JF1861: How To Raise $1 Million To Fund A Fix And Flip Business with Rocco Montana
Rocco left his sales job that was leaving him unfulfilled and underpaid. Real estate investing was what he wanted to do, and now he is a successful real estate investor, syndicating deals and flipping houses. We’ll hear a lot about how he was able to raise over $1 million to fund his flips. If you enjoyed today’s episode remember to subscribe in iTunes and leave us a review!
Best Ever Tweet:
“Be grateful for how far you’ve come” – Rocco Montana
Rocco Montana Real Estate Background:
- Created a multifaceted real estate business from scratch in just over 2 years
- He is an active realtor, AirBnB Superhost, house flipper, and multifamily investor
- Raised over $1 million in private capital to fund his flips in his first year
- Based in Boulder, CO
- Say hi to him at https://www.jrocproperties.com/
- Best Ever Book: Never Split the Difference
Evicting a tenant can be painful, costing as much as $10,000 in court costs and legal fees, and take as long as four weeks to complete.
TransUnion SmartMove’s online tenant screening solution can help you quickly understand if you’re getting a reliable tenant, which can help you avoid potential problems such as non-payment and evictions. For a limited time, listeners of this podcast are invited to try SmartMove tenant screening for 25% off.
Go to tenantscreening.com and enter code FAIRLESS for 25% off your next screening.
Joe Fairless: Best Ever listeners, how are you doing? Welcome to the best real estate investing advice ever show. I’m Joe Fairless, and this is the world’s longest-running daily real estate investing podcast, where we only talk about the best advice ever, we don’t get into any of that fluffy stuff; we hate that fluffy stuff, so we don’t get into it.
With us today, Rocco Montana. How are you doing, Rocco?
Rocco Montana: I’m doing good, Joe. Thanks for having me.
Joe Fairless: Well, it’s my pleasure, and looking forward to our conversation. A little bit about Rocco – he has created a multifaceted real estate business from scratch in just over two years. He and his wife are active investors. He is an active realtor, he is an Airbnb superhost, he is a house flipper and he is a multifamily investor. Raised over a million dollars in private capital to fund his flips in the first year. Based in Boulder, Colorado. With that being said, Rocco, will you give the Best Ever listeners a little bit more about your background and your current focus?
Rocco Montana: Yeah, absolutely. My wife and I are both active realtors. I had success in a variety of different sales roles, different industries over a few years, and got kind of tired of working hard and making everybody else money, and getting a really small piece of the pie, and figured I’d make a bigger pie and take small pieces. That’s kind of what drove me into real estate, and multifamily is the future for me as well.
I can’t do any of this without my wife. She has a master’s degree, actually; she’s managed eight-figure budgets for a private university, she worked for DU for a while, and hundreds of employees… She’s kind of the operations, I’m a little bit more of the face. She’s kind of like my right arm, I couldn’t do anything without her.
We both come from sales, we met in a sales job together, and… Yeah, Airbnb was kind of our start, and I got licensed, she got licensed, we’re passive investors, we’re gonna syndicate our first deal this year to GPs, and… Yeah. Where do you wanna go from there?
Joe Fairless: Well, I’d like to know how you raised a million dollars in private capital to fund your flips in the first year.
Rocco Montana: That’s a great question, and I’m happy to share… I’m gonna write a book at some point when I build up a little bit more experience, and it’s gonna be something along the lines of creating success or creating your business one beer and coffee at a time. It really just comes from networking. My wife and I invested in a coaching program…
Joe Fairless: Which one?
Rocco Montana: Fortune Builders.
Joe Fairless: Okay.
Rocco Montana: [unintelligible [00:04:25].15] do wholesaling, then do flipping, and then do buy and hold. And that helped me get in front of a lot of people. Then I created a meetup based here in Boulder. Actually, some of you might know who Adam Adams is. He created the Real Estate Lunch Club of Denver. I run the Creative Real Estate Lunch Club of Boulder, and honestly, most of it came from there. My family was not my first investor, but I’ve got my family on board now, so that helps… And yeah, the meetups, and getting out there.
