JF2157: 8 Apartment Syndication Lessons From Tools Of Titan | Syndication School with Theo Hicks

In today’s Syndication School episode, Theo Hicks, will be going over 8 key lessons he learned from the book Tools of Titans by Tim Ferris. 

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

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

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

Scott Krone Real Estate Background:

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

 

 

 

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


TRANSCRIPTION

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Scott Krone: 7 square feet of lockers per capita.

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

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

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

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

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

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

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

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

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

Joe Fairless: Okay.

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

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

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

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

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

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

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

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

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

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

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

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

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

Scott Krone: Square-footage-wise?

Joe Fairless: Yeah.

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

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

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

Joe Fairless: Your self-storage facility?

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Scott Krone: Sure.

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

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

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

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

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

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

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

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

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

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

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

Scott Krone: Thank you very much.

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JF2144: Read 52 Books In A Year | Syndication School with Theo Hicks

Does reading 52 books a year sound daunting to you? Yeah I thought so, well today Theo Hicks will be going over a popular blog post that Travis Watts from Ashcroft Capital recently published on the importance and techniques to reading 52 books in a year. Theo will be sharing the techniques he learned from reading this blog post and if you’d like to read it yourself check it out here

Click here for more info on groundbreaker.co

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


TRANSCRIPTION

Joe Fairless: There needed to be a resource on apartment syndication that not only talked about each aspect of the syndication process, but how to actually do each of the things, and go into it in detail… And we thought “Hey, why not make it free, too?” That’s why we launched Syndication School.

Theo Hicks will go through a particular aspect of apartment syndication on today’s episode, and get into the details of how to do that particular thing. Enjoy this episode, and for more on apartment syndication and how to do things, go to apartmentsyndication.com, or to learn more about the Apartment Syndication School, go to syndicationschool.com, so you can listen to all the previous episodes.

 

Theo Hicks: Hello, Best Ever listeners and welcome to another episode of The Syndication School series – a free resource focused on the how-tos of apartment syndication. As always, I’m your host, Theo Hicks. Each week, we air two podcast episodes that help you in your apartment syndication journey, and for a lot of these previous episodes, we’ve offered some free resource. They’re PDF how-to guides, PowerPoint presentation templates, Excel calculator templates, something that’ll help you along your apartment syndication journey even more so than just these weekly episodes. All of that is available at syndicationschool.com.

Today, we are going to talk about a life-changing technique that I learned from Ashcroft Investor Relations, Travis Watts, and that is how to speed read; how he was able to read 52 books in one year. So I used to be an avid reader. I’m just starting to get back into it. Again, at least reading books and not just blog posts/articles… So I wanted to go over this blog post with you, Best Ever listeners, just in case you haven’t read it, but even if you have read it, I can give some additional advice on some strategies I’ve learned to be better at reading or how I read, because Travis obviously includes a lot of great examples in here as his examples as well. So I felt I could add a little bit of value here.

So in this blog post, first he goes over a few case studies. First, he’s trying to convince you why it’s important to read before he goes into how to read. So he starts off by talking about Tony Robbins, who coined the term CANEI, which stands for Constant And Never Ending Improvement, and that he emphasizes the importance of reading as a way to constantly improve yourself. There’s a book that he wrote called MONEY Master the Game where he says, “As a young man, I decided I was going to read a book a day. I didn’t quite read a book a day, but over seven years, I did read over 700 books,” so about 100 books every single year. “So how can you read, on average, 100 books every single year?” He goes over even more case studies.

He has Warren Buffett – everyone knows who he is – who spends five to six hours every day reading a book. Now obviously, you might not be able to spend five to six hours every single day reading. Warren Buffet has an established business. So if you’re grinding, you’re hustling, trying to scale, your time might be spent better doing that as opposed to reading, but reading is still important nonetheless. Especially one of the world’s richest men is spending five to six hours every day, probably close to a third of his waking hours reading. Not just books, from my understanding, he also reads a lot of online content as well, newspapers, things like that.

We’ve got Bill Gates, who said that he reads about 50 books a year; so about a book each week. Mark Cuban, who spends about three hours reading every day. He attributed his early career success in life to reading. So again, just because you don’t think you got the time, just because you think it might be more important to spend your time, as I mentioned, hustling, grinding for deals… Mark Cuban, pretty successful person, billionaire, owner of the Dallas Mavericks, said that in the beginning of his career, he attributes reading to his massive success.

You’ve got Oprah Winfrey, who is an advocate for reading and strongly recommends her talk show viewers to adopt the habit of reading. She often refers to reading as her “path to freedom” due to these tough start in her career. So again, just like Mark Cuban, she attributes her success to reading early on in her career.

You’ve got Mark Zuckerberg; he’s a strong believer in reading. He believes that if you want to improve the quality of your life, you must commit to personal growth and development. He also adheres to Tony Robbins’ CANEI approach.

Elon Musk, who devoted a huge chunk of his time to reading when he was young. When he was in grade school, he read about ten hours a day, and I remember reading about that or at least hearing it when I listened to– it was in an autobiography; it was the biography of him where he talked about– I’m pretty sure he just went to the library in South Africa and just spent all of his days there reading.

So clearly, reading is very important if you’ve got billionaires, world’s richest people reading a ton and talking about the benefits of reading. So because of this, Travis decided that he too was going to take a stab at an aggressive reading strategy. He was going to try to read 52 books, so one book a week, for a year, but then he said that he knew that he would likely fail if he tried reading books in a traditional fashion, one page at a time from front to back, so he took a couple of speed reading courses and learned a powerful reading technique. So he outlines the technique that he used that allows him to read 52 books every single year… And he actually mentioned this here too, that this is more specific to the how-tos in the self-improvement books, but I do think that this would also work in real estate books as well. It depends on the type of book. For example, if you’re reading The Best Ever Apartment Syndication book and you’ve never done an apartment syndication before, then following this technique might not be the best approach just because it is a step by step process for completing an apartment syndication, and so it goes to the education of exercise you need to do… But if it’s a traditional how-to or self-improvement or self-help book, then I think this approach is perfect for that.

So here’s his five-step process. So first, set aside three different 15 minute or 20-minute intervals for reading a book each day; so a total of 45 minutes. So this could be 15 minutes in the morning, 15 minutes in the afternoon, and 15 minutes in the evening; and then if you need to, set a timer.

Now I think this is important because if you tell yourself that I’m going to read for 60 minutes every single day, that’s a long time. An hour is a long time, especially if you’re not used to reading, especially if you haven’t read a lot. So you’re likely going to avoid that. I think a better example would be fitness. I personally think that the reason why a lot of people have a hard time getting started is because they don’t want to spend 60 minutes in the gym. So a much better way to start off is to, rather than working out 60 minutes straight, maybe do a few different cycles of push-ups, sit-ups and air squats in your office. Maybe do that ten different times a day; maybe do five push-ups, five sit-ups, and five air squats. Do three rounds of that and do that five times throughout the day. It’s a lot easier to do that because that takes two minutes to do. Let’s say it takes five minutes to do. You do it ten times, that’s 15 minutes. You’re probably not gonna do it ten times, but at least if you do it one time, it’s better than not doing it at all.

I think the purpose of this is to give yourself much more smaller goals that are more easy to mentally digest and get into. Saying, “Well, I only need to read for 15 minutes–” well, that’s 15 minutes, compared to the “Oh, I can sit down here for 60 minutes,” you’re wondering about what’s going on in your emails, what other things you need to do. So I really like this technique of breaking it into different intervals. Of course, if you’re able to do 60 minutes straight, by all means, do that, but breaking the intervals, I think is a lot better.

So right when you wake up, it may be one of the first things you do, and then before you take your lunch break, you read 15 minutes again, and then maybe take 15 minutes at the end of your workday or after dinner, or before you go to bed to read as well. So that’s step one.

Step two is to decide ahead of time what your goal is for reading the book. So what are you seeking to learn from the book and how will that help you in your career? So depending on where you’re at, this might be something different. If you’re obviously just starting off, then you’re likely going to maybe need some help with this mindset; maybe you’re gonna need help finding deals. If you have an established business, maybe you want to learn how to be a better leader. But defining specifically what you want to accomplish by reading this book is going to be important for the later steps.

Step number three is to use a bookmark or sticky notes to save important pages or sections. Use a pen to circle or underline key tips or ideas. So when I read books, right now, what I do, I don’t necessarily follow the speed reading technique, but when it comes to the sticky notes, and then the pen idea– so a really good strategy is while you’re reading anything that’s important– let’s say you’re reading one chapter; it’s a 20 chapter book. If you are planning on reading the full book, while you’re going through it, you have a highlighter. I like a highlighter better, just because with a pen, I’m ripping the pages and I can see the pen on the page behind. So I found a page that looks like I underlined something on the page behind it, and sometimes the lines are so close together that I can’t really get a pen in between lines without going over one of the lines. So it looks like I’m crossing something else. I personally am a highlighter person plus it’s a lot brighter, but a pencil works. But you’re still gonna need a pen because what you do is you read a chapter, you highlight things, and you go back over that chapter and you read what you highlighted, and you take one of the bigger sticky notes, and you just either summarize in sentences or summarize some bullet points and the main takeaways from your highlighted sentences, and then you put that sticky note at the front of that chapter. That way, whenever you’re going back to your book, you open the book up and if it is a 20 chapter book, you’ve got 20 sticky notes, rather than having to go through every single page and look at the actual highlights. All you need to do is look at 20 sticky notes to read the entire book again. So that’s essentially what he’s saying, but I think you should take it a step further. Rather than just using sticky notes to save important pages, use sticky notes to summarize the different things you underlined or highlighted in that chapter.

So step four is to read the front cover first, then the inside jacket, and then the foreward introduction and first chapter. So if you’re reading a softcover book, the front cover has the title and then any subtitle, and then the inside jacket for hardcover books will have a description of the book, but obviously, for a softcover that’s on the back. So if you’re reading a softcover book, it would be – read the front cover, read the back cover, read any of the things before the actual book start. So it might be an intro, it might be a foreword, it might be a preface, they’re all called different things. Read everything up until the first chapter, and then read the first chapter. After that, you go all the way back and read the last chapter, which is typically depending on what book your reading. If it’s a self-improvement or how-to book, it’s typically going to be the conclusion. Summarizing– not to just say summarizing, but summarizing the content of the book. After you read the last chapter, go back to the table of contents and select the most relevant chapters for your goals and only read those. So cover, back cover or inside jacket, everything up to and including the first chapter, and then the last chapter. You have a pretty good idea of what information is going to be in the book, and then going to the table of contents, you can pick out specifically what you want to read.

So maybe I got ahead of myself talking about our Best Ever Apartment Syndication book, because obviously, if you are just starting out, you should read the entire book, but if you’re already doing syndications and maybe you just need help on raising money or maybe you just need help on building a brand or maybe you already are really good at raising money and building a brand, but you just need help finding more deals… Well, if you simply go to the table of contents and it says How to find more deals, you read that book, review that chapter in one day and you’ve essentially gotten what your goal was out of that book in one day without having to read all 450+ pages. So really apply that to anything.

So that is Travis’ five-step technique for being able to read a book in a week, and depending on how specific your goal is, you should be able to read a few of these books in a day, and it’s 45 minutes to an hour. So maybe you spend your first interval reading the front cover, the inside jacket or back cover, the forward introduction and the first chapter, and that’s your first 15 minutes or 20 minutes, and then you take a break, and then on your next 15-minute interval, you read the last chapter in the book, and then go back to the table of contents and determine which chapters are the most important, and then at the end of the day, you read those irrelevant chapters, and then boom, the book is done and you can move on to the next book.

Now in his blog post, Travis says that the goal of using this technique is to extract a few key ideas, concepts or takeaways that you can implement in your life, because most people only really retain 10% of what they read anyways. So if you’re going to read a 100-page book, you’re likely only going to retain ten of those pages. That’s not exactly how it works, but you get the idea. Whereas this technique will allow you to retain information quicker and more efficiently and offers you the ability to go back later and skip directly to the most relevant information by using those bookmarks, notes and annotations. So again, if you’re struggling to read because you’re overwhelmed by how big the book is, this is a great way to pull out the important information that you need now, ignore the fluff that you don’t necessarily need to know right now, and then move on to a different book afterwards.

So definitely try this technique and let us know how it goes on our Facebook group. You can email me at theo@joefairless as well, and hopefully, you too can be like Travis and read 50 books per year or if you’re feeling very bold, you could be like Tony Robbins and read 100 books per year. I think following this strategy you could probably read 300+ books per year because you could probably go through one book per day as I mentioned earlier.

So that concludes this episode on speed reading. I hope you enjoyed it. Make sure you check out some of our other syndication school episodes and those free documents; those are available at syndicationschool.com. Thank you for listening and we’ll talk to you tomorrow.

Website disclaimer

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

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

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

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

Oral Disclaimer

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

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JF2143: COVID-19 June Rent Collections | Syndication School with Theo Hicks

Theo shares the rent collection data for June 2020. During COVID-19 the rent payments were actually the highest it has been since COVID-19 started. He shares some thoughts for you to think about to be better prepared for July rent collections.

Click here for more info on groundbreaker.co

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


TRANSCRIPTION

Joe Fairless: There needed to be a resource on apartment syndication that not only talked about each aspect of the syndication process, but how to actually do each of the things, and go into it in detail… And we thought “Hey, why not make it free, too?” That’s why we launched Syndication School.

Theo Hicks will go through a particular aspect of apartment syndication on today’s episode, and get into the details of how to do that particular thing. Enjoy this episode, and for more on apartment syndication and how to do things, go to apartmentsyndication.com, or to learn more about the Apartment Syndication School, go to syndicationschool.com, so you can listen to all the previous episodes.

 

Theo Hicks: Hello, Best Ever listeners and welcome to another episode of The Syndication School series – a free resource focused on the how-tos of apartment syndication. As always, I’m your host, Theo Hicks. Each week, we air two podcast episodes that focus on a specific aspect of the apartment syndication investment strategy, and for a lot of the episodes, we offer free resources, especially during our first part of these syndications school series where we went through the entire apartment syndication process from A to Z, from having no experience or knowledge of apartments syndications to selling your first deal. So make sure you go back and check out those episodes and check out those free documents, and then also some of the future episodes where we go back and go into more details on some of those steps. We’re also providing documents as well; all of that can be found at syndicationschool.com.

Today, I’m airing this in the beginning of July; you’re listening to this probably in the middle of July, so we’re going to go over the rent payment tracker. We’re going to go over the NMHC rent payment tracker, National Multifamily Housing Council, to see how the rent collected in June compares to May and April. And since we are into July, we can also take a look at the beginning of July. So we’ve got some good news and some maybe not so good news, and again, this payment tracker started back in April because that was the first full month of the Coronavirus.

So I think this will be the second or the third syndication school episode we’ve done. I believe I did one for May, and I might have done one for April; I’m not 100% sure, but if you want to get the actual data that I’m talking about, you can just google ‘rent payment tracker’, and then it’ll bring you to the NMHC rent payment tracker website. They essentially track the rent paid by the week ending on the 6th of the month, the 13th of the month, the 20th, the 27th and then the end of the month, so on weekly basis. So as of this recording, all of June data is in; obviously, all of April and May data is in, and then the data ending the week of July 6th is also in. So we’re focused mostly on June, and then at the end, we’ll also mention July, and then of course, next month around this time, we will be going over July’s data in full.

So first let’s go over what it was like last year in 2019. So for 2019, the rent collected for the total month actually goes down month over month. So April 2019, 97.7% of renters pay their rent and May, it went down slightly to 96.6%, and then in June, it went down to 96.0%. So traditionally, at least historically last year, it was about 96% each month, but gradually going down month over month.

Now let’s go into 2020. So April, which was the first full month of Coronavirus was 94.6%, so 3.1% lower than the previous year. So clearly, a pretty big impact from the Coronavirus. Now, again historically, from April to May and May to June, the rent collections is likely to go down, but since April was so low due to Coronavirus, it’s really hard to predict what’s going to happen. So in May, due in part to the stimulus package, the percentage of renters who paid their rent on time actually went up to 95.1%. So compared to April, that’s an increase of 0.5%, but still less than the rent collected in May 2019. So it was 1.5% less in May 2019, which we talked about and last month’s episode.

Now let’s go to June. So in June, the percentage of renters who paid rent on time was 95.9%. Up 0.8% for May and actually only down 0.1% from June 2019. So due to the stimulus package and due to things beginning to reopen in June – again, I’m sure there’s other factors as well – but people were able to pay their rent in a similar proportion compared to June. So obviously, that is great news. So you’ve got the same amount of people paying rent in June during the Coronavirus than the people who paid rent in June last year without the Coronavirus.

Now, obviously, this doesn’t mean that is going to continue to go up. If you’ve been paying attention in the news, it seems like they’re saying that there’s a second wave potentially coming. I’m not sure if places are actually closing down at the moment, but we do have some July data. So we have the week ending by the 6th. So just like April, May and June in 2019, the percentage of rent collected in July was less than June. I’m not sure why people are paying rent less in the summer; I’m sure that’d be an interesting thing to look into, but 79.7% of people had submitted rent by the 6th of the month in July 2019 as compared to 81.6% in June, 91.7% in May, in 92.9% in April.

Now going back to 2020, again, April was the lowest. It was much lower, it was actually still about 5% lower by the 6th, which is the same as it was for the entire month, and then for May it bumped up 2.2% from April, but still below May 2019, and then June was actually more than 1.1% below June 2019. It was actually almost 1% lower, but it seems like people are paying by the end of the month, probably at least in part, rent payment programs that say, “Hey, you can pay rent by the end of the month. You don’t need to pay it on time; as long as you pay it by the end of the month, we’re okay with it.”

Now July, by the 6th, only 77.4% of people have paid their rent by the 6th, which is less than the percentage of people who paid their rent by the 6th in June, in May and in April. So it’s been the lowest since the outbreak of the coronavirus pandemic. So every single time they update the data on NMHC, they input a statement, a quote from the president who’s talking about why he believes that it is tracking in this way. So I’m just gonna go ahead and read that to here to you. So it says, “The National Multifamily Housing Council, NMHC rent payment tracker found 77.4% of apartment households made a full or partial rent payment by July 6th in a survey of 11.4 million units of professionally managed apartment units across the country. This is a 2.3 percentage point decrease from the share who paid rent for July 6th, 2019”, as I mentioned, which was 79.7%. So 79.7% minus 77.4% is where they’re getting that 2.3% from, and compares to 80.8% that paid by June 6th, which is a 3.4% decrease. “This data encompasses a wide variety of rental properties across the US which can vary by size, type, and average rental price.” So obviously, some people are collecting a lot less than this and some people are collecting a lot more than this. This is just an average.

So here’s where the quote from the NMHC president comes in. He says, “It is clear that state and federal unemployment assistant benefits have served as a lifeline for renters, making it possible for them to pay their rent. Unfortunately, there is a looming July 31st deadline when that aid ends. Without an extension or a direct renter assistance program, the NMHC has been calling for since the start of the epidemic, the US could be headed toward historic dislocations of renters and business failures among apartment firms, exacerbating both unemployment and homelessness.”

Now, it sounds scary, but there are talks of an additional stimulus package, additional direct payments for the American population, which is what they’re referring to here. I think the July 31st deadline might be the PPP program he’s referring to, but it does seem like another stimulus package is on the horizon. Obviously, it’s only July 9th, so it’s still too early to tell what’s going to happen by the end of the month; things seem to be happening pretty quickly. At least the stimulus package happened pretty quickly last time. So hopefully, that alleviates this problem, but it’s just something to keep in mind, that we’ve done previous episodes on syndication school, we’ve done previous blog posts on syndication schools on how to approach this coronavirus pandemic with your residents, and really, probably the most important thing that I’ve learned from interviewing people on the podcast is having conversations with your residents, understanding if they have the ability to pay rent or not, and understanding if they do have the ability to pay rent, where that money is coming from, and if it’s something that they’re going to be able to continue to do in the future. So it’s better to have those conversations today in the beginning of July, than wait until the end of July or into August and realize that your residents aren’t paying rent.

So I think the number one takeaway I’ve gotten is to have a conversation with your renters to see what they’re capable of doing, and then come into some agreement at best, but at the very least, you have an understanding and you know what they are capable of, and so you can plan ahead to know what to expect in August, and if you need to cut any expenses or cut any projects you have so that you have enough cash to hold you over for August or any of the future months. But again, all of this could be alleviated by another federal package.

So overall, make sure you’re staying up to date on what the federal government is doing, what your state is doing, what your city is doing, and then have that conversation with your residents to understand what they’re capable of doing.

So that concludes this episode. As I mentioned, we will likely do, at the latest, another update on the rent payment tracker the same time next month. But again, this data is released every single week, so I might briefly mention it at the beginning of syndication school every week; we’ll see. It just depends on if the data is drastically different than what it has been.

So until tomorrow, make sure you check out those syndication school series episodes I talked about in the beginning of the show, as well as download some of those free documents. All of that is available at syndicationschool.com. Thanks for listening. Have a best ever day and I’ll talk to you tomorrow.

Website disclaimer

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

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

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

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

Oral Disclaimer

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

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JF2137: The Two Types of General Partner Catch Ups | Syndication School with Theo Hicks

In today’s Syndication School episode, Theo Hicks will be teaching you the two different types of General Partner Catch Ups. 

Click here for more info on groundbreaker.co

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


TRANSCRIPTION

Joe Fairless: There needed to be a resource on apartment syndication that not only talked about each aspect of the syndication process, but how to actually do each of the things, and go into it in detail… And we thought “Hey, why not make it free, too?” That’s why we launched Syndication School.

Theo Hicks will go through a particular aspect of apartment syndication on today’s episode, and get into the details of how to do that particular thing. Enjoy this episode, and for more on apartment syndication and how to do things, go to apartmentsyndication.com, or to learn more about the Apartment Syndication School, go to syndicationschool.com, so you can listen to all the previous episodes.

Theo Hicks: Hello, Best Ever listeners and welcome to another episode of The Syndication School series – a free resource focused on the how-to’s of apartment syndication. As always, I’m your host, Theo Hicks. Each week, we air two podcast episodes that focus on a specific aspect of the apartment syndication investment strategy, and for a lot of these episodes, we offer some free resource. These are free PDF how-to guides, free PowerPoint presentation templates, free Excel calculator templates, something to help you along your apartment syndication journey. All these free documents, all of these past free Syndication School series are available at syndicationschool.com.

Today, we’re going to talk about how you, as a general partner, make money in apartment syndications. More specifically, we are going to talk about the GP catch-up. We’re gonna talk about everything you know about the GP catch-up. So the general partner catch-up is a distribution that goes to the general partner such that they have received their full portion of the deal’s profits.

So this GP catch-up is only going to be relevant when the compensation structure of the partnership between you, the GP, and your investors, the LPs, includes an overall profit split. So let’s say, for example, that you have a structure such that the LPs are offered a 7% preferred return, and then the profit split is 70% to the LP and 30% to the GP. Well, at the conclusion of the partnership, which means once everything’s said and done and you’ve had all of your cash flow, the property’s sold, all the money’s been distributed, at this point, then 70% of the total profits, again, ongoing cash flow and profits from sale, must have gone to the LP, and 30% of those profits must have gone to the GPs. So the catch-up will happen when there is a preferred return, which means that the LPs are receiving 100% of the first portion of the profits, and the GP catch-up will offset– allow the GP to catch up to their 30% portion at this point depending on the structure. Maybe the LPs have gotten 80%, 90%, 95% of the profits because of that preferred return. So we’re gonna go over some examples, but that’s overall what the GP catch-up is.

Now, there’s going to be two main types of GP catch-ups. So the one that is the most common is going to be the GP catch-up at sale, and the other one, which is a little bit less common, but you can still do, is going to be an ongoing GP catch-up. Now as we’ll see in our example, the advantage of the ongoing GP catch-up is that the GPs can receive distributions immediately, or at the very least, higher distributions immediately, rather than having to wait to receive the biggest distribution at sale. So whatever GP catch-up you decide to use, you’re gonna want to make sure that it’s properly defined in your waterfall that’s in the PPM, which explains how available cash is distributed and how cash at capital events are distributed. So we’re gonna go over examples for those two GP catch-ups.

I’m gonna try my best to have all this make sense by going over an actual example of numbers, but it might be easier if you have this blog post open that says “Everything You Need To Know About The GP Catch-up.” So if you’re listening to this on July 9th or later, then this blog is on the website which is called joefairless.com, or you can Google it. You can just type in ‘everything you need to know about the GP catch-up’ and all these data tables with an example cash flows that I mentioned in this episode will be there. But I’ll say it slowly; that way, it should make sense without having to see the actual blog post.

So for both GP catch-ups examples, we’re going to assume a 7% preferred return and a 70-30 profit split. We’re going to assume that the limited partners, in total, invested $1 million, and then the year one through five cash flow is going to be $71,000, $77,000 year two, $84000 year three, $93,000 year four, and $130,000 year five. You don’t need to memorize those ones for now, but just memorize 7% pref, 70-30 split, $1 million investment, and then the assumption after the $1 million in equity is returned at the sale, the remaining profits to be split is $1.5 million. So how would the cash be distributed to the LP and the GP if there was only a GP catch-up at sale? So when there is a GP catch-up at sale, the way that the waterfall works is that LPs receive their preferred return first, and then any profits above the preferred return are split 70-30, and then at sale, the LP receives their equity back. But before the remaining profits, that $1.5 million, is split 70-30, the GP will receive a catch-up distribution until they have received 30% of the cumulative cash flow up to this point.

So based off of that waterfall, in this blog post, there’s a breakdown of the cash flow to the LPs and GP. So year one, again, the total cash flow is $71,000, the preferred return amount for that 7% off of a million dollars is always gonna be 70 grand. So of that $71,000, the LP get $70,000. There’s $1,000 left; so 70% of that or $700 goes to the LP bringing their total year one cash flow to $70,700 and the GP gets 300 bucks, and the same thing happens in year two. So in year two, total cash flow is $77,000. So the first $70,000 goes to the LP as a preferred return, the remaining $7,000 is split 70-30, which is $4,900 to the LP, bringing their total year two to $74,920, and then $21,000 goes to the GP, and then same thing year three, same thing year four, same thing year five. So year five, for example, is $130,000; the first 70 grand goes to the LP and then the remaining $60,000 is split between the LP.

