JF2126: Questions to Consider With John Bogdasarian #SkillsetSunday

June 28, 2020 | Joe Fairless | 00:22:17

JF2126: Questions to Consider With John Bogdasarian #SkillsetSunday

John is a returning guest from episode JF1308. He is the President of the Promanas Group, a real estate investment firm and he has a book called “Do the work once, get paid forever: How Smart People Invest in Real Estate.” In this episode, John shares different questions you should be asking yourself when you’re looking to invest.

John Bogdasarian Real Estate Background:

  • President of the Promanas Group, a real estate investment firm
  • Began with nine initial investors, has strategically guided the firm to serving more than 300 investors today
  • Recently published his first book “Do the Work Once, Get Paid Forever: How Smart People Invest in Real Estate”
  • Based in Ann Arbor, MI
  • Say hi to him at https://promanas.com/ 

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Best Ever Tweet:

“Don’t focus too much on the deal, because you have no idea, it could look like the best thing in the world. I can make anything look like anything on paper.” – John Bogdasarian


TRANSCRIPTION

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

John Bogdasarian: I’m good, Theo. Thank you.

Theo Hicks: John, thanks for  coming on the show again. John is a repeat guest; this is Sunday, so we’ll be doing  a Skillset Sunday where we talk about a specific skill that our guest has, and how you can apply that to your real estate business. Before we get into that skill – John’s biography. He is the president of the Promanas Group, a real estate investment firm. He began with nine initial investors and has strategically guided the firm to serving more than 300 investors today. He recently published his first book, “Do the work once, get paid forever. How smart people invest in real estate”, so definitely check that out.

Based in Ann Arbor, Michigan. You can say hi to him at Promanas.com. As John said in the beginning, it rhymes with bananas. So John, before we get into the skill, do you mind telling us a little bit more about your background and what you’re focused on now?

John Bogdasarian: Yes. Essentially, my background is real estate agent, to real estate broker, to commercial broker, to developer, and now pretty much purely private equity. So what we do today is we act as the equity source for developers that have projects teed up and ready to go. We go in,  we put another layer of due diligence over the top, and then we write them a proposal and say “Yeah, we wanna be your equity under these circumstances”, and they 99 times out of 100 say “Great. Awesome. We don’t have to think about raising money.”

And then the value that we’re kind of creating to the investor side of the equation is that we do have a whole other layer of scrutiny that comes over the top of the deal, obviously, but we also negotiate structures where there’s very little dilution in the deal itself. Investors’ dollars come back first, and some type of a preferred return comes back to them first… So what we like to say is that we’re giving investors the best possible chance of getting solid double-digit returns in real estate, with the least amount of downside potential. And that’s kind of the unique proposition in what we do today.

Theo Hicks: Okay, thank you for sharing that. So this skill is going to be for passive investors… We’re gonna talk all things passive investing. To start off, you mentioned that you are the equity source for developers. Are they developing multifamily, are they developing office, or is it kind of just a combination of all types of developments?

John Bogdasarian: Yes. [laughter] We have condominium projects, we have hotels, we have office buildings… We have not developed ground-up and industrial property, but we’ve purchased millions of square feet of industrial properties, again, using investor capital. So I think we’ve done pretty much almost every type of asset class. The only thing we haven’t really done much of is retail, but other than that I think we’ve seen pretty much everything.

Theo Hicks: So as a passive investor, I’m looking at your deals that you have available… Give me some tips on what I should be looking for… Because again, I’m not sophisticated. I don’t know about development, or hotels, or office buildings… I just know that  I’ve got a lot of money and I wanna get, as you mentioned, the best possible chance to get a solid return with the least downside. So how do I as a passive investor determine if a particular deal I’m looking at fits that criteria?

John Bogdasarian: Yeah, it’s a great question. That’s the question I’ve had thousands of times over the last ten years… And that’s basically why I wrote the book. It’s titled “Do the work once, get paid forever”, which used to mean to me “Put your money to work for you, get enough passive income.” Maybe owning apartments, or whatever it is, so that you can get paid forever and you don’t necessarily have to show up to a 9-to-5er job if you don’t want to anymore.