It was so hard for me to believe even investing in something like Fortune Builders and meeting other successful people of varying degrees and varying asset classes in real estate… “Where do you find your deals, where do you find your capital?”, and they all say networking. It’s underrated, and I think a lot of people are doing it wrong. There’s not always an intention. They refer to it as edutainment. You take these classes, you go to these groups, you invest in these programs, and you’re having fun and you’re learning, but are you actually executing? Having an intention with networking, knowing who you’re looking to meet, researching the group that you’re going to see, the people that are gonna be there and having an intention and goal…
I heard an interesting statistic not too long ago from one of the coaches I was working with – 95% of people never make a follow-up call after a meetup.
Joe Fairless: I believe it.
Rocco Montana: All these business cards you hand out or receive… If you actually schedule a coffee or schedule a phone call, you’re in the overwhelming minority.
Joe Fairless: Yeah, it’s pathetic, but I believe that it’s true… Which is good — and pathetic, because people should do it, but it’s good because people who do do it, surprisingly, they stand out. They shouldn’t, but they do, because most people don’t do that… So yeah, I’m glad that you mentioned that. It’s the small things that can help.
Let’s get into a little bit of the specifics of that million dollars in your first year though. I hear you on you joined Fortune Builders, you co-host a meetup, you’re intentional when you are attending places to know what you’re looking for, but now let’s talk about the actual million dollars within your first year. How many people approximately did that comprise of?
Rocco Montana: Honestly, a surprisingly few amount. It’s only about four.
Joe Fairless: Four people, okay. So on average 250k, or was one person 900k and the others were a smaller amount?
Rocco Montana: I’ve got one person over 500k, and the other three comprised the other 500k.
Joe Fairless: Okay, cool. So you’ve got one person at over 500k, and – the other three over 100k each?
Rocco Montana: One is about 200k, and the other two 150k.
Joe Fairless: Someone invested a good chunk, you’ve got another person investing about 200k-250k, and then you’ve got two others that are doing about 150k. Alright. So how did you meet that person who has invested over 500k?
Rocco Montana: It’s kind of the little things, like we said earlier, Joe… I tapped somebody on the shoulder, I was working with a hard money lender for a flip, and the timeline didn’t work out, even though the hard money lenders can close fast… I needed a little bit faster or I was gonna lose the deal. I already had earnest money up… And I tapped them on the shoulder after they were in my meetup for about a year. We built a relationship, a little bit personally, but mostly meeting once a week. This year we’re doing once a month or twice a month in Denver and Boulder meetup… And she had faith in me and gave me an opportunity.
In that first deal she went first position, took up the whole loan, purchase price and repairs, for 280k, and now she’s in four other projects with us.
Joe Fairless: So you approached her when you had a deal and the timeline wasn’t working out with the other hard money lender? Did I hear that right?
Rocco Montana: Yeah, so I clarify the difference between a hard and a private money lender as the hard money lender is like an asset-based lender, that’s typically a fund or something like that, private equity funds that focus on fix and flip real estate… And the private money lender is exactly that – a private individual. The hard money lender – I was pre-approved, I had worked with them, and I was kind of ready to go with my first big flip. I did a small flip, a little [unintelligible [00:08:38].27] I actually lent personally on it, with a little experience from the lender side as well… And I just reached out and they were like “Yeah, we can’t really quite move that fast.” I thought they could.
I tapped this woman on the shoulder, who was becoming a close friend of ours as well, which had been part of our business, and she said “Yeah, I’ll help you out. You can secure me with a lien and a promissory note.” The return sounded awesome – double-digit annualized returns, backed by insured, hard assets…
Joe Fairless: So path A wasn’t working, path B ended up working… You said you had known her for a year… How did you initially meet her?
Rocco Montana: Through the meetup that I was hosting.
Joe Fairless: So you were hosting a meetup for how long? At least a year, I guess… Prior to you doing this first big flip.
Rocco Montana: January 18th I started my meetup, and tapped this lender on the shoulder in July or August. This was a weekly meetup, she was a regular attendee. She manages a small portfolio of condo rentals in Boulder, and she was looking for more passive opportunities. She had been self-managing so many units, and it was a lot of work, she was kind of doing 30, 60, 90-day rentals because they have short-term rental regulations in Boulder and Denver, so she couldn’t give the nightly stuff… And it was a lot of work. She had some capital, and she took a chance.
My sales experience definitely helps in negotiations, and being able to communicate with people and articulate your point, and a value proposition… Stuff guys like you and I do all the time in raising capital or meeting new partners. She was into it.