So the LP gets $42,000 bringing the total to $112,000 for the year and the GP gets $18,000. Now based off of the total year five cash flow to the LP and the GP, is $423,500 to the LP and $31,500 to the GP, and the total cash flow is $455,000. So based off of the LP’s portion of those profits, they’ve received 93.08% of the profits and the GPs have received 6.92% of the profits. Therefore at sale, the first portion of the $1.5 million goes directly to the GP until that allocation is 70-30.

Now in order to calculate that, you want to do a formula. So the formula is 70 over 30 – so 70 over 30 is the profit split – equals the $423,500, which is the LP divided by x – we’re solving for x – plus $31,500. So what we’re saying is that we want to force that $423,500 to be 70%, and they want to force the GPs receive 30%. They’ve already seen $31,500. So we’re solving for x, and so when you do the formula – and this is just using algebra – x equals $150,000. So the first portion of the $1.5 million goes to the GP as the catch-up and that amount is $150,000. When you add that to the $31,500 you already received, that brings our total to $181,500. LPs still received the same $423,500. So that ratio is at 70-30, so the 70-30 split is achieved.

So for that formula, if that didn’t make sense, you’re gonna want to check out that blog post. It’s whatever the LP profit split is divided by the GP profit split equals whatever the LP have received so far, divided by x, plus whatever the GP has received so far, and when you solve for x, that is what the GP catch-up is going to be at a sale. So at this point, now that $150,000 has been removed from the $1.5 million, you’re at $1.35 million that’s left to be split, and now since the overall split is at 70-30, now you can split this 70-30 which equates to $945,000 to the LP and $405,000 to the GP. That way, we need to do the updated cash flow model; year one, two, three, four to remain the same; year five, you add in the profits at sale, and you have a total cash flow of $1.955 million with 70% or $1.3685 million going to the LP, and then $586,500 going to the GP, but again, which is 70-30. So that’s the first one.

The second one is going to be the ongoing GP catch-up. So for this waterfall, the LPs still received their preferred return first. However, before the remaining profits are split 70-30, the GP is going to receive their catch-up distribution, and this distribution is going to be equivalent to, in this case, 70-30 split. So you calculate this catch-up distribution similar-ish to how you calculated the catch-up distribution at sale. So you’re gonna want to solve for x again. So this time, it’s going to be the profit split to the LP divided by the profit split to the GP equals the preferred return to the LP divided by x. So in this case, it’ll be 70 over 30 equals 7, which is the preferred term, over x and we solve for x. This one’s pretty simple because it’s 70-30, 7-3. But if it’s an 8% preferred return or a 10% preferred return, the calculation wouldn’t be as simple. So what that means is that the GP receives a 3% return based on the total LP equity investment.

So the waterfall is 7% preferred return to the LP, 3% preferred return to the GP, 70-30 split thereafter. Any unpaid GP catch-up is accrued and paid out when possible. So what that means here is that since you got a million-dollar investment, 7% that is $70,000, which that’s the annual distribution to the LP, and then 3% of a million is gonna be $30,000. That’s what’s annually owed to the GP, which means that in order to pay out both preferred returns, in a sense, the deal is a cash flow, a $100,000.  Remember, in our sample deal, it does not cash flow $100,000 until year five, which means that year one, year two, year three, year four will have an accrued GP catch-up which won’t get paid out until sale. So in year one, the cash flow is $71,000. The LP receives their $70,000 and the GP receives the remaining $1,000, but since they’re owed $30,000, the extra $29,000 accrues. Now in year two, the cash flow is $77,000, which means that the LP receives their 70 grand and the GP receives $7,000. However, since they’re owed $30,000, that extra $23,000 is accrued, and that is in addition to the $29,000 that was owed previously, which means the total accrual is $52,000. So you follow the same logic. At the end of year five, the cash flow is $130,000, which means LP gets $70,000 and the GP finally gets their full $30,000. Now there’s $30,000 that is left over, but this does not get split 70-30 because the GP is still owed their preferred return that accrued during years one through four.

So that full $30,000 goes to the GP and that will pay down their accrued amount by year four. Based off of the sample numbers the total accrual was $75,000, so the GP is now only owed $45,000. So in year five, the LP is receiving $70,000 and the GP is receiving $60,000; so very close. Every single year, since this deal did not exceed the combined distributions owed to both LPs and GPs, the LPs receive $70,000 every single year. Now at sale, after the LP equity is returned, the next step in the waterfall is to pay out the accrued amount owed to the GP which is a $45,000. Then the remaining $1.455 million is split 70-30. This is $1,018,500 to the LP and $436,500 to the GP. Now, just because the LP only received a $70,000 each year ongoing, because of that, they received a much larger distribution at sale.

What you’ll find is that the total distribution to the LP and GPs are the exact same for the ongoing catch-up or the catch-up at sale because the split is still 70-30. The only difference is how that money is distributed. So since the GP catch-up at sale allows the LP to make more money faster compared to the ongoing GP catch-up, the cash on cash returns are obviously going to be the same, but the IRRs are going to be a little bit different. So for this specific example, it’s not that big of a difference. The IRR for the catch-up at sale is 7.39 and the ongoing IRR is 7.32. So not that big of a difference, but there’s still a difference in the IRR. But overall, the GP catch-up at sale is gonna be a lot better for the LPs and the ongoing GP catch-up is going to be much better for the GPs. Even though at the end, the LPs and the GPs make the exact same.

So keep in mind that the views and opinions expressed in this document that you can look out for the data table as well as this episode are for informational purposes only and should not be construed as an offer to buy or sell any securities or consider any investment or course of action. I’m just here to tell you how the GP catch-ups work. So that concludes this episode. Again, that blog post with the data tables is everything you need to know about the GP catch-up. So definitely check that out. Check out some of our other syndication school episodes, as well as the free documents we have available. Those are available at syndicationschool.com. Thank you for listening. Have a best ever day and I’ll talk to you tomorrow.

Website disclaimer

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

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

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

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

Oral Disclaimer

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

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JF2136: Syndication With Family Offices | Syndication School with Theo Hicks

Theo Hicks will be sharing with you other ideas to help raise money from institutions and more specifically family offices. Typically you will raise money through family, closest friends, and outside investors, but through the time you will need to branch out and raise money to outside individuals. Theo shares different ways you will be able to go about this in the future when you are looking to raise money with institutions. 

Click here for more info on groundbreaker.co

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


TRANSCRIPTION

Joe Fairless: There needed to be a resource on apartment syndication that not only talked about each aspect of the syndication process, but how to actually do each of the things, and go into it in detail… And we thought “Hey, why not make it free, too?” That’s why we launched Syndication School.

Theo Hicks will go through a particular aspect of apartment syndication on today’s episode, and get into the details of how to do that particular thing. Enjoy this episode, and for more on apartment syndication and how to do things, go to apartmentsyndication.com, or to learn more about the Apartment Syndication School, go to syndicationschool.com, so you can listen to all the previous episodes.

Theo Hicks: Hello, Best Ever listeners. Welcome to another episode of The Syndication School series – a free resource focused on the how-to’s of apartment syndication. As always, I am your host, Theo Hicks. Each week, we air two podcast episodes that focus on a specific aspect of the apartment syndication investment strategy, and for a lot of these episodes, we offer free resources. These are free PDF how-to guides, free Excel template calculators, free PowerPoint templates; these are all free resources that will help you along your apartment syndication journey. These free documents, as well as past syndication school series episodes are available at syndicationschool.com.

Today, we are going to talk about raising money. More specifically, we are going to talk about a more advanced money-raising strategy, which is raising money from institutions and more specifically, raising money from family offices in order to buy your apartments.

So the typical progression for raising money for apartments goes like this – for your first deal, 99 times out of 100, every single one of your investors is going to be a combination of family and your closest friends. So people you’ve known for years, people who trust you as a person, those are gonna be the ones that invest in your first deal. Maybe those are the people that invest in your second deal or your third deal, but eventually, you’ll get to a point where you will continue to raise money from those family and closest friends, but people who are less familiar with; maybe you’ve known only for a few years, or six months, will begin to invest in your deals. So these could be friends that are a little bit less close, these could be work colleagues, these could be people you’ve met through your journeys to meetup groups and conferences, these could be people you met at volunteering. We got some blog posts and syndication episodes about how volunteering is a great way to attract investors. Essentially, you’d raise money from more people, but that aren’t necessarily people you’ve known for decades.

And then eventually, you might decide after you’ve built up a strong enough track record, then next, you will start to raise money from referrals. So those are people who are connected to close family, close friends, then there’s less close friends, work colleagues, things like that. So then you start to get more investors coming in through referrals, and of course, the best way to increase quickly the number of investors you have is through word of mouth referrals, because you’ve already got that social validation factor in play.

Then eventually, you may decide that you are going to transition from doing the 506(b) or you need to know everyone that invests to 506(c); that way you can advertise your deals to a larger audience. Now, the common thread between those four steps in the progression is that you’re still raising money from individual investors or jointly couples, so one or two people at most. So family, friends, work colleagues, referrals. Even through advertising, so you’re raising money from individuals.

Now, the next step in the progression, that not everyone necessarily gets to, is to raise money from private institutions, and one of the most popular private institutions that you’ll find that people are raising money from are family offices. So family offices are private wealth management advisory firms that serve ultra-high net worth investors. They are different from your traditional wealth management shops, in that they offer a total outsource solution to managing the financial and investment side of an affluent individual or family.

So essentially these are– think of when you go to a bank – PNC, for example, is my bank – and they’ve got the personal finance person there who you’ll talk to, they’ll help you set up your bank account, maybe they’ll help you with some other programs for people who have a little bit more money, maybe six figures in their bank account, but typically you’re only meeting with them, I don’t know, maybe once a year, and they’re pulling together a bunch of money to invest in something that gives you a little bit better of a return, but they’re working on behalf of hundreds of people, most likely thousands of people.

The difference with the family office is that they are working full-time for one family. So imagine if you had an entire PNC Bank working on your behalf, that is what a family office is. So family offices can be a great source of equity for advanced apartment syndicators. So you connect with a family office and they will use some of the ultra-high net worth of their family to invest in your apartment syndication deals.

Now, I actually interviewed someone, his name’s Seth Wilson, on the podcast which is not going to air until September. So you’re gonna get a sneak preview at some of Seth’s tips for raising money from family offices because that’s what he does for his company. So he gave us five things that you need to do in order to maximize your chances at attracting family offices.

So the first one is that you need to have relevant experience. So before you even consider raising money from a family office, you need to have experience. So if you’ve never done an apartment deal before or you’ve never done a large apartment in the past, a family office isn’t gonna take you seriously. Even if you’ve done a handful of large apartment deals in the past, maybe you’ve been actively doing syndications for a few years, a family office still likely is not going to take you serious. So when I talked to Seth, he said it took him 12 years and $65 million worth of real estate in order to begin raising money from family offices. So this is an advanced money-raising strategy.

We talked about the progression in the beginning. You’re going to need to do a lot of successful deals and have them be successful over a long period of time before a family office entrust you with their capital. So if you want to raise money from family offices, then your first step is to have years of experience successfully buying, managing and selling apartment buildings.

Next is that you must be an expert as well. So if you meet the experience requirement, you likely meet the expert requirement as well, but you need to be educated on the process. So the reason why you need the relevant experience and you need to be an expert on a par with syndication — so there’s two reasons. The first one is that these family offices are entrusted by an individual or a family to invest on their behalf, and then more importantly, preserve, conserve their net worth. So this individual or their family did a lot of due diligence on the family office prior to using their services, if not creating one from scratch, and then the family office themselves did a lot of due diligence before hiring their employees. So the family hires a family office with a ton of experience managing family wealth. The family office, in turn, hires a bunch of individual employees who have a lot of experience at family offices that have experience managing family wealth. So you are with the third person in the chain who is also going to have a lot of due diligence done on you and your business. So if you don’t have experience, then you’re not even gonna get in the door. If you don’t have the education to get you in the door, you’re not going to be able to win them over.

Secondly, and because of reason number one, the individual or families themselves depending on– we’ll get to that in a little bit later, because sometimes these offices are set up a little differently. So the family office or the actual family or individual are going to be most likely more sophisticated than the people you’re used to raising money from. They’re gonna be more sophisticated than your parents or your siblings who are investing in your deal, your good friends and other people you’re raising money from. Not all, but it’s likely that they’re going to be a lot more sophisticated. So they’re gonna ask you a lot more complex and detailed questions about both you and your business plan. So when you’re an expert that you’re able to hold your ground when these questions are asked, which means that they must have confidence in your ability to conserve and grow their clients’ investment. So if able to answer all their questions and you check all their boxes, then you should be good to go.

So what happens when you are good to go? What happens when you have the experience and you have the expert? So there’s really three things you need to do to, in a sense, court family offices. The first one is or number three in this episode is that you need to put together the right look. So Seth says that whether you like it or not, whether you agree with it or not, in this industry, a book, you, are going to be judged by your cover, how you actually look. So a family office is likely not going to invest in your deals, thus seeing you in person or as you might have a lot of investors now or in the future who have never seen you invest. Therefore, you need to understand what the proper attire is going to be when you go to these business meetings, and there’s not going to be a one size fits all approach.

So this is what Seth was saying – that the acceptable attire when visiting a family office based out of Denver is going to be a lot different than the one in Manhattan. So he said that in Denver, it’s a little more casual, people are wearing Patagonia type of clothing. So if you go in there with a three-piece tuxedo, probably not gonna go over very well. Whereas in Manhattan, at the very least, you need to wear a full suit with a tie. So Seth says the best way to learn the dress code is by asking. So if you have a meeting with a family office in Denver or a family office in Manhattan or somewhere else, give them a call, speak with the receptionist and ask them what the dress code is, and once you know the dress code is, dress with one notch higher.

So once you’ve got the look down, the next part is to know who to speak with at the family office. So how do you get in contact with a family office? Speaking with the right person is going to maximize your chances of success. So if you’re reaching out to a family office who manages the wealth of a second-generation or later families– so this means that the wealth created by the parents or the grandparents, the great grandparents, but the family office is working on behalf of the kids or the grandkids or the great grandkids. So the person that the family office is representing is not the person or the generation that made the actual wealth, and the best person to speak to there would be the Chief Investment Officer.

So most of these established family offices will have an investment committee who must sign off on all investments and a Chief Investment Officer is someone who sits on that committee. So be able to win over the Chief Investment Officer, you will have them on your side, you will have your inside person to argue your case on your behalf. Then if you’re reaching out to family offices who manage wealth for a first-generation family, which means they’re managing the wealth for the actual person or generation that created the wealth and that person individual’s still alive, then the best approach would be to speak to the actual patriarch or matriarch of that family, because since they are the ones that made the money, they’re likely going to be heavily involved in the investment decisions.

So once you know who to speak to, once you dress right, once you talk to them, step five, which is really the tip for anything that you do, which is to take massive action. So like all things in real estate, raising money from family offices requires lots and lots of action. So Seth recommends having at least one to two great phone calls with family offices every single day, and then use resources that you already have to add value and take care of them. Focus on building a business relationship as well as a personal relationship. For example, if you come across something that you think they would personally be interested in, like some news article that you can text that to them. You also want to make sure you are physically meeting them in person, which we’ve already mentioned. So Seth says that he has no issue flying out in the morning, having an hour or so meeting with a single-family office in the afternoon and then flying home in the evening.

So once you’ve got your foot in the door, you have to stay in front of them. You don’t want to be constantly calling them for business-related things, you want to constantly be reaching out to them, sending them stuff that’s valuable to them personally, and then you have to also fly out there, drive out to the actual physical location and meet with them in person.

So those are the five tips. Again, raising money from a family office is a really good way to take your apartment syndication business to the next level to double the amount of money you’re raising, but it’s a strategy that takes time to work up to. As I mentioned, you need to first establish a relevant experience and expertise before making the jump from family and friends to family offices, and once you have that track record, then you need to make sure you know how to dress the part, you know who to speak with, and that you take massive action. So that concludes this episode. As I mentioned, Seth’s episode airs September; the exact date is September 16th. So definitely check that out. Plus, you could go to his website that he lists out. I think he lists out his website. Maybe he lets out his email, I’m not sure. But however he says to get in touch with him, you can learn a lot more about how to raise money from family offices.

So that concludes this episode. Make sure you check out some of our other syndication school episodes, as well as the free documents that we have. Those are available at syndicationschool.com. Thank you for listening. Have a best ever day and we’ll talk to you tomorrow.

Website disclaimer

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

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

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

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

Oral Disclaimer

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

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JF2130: 6 Tips For Hiring A Syndicator Mentor | Syndication School with Theo Hicks

Many people preach, find a mentor to show you the way into real estate so you can shorten your learning curve however, how do you know who you should really choose as a mentor? In this episode, Theo goes over 6 tips to help you in hiring an apartment syndicator mentor. 

Click here for more info on groundbreaker.co

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


TRANSCRIPTION

Joe Fairless: There needed to be a resource on apartment syndication that not only talked about each aspect of the syndication process, but how to actually do each of the things, and go into it in detail… And we thought “Hey, why not make it free, too?” That’s why we launched Syndication School.

Theo Hicks will go through a particular aspect of apartment syndication on today’s episode, and get into the details of how to do that particular thing. Enjoy this episode, and for more on apartment syndication and how to do things, go to apartmentsyndication.com, or to learn more about the Apartment Syndication School, go to syndicationschool.com, so you can listen to all the previous episodes.

Theo Hicks: Hi, Best Ever listeners. Welcome to another episode of The Syndication School series – a free resource focused on the How-tos of apartment syndication. As always, I am your host, Theo Hicks. Each week, we air two podcast episodes that focus on a specific aspect of the apartment syndication investment strategy, and for a lot of these episodes, we offer free resources. These are free PowerPoint presentation templates, free PDF how-to guides, free Excel calculator templates, some sort of resource, some document for you to download for free. All these free documents as well as past syndication school series episodes can be found at syndicationschool.com.

In this episode, I want to revisit a topic we’ve talked about before, but it’s always good, I think, to bring up topics we haven’t talked about for many years, just in case people did not listen to that episode, but also to expand, to elaborate, to look at it through a new lens, because everyone that’s listening to this is growing, I’m growing as well. So it’s always great to revisit old topics to see if there’s extra information, extra value that we can add.

So I wanted to talk about mentorship today, and what triggered this was a great article that someone on the Ashcroft team, Travis Watts, wrote. So it’s on our blog right now; it’s called, Turn a Decade Into a Year – How to “Knowledge Hack”. So his hack was to consider having a mentor. So in this article, he goes over a few examples of people who are super successful and have mentors, and he also says to refer to them as a coach as well, just in case you have a negative connotation for a mentor. Think of it more like a coach like when you’re playing basketball. Sure, the head coach is maybe a mentor, but the purpose of that basketball coach is he’s way older than you, he has way more experience at basketball than you, so he’s trying to teach you what he knows, his knowledge to help you become a better player. So I think this analogy of a basketball coach is good to be applied to business and real estate. Look at a mentor as a coach instead, and realize that they are there to literally teach you what they know, what they’ve done and the successes that they’ve had.

But anyway, so he goes over a quick story of himself and says that at the beginning of his real estate investing career, he was an active investor, he was doing single-family homes, and he did not have a mentor at the time. And eventually, after trial and error of seven years, he realized that there’s other people out there who were doing the same thing he was doing, but a lot more efficiently. They had a lot more connections that he had, they were finding better deals, they had a broader range of skill sets, and ultimately, they were more profitable than he was.

So he did some soul searching, some self-reflection and took a long hard look in the mirror and asked himself, “Was active investing really the best use of his time and his skills?” and so because of this, he made a decision to start partnering up with firms who had much better skill sets than he did, had a much better track record, much better connections and much better efficiencies, and essentially piggybacked off of their success by, in this case, becoming a limited partner. So he transitioned from doing active investing to doing passive investing, because it fit better with his skill set with what he wanted to do.

He said, “After dedicating some time to networking, reading, listening to podcasts, watching how-to videos and seeking mentors, I inevitably became a full-time passive investor in real estate. I left the active single family strategy, behind because I was tired and burned out from trying to do it all myself, trying to make the right calls and know all the ends and outs. In addition, the hands-on approach was taking too much time away from things that I love doing. I had far less spare time because my real estate projects were consuming more and more of my availability. 2015 was the beginning of an entirely new education process; it has been life-changing, to say the least.” So his was major takeaway was that “Mentors can come in many forms. The best advice I ever received was to seek out a mentor or coach who is doing what you want to do and is successful at doing it… Because success leaves clues.”

So in his case, rather than finding someone who was good at single-family homes, he first asked himself should he be doing this in the first place, and once he decided the answer was no, rather than trying to passively invest on his own, he partnered with people who knew what they were doing, he partnered with syndication business that knew what they were doing and passively invested with them. So they, in a sense, were not really his mentor or his coach, but they were the people that he piggybacked off of to launch his business forward.

So that’s what you can do when you’re an apartment syndicator to launch your business forward, to piggyback off someone else’s success – is to find a mentor. So Travis inspired me to go back and review our post. We did a syndication school episode on this before about how to hire a mentor. So now that Travis tells you why you need a mentor, how it can help you turn a decade into a year, how to knowledge hack just by finding someone who’s doing what you’re doing, let’s talk about how to actually find a mentor.

So before we decide to find a mentor, and Travis did this as well, he sat back and asked himself, “Okay, what is it that I actually want to do?” and he defined specifically what he wanted out of a mentor; he knew exactly what he wanted out of a mentor. So that’s what you need to do when you hire a mentor, is know exactly what you want. But before that, it’s important to understand what expectations do you have for a mentor, and then what expectations you shouldn’t have of a mentor if you really want to set yourself up for success. So Travis already went over what you want to get out of a mentor, but the expectations are key here because coaches can be expensive, you’re gonna spend a lot of time searching them out, so just make sure that you’re in the right mindset before you reach out to a mentor, so you’re not wasting their time, and you’re not wasting your time spinning your wheels for multiple years; and to make sure you’re actually finding and identifying the right mentor. That’s probably the most important, is making sure that you have the right expectations that you’re finding the right mentor.

So there’s four things that you should expect that you are going to get out of a good mentor or a good coach, and the number one is going to be expertise on how to do what you’re wanting to do. The keyword there being “how” which we’ll go into in the next tip.

So the mentors shouldn’t just be and have experience in the same field that you’re pursuing, but they should be active in it as well. So if you are an apartment syndicator or an inspiring apartment syndicator, when you’re seeking out a mentor, obviously, you want to seek out someone who is an apartment syndicator, but you also want to make sure that that person is actually actively still doing apartment syndications. So the best mentor would be someone who is actively doing apartment syndications and has way more deals, way more dollars under management. So the next best thing will be someone who has done apartment syndications in the past that has retired, but again, someone who’s actively doing it is going to be completely up to date on what works, what doesn’t work in apartments syndications. Someone who did apartment syndications– I don’t think they even existed decades ago, but someone who did apartment syndications ten years ago or five years ago – those strategies may not work in today’s market. Things change so quickly these days. You want someone who’s actively doing it, and you want someone who’s obviously way more successful than you are. So not someone who’s done only a handful of deals. So that’s the ideal situation. Obviously, if you have to find someone who is not as successful right now, not a billion-dollar syndicator because you can’t afford it, a mentor is better than no mentor, but this is the ideal situation we’re talking about here.

So number two, is that you should expect a coach or mentor to provide you with a Do It Yourself system for how to replicate their success. Remember, in number one, you need an expertise and a how to do what you’re wanting to do. The “how” there is key and the Do It Yourself system is key. So you should have a system of processes that they follow themselves, and then they should hand it off to you, and then you use those processes to replicate their success, but you are the one that’s doing everything. They’re not doing it; they’re just giving you the blueprint that allows you to navigate this industry without taking any wrong term and falling into any booby traps, but you actually have go out there and do it yourself. I’ll elaborate on that one a little bit more in the next section about what you shouldn’t expect.

So thirdly, and what’s probably the most important, is that a mentor or a coach should be an ally that you can call upon to talk to about yourself and to work out any problem you are facing, whether it be real estate or personal. So the only way this is gonna work is if you pay them. So if you are paying this person, then you are not going to get feel guilty or selfish about only talking about yourself and not asking them any questions. In typical social interactions, I talk and then you talk, and then I talk and then you talk. Maybe on one day, I talk about a problem I have going on; the next day, you talk about problems you’ve got going on in your life; it’s reciprocal. But in this case, since you’re paying them, you don’t have to follow normal social conventions. You can even be selfish; you don’t even need to be interesting. You can talk about whatever you want to, whatever you need to in that moment. So that’s something you should expect out of the mentor in that a mentor or coach should be willing to offer to you.

So I was [unintelligible [00:13:00].20]  this podcast won’t come out for a long time. I can’t even remember what her name was, but she’s a coach, and she was saying that most people she talks to that there’s things holding them back, those obstacles aren’t a lack of real estate knowledge, or a lack of deals, or a lack of raising money. It’s typically some personal problem they’re going through, some mindset block. Maybe they’ve got family issues or other personal problems. Maybe they got certain mindset blocks. So being able to talk through personal problems you got going on in your life, being able to uncover certain mindset blocks that you have is important with a mentor. So you want to find someone that you can talk to about more things than just “Hey, how do I find more deals?” Because maybe you have some sort of block or maybe you’ve got a personal issue that’s taking up a lot of time that’s not allowing you to spend the time you need to actually follow the steps for finding more deals. So number three, it should be somebody you can talk to you about anything.

