [unintelligible [15:04]

Alexander Cruz: Yes. Most of our clients come from outside of town. We’re involved in a couple of networks now that that’s kind of what they do, is educate and produce these buyers that are seeking renovated turn-key product and they’re considering areas all around the country. A lot of times they live in California, or Atlanta, New Jersey, just more expensive areas where they wouldn’t buy a rental locally, because it’s so expensive it doesn’t make sense. So we do get a lot of those. We have some local investors, too.

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

Alexander Cruz: The best advice ever, and something that we’ve at times struggled with, is to stick with and focus on one area that you’re good at or can be good at, and not get distracted and try to do too much. We’ve all done it as we fall for like the shiny object, and you start getting away from what you’re really good at. So for us, it’s buying and renovating, it’s really what we’re good at. So to spend a lot of time – and I’m sorry if anybody from the retail team is listening, but to spend 80% of our time on the retail team, that’s not where we get our best return on investment, and it’s honestly not what we’re great at. We’re good enough and we have a team in place and it provides us an extra outlet for leads and can take care of people in different ways there, but the vast majority of our energy is spent where we make our most money and can get our best return.

Theo Hicks: Awesome. So are you ready for the Best Ever lightning round?

Alexander Cruz: I’m ready.

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

Break: [00:16:33][00:17:14]

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

Alexander Cruz: I always go back to Relentless by Tim Grover. He was the trainer of Michael Jordan for many, many, many years, and then Dwayne Wade and several other amazing athletes. It’s all about mentality and your mental approach. And it’s applicable in sports of course, but also in business and life. I remember that book a lot, I love that one.

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

Alexander Cruz: I would probably, honestly, hop right into real estate sales. It’s the one thing that no matter what the economy is doing, is still happening. And you have the most control over your own success and you determine how much you work, how many leads you get, you can create that on your own… You really have the most control of your destiny there. So that’s probably where I would head.

Theo Hicks: Out of all the deals your company has done, what’s been the Best Ever deal?

Alexander Cruz: The Best Ever deal… It’s been a couple of homes that we have flipped… We actually have one this year, we just got a really good deal on it, off-market, in the wintertime. And there was an older couple, they needed seven months to move… They didn’t need that long originally, but then COVID, hit so the settlement got pushed out months while they were waiting to move into their retirement home… And we had a good price — they were ecstatic, because they got to be flexible when they moved. The house also had [unintelligible [00:18:27].25] So we then finally got them moved out, but the house was meticulous; so we literally just cleaned it up and put it back on the market, fixed the septic, and the market is stupid hot right now. So we actually made six figures on that. That’s one of our best deals ever.

Theo Hicks: On the flip side, of all the deals your company has done, tell us about a time that you lost money on a deal and then what lessons you learned.

Alexander Cruz: Ah, which ones? This actually ties back to what I said earlier… There’s an infamous street named Allendale, and I bought a house in Allendale that had, I kid you not, a hole in the roof that was probably about seven feet in diameter. And actually, the guy was still living in the house like this for years. So when we finally took possession, the hole and the water damage went all the way down to the basement. So we said, “Well, let’s tear the house down”, it was a rancher, “and we’ll build a two-story house on the foundation.” We’re good at rehab, we’re not good at building.

So really long story short, this dragged on for over a year. By the time we were ready to go, we had to tear the foundation out and build a new one. Then we decided to try and get a variance for the building’s set back lines so we could add a garage; we spent months and thousands on attorneys to do that, and the variance got denied. So we have no house, we have a hole in the ground, we are way upside down at this point, and we still have nothing after a year. Neighbors hate us, “What are you doing with the lot?” and finally, we’re like, “Let’s just sell the lot. We sell to a builder that knows what the heck they’re doing.”

So we finally did, and that nice profit I just talked about on the other deal, is about what we lost on this deal. It was just a total disaster. The lesson is, like I said earlier, stick to what you’re good at. If you don’t know how to build homes, don’t go and try to build a house, especially when it’s going to be expensive. Or if you’re going to do it, find somebody that knows what they’re doing, and you need to partner with them or pay them to guide you through it. Don’t try to reinvent the wheel; find an expert, and rely on them.

