JF1704: Learning From Others’ Experiences & Implementing In Our Business #FollowAlongFriday with Joe and Theo
If you’ve listened to any Follow Along Friday episodes with Joe and Theo lately, you know the format. Joe and Theo will share what they learned last week from interviewing other investors for the podcast and explain how that can relate to us. Today, Theo is sharing his lessons learned from doing all the interviews last week, as Joe had to be out of town. If you enjoyed today’s episode remember to subscribe in iTunes and leave us a review!
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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. We hate that fluffy stuff.
With us today we’ve got Theo Hicks. Like you normally do now, welcome back, Theo Hicks, once again; you were here last Friday, but we missed you over that month and a half period of time. I’m glad you’re back.
Today we’re gonna be talking about lessons that Theo learned… So Theo sat in to do some interviews for the show while I had to do some stuff… Theo, you interviewed a bunch of people…
Theo Hicks: I did.
Joe Fairless: …and you learned some things, so let’s talk about some of the lessons you learned from interviews; we’re also gonna talk about just some quick updates on our stuff, too.
Theo Hicks: Perfect. I guess how I’m gonna approach this is I’m gonna explain the specific lesson, and then discuss how I think it can apply to really any type of real estate investment strategy in general.
First, one of the people I interviewed – his name is Ryan Enk. He’s investing in a lot of different niches, but one that was specifically interesting is that he developed a two-million-dollar indoor sports arena… Those places with the indoor turf, and you can go there and play [unintelligible [00:02:41].24] or indoor soccer matches, things like that. Obviously, my first question was “How did you do that?”, because you don’t major in sports arenas in college; how do you even come across something like that and how do you figure out how to do it? And sure enough, he said he had no experience whatsoever. He explained why he did it, but I’m not gonna go into that now.
What was interesting is that essentially once he decided that’s what he was gonna do, he just googled consultants, found a consultant and paid him to create a business plan for the sports arena. I guess there’s a couple websites out there that specialize in these indoors sports arenas. So if you have a very unique investment niche you wanna get into, it sounds like there’s consultants for everything these days.
But what was also interesting about his strategy was that even though he got the consultant and had that business plan, he still was having trouble getting money from investors, because of the fact that he himself had never managed a sports arena before… So what he did which I thought was interesting – he went to an existing sports arena and essentially created a daytime sports league for (I believe it was) kids’ soccer. He managed that for a little bit, and made a business out of that, and showed proof of concept, had some income coming in… Then he took that business to his investors and said “Hey, I’ve got this consultant that helped me create this business plan. He’s gonna help me determine what kind of equipment I need, what building size to develop… And then also, once I take over the property, I’ve got this business that I’ve created for how to actually manage a daytime sports league.”
I thought that was really interesting… One, again, because of the googling the consultant, but then two, he kind of kept hitting these roadblocks, and essentially just figured it out.
Joe Fairless: You had a fascinating conversation with him. I’m looking forward to listening to that interview. How long did he have that daytime league, and how long did he do that until he then re-presented the opportunity to investors?
Theo Hicks: I can’t remember exactly how long it was, but it wasn’t something like a few weeks or a few months. I think it was six months to a year.
Joe Fairless: Good for him. That’s a freakin’ example of resourcefulness, and “I’ve got a vision. I’m gonna make the vision happen. Yeah, there’ll be some challenges along the way, but whatever. I’ll overcome them.” What determination and resolve that he had…
Theo Hicks: He goes into a lot more detail on the numbers and everything like that during the actual episode, so… It was a very interesting conversation. I enjoyed that one. So that’s number one.
Number two – it was two people, they’re a couple. It was Letizia Alto and Kenji Asakura.
Joe Fairless: Real quick – isn’t it hard to interview two people, by the way?
Theo Hicks: [laughs] Yeah, it’s different. I never know if they’re pausing and I’m supposed to talk, or if they’re pausing because they’re waiting for the other person to talk.
Joe Fairless: Especially if they’re two males or two females, because then you don’t have the voices down, so you don’t know who’s talking… That’s why I like to keep it to one. So I’m glad that you did the two-person interview.