The fourth thing you should expect – and Travis talks about this in his blog post – is networking, relationships and connections. So this is another reason why it’s important that your mentor is active, because if they’re still doing apartment syndications, if they have a billion-dollar portfolio or a $100 million dollar portfolio or even a $50 million portfolio, they know property management companies, they know brokers, they know contractors, they know mortgage brokers, they know all the movers and shakers in that industry. So they should be able to connect you with people who are relevant to your business, even if they’re not in your same real estate market… Because we live in a national– even from a real estate perspective, it’s very national now because people invest everywhere. A lot of these brokerages, a lot of these property management companies are all over the country. So just because your mentor is across the country from you, it doesn’t mean that they don’t know someone who knows someone that could help you in your market, or the very least, you can always fall back on that Do It Yourself blueprint for how to find the right people in your market based on how they found the people they know in their market.

So those are the four things that you should expect, that you want out of a mentor. Number one is expertise on what you’re wanting to do, which includes being active. Number two is providing you with a blueprint, a Do It Yourself system to replicate the success. Number three is someone you can call upon to talk about whatever you want, without having to be interesting, feel guilty or not want to be selfish, and number four is you should expect a lot of relationships and connections.

Now, on the flip side, what shouldn’t you expect? Obviously, you could just say, “Well, the exact opposite of those four things,” but there’s two things in addition to the opposite of those four things – so someone who’s not an expert, someone who doesn’t give you a blueprint, someone who doesn’t let you talk about whatever you want and someone who doesn’t have any connections. Obviously, those are things that you don’t want out of a mentor, but there’s two other things that you don’t want out of a mentor and that you shouldn’t expect out of a mentor. Number one is a knight in shining armor. The mentor is not going to be your Savior. You’re not going to hire a mentor, and then poof, every single problem you have is going to be solved without effort on your end. So yes, they’re going to offer you expertise, they’re going to be an ally, they’re gonna have connections, but at the end of the day, you are still going to be required to take action. So they’re not gonna do anything for you. They’re not gonna actually go out there and find new deals; they’re not gonna find you money. If they do, then our recommendation would be to run. I’ll go more in detail on why in the second thing you shouldn’t expect, but they’re not going to do everything for you. Instead, they’re gonna give you the tools that you need in order to become your own savior, quite frankly.

So the second thing that you do not want to expect is a Done For You program. So if a mentor does offer you some Done For You program, you pay them and you just sit back and they do everything for you, you want to run. If a mentor or coach ever promises you something that doesn’t require any work or effort on your part and just money, then it’s most likely going to be a scam, and even if it’s not a scam, you’re not gonna learn anything. So you’re gonna be reliant on that person for the rest of your life, and you’re not going to be able to build the foundation of knowledge that’s required to sustain a business. Even if you are able to attain a high level of success using one of these programs, it’s going to be really unstable. Once you lose that program, once that mentor stops mentoring people, stops coaching people, then what are you going to do? You’ve got this $10 million portfolio that you’ve done nothing to create and then you lose your mentor. What’s going to happen? What’s gonna happen when you can’t get your mentor on the phone and some issue goes wrong? He goes on a week vacation and your entire business collapses. So any Done For You program is too risky from a scam perspective. Even if, for some reason, it is not a scam, it’s too risky in a sustainable perspective. So those are the two things that you do not want out of a mentor. Number one, a knight in shining armor and two, a Done For You program.

So now that you know what to expect, what to not expect, what you want and don’t want out of a mentor… When do you hire a mentor? I briefly talked about this in the beginning of the episode, or I guess after I talked about Travis’s blog post. And Travis also mentioned this in his blog post – you can hire a mentor once you know why you want to hire a mentor in the first place. You have a specific outcome that you want to achieve by hiring that mentor. So is it immediate access to expert advice about apartment syndications? Is it you want a system, a blueprint for reaching whatever your financial goal happens to be? Do you need an unbiased person to selfishly speak with? Do you need connections in your industry? What is your exact outcome for finding a mentor?

And then once you have your outcome, you can go out there and actually find the right mentor, the person who can actually help you accomplish that. So if you don’t care about speaking to someone unbiasedly and selfishly, you don’t need to find a mentor who’s a Tony Robbins certified life coach. You don’t care about that stuff; you don’t need that. But if you do want that mindset help then, you’re not going to want to find someone who just does apartment syndication and that’s it.

Lastly, how do you actually find a mentor? At the end of the day, the really only effective way to find a mentor is word of mouth referrals. So find someone else who’s a little more successful than you in apartment syndications. This is syndication school, but obviously, you can apply this to anything. Find someone who’s a little bit more successful than you in whatever niche that you’re in, and then ask them who their mentor is, and then go and find that someone. If you don’t know someone with a mentor or if you don’t know where to get a referral, then you’re probably not ready to hire a mentor. You need to get out there and meet more people and start meeting other apartment investors.

So that concludes this episode. This is information we’ve talked about before, but I wanted to revisit it for those who hadn’t heard it before and to elaborate a little bit more on the mentorship question, especially based off of the blog post that Travis Watts posted recently. So again, his blog post is, Turn a Decade Into a Year – How to “Knowledge Hack”, and then if you want to go back to the blog post about mentorships that I use as the guide for today’s conversation, we wrote it all the way back in 2017 – so nearly three years ago, but just yesterday we were writing this, and that’s how to approach hiring a real estate mentor.

So that concludes this episode. Thank you for listening Best Ever listeners, and make sure you check out the other syndication school episodes and free documents we have from the syndication school episodes; those are on syndicationschool.com. Have a best ever day and I will talk to you soon.

Website disclaimer

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

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

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

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

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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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JF2129: The 5 Year Multifamily Demand | Syndication School with Theo Hicks

Are you wondering what the multifamily market will do in the next 5 years? Theo shares some of the research he has found in regards to the multifamily market and what we should expect to see for the future of real estate investing for the next 5 years.

Click here for more info on groundbreaker.co

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


TRANSCRIPTION

Joe Fairless: There needed to be a resource on apartment syndication that not only talked about each aspect of the syndication process, but how to actually do each of the things, and go into it in detail… And we thought “Hey, why not make it free, too?” That’s why we launched Syndication School.

Theo Hicks will go through a particular aspect of apartment syndication on today’s episode, and get into the details of how to do that particular thing. Enjoy this episode, and for more on apartment syndication and how to do things, go to apartmentsyndication.com, or to learn more about the Apartment Syndication School, go to syndicationschool.com, so you can listen to all the previous episodes.

Theo Hicks: Hello, Best Ever listeners. Welcome to another episode of The Syndication School series – a free resource focused on the how-tos of apartment syndication. As always, I am your host, Theo Hicks. As you know, each week, we two episodes of syndication school, and these focus on a specific aspect of the apartment syndication investment strategy, and for a lot of these episodes, we offer a free resource. These are free PDF how-to guides, free PowerPoint presentation templates, free Excel calculators, something to help you along your apartment syndication journey.

Today I want to give an update on the market, and more specifically, the update on forecasted rental demand. So as you know, before the outbreak of COVID-19, we were doing some episodes focused on different market factors and different markets, top 10 markets for rent growth, for multifamily pricing, for cap rates, market expanding and contracting, and in a sense, all of that has been on pause or more likely reset, and now people are starting to come out with some more studies, some more forecasts on where they see real estate going.

Before I get into that, when I read this article, it had sparked a memory of an episode that I’m pretty sure we talked about on syndication school. I’m not exactly sure when, but the article that syndication school episode was based on, we wrote back in the beginning of 2019. So this was January 2019, and so over a year and a half ago from the recording of this episode. The blog post was entitled, “Why I’m Confident Multifamily Will Thrive During And After The Next Economic Recession,” and in summary, historically, homeownership rates, so people who are owner-occupying a home, decreases during economic recessions, and then once the economy begins to turn around and expands again, people will start moving back in their homes and homeownership rates increase. So historically, over the past nine or so recession/expansion cycles, that has been the case. Homeownership goes up during expansions and down during the recessions. But this was not the case for 2008.

So during the post-2008 economic expansion, which was from 2008 until very, very recently, in this case, 2019 when this was written, the Dow Jones had tripled, the unemployment rate had been cut in half, and the GDP rose by nearly $5 trillion. So during this massive economic expansion, one would expect the homeownership rate to also increase. However, during that period of that economic expansion, the renter population increased nearly every single year over that ten year time period or so. It grew by more than 25% from what it was at the beginning of the economic expansion. So it grew by more than 25%, so the exact opposite of what has happened historically.

Now, there are a lot of reasons why. At the time, others were predicting why people were deciding to rent as opposed to own during the most recent economic expansion and it is because of things like high student debt, things like poor credit, things like tighter lending criteria after the crash, people began to start families later, so they are renting longer, and the overall inability to afford the down payment for a home. Since, at the time, these reasons weren’t going away, we predicted that when the next economic recession occurs, the same percentage of people or more will rent. We actually thought it would be more, but the very least it’d be the same percentage, and then after the economic recession has ended and the economy begins to turn around and expand again, we made the same prediction that the number of renters would either be the same or more. Fast forward a year and a half, and many experts believe that we have entered the next economic recession due in part to the Coronavirus pandemic. So, as I mentioned before, what are people saying about multifamily?

So there’s a study that was recently released by an apartment properties acquisition and management company called the Middleburg Communities, and there was a GlobeSt article – so I found it in GlobeSt – that’s published on June 17th entitled, “As Homeownership Declines, Demand for Rental Housing To Climb.” So I’m just going to read an excerpt from that article:

“The June 11 report projects a decline in US homeownership to 62.1%, the lowest rate in more than 20 years, before a partial recovery to 63.6% in 2025. Depending on the effects of the recession, the demand for rental housing will increase somewhere between 33% and 49% over that time period, the report concludes.”

So over the next five years, they’re assuming that the homeownership rate is going to continue to drop, because they believe we’re in a recession, and then eventually it’ll start recovering by the end of this five year period to 63.6%, and depending on their worst-case scenario or best-case scenario, because of this drop in US homeownership – now the only other thing people can do besides owning is renting – then they expect the demand for rental housing/rentals to increase a maximum of nearly 50%. So obviously really, really good news for people who are in rentals, very good for you who’s listening who is an apartment syndicator, or aspiring apartment syndicator, because you’ve got a huge increase in rental demand being projected. So the reason why, in the beginning, I went over the previous article – not because we predicted this would happen; it was just based off of looking at the trends. But what’s interesting is the reasons why this group, this company, made these projections; why they believe that the rentals are going to decline.

So let me continue reading. “The analysis points to changing demographics playing a role in the changing demands. Married households are more likely to own homes, and their numbers are declining. The numbers of households with incomes of more than $120,000 is expected to drop while those with incomes of less than $30,000 are projected to rise.” So just right there, they said that people are not going to be able– people are getting married later and forming families later, which is one of the reasons we had mentioned year and a half ago. The second reason was no people’s household incomes are expected to decline, which means we’re not going to be able to afford home payments; they’re not gonna be able to afford down payments, which is another factor that we predicted a year and a half ago.

So let’s keep reading. It says, “But demographics alone are a weak explanation for homeownership shifts, according to the report. Student loan debt, inability to make a down payment and tightened lending standards.” So those are the other three things that we mentioned, or three other things we mentioned a year and a half ago, and then, “High rents and a shift in preferences play a role, too. The report also zeroed in on three variables that offer a reasonable explanation for slumping homeownership: lending standards, as measured by the average credit scores of mortgages, median net worth by age of householder, and the previous year’s deviation from the demographic-based projection.” Essentially, he’s calling this inertia or momentum.

So very interesting to see that data; very interesting to see our article we had written a year and a half ago be essentially repeated with different numbers a year and a half later. And then the study also provided extra variables as to why the homeownership rates are expected to decline, and the demand for rental housing is expected to increase.

The last part that I have in here is that “The report notes that additional stimulus packages from the federal government could bolster homeownership rates.” I do know as recently as last week, there were rumblings of an additional stimulus package being created. So it’s too early to tell for that. So as of now, without that– but I’m pretty sure that– I’m sure that this study had taken that into account and still expects the demand for rental housing to decrease.

So during the economic expansion– so during the previous economic expansion, homeownership decreased because of the fact that people are starting families later, student loan debt, inability to make down payments, tightened lending standards… So the study reinforces our thoughts on multifamily investing. It reinforces our prediction that during this recession, demand for rental housing is going to go up, and that we’ve made a change from being a nation of owning to a nation of renting, at least for now.

Now, next week– because I did come across an interesting article today that was talking about where is this demand going to be because the demand for multifamily housing is not going to be increased by 50% everywhere. In some places it’s going to be– it’s not going to increase at all. Some places might go down, some places might go up a little bit; in other places, it’s going to go up a lot, a ton, because this 50% is just an average. So I found an article recently in The Guardian about where people are moving based off of this most recent pandemic, because this– from my reading of this study, it didn’t necessarily take the Coronavirus into effect. So it’s essentially saying that the recession was started by student loan debt, inability to make housing payments, tightening lending standards, things like that. Not necessarily the– in part, at least, in part by that, but not necessarily Coronavirus. So add the Coronavirus into the mix and that shifts demand for multifamily up more most likely, but to certain areas of the country. So we’ll talk about that next week.

That’s gonna conclude this episode — a little shorter one than usual, but still, I think this is very powerful information in case you have not seen this study or heard of this study or have been keeping your finger on the pulse of multifamily demand, of rental demands, forecasts in the future.

So thanks for listening, and make sure you check out some of the other syndication school episodes about the how-tos of apartment syndications. Make sure you check out the free documents we have available. Those are all at syndicationschool.com Thank you for listening. Have a best ever day and I’ll talk to you tomorrow.

Website disclaimer

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

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

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

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

Oral Disclaimer

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

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JF2123: Attractive Passive Investor Content | Syndication School with Theo Hicks

In this episode Theo will be going over some of the main takeaways he has received from a professional writing course he has recently taken to improve your writing content by focusing on benefits rather than features to attract more passive investors to your business. 

Click here for more info on groundbreaker.co

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


TRANSCRIPTION

Joe Fairless: There needed to be a resource on apartment syndication that not only talked about each aspect of the syndication process, but how to actually do each of the things, and go into it in detail… And we thought “Hey, why not make it free, too?” That’s why we launched Syndication School.

Theo Hicks will go through a particular aspect of apartment syndication on today’s episode, and get into the details of how to do that particular thing. Enjoy this episode, and for more on apartment syndication and how to do things, go to apartmentsyndication.com, or to learn more about the Apartment Syndication School, go to syndicationschool.com, so you can listen to all the previous episodes.

 

Theo Hicks: Hello, Best Ever listeners and welcome to another episode of The Syndication School series, a free resource focused on the how-tos apartment syndication. As always, I am your host, Theo Hicks. Each week, we air two podcast episodes that focus on a specific aspect of the apartment syndication investment strategy, and for the majority of these episodes, we offer some free resource for you. These are free PDF guides, free PowerPoint presentation templates, free Excel calculator templates, something to help you along your apartment syndication journey. All of these free documents, as well as the past syndication school series can be found at syndicationschool.com.

I’m actually really excited about this episode. We’re going to change things up just a little bit. I mentioned this a few weeks ago that I am taking some copywriting courses and I wanted to share some of the main takeaways that I got that you can apply that to your apartment syndication brand, to grow your business and ultimately attract more passive investors.

So one of the major steps in launching a successful apartment syndication business is building your brand. So you’ve got your website, you’ve maybe got Facebook groups you’ve created, you’ve got blog posts, podcasts, YouTube channels, you name it; all with the purpose of educating passive investors, and then ultimately getting them to invest in your deals. Now, whenever you are creating copy– and copy is really any type of content that you’re creating. So just think whenever you’re creating content, you’re creating copy, which is in effect marketing materials. So you want to make sure that you’re following the best practices so that you’re getting the most out of all of the copy that you’re writing. So by the end of this episode, you will not only know how to improve your copy moving forward, but you can also go back and look at copy you’ve created in the past and more specifically, copy that is on your website or whatever landing page people go to most. That’s probably where this is going to be most useful to you, at least immediately, and then moving forward on your blog post, your podcast and your YouTube channels and the educational resources you make.

So a really good way to start off the conversation I want to have today is to give you two examples of two different pieces of marketing materials, and ask you which one do you think is better, which one do you think is more interesting, which was more appealing to you.

So let’s say, you’re in the market for some new software. Say, it’s a property management software or maybe a new asset management software, and you browse the internet and you come across two ads. Obviously, there’s a lot more than two ads. Let’s just say, we’re living in a world where there’s only two products that you’re able to choose from. They both obviously offer tech support. So the first company, we’ll call it ABC Asset Management Software, has a copy that says, “We offer free customer support 24/7,” and then you find XYZ Asset Management Software and they have a piece of copy that reads, “No matter what time, what day or where you are in the world, there’s always an expert available to offer the troubleshooting support you need.” So two pieces of information, both telling you that they offer customer support, which one is more appealing to you? I will answer that question for you, and it’s pretty obvious – the second one; the one that reads, “No matter what time, what day or where you are in the world, there’s always an expert available to offer the troubleshooting support you need.” So definitely a lot more attractive, a lot more appealing than the simple statement of, “We offer free customer support 24/7.”

So now, the question is why is that the case? Can you explain specifically why it is that marketing piece number two is better than marketing piece number one? The answer is that the first marketing piece, the one that says, “We offer free customer support 24/7,” is only telling you what you get. Whereas the second piece, the one that tells you, “No matter what time, what day or where you are in the world, there’s always an expert to offer a troubleshooting support you need,” that one tells you not only what you get, but why it’s valuable to you, what’s in it for you. So what’s in it for you is, no matter what time, what day or where you are in the world, there’s always an expert available to offer the troubleshooting support you need.

In other words, the first marketing piece tells you the feature of their asset management software product, whereas the second marketing piece tells you the benefit to you for using their asset management software. So in this episode, we’re going to focus on features versus benefits. So first, I’m gonna define what features are and what benefits are, and then we’re going to talk about comparing the two and which one is better when creating copy that has the purpose of attracting more customers, and then I’m gonna give you a few exercises that you can do in order to apply these lessons to your business.

So first off, what are features? So a feature is something that describes a product’s appearance or capability. So since we’re apartment syndicators, let’s talk about this in the context of doing apartment syndications. So as an apartment syndicator, your product is a passive real estate investment. So what are some features of a passive real estate investment or more specifically, an apartment passive real estate investment? So you’ve got the preferred return, you’ve got the share of the profits, you’ve got it being completely passive, you’ve got the recap emails that you send out to your customers, you’ve got the actual physical asset that they’re investing in, you’ve got the team that’s managing the asset, you’ve got direct access to the sponsor who’s an investor relations person. So those are all examples of features. So there’s obviously a lot more features, but those are just a few examples of the features of a passive real estate investment.

Now, what are benefits? A benefit shows how a product is useful and adds value to the features. So what are some benefits of passively investing in apartments? What are some benefits of your passive real estate investment product? Well, it’s a hassle-free process, it’s convenient, it gives the customer peace of mind, it gives the customer time freedom, it gives them the ability to relax, it’s low risk. So we can continue on and list more and more benefits, but those are just some examples of the main benefits of your passive real estate investment product. Now each of these benefits can be easily linked to a feature in the previous section. So for example, one of the features was it being completely passive. The benefit of this feature is that being completely passive is hassle-free because you’re not actively involved in the process, which makes it super convenient, gives you peace of mind. So you’re not having to focus on making sure everything’s going properly at the property, and if things are going wrong, figuring out solutions; you just sit back and relax. It gives you the time freedom to spend that time you would have been spending making whatever that money is on something that you actually want to do, that allows you to relax. It’s lower risk because maybe you don’t have the knowledge that you would need to buy such a large apartment building, but you are able to passively invest, which reduces the risk. So you’re able to get the benefits of investing in apartment without the risk of you doing it yourself and messing up without having the experience. So you can do the same thing for all of the features. You can essentially link one or more benefits to all of the features.

So overall, and it’s pretty clear, it’s obvious, but again, it’s important to make this conscious in your mind, and to be conscious about this when you’re creating content, but content that focuses on the benefits, more so than the features of the product will attract more new customers. In this case, attract more passive investors. So as an apartment syndicator, focusing on the benefits of passive investing in apartment communities will attract more new passive investors than focusing on the features of passively investing in apartment communities. Now, that doesn’t mean that features aren’t important and that features should be completely ignored. They’re obviously important to highlight, but you really want to make sure that you’re focusing on the benefits because that’s what people actually care about. So one practical takeaway is to ask yourself the question after creating copy, whether it be after each sentence, each paragraph or at the end of the blog posts or podcast episode of a larger piece of content, ask the question – So what?

So let’s take two statements as an example. So statement number one is going to be – investors in apartments syndications receive a monthly preferred return and a profit split. The apartment is actively managed by a sponsor, making it an entirely passive investment. So maybe you’re creating a page on your website that’s finding what a passive apartment investment is, and this is the same that you have. So ask the question – So what? How does receiving a monthly preferred return or a profit split benefit me? How does the project being actively managed by someone else benefit me? So a stronger statement would be – investors in apartment syndications receive a monthly preferred return and a split of the profit, the apartment is actively managed by a sponsor making it an entirely passive investment. So that’s the same as before, and then you add – you increase the amount of money you make each month with no ongoing time commitment, allowing you to spend more time doing what you want. So when you ask the question there, “So what?” I guess you can continually adding, so what, and that’s how you create a blog post. So you think so what after that, and then continue listing more and more benefits based off of the features.

So in this example, the features are the preferred return, the profit split and being completely passive. The benefits of the features are more money each month and more time freedom. So in addition to the so what, here’s a full exercise that you do today, tomorrow, this week, to start the process of applying the concepts we’re learning about today. So the first step is to obviously define your product, and since we’re apartment syndicators, the product is the passive apartment investment. So next, you want to list out all the features off of that product. So I gave you some examples above, but try to list out 10, 20, 30, 40, 50 features of your passive apartment investment product, and then thirdly, list out the benefits of your product, again, 10, 20, 30, 40, 50 different benefits of your product. So determining the benefits may require a little bit more effort and creativity than the features. So a really good approach is to come up with benefits for each of the features you created before. So get your list of features, and then go through each feature and determine what the benefits of those features are to your passive investor.  Three questions to help you in this process are – one, why does this feature exist? Two, how does this feature connect to human desire? And three, what is in it for the customer? So take your list of features and for each feature, ask and answer those three questions to come up with a list of benefits.

At the conclusion of this three-step exercise, you will have a list of all the benefits, or at least, a very long list of most of the benefits of your products based on the different features. So now that you have your list of benefits, the goal is to always focus on this list of benefits whenever you are talking about a certain feature of your property. This includes any content that is directed towards your potential customer, aka the passive investor. So blog posts, your website, other company material, communication with your investors, podcasts, whenever you’re being on any of other people’s podcasts, always keep that list in mind. So overall, what are some things that you should do from this takeaway? Here are a few recommended steps. First, obviously, perform that three-step exercise I mentioned above. Next, review your website and start asking the question, “So what?” after the various pieces of content you have on there. Next, you can go ahead and review a recent blog post or a recent piece of content that you’ve created and ask yourself – are you focusing on the benefits or are you focusing on the features? And then, in your spare time, if you want to get better at figuring out the best ways to write solid copy about the features of your product, go to some Fortune 500 company websites, go to other real estate professionals who have a massive following online, a massive business and take a look at their copy, see how they’re focusing on the benefits. Maybe you might find that they aren’t focusing on the benefits and there’s opportunities to improve, and something that we all have talked about on this show is, a really good way to get into apartment syndications is to add value to other people’s businesses for free proactively. So a great way to do that is to take what you have learned today, find an apartment syndicator that you want to work with and proactively create a presentation for them on how to improve their copy by focusing more on the benefits than the features. So again, lots of practical takeaways for today and lots of exercises you can do to start improving your copy and focusing on features and ultimately attracting more passive investors.

So that concludes this episode. Make sure you check out some of the other syndication school episodes that we have as well as the free documents that we have for all these episodes at syndicationschool.com. Thank you for listening. Have a best ever day and I’ll talk to you soon.

Website disclaimer

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

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

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

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

Oral Disclaimer

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

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JF2122: 7 Rules of 1031 Exchange | Syndication School with Theo Hicks

1031 Exchange allows a taxpayer to defer the assessment of any capital gains tax and any related federal tax liability on the exchange of certain types of properties. This will allow you to sell a property and instead of paying taxes on the capital gains, you can delay it by investing it into another property. Theo will go over the 7 rules of the 1031 Exchange so you can have a better foundation about the 1031 exchange and can determine if its the right move for your business.

Click here for more info on groundbreaker.co

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


TRANSCRIPTION

Joe Fairless: There needed to be a resource on apartment syndication that not only talked about each aspect of the syndication process, but how to actually do each of the things, and go into it in detail… And we thought “Hey, why not make it free, too?” That’s why we launched Syndication School.

Theo Hicks will go through a particular aspect of apartment syndication on today’s episode, and get into the details of how to do that particular thing. Enjoy this episode, and for more on apartment syndication and how to do things, go to apartmentsyndication.com, or to learn more about the Apartment Syndication School, go to syndicationschool.com, so you can listen to all the previous episodes.

 

Theo Hicks: Hello, Best Ever listeners and welcome to another episode of The Syndication School series, a free resource focused on the how-tos of apartment syndication. As always, I am your host, Theo Hicks. Each week, we air two podcast episodes that focus on a specific aspect of the apartment syndication investment strategy, and for the majority of these episodes, we offer you free resources. These are free PowerPoint presentation templates, free PDF how-to guides or free Excel calculator templates that’ll help you along your apartment syndication journey. All of these free documents as well as past syndication school series can be found at syndicationschool.com. Today, we’re going to be taking a deep dive into the 1031 Exchange.

So the 1031 Exchange, according to the United States Internal Revenue Service, and if you want the exact code, it is 26 USC 1031. A 1031 Exchange allows a taxpayer to defer the assessment of any capital gains tax and any related federal tax liability on the exchange of certain types of properties. So what this means is that you can sell a property and rather than paying taxes on the capital gains, you can delay paying that tax by investing into another property.