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

Alexander Cruz: Sure. So my girlfriend is a school counselor at a title one school locally, and they have a lot of underprivileged kids. So we partnered with a local charity called Baltimore Hunger Project, and they serve kids in elementary school all over the Baltimore area that are what they call food insecure. These are kids that go home from school and might not have dinner that night at all, and might not have breakfast until they get to school the next day. So what Baltimore Hunger Project does is provide meals to these kids every week, and they’ll send them home on the weekends with a big pack of food, so that they’ll have food through the weekend, and hopefully gets them until Monday.

When the pandemic hit and schools closed, the Baltimore Hunger Project, I forget — the number is crazy; they went from serving 600 kids a week to over 2,000 kids a week, and they continue to grow. Because now they’re not going to school, they have no way to get this food. So it’s been a huge operation to expand it, and we’re really honored to say that we’ve been able to help them financially and also with time, so that I can still, in a way, get back to the kids at my girlfriend’s school, and then also other kids in the Baltimore area.

And then recently we also partnered with them to purchase 30 laptops for kids at an elementary school nearby that didn’t have them. It’s a small private school, so they weren’t given like they were at the public schools. These kids just didn’t have laptops, so we were able to provide 30 laptops to them. So that’s an ongoing thing for us. We really are huge in giving back to the kids in the community here.

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

Alexander Cruz: Sure. So the easiest way is to go to crofmaryland.com. There’s a Contact Us tab that’s super easy, you can just do that. Or you can click the turn-key tab and click over to that page, there’s a Sign-Up link there was well that’s specific to the turn-key properties. You can always reach us there. You can sign up on the page to automatically get dumped into our system, and then we’ll reach out to you to schedule a call and discuss things further.

Theo Hicks: Perfect Xander. Well, thanks for joining us. Lots of solid advice given in this episode. A few of the takeaways that I got was how you make a business partner and the importance of not, I guess, burning bridges at any…

Alexander Cruz: That’s it.

Theo Hicks: …any job that you do in the past…

Alexander Cruz: It’s huge.

Theo Hicks: Because you never really know when some relationship that you created will result in, for you, a massive business.

Alexander Cruz: Yup.

Theo Hicks: And then you also talked about how you are finding deals. That at first it was in the MLS, and then now you do off-market marketing. And why it’s important to cast a wide net, because what works one month or one year might not work the next month or the next year. Results are what’s important also – track, and then not try to reinvent the wheel and just kind of see what other people are doing that works for them and do the exact same thing.

So you do mailing, skip tracing, hop on calls, SEO and Pay-Per-Click. And you get the most deals from the outbound call and texts. But the best deals come from the mail. And you talked about why it’s important to be a professional, right? You’re a professionally run company, so you got the Better Business Bureau logo on the mailers and then they look you up and they see all the reviews on your website… So they know they’re working with a professional company, but you don’t have to necessarily be a company to still have these same professionals. And you gave the example of the wholesalers – they’re a small crew, but because they’re meticulous in their follow-up, they’re still able to do a lot of deals. And so follow up is key here.

And then your Best Ever advice was to not fall on the shiny object syndrome, and you mentioned that everyone does it and you gave us an example of your worst deal. But to focus on what you are good at. And then when you’ve got your business and you’re doing the one thing you’re good at, you are kind of studying further within that to focus on the areas that result in the greatest ROI.

So you’ve talked about in the podcast before, a dollar an hour, 10 dollars an hour, a hundred dollars an hour, and a thousand dollars an hour job, and making sure you as a CEO are focusing on those higher dollars per hour jobs, and contracting up everything else. So Xander, I appreciate it. Thanks for joining us. Best Ever listeners, as always, thank you for listening. Have a Best Ever day and we’ll talk to you tomorrow.

Alexander Cruz: Thanks, Theo.

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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 sa