But I took that same philosophy and I said “Well, how does an accredited investor figure out how to do that?” If I’m a doctor, or I own my own business, whatever it may be, I don’t have time to make all the mistakes John made in his career, or somebody else, and figure out how to get to that point.

The book really answers that question, and what it says is it says — so you don’t have to buy it or read it, because it’s written like a third grader; I’m not really a writer… But it has this conversation where it says “Out of all the investors I’ve worked with and had conversations with, the most intelligent ones, the most sophisticated ones ask their questions more about me, the person they’re investing with, than they do about the specific deal that I have sent out to them.” So the book really is designed to say “Alright, you’re a potential investor, but where do you go?” So how do you find people that have good deals ready to go? What is a PPM and a subscription agreement? What does a typical deal structure look like in that subscription agreement?

So really, I think most people can read this thing in about two hours, but it’s sort of how to start out, how to find the right partner to invest with? What’s the philosophy behind it, why is this person doing this? What kind of due diligence can I do on this person and/or this deal? What are the various types of real estate investments I can get into?” So it’s not as detail-oriented as, say, Sam Freshman’s book Principles of Real Estate, which is like a textbook… But that also won’t tell you how to find people that know what they’re doing; that just tells you how to become a syndicator.

So this is really designed to say — for instance, you ask, Theo, “Where would I go? What would I do? How do I find deals to invest in?” So it gives you some tips. Like, when you’re driving around in your town, do you see cranes in the air? Or if you’re visiting a city, do you see cranes in the air? And people are going to hot places, right? And I don’t mean temperature-hot. You’re not going on vacation in Milan, Michigan, or wherever. You’re gonna go to Denver, Nashville, Sarasota, mountain towns maybe… And there you’re gonna see developments going up.

So the developers’ names are all listed right on the signs; just making note of them… Get online, send them an email and say “Hey, do you ever consider taking on investors?” That’s one way to find potential deals. Maybe you won’t get into that deal that’s going on right now, but people are always looking for money for deals… And it even explains why people are looking for money for deals. Because one of the things that I always thought about was “Why would this guy take on investors and make them money? Why doesn’t he just keep all the money himself?” It just doesn’t work like that. It’s impossible. You can’t possibly move fast enough or do enough. And plus, having started out at zero myself – a very good upbringing, but zero money… I don’t have any money, so how am I gonna go do this? I had to take on investors. And now my whole mindset is “We like making people money. It’s fun.” And it’s not all about the money, it’s about taking care of people and giving them access to things they don’t have access to, and whatever. So there’s a pretty good digression for you.

Theo Hicks: That was great. So you gave a lot of questions that passive investors should be asking, and you mentioned how they’re answered in your book, you gave a few examples why are people looking for money for deals, and then you gave an example of how to find people who have good deals. You gave the example of cranes in the air… What are some other examples of ways that I can find people to invest with?

John Bogdasarian: I’ll tell you, as dumb as it is, you’re in your doctor’s office; you’ve gotta be there anyway, you’ve got a few minutes… “Hey doc, I appreciate you taking a look at (whatever it is you’re getting checked out) my arthritic knee. I’m just curious, have you ever invested in any real estate deals? Do you know anybody locally who puts these kinds of things together?”

You can do Google searches and try and find developers and contact them and do that, but the internet is kind of a strange place for that. You now have, as  you’re aware of, I’m sure, the investment portals, where you’ll see all these deals on there. “Oh, this one will make you 18%, this one will make you 13%. This one will make you 16%”, and you can just point, click, ship and invest money in these deals. Well, I don’t like that disconnect. I’ve been strongly opposed to people investing through those portals… Because we have talked to all of them, and we’ve talked to them about getting our deals on their sites, and we don’t do it because we don’t like the process. The disconnect between the developer, sponsor and the money creates too many problems.