So there are a lot of rules surrounding this, which we’re going to get into in a little bit, but a little bit of interesting history – in 1976, the federal courts allowed this 1031 Exchange code to be expanded to not only sell real estate, but also to continuously purchase within a specific timeframe with no liability assessed as that time. So it allowed you to, starting in 1979, do the 1031 Exchange that we know today. Something else that’s interesting is that before 2018 – I didn’t know this – properties listed under the 1031 code included stocks and bonds and other types of properties. So you were able to 1031 Exchange stocks and bonds. Whereas now, post 2018, the 1031 Exchange only applies to real property, which makes it great for real estate investors.

So there are seven primary aspects or seven primary rules that you must follow in order to successfully do the 1031 Exchange. So we’re gonna go over each of those in episode, but first, we’ll just go over with what the rules are and we’ll go into more detail on those rules. So the first one is that it must be like-kind property. The second rule that it is only for investment or business intentions. Third, greater or equal value of the replacement property. Four is the boot. Five is the same taxpayer rule. Six is the 45-day identification window, and then seven is the 180-day purchase window. So those are the seven rules that you’re going to want to know about when you’re doing the 1031 Exchange.

So first is the like-kind property. So the replacement property that you buy needs to be like-kind with the property that you’re selling. So if you’re selling land, you need to buy land. If you’re selling an apartment, you need to buy an apartment. So you can do a 1031 Exchange for land or anything attached to the land, but you can’t go from an apartment to land or from land to apartment; it needs to be like-kind. So you can’t just sell your apartment community and buy anything. There are certain rules on that, and for more specifics on that, you’re definitely gonna want to talk with your 1031 Exchange consultant, which we’ll talk about later on in the episode. Well, I guess we can mention it now. You typically want to do this through a consultant or I think you’re required to do it through a 1031 consultant, but most people are just going to go from apartment to apartment or maybe a single-family home to a duplex or a duplex to an apartment. So you shouldn’t have an issue with this unless you’re trying to go from land to a warehouse or something. In that case, you should have a conversation with your consultant. So number one, it must be like-kind in order to meet the requirements of the 1031 Exchange.

The second rule is only for investment or business intentions. So to meet the criteria for the 1031 Exchange, the real estate that is being sold must be utilized for investment or business purposes only. So you can’t do this with your primary residence. You can’t do this with a vacation home. It must be a property that either generates cash flow or you bought for appreciation, or was used for business purposes. So for example, you could 1031 Exchange from a property that you were using as a rental or if you bought a hair salon and you bought the place for appreciation, you’re doing your hair salon business, then you wanted to 1031 Exchange into a larger hair salon, you can do that as well, even though technically you weren’t collecting rent on the building. But overall, it must be used for investment or business purposes only. It cannot be something that you use for personal use like a primary residence or a vacation home.

The next rule is that the replacement property must be a greater or equal value. So you’re allowed to 1031 Exchange into an unlimited number of properties or a single property as long as, again, they’re like-kind and they meet other rules, but there are restrictions on the value or the total value of the properties or property purchased, and the window currently is between 95% and 200%. So if I’m 1031 exchanging a property worth $100,000, then I can exchange into one or more properties that are equal to a value of between $95,000 and $200,000. So I can’t go below that window, and I can’t go above that window. As long as I’m in that window, and again, it meets all the other requirements, then I’m allowed to do the 1031 Exchange.

Now, a good question to ask that you might be thinking of as well – if I do below 95% or if I go below 100%– so say, I sell that $100,000 property and I exchange it to a $95,000 property, what happens to that $5,000? Is that also tax-free? That goes into our next rule, which is the boot.

So whenever you don’t go into a replacement property that is equal to or greater than, then that difference is going to be called the boot and that is going to be taxable. So you don’t get that money tax-free. There are some boot offsetting provisions and other things that go into boot, but that’s the simple explanation. If you want to know more about the boot, if you plan on 1031 exchanging into a lesser value property – again, you can’t go below 95%, so it’s a pretty small window… But if that’s what you’re going to do, then make sure you have a conversation with your 1031 consultant to understand how that boot will be taxed.

The next rule is the same taxpayer rule. So it is mandatory that the person who is doing the 1031 Exchange, who is selling a property and exchanging into another property, must be the exact same person, and that is defined as the exact same tax identity. So if I buy a property under an LLC, then that is the same LLC that needs to buy the next property that is being exchanged into. If I use my personal name, I put it under my personal name, then I need to buy the other property as well. So the reason why is if the taxpayer changed their identity, then based on tax law, there would be no continuous action of tax. So it just needs to be the same entity or same individual that sold the property and buys the property.

Next is the 45-day identification rule. So the person or entity that plans to do the 1031 Exchange has 45 days from the date of the sale of the previously owned property to identify the replacement property. So this 45-day window is typically referred to as the identification period, and this process must be done in writing with the authentic signature of the taxpayers. So that is what officially finalizes the fact that you’ve identified a replacement property.

So when identifying the replacement property, here are a few things to remember. First, again, it needs to be used for business or investment purposes. It can be located anywhere in the US, and actually starting in 2005, there were certain temporary regulations that allowed people to do 1031 Exchanges in Guam, the Northern Mariana Islands, and also the US Virgin Islands. So a little 1031 trivia there.

The property must be clearly identified, needs to have a physical street address or a legal property description. Sometimes you might even need the actual specific unit addresses if you’re doing apartments, and the process of identification, you have until midnight of the 45th day to identify the property. If you purchase a property within 45 days, you actually purchase it, there is no formal identification needed. So you don’t have to do the formal signing process. You can just buy it and you’re fine. A little bit of things you want to think about whenever you’re looking at identifying that replacement property.

And then we’ve also got the final rule, which is the 180-day purchase rule. So when completing a 1031 Exchange, not only is there a window for when you have to identify the property, but there’s also a window for when you need to actually buy the property. So according to the 1031 Exchange rule, you have 180 days to purchase the property, which is six months, and this rule applies no matter what. So you have to buy a new property within 180 days in order to defer those capital gains taxes.

So there you have it; those are the seven rules that you need to know about doing a 1031 Exchange. That concludes this episode. We’ve talked about the 1031 Exchange briefly before, but we didn’t really go into that much detail on the actual steps.

So I wanted to do an episode where we went a little more detail on those steps in case you’re in the process of selling a property right now and want to know how to avoid paying a massive tax bill on all that equity created by implementing your value-add business plan. Since this is syndication school, obviously you are able to do a 1031 Exchange as an apartment syndicator, just keeping in mind that, again, the taxpayer that bought the first property needs to be the taxpayer that buys a second property. So since you’re typically doing apartment syndications through an LLC or an entity, you want to keep that in mind to make sure you’re doing the 1031 Exchange properly.

So thanks for listening. Make sure you check out some of the other syndication school episodes on how-tos of apartment syndications. Also, check out the free documents we have available, all of that is at syndicationschool.com. Thanks for listening. Have a best ever day and I’ll talk to you tomorrow.

Website disclaimer

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

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

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

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

Oral Disclaimer

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

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JF2116: 3 Factors On A Schedule K-1 Tax Report | Syndication School with Theo Hicks

In today’s episode, Theo Hicks will be talking about the schedule K-1 tax report. It is a statement that is given to each of the limited partners also known as passive investors. He will be sharing how your passive investor can interpret the K-1. Free document with this episode.

Click here for more info on groundbreaker.co

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


TRANSCRIPTION

Joe Fairless: There needed to be a resource on apartment syndication that not only talked about each aspect of the syndication process, but how to actually do each of the things, and go into it in detail… And we thought “Hey, why not make it free, too?” That’s why we launched Syndication School.

Theo Hicks will go through a particular aspect of apartment syndication on today’s episode, and get into the details of how to do that particular thing. Enjoy this episode, and for more on apartment syndication and how to do things, go to apartmentsyndication.com, or to learn more about the Apartment Syndication School, go to syndicationschool.com, so you can listen to all the previous episodes.

Theo Hicks: Hi, Best Ever listeners. Welcome to another episode of The Syndication School series – a free resource focused on the how-tos apartment syndication. As always, I’m your host, Theo Hicks. Each week, we air two podcast episodes that focus on a specific aspect of the apartment syndication investment strategy, and for the majority of these episodes, including today’s episode, we offer some free resource. These are PowerPoint presentations, PDF how-to guides, Excel calculator templates, some document or resource that will help you along your apartment syndication journey, or in this case, for today, accompany the episode. All of these free documents as well as past syndication school series episodes can be found at syndicationschool.com.

Today we’re going to talk about taxes, and then more specifically, we’re going to talk about the Schedule K-1 tax report for apartment syndications. The Schedule K-1 tax report is the tax report that is given to each of the limited partners, the passive investors in your apartment syndication deals. So in this episode, we’re going to talk about how your passive investor can interpret that Schedule K-1 and what the different boxes or at least the important boxes mean.

Now before we get into any of that, it’s important to say that this is for informational purposes only. I am not in a tax advisory firm, I am not an accountant, I’m not a CPA. So any general tax-related real estate questions that you have or that your passive investors have, you should tell them to talk to their own accountant. But what we can say is that passive investors like to invest in real estate opportunities because of the tax advantages that may potentially come from write-offs and losses due to depreciation, but we don’t include any of those assumptions about any of these tax advantages in the projections. So this is a disclaimer that we have to say when we’re talking about these types of things, because I’m not an accountant. This is just general information education on what those little boxes mean on a K-1. So now that it’s out of the way, let’s get into the actual meat of the discussion today.

So as I mentioned in that disclaimer, apartments syndications are very attractive to passive investors because of the different tax benefits, and we’ve talked about the major tax benefits or at least the tax factors involved with apartment syndication – depreciation, accelerated depreciation, capital gains versus income tax, cost segregation studies, things like that. So if you google ‘Joe Fairless tax factors’, a blog post or a syndication school episode will come up…

But the foremost benefit is the depreciation. So whenever you have a fixed asset, such as an apartment community, its value reduces over time due to the usage and normal wear and tear. So depreciation is the amount that can be deducted from the income each year to reflect this reduction value from usage and normal wear and tear, and the IRS classifies each of these depreciable items according to the number of years of its useful life. So over this period of time that apartment can be fully depreciated, whatever that useful life happens to be, which we’ll go into in a second.

Now there’s also, as I mentioned, the cost segregation study, which actually goes in there and identifies building assets that can be depreciated at an accelerated rate, using a shorter depreciation life. These are things that you actually have to go there physically in person to see, and they’re not on any document or report. So these are interior and exterior components of the building, the structure, it may be part of a newly constructed building or existing building that has been purchased or renovated. So about 20% to 40% of these components of an apartment, these interior, exterior, structural components can be depreciated at a faster rate than the building structure itself. So a cost segregation study dissects the purchase construction price of a property that would normally depreciate over 27 and a half years, and figure out what things can be depreciated over five, seven and 15 years. So as opposed to the entire value depreciating slowly over 27 and a half years, 20% to 40% of those things depreciate over five, seven and 15 years, again, which drastically increases the amount that can be written off, and the remaining is depreciated over at 27 and a half years.

So if the expense of the construction purchase or renovation was in a previous year, favorable IRS rulings allow taxpayers to complete a cost segregation study on a past acquisition or improvement, and take the current year’s deduction for resulting accelerated depreciation not claimed in prior years. So if you’ve owned a property for five years and haven’t done the accelerated depreciation yet, and you do a cost segregation study, those components that depreciate over five years can be fully written off that next year. That’s what they’re saying. This is just a brief explanation of how the cost segregation and calculating the depreciation works. If you want more specifics and some examples, you can go and check out that Five Tax Factors When Passively Investing in Apartment Syndications blog post, where there’s a lot more actual numbers and formulas and calculations for how to do an example depreciation write-off.

Now, as I mentioned, each year, the general partners’ accountant will create a Schedule K-1 for all the limited partners for each apartment syndication deal, and these passive investors will then file that K-1 with their tax returns to report their share of the investments, profits, losses, deductions and credits to the IRS, which includes any depreciation expense that is passed on to them, assuming it is passed on. So we’ve got a sample K-1 that you can download for free and see what it looks like. It’ll be in the show notes of this episode, so make sure you check that out; check that out at some point. It’d be nice if you had it open right now while we’re having this conversation, but it’s not completely necessary, because there’s only three boxes that are the most relevant to your passive investors. It’s box number two, which has the net rental real estate income loss. It’s box 19, which has distributions, and then Section L partners’ capital account analysis.

So if you check out the sample K-1, box number two says net rental real estate income, and then [unintelligible [00:10:19].11], the number is -$50,507. So what does this mean? This is the net of revenues less expenses, including the depreciation expense pass through to the LPs. So for most operating properties, the resulting loss is primarily due to accelerated depreciation. As I mentioned, on the sample K-1, the depreciation deduction that passed through to the limited partners is $50,507, thereby resulting in an overall loss. So negative taxable income. So that’s the amount that was written off through that accelerated depreciation. That’s one important piece of the K-1.

The second is box 19 distributions. So going back to our sample K-1, box 19 says $1,400. So what is this? This is the amount of equity that was returned to the limited partner. So on the sample K-1, the limited partner received $1,400 in cash distributions from their preferred return of distributions, as well as profits. So just because the LP realized a loss on paper does not mean that the property isn’t performing well. This loss is generally from accelerated depreciation, not from loss of income or capital. So here they made $1,400, and then they lost $50,507. So does that mean that the property is doing really bad and that it has lost money? Well, no. It’s just the depreciation. So it’s the loss of value of the overall property from depreciation from normal wear and tear, not some loss of income or loss of capital or loss of equity.

So the third is Section L partners’ capital account analysis. So going back to our example, K-1, it says partners capital account analysis, and then beginning account balance is blank, capital contributed during that year is $100,000, current year increase or decrease isn’t -$50,507, withdrawals and distributions is $1,400, and the ending capital account is $48,093. So what does this mean? Well, so I invested $100,000 that year, $50,507 is from depreciation, so you subtract that, and you also subtract the $1,400 in cash division, and you’re left with $48,093. So does this mean that the capital balance is lower and that the preferred return is now going to be lower, and it’s not only based off of that $48,000 figure? Well, no. This figure is for tax purposes only; it is the tax basis, it is not a capital account balance. So the limited partner would not receive a lower preferred return distribution based on this tax basis of $48,000. From at least Ashcroft’s perspective and most likely your perspective as well, that appreciation does not reduce the passive investors capital account balance, it reduces their tax basis.

The capital balance is technically reduced by the distribution amount above the preferred return, which is a portion of the $1,400 in the withdrawals and distributions box. However, Ashcroft deals are structured in a way that the LP continues to receive a preferred return based on their original equity investment amount, with the difference made up at sale. So what that means is that anything above that $1,400 is considered a profit, and whatever the profit split is for that deal, say 70-30 or 50-50, at the end of the deal, once everything’s said and done, the total profits distributed needs to be 50-50 or 70-30 to the LP/GP. If the LP is receiving money during the hold period, and then the GP technically receives — let’s say, for simple numbers, the GP doesn’t receive any money at all from profits, then at sale, 100% of the profits have gone to the LPs, and the GP receives 0%. So after the equity is returned to the LPs, before the remaining profits are split, whatever the profit split is, the GPs need to catch up first. So the GPs are distributed until the profits are 70-30, as opposed to being 100 and 0.

So just to keep things super, super simple, let’s just say that the profit split is supposed to be 70-30, and then at sale, you add up all the different distributions that have gone to the LPs and you spend $100,000, and you add up all the different distributions that we have done to the GPs and it’s zero dollars. So 100% to the LPs, zero to the GPs. If the split is going to be 70-30, again, let’s just do even more simpler math. Let’s say that number is $70,000 instead of $100,000 just so I can simply explain this to you. So $70,000 to the LP, and zero to the GP at sale. So the way the waterfall will work is that, first the LPs equity will be returned; so whatever they invest, it will be returned, and then before the remaining proceeds are split 50-50 or 70-30, in this case, we’ll say 70-30, is a GP catch up. So it needs to be a 70-30 split. So the first $30,000 will flow to the GP, so that at that point, the LPs have received $70,000 and the GPs have received $30,000. Now they’re a true 70-30 split, and then the remaining profits are split 70-30.

So back to the taxes in the K-1. So the majority of the other items on the K-1 that are report on just flow through to your passive investors’ qualified business income worksheet, and the net effect of these items will be very unique to each investor based on their specific situation and other holdings that they have. So again, that’s something that would take a long time to explain because of all the different situations. So what’s important are the three main sections we talked about, which is box number two, the net rental real estate income or loss, and that is what is passed through as depreciation; so that is the depreciation deduction. Box number 19 is any positive distribution received, any cash flow sent to that investor, and then section L will give you the actual tax basis, which is whatever their capital account is, so their investment minus depreciation, minus distributions, and that’s what they are going to be taxed on.

Now if you want to learn more about each of the individual sections and boxes, you want to go ahead and check out the IRS’ website on the Schedule K-1. So if you just google ‘partners instructions for Schedule K-1 form 1065’, you should be able to find it and it’s got a bunch of hyperlinks, and go through every single item on that K-1. Or the website is irs.gov/instructions/i1065sk1.

As always, just to conclude again with the disclaimer, to better understand any tax implications on their investment, it’s always important to let them know that they need to consult with a professional like a CPA, a financial advisor and accountant before making any investment decisions based off of the tax benefits of investing in apartment syndications.

So that concludes this episode on how your passive investors will be interpreting their Schedule K-1 tax report. Make sure you download that free K-1 sample so that you can follow along, again, by either listening to episode again or hopefully you’ve been doing it while I’ve been talking. That’ll be in the show notes, also at syndicationschool.com along with all the past syndication school episodes, and previous free documents. Alright, that’s it for now. Thank you for listening. Have a best ever day and I’ll talk to you soon.

Website disclaimer

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

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

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

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

Oral Disclaimer

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

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JF2115: COVID-19 Impact On June Rent | Syndication School with Theo Hicks

COVID-19 has been kind of quiet lately in the media due to all the protesting but today we are going to share with you how it has still impacted the rent collections for landlords in June and we will also be sharing the forecast of future rent collections.

Click here for more info on groundbreaker.co

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


TRANSCRIPT

Joe Fairless: There needed to be a resource on apartment syndication that not only talked about each aspect of the syndication process, but how to actually do each of the things, and go into it in detail… And we thought “Hey, why not make it free, too?” That’s why we launched Syndication School.

Theo Hicks will go through a particular aspect of apartment syndication on today’s episode, and get into the details of how to do that particular thing. Enjoy this episode, and for more on apartment syndication and how to do things, go to apartmentsyndication.com, or to learn more about the Apartment Syndication School, go to syndicationschool.com, so you can listen to all the previous episodes.

Theo Hicks: Hello, Best Ever listeners, and welcome to another episode of The Syndication School series, a free resource focused on the how-to’s of apartment syndication. As always, I am your host, Theo Hicks. So each week, we air two syndication school episodes that focus on a specific aspect of the apartment syndication investment strategy, and we give away a lot of free documents with these episodes, as well as our free PDF how-to guides, free PowerPoint presentation templates, free Excel calculator templates, things like that, that’ll help you along your apartment syndication journey. So make sure you check out our previous syndication school episodes, as well as all of those free documents at syndicationschool.com.

Today, we are going to be talking about the Coronavirus again, more specifically, how it has impacted the June rent collections for landlords. So I am recording this on the 10th of June, and we have already talked about May rent collections as well, so those were actually hard data points… Whereas today, we’re going to talk about the forecasts, but also why people are confident that these forecasts are accurate. But first, let’s do a quick refresher, and talk about the May rent collections so we have some context.

So the amount of rent that was collected in May, by the 6th of the month was at 80.2%. The same time in 2019 was 81.7%, so slightly down. However, the rent collected from April 2020 to May 2020 actually went up. So by the 6th of April 2020, the amount of rent that was collected was 78%, and then in May 2020, the amount of rent collected was 80.2%. So it actually went up from April to May, which was obviously a positive sign, because a lot of investors when this first started that I spoke to in April thought that it would gradually get worse before it got better. So it started at the end of March, so they expected April collections to be pretty close to normal, and then May would be lower, and then June would be even lower, and then July would be even lower, and then maybe some people were predicting turnarounds around August, September timeframe. Whereas in reality thus far, April 2020 was actually lower than the April from the previous year by over almost 5%, and then the May collection was only down by 1.5%, and they actually went up from April to May. So again, I think that’s interesting, just to quickly give a refresher on the rent collection for April and May.

Now, what about June? Because in May, it was possible to tell, “Okay, we’ve got two data points. It went up from April to May. May seemed to be close to being in line with what it was in the previous years,” but obviously, it’s only two data points. So what happens in June? Well, the J Turner Research company, what they’ve been doing since– I believe they started in April, or maybe even March, but they started doing a survey where they asked multifamily residents a series of questions, and one of those questions was – do you expect to be able to submit your rent this month? The responses were categorized as either “I might be unable to make the rent payment, I’ll be able to pay rent by the end of the month, I’ll be able to pay rent by the 10th, or I’ll be able to pay rent on time.” So those are the four categories. So on time, by the 10th of the month, by the end of the month, or I won’t be able to make it at all.

Based off of this survey for June, 90.3% of the respondents said that they expect to pay their June rent by the end of the month. So 90.3% expected to either pay their rent on time, by the 10th or by the end of the month. Now of that 90.3%, 84.3% said that they expected to pay their June rent by the 10th of the month. Now compared to May, where they did the same survey, this was a 5% increase. So when they asked people in May the same question – do you expect to be able to pay your May rent? – a little bit under 80% said that they’d be able to pay their rent by the 10th of May, compared to the 84.3%. And then the remaining 6% of that 90.3% said that they expected to pay by the end of the month.

So the vast majority of people expect to be able to pay their rent either on time or by the 10th. Now of that 84.3%, 74.6% said they expect to pay their rent on time. So not by the 10th, but on time. So whatever the terms of their leases are; typically they have a day or two cushion, so it’s due by the 3rd of the month. So 74.6%; in May, that number was at 70%. So again, a 5% increase from May to June in the number of people expected to pay their rent on time, and then the remaining 9.6% of the 84.3% expected to pay by the 10th, and then obviously, you’ve got the 90.3% paying the rent by the end of the month; again, either being on time, by the 10th, or by the end of the month. And then you’ve got the remaining 9.6% saying that they did not expect to make their rent payment for the month of June, which is about 5% lower than the number of people who said the same thing in May.

Now you might be saying, “Well, Theo this is just a survey. This is not actual rent collection data. So how can we trust their forecasts and numbers in such a time of uncertainty?” Well, as I said in the beginning, the reason why a lot of people are trusting J Turner Research’s numbers is because of how their predictions for May compared to the actual collections for May. So just to give one example, because this is really the most important number, is – what did they project to be the rent collections in May? So when they did the same survey in May, and they asked people, “Will you be able to pay your rent for the month of May?” 80.8% of people said that they’d be able to pay on time or by the 10th, and then NMHC has a rent payment tracker where they update the percent of rent collected a few times a week. By early May, they found that 80.2% of rent was collected. So J Turner predicted 80.8%, the actual was 80.2%. So their predictions are very accurate. So assuming that their predictions are going to be accurate again, then we can expect June to be better than May. The president of J Turner Research, the firm that did this study was quoted as saying, “If our numbers are as on target as last month’s, rent receipts will be stronger than May which bodes well for the industry.”

So again, the main key takeaways here is that from this survey, 84.3% of respondents expect to pay their rent either on time or by the 10th, which was a 5% increase from the same time in May, and then if you look back at the numbers that I talked about last month for May, there was a 2% increase from April to May in the rent collected by the 6th. So if again, this survey is accurate, then we’ll also be seeing a trend of 78% of rent collected by the 6th in April, 80.2% of the rent collected by May 6th, and then 84.3% of rent collected by June, keeping in mind that the main reason for the bump in the May rent collection was likely due to the stimulus checks that went out towards the end of April, whereas there has not been a second round of stimulus checks in May. So it seems as if the impact from Coronavirus may potentially be over. However, when I was looking at the actual NMHC rent payment tracker which– I recommend going to that website, just bookmarking it. It’s just NMHC rent payment tracker. If you find it, you can bookmark it so you can keep tracking the rent payment collection tracker for as long as you need to, as long as they keep creating it.

As of this recording, they haven’t updated it for June yet, but I expect them to do it within the next few days. So we can see what the actual collections have been by the 6th, and then see what it is by the 10th to compare that to the projections.

But the President of NMHC said that, “The hardships caused by the outbreak are not ending anytime soon.” So just because these numbers are trending in the positive direction according to this person, it’s important to make sure that you’re staying up to date on any new rental assistance legislation, any changes to the eviction laws, make sure you’re staying in contact with your residents to make sure that they’re still able to pay their rent on time, but continue doing what you’ve been doing in the past to make sure that you’re able to maximize your rent collections, because it’s hard to tell what’s gonna happen. Is there gonna be a second wave? Is this thing actually really over? It’s hard to tell. So just be a smart, conservative investor and expect and prepare for the worst-case scenario.

Now, something else that was interesting, before we sign off, from this J Turner Research survey, that was more of a reinforcement of things that we’ve talked about on  syndication school before, and then most people already know, is how people prioritize their expenses. So another question that was posed in this survey was related to the order in which people planned on paying their expenses. So the four expenses that people were asked about was their rent, their car payments, their utility payments and their groceries, and the number one expense that people said that they’d pay first before anything else was their rent. So more people said they’d pay their rent first, some said they’d say their car payment first, their utilities first or even their groceries first.

So again, as I mentioned, it’s reinforcing the fact that as a multifamily investor, in renting your units out to people, one of the last things they’re going to stop paying is their rent, even before they buy groceries or pay their utilities or car payments. So even during these times of economic certainty, as long as people are making money, the first thing they’re gonna apply it towards is their rent.

