Best Real Estate Investing Advice Ever Show Podcast

JF1108: How to do Over $200,000,000 in Transactions in a Year as a Brokerage with Anthony Marguleas

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As one of the top 60 agents in the country and over 24 years of experience, Anthony has a ton of real life education to share with us. Some of his insights that he gives us are extremely valuable, and I highly recommend you are ready to take notes on this one! If you enjoyed today’s episode remember to subscribe in iTunes and leave us a review!

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Anthony Marguleas Real Estate Background:
-Founded Amalfi Estates, a philanthropic residential real estate firm 24 years ago
-Donates 10% of the commission to charity, having given $464,000 since 2014
-Personally sold close to $1 Billion in properties
-Selected by The Wall Street Journal as one of the top 60 agents in the country out of one million agents.
-Based in Los Angeles, California
-Say hi to him at amalfiestates.com
-Best Ever Book: Blue Ocean Strategy


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TRANSCRIPTION

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

Anthony Marguleas: Good, Joe. Doing great.

Joe Fairless: I’m glad to hear that. A little bit more about Anthony – he founded Amalfi Estates, a philanthropic residential real estate firm 22 years ago. He donates 10% of his commission to charity, and has given $464,000 since 2014. He has personally sold close to one billion dollars in properties — yes, that’s with a “b”. He was selected by the Wall-Street Journal as one of the top 60 agents in the country. There’s over a million agents in the country, and he’s one of the top 60. Based in Los Angeles, California… With that being said, do you wanna give the Best Ever listeners a little bit more about your background and your current focus?

Anthony Marguleas: Sure. I started my company — it’s going on 24 years now, so it’s been a couple more years on there. It’s been great. We deal with the luxury market in Los Angeles, we’ve been very active and we’ve had a great time. We cover a lot of Los Angeles, Santa Monica, Pacific Palisades, Brentwood, Bel Air… We work with a lot of developers; we’ve made a lot of developers millions of dollars with some of our negotiating and some of our real estate advice, and I’m happy to share some of that on the show today.

Joe Fairless: Perfect. With the developer angle – you said you’ve made developers a lot of money with how you approach things. Can you elaborate on that?

Anthony Marguleas: Sure. We’ve been able to find them a lot of off-market properties. It’s a very competitive marketplace right now, so for any of your listeners looking at different neighborhoods, the quick and easy way to check a neighborhood is the unsold inventory index. Basically, you take the existing inventory, you divide it by the number of homes that have sold the previous month; anything over five months is considered a buyers’ market, under five months it’s a sellers’ market. You can get the health of a market if something’s one or two months, it’s pretty active as a sellers’ market, and 10 or 15 months it’s pretty active as a buyers’ market.

We’ve been able to find a lot of off-market properties for a lot of our developers by just really hitting the pavement. I used to own a development company – so I have a development background – about 30 years ago, and I also owned a mortgage company for about 10 years. So with the mortgage background and the development background, we’re a little bit different than a typical residential real estate agent. We know how to crunch the numbers and make sure that it’s gonna work out. We’re very conservative with our estimates, so we’ve been very helpful to a lot of developers and making a lot of money with their investments.

Joe Fairless: With developers that you find off-market properties, how long is the development process usually for you to then — because I assume… I mean, you’re finding him a property, so then you will list it whenever they sell, right? That’s part of the process, I imagine… So how long is that turnaround typically for you?

Anthony Marguleas: How long does it take for them to build the house?

Joe Fairless: Yeah.

Anthony Marguleas: It varies. The properties they’re building can range anywhere from 3,000 square feet upwards to 12,000 square feet. The builders – they do it on a pretty regular basis, Joe – usually get their plans and permits in place while their acquisition, the teardown is in Escrow. So the minute it closes Escrow, within a couple weeks they have the demo permits. If everything’s lined up and it’s a very experienced developer, and it’s not in Coastal Commission or in an area that’s very restrictive against building, they typically can build anywhere from 9 months to a year after they have the property purchased.

Joe Fairless: Okay. Help me understand your business model by helping developers. Obviously, I understand the potential profits when you sell them the property, and then when they sell the property. But waiting 9 months to 12 months, assuming that everything goes right – is that a long time to wait for the work that you put into it to get it together?

Anthony Marguleas: Myself as a residential broker, or for the developer?

Joe Fairless: For you, I’m just talking about your business model.

Anthony Marguleas: For my business model it’s fine, we make the commission when we sell on the teardowns. Land where we are trades for about $365/land foot, so a 6,500 square foot lot will trade for about 2.4 million. So the numbers are a little bit higher. And then the finished product on those lots will be anywhere from 5 to 6 million dollars.