For me, when I started out, it was all friends and family. That’s it. It’s all friends and family. Who else is gonna give me money? At the time  — how old was I…? I don’t even know how old I am now. I guess I was like 39 or 35… Anyway, so I don’t know that many people. So I had to go friends, family, people in the community… And you better believe that that deal structure was exceedingly weighted towards the investor, as opposed to the deal sponsor, syndicator, developer. And we’ve kept that same philosophy throughout, because — I now have just over 400 accredited investors participating in deals with us, and while I don’t know all of them anymore (that’s impossible), pretty much everybody I know or deal with on a day-to-day basis is invested in my deals. So for me, that’s a  system of checks and balances. It says “I don’t ever wanna do something just to create fees and make money and fly around in my private jet, and all these people have lost their money.”

I think when you get onto these portal sites, that’s a problem. People can just throw them on there… It’s just different to me. I think it’s way better in real estate. Real estate is so unique. Everyone’s trying to create a system whereby it’s a robo-advisor, and your deal fits into this format/formula… And that’s the whole message – don’t focus on the deal, because you have no idea. It could look like the best thing in the world. I can make anything look like anything on paper. And most of the deals we put out, to be perfectly honest with you, experience something major throughout the development process. A major challenge or setback that we did not anticipate or could not foresee. So I think if you have the right person running it, then they have the ability to create solutions and even opportunities out of these things that happen throughout the process. If you have the wrong guy, who’s just interested in the fee, and he doesn’t really have a whole lot of experience of knowledge or understanding, you’re gonna get soaked and the deal is gonna go under.

So again, I’m probably answering more than you asked, but I steer clear of advising people to do the portals… But you could do Google searches on people in your area, you can read news articles… Most people have a local real estate publication of some kind. Ours is called Cranes here. You’ll see people in there, mover/shakers. Don’t be afraid to call them up, look at their website, see if they take on investors… It’s what I call prospecting. You’re just looking for good people… Usually, you’re gonna get  it  all word of mouth. These are what used to be referred to as country club deals. So if you’re a member of a country club, if you’re an accredited investor, chances are you associate with other people who are accredited investors, and chances are you know people that are in deals; they just don’t talk about it, or run around promoting it. So you have to ask. You have to say “Hey, have you ever invested in real estate deals? Do you know anybody good who puts real estate deals together?” Ask that ten times and I guarantee you’ll have some opportunities in front of you.

Theo Hicks: Okay, so we hit on the prospecting aspect, how to find these people. So once you find them, you did mention a few things to look for – favorable returns to the investors, as opposed to a bunch of fees and stuff for the sponsor… And then avoiding those types of investor portals because of that disconnect. What are some other specific questions or specific things I should be looking at as a passive investor once I’ve found a handful of potential people to invest with?

John Bogdasarian: I think people have different reasons for doing things, but motivation in and of itself boils down to a handful of categories. If you wanna understand motivation — people tend to do things for recognition. They want awards, they want recognition, they wanna feel like they’re important… People will also do things for a sense of contribution, contributing to the community… “I’m creating something good here. I’m doing whatever.” Money is a motivator for people. “I’ve gotta pay the bills.” When I started out I had to do deals; I’m now in a position where I don’t have to do any deals. So when I question motivation, that’s the question I would ask “What’s your motivation for doing this? Why are you putting this deal out and taking on investor capital?” It seems like a lot of work and a lot of time, energy, and it could potentially be stressful.

Funny story – I have probably 20-30 heart doctors invested. We probably have 70-80 physicians in our group at this point, but we have a number of specialists, and a number of them are heart doctors. A few routinely perform emergency open heart surgeries… And one of them in particular was sitting in my office and said “Boy, I just don’t know how you can do it.” I’m like “Do what?” And he said “I just don’t know how you can work with other people’s money. That’s gotta be so stressful.” And I’m like “Doc, half your patients could die. [laughs] I don’t wanna do what you do… No way. I’ve gotta come out and tell the family “Sorry, he didn’t make it.”