So again, the main takeaways here is that it seems as if the collections in June are gonna be stronger than the collections in May, which were stronger than the collections in April, so we’ve got three data points trending in a positive direction. But again, as a disclaimer, we don’t necessarily know exactly what’s going to happen. So this is positive news for now, but it’s important to continue to stay on top of this to continue to stay up to date on any new information surrounding the Coronavirus and real estate, and then also, I highly recommend bookmarking that NMHC rent payment tracker. Just Google it, you’ll find it; bookmark it and maybe check in with it every Wednesday or every Friday or every Monday. I’m not exactly sure when they update the numbers; maybe it’s a daily thing. It just take two seconds to look at it. On the site, it has a thermometer that shows you how much of the rent has been collected thus far, and then it compares it to the previous month. So I think they began tracking in April. So they’ll have April, May, and then pretty soon June numbers for the rent collected. In this case, the first one would be 6th, because that’s the first data point they collect.

And they also have the full month results for previous months. So it says, for example, April 2020, for the month, 94.6% of people paid their rent, and then in May, it was 95.1%. So trending in the positive direction. And then they compare that to the 19th as well, and also– so it does say here which data points they look at. So on the 6th of the month they have the data, on the 13th of the month, on the 20th of the month, the 27th of the month and the end of the month. So I’m sure right after the 6th, it looks like– today’s the 10th, so maybe we’ll have it today or tomorrow. So it’s a four-day delay. So if you look at it every week, you should have new data to look at. Again, that’s NMHC Rent Payment Tracker, and NMHC is National Multifamily Housing Council.

Alright, so that concludes this episode. Quick update on how the June rent collections are expected to go, and we should have hard, concrete numbers here in the next few days, maybe even by the end of day today. Until then and until our next syndication school episode, make sure you check out some of our other syndication school episodes, as well as those free documents at syndicationschool.com Thank you for listening. Have a best day and I’ll talk to you tomorrow.

Website disclaimer

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

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

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

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

Oral Disclaimer

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

 

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JF2109: Launching A Thought Leadership Platform | Syndication School with Theo Hicks

In this episode of Syndication School, Theo, will be going over the topic of how to create your own thought leadership platform. He will be going over how to successfully launch your platform and how to continue to grow it. 

Click here for more info on groundbreaker.co

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


TRANSCRIPTION

Joe Fairless: There needed to be a resource on apartment syndication that not only talked about each aspect of the syndication process, but how to actually do each of the things, and go into it in detail… And we thought “Hey, why not make it free, too?” That’s why we launched Syndication School.

Theo Hicks will go through a particular aspect of apartment syndication on today’s episode, and get into the details of how to do that particular thing. Enjoy this episode, and for more on apartment syndication and how to do things, go to apartmentsyndication.com, or to learn more about the Apartment Syndication School, go to syndicationschool.com, so you can listen to all the previous episodes.

Theo Hicks: Hello, and welcome to another episode of the Syndication School series, a free resource focused on the how-to’s of apartment syndication. As always, I’m your host, Theo Hicks.

Each week we air two podcast episodes that focus on a specific aspect of the apartment syndication strategy. For the majority of these episodes we offer free resources. These are free PDF how-to guides, PowerPoint presentation templates, or Excel calculator templates that help you along your apartment syndication journey. All of these free resources, as well as previous Syndication School episodes can be found at SyndicationSchool.com.

Today we are going to continue talking about branding. Yesterday or the episode before this we talked about the four tips for nailing a podcast interview, so that’s going on someone else’s podcast or thought leadership platform; I guess the same lessons technically apply to a YouTube channel, or really any sort of interview you’re doing. I guess, heck, even a blog post where you’re being interviewed. These are gonna be about how to actually create your own content platform. But we’re not gonna go into the specifics on how to actually create a podcast, the name, logo etc. Instead, we’re gonna talk about how to actually successfully launch it once it’s created. So if you wanna know how to create a thought leadership platform – and again, these include things like podcasts, YouTube channels, books, blogs, newsletters – then check out those branding episodes at SyndicationSchool.com. Just type in “how to create a *fill in the blank*” and we’ll have a resource on that.

We’re gonna talk about – okay, so it’s created, you’ve got a launch date set. What are some of the best practices to make sure you’re maximizing the number of viewers, of buys, of clicks that you get from the get-go. So I’ve got five tactics I wanna go over. These are all kind of related, but the first one is to create a win/win/win scenario. If you’re doing a podcast or a YouTube channel, this is gonna be a win between you, the interviewees, as well as the listener. That applies for podcasts and a YouTube channel… Because typically, what you wanna do is you wanna have a batch of episodes ready to go.

Let’s say you decide to release one episode every week. Typically, it’s really good to have 3 to 6 months of audio or video content on-deck. So if you’re doing one per week – six months, that’s about 26. For three months, that’s 13 episodes. Let’s say you’re going three months ahead, so you’ve got 13 episodes prepared… So you have 13 guests who are going to be released in those 13 weeks. Or maybe you wanna do something where you do every single week, but you wanna release every single day for the first seven days. Whatever it is you wanna do, you wanna create a win/win/win for you and whoever those interviewees are, as well as the customers. I’ll talk about how to create that win/win/win in a second, but I just wanted to define what that win/win/win actually even means.

For the book, it’s gonna be you, the reader, and then anyone who’s actually featured in that book. So the win/win/win is a lot simpler for the book, than the podcast. For the podcast, if it’s just you talking, then it might just be a win/win for you and your customers. Now, how do you create this win/win? You want to promote content that is exclusive, and that is valuable. These are going to be content that costs money, or something that was previously unavailable. And then you’re gonna go ahead and give that away for free. Let’s just do some examples.

Let’s say you’re launching a podcast, and you’re gonna follow the strategy of doing seven podcasts in the first week, and you’ve got seven different guests… Then maybe you can ask all seven of those guests to send you the eBook version of a book that they have, so that you can use that when promoting the podcast. We’re gonna talk about promoting the podcast later on in these tactics. That’s just one example.

So ask the seven guests “Hi, I want to –” and I’ll explain what to do later. “So if you don’t mind, could you send me a copy of your eBook?” Or it could be something as simple as you personally buying seven hard copy books and then doing  a giveaway at the end of each episode. So be really creative about this, about how to actually do a giveaway… But the whole point is to find something that is valuable, so it actually costs money, and that is going to be exclusive. Something that is not easily found.

The  book idea is valuable, but not necessarily easily found, so another example would be some unreleased piece of content that you’ve been working on and haven’t sent yet. Or maybe you can create a specific piece of content for the promotion of this podcast. For example, for a book, you can create some sort of content for that book that you can give away to people who pre-order the book. So if you pre-order the book, that’s helpful for you, because obviously you’re able to get more sales upfront. You’re also able to leverage that “Hey, I’ve got 100 pre-ordered already. Don’t miss out.” But at the same time, the buyer is gonna get some sort of free extra-content from you. And again, it could be something that is elaborating on something in the book, it could be something completely different… It’s really up to you. But again, the overall idea is to find  a piece of content that is either unavailable, so it’s newly created specifically for this purpose, or it’s something that they can only get by paying for it, and you’re giving it away for free. So that’s the first thing, create a win/win/win by finding and having free content to give away that either costs money, or is unavailable. I gave a lot of examples there.

Now, what do you do once you actually have this content? Well, you’re gonna give it away. The way in which you give it away is really up to you. As I mentioned, it could be if you pre-order the book, then you give it away. “Each day, for the seven days, we’re gonna give away a free book that was written by the interviewee. In order to enter, follow A, B, C, D steps”, which hopefully captures their email address.

That brings me to number two, which is to promote your new content platform to your email list. So this includes obviously the day that it launches, having a banner or a section in your email list that promotes this new content platform, but you’re gonna wanna do this actually ahead of time as well. I’m gonna kind of keep using the same two examples – either a book or doing the seven podcasts in one week.

Let’s say you’re gonna do seven podcasts in one week. Obviously, your not gonna do all seven of those episodes the day before, and then the next day you release the first episode. It takes editing, it takes time… So once you know what the seven podcasts are gonna be, then over the several weeks before it launches you could feature each of those episodes each week, to create anticipation for those episodes. Maybe seven weeks is a little too much, maybe you can do a month, or two weeks.

The whole goal is you don’t want to blindside your readers, your followers with a brand new podcast, because you’ll get some interaction, but you’re not gonna get as much interaction as you would have if you would have created a bunch of anticipation leading up to it. And one way to do that is on your email list. And then obviously, once it actually launches, you go ahead and promote it there. Since you are creating this win/win/win, you’re gonna want to promote the giveaway that you’re doing, or the book, if they’re pre-ordering it, just the “Hey, if you pre-order this, you’ll get the giveaway.” Or if you do A, B, C, D, E, F, G after listening to each podcast, you get the chance to win the free book.

So however you’re giving away the free win/win/win content, make sure you include that in your promotion as well, on your email list.

Number three is to promote the new content platform in a Facebook group. It’s basically the same thing you’re doing on your newsletter, but do it in the Facebook group. So figure out “Okay, how far in advance do I wanna start promoting this podcast? Okay, I wanna promote it for a month, so each day for 30 days I’m gonna have some sort of post on my business page that’s promoting my new podcast.” So pretty easily, you’ve got seven for the actual podcast guests, you can ask questions to generate conversation on what types of guests you should interview, things like that.

For the book, maybe you’ve got 30 chapters in your book, so each day you can feature a different chapter in that book before it gets actually launched. So a lot of different ideas, but again, the purpose is to do something on Facebook.

You can also create a brand new Facebook group that’s specific for that new content. Podcasts, for example – we have the Best Ever Show community, that’s specific to our podcast. So everything on there is to promote engagement, to talk about topics from the podcast, or in a sense miniature interviews that are happening on the Facebook page. If someone asks a question and then a bunch of people who would be interviewed on the podcast go in there and answer that question.

So in that Facebook group – you create that Facebook group for this new podcast that you’re gonna create, and then in addition to posting that 30 days’ worth of content on the Facebook group, also post that in that Facebook group community. Make sure you share that Facebook group community on your personal Facebook, on your business Facebook, so that you’re able to get people to join that before the podcast actually launches. So that’s number three.

Number four is to get on other people’s content platforms to promote the launch. We actually talked about this yesterday, the four tips for successfully being interviewed on someone else’s podcast or YouTube channel or blog post. So a great way to promote your new podcast is to promote it on other people’s podcasts. As I mentioned in one of the tips, have a call to action that sends them to your Facebook group, or sends them to your email list. Mention the free content you’re giving away.

So if you know when you’re gonna launch the podcast, try to get on other people’s podcasts and have those episodes go live before yours launches. Again, you’re creating anticipation for your new podcasts. If something applies for a book you’re launching, go on there and talk about your book. You can talk about five topics from your book, and then say “If you want to learn the next 10 or 20 topics, you can buy my book. It’s available for pre-order now. If you pre-order it, we’re giving away this free thing.” So that is number four; we talked about that a lot yesterday, so I’m not gonna elaborate more on what to do when you’re on other people’s podcasts; just go listen to that episode.

And number five is to have something else to give away. Going back to number one, creating a win/win, let’s see say you’ve got a list of ten different pieces of content you wanna give away, and maybe two of those are exclusive and valuable, so you only give away those two. Once you give away those two, you can also give away the other ones as well. So when we did our book, some of the content was exclusive and valuable, and some of it wasn’t. Some of it was stuff that we’ve used before, some of it stuff you could find elsewhere, some of it was repurposed content from before… But we wanted to give away a ton of resources, so whenever we were promoting the book on the podcast, on the Facebook group, on the email list, we focused on those exclusive and valuable pieces of content, and then once they actually received the content, not only did they get that, but they got the bonus content of the extra five, six, seven, eight in the example I just gave, where two were valuable and eight weren’t. They are surprised when they see the bonus eight pieces of content.

So those are five things you can do to successfully launch a new content platform, whether that’s a podcast, a YouTube channel or a book. The first one is to create a win/win/win, which is to offer exclusive and valuable content to the listeners. Some of that content can be from the interviewees or people who are featured in your book, to again, get that third win in there. Plenty examples of that.

Number two was to promote your new thought leadership platform to your email list. If you don’t have an email list, you probably should create one. We’ve talked about that in previous Syndication School episodes as well. Number three is to promote the new thought leadership platform in your Facebook group. And again, for both the email list and for the Facebook group you’re not only promoting the platform, but also the free content you’re giving away.

Number four is you get on other people’s thought leadership platforms to promote the launch of your book, your podcast or YouTube channel. And number five is to focus on the exclusive and valuable content pieces when promoting the book, but then once you actually send the content, have something else included in there. It doesn’t need to be valuable and exclusive, but just have some bonus material to provide to the winner, or those who pre-ordered the book.

So that concludes this episode. I recommend listening to the episode from yesterday, or if you’re listening to this in the future, the one before this… Because it ties in to that number four, getting on other people’s content platforms, like talk about some tips on how to perform while doing your interview on other people’s podcasts or YouTube channels. Or you can just find that at SyndicationSchool.com, along with all of our other Syndication School episodes and free documents.

Thank you for listening. Have a best ever day, and I will talk to you soon.

Website disclaimer

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

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

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

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

Oral Disclaimer

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

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JF2108: Tips To Nail Your Podcast Interview | Syndication School with Theo Hicks

In this episode, Theo will be talking about branding and specifically going over how to nail your podcast interview. He will be giving tips from his experience in interviewing dozens of guests on our show. 

Click here for more info on groundbreaker.co

 

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


TRANSCRIPTION

Joe Fairless: There needed to be a resource on apartment syndication that not only talked about each aspect of the syndication process, but how to actually do each of the things, and go into it in detail… And we thought “Hey, why not make it free, too?” That’s why we launched Syndication School.

Theo Hicks will go through a particular aspect of apartment syndication on today’s episode, and get into the details of how to do that particular thing. Enjoy this episode, and for more on apartment syndication and how to do things, go to apartmentsyndication.com, or to learn more about the Apartment Syndication School, go to syndicationschool.com, so you can listen to all the previous episodes.

Theo Hicks: Hello, and welcome to the Syndication School series, a free resource focused on the how-to’s of apartment syndication. As always, I am your host, Theo Hicks. Each week we air two podcast episodes that focus on a specific aspect of the apartment syndication investment strategy, and for the majority of these episodes we offer free resources; these are free PDF how-to guides, PowerPoint presentation templates, or Excel calculator templates, things that help you along your apartment syndication journey.

Today we are going to talk about branding. We haven’t talked about branding in quite some time; I believe the last time we talked about something directly related to branding at least was back when we were doing the 10 or 11-step process for doing an apartment syndication, and did an 8-part series on branding… So I thought  right now would be a really good time to refocus on our branding. I’m actually taking some copywriting courses right now, so I’ll definitely be talking about the information I’m [unintelligible [00:04:48].27] in those courses in the future… But also, since you might not be doing as many deals as you were doing previously, instead of not doing anything, you can refocus on building your brand, whether that means creating your brand in the first place, adding to your brand, or just making your existing platforms a little bit better.

So what we’re gonna talk about today is how to perform well when being interviewed on other people’s podcasts. Obviously, one way to promote your business is to create your own brand, and one way to promote both your business and your brand is to be interviewed on other people’s podcasts or YouTube channels, be included in their blog posts, things like that. So just getting your name out in front of a new, but similar audience is very powerful when it comes to branding… So I wanted to give you some tips on how you can adequately prepare for that podcast, so that you’re able to get the most out of it, so that you’re able to maximize the number of people who will listen  to that podcast and say “Oh, wow, it’s Theo. The guy is interesting, smart, and I think I want to learn more about him at his website, or his blog post” or “I think wanna sign up for his newsletter.

So I’ve got four tips I wanna go over today. The first one is to ask yourself why people listen to that podcast. I’m not gonna talk about how to get on podcasts here. We’ve already talked about this. We’re not gonna talk about best practices, tactics during the interview, what to do post-interview… We’ve talked about all that before on the podcast. I wanna talk about specifically how to actually just high-level nail your podcast interview.

Before you get on the podcast with whoever is interviewing you, you wanna ask the host or whoever is responsible for scheduling why people  listen to their podcast. You’re gonna want to do this before the interview starts; ideally, a  few days prior to the interview, or technically you could do it the second you’re scheduled to be on the interview. You wanna know why people listen to the podcast, because then you’ll know what you should and shouldn’t talk about, as well as how to cater the conversation.

Let’s just use this podcast as an example – people listen to the Best Ever Podcast because they want to hear best ever advice that our guests have about how to be successful in real estate, but they want it in a short, no-fluff format. That’s why all of our episodes are no longer than 30 minutes, unless I’m doing Syndication School or Follow Along Friday and I’m yapping for a long time… But typically, they’re gonna be shorter, concise, to the point episodes where a wide range of real estate investors give their best ever advice, so that you can take that advice really quickly if you’re really busy, and then implement that into your business.

We also do them daily, so that there’s gonna be constant content coming out. So if we’re interviewing someone that you don’t think would be a good fit for you, you can skip it and have a new option the next day.

On the other hand, let’s take Bigger Pockets, for example. Their podcast is a little bit different, because their podcasts are a lot longer. They’re an hour, an hour-and-a-half, two hours… They’re a lot more casual, so it’s more of a back and forth conversation, where the Bigger Pockets guys talk some, and then the guests talk some, whereas on our podcasts it’s mostly just us asking questions… And I got this from the Bigger Pockets Podcast description – they chat about the failures, successes, motivations and lessons learned. So if I was being interviewed on the Best Ever podcast, I would cater the conversation differently than if I was being interviewed on the Bigger Pockets podcast.

First and foremost is the time. So if my plan is to get ten important points across to my target audience, I’m gonna get those ten points across a lot faster if I’m being interviewed on the Best Ever show, whereas I can elaborate – at least on a few of those – on the Bigger Pockets podcast. So overall, if I was being interviewed on this podcast, I’d keep my advice very concise and to the point, whereas if I was on the Bigger Pockets podcast I would give advice as if I were talking to a buddy, or a friend; a more conversational, coffee shop-type environment.

Now, some people will listen to a podcast for very specific, niche advice. Bigger Pockets and our podcast has a very wide range of niches. We kind of cover everything. I’ll talk to someone who’s house-hacking a single-family home, and after that I’ll talk to someone who’s got 10,000 multifamily units. Also, then I’ll talk to someone who invests in notes, and then someone who invests in condos… So it’s kind of all over the place. Same with Bigger Pockets, it’s exactly the same way. They kind of hit all different niches. But there’s a lot of podcasts out there that focus on specific pieces of advice, specific real estate niches.

Let’s take, for example, Gino, from Jake & Gino, who I actually interviewed last week – they have a podcast called Wheelbarrow Profits Apartment Investing, where they talk about apartment investing. You’ve got someone like Kevin Bupp, who has a podcast called Mobile Home Park Investing.

So if I were to go on Gino’s podcast, and if I were to ask him, “Hey, why do people listen to your podcast?”, he would say something along the lines of “They want to learn how to invest in large apartment buildings.” So if that’s the case, I’m not gonna go on there and talk about my first house-hack story. Whereas if I’m on Bigger Pockets, then it’s something that’s interesting, to hear my first house-hacking story, and then how I got to where I am today.

Same with Kevin Bupp’s podcast. If I don’t know anything about mobile home parks, then I’m probably not gonna be a good fit for that episode, and I’ll have to talk about something that’s’ likely not related to real estate, and maybe more personal development, or business, or sales or strategy side.

Overall, you wanna make sure that you know why the audience is listening to that specific podcast, and then make sure that you are catering your advice to fulfill their needs, and then don’t talk about anything that they’re not gonna be interested in. That’s number one.

Number two is to have a call-to-action. At the conclusion of most podcasts, the host will ask you, the interviewee, to tell the listeners where they can learn more about you and your business, or they’ll offer you some sort of opportunity to provide a call-to-action. It’s okay to say “Just email me or call me”, but to take it a step further, ask yourself what do you want people to do after listening to your amazing podcast?

Again, it can be something as simple as “Email me in the questions that you have”, but again, the idea is  you want to send people from this podcast to your business, whatever your hub is going to be. So you’re gonna want your call-to-action to include that hub. Again, that can be as simple as asking them to send you an email, or you can create an actual landing page and send them to that landing page. That landing page could capture their email address, for example. It could take it a step further and it could allow them to have access to your newsletter.

To take it a step further, you can have a landing page that captures an email address, and then in order to convince them to give you their email address besides your amazing podcast interview is to have some sort of free item to give away. An eBook, or maybe one of your most popular blog posts that goes more in-depth into the topic that you discuss on the show, or again, it could be something as simple as a subscription to your newsletter.

So if you think about this from a process standpoint, you ask “Okay, why do people listen to this podcast? Okay, they wanna know about apartment investing. Okay, well I know about apartment investing, so what specifically do I wanna talk about for apartment investing?” Maybe I wanna talk about my top tips for hiring the right property management company. I’m going on the Best Ever Show, which is a little shorter, so I’m gonna go over my first five tips of how to find a property management company. At the very end, I’ll say “Hey, those were just actually five tips. I have ten more tips on top of that, so 15 total tips. If you wanna know my next ten tips, go to www.theorocks.com and enter your email address and I’ll send that to you for free.”

So just being super-prepared for the podcast – that’s actually a lot better than going over all 15 tips on the show, or just going over the best five tips and just saying “Hey, go to my website and check out more content that  I have.” Again, that’s fine, that’s a decent call-to-action, but a better call-to-action is one that hits all of those steps – it sends them to the landing page, and it actually gives them something that builds on what you already talked about in that episode.

Obviously, by having a call-to-action that captures email addresses, another advantage is that you can see the effects of the interview. You aren’t gonna have access to the interviewer’s analytics for the show; you’re not gonna know how many people listened to the episode. And even if you did, you’re not really gonna know how that compares to other episodes, because you don’t have access to that, but you can ask them “Hey, do you mind sending me the analytics for every single episode you’ve ever done?” So the best way to gauge the success of the podcast, if it was worth your time, is to actually capture the email addresses, and then you can determine how many people clicked on that link, or inputted their information. It’s a really good way to gauge how successful the interview was.

Tip number three is to have prepared stories. So you know why people listen, you’ve got your topic, you’ve got your call-to-action prepared, now you need to figure out what you’re actually gonna talk about in regards with that topic… So make sure that you have an interesting story to tell about whatever that topic is. Don’t necessarily force it into the conversation, but at least have a few stories ready to tell, and then try to implement them or add them in very naturally, so that it flows properly. Because at the end of the day, people really love stories.

Let’s say for example you are asked about your first deal. Don’t just say “Oh, well I’ve found it on the MLS, and I bought the deal for $100,000, and then I’ve put $50,000 into it, and now the value is $200,000. It was a really good deal.” That’s good information to include, but it’s not enough, and it’s quite frankly kind of boring… So instead, have some interesting story to tell about your first deal. Or you can give them the numbers, but then follow it up with something funny that happened, something unexpected that happened, or some interesting story that you learned, or some relationships that you’ve created… Some sort of story that’s going to make it interesting, make it entertaining. Because at the end of the day, it’s all about entertaining people. That’s what people want to do. So educating and entertaining, as opposed to just educating. So have a prepared story for whatever topic you wanna talk about, and then figure out ways to naturally bring those up.

And then the  last thing is to focus on lists. What’s the title of this episode? Well, I don’t create the titles, but it should be something along the lines of “Four tips to nail your podcast interview.” People who listen to real estate investing podcasts and read real estate investing blogs, they love lists. So whenever a host  during a podcast interview asks you a question, try to give your answer in the form of a list. For example, if they were to ask you about the lessons you learned from your first apartment syndication deal, a really good reply would be “Well, I’ve made a lot of mistakes on my first apartment deal, so here are actually five. Number one is blah-blah-blah. Number two is blah-blah-blah. Number three is blah-blah-blah.”

After that, you can say “Here’s five things that I did to fix these mistakes.” Or “Here are the five things I do now to avoid making these mistakes.” So list form, as opposed to saying “Oh, yeah, I’ve made a lot of mistakes… I did this, I did this, I did this…” But just let them know kind of going in there “Hey, here’s a list of five things.” So they can say “Okay, well I can make a list. One, two, three, four, five. Oh, he only said four? What’s the fifth one?” You’re kind of confused now.

So people love lists… That’s why I didn’t title this “Tips to nail your podcast interview.” People are gonna want to know “Well, how many tips? Is it one tips, is it two tips, is it ten tips? How many tips?” So definitely try your best to lead off your advice with “Here are the X number of tips.” And if you don’t really know — let’s say I am doing this podcast off the cuff, and I say “Oh, here are three tips to nail your podcast interview. Number one, why do people listen? Number two, have a call-to-action. Number three, prepare stories. And guess what – I’ve got a bonus tip, which is number four.” So if you make a mistake, just always toss in the bonus tip. Or “Here’s another bonus tip.” Or “Here’s an additional bonus tip.” So always underestimate the number you think you might do, or — obviously, if you know what the list number is, you can say that;  but if you don’t necessarily know, go on the low-end, and that way you can say “Well, here’s a bonus tip.” Because I think the one thing people probably like more than lists are the bonused tips.

So those are the four tips to nail your podcast interview – number one, why do people listen? Number two, call-to-action. Number three, have stories prepared. Number four, people love lists.

Thanks for listening. That concludes the episode. Until next time, make sure you check out some of our other episodes on the how-to’s of apartment syndication. We have a lot more Syndication School episodes on branding, so you can definitely check those out. Also, check out the free documents. All that is available at SyndicationSchool.com.

Thank you for listening, and I will talk to you tomorrow.

Website disclaimer

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

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

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

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

Oral Disclaimer

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

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JF2101: What Does Financial Freedom Mean? | Syndication School with Theo Hicks

In today’s episode, Theo brings up the topic of what is important in life? He starts to question what does financial freedom really mean to you? He shares a popular blog post where a nurse interviewed her patients who were close to their end of life and asked them each the question “what did they regret?”. This episode will help open up your mind to discover what it really means to be financially free? 

 

Click here for more info on groundbreaker.co

 

 

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


TRANSCRIPTION

Theo Hicks: Hello, Best Ever listeners, and welcome to another episode of the Syndication School series, a free resource focused on the how-to’s of apartment syndication. As always, I am your host, Theo Hicks.