Theo Hicks: Yes, I experienced that… This is a quick one – they were initially doing the standard, conventional rental properties, like buying the duplexes and fourplexes and renting them out. They eventually transitioned into development, and when I asked them why they did that, they said that one of the main reasons why they did that is because they wanted to come up with new content for their blog readers… [laughter] So by going through the process of developing and putting together a team, going through the challenges of a deal, not only were they obviously entering into a new investment niche, but they also had a bunch of blog posts they could share with their viewers, and their readers could see how they overcame those challenges in development, so that if they wanted to start becoming developers, they’d only be a year or two behind them. I thought that was interesting.
Joe Fairless: What’s your takeaway there?
Theo Hicks: Similar to the Ryan Enk one is that if you put your mind to it, you can really do any investment niche that you really want to, as long as you’ve got some strong why behind it. Their why was creating new content for their blog, which is a very successful blog that I’m sure generates a lot of income for them, and then Ryan Enk – his why was he wanted to do some sort of investment that people would enjoy. Obviously, people enjoy living in homes, but something that was more unique.
Joe Fairless: One thing that stands out to me on the second lesson is 50/50 goals. What are the names, Letizia and…?
Theo Hicks: Letizia and Kenji.
Joe Fairless: And Kenji. Letizia and Kenji – they said they’re gonna go into development because they wanted content for the blog, and to walk the readers through the challenges of doing a development deal (or development deals), and what they did by doing that is they set themselves up for success regardless of the outcome of the actual deals… Because when we’ve talked about 50/50 goals, we’ve talked about – okay, 50% of your goal is actually reaching the quantifiable metric, and then the other 50% is regardless of what that outcome is, what have you done that will help you in the long run so this is a success when you start, regardless of the actual quantifiable outcome.
So in this blog case, let’s say these development deals — and I haven’t listened to the interview yet, but let’s say all of these development deals just lost all their money; well, that’s a pretty compelling blog post, right? So they’re still getting traction with their readers, and they’re still getting entertaining content and lessons that people can learn from their mistakes. I’m not saying they made those mistakes, because I don’t know, I haven’t listened to the interview, but they’re setting themselves up to win regardless of the outcome, and it goes back to those 50/50 goals we’ve talked about.
Theo Hicks: Yeah. Just to add to that before moving on to the next lesson – the process of actually writing the blog post too is probably very powerful. I know that every day or every once in a while you’ll write out what good things happened to you today, what bad things happened to you today, how can you make tomorrow better than yesterday… So that process right there helps you really improve upon more of your personal life, as well as business, too… But just the process of being like “Alright, so I have to write a blog post, I have to create content, and it has to be valuable to my readers… So let’s analyze this specific aspect of this deal and figure out what we could have done better.” And maybe if they didn’t do that, they wouldn’t have learned that lesson, and it wouldn’t have helped them in the future… So kind of similar to what you’re saying about the 50/50 goals.
Joe Fairless: Yup.
Theo Hicks: The third one is another quick lesson… And it’s not even that much a lesson, it’s just very interesting. Brian Loftman – he’s a syndicator, but he doesn’t syndicate apartments, he syndicates farmland.
Joe Fairless: I think I’ve spoken to him already, too. Yeah, please continue.
Theo Hicks: Something that he said that was interesting is that for farmland — he’s not a farmer, he had never been a farmer, he doesn’t understand the yields of certain crops based on the types of soil that’s there, the weather patterns, and things like that… So for him in this particular investment niche/strategy, working with the farmers when you’re actually underwriting your deals is very important. He has a bunch of relationships with the farmers, he knows all the farmers in this area that he invests in — they were mostly in the Midwest… And sometimes farmers will actually come to him and say “Hey, there’s this deal, and if you buy it, I’ll farm it.” So from a multifamily perspective, that’d be kind of like a property management company coming to you with the deal and saying “Hey, I’ve got this deal. You buy it and I’ll actually manage it for you.”
Joe Fairless: Yeah.
Theo Hicks: And just the importance of having someone that is very knowledgeable about the area, or that specific asset class on your team, especially if you’re doing very large deals or very unique types of deals that it would be very difficult for you to understand and learn about in a short amount of time.
Joe Fairless: You had some fun interviews last week.
Theo Hicks: I did, yeah.
Joe Fairless: Those are three things I’ve never come across. I think the third one — I’ve interviewed someone in that capacity who had a fund… Was this person raising money through a fund?
Theo Hicks: No.