So we’re fine waiting. We do a lot of transactions. This year I’m on track – myself and my team, we’re on track to do over 200 million dollars in sales. We do a lot of business.

Joe Fairless: How do you prioritize that in terms of overall business — and maybe it’s not you, maybe it’s some team members of yours that you talk to… But it’s like “I wanna spend this percentage of my time focused on helping developers, I wanna spend this amount of my time helping people who wanna move into their dream house etc.”

Anthony Marguleas: On my team I represent all the sellers, and then I have six sales partners and they represent all the buyers. So any buyers that we have looking for properties, whether it’s the developer or not, they’ll look for the teardowns or the off-market properties for them, and then we have a full-time marketing person, we have a social media expert, I have a listing partner, and then I have two admin team members to help run our team.

Joe Fairless: Okay. So you’ve been in the market for now going on 24 years, you’ve seen the ebb and flow of the market for sure… What are some lessons that you’ve taken away from that in terms of just staying afloat in the bad times and thriving in the good?

Anthony Marguleas: I think getting very conservative on the numbers and not leveraging yourself too much… I see a lot of developers leveraging themselves, getting hard money loans… I think it’s really important to just not be leveraged, because the market will turn, and they need to be really conservative and have some liquidity. If the construction lender starts calling a note, or won’t give them an extension, it’s like a house of cards; then suddenly all their non-liquid assets have to be liquidated.

So I think just being a little more conservative is a smart thing to do.

Joe Fairless: So you’ve got around 10 or so team members; 6 team members who represent buyers, one marketing person, one listing and one social media person? Did I get that right?

Anthony Marguleas: Yeah, pretty close. We’ve got 10 on our team.

Joe Fairless: Cool, alright. How do you go about identifying when is the next role that you need to fill that currently isn’t filled?

Anthony Marguleas: Well, we pride ourselves on our customer service… I never worked for a real estate — it’s a little unique about my background in real estate; even though I had a real estate development company and a real estate mortgage company, I started my residential brokerage firm never having worked for a residential brokerage company. So everything we do is more analytical-based. A lot of our clients are investment bankers, venture capital attorneys, and they really like the fact that we crunch the numbers.

For a lot of our clients – our owner/user clients – when they’re buying a property, on average we do between 10 and 12 specialty inspections of the property. The average agent typically will do one or two. So it’s just more of an analytical analysis of the property. The more knowledge we have about the property, the better we can negotiate credits or even a reduction in price.

Even bank-owned properties, we’ve gotten up to $100,000 back in negotiating just by doing our due diligence on that property.

Joe Fairless: Will you walk us through how you do the due diligence when you’re crunching those numbers?

Anthony Marguleas: It’s really important – we tell all of our buyers, when they go into an open house, never ask any probing questions. Too often a lot of buyers, who are even experienced buyers (bought several properties) they go in and they wanna impress the listing agent and show them how much they know, and say “Oh, that roof looks older” or “There are some drainage problems.” You never wanna ask any probing questions, because it hurts your chances of getting a credit if you find out beforehand if there’s a roof leak, for example.

So our recommendation is don’t go in and ask a lot of questions. The goal is to tie up the property as quickly as possible, and then do you inspections. If there are legitimate issues based on what our inspectors find, anything from [unintelligible [00:09:30].13] gas testing, to foundation issues, to having a survey done on some of the larger properties, geological inspections… Even if it’s a brand new house, we still do 10-12 inspections, and you’d be shocked when we’re representing a buyer on a new construction house, how much we find problems and how many credits we get back on a new construction house.

Joe Fairless: 10-12 inspections… You said a couple – you don’t have to do all 10-12, but just maybe some that are surprising.

Anthony Marguleas: I don’t know if it’s surprising, but we’ll do chimney inspections, which are getting more common; we’ll have a videoscope of the chimney. We’ll do videoscopes of the main sewer line, we’ll get termite inspections done to make sure — California is very prone for termites; it’s number two in the nation for termite damage. Then we’ll do mold inspections. If there’s a lower level, a basement, we typically do [unintelligible [00:10:24].28] which I mentioned earlier.

We’ll always check the HVAC system, the [unintelligible [00:10:29].26] the electrical, the roof, and then depending on the property, if it’s — in all the properties we may do [unintelligible [00:10:36].00] There’s a list that we have based on the property.

Joe Fairless: Are all of those different inspectors, or do you have one house inspector who does the majority of it and then you’ve got some special specialists coming in?