Each week we air two podcast episodes that focus on a specific aspect of the apartment syndication investment strategy. For a lot of these episodes we offer a free resource to you. These are free PDF how-to guides, PowerPoint presentation templates, Excel calculator templates, some sort of resource to help you along your apartment syndication journey.

All of these free resources from previous Syndication School episodes, as well as the actual episodes, are available at SyndicationSchool.com.

In this episode I wanted to review a blog post that was written by someone on the Ashcroft team about the top two regrets of dying, and how to buy more time. We might have briefly touched on what I’m going to talk about today in a Follow Along Friday actually, probably about a year ago… Those of you who are newer, this will be new, and those who are long-time listeners – this will be a refresher… But it was back when Joe was talking about how he was starting to volunteer at a hospice care.

In his blog post, Travis focuses on a blog post that was written by a nurse, all the way back in 2009. This nurse worked in a terminally ill care unit, with people who are living out their final days in life, so kind of like hospice care… And this nurse decided to ask her patients about their top regrets in life. She first published her results as a blog post, and it was so popular that she later wrote a book on the topic. If you wanna check that out, the woman’s name is Bronnie Ware.

Now, the top two regrets that people had on their deathbeds was 1) I never pursued my dreams and aspirations, and 2) I worked too much and never made time for my family. So the way that Travis was positioning this blog post was that people spend a lot of time focusing on getting a nice car, new clothes, or a really nice house, or a vacation home, which is obviously pretty awesome to have, but he categorized all of these things as “stuff.” And while stuff is nice, we only need a certain amount of stuff… And having stuff is different than having freedom. So he was saying that there’s a choice between having more and more things or having more and more freedom.

There’s a pretty cool quote in here from Susan Fussell. which is “You can have anything you want, but not everything you want.” So you can’t have both. You can really have freedom, or you can have more and more stuff. If you actually sit down to think about it and you focus your awareness on it, would you rather have more and more things, or would you rather have your own life? Because ultimately, having freedom comes down to being able to live your life and spend time on things that you love, and focus less on things that you don’t like doing, just so you can buy more things.

So the reason why he wrote this blog post was because — it was geared towards passive investors, so I definitely wanna talk about that in a second, but… Looking at those two regrets, 1) I never pursued my dreams and aspirations, and 2) I  worked too much and never made time for my family – number two is probably a better selling point for passive investing… And number one as well, “I never pursued my dreams and aspirations”, but that also applies to apartment syndicators as well.

This blog post, when you read it — it’s positioned and speaking to passive investors, but the same regret could apply to an apartment syndicator. You work a regular 9 to 5 job your entire life, you retire when you’re 70, you live off of your 401K, and you have a pretty comfortable life… But even if that’s the case, on your deathbed did you wish you would have bought in real estate? Do you wish you would have bought more real estate? Do you wish you would have decided to take the chance and raise money and buy larger deals? Whatever your real estate aspirations are, do you want to be on your death bed and regret not taking that leap into trying to (in this case) raise money for apartment deals? Obviously, it can be anything, but this is Syndication School, and a lot of people who are just starting out aspire to raise money, so that’s why we’re here, to help you learn how to do that. Obviously, if you’re listening to this, you’re already on the track to not have that regret.

But the second regret, which is “I worked too much and never made time for my family” – that’s something that you want to use when you are talking to people who might potentially invest in your deals. Because obviously, you can tell them “Hey, you can get 8% preferred return, or 7% preferred return, and you can make a 2x equity multiple”, and you can tell them of all the money that they’re gonna make from the deal, which might convince some people, but a stronger, more powerful story is to try to touch on this second regret.

Obviously, don’t go to them and say “Do you want to be on your deathbed and regret that you worked too much and never made time for your family? Well, if you passively-invest, you’ll be able to make money without having to work, and be able to do that.” I guess you could position it that way, but the whole point is to focus on the dollars that they can make by passively-investing, but also focus on what those dollars will do for their life.

So the moral of this story from Bronnie Ware and these two regrets is that passive income is not about money or obtaining more stuff, it’s about having freedom and the ability to spend your time on the things you love, and focus less of your time on the things you dislike doing.

So the first step – and again, this is your trying to position this to your passive investors, or at least understanding this, so that when you’re talking to your passive investors, you can position it in a way that gets this story across… But the first step towards any journey to financial freedom, as you well know, is having more income than expenses… But it’s not just any type of income, it’s actually passive income. So you wanna have more passive income than the expenses that you’re paying out. So that means you have more money coming in each month than your expenses; that money that’s coming in is coming in without you having to exchange your time or effort for it. So that’s the actual true definition of financial freedom. It’s having passive income that’s equal to or greater than your living expenses.

Now, when you put it like that – this is kind of a simple formula; it seems straightforward, but most people aren’t passively-investing in real estate. Most people aren’t involved in real estate in general, so what’s the reason why people are deciding to purse what Travis calls “stuff”, or pursue income that you have to get in exchange for time and effort, as opposed to passive income and choosing freedom over stuff. He believes it has to do with the fact that there’s not a lot of education on the topic of time freedom, which is what’s achieved through building passive income streams… Or as an apartment syndicator, doing these apartment syndications and building up a large enough team, so that you’re only working on your business for a few hours per week.

So I thought that was interesting, the whole concept of time freedom. Most people focus on financial freedom, but when you actually drill down into it, it’s actually time freedom. And I know when I first started working for Joe on his website, he had a big About Me section, which was about that time freedom. And the whole entire idea is that he believes that people are inherently good, so if people had more time, then they would be able to do more good. So by creating the syndication business and allowing people to passively invest in his deals, so they’re able to make more money without having to exchange their time and effort, they can have more time freedom to spend on doing more good for the world.

And the same applies, again, to the Syndication School, teaching people how to do syndications… Because that’s also gonna get people in the long-term more time freedom as well.

Next in the blog post he goes over some example numbers of “Hey, if you invest $200,000 at 10% passive income, you’ll get $20,000/year”, which is great, but obviously, you wanna have more passive income than your living expenses, so you should be figuring out “Okay, here are my expenses; they’re 100k/year.” Typical apartment syndications result in 10% — again, I’m just making these numbers up just for simplicity. So if I wanna make 100k from a 10% return on an apartment syndication, I need to invest one million dollars to make that 100k/year in passive income.

Now, this doesn’t mean — and this is something that’s important too, that maybe don’t maybe think about or don’t really talk about… There’s not just “Either work full-time, or you’re completely taking in passive income.” Because if you go back to those two regrets, it’s “I never pursued my dreams and aspirations” or “I worked too much and never made time for my family.” Obviously, some of your passive investors may want to eventually do nothing but make money through passive investing, but not every single person is going to have the same outcome for passive investing. Some of them may want to — rather than working for someone else, they wanna do their own thing, and having this passive income will allow them to not have any income coming in from a W-2 job for 6 to 12 months.

So figuring out exactly what it is your passive investors want from passive investing is important. Ultimately, they’re likely gonna be tied to those two regrets… Either “I’m working too much and can’t spend enough time with my family or doing things that I personally want to do” or “I never pursued my career dreams/aspirations.”

My point there is don’t just assume that every single person you talk to just wants to make $100,000/year and just do nothing. Most people that are high net worth are going to want to do other things at the same time, so maybe it means that they have 50% more free time, and then they work part-time. So rather than working 100 hours per week, they’re working 50 hours per week; or rather than 50, 25. Or rather than 20, 10. And then obviously, for some people the amount could be for retirement, and then just kind of doing whatever they want to and sitting on a beach.

Overall, when you’re thinking about how to position your conversation with passive investors, you’re gonna wanna keep those two regrets in mind, and you’re gonna also wanna understand the difference between having stuff and acquiring more things, as opposed to the time freedom. And also, understanding that whenever people are talking about financial freedom, what they’re actually talking about is time freedom. So having money coming in so that they’re not spending 20, 40, 60, 80 hours per week doing something they don’t necessarily like. Instead, they can spend that time either doing whatever, hanging out, chilling, or they can do that pursuing some other dream or aspiration that they have, so that they’re not like the patients that Bronnie Ware was meeting, that were full of regrets about not pursuing their dreams and aspirations, and working too much and never having time to see their family.

So that concludes this episode. Obviously, the entire purpose of this episode was for you as an apartment syndicator to think about what’s going on in a potential passive investor’s mind, but you also wanna apply this to yourself, too. I kind of talked about that in the beginning, “Why do you wanna do apartment syndications? Does it fall into one of these two categories of?” Do you wanna pursue a dream or aspiration, or you don’t wanna work a lot? Obviously, if you don’t wanna work a lot, then apartment syndications could eventually get to that point, but you’re gonna have to put in a lot of effort upfront in order to build up a large enough portfolio and team… So more than likely, it’s something that is a dream and aspiration of yours – to build your own company, to work for yourself, things along those lines.

So that concludes this episode. Thanks to Travis for writing this blog post. I thought it was very inspiring, and also very enlightening as well, and a very interesting take on the concept of financial freedom and acquiring things, versus acquiring more time.

I recommend reading his blog post. It’s called “The top two regrets of the dying. How to buy more time.” If you just go to the blog page on JoeFairless.com, it’s one of the top blog posts right now. If you’re listening to this way in the future, if you just search “Top two regrets of the dying” on the website joefairless.com, it will be one of the search results.

Until next time, make sure you check out some of the other Syndication School episodes that we have about the how-to’s of apartment syndication. Check out some of those free documents as well; those are all available at SyndicationSchool.com.

Thank you for listening, and I will talk to you tomorrow.

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

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JF2092: From IT Sales to Multi Family Investing With JP Albano

JP started in IT sales and later found an interest in multifamily investing. Today he owns 70 units in Houston, Tx, and 165 units across the metro Atlanta area. His first deal was partnered syndication, where he learned a lot of lessons that he implemented in his journey forward in acquiring multiple properties. He shares some of the lessons he learned from a deal where he lost over six figures.

 

JP Albano Real Estate Background:

  • Owner, of JP Albano
  • He started in IT sales and later found an interest in MultiFamily investing.
  • Today he owns 70 units in Houston, TX, and 165 units across the metro Atlanta area which are currently undergoing successful repositioning.
  • Resides in Serenbe, Georgia
  • Say hi to him at https://www.jpalbano.com/

Click here for more info on groundbreaker.co

 

Best Ever Tweet:

“Partner with a more experienced person in a group and seek to offer value in some way.” – JP Albano


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, JP Albano. How you doing, JP?

JP Albano: I’m doing wonderful. I’m so excited to be here, Joe.

Joe Fairless: Well, I’m glad to hear that and I’m glad you’re doing wonderful. A little bit about JP – he started in IT sales, found an interest in multifamily investing because he wanted another way to provide for his family. Today, he owns 70 units in Houston, Texas, and 165 units across the metro Atlanta that are currently undergoing repositioning, so we’re going to talk to him about that. Based in Serenbe, Georgia. Did I say that right?

JP Albano: You got it, Joe.

Joe Fairless: Serenbe, Georgia. So with that being said, do you wanna give the Best Ever listeners a little bit more about your background and your current focus?

JP Albano: Absolutely. So background, as you mentioned, has been IT sales; I got into multifamily as a way of trying to figure out how I can generate – I’m doing air quotes, but passive income. I’m still waiting for the passivity to kick in, but what I didn’t realize is number one, how much I would enjoy pursuing multifamily deals, and just how incredibly rewarding it is to work in an industry where everybody wants to partner and everyone wants to get things done. Compare that to my sales career, it’s a bit of an uphill battle. You’ve got customers who don’t want to talk to you, competing partners that want to sell competing products… So it’s a refreshing place where I can come into it and pick up the phone and call people and welcome the opportunity to partner and grow and build together. So where we are today, we look at assets that are B and C class. We do the value add. like everybody else.

We have a different spin on multifamily than most people. We really want to dial-up and change the way multifamily is done today by adding up higher levels of customer service, and really treating the people that live there with more dignity and respect than they’re otherwise getting today, and we’ve got a whole business model around how we do that. We look for properties that are 250 units in size, across a variety of markets here in the south and southeast.

Joe Fairless: Okay, so up to 250 or 250 plus?

JP Albano: 250 plus.

Joe Fairless: Okay, have you closed on a 250 plus?

JP Albano: No, the biggest we’ve got right now is almost 100 units. Well, we’ve had a 100-unis and a 60-unit, so in total, that’s the 165. But the biggest we have so far is a 96-unit.

Joe Fairless: Okay, biggest is 96. So why aren’t you focused on other 96 units?

JP Albano: It’s a great question. In order for us to really demonstrate our ethic and our core values for our business here at significant lifestyle communities, to demonstrate that customer service level, we really need to support the staff, and we found that in order to do that, we need properties that generate enough revenue to support the payroll “burden”, and 250, that’s the sweet spot.

Joe Fairless: Okay, so you’ve got 70 units in Houston and 165 across the Atlanta area.

JP Albano: Yes, sir.

Joe Fairless: What came first of those two?

JP Albano: The Texas properties.

Joe Fairless: Texas properties. Okay, tell us a story about the Texas properties.

JP Albano: So my first deal was really more of a key principle or limited partner in a deal. The idea going into that was that I was going to get some experience or at least talking points that I can use to leverage that with brokers and get access to more deals. What I found that is 1) it gave me more confidence, but 2) it didn’t really necessarily lead to more door openings; maybe it did, maybe it didn’t. But my real, real first deal for the Best Ever listeners here is a 28-unit property in Houston, Texas, that me and three other gentlemen, we pulled down, we syndicated. That was our first deal that we really did on our own. We syndicated the deal on top of that. Talk about baptism of fire. There’s a lot of learning opportunity there and a lot of growth that happened. What really got me excited was the personal development that came from that; coming from most people when they’re getting into active real estate investing, getting rid of a lot of limiting beliefs, the idea of “asking people for money” instead of looking at it as providing opportunities for people to get great returns; just going through all those sorts of things. But that was about a $2 million acquisition price. We raised about $700,000. We got a number of friends and family with about $20,000, $25,000 or so, and the property is currently undergoing a really successful repositioning. We had some battle with a third party property manager that seemed like he was saying all the right things and doing the right things. The problem was they weren’t really delivering. So that was a really good learning opportunity that came out of that.

Joe Fairless: Okay, please elaborate.

JP Albano: Yeah, sure. So we had a property where our business plan was to go in and renovate the units, increase the rents, the normal stuff. The problem was we weren’t getting tenant showings. People weren’t biting on the higher rent increases, our renewals were falling through, and we had very little visibility into what the current third party PM was doing. We had a portal that we can log in, we could see leads, but they use a different system outside of that to actually nurture the leads. So we couldn’t see that. So as far as we could tell, we’ve got people putting emails and phone calls in and no one really following up.

Then we found ourselves in a funny spot where we tried to move away from them and suddenly realized that that size property, 28 unit, is a funny place. It’s not small enough for the single-family people to want to care about, and it’s not big enough for the bigger real property managers to wanna deal with. So we almost were forced to take over property management ourselves, which we ended up doing. So we bought some big boy property management software, which we’re moving the rest of our portfolio into, and one of my partners who’s local to the deal took over the day to day management. I’ve gotta say, it’s probably one of the best things we ever did because in a matter of, I want to say, two to three weeks, we got all of our vacant units rented up, and we have a waiting list for our property.

Joe Fairless: You said the first deal you did was at 26 units. Did I write that down correctly?

JP Albano: Yeah, this one we’re talking about right now was 28 units.

Joe Fairless: 28, sorry. 28 units, and you syndicated it…

JP Albano: Yes.

Joe Fairless: So how much equity did you raise in the syndication?

JP Albano: The total raised was about $700,000 to $800,000 if I remember correctly.

Joe Fairless: Okay. What was the purchase price?

JP Albano: It was a $2 million purchase price. So we also raised money for the capital improvements and there was an extra, above ordinary closing costs.

Joe Fairless: Okay. Do you know about how much the legal fees were to syndicate that?

JP Albano: It wasn’t that bad. I want to say it was between $8,000 and $12,000. Yeah, it wasn’t awful.

Joe Fairless: Okay, cool. So with that deal, it was you and how many partners?

JP Albano: It was four of us total. So three other gentlemen.

Joe Fairless: Okay, and how did you split up your roles and responsibilities?

JP Albano: That was a good learning opportunity as well. That when we split up pretty much evenly amongst ourselves. Everyone got 25% from an ownership standpoint. As far as responsibilities go, we didn’t really define who would be doing what, we just had the understanding that each of us is going to contribute in whichever way was possible or wherever we need help; that sort of mentality. It worked out fairly well. As time went on, we saw that the property required a lot more care and feeding than we were expecting, simply because we were under the impression that our third party PM that we were paying money for was gonna be managing the property, but the reality was we were working on the property almost every day for the first four to six months.

Joe Fairless: Okay, so that was your first deal. Do you still partner with those same three other people on deals that you’re working on now?

JP Albano: We are still in communication on other opportunities as they come up. Absolutely, yes.

Joe Fairless: Okay, so what’s the last deal you bought?

JP Albano: Last deal we bought was – oh, this is an interesting one… This one was in October, it was a 57-unit in Hapeville, Georgia, which is a city inside of Atlanta. It’s just north of the airport in Atlanta.

Joe Fairless: Okay. Did you have the same three partners on that one?

JP Albano: No, that was a different deal, different opportunity. I partnered on that one with my current business partner, Matt Shields, on that one, and a few other friends and family. We did not syndicate that one, we just raised money from about eight other people because we bought the property for a song.

Joe Fairless: Okay, got it. So it was a joint venture then.

JP Albano: Exactly, exactly.

Joe Fairless: Okay, so you had a joint venture on that one. So tell us the business plan on that, and first off, how’d you find it?

JP Albano: That property was interesting. My real estate coach, Bill Ham, had notified me. He knew I lived in the area, and he knew that there was something that I and my team could take down. He was at the same time closing, he found himself in a situation where he was closing two properties at the same time. This one would require a lot more work, so he was a little disinterested in it. So his offer was, “Hey, pay me a finder’s fee and you guys can have the contract.” So that’s what we did. We call it a unicorn, really. It was an original owner for 60 years. You wouldn’t even tell this property existed, because when you get off the highway to get there, it’s down the street of a dead-end road. So unless you venture down the street a little bit past the trees, then you’re greeted by this oasis of a smorgasbord of different houses.

The gentleman that was running it previously, was running it as a weekly rental property, again, for the last 60 years. Rents for about $100 a week or $400 a month, and this is in a submarket where a one-bedroom apartment was average rents are $915. So we saw an opportunity to increase the rents, not necessarily to $400, but somewhere in the $500 to $600 range. We had a variety of challenges around not having actual financials. This was the definition of mom and pop. So things were written on carbon copy paper. There were no systems in place, there was very little documentation, so we had to underwrite that with really good finger in the air assumptions on things and being very aggressive with respect to what losses we can expect, things like that.

I can happily say so far, knock on my thick  Sicilian head, that things are turning out a lot better than we ever anticipated. There’s been a tremendous amount of demand for that type of housing. People have the ability to pay weekly because frankly, these people are in a financial situation where they just can’t manage their money well enough to be able to do monthly rents. And they like the area, they like the job opportunities that are there. They like being close to Atlanta. We have a waiting list and we haven’t even advertised any of the property.

Joe Fairless: With that deal, what’s been something that surprised you in a bad way about it?

JP Albano: In a bad way? I would say that– I guess I didn’t recognize or realize that the people that do live there — well, I feel like they’re trying to do their darndest best. A lot of them have sorted and troubled histories and backgrounds. I’m not surprised. I think there might be a few registered sex offenders that live there. So as a family man and a father of two children, two girls, I should say there’s that part that doesn’t sit super well with me, but at the same time, they are human beings. I’m sure that they have atoned for their sins in the legal system. So that’s probably how I would answer that question, Joe.

Joe Fairless: What deal have you lost the most amount of money on?

JP Albano: Oh, it’s a good question. So this was a deal that, as of last Monday, I should say that I learned that the deal was dead. It’s been dragging on for almost a year now. It was a 300-unit student housing property that I was part of the earnest money and due diligence contributor in the GP team; that was my contribution. The team that was running the deal lost the contract. It’s through a variety of mishaps, not being able to raise the capital, some shaky business with the loan, with the deal sponsors themselves. It’s a story for another day, but yeah, I lost a six-figure amount of money on that deal. Pretty sad.

Joe Fairless: I’m sorry that happened.

JP Albano: You know what the good part about is, Joe? It’s a good story to tell to other people in my community and other investors and show them, hey, bad things happen. And it’s okay because you grow from it, you learn from it, you make the best of it and you try to learn from those things, and that’s how I really moved on past it. Honestly, it doesn’t really bother me anymore. It’s just more [unintelligible [00:14:05].18]. It was more of a giant waste of time than anything else, and that’s really the biggest sucky part of it; just a waste of time, for no reason.

Joe Fairless: I get that. So knowing what you know now, if you were presented a similar opportunity somewhere else–

JP Albano: Oh, yeah.

Joe Fairless: –what questions would you ask, now that you know what you went through?

JP Albano: You ready? How much of your money, Mr. Deal Sponsor person or Mrs. Deal Sponsor person, are you putting in the deal? How much of your skin is in this game? And that was the problem; they didn’t have any skin in the game.

Joe Fairless: Got it. So they worked with partners. Those partners did put up the earnest money, they did not, deal fell out of contract, partners who put up earnest money lost money – is that basically what happened?

JP Albano: Exactly, exactly.

Joe Fairless: Got it. That’s a big question to ask. Any other questions? Because let’s say they say, “Oh, I’m putting in 50k of my own money.” Anything else you would ask about that?

JP Albano: I would, yeah. “Let’s also do a personal guarantee on that.” I would be comfortable with that, the personal guarantee, and also understanding how much they are on the hook for as well, and I think that’s fair. And maybe even hashing out a plan, a go-forward plan. Let’s say there’s a couple of partners in the deal and JP is being asked to contribute 20 grand or 30 grand for some due diligence stuff, whatever. “Okay, guys, what happens if we lose the 20 grand? Is everyone gonna contribute $15,000 or some amount of money to help recoup the cost?” I think that’s a fair way of doing it, and just having that conversation about, okay, what happens worst-case? Because those go down; it’s part of life.

Joe Fairless: Well, let’s reverse the focus, and let’s talk about the deal you’ve made the most money on.

JP Albano: That’s lining up to actually be this 60-year-old original owner property.

Joe Fairless: Well, let’s talk about money in the bank, as of this moment, out of all the deals that you’ve done. So the most amount of money in the bank you’ve earned from a deal to date. What is that?

JP Albano: That’s a hard one to answer because all of the money in the deals coming out of them are anywhere from $500 to $1,000 of distribution, which I’m extremely appreciative, Universe, but it hardly is that a number where anyone’s going to crash their car or hit repeat on their smartphone.

Joe Fairless: By crash their car, they’re crashing it because of excitement.

JP Albano: Actually, they’re staggered, they’re staggered.

Joe Fairless: Okay, I was wondering why they’d– that’s a lot of money. Okay, I’m gonna end it on a high note; go find the tree. [laughter]

JP Albano: The funny part about it, Joe, is I’ve been doing this for a number of years and I totally recognize this as a long, long haul game. I’m sure you’re in the same boat, and I’m okay with the very, relatively speaking, small returns right now, because I’m building something that’s going to be bigger than myself and bigger than the partners that I’m working on it.

So I see that there’s a lot of upside and a lot of impact that we can make on the people that we affect and touch in our communities and our investors’ lives as we make amazing returns to them. So that’s the part I’m more excited about right now, and the financial part will catch up to me later on.

Joe Fairless: On the 96-unit, for example, $500 to $1000 a month – I assume it’s from the 96-unit because it’s the largest one, but correct me if I’m wrong.

JP Albano: Yeah.

Joe Fairless: Was there not an acquisition fee? Is there not any–

JP Albano: Oh, yeah, you’re right. Yeah, you’re right. There was, actually. So the fee we got was a $30,000 split from that. So you’re right. Thank you for prompting my memory on that.

Joe Fairless: Okay. So you got probably like–

JP Albano: My portion was 30k on it.

Joe Fairless: Oh, well, there you go. Who needs 30k? Yeah, 30k is nothing, right?

JP Albano: I’m so good at spending money on building this business and scaling out a team that it’s really not.

Joe Fairless: Fair enough. Well, let’s talk about you’ve got the portfolio and you’re focused on finding another acquisition that’s twice as large–

JP Albano: Yes, sir.

Joe Fairless: –as what you’ve acquired, and you said at the beginning of our conversation, that you pride yourself on higher levels of customer service. Will you elaborate on how you deliver on that with the community level?

JP Albano: Yeah, that’s a great question. There’s a couple of aspects of that. One is really making people feel like they are part of a community, and I know that’s an often thrown around term, community and belonging and stuff like that. We’re building a business where that is a core, core function of our membership coordinators. The people that are greeting the prospective members and the people that want to express interest in living there.

For example, we have our people go out of their way to introduce a prospect to any other members of our community that might share similar interest, because you really want to show them that, hey, there are other people just like you that live here as well. Isn’t this wonderful? You want to learn about, ask questions about the people that are expressing interest in living in that community. And what I found is when I’m doing my secret shopping, going to different apartments, I can count on maybe one hand how many times a leasing agent actually asked my first name or even what brought me in today. The first question out of their mouth is usually, “When can you move in?” or “When do you need the unit by? How many bedrooms?” It almost goes without fail, and so I don’t feel that the industry is really delivering on this idea of excellent customer service. Especially in the workforce class housing product, where blue-collar people, hard workers, they’re honestly not used to being treated like if you were a resident at the Ritz Carlton. I don’t know if it has to be that extreme, but that’s just the direction that we choose to operate our business on. So it’s a tremendous opportunity there.

Joe Fairless: So a couple of questions that the person who greets the prospective resident asks out of the gate… What are some other tactical things that if a Best Ever listener’s listening to this and they want to implement something, what are some tactical things we can do?

JP Albano: Very basic questions, greeting them with a smile, standing up and maybe instructing your staff to be able to make it clear that they are excited that someone came in and is inquiring about your property. So asking the basic questions, what’s your name, greeting them by that name, showing a warm and caring welcome, ask them what brings them there today, and then easing into the topic rather about what brings you in and what answers can we provide to you about our community that you want to know about it.

Because reality is 80% of a person’s decision to move into your property is made when they pull up; that’s the whole curb appeal thing. The rest of the experience is either going to move the needle further in the direction of yes or it’s going to dissuade them from wanting to live there. So I just see a lot of properties falling short on that.

The other part of it too is really if your leasing agents are speaking with a prospect and Mrs. Smith walks by, and then in your conversation with this prospect you learned that they like gardening or they like dogs or whatever, have the leasing agent to go out of the way and introduce Mrs. Smith to this prospect. “Hey, Mrs. Smith, I wanted to introduce you to JP. JP here loves gardening.” What that shows you is it shows the prospect that, hey, this is a community that I can fit in, I can get plugged in right away and really have a sense of belonging. I think that’s what’s missing in multifamily housing today.

Joe Fairless: Once they are in the door, and they say, “I love to rent,” and they do rent, do you have anything within your system that delivers on that customer service aspect, that may be outside of — or when you were talking about it, were you really thinking about that initial interaction and impression with them?

JP Albano: Yeah, the initial interaction and impression is the biggest part, because they’re really just not going to get that anywhere else. At least not that I have experienced thus far.

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

JP Albano: If you’re early in your (we’ll call it) active investing or real estate investing career, you really need to show that you can close deals with brokers to win deals. It’s a very competitive market. So you’ve got two options, in my opinion – either buy a small property and you grow bigger over time. Eventually, you’ll gain credibility and the experience to show that you can close deals, and incrementally growing the unit size and your account a bit at a time.

Alternatively, option two is you partner with a more experienced person or group. Maybe you seek to add value in some way, offer help to raise capital by introducing your friends and family to them so they can start to build relationship with those deal sponsors. I guess, in a short time, you’ll start being part of the general partnership pool and you can point to those deals while you build up your investor base, allowing you to have more street cred, if you will, with those brokers, and give you the opportunity to really scale your business and scale your real estate career a lot faster.

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

JP Albano: Bring it.

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

Break: [00:22:45]:03] to [00:23:33].10]

Joe Fairless: What’s the best ever resource that you use in your business that you couldn’t live without?

JP Albano: Neighborhood Scout.

Joe Fairless: What do you use it for? Neighborhood research? [laughs] As soon as I asked that question, I was like, “Oh, that’s a dumb follow-up question,” but will you elaborate a little bit?

JP Albano: Glad to. So Neighborhood Scout is a great first pass tool to use to help get a sense of what a neighborhood or a market looks like where a property’s located without physically being there. Especially if it’s a market that you’re unfamiliar with, it’s a great way to get a sense of what the crime rate looks like, what the schools look like, what’s the median income… All the basic things you want to know before you make a decision if it’s worth to go physically there and visit this property.

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

JP Albano: Becoming Supernatural by Dr. Joe Dispenza.

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

JP Albano: So I’m an accountability coach with the Jake & Gino group. I enjoy helping students, I’m super passionate about real estate and also growth and personal development. So I like helping get them into the game. I also really enjoy pointing people in hopeful directions around health-related issues, as I’m very passionate about bio-hacking and health and fitness.

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

JP Albano: Check me out on jpalbano.com.

Joe Fairless: JP, thank you for being on the show. Thanks for talking about how you’ve built your portfolio, how you’ve partnered with others, some lessons learned on that 300 student housing project for what to do, questions to ask, and then just your overall approach to business. So thank you for being on the show. Hope you have a best ever day. Talk to you again soon.

JP Albano: Thank you so much show. I really appreciate you.

Website disclaimer

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

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

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

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

Oral Disclaimer

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

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JF2088: Pros and Cons of Securing A Supplemental Loan | Syndication School with Theo Hicks

In this Syndication School episode, Theo Hicks, will be going over the pros and cons of securing a supplemental loan. These episodes are to help you become a better syndicator so we hope you enjoy the help and let us know by sending us a message. 

 

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

Click here for more info on groundbreaker.co


TRANSCRIPTION

Joe Fairless: There needed to be a resource on apartment syndication that not only talked about each aspect of the syndication process, but how to actually do each of the things, and go into it in detail… And we thought “Hey, why not make it free, too?” That’s why we launched Syndication School.

Theo Hicks will go through a particular aspect of apartment syndication on today’s episode, and get into the details of how to do that particular thing. Enjoy this episode, and for more on apartment syndication and how to do things, go to apartmentsyndication.com, or to learn more about the Apartment Syndication School, go to syndicationschool.com, so you can listen to all the previous episodes.

 

Theo Hicks: Hi Best Ever listeners, welcome to another episode of the Syndication School series, a free resource focused on the how-tos of apartment syndication. As always, I am your host, Theo Hicks. Each week we air two Syndication School episodes that focus on a specific aspect of the apartment syndication investment strategy, and for most of these episodes, we offer a free resource to you. These are free PDF how-to guides, free PowerPoint presentation templates or free Excel calculator templates, some free resource to help you along your apartment syndication journey. So all of the past free documents as well as past Syndication School series episodes can be found at syndicationschool.com.

In this episode, we are going to talk about the pros and cons of securing a supplemental loan. So on a previous Syndication School episode, I had gone over how to actually secure a supplemental loan, but I didn’t go into the pros and cons. I briefly mentioned how it’s different than a refinance, but I wanted to do another episode that went in depth into the pros and cons of securing a supplemental loan compared to, say, a refinance or a sale, because the supplemental loan falls into the category of when the passive investors in your deals receive a large chunk of capital back or a large chunk of money back. Obviously, one of those is the supplemental loan, another one is a refinance, another one is when you sale. So if passive investors receive all or a large portion of their equity back at sale, at a refinance and/or at securing of a supplemental loan. So in this episode, I wanted to just highlight what a supplemental loan is again, go over the pros and cons of the supplemental loan and then also briefly talk about why Joe and Ashcroft prefer to secure supplemental loans.

So first, what is a supplemental loan? It is a type of loan that is subordinate to the senior indebtedness. So it’s the fancy definition of a supplemental loan, but basically what it means is that the senior debt, which is the original debt used to acquire the apartment community, so the agency loan that was put in the property, that is the senior debt, and that must be paid first by the general partners.

The supplemental loan is a separate loan that is obtained, and then it is paid after the senior debt is paid. So year one, you pay your monthly debt service for the agency loan, and let’s say you secure a supplemental loan at the end of year one – you’ve got a new loan now. So the way that it works is you pay the same debt service you paid before first, and then the next portion of the cash flow goes towards paying the debt service on the new supplemental loan.

Now, a supplemental loan is only available if the original debt is a agency loan, so Fannie Mae or Freddie Mac. Those are the two that offer the supplemental loans. You’re not going to be able to get a supplemental loan on any other loan but those two. That doesn’t mean that you can’t take out equity in different ways, but the actual word supplemental loan only applies to agency loans, and it can be secured at 12 months after the origination of that original loan or the most recent supplemental loan.

You can’t get your first supplemental loan until after 12 months, and then you can’t get another supplemental loan if available for another 12 months after that, so 24 months after the first loan, and then supplemental loans are not the same as a refinance because a refinance is replacing the original debt with a new loan. So that agency loan is paid off entirely and then a new loan is put on the property for a refinance. Whereas for a supplemental loan, the original agency loan is still in place and an additional supplemental loan is also put in place. So there’s two loans, as opposed just one.

So let’s go over the pros. So there’s five benefits of getting a supplemental loan. The first is that it converts the equity created in the property to cash that can be distributed or used for further capital improvements. So the entire purpose of a supplemental loan or refinancing or selling is to access the equity that is created, and supplemental loans is one of the ways to do that. So you buy a property, you increase its value, and one of the ways to tap into that value without having to sell or get a brand new loan is to do a supplemental loan.

Another benefit of this supplemental loan is that it closes quicker and has less risk than a refinance.  So now we’re going into why the supplemental loan might be a better option than refinancing. So first, supplemental loans require less due diligence and underwriting than the refinance. So for a typical supplemental loan, the lender is gonna order an appraisal, a physical needs assessment, which is a property condition assessment or inspection, as well as reviewing the previous 12 months of financials. Whereas with a refinance, the same is required, but there’s also additional full underwriting of the sponsor and more due diligence required. So basically the same due diligence you did when you initially acquired the property will be done again by the new lender, but since you’re getting a supplemental loan through the same lender, all that has been done. They just need to make sure that nothing has changed during the first 12 months. So obviously, it’s faster because you have to do less due diligence, and there’s also a little bit less risk, because you’re not necessarily guaranteed to get that refinance, whereas you’re more likely to get the supplemental loan again because you’re getting it through the same lender that you’ve got your first loan. So that’s number two.

Number three is that supplemental loans are also less expensive. So since they’re faster and they require less due diligence, they’re also going to be less expensive, with lower closing costs compared to the refinance. Number four, the increased LTV that comes from a supplemental loan helps make assumable debt more attractive to a buyer. So what does that mean? So securing a supplemental loan increases the loan to value on the property, and the loan to value being — an 80% loan to value means that the bank hold 80% of the property value as debt, and then you have 20% in equity. So normally, agency loans are more stringent on their LTV requirements, and are capped at around 70% at origination, which means that they will lend up to 70% of the purchase price, and then you, as the general partner needs to put down the remaining 30%. And then as you implement your value-add business plan, you increase the value of the property. And when you increase the value of the property and the loan amount stays the same, then the LTV actually is reduced. So let’s say you buy a property for a million dollars, you put down $300,000 and the bank puts down $700,000. Let’s say you double the price of the property to $2 million. So the value of that property is $2 million, but the debt is only $700,000. So the LTV was originally 70%. Now it’s cut in half to 35%, and it’s calculated by taking that $700,000 divided by that $2 million number.

So now you’ve got the 35% LTV. Now generally suppplemental loans allow for up to 75% LTV. So going back to our $2 million example, now that the property is worth $2 million, the bank is willing to lend up to $1.5 million. So since they originally loaned $700,000, they loan you $1.5 million. The difference between the two is $800,000. So you could technically secure a supplemental loan for $800,000 and have an LTV of 75% as opposed to the 70% LTV at purchase. This allows you to increase the leverage. So now you’ve got 75% leverage as opposed to 70% leverage, which allows you to pull out more equity, but it also allows a potential buyer to assume the senior and supplemental loan with less money down. So as opposed to having to put down 30%, they can put down 25%. So the higher the LTV, the less money a buyer who’s going to assume that debt has to put down to obviously buy you out of the deal.

So if you’ve got 40% equity in the deal and  a 60% LTV, then they’re going to have give you 40% to buy the deal from you they assume the 60% loan. But if it’s 75%, then they need to put down 25% and buy you out and assume that 75% LTV loan. So overall, higher LTV makes an assumable debt more attractive to a buyer, and that’s accomplished by doing the supplemental loan, because it allows you to push up that LTV from 70% to 75%.

Then the fifth benefit is the ability to secure multiple supplemental loans. So I mentioned this a little bit earlier – so I get my first loan on May 13, 2020 from Fannie Mae, and I can get my first supplemental loan on May 14, 2021. So 12 months after the first loan. Now, Fannie Mae limits the supplemental loans to one, unless the loan is assumed, and then the person who assumed that loan gets another supplemental loan; so they can get their one supplemental loan as well. But for Freddie Mac, they allow unlimited supplemental loans as long as the most recent supplemental loan was secured 12 months or more before.

So I buy my property and I close and I get my debt on May 13, 2020 through Freddie Mac. I can get my first supplemental loan on May 14, 2021. I can get my second supplemental loan on May 14, 2022, or later, and I can keep repeating that process over and over again as long as obviously the LTV requirements are met. So those are the five benefits.

What about some cons of the supplemental loan? Obviously, it increases the debt service. So since you are taking out more debt, then the debt service, the monthly mortgage payments on the property increases. However, this is going to be the same case for refinance as well obviously. So it’s not just if you do supplemental loan, it goes up or if you do refinance, it doesn’t. Additionally, since these are amortizing loans versus interest only, monthly payments tend to be a little bit higher, even at lower interest rates. So there’s not gonna be an interest-only supplemental loan. You’re gonna have to pay principal and interest, so it’s gonna be a little bit higher compared to an interest-only refinance type of situation.

Another potential con is they’re only available through the agencies. So you can only get your supplemental loan if you’ve got Fannie Mae or Freddie Mac debt on your property. So only having two lenders available limits your ability to have lenders bid against each other to offer the best terms, but because both lenders are government-backed entities, rates are already generally going to be lower than private lenders. So it’s not that big of a deal, but the con here is that unless you have a Fannie Mae or Freddie Mac loan, you’re not gonna be able to secure a supplemental loan.

Number three is there’s limited flexibility with exit strategies. So agency loans are ultimately sold to investors as bonds. So they’re securitized and then sold to investors as bonds. So because of this, it adds a hurdle to the exit of the property. So a loan assumption [unintelligible [00:15:42].16] that the terms of the existing loan are better than market at the time of sale, so this is not gonna be a problem. So if your loan has a lower interest rate than the market interest rate at the time of sale, then it should be fine. But if the market rates are lower at the time of sale, a defeasance fee is going to be required to sell the property free and clear, which is a type of prepayment penalty, and this fee is typically paid by the seller. So if you want more information on defeasance and yield maintenance and prepayment penalties, check out everything you need to know about prepayment penalties on Syndication School. What it’s saying is that, sure, your loan can be assumed by a buyer, but if you need to actually sell the property free and clear and get out of that loan, you’re most likely going to need to pay a prepayment penalty, especially if you secure a supplemental loan.

Then number four is that interest rates can be higher. So the spread on floating rate supplemental loans tends to be higher than the spread on the same type of loan on the senior debt, making the supplemental loan’s interest rate higher. For fixed rates, senior and supplemental loans, the rate fluctuates with the market at time of origination. So compared to refinancing, you’re probably gonna have a higher interest rate. So these are the four cons.

Now why does Ashcroft Capital secure supplemental loans? Well, because they’re great tools for deals that have long term agency financing on them, because it allows Ashcroft and Ashcroft’s investors to get rewarded for executing the business plan by adding value to the property. So as I mentioned, typically agency loans are more stringent on their loan to value requirements, compared to private bridge types of financing. Those are normally capped at around 70%. But as Ashcroft continues the business plan and the overall value of the property increases, that LTV shrinks below the original 70%. I’ve already given an example of that by saying if you buy a property for $1 million at a 70% LTV and increase the value to $2 million, that LTV is now 45%; and since you can get a supplemental loan at 75%, that creates an opportunity to obtain a large amount of money back for investors.  So those are the pros and cons of supplemental loan. That is what a supplemental loan is, and that is why Ashcroft Capital prefers to secure supplemental loans.

That concludes this episode about the pros and cons of securing a supplemental loan. Until next week, make sure you check out some of the other Syndication School series about the how-to’s of apartment syndications. Make sure you check out some of the free documents we have available on there. All that is at syndicationschool.com. Thank you for listening and I will talk to you soon.

Website disclaimer

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

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

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

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

Oral Disclaimer

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

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JF2087: How To Find and Qualify an Executive Assistant | Syndication School with Theo Hicks

At some point during your journey into real estate investing you will want to hire some help. In this episode, Theo Hicks will go over how to find and qualify an executive assistant that will help you in your business.

 

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

Click here for more info on groundbreaker.co


TRANSCRIPTION

Joe Fairless: There needed to be a resource on apartment syndication that not only talked about each aspect of the syndication process, but how to actually do each of the things, and go into it in detail… And we thought “Hey, why not make it free, too?” That’s why we launched Syndication School.

Theo Hicks will go through a particular aspect of apartment syndication on today’s episode, and get into the details of how to do that particular thing. Enjoy this episode, and for more on apartment syndication and how to do things, go to apartmentsyndication.com, or to learn more about the Apartment Syndication School, go to syndicationschool.com, so you can listen to all the previous episodes.

 

Theo Hicks: Hi, Best Ever listeners. Welcome to another episode of The Syndication School series, a free resource focused on the How-to’s of apartment syndication. As always, I am your host, Theo Hicks. Each week, we air two Syndication School episodes that focus on a specific aspect of the apartment syndication investment strategy, and for most of these series, we offer some free resource to you. These are free PDF how-to guides, PowerPoint presentation templates and Excel calculators. These free documents will help you along your apartment syndication journey. All of these free documents, as well as past Syndication School series, can be found at syndicationschool.com.

Today, I wanted to talk to you about finding what might potentially be your first hire, and that is a executive assistant. So in this episode, we are going to focus on how to find an executive assistant as well as how to qualify an executive assistant.

Now, I was interviewing someone on the podcast about a month ago, and I believe he was involved with a VA servicing company, or he started it… I think he started it, a VA servicing company. So he helped businesses find virtual assistants for whatever they wanted to do, and one of the questions I asked him besides when to hire a VA – is  what do you have them do? So I wanted to quickly talk about that really quick, because he had a very interesting strategy that he thinks people could do right away today to figure out what types of things they can have their first hire, their first VA, their first executive assistant do.

So the exercise is very simple. What you do is you pull out a piece of paper and you make a vertical line right down the middle. So you’ve got a column on the left side and a column on the right side. On the left-hand side, you write down every single thing that you either aren’t good at doing or that you don’t like doing, that you currently do in your business, and on the right-hand side, you write down everything that you like doing and are good at doing in your business as well.

So on the left-hand side, you have the things you don’t like or are bad at. On the right-hand side are the things that you’re good at or you do like, and this is something you can do either one time, just sit down for 10 to 15 minutes and write it all out, or it’s  something – and this is probably the better approach, you can walk around with this piece of paper or take notes on your phone and then write it on a piece of paper at night throughout the week. That way you can track, okay, during the week, here are the 50 different things that I do. I’ve got 10 things on the left-hand side that I don’t like to do, that I’m bad at, and 40 things on the right-hand side that I like to do and then I’m good at. And that is going to be your document that tells you what you should outsource first.

So all the things on the left-hand side are what you should be focusing on outsourcing to other people first, and all the things on the right-hand side are what you’ll have more time to focus on once you’ve actually outsourced the left side things. So I would definitely recommend doing the exercise. I really like that. It’s very practical and something you can do right away. So once you’ve got that exercise done and you know what you don’t like doing or what you’re bad at, then you know what types of things you could have your executive assistant do.

So let’s start off by first talking about how to find an executive assistant. So we’ve got four different ways to find your executive assistant. Number one is to use your social network and ask for recommendations from people that you already know. Obviously, the best way to find really any team member or someone to invest with, someone to work with, someone to be involved with is through recommendations, through someone in your current network. So if you like that person in your current network and they refer someone to you, you can assume that you’re going to, most likely, like that person as well. So you should provide a few details of the position to people in your social network or anyone in particular that you know has contacts with executive assistants, and then obviously, give them some contact information so they can contact you if they are interested. So these are things like LinkedIn, Facebook or people that you already know in the real estate industry. So that’s one way, is just someone in your current social network.

Number two is to use Indeed, ZipRecruiter or similar websites to post the position. So just create a job listing and post it to an online job listing website. You can customize the job listing to suit your needs, and it can even be down to the preferred location of the candidate. So if it’s something that you want them to come to your home office, then obviously you’d want them to live near you. Or if you don’t really care, these types of websites give you lots of customized features to select different types of characteristics you are looking for.

For these sites, unlike Facebook and LinkedIn, which you already probably have an account, you’re going to need to set up an account on these if you don’t already have one; and then once you have your account, once you have your job listing, just like if you’re posting a unit for rent or have a property for sale, be prepared to receive a lot of contacts. So that’s why you’re going to want to focus on understanding exactly what you want this executive assistant to do and who you want them to be, and that, in part, comes from doing that left side/right side exercise, because you don’t want to waste time talking to a lot of people who could easily have been screened out if you would have created a better job listing. So make sure you know and narrow down the scope of the position before you post to a place like Indeed or ZipRecruiter. So that’s number two.

Number three is you can just consider hiring a staffing agency. So there’s a lot of companies out there whose sole purpose is to find employees that you need. So for example, I know in a previous job that I got, I got it through a staffing agency. So a business goes to a staffing agency and says, “Hey, I have a job opening, here are the requirements for the job, here’s what I’m looking for. Go out and find me someone,” and then the staffing agency goes out and finds someone, interviews them, pre-screens them, and then if they are a good fit, they will pass on the information to the business owner. So in this case, you would go to a staffing agency, tell them the scope of the position you’re looking for, for an executive assistant, a staffing agency will go out there and find multiple people, interview them based on the criteria you provided them, and then if two, three, four people makes sense out of the 50 people they talked to, then you’ll just be speaking to those four people, as opposed to having to talk to 50 people if you were to do it yourself.

Some of these staffing agencies also do temp-to-hire situations. So something where you don’t have to hire them full time right away, they can work for you temporarily as a test and if you like them, you can hire them. If not, you can go ahead and find someone else through that staffing agency. But the major pro of the staffing agency is that most of the candidates will come pre-screened already, as opposed to you having to do all of that on your own.

Then the fourth way to find an executive assistant – and this will be more if you need someone immediately; you don’t have a few weeks or a few months to go through the hiring process with a thing like Indeed or ZipRecruiter or through social media or through a staffing agency, but you need someone working for you next week or tomorrow – then you can use a website like Fiverr or Upwork and just hire a virtual assistant in the meantime.

So let’s say you do your left side, right side exercise, then you realize that, “Man, I really don’t like doing this one thing and I don’t want to do it ever again. I’m just completely done,” then you can go on a website like Fiverr, create a posting for that particular thing. Maybe it’s you don’t like scrubbing lists or something for direct mailing campaigns. Well, you can find someone on Fiverr to do that for you. They’re gonna be a lot less expensive than hiring a full-time executive assistant, and you’ll be able to get them on your payroll, in a sense, immediately.

So those are the four ways to find an executive assistant. Now, what types of things do you ask them when screening them once they’re actually found. Now, obviously, it’s going to be very specific to your real estate niche. So an executive assistant who’s working for, say, an apartment syndicator might be a little bit different than an executive assistant who’s working for a wholesaler or fix and flipper, or someone who just sends out a lot of direct mailing campaigns. So obviously, you’re gonna want to add to this list specific questions on whatever niche that you’re in.

You’re also going to want to add specific questions based off of the result of your left side/right side exercise. So if there’s ten things you don’t want to do or you don’t like doing, you’re not good at doing, and you want an executive assistant to those ten things– well, obviously, when you’re talking to them, you’re going to want to know if they are actually capable of doing those things, but besides those two things, these are a few general questions that you can ask a executive assistant regardless of what real estate niche you’re in, or regardless of whether you’re in real estate or in some other line of business.

So the first question is  what software programs have you used in the past and how would you describe it your computer skills? Obviously, we live in the age of technology. So an executive assistant who’s doing administrative tasks is going to need to know how to navigate a computer. Especially if you are doing really complicated real estate strategies like apartment syndications, there’s a lot of different softwares and programs that they will have to use, rather than having to do everything manually. Maybe a system you’ve already put in place that you want them to take over. Well, if you don’t have computer skills, then it’s not going to be a good fit. Again, assuming that you want someone that has good computer skills.

Number two – describe a time you had to adjust a schedule due to unforeseen circumstances. So executive assistants are typically responsible for managing the schedule, the calendar of the person they’re working for, and if you need to change something on your calendar or if someone needs to reschedule something with you, how are they going to handle that situation? Can they handle that on their own or will they need you to be involved in that? Because at the end of the day, the purpose of the executive assistant is to make your life easier. So if you have to be involved in tasks you don’t want to be involved in, like scheduling, then it defeats the purpose of having an executive assistant.

Number three – what are your strategies for managing your time when dealing with multiple urgent tasks simultaneously? So asking about their ability to multitask – because again, being an executive assistant isn’t a job where you do the same thing every single day. Things that come up that are higher priority, so how do they prioritize things? How do they make sure they get the higher priority things done first, while also addressing other things that need to be done at the same time?

Next question – describe a time you identified a problem and proactively created and implemented a solution. So again, very similar to the second question about describing a time you had to adjust a schedule due to unforeseen circumstances. The purpose of the executive assistant is to make your life easier. So if they’re able to identify problems and fix problems without you even being aware of it, that’s gonna make your life a lot easier, as opposed to them finding problems and then needing you to actually fix that problem. Obviously, there’s gonna be cases where they can’t fix everything, but there are times where they should be able to do that on their own.

Next – how would you deal with an angry person demanding to speak with an unavailable executive, or wanting to speak with you, who’s unavailable? So if someone calls the executive assistant that’s really upset, how do they handle that situation? What are their communication skills like? What are their people skills like? Can you give me an example of when this happened in the past? This is especially important if you’re doing things like cold calling. Whenever I talk to someone about cold calling, they always say, “Well, most of the time, they don’t answer, and if someone does answer, it’s oftentimes they’re angry with you, they get mad. And then there’s other times where obviously, we make a deal.” So if you’ve got an executive assistant who’s screening phone calls for you, most likely, eventually, they’re going to speak to someone who’s angry. So how do they handle that?

Next – what do you believe an executive assistant brings to a company? So just getting an understanding of what their expectations are of an executive assistant. The next question – how do you anticipate the needs of an executive? So again, making the executives’ lives easier, making your life easier by anticipating things and being proactive as opposed to reactive.

Next – why do you think you’re well suited for this position in particular? Pretty self-explanatory.

Then lastly – what do you enjoy most about administrative work? So all those questions, at the end of the day, are trying to accomplish – one, are they capable of doing what you need them to do, and then two, are they going to be able to make your life easier? That’s really the two questions you need to have answered. Are they capable of doing what you need them to do, and by hiring them, is your personal life, is your business life going to be easier? Also, getting an understanding of what their expectations are of the position. So you can get understanding of what they’re going to do once you actually hire them.

So just to finish off the episode, I wanted to go over — I’m not going to read it in its entirety, but I do have a sample posting that Ashcroft Capital has used in the past for finding an executive assistant. So obviously, Ashcroft Capital is an apartment syndication business. So some of the wording will be a little bit different based off of, again, your particular real estate niche. But at the same time, the structure of this, I think, can apply to all positions, and then obviously, a lot of the stuff in here can be used as well.

So the way that the job posting is structured, it starts off with a bio of Ashcroft Capital, and then it goes into a bio of them as an executive assistant. So these are the characteristics that we want to see in our executive assistant. The third is the responsibilities of the executive assistant, and then the fourth are the requirements. So obviously, in the bio, you want to put the name of your company, what your company does, some of the statistics of your company, and then also in that section is what you’re hiring for. So it says, “We are hiring an experienced, reliable, task-oriented executive assistant to a co-founder of our company. The executive assistant will be responsible for performing a number of business, as well as personal administrative duties. This is an ideal position for a well-qualified candidate to get in early and grow alongside of a powerful and entrepreneurial investment firm.”

Basically, just summarizing the entirety of the other remaining three sections. So who will you work for, what do you need you to do, what’s the benefit to you? Boom, boom, boom.

So the section two is the ‘about you’ section. So this is a paragraph that describes ideal characteristics of the executive assistant. So it reads, “You are a highly motivated professional and capable of managing your workload and prioritizing tasks in a fast-paced environment. You take initiative and think through questions that might be asked and proactively address them before they are asked. When it comes to completing your tasks, you’re consistently reliable. You’re a self-starter and can start and can work autonomously. You want to be a part of something special. You want to a career, not a job. You want to work with a small, but dynamic team that is accomplishing big things.” So as you can see, in that ‘about you’ section, that corresponds with a lot of the questions that you’re going to ask during the interview process.

Next are the responsibilities. So whatever responsibilities you want them to do, make sure you list those out as well. So for example, completes projects or special assignments by establishing objectives, determining priorities, managing time, gaining cooperation of others, monitoring process, problem solving, making adjustments to plans.

And then lastly, the requirements– so obviously, read these just so you have an understanding of what the requirements were for the executive assistant role that Ashcroft Capital is hiring for, because again, you don’t want to hire just anyone. You want someone who has experience, who has certain skills, and then you’re also gonna want to mention the pay.

So requirements, “This is primarily a work from home position, but might require working from an office one or two days a week.” So are they capable of doing that? Two is polished, written and verbal communication skills. Three is at least five years of being an executive assistant. Now this, obviously, is going to depend on where you’re at in your business, because at this point, Ashcroft has 22 properties, 8000 units worth over $900 million, so they could demand someone who had experience.

If you’re just starting out and looking for a executive assistant, you’re probably gonna have a hard time hiring someone who has a lot of experience, but you might be able to. So this part’s really up to you. Then lastly, experience in real estate finance and/or legal is preferred, but not required. So ideally, they have an understanding of the base understanding of finance, in general, if they’re gonna be working for a real estate company… But at the end of day, that’s not a absolute requirement, especially if they are a solid executive assistant and are able to learn on the fly.

Then the last requirement would be, how do they actually apply? So for this listing, it says, “When you apply, please provide a cover letter with your resume,” and then it has a salary of $45,000, plus the opportunity for up to $25,000 in bonuses… Just to give them an idea of how much do you pay an executive assistant.

So that concludes the episode. Now you know everything you need to know about hiring, finding, qualifying an executive assistant, and also, you learned the left side of the paper/right side of the paper exercise for actually figuring out what you would need an executive assistant to do.

So thanks for listening. Until next time, make sure you check out some of the other Syndication School series about the How-tos of apartment syndications and check out some of the free documents we have as well. All of that is available at syndicationschool.com. Thank you for listening and I will talk to you tomorrow.

Website disclaimer

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

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

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

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

Oral Disclaimer

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

 

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JF2074: Ashcroft Underwriting Adjustments During COVID-19 | Syndication School with Theo Hicks

Theo is back with another Syndication School episode and this time he is going over how Joe and his team at Ashcroft Capital are making adjustments to how they underwrite future deals during this pandemic. 

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

Click here for more info on groundbreaker.co


TRANSCRIPTION

Joe Fairless: There needed to be a resource on apartment syndication that not only talked about each aspect of the syndication process, but how to actually do each of the things, and go into it in detail… And we thought “Hey, why not make it free, too?” That’s why we launched Syndication School.

Theo Hicks will go through a particular aspect of apartment syndication on today’s episode, and get into the details of how to do that particular thing. Enjoy this episode, and for more on apartment syndication and how to do things, go to apartmentsyndication.com, or to learn more about the Apartment Syndication School, go to syndicationschool.com, so you can listen to all the previous episodes.

 

Theo Hicks: Hi, Best Ever listeners. Welcome to another episode of the Syndication School series, a free resource focused on the how-to’s of apartment syndication. As always, I am your host, Theo Hicks.

Each week we air two podcast episodes that focus on a specific aspect of the apartment syndication investment strategy. For the majority of these episodes we offer a free resource that will help you along your apartment syndication journey. All of these free resources, as well as free Syndication School episodes can be found at SyndicationSchool.com.

In this episode we’re going to go back to talking about the Coronavirus. We took off about a week or so, and we’re gonna jump back into it because today I want to talk about some of the changes that Joe and Ashcroft Capital are making to their underwriting of value-add apartment deals during and then probably after the Coronavirus pandemic.

The purpose of this episode is going to be to outline the four main changes that Ashcroft Capital is making to the underwriting of new deals currently, and then for the — I won’t say foreseeable future, but at least for maybe the next few months after the Coronavirus pandemic is over.

Overall, the underwriting changes really need to be on a deal-by-deal basis, because different markets have different rules as it relates to Coronavirus. This means that the economy is being impacted differently… But there are a few items – four items in fact – that Ashcroft thinks are important to consider.

First is going to be year one operations. It should be expected that there will be an increase in things like vacancy, bad debt and concessions throughout 2020. And then once things settle down a bit and the economy reopens, it is also possible that some residents will no longer be able to afford living at the property. So the two things – number one, some of the income loss items, like vacancy, bad debt and concessions. When you’re making your assumptions, you should be projecting that they will be higher than usual. Based off of the T-12 or current market rates, you can’t really use those for vacancy, bad debt and concessions right now, because it’s a different environment, and once the Coronavirus ends, it will also likely be a different environment.

Secondly, once the economy reopens, the residents that are currently living at that property – so if you buy a property now, once rent repayment programs are ended, or rent delays are ended, evictions are allowed again, maybe expect to have to evict more tenants than you usually have to, because they’ve just been living there and maybe paying partial rent, or just doing what they could… But once it’s over, they can no longer pay the full amount. That’s year-one operations.

Number two is rent growth. The rent growth for 2020 in the vast majority of markets is projected to suffer, as unemployment rises. But the silver lining is that most of any rent lost in 2020 is expected to be recovered in 2021. From my understanding – I believe I’ve talked about this in one of the episodes – the rent growth is supposed to suffer; rent growth isn’t gonna go negative, it’s just going to be less. I’m pretty sure the most recent calculation I saw was about 1.3% percent, as opposed to 2%, 3%, 4% we’ve been seeing for the past decade or so.

Apparently, this dip is supposed to be temporary… So this dip in rent growth to the 1% range is temporary, and then in 2021 it’s supposed to go back to what it has been before. Obviously, when you’re underwriting a deal, the year one rent growth and year two rent growth should reflect the immediate area and the demand in the market. So obviously, you don’t wanna just use the 1% average. You wanna figure out “Okay, what do the experts think will  happen to rent in this specific market in the next two years?” And then probably be even more conservative and assume that it might be less than that. That way if it’s better, great. If not, then you’re still able to hit your returns to your investors.

Where does this information come from? Your management company. We’ve talked about the importance of your property management company, how to find a property management company, so you can find all that information at SyndicationSchool.com.

Number three is going to be debt. As of right now, most private lenders – these are basically the bridge lenders; the ones that do the 2-3 year renovation type loans – are taking a pause from lending. But lenders that are still active are being extremely conservative with their loan proceeds and terms.

I talked in a previous Syndication School episode about JP Morgan Chase, for example, has changed their lending criteria; this is for residential loans, I understand that, but it’s just an example of a lender becoming extremely conservative. They’re only lending to borrowers with a credit score of 700 or more, and who can put down 20% or more. So that definitely limits the pool of people who can get residential mortgages.

Similarly, other lenders are doing the same for commercial loans. I think one of the biggest changes is the reserve amounts that are required. Now, the agencies are lending, but they are also being conservative on their underwriting and requiring large upfront reserves for debt service payments. So the reserve requirements are changing. Typically, you create an  upfront reserves account called an operating account for unexpected things that happen at the property, but now in addition to that you need another upfront amount of reserves that are a lender requirement.

So more conservatives proceeds should be underwritten, and the underwriting needs to include these upfront reserves, as they will  impact the equity required to fund. So you’re gonna need to raise additional money now from your investors, even though the cashflow is not going to be going up. Typically, if the deal is cash-flowing $100 per door and you need to raise X amount of money, well now that deal might be cash-flowing $75 per door and you need to raise even more money from your investors. That’s why if you’re looking at deals right now, you’re gonna have to negotiate a lower purchase price because of these new lending criteria, and the rent growth, and the year-one operations that I’ve talked about previously.

So what does that mean more practically? Make sure that you ask your lender or your mortgage broker about the new loan-to-value requirements, the new upfront reserves requirements, and other terms that you need before you submit an offer on a deal. So you need to have an understanding of whatever lender you’ve been using or you plan on using, what are the terms of the loans they’re offering, what are the LTV terms, how much money do you need to put down, how much money do you need as upfront reserves, what are the interest rates, what’s the amortization? Is there anything that I need to  know that’s changing, so that I can underwrite my deals properly? Because if you don’t know what the debt is going to be, it’s gonna be impossible to submit correct offers on deals.

And then lastly, for value-add deals, depending on the deal, many owners are pausing their interior renovation programs until the market is restabilized… So when you’re underwriting a deal, it may be wise to assume that the value-add program does not start until the overall market stabilizes.

Now, this is something that’s gonna be obviously up to you, depending on the state you’re investing in, or the local area you’re investing in, if construction is considered an essential service, if construction companies are still working, things like that… But you need to think about “Okay, I plan on going in there, renovating all these units and doing all these exterior upgrades”, but what are the typical ways that you renovate interiors? Exterior renovations are likely fine, assuming that business is essential in your state, but interior renovations is the one that might be delayed because of the fact that residents aren’t able to move out right now.

So again, to summarize, the four changes that Ashcroft are making – and again, these four points came straight from the director of acquisitions at Ashcroft Capital – is the year-one operations. Things like vacancy, bad debt and concessions should be assumed to be higher, at least during year one. Rent growth should be assumed to be lower than  previous years, so whenever you’re underwriting your annual rent growth increases, or even when you’re determining what your rent premiums are going to be, you need to have a detailed conversation with your property management company to determine how to calculate that. So annual income growth is typically 2%-3%. You definitely wanna be underwriting maybe a 1% or 1,5% at least for year one and year two… And then when it comes to rent premiums, again, you have to see what’s the demand for those units in the immediate area? What are the prices on the newest leases in that area? It can’t be leases from a year ago or six months ago, or really even two months ago. It needs to be probably within the last few weeks to a month – what are the rents being demanded for those specific units?

Number three is debt, so making sure you have a conversation with your lender, so you know exactly what types of terms they’re offering on their loans now, including what sort of upfront reserves requirements are needed.

And then lastly, for the value-add deals, understanding that you’re likely going to need to delay any interior renovations until the market restabilizes and Covid is gone, because you’re not allowed to evict people, tenants are probably moving a lot less because of the Coronavirus… So those are four things to keep in mind when underwriting deals.

Obviously, if you are out there underwriting deals, I’d love to hear from you what you’re doing, so we can maybe add to these four points. So if you have any advice, any things that you’re doing differently when underwriting, please let me know by emailing Theo@JoeFairless.com. And of course, anyone who reaches out and I include their information – obviously, it won’t be in this episode, but I’m gonna turn this into a blog post, so I  will definitely give you a contributor status for the blog post, since you contributed to underwriting advice to the document.

That concludes this episode. To listen to other Syndication School series about the how-to’s of apartment syndication and check out some of our free documents, please visit SyndicationSchool.com.

Thank you for listening, have a best ever day, and I will talk to you soon.

Website disclaimer

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

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

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

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

Oral Disclaimer

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

 

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JF2073: How To Calculate Class A and B Return Projections | Syndication School with Theo Hicks

In this Syndication School episode, Theo will first review the difference between Class A and Class B investors. Afterward, he will share with you how to calculate the projected returns for each class, and to follow along with Theo you can download his free excel document below.

Free Class A and Class B document

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

 

Click here for more info on groundbreaker.co


TRANSCRIPTION

Joe Fairless: There needed to be a resource on apartment syndication that not only talked about each aspect of the syndication process, but how to actually do each of the things, and go into it in detail… And we thought “Hey, why not make it free, too?” That’s why we launched Syndication School.

Theo Hicks will go through a particular aspect of apartment syndication on today’s episode, and get into the details of how to do that particular thing. Enjoy this episode, and for more on apartment syndication and how to do things, go to apartmentsyndication.com, or to learn more about the Apartment Syndication School, go to syndicationschool.com, so you can listen to all the previous episodes.

Theo Hicks: Hi, Best Ever listeners. Welcome to another episode of the Syndication School series, a free resource focused on the how-to’s of apartment syndication. As always, I’m your host, Theo Hicks. Each week we air two podcast episodes that focus on a specific aspect of the apartment syndication investment strategy.

For the majority of these episodes we offer a free document. These are free Excel template calculators, free PDF how-to guides, free PowerPoint presentation templates, some sort of resource that will help you along your apartment syndication journey. All of these free documents, and past free Syndication School series are available at SyndicationSchool.com.

In this episode we are going to talk about how to calculate the returns to limited partners when you have a two-tiered path of investment structure. What does that mean? Well, generally when people get started as syndicators, they offer one investment tier to their investors, and it’s either a preferred return only, a profit split only, or a combination of the two, with the most common being an 8% preferred return, and then a 50/50 or a 70/30 profit split.

Now, as you gain more experience, or even at first, you might decide to offer two investment tiers – class A and class B. Our episode is focusing on what are the differences between class A and class B. I’m gonna do a quick refresher on that, talking about the advantages and disadvantages of each, and then I’m gonna talk about how to actually calculate the return on investment and the internal rate of return to investment tiers.

For this episode, I’ll be giving away a free document. It will be a  calculator that will allow you to automatically calculate the ROI and the IRR based on the steps I discuss in this episode. So I’ll talk more about that free document here in a little bit.

First, let’s just do a refresher on class A and class B. Class A, investors sit behind the debt in the capital stack, which means that when all expenses are paid, including the debt, the next cash goes to the class A investors. Class A investors are offered a preferred return that is generally higher than the preferred return offered to class B investors.

On Ashcroft deals, the class A preferred return is 10%. Class A investor have virtually no upside upon disposition or capital events, nor do they receive a split of the ongoing profits. So they are getting the 10% or whatever the preferred return is, and then that is it. But in order to be taxes the same as class B investors, they do get a very small piece of the upside, that varies from deal to deal… So they do get a small piece of the upside for tax purposes, but overall they’re not given a large upside in the deal.

In Ashcroft deals the class A tier is limited to 25% of the total equity investment, and the minimum investment is $100,000. So the reason why is because let’s say year one the project cash-on-cash return is only 7%, and you may say “Oh, well I can’t pay my 10% preferred return then.” Well, if only 25% of your investors are offered a 10% preferred return, then you can hit that preferred return of 10% to that portion of investors. I’m not sure exactly how that math will work out, but as long as these class A investors aren’t making up a large portion of your investor pool, then you don’t need to have a 10% project cash-on-cash return to distribute 10% to the class A limited partners.

Now, of course, other syndicators may offer a different preferred return, or have different equity percentages or different minimum investments. That’s just what Ashcroft does currently, and I just wanted to give you an example.

Class B investors sit behind class A, so all expenses go out, including debt, and then class A investors get paid, and then class B investors get paid with what’s left. But they sit in front of the general partners generally in the capital stack, so they get paid before the GP is paid.

Class B  investors are offered a preferred return that is lower than the preferred return offered to class A investors. On Ashcroft deals that return is 7%, compared to that 10% for Class A. If the full preferred return cannot be paid out each month, or each quarter, or each year, depending on what the payment frequency is, then it accrues over the life of a deal.

Class B  investors do participate in upside upon disposition or capital events. On Ashcroft deals the split is 70% of the profits up to a 13% IRR, and then 50% of the profits thereafter. The Class B  minimum investment for Ashcroft is 50k for first-time investors and 25k for returning investors. Actually, now that I’m thinking about it, I think that Ashcroft recently reduced the class A minimum investment to 50k. [00:09:04].21] and really all other types of tiers offered. Syndicators may offer different preferred returns, profit splits, different minimums for these class B investors.

So since class A investors are in front of class B investors in the capital stack, they are paid first, plus the class A investors are offered a higher preferred return, therefore the class A tier is a deal for investors who prefer a stronger ongoing cashflow… So they’re more likely to get this cashflow, and it’s higher than what it would be if they were class B.

Since class B investors are sitting behind the class A investors in the capital stack, they are paid what is left over after the class A have received their preferred return. So if the full preferred return isn’t met, it accrues and is ideally paid out upon disposition or a capital event. So class A investors are offered a lower preferred return, but they do participate in the upside upon disposition or capital events like  a supplemental loan or a refinance… So the overall return over the life of a deal is higher for class B investors, compared to class A.

Class A is gonna get 10% a year, or whatever that percentage is, class B might get less than their preferred return year one, maybe 5%, but maybe eventually their cashflow goes up to 9% or 10%, but then they’ll get a massive 20% return on investment at sale over the life of the investment. It’s really at the end where they surpass the class A investors.

So the class B tier is ideal for investors who want to maximize their returns over the life of the investments. And if I’m the person who wants both – if I want strong ongoing cashflow AND to participate in the upside, typically that passive investor will be allowed to invest in both. So if you have a passive investor that wants to do both and you’re offering class A and class B, they should be able to invest a portion in class A and a portion in class B. So that’s what class A and class B are, as a reminder.

Now, how do you calculate the returns? I recommend downloading the document and having it open right now in Excel, but I will assume that you don’t have it open, and I will do  my best to explain exactly how to calculate. At the end I will discuss in more detail how the free document works. So the first thing that you need to know in order to calculate the returns to class A and class B investors are 1) total equity investment. So this is the total amount of money that you as a syndicator raised from investors for the deal, because that’s what’s gonna be their capital account and that’s what their return is gonna be based on… And then assuming it’s a five-year hold, you need the project-level cashflow; that’s income minus expenses gives you the NOI. NOI minus debt service gives you the cashflow. So you need the cashflow for year one through year five, as well as the sales proceeds.

Basically, you have year zero a negative amount of money technically, because that’s what the investors are paying, and then year one, year two, year three, year four, year five you’ve got your cashflow coming in positively, and then for the sales proceeds it’s just the profit remaining after all expenses are paid at sale. If you’ve downloaded the simplified cashflow calculator, it should be as easy and copy and pasting these figures into this model. As a reminder, the sales proceeds is the sales price minus the debt owed to the lender, minus any closing costs you need to pay for, minus any other costs associated with the sale, like disposition fees, broker’s fees… And then what’s remaining is the total sales proceeds. So that’s one bucket of numbers that you need.

Next you need to determine what the structure is going to be for class A and for class B. So for each, you need to know what the preferred is going to be, and what the profit split is going to be. So for the purposes of this document, the preferred return to class A is 10%, and the profit split is zero. For class B the preferred return is 7% and the profit split is 70%.

Now, the next step is to determine what that preferred return amount looks like for class A and class B. Basically, for class A you need to determine of the equity investment which portion is class A. To keep things simple, in this calculator it’s just set at 25%; obviously, you can go in there and manually adjust it if you want to. Class B is set at 75%, but you can go in there and manually-adjust it, if you want to.

So you’ve got 25% of the equity investment, you multiply that by the preferred return percentage of 10% to get the preferred return amount. Same thing for class B. So Class B  you take 75% or whatever percent of the equity investment, multiply it by the preferred return, which is 7%, and you’ve got the preferred return amount owed.

Now, if you remember, class A is paid first. So when you’re looking at your year one cashflow number, you take your year one cashflow and you subtract the class A preferred return amount completely out of there. And then what’s left over is what goes to class B investors.

Now, let’s say that year one you are able to cover the entire preferred return amount to the class A investors, but the cashflow that’s remaining is not enough to cover the preferred return owed to the class B investors. Obviously, they’re still going to get paid, but it’s not gonna be full. So in the sample cashflow calculator that you download it shows that the class B investors only get a 3% return on investment year one, as opposed to 7% preferred return that they’re owed. Every time that happens, for every year that happens, you need to track how much of the preferred return is actually accruing. So if they’re given a 3%, then they’re owed an additional 5%. So that’s going to accrue.

Now, for this particular document the way I have it set up is that it accrues and then it is paid out at sale. I’ll talk about how that happens later, but it’s not gonna be paid out the next year, it’s gonna be paid out at sale. If you want to have it paid out the next year, you’re gonna have to do some manipulations to the cashflow calculator.

Basically, you repeat that process for each year. This is how it works in this cashflow calculator. Let’s say at year two you take your full cashflow  for year two, you pay your class A investors their preferred return if the remaining amount is greater than the preferred return owed to the class B investors. So class B gets their full 7%, so the profits remaining after the 10% is paid to the class A, after 7% is paid to class B, that extra cashflow is going to be split. In this case, 70% goes to class B and 30% goes to the general partners.

Now, typically, profits are considered a return of capital, preferred return is considered a return on capital. So whenever capital is returned to them, then their capital account reduces. Now, in Ashcroft deals the preferred return is always gonna be based on the original investment, and then the general partners will catch up at sale. So what that means is whenever the class B investors are receiving a profit split, you need to track that so that you understand “Okay, after five years I’ve returned a  total of $15,000 to investors from this profit”, because they’ve got $15,000 in profit, therefore they’ve been returned $15,000. Therefore at sale, I’m gonna return them their full equity minus that $15,000 they’ve already received.

Basically, the two things that you need to track whenever you’re paying out your class B investors is if they’re not receiving their full preferred return, how much is accruing that year, and then number two, if they received a profit split, how much profit do they make, because that’s something you need to track, because that’s considered a return of capital.

So you repeat that process for years one, years two, year threes, year four and year five. When you do that, you should have a total class A accrued preferred return number, and a total return of capital from the profit split for the class B investors.

Obviously, if you aren’t able to distribute the full 10% preferred return to the class A investors, then the same concept applies… But since they’re not receiving a split of the profits, you only need to focus on the preferred return accrual and not anything about them receiving a return of capital, because they’re not.

Alright, so now you sell the deal and you have your sales proceeds calculation… So you’ve already copied and pasted the sales proceeds into the cashflow calculator… So now you need to determine which portion of the sales proceeds goes to class A, and which portion goes to class B. If you remember, class A is in front of class B in the waterfall, so class A gets their equity back first. That one’s pretty simple, because class A did not get a return of capital, so they receive their entire equity investment back. So the sales proceeds are a little bit less.

Next is the money that goes back to the class B investors. If  you remember, they’re owed three things at sale. First, they’re gonna be owed their equity back. So the equity they receive is going to be their total equity investment minus whatever capital they’ve received thus far as profits. So if they’ve received $15,000 in profits, it’ll be their total equity investment originally, minus $15,000 which is returned.

The second thing that’s returned to them is the preferred return that they’re owed. So whatever the total accrued preferred return number is, that is also owed to class B investors. So it’s the equity owed, plus preferred return owed. Lastly, it’s going to be the profit split. So whatever is left over after the class A is paid, class B has received their equity investment back, class B has received their accrued  preferred return, the  remaining profits are split 70/30 between the class B investors and the general partners.

Now, if you have some sort of tier structure where it’s based on IRR, and once there’s a 13% IRR it drops to 50%, you’re gonna have to do that calculation on the back-end, because that’s not what this does. This is just a straight-up profit split, just to keep things simple.

So the remaining profits are multiplied by 70%, and that also goes to the class B investors. So if you’re got profits of class B investors, plus preferred return owed to investors, plus equity to class B investors. So now you have a total proceeds to the class A, which is just their equity investment, and a total proceeds to class B.

Now what you wanna do is you wanna create a data table so that you can do your IRR and your ROI calculations. The ROI calculation is pretty simple – it’s just their initial equity investment divided by the money that they’ve received each year; so year ones, two, three and four it’s just the cashflow they’ve received… So for the class A it’s always gonna be 10%, for class B it’s gonna be ideally 7%, maybe lower at first, and maybe eventually higher… And then same thing for year five, but this actually includes the sales proceeds as well, so it’s gonna be a number that’s ideally over 100%. Then you can average all those to get your annualized cash-on-cash return.

Then for the IRR calculation, it’s just an Excel function where you basically do =IRR and then you highlight year zero through year five, and then it’ll give you what the IRR is.

Now, let’s talk about how to use this model. On the document that you’ll see there are a few locations that you need to input data. Basically, everywhere you input data, it’s gonna be in red, to make it very simple for you.

So you need to input the initial equity investment year one, two, three, four and five, project-level cashflow, the total sales proceeds for project-level, and then the preferred return percentage and the profit split for class A and class B. Once you input those numbers, it’ll automatically calculate year one through five cashflow for class A and class B, as well as the return on investment and the internal rate of return. So it’s essentially a very simple calculator.

And again, where you get the equity investment year one, two, three, four and five and sales proceeds numbers from – that comes from your simplified cashflow calculator that you gave away a while ago now. So if you wanna find that, go to SyndicationSchool.com to download that document.

That concludes this episode of Syndication School. Thanks for listening. Make sure you download your free calculator for calculating class A and class B return projections. Check out some of our other Syndication School episodes and those free documents as well.

Have a best ever day, and I will talk to you tomorrow.

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