Joe Fairless: Okay, so a different person. I interviewed a different farm person. That’s cool stuff, thanks for sharing that.
Theo Hicks: And number four – it was Sarah [unintelligible [00:10:19].00] she’s a residential real estate agent. She was actually a stay-at-home mom, and then transitioned into residential real estate and has won a bunch of awards. She had passively invested in a 120-unit deal down in Dallas-Fort Worth, and we were talking about that… I was asking her questions about how she’s going about qualifying the deals and qualifying the actual syndicator, and the first person she had met through one of the awards that she won. It was like 30 Under 30 for that area, and a person that was also in that [unintelligible [00:10:42].12] was a syndicator, and they kind of met up and she decided to invest in one of his deals.
But the second deal was really interesting… So she is on — I’m not sure if it’s actually the board, but it’s something like the board for the local YMCA down in one of the neighborhoods in Dallas-Forth Worth; she’s heavily involved in that, and heavily involved in community projects, and she happened to come across a passive investment in an area that was at the moment a pretty rough area. I can’t remember what the actual name of the area was, but it was pretty rough, with crime, and the rents being low… But because of her involvement in the YMCA and being also on this board, she learned about a very heavy revitalization push, and a lot of major cap ex projects coming to the area over the next 5-10 years… That on top of some other due diligence she did swayed her decision to invest in that specific deal, even though if you didn’t know about that you probably wouldn’t invest because of the current crime in the area.
And I know something that we’ve talked about before is — obviously the primary objective for volunteering is to give back, but we’ve talked about before, our secondary objective is getting on the board, because those are high net worth, affluent individuals who could possibly be passive investors in your deal… But another possible outcome is you building relationships with people who are maybe developers, or they’re on City Council and they have inside information on things that are coming in the future that the general population of investors don’t have. I thought that was interesting.
Joe Fairless: Yeah, that is.
Theo Hicks: And then lastly [unintelligible [00:12:10].02] and he transitioned from doing rental properties in college to doing condo conversions… And he finds his deals by knocking on doors. He’s in Boston, and he’ll create his list of potential multifamilies that he could potentially convert into condos… And apparently in Boston a lot of these duplexes, fourplexes, six-units are owned by a family for a long time, and they actually live in one of the units; so the person actually lives at the actual property… Because I was wondering — like, “Are you talking to tenants? Who are you talking to there?” And he’ll go and knock on the door and he’ll talk to them and explain his business plan and see if he can buy the property. And like most strategies like this, not every single person says yes, and most people if they do say yes, it’s not for a long time… But what was interesting is that a lot of people talk about when you’re knocking on doors or sending out direct mail, the goal is to identify pain points; and the pain points that he identified and solved were pretty interesting.
He gave an example – he’s knocking on the door of one owner, and they weren’t interested in selling at the moment, but two months later he reached back out, said he was interested in selling, but an issue was he didn’t know where to live, and he was kind of by himself and wasn’t able to move any of his stuff out… So Freddy actually helped him move all his stuff out of the property, he increased the closing date by two months, and he actually provided him with some upfront cash to use as a down payment for another property. So essentially any issues that this guy had with selling, he just solved.
That cash part was kind of weird to me at first, until he explained how much money he’s actually gonna make on the deal… Then it’s kind of like “Okay, he definitely should have done that down payment”, because it’s gonna be like a multi-million-dollar profit on a duplex he’s converting into four condos. So I thought that was interesting, his door-knocking strategy.
And just quickly, a second thing, that’s the last lesson I learned – this is similar to the 50/50 goals… He was talking about — his best ever advice was to network, which is obvious; of course you wanna network… But for him, when he networks, he will do it before he actually needs anything. So he won’t be like “Alright, I need money to buy this deal, so I’m gonna go out and network with people, and in the back of my mind I have this need, I’m trying to convince them to invest in my deals.” No. What he does is he just networks with everyone, and then if he needs something, he’ll go back and be like “Alright, I’ve met this guy two years ago, who’s a broker in this market. I can use him to find a team member that I need”, or something like that.
Joe Fairless: If you have a vision for your business, you can be intentional about who you reach out to prior to you being at that stage in the business where you need stuff. And then you can just get to know them, build a relationship with them, and then six months down the line, a year, three months, or two years, whatever, then you can talk to them about whatever that particular that you’re looking for them to help with is.