Joe Fairless: And in January when you started your meetup, did you start it as a result of something else taking place, to give you the idea to start it?
Rocco Montana: So Adam Adams, who is a multifamily syndicator himself, based out of Denver, started the Creative Real Estate Lunch Club of Denver, and he wanted to expand it to other places. We know that Boulder is a pretty affluent area, and it was a fairly affluent city as well, and he said “Well, why don’t you take lead and host a Boulder chapter, if you will?” He was doing every week on Thursdays through 2016 and 2017 – or maybe just 2017 even – and then in 2018 I started in Boulder, another guy started in Fort Collins, and they tried to start one in Colorado Springs… Today it’s just Denver and Boulder that still exist.
Joe Fairless: Okay, so you’re holding strong, and you have seen the benefits of doing it… So I’m glad that we dug in there. What value did you see for starting that meetup in Boulder, that perhaps others did not?
Rocco Montana: The value we see is providing value to others, and meeting other people. It’s like a two-way street, right? We provide value first, create something that brings people together… Our format was a different speaker for every week. All the different sorts of real estate. No sales pitches, no “Sign up for my consulting program”, no “Buy my book.” Just “I’m a specialist in 1031 exchanges. We’re gonna talk about that for 40 minutes.” “I’m a specialist in multifamily syndication. We’re gonna talk about that.” “I flip” etc.
We did that, and it brought people together to talk about real estate, people that are interested in real estate. And then the other side is I knew by providing value first, that in some way, shape or form, even with not a clearly defined goal at the time, I would receive value in return. It’s karma, if you will, and you can call me a Boulder hippie if you will, but it’s just karma, and putting good energy out there and helping other people and bringing people together. That comes back twofold, and it has, in a short time.
Joe Fairless: Segueing to something else, unrelated – you’re an Airbnb superhost… How much Airbnb stuff do you do right now?
Rocco Montana: We have two properties. We listed six different listings with just two properties. That could definitely be a fairly long conversation in itself. It is mildly passive. We airbnb our condo in Boulder. Sometimes my wife and I literally sleep on our couch and rent out our two bedrooms. Another thing that people think we’re nuts, but it’s temporary and it’s helping us get to our other goals, and it just generates enough revenue that it’s worth it. And we have a nice couch in front of the fireplace… [laughs]
So we’ve been doing that for about 2,5 maybe 3 years now, over about 500 guests, 260 stays, maintaining that superhost rating, so we’re in the top tier of feedback… And we got into that because we did Uber/Lyft for a little while, while starting out, just being young, newly married business owners… It was difficult to just keep food on the table, especially because real estate has a bit of a longer sales cycle, as you know and most of the Best Ever listeners would know. It’s not a weekly paycheck, like the 9-to-5 deals. And there wasn’t a lot of value in it, dollars versus time.
Airbnb really gaining popularity about three years ago, we figured we’d try with one bedroom, then we’d try it with two bedrooms, then we actually put our whole house on Instant Book, after we had purchased another property… That was actually a bad partnership, and we bought a partner out and ended up keeping the asset. It was supposed to be a buy and hold, like a BRRRR method; we were gonna buy it, renovate it, refinance it, rent it, repeat. It didn’t work out so well with the partner. We bought it… It was in a floodplain, after the fact; standard rent wasn’t really gonna cover it, long-term rent [unintelligible [00:14:17].03] so now we airbnb that house as well, which – in our experience, Airbnb brings in 1,5x-2x what long-term rent does.
Joe Fairless: In terms of profits or in terms of income?
Rocco Montana: Gross income. Gross income is typically 1,5x to 2x for short-term than it is for long-term rentals. I wish I could cite where I’m getting some of the data from… But there’s less wear and tear on short-term rentals. People show up, they shower, they shave, they sleep, and they go out. Especially in Boulder and Denver.
We learned the hard way, through a certain price point; [unintelligible [00:14:54].08] come to Colorado to smoke weed and sit on your couch. [laughs] It can’t go less than $50/night, or you’re gonna get that clientele. [laughter] More than $50/night per bedroom, people come that go out to dinner, they go to a show, they go to a conference, they go to CU, their kids are there, a graduation, a show in town… It’s endless, the amount of stuff to do in Boulder and Denver.
Joe Fairless: And then they come sleep on your couch?