Anthony Marguleas: We have a general home inspector, but all the ones I mentioned are specialty inspectors. And those are all one that the buyer pays for. What we found on average, Joe, is that the cost of the inspection for all of them is between $5,000-$6,000. Sometimes it can be upwards of $7,000 or $8,000, depending on the size of the house, and we typically get anywhere from a six to ten times return on that investment, because those reports become a material fact that have to be given to the listing agent and the seller, and they have to give those to any future buyers if for some reason we are not able to close Escrow or the seller’s not willing to give us those credits.

Joe Fairless: Let’s talk about how you’ve gotten to the point now where you and your team are doing 200 million dollars in sales this year. About how many properties does that make up?

Anthony Marguleas: Our average price is about four million, so we’ll do about 50 sale transactions and we’ll do about another 30 residential luxury lease transactions.

Joe Fairless: Okay. What are some tips for people who have not rubbed elbows with affluent high net worth individuals as frequently as you have, but want to get to know how to approach them?

Anthony Marguleas: The interesting thing is most high net worth individuals are very specialized in their knowledge. SO they may be an expert in the entertainment industry, in banking, in finance, in starting their own company as an attorney, but they typically know very little about real estate. We rebranded our firm approximately 12 years ago to a luxury firm; we rebranded the name, and just really focused more on the high-end properties, and really what it comes down to is knowledge. We wanna make sure that we have more knowledge than anyone else that we’re talking to, whether it’s the client or whether it’s another agent, and it’s just doing the hard work. There’s no secret shortcut, it’s really just studying, and the knowledge…

I’ve been teaching real estate as a lecturer at UCLA for about 13 years, and I teach negotiating and contracts, and that helps a lot as well. What we recommend to our buyers, Joe — if they can get at least two of these three things, we recommend they buy the property. Typically, we recommend they buy the least expensive property in the best neighborhood, we recommend creative ways they can add value, and certain ways we’ve done that — for example, we recommend even changing the address on the property if it’s on a busier street but it’s on a corner lot… In our neighborhood, it can add upwards of $200,000 of value for a $1,000 investment, by changing the address from a busy street to a non-busy street, if it’s a corner lot. These are very creative ways to add value to a property.

Third thing is finding a motivated seller, and what we’ve done with that is any out of area brokers — so if you’re in a certain area code and you see a broker from out of that area code, or you see a probate sell, or someone’s passed away, or a shortsale, or a foreclosure, or a 1031 exchange, or if it’s an overpriced property and it’s just been on the market a long time – if we can get two of those three things, we’ll recommend our buyers purchase those properties.

Joe Fairless: Let’s pretend that you have not met a new potential — well, okay, so you represent all the sellers…

Anthony Marguleas: I represent sellers, but my background — I mean, the first ten years of my business we represented primarily buyers.

Joe Fairless: Alright, then we’ll go with the first scenario… Hypothetically, you’re representing a buyer. You know that she is a high net worth individual who maybe works at Google, or something… So she knows tech, doesn’t know real estate as well, but clearly savvy online. So what do you do to prepare for your conversation with her?

Anthony Marguleas: I find out as much information about the property. If they’ve narrowed down a property or if they’ve narrowed down a certain area — usually, if it’s a property, we’ll go through the whole listing history, we’ll go through what they paid for the property, we’ll go through any other real estate that that owner owns, we’ll found out the owner’s motivations, where their families live… Anything that we can find out about that owner. We already know a lot of the agents, because we work with them on such a regular basis, but if it’s an out-of-area broker, if they’re selling a two-million dollar property and their average price range in the last 10 years was 500k, I print out all the sales of that broker, so I know going into it if that’s going to be the property that’s 100% or 200% more expensive, I already know that that agent’s gonna be on our side to try and get that sale, and they’re gonna give us sometimes information that may be beneficial to us in our negotiating.

Joe Fairless: Based on your experience in real estate, what is your best real estate investing advice ever for the Best Ever listeners?

Anthony Marguleas: Buy real estate as young as you can, as early as you can. My biggest mistake – I didn’t buy real estate when I was younger, and I really regret not purchasing real estate at a younger age. I tell everybody – get your real estate license as early as you can (in certain states I think it’s 18 years old) and buy real estate as soon as you can, and hold on to it, don’t sell it. Those are the two things that I think are invaluable advice, that I wish I was given.

Joe Fairless: You used to have a development company, you used to have a mortgage company – why don’t you have them anymore?

Anthony Marguleas: The mortgage industry has changed tremendously in the last ten years, so it wasn’t fun anymore. A mortgage broker is like the last line of defense. The analogy into sports – it’s like a defensive person; let’s say you’re playing soccer, and the mortgage broker is that defense person. If someone gets by them and they score a goal, everyone’s upset at them. But if you’re the forward, which is the residential real estate agent, and you shoot on the goal and you miss, it’s not a  problem. It’s like writing an offer and not getting that offer accepted in a very active market.