Theo Hicks: Yeah. It was actually tough to pick just five, because I probably could have done like ten or twenty, because they were really good interviews… But those are kind of the five main interesting things/lessons that I learned from my lessons last week.
Joe Fairless: Well, everyone has something interesting to say. It’s just a matter of if we’re able to pull it out of them from the questions that we ask, and it sounds like you’re asking some really good questions. I firmly believe that I can learning anything from anyone on Earth, it’s just a matter of me asking the right questions… And I think that’s just a global truth.
Nice work on the interviews. I haven’t listened to any of them, but I will, and thanks for sharing those lessons learned.
Theo Hicks: Absolutely. I know you have a few things you wanted to share, some business updates…?
Joe Fairless: Yeah, one business update and one other thing I wanna get your opinion on. Business update – we sold a property yesterday. Congrats to all those investors. They did very well, and everyone’s excited. So that’s good.
And here’s what I wanna get your opinion on, Theo. Yesterday one of my friends on Facebook – he does the following post, and then it has about 30 comments… Best Ever listeners, I wanna read you the post, and then I’m gonna tell you something about my thought process, and then I’m gonna tell you what I responded with… And I’m a little disappointed with the lack of “Oh, wow, what a great idea, Joe!” [laughs] I think it fell on deaf ears with all the people who were commenting, and I just wanna get your opinion on if it was a good response, and if not, why do you think people weren’t like “Oh, that’s an awesome idea!”
So here’s what this person posted on Facebook. He says:
“Our 5-year-old wants to do a lemonade and popcorn stand during our community yard sale this weekend. As her business consultants, we need to provide her some market research to help maximize profits, so we need your help.
- How much would you pay for a glass of fresh lemonade?
- What size cup of lemonade would you like for that price?
- Would you prefer fresh lemonade from actual lemon juice, or the fake Country Time kind?
Any and all other advice is also welcome.”
So there’s the scenario with multiple questions that was proposed. Let me give you a little bit of context about how I think.
I went to a conference a couple years ago – and you might have done; I don’t remember if you went with me or not… It was in Cincinnati. I didn’t get a lot out of it, except for this one speaker who commanded the room very well, and he was the real estate guy. This conference was personal development and other things, but there’s this real estate guy… And one thing he said which was tied into real estate, but it’s really just business, is he has a kid; his kid would get paid $7/hour to wash a car. But when the kid went on stage with him and introduced him to the crowd, he’d give him $100.
The lesson that he was teaching his kid was there are certain things that we can do in business that’s a commodity, like washing a car, where a decent amount of people can wash cars, and you get paid a fixed price based on the market rate of washing a car. You have a cap on how much you can make. Whereas if you get in front of a room of 500 people and you introduce someone and you get those people excited, well, there’s not a lot of people who would choose to do that; it’s a skill that is valued higher than the former, so that’s why he gave his kid $100 to do that.
I really love that thought process. I love the thought process that the market will pay you the value that you bring to it. And first off, do you remember that conference? Do you remember that?
Theo Hicks: I do, yeah. I know exactly what you’re talking about.
Joe Fairless: Alright, so we did attend this together. It was a couple years ago. So that’s always stuck with me, always. Back to this question – they’re asking about “How much would you pay for a glass of fresh lemonade? What size lemonade? Do you want the real stuff, the fake stuff?” etc. Everyone who had responded (and I was like the 16th, 17th response) said something like – and I’ll read a couple – “Real lemonade. Maybe extra incentive from buyers if there’s a little sign saying she’s raising money. Or a dollar for a solo cup of Country Time. Or 20 oz. minimum with at least a dollar, unless you make it so they can get quick change. A dollar. One more, I’ll give you both Country Time and the real deal. The real deal more expensive.”
So I read those responses, but here’s what I say – I’ll just read you exactly what I wrote: “I’d say that lemonade is a commodity that can be easily priced based on market rates, which limits her upside. In addition to lemonade, I suggest adding in a bonus gift for each paying customer that isn’t a commodity, such as a piece of art she draws or colors. That gives her limitless upside in her price point.” Ain’t that great?! I got one freakin’ like. There were 15 other comments after mine, and it fell on deaf ears.