Rocco Montana: No, they sleep in bedrooms. My wife and I sleep on our queen-size pull-out couch.
Joe Fairless: Oh, got it. You two sleep on your couch, and they sleep in your bedrooms. And you said you had six listings with two properties. Help me with that math.
Rocco Montana: Yeah, so we have the whole house listing in Boulder, and then we have two individual bedroom listings. So either you get a private bedroom in a shared house, or you get a private two-bedroom condo. And then the other property has three bedrooms. We actually keep one bedroom for ourselves, so we do a lot more sleeping in that bedroom now than on the couch… So we have two separate bedrooms there that we rent out, plus the whole house listing.
So two houses, at least two bedrooms for rent, could actually be six listings – as individual bedrooms or as whole house listings. The calendars sync up, so if one’s blocked, you can’t get the other one etc.
Joe Fairless: Let’s go back to the million dollars in the first year of flipping. We talked about the first person… What about the second person, who brought about 250k or so? How did you meet him/her?
Rocco Montana: The second person was actually a family; a successful investor in their own right. They created a business, did really well, we showed them that we were executing on the bigger vision. We actually approached the family first, when we first started. We invested in Fortune Builders, and… Some people hear the term “friends, family and fools”, so we started off–
Joe Fairless: [laughs] I’ve never heard that before.
Rocco Montana: Oh yeah, you start off with friends and family, and they’re like “Yeah, that sounds really great. Show us something.” And it’s like “Well, I’ve invested in this education program”, and pamphlets, and brochures, and… The sort of blue-sky thinking, if you will. “Oh, it’ll work out.” And once we started to do deals, then a family member was like “Cool, I’m there for you.” Obviously, they get a rate of return, just like any other private investor, so it’s mutually beneficial.
Joe Fairless: What’s something that has gone wrong in your path so far, in the last couple of years in real estate?
Rocco Montana: Something that has gone wrong is I let a small amount of earnest money go hard, and lost if, because I had enough information to be dangerous, but not enough to complete the execution. Part of it might have been fear at the time. So one of my first deals I lost my earnest money on a single-family house.
Joe Fairless: How much?
Rocco Montana: $2,500. But when you’re starting out and you’ve only got so many resources… My wife and I were still both working full-time, and it hurt. But we got through it, because we also did a wholesale in the same day and made 16k. So we didn’t feel it as bad.
Airbnb – we had our first negative experience with guests about two months ago. They really trashed the whole room. We had to replace linens, pillows, carpet even, the mattress we threw away… I don’t know what they were doing, but Airbnb covered almost all of it, which was really cool… Which not everybody can say.
Joe Fairless: Were you staying there with them at the time?
Rocco Montana: We were staying there, they were in the bedroom, we smelled something funny… It definitely wasn’t marijuana. We addressed it, we tried to not be judgmental of the people based on [unintelligible [00:18:20].29] It was a last-minute booking; we don’t get a lot of them… I’m talking like same day… We have a cut-off at 9 PM. So you can book at [8:50]. “Hey, I’ll be there in ten minutes.”
And our success came from being a little loose in the beginning with the guidelines, and letting people come in. Now we’ve tightened it up a little bit, and we haven’t seen any lack of business, because we have great reviews and a great experience.
Yeah, they trashed the whole room, and I don’t know what they were doing. And it was a bit of a nightmare, because it’s our primary residence in Boulder where we live, and it was just like “Oh, my gosh…” We had other bookings, and we just kind of grit our teeth and bear it… Being in flipping, we were able to get the carpet replaced in 12 hours. We made a phone call and a guy showed up with four samples, and ripped out the carpet and redid it.
We own a design company, Jmix Design – my wife and a girlfriend of hers started that. It helps with staging and design in our flips, and as retail brokers, as real estate agents, which is kind of our day-to-day stuff, it puts food on the table today, while we build our long-term future in multifamily and flipping and all that. But that was pretty crazy.
Joe Fairless: What’s your best real estate investing advice ever?
Rocco Montana: It might be life advice, but gratitude, hard work and patience is something my wife Jami and I live by. Everything stems from “Be grateful for how far you’ve come. Put in the work to get to your next level, and then have patience to let it all play out.” Gratitude, hard work and patience is what we live by.
Joe Fairless: I like it. I think that is a wonderful recipe, in my humble opinion. We’re gonna do a lightning round. Are you ready for the Best Ever Lightning Round?