So it was a lot more restrictive with a lot of the federal requirements, a lot of the reporting… It just wasn’t as fun anymore, so that’s why I sold my mortgage company. The development company was more of a personal thing. Some of the partners I had — we had a differing of opinion on things. But I enjoyed it, development was fun.

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

Anthony Marguleas: Yeah, let’s do it.

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

Break: [[00:17:19].11] to [[00:18:20].12]

Joe Fairless: Okay, Anthony… I know you studied the Lightning Round questions, you’ve told me that before, but based on our conversation I’m gonna throw a couple extra ones in here, I might substitute some, so bear with me… But I’ll start with one that you have prepared for – best ever book you’ve read?

Anthony Marguleas: Blue Ocean Strategy.

Joe Fairless: I have not read it. Do I need to read it in order to get the concept?

Anthony Marguleas: You know, there’s actually a great website your listeners will probably love – I think it’s called Blinkist. Basically, if you’re in a real hurry and you just want an abridged version of four, five pages of any book, you can go on there and read it. It’s almost like a cliff note version. So if you haven’t read it and you wanna read it, Blue Ocean Strategy – great book. It’s basically — you’re creating a market that didn’t exist before, and I thought that was just a really outside the box thinking. I really thought it was a great book.

Joe Fairless: Best ever negotiating tip that you tell your students at UCLA?

Anthony Marguleas: Know your inventory. Go to as many open houses as possible and know your inventory. That’s what I tell my students.

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

Anthony Marguleas: [unintelligible [00:19:24].07] Let’s see, biggest mistake on a transaction… I think some of the deals were maybe a business manager, a real estate attorney for the buyer involved – I’ll sometimes expect them to catch and read some of the underlying documents. So maybe not thoroughly reading them when other attorneys or business managers are involved, and I need to do that on every transaction.

Joe Fairless: I have been guilty of that also. What’s the best ever deal you’ve done?

Anthony Marguleas: I did a deal last year… It was for a developer, and what was nice about that is every other broker in town said there’s no way we’re gonna get this price for the finished product… And what we did is we rebranded the entire neighborhood. There was a neighborhood and it was called Norman, and I rebranded the whole neighborhood as Norman Estates, and everyone’s like “I’ve never heard of Norman Estates.” I’m like, “What do you mean you haven’t heard of Norman Estates?”

So I rebranded the entire neighborhood and we got a 13 million dollar price tag for this property when the most expensive property before then was 7 million dollars, and it was just by rebranding the neighborhood.

Joe Fairless: Other than changing the name, does anything else come with the rebranding?

Anthony Marguleas: What I did is there was a lot of large lots around there, so it’s just pointing out to people that they’re [unintelligible [00:20:36].17] estate properties, and just educating even the local brokers who weren’t even aware of this little pocket, and having the data there to back it up.

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

Anthony Marguleas: Our charity component has been huge. We have our clients pick from one of five charities. We have one for health (American Cancer Society), one for kids (make a wish), one for pets (SPCA), one for homelessness [unintelligible [00:21:04].21] and then Homeboy Industries (to get the gangs off the street). And it’s such a rewarding experience… We really believe we make a living by what we get, but we make a life by what we give. It’s really about having a relationship with our client, honoring that relationship with a charitable donation, and to see the client light up when they can pick the charity, and to know that we’ve given almost $500,000… This year we’re on track for $150,000, next year we’re on track for $250,000. It’s a fantastic thing.

My hope is in 2019 we’ll be on track to give $500,000/year away. For a small team, I think that’s fantastic. My goal is to get every other residential brokerage house to give 10% to charity as well. We’ve started a giving pledge that we’re challenging every real estate firm and real estate agent in the country to give 10% back to charity.

Joe Fairless: How can the Best Ever listeners get in touch with you or your company?

Anthony Marguleas: My website is amalfiestates.com. I’d love to connect with them. If they have any questions, I’m happy to help out in any way I can.

Joe Fairless: Anthony, thank you for being on the show. Thanks for talking about how you have grown your company to where it’s at now, for giving us some tips on negotiating, as well as your focus, and that is when you are visiting a potential property, which is don’t go in there asking probing questions; instead, the goal is to tie up the property, then do inspections, because you don’t wanna hurt your chances to get credit later, as well as your overarching approach with the philanthropic angle.

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

Anthony Marguleas: Thank you, Joe. Have a great day!

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