Anyway, so I thought that was funny, but it is true – there’s a certain amount of pressure associated with generating returns for people, especially when you know them intimately, and you eat Thanksgiving dinner with them.

So gauging someone’s motivation I think is probably the most important, and I think you’ll get  a sense of whether or not you’re dealing with somebody honest at that point in time. Also, I wouldn’t be opposed to having somebody review the private placement memorandum if you’re not familiar with them. If you’ve read a number of PPMs and you know what they’re all about, then fine; it should be pretty simple, and spelled out very clearly in terms of who makes what, when, and how it works… But if it’s complicated to you at all, have someone else look at it. Find a legal guy to review it for you and give you the nuts and bolts; at least the first couple times get some of that third-party evaluation done.

Theo Hicks: Alright, John, is there anything else that we haven’t talked about already as it relates to a passive investor getting started, growing, scaling their passive investing business that we’ve not talked about yet?

John Bogdasarian: Not that I’m aware of. I think mostly for us it’s unique to the person. What I find interesting is — let’s say we’re putting out a deal and we’re raising 20 million in capital. Well, most of that will get spoken for pretty quickly off of our existing list, and it won’t even get questions on it. So people will just send an email and say “I’m in for 200k” or “I’m in for 500k” or whatever. So we’ll fill most of our deals, probably 70%-80% of them with existing investors. But every single time there’s gonna be at least 15-20 that are on our potential investor list, that have never invested with us before, that wanna have a conversation about the deal and they ask very specific questions.

Oftentimes those questions are never the same. One person might be focused on the city that we’re developing in, we’re building in. Another person might be highly focused on how much money I make, and my team, and how we get paid. Another person might be focused on the asset type, and they might think hospitality is a dead sector. Or condominiums are over-built. Or whatever. It’s almost like no two will be the same, but they’re all focused on one thing.

So by definition, I kind of think they’re focused on the wrong thing, because if I address this issue for this guy over here, and say “Well, here’s why we like it, and here’s whatever, and here’s this and that”, the reality is they’re not necessarily asking the questions that they should be asking… And that’s more about the track record of the deal sponsor, the track record of the developer person, whatever it may be, the contractor, what kind of due diligence do you guys do… There’s gobs of questions I would ask, and I think one of the most revealing – one more little tidbit – is “Tell me about some of the deals you did that didn’t work out, or weren’t gonna work out, and how did you address those concerns?” I think that gives you a few more things to focus on.

Theo Hicks: Well, John, again, I really appreciate you coming on the show and sharing your wisdom on passive investing. A lot of great content here. I’m just gonna quickly summarize some of the main takeaways. We first talked about how to analyze deals, and you kind of quickly shifted it from – well, you’re not necessarily looking at the deal itself; the most intelligent investors are focusing on the person who’s actually sponsoring the deal, as opposed to the deal… So we went into the details on how to find these people.

You said “Did you see cranes in the air? Find the developers’ names and reach out.” That was unique; it’s something I hadn’t heard of before. Also asking people who are other accredited investors; for example, when you’re going to the doctor’s office, ask them who are they investing with. And you gave a few other examples as well.

We talked about things to avoid, which is those investment portals, because of that disconnect between the sponsor and then the investors.

You mentioned a lot of things of what to look for when you’re screening sponsors… Something that I hadn’t heard stated this was asking them what their motivation for doing deals is, and based off of what they say, you can gauge if you can trust that person or not. And then also asking about specific deals that they did that did not work out… So again, John, I really appreciate it. Thanks for taking the time to speak with us today.

Best Ever listeners, make sure you check out his book. Again, that’s “Do the work once, get paid forever. How smart people invest in real estate.” The website is promanas.com. Again, thank you, John. Best ever listeners, thanks for tuning in. Have a best ever day, and we’ll talk to you tomorrow.

John Bogdasarian: Thanks, Theo. I appreciate it. Thanks for having me on the show.

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