Rocco Montana: I am ready.
Joe Fairless: Alright. First, a quick word from our Best Ever partners.
Joe Fairless: Okay, best ever book you’ve recently read?
Rocco Montana: Never Split the Difference, by Chris Voss, about the strategy of negotiation, and a lot of psychology around it. A former hostage negotiator with the FBI wrote this book. Again, Chris Voss. He’s got great stuff on YouTube, and I believe he’s in a TED talk… Fantastic book on negotiation.
Joe Fairless: Yeah, he’s been a guest on this show as well. Best Ever listeners, you can just search “Chris Voss Joe Fairless” and you can listen to that interview. What’s a mistake you’ve made on a transaction that we haven’t talked about already?
Rocco Montana: Being too personal almost. Not wanting to give bad feedback to a client because of fear of their reaction… And I think we could have served that client better by being a little bit more direct. It’s a deal we actually never fully executed on. It was a listing, we were selling a property for somebody; they were in a difficult situation, and I was more concerned with the emotion, as opposed to just being like “Hey, we’re professionals, this is what we do. This is their experience, and this is the next step to get to success based on your wants and needs.” We didn’t handle that appropriately.
Joe Fairless: What’s the best ever deal you’ve done?
Rocco Montana: Best ever deal I have done is marrying my wife, Jami. [laughs] Punching outside my weight class, as they say; she’s just a phenomenal woman and business partner and friend… But I’ve got a kind of little bit of a shameless plug for the love of my wife there.
Joe Fairless: Speaking of wives, mine – as you probably saw – was coming in and out. She was wonderful enough to make me lunch, so… She did not know we were doing video. [laughter] If you can rewind it, anyone watching on YouTube, you’ll see her expression as soon as she realizes we’re doing video and she was not aware of that.
Best ever way you like to give back to the community?
Rocco Montana: My wife and I are CASA advocates. That’s the Court Appointed Special Advocate program. It’s in a lot of counties, a lot of states; I don’t know how big it is… But we are the only non-biased, one case-focused advocates for children who are victims of abuse and neglect. So as you’re 18 years old, the judge here in Boulder county likes to have a CASA appointed. I’m like a therapist, or a lawyer, or a case worker for a social services person.
We’re not trying to fit these kids in a box. We just meet with them a on a minimum of once a month; my wife and I pride ourselves on more than that… We figure out what their needs are at a human level. We only get one case at a time, and then they report back to the court. Kind of like a mentoring program, guidance, if you will… But we’re really passionate about helping out our community.
I’ve got some family that had some issues with drug abuse, and we don’t need to get into that, but it’s a really personal way for us to give back. My wife loves it, I love it, and we just like to help other people.
Joe Fairless: How can the Best Ever listeners learn more about what you’re doing?
Rocco Montana: JROCProperties.com. Jami and Rocco. You can also reach me directly; I’ll give you my cell phone even – 908-420-4052. I would love to talk to any of you about investing, real estate, life, whatever… Networking and small things make such a big difference, like I said.
Joe Fairless: Well, Rocco, thank you for being on the show, talking about your journey, talking about how you got into it, and over the last couple of years how for the year one you raised a million bucks. How you did that – well, you started a meetup, started to add a whole lot of value to people on a weekly basis… I think there’s a key there – it’s not only that you started a meetup with a friend of yours (an extension of a friend of yours, of Adam Adams), but you did it weekly. And then when you had an opportunity – and really a challenge, but then also an opportunity – for someone to partner with you, you had the network already built, and you simply offered an opportunity where it was mutually beneficial.
And now, fast-forward the year after that – ish, if I’m getting the timeline correct – she’s brought over 500k to your deals, and you have other investors who have as well, so I know that’s important to talk about… As well as interesting stuff about Airbnb. I did not think about the shorter-term rentals have less wear and tear than longer-term, and I agree with that. I know you talked about the horror story with people doing meth, or crack cocaine, or whatever the heck they were smoking… It wasn’t pot, apparently, according to you… But I agree – short-term rentals probably would have less wear and tear, and I never thought about that. I think it’s counter-intuitive, so I’m glad that you mentioned that.
Thanks for being on the show. I hope you have a best ever day, and we’ll talk to you again soon.
Rocco Montana: Thanks, Joe.