This is a great lesson you can teach a kid, or even a person – don’t do a commodity. Everyone’s got a freakin’ lemonade stand. Do something that isn’t a commodity, and it’s like “Oh, and I get this wonderful piece of art. Well, what’s this piece of art worth?” Well, limitless. What are your thoughts?
Theo Hicks: Let me tell you a story from my perspective. I actually saw this last night, and I saw the post, and I read your response, and I apologize for not liking it. I typically don’t ever click anything on Facebook. The only time I really post is when I do in our private apartment syndication group… When I read it, I smiled; I was like “This is a really good idea.” [laughter] I said “I like it.” [unintelligible [00:20:42].25] I can’t wait to say that I saw that, but I’m sorry I didn’t actually click the Like button. When I read it, I was like “This is genius.” If I saw a lemonade stand and it had a sign that said “Fresh lemonade + Free finger painting” or something, I’d be way more likely to stop. I would never stop for something like, it’s just how I am, but if I saw that, especially now having a kid… I think that’s adorable.
Joe Fairless: Yeah. And for the record, I don’t care how many likes I do or don’t get on a post. I don’t care. I just thought it was an interesting result of “Hey, I think this is the right approach, but the crowd doesn’t seem to agree.” I thought it was intellectually interesting.
What I would do is I would actually flip it – I wouldn’t say “Here’s a lemonade stand with art”, I’d say “Here’s art for sale, and you get some lemonade with that.” So you lead with the thing that isn’t a commodity, and then “Oh, you also get lemonade, too? How much would you pay for a piece of custom artwork from a five-year-old, plus a glass of lemonade?” I guarantee you she would make more than $3 per transaction, and that would be much more than whatever a glass of lemonade would be, like a dollar or whatever else.
Theo Hicks: Yeah. I wouldn’t post the art in my office somewhere, but just the experience of doing it would be worth paying five bucks for it. Because obviously the kid put a lot of time into this, and thought into this, or someone did… And again, that’s just really adorable, if a kid was doing an art sale.
Joe Fairless: And obviously, the lesson is the market pays for value, and if you’re in a commodity business, then you’re gonna be priced out. Alright, we’ve gotta keep rolling…
Theo Hicks: Alright. I don’t have any specific updates, so let’s move into the trivia question. Last week’s trivia question was “What’s the average age of the first-time homebuyer?” The answer was 32 years old, so just kind of the top end of the millennials are the average age for the first-time homebuyer. The first person that got that correct should be receiving a signed copy of our first Best Ever book.
Joe Fairless: What did I say, do you remember?
Theo Hicks: 34 years old. You were closed.
Joe Fairless: Yeah, well… That’s light years away from the actual answer. Everyone knew the answer was gonna be somewhere in the early thirties. Okay.
Theo Hicks: This week’s question is a little different. There’s a residential home in L.A. called the Chartwell Estate. It’s 11 bedrooms, 18 bathrooms, it’s got a ballroom, it can hold 12,000 bottles of wine in the wine cellar, and a formal saloon. The exterior is 10.39 acres, there’s a 75-foot swimming pool, a tennis court and a 40-car garage. This is the nation’s most expensive residential listing of all time. What is the current list price?
Joe Fairless: Where is it located?
Theo Hicks: L.A. It’s in Bel Air.
Joe Fairless: Oh, my gosh… 10 acres in Bel Air. I can say I haven’t been shopping there recently, but I’ll go with 90 million.
Theo Hicks: 90 million. Alright. So either e-mail email@example.com, or put it in the comment section below the YouTube video, with your answer. The first person to get the correct answer will receive a free signed copy of our first book.
Then lastly, the review of the week – if you leave a review for our Best Ever Apartment Syndication Book not only will you receive an e-mail with a link to download a bunch of free apartment syndication goodies, but you’ll also be able to have your review read aloud on Follow Along Friday. This week’s review comes from Dan Smith, and he said:
“This book does a great job of laying out the step-by-step path from square one to purchasing apartments via syndication. I went through four whole highlighters on my first read-through alone. This will definitely be a reference book for me moving forward.”
Joe Fairless: Oh, Dan, you’ve gotta buy some better-quality highlighters; those things run out really quickly. [laughter] Thank you so much for leaving that review. I’m glad you’re getting a lot of value from it.
Best Ever listeners, I enjoyed our conversation… Talk to you tomorrow.Follow Me: