JF2212: Process Of Institutional Raising With Kevin Riordan

Kevin is a full-time professor at Montclair State University teaching real estate courses and has been investing for over 30 years. Kevin has had experience in taking a company public and also has been focusing on raising money from institutions and he shares the process on how to navigate this process.

Kevin Riordan (Rear-din)  Real Estate Background:

  • Full-time professor at Montclair State University teaching real estate courses 
  • Has been investing in real estate for 30+ years
  • Career has been focused on the institutional side providing debt & equity capital, public and private, for commercial real estate
  • Also took Crexus Investment Corp; a commercial mortgage REIT, public in 2009 
  • Based in Montclair, New Jersey
  • Say hi to him at: riordank@mail.montclair.edu 
  • Best Ever Book: Grant by Ron Chernow

 

 

 

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Best Ever Tweet:

“Be cautious but also try to be bold” – Kevin Riordan

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JF2211: Don’t Underestimate Your Potential With James Evans

James Evans is the Owner of Gladstone Capital with 6 years of real estate investing experience with a portfolio consisting of 20 rentals, condo conversions, limited partnerships, and creative joint venture deals. James got into real estate because his job has him traveling constantly where he felt like he shouldn’t have to pay for a mortgage since he was never home which started his journey into renting houses and eventually grew into a nice portfolio. 

James Evans  Real Estate Background:

  • Owner of Gladstone capital 
  • 6 years of real estate investing experience
  • Portfolio consists of 20 rental units, condo conversions, limited partnership, and creative joint venture deals
  • Based in Boston, MA
  • Say hi to him at: https://gladcap.com/ 
  • Best Ever Book: Living with the Seal

 

 

 

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Best Ever Tweet:

“We tend to underestimate our own potential” – James Evans

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JF2210: Tax Liens With Melanie Finnegan

Melanie Finnegan is the founder of Tax Lien Wealth Solutions with 10 years of tax lien investing. She helps people with wealth management by teaching others to be able to manage their own money or can have her company do it for you. Melanie gives some explanation on what Tax Liens are and how you can go about investing with them.

Melanie Finnegan Real Estate Background:

 

 

 

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Best Ever Tweet:

“It’s all about due diligence” – Melanie Finnegan

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JF2209: Rising Insurance Rates With Bryan Shimeall #SituationSaturday

Bryan is a former real estate builder/developer and is now working with Multifamily Risk Advisors insuring units across the country. He was a previous guest on episode JF1595  and In today’s episode Bryan will be sharing info on how insurance rates are rising at historical levels and the rates are killing many new deals and hammering the profitability of existing assets at renewal. He will also discuss effective strategies to navigate the insurance market.

Bryan Shimeall  Real Estate Background:

  • Former real estate builder/developer
  • Joined Multifamily Risk Advisors 6 years ago; they insure about 200k units across the country
  • Based in Gainesville, FL
  • Say hi to him at:  www.tbmins.com   

 

 

 

Click here for more info on PropStream

Best Ever Tweet:

“Losses, roof, and wiring, if those three things are positive I can get any property written pretty quickly ” – Bryan Shimeall

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JF2208: Veteran To Founder With Seth Wilson

Seth is the Founder and Managing Director of Clarity Equity Group and is a four-time combat veteran of 14 years and currently serving in the Missouri Air National Guard as a pilot of a C-130 tactical airlift aircraft. Seth shares his background of over 12 years of real estate experience and his journey into this new venture. 

Seth Wilson  Real Estate Background:

  • Founder and Managing Director of Clarity Equity Group
  • A four-time combat veteran of 14 years and currently serves in the Missouri Air National Guard as a pilot of the C-130 tactical airlift aircraft
  • Has over 12 years of real estate experience from mobile homes to ground-up development on Class A luxury properties
  • Portfolio consists of $65MM in assets under management
  • Based in Kansas City, KS
  • Say hi to him at: https://clarityequitygroup.com/ 
  • Best Ever Book: Invest in Debt

Click here for more info on PropStream

Best Ever Tweet:

“Jumping off a cliff and then trying to build your parachute is a strategy I really don’t recommend, it’s better to have money put together first and then go and find a property” – Seth Wilson

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JF2205: Condos To Notes With Andy Mirza

Andy Mirza is the COO for Coastline Capital Fund Management LLC and has been investing in real estate for 17 years. He initially started buying condos and eventually, he started to invest more on the non-performing notes side of the real estate business. He shares what notes are and why he started to invest in notes later in his career. 

Andy Mirza Real Estate Background:

 

 

 

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Best Ever Tweet:

“If you want to do anything in real estate or investing directly, you need to do it full time” – Andy Mirza

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JF2204: Investing While Overseas With Vincent Gethings

Vincent is the co-founder and COO of Tri-City Equity Group and is an active duty Air Force. Vincent shares the steps he took to begin his investing journey while still being active duty in the Air Force and not seeing the properties. He explains how he built a team through social media and through this team he has been able to grow his business to now a portfolio of 120 units.

 

Vincent A Gethings  Real Estate Background:

  • Co-founder and COO of Tri-City Equity Group and active duty in US Air Force
  • Has 6 years of real estate experience
  • Portfolio consists of 120 units (20 owned, 52 partnerships, 48 syndications)
  • Based in Oahu, HI
  • Say hi to him at: http://tricityequity.com/ 
  • Best Ever Book: Traction

 

 

 

Click here for more info on PropStream

Best Ever Tweet:

“Set goals based off your potential and not your abilities” – Vincent Gethings

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JF2203: Happy Remote Teams With Rich Fettke

Rich is the Co-CEO of Real Wealth Network, where he focuses on developing the teams and systems. He has specialized in creating a great team that is fully remote. His wife Kathy was a previous guest in episode JF753. Today Rich will be sharing with us how he has been able to create a team of happy employees who work from home and are more effective.

 

Rich Fettke  Real Estate Background:

  • Co-CEO of Real Wealth Network
  • Focuses on developing the company’s team & systems
  • Based in Malibu, CA
  • Say hi to him at: www.realwealth.com 

 

 

Click here for more info on PropStream

Best Ever Tweet:

“Be sure to determine your core values and use them as hiring criteria” – Rich Fettke

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JF2202: Adding Another Asset Class Your Portfolio With Vinney Chopra #SituationSaturday

Vinney is the CEO of Moneil Investment Group and Moneil Management Group and is also a returning guest from episode JF805. In today’s episode, he will be going over how he decided to start developing a new niche in multifamily and why. He will be discussing new ground-up construction of luxury assisted senior living.

 

Vinney Chopra Real Estate Background:

  • CEO of Moneil Investment Group and Moneil Management Group
  • A full-time investor with 35 years of experience
  • Over the past 12 years has completed 28 syndications; 14 of those in the past 3 years
  • Controls over $330 million, and 4,100 doors
  • Based in Danville, CA
  • Say hi to him at: http://vinneychopra.com/ 

 

 

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Best Ever Tweet:

“Senior living has been outperforming apartments for the last 10-15 years” – Vinney Chopra

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JF2201: The Hands-Off Investor Author Brian Burke

Brian Burke is the President and CEO of Praxis Capital, a vertically integrated real estate private equity firm and in the past 30 years has acquired over half a billion dollars in real estate. He has been in a previous episode about 5 years ago, episode 305, and in today’s episode he will be sharing why he wrote the book “The Hands-Off Investor”  which is catered to the passive investor to teach them the ins and outs of investing

Brian Burke Real Estate Background:

  • President & CEO of Praxis Capital a vertical integrated real estate private equity firm
  • In the past 30 years has acquired over half a billion dollars in real estate; 3,000 multifamily units & 700 single family homes using proprietary software
  • Can be found in a previous episode JF305
  • Author of “The Hands-Off Investor”
  • Based in Santa Rosa, CA
  • Say hi to him at: www.PraxCap.com 
  • Best Ever Book: Ted Talks book

 

Click here for more info on PropStream

Best Ever Tweet:

“Don’t take on too much debt” – Brian Burke

 

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JF2198: Mentor Boost With Bruce Petersen

Bruce Petersen is the Founder and CEO of Bluebonnet Asset Manager LLC and Bluebonnet Commercial Management. He started his real estate journey in 2011. He was a previous guest on episode JF1274, we highly encourage you to check out his first one to get an understanding of his full story. 

Bruce Petersen  Real Estate Background:

  • Founder and CEO of Bluebonnet Asset Manager LLC and Bluebonnet Commercial Management
  • Started his real estate journey in 2011, buying his first deal (48-unit) in 2012
  • Portfolio consists of 6 syndications and 1,108 total units
  • Based in Austin, TX
  • Say hi to him at: https://apt-guy.com/ 
  • Best Ever Book: Sell or Be Sold 

 

 

 

Click here for more info on PropStream

Best Ever Tweet:

“Find a coach or mentor to have a model to follow, why try and reinvent the wheel?” – Bruce Petersen


TRANSCRIPTION

Theo Hicks: Best Ever listeners, welcome to the best real estate investing advice ever show. I’m Theo Hicks and today I’m speaking with Bruce Petersen. Bruce, how are you doing today?

Bruce Petersen: I’m doing great, man. How are you?

Theo Hicks: I’m doing great as well. Thanks for asking and thanks for joining us again. So Bruce is going to be a repeat guest. He was on here a little over two years ago. If you want to check out his first episode, it was Episode 1274 – Challenges That Syndicators Face When Executing Their Business Plans. So today, we’re going to catch up, talk about what Bruce has been up to since then. As a refresher, Bruce is the founder and the CEO of Bluebonnet Asset Management and Bluebonnet Commercial Management. He started his real estate journey in 2011, buying his first deal, a 48-unit deal in 2012. His portfolio now consists of six syndications and over 1,100 units; 1,108, to be exact. He is based in Austin, Texas, and you can say hi to him at his website, which is apt-guy.com. So Bruce, do you mind telling us a little bit more about your background and what you’ve been up to since we last spoke?

Bruce Petersen: Just a quick recap of who I am and where I came from… I’m a college dropout, barely got out of high school, grew up pretty poor. I think it’s a fairly common story, so I’m not really different there. I fell into retail for about 18 to 20 years, did that until I realized, “This sucks.” I convinced myself like a lot of people in retail do – “Well, I’m a people person, so I like retail.” And then 18 years, 20 years later, I thought, “Okay, I’ve been lying to myself. I do like people, but I don’t like what I’m doing.”

So in 2008, I believe it was… 2009, somewhere in that area, I walked away. I was 43 years old, decided, “I gotta find something else to do with my life, because this is not working for me.” So I just started educating myself on real estate, found a very highly qualified mentor; that was a godsend for me. Found that person in 2011, worked with her for a while, and got my first property in 2012, and I held that for almost two and a half years. It was a syndication. Sold it for a 300% passive investor return. Now I tell everybody going forward, “Don’t expect that. We’re a totally different market than we were back in 2012.” But my first one was very successful, and I’ve just been off and running since. I met my wife through real estate. So I’ve been married now for almost six years. So that’s going very, very well. We do it together. She’s the CFO and I’m the CEO, and we’ve been doing it ever since and having a ball.

Theo Hicks: Thanks for sharing that. I believe, on that first episode from the show notes I read, that we’ve talked about that 48-units syndication deal. So let’s not focus on that. Let’s focus on a more high level of syndication advice. But one thing you didn’t mention in your little intro was your mentor. So this is coming out– this is in the future, but today, I just recorded a syndication school episode talking about mentorship based off of a blog post one of the members in our team wrote about how to hack and save decades of time by finding a mentor. So it sounds like a mentor was one of the main reasons why you were able to be as successful as you are today. Maybe walk us through how you found this person, why you picked her and why it was beneficial to you.

Bruce Petersen: Tony Robbins’ Napoleon Hill thing – find a mentor, find a coach, a model, somebody that you can follow behind, why reinvent the wheel. I’m saying things that everybody’s heard before, but a lot of people still don’t believe it strongly enough to go out and do it because they don’t want to pay somebody. Well, why would you not pay somebody to teach you how to have a multiple hundred thousand dollar business or even a million-dollar business? A lot of people will spend $50,000 to $200,000 or more on college, go for four to eight to 12 years, and that’s totally fine. Many of those people don’t get a job in the discipline that they studied. And if they do, they don’t like it very often. So I don’t know why people wouldn’t find a mentor. They can shorten your timeline to success. They can help you avoid a lot of landmines, because there are going to be a lot of landmines, I promise. No matter how good you are at this, there’s always going to be something that’s going to come up, and if you’ve never done it before, you don’t know how to deal with those landmines that you trip over.

So yeah, I was very fortunate to find a very, very good mentor. She was a multifamily broker, actually. So she was a buyer’s broker; very rare in this industry. But she had tons of experience on the management side and on the purchase side. So it was a perfect match for me. I listened to her because I knew I didn’t know what I was doing. I’m a retail guy. I’m smart, but I don’t know this industry. So I had to listen to her, trust what she was saying was true and just execute on the roadmap; and I did, and it worked so well. So I just released a book called Syndicating Is a B*tch. It’s hard. It’s very lucrative. It’s very, very rewarding. But in the book, I implore people, I’m going to teach you every step of the way how to do a syndication. You still need a mentor, because this is only a book. It can’t deal with all the things that pop up that were unforeseen, like a black swan event we’re dealing with right now. We’re dealing with COVID-19. Nobody saw this coming. If you don’t have a mentor that’s been through some ups and downs in the industry, this is gonna be really really hard for you. So yeah, man, I cannot agree with you guys’ take on it. You do need a mentor. Don’t do this alone.

Theo Hicks: I really like your analogy or metaphor or whatever; it’s comparing it to college. I think that’s a really good way to position it. People will spend tens, sometimes hundreds of thousands of dollars to go to college, and the reason why they’re doing it is because they need that degree to get a job in order to make money. So they’re willing to invest that capital into four years of their life into school in order to get a job to make money. So why wouldn’t you do the exact same thing? Why do you expect someone to mentor you for free or just to not do it at all, when you can potentially have an ROI, as you mentioned, of ten to a hundred million dollars or even more? I like the way you position that.

Bruce Petersen: I think there’s a bad stigma in the industry right now because when you hear the word mentor, you think guru. And then guru makes you think of the guy in the 80s and 90s that would pitch crap to you at 1 o’clock in the morning, and you take pictures and videos on a yacht that he rented for the day and a car that he rented for the day, and that’s what people think of. That’s not what a true mentor or a coach is. They’re not selling you a bill of crap. They’re teaching you the right way to do it. Again, find somebody that’s been successful doing it. Not everybody’s going to be a great mentor… But yeah, I agree with you guys completely on it.

Theo Hicks: So you’ve got your syndication book; I enjoy the title. So let’s talk about raising money. Everyone loves to hear about raising money, so maybe walk us through some of your tips or since you wrote the book, maybe you’ve already got a five-step process to raising money for deals, and let’s approach this from raising money for your first deal. So let us know what type of background someone needs before they can get to the point where they can raise money, and then let’s talk about what your top tips are for going out there and making sure you can raise money for your first deal.

Bruce Petersen: Alright, so it all starts with the investors. People ask me all the time that are just getting started, and I mentor people myself now… And one of the first questions is, “Bruce, okay, this is great. I’m super excited. Well, do I find the investors first or do I find the deal first?” You better find the investors first. If you find a deal with no investors, legally, you’re probably going to get yourself screwed up because you can’t raise money the way you’re probably going about it; you’re probably going to go about it backwards. So you’ve got to be careful there. And then if you can’t raise the money, you’re gonna have to drop the deal and you’re gonna start to burn your name in the industry that “Oh no. Bruce is a tire kicker. He can’t come through at the end and close. So he just ties up a property for 30 to 60 days, and then he has to bail.” Get your investors first.

Bruce Petersen: Tip number one to me would be over, over, over raise. If you think the property that you’re targeting for your first property — because you have an idea that “My first one, I want to be maybe a 20-unit or 40-unit, maybe built in the 80s. This is my rough price per door.” So you have an idea, I hope, of what it is you’re trying to find for your first deal. And let’s say that first deal is going to cost you about $500,000 in a cash raise to get it. The cash raise would be your down payment, your closing costs, your rehab that didn’t get rolled into the loan, and any operating capital that you may need. So let’s say you need $500,000 to close this deal. You better raise a $1,000,000 to $1,500,00, and that chokes people. Well, I promise not everybody’s going to come through at the end when it’s time to put money in your bank account, because something will have come up in their life. They maybe had a family emergency, they maybe just decide “I don’t want to invest with anybody anymore” or maybe just to be honest, maybe they don’t like you now that they’ve got to know you a little better. So just be prepared for– you’re probably going to have at least 50% of your list not come through. So you better over raise. So that’s tip number one.

Tip number two, for me, would be you got to get out there. You’ve got to be agreeable. You have to have a good personality. This is very personality-driven and based. If people don’t like you, they’re not going to give you their money. I had a guy come up to me after an event one day and I had presented on stage, and he came up to me after… “Bruce, man, I love your story. I’m going to be a syndicator, too. This is great. I understand spreadsheets and everything. But there’s one problem, Bruce. I’m a jerk.” I’m like, “What? Come on, man. Really?” He said, “Yeah. I’m a jerk. People don’t like me and I hate people.” I was like, “Well, you can’t do this.” And he looks shocked like he was gonna cry. I’m like, “There’s a lot of money to be made, but if you’re just not a pleasant person, nobody’s going to give you their money.” So know who you are, present yourself professionally and with dignity. Don’t be rude, don’t be aggressive, don’t be arrogant. Because a lot of the people you’re going to be talking to trying to raise some money, they’re probably a bigger deal than you are. So keep your ego in check. One of the key things that really helped me early on was I started my own meetup back in 2011, and all but two of my first investors in that 48-unit deal came from that meetup. So we got to know each other for about six to nine months. They got comfortable with me having no experience, having no job, but they got to know me very intimately,  so they agreed to invest. That was a big help for me.

Theo Hicks: So my next follow up question was going to be what’s the process that someone should go through in order to create their initial list of investors or people? It sounds like for you, for your first deal, everyone came from your meetup group. So your advice would be to start a meetup group, I’m assuming, right?

Bruce Petersen: Absolutely. And if you don’t want to do that, that’s totally fine. If it’s not your personality to lead something, there’s nothing wrong with that. As long as you do have an agreeable personality and you’re likable… Well, just go to the Joe Fairless stuff, the Jake and Gino stuff, the Michael Blanc, go to all the different events that are going on around the nation. You’ve got to get out and mix and meet with people. So I think that you don’t have to start a meetup; it definitely helps. There’s a definite way to go about doing this in the right order. I would say, dress the part. I don’t want to get stuck in the millionaire mindset thing,  the millionaire next door. Don’t dress below your means. Dress at your means or above. You have to convey confidence and success when you meet with people. Have a good quality business card, dress appropriately. Don’t dress over your head. Don’t show up in a $400,000 car if you work at McDonald’s. Don’t do stupid things like that. Act like you belong, but still, keep yourself in check. But yeah, just get out to all the things you can get out to, join some of the groups that are out there too. You can get some education from the groups like your group, you can get educated there. You’ll meet other members that are looking to get into deals or looking to raise money themselves.

So the biggest thing is be engaged. Make sure you understand who you are.  I’m naturally introverted. I can be on stage and talk to 20,000 people. I light up, I’m fine. You put me in a room with people I don’t know, and I got to go work the room and network and I freeze. I just completely freeze up, and I honestly– this is not an exaggeration… I try to find the quickest exit because I get really, really uptight. I’m very aware of that. My wife is just the opposite. She hates being on stage, but she loves working a room. She used to be a flight attendant. She’s very, very good at that – striking up small talk with people. So I smartly go, “Okay, I’m not good at that.” So I follow my wife around the room, I’m not embarrassed to admit it. I just follow her around like a puppy dog. She strikes up the conversation. I come in. I can now participate in the conversation because I didn’t have to start it. But again, I know my weakness and I work with what I have.

Theo Hicks: I think that’s super important to know. So you talked about a tactic for actually going about raising money, but what are your thoughts on the experience, the background, the track record someone needs to have before they even consider raising money? When they raise money on their first deal, their second deal, their 10th deal? Is there a certain number of transactions? Is it a certain dollar amount of deals done? What’s your thoughts on that?

Bruce Petersen: Again, so on my first deal, I had no experience, I had nothing. I had never invested in real estate my life at that point, but again, it’s personality-driven, so I didn’t let that stop me. Don’t look for excuses not to do it because you’re always going to find that excuse not to get out there and do it. You don’t have to have experience, but you have to be transparent. Let them know up front, “I have no experience.” One of them laughed at me in my face. “I’m not gonna invest with you.” I didn’t take it personally. “I totally understand. You don’t feel comfortable investing with me and that’s okay. No worries. I want to move on and keep meeting other people.” Don’t get tore up by rejection, it’s going to happen. But again, just own up to who you are and what your experience is.

What I tell people that I’m mentoring is, when you decide, “Okay, you’ve been getting educated for a while, Johnny, and it’s time to go out and let’s go do your first syndication now. Well, when you walk into a room, you have to be confident. Again, don’t be arrogant, but be confident. I have no experience, Mr. or Mrs. Prospective Investor. But I’ll tell you what, this is what I’m doing. I’m targeting a 40-unit to 60-unit property in my hometown in Austin. I’m targeting something probably built in the 80s.”

Have the elevator pitch for what you’re trying to accomplish. That will convey confidence, that will convey preparedness, and people will become more and more comfortable with you because you have an idea. If you walk into a room and say, “Yeah, I’m gonna try to be a syndicator and try to do a deal.” “Well, what are you looking for?” “I don’t really know. Probably something close to my house.” So if you go into it like that, it’s like being a jerk. It’s not going to work. You have to be prepared. Again, you don’t have to have experience. Own the fact that you have no experience, but be prepared with somewhat of an elevator pitch that’s true and genuine, and walk into a room with confidence. That’s it.

Theo Hicks: Perfect. Okay, Bruce, what is your best real estate investing advice ever?

Bruce Petersen: I hit on it a little bit, but you’ve got to know who you are. The book that I wrote is designed to help people understand that syndication is not for everybody; it really is not. Everybody thinks it is for some reason, but it’s like any other business. If you’re not an entrepreneur by spirit, if you don’t have the personality that people are going to be drawn to, I don’t know that this is the right move for you. So I think it’s self-awareness. You have to know who you are. If you’re scared of people or if you’re a jerk and nobody likes you, be honest with yourself. We all like to lie to ourselves and make ourselves out to be bigger than we are in our own minds. I get it. I’m probably guilty of it sometimes, too. But if you lie to yourself in this, and you go out and raise $500,000, and you’re not equipped emotionally, mentally, any way to handle this, the deals not going to go well and you’re gonna have a lot of very unhappy investors on your hand, and you’ll probably never do another deal anyways, because it’s not gonna go well. So that’s my biggest thing is just be self-aware. If this isn’t for you, go find that thing that is for you. There’s lots of ways to make a lot of money in this world. You can have all the money you want. You just got to find the thing that works for you. So – self-awareness.

Theo Hicks: Perfect. Okay, are you ready for the Best Ever lightning round?

Bruce Petersen: Yep, let’s do it.

Break [00:18:57]:04] to [00:19:59]:03]

Theo Hicks: Okay, Bruce. What is the best ever book you’ve recently read?

Bruce Petersen: The best ever book that I’ve recently read… Honestly, it was one I was very hesitant, but I was looking for the next book. I read Sell or Be Sold by Grant Cardone. I don’t like that flashy sales guy with the shirt halfway unbuttoned and gold medallion hanging around his hairy chest. Don’t like that image, but I read it and it’s fantastic. I gave it to my staff to read. It’s an incredible book.

Theo Hicks: If your business were to collapsed today, what would you do next?

Bruce Petersen: Well, I firmly believe I know how to make money. Now that I got out of the 9 to 5 – or really for me, 9 to 9 – working for somebody else, I’ve learned how to make money. So if I couldn’t do this– I’ll be honest, I’ve got some money saved up now, so I’ll be fine for a little while, but I would probably just devote most of my time to teaching. I absolutely love everything about teaching. That’s why I love being on stage. I’ll be on stage for free or I’ll pay people to let me on their stage because I just want to help people. So if I couldn’t do this, I would just find a way to teach.

Theo Hicks: So you’ve got six syndication deals. Tell us about the best deals, not your first deal. You already talked about that 300% return. Tell us about your second best deal as you’ve done so far, specifically in the apartment syndication arena.

Bruce Petersen: So I’ll talk about one of the most recent ones, actually. We bought it in 2017, roughly a 200-unit property in North Austin, and we’re getting just hammered with yearly tax increases, yearly insurance increases that are just higher than anybody’s ever seen, but we’re so profitable there. We bought a fully stabilized asset. We expected to maybe have a little bit of upside when we sell five to seven years later, but this deal has been so strong. We keep pushing rents, we keep doing unit upgrades, we keep instituting new revenue streams that weren’t there before, and everything we’ve tried there has worked.

We communicate very well with the residents. We make sure they understand we’re in this together with them. We’ve created a fantastic feeling of community there. And this fully stabilized asset, well, we just added executed a 50% cash out– well, not a cash out, refinance. It’s the same concept, but it’s a supplemental loan. So we were able to take out more loan dollars because we drove our value tremendously higher. So again, I think it was letting the residents know that we’re on their side. They’re willing to pay for some extra stuff, because they don’t want to leave us because they know they’ve got a good thing where they are. It was built in 1973, nothing special in a C class neighborhood. But again, everything we do here has worked and we started rolling out a lot of these ideas to other properties in our portfolio.

Theo Hicks: What is the best ever way you like to give back?

Bruce Petersen: Well, one of the most interesting things that we’ve done, the most rewarding things, we had a 120-unit property that we own, again, in Austin, and we realized that it was very working class, they have a hard time making ends meet, putting food on the table even sometimes. So we thought, “It’s time for school.” Most families in this neighborhood can’t even afford the $20 to $30 it’s going to cost to buy all the school supplies that kid needs for the upcoming school year. So we reached out to all the local schools, found out what all the different grades needed. We bought all the school supplies for every student on our entire property. We fed them pizza in a vacant unit one day.

So they came in and got pizza at the front door in the kitchen with my daughter – she was handing out pizza – then they walked over to a table with my wife and the property manager, and they got to pick their own backpack. Then they went into the bedroom with my autistic adult daughter and she had said, “What grade are you in?” So she was able to hand them their grade-specific pack, and these kids walked out with the biggest smile on their faces because they’re prepared this year; they don’t have to worry about it. That’s the coolest thing we’ve ever done, but we also hope to open a 24-unit to 36-unit affordability-based nonprofit apartment complex for adults with intellectual disabilities in the next five or ten years. So that’s our next big thing.

Theo Hicks: And then lastly, what is the best ever place to reach you?

Bruce Petersen: The best way to find me is just apt-guy.com, like you said; it’s the website. You can see a little bit more about what’s inside the book, decide if you think it’s a worthy purchase. If you’re thinking about syndication, I firmly believe it is, because I’m just going to tell you the truth. This is what it is and if you want to do it great, it’s a great way to do it, go about making money, but this is what it’s really about. You can follow me on LinkedIn, Apartment Guy, or you can go to Instagram, @apt.guy.

Theo Hicks: Perfect. Okay, Bruce, I really appreciate you coming on the show and talking to us today; solid information. I like the way that you break everything down by here’s tip one, here’s tip two, here’s tip three. So I really appreciate that makes it better and easier to digest for our audience. So just to quickly summarize what we talked about. We first talked about mentorship. I said this earlier that I really liked your analogy, comparing it to people spending all their money on college, then they can’t find a job afterwards a lot of the time. Whereas people are super hesitant to spend money on a mentorship on, a coach, and you mentioned why that is, that people have a negative connotation with a mentor, but you talked about how it’s helped you on. On our blog, we’ve got plenty of articles talking about how mentorship has helped Joe, mentorship has helped every single person who’s successful. So I really appreciate you reinforcing that.

We talked about your top tips for raising money for your first deal. You said the first thing you need to realize is that the investors comes before the deal. You gave an explanation of why that is. And then your top three tips for raising money is number one, make sure you’re always over raising. So if you need to raise $500,000 for a deal, then you should be raising $1,000,000 to $1,500,000. We talked about number two, which is a get out there. The fact that this is very personality-based. So you can start your own meetup, you can go to meetups, go to different events across the nation to just get your face out there. And then you talked about what type of personality you need when you are out there. And then you also, number three, was to dress the part. So don’t dress below your means. Dress at or slightly above, but don’t go too intense. I think the example you gave was rolling up in a $500,000 car when you work in McDonald’s; don’t do that. You talked about if you need experience to raise money, and your answer was no; don’t use that as an excuse to not raise money. But you need to be transparent. You need to let them know that you don’t have experience, but still have an elevator pitch to show that you do know what you’re talking about, at the very least, and that will portray confidence, it’ll show that you’re prepared, that you have an idea.

Something else that you said too that I think is very important is that people are gonna say no. People are gonna say no, whether you’ve got a bunch of experience or no experience. Not every single person you talk to is going to give you their money. So don’t take it personally,  move on and keep meeting other people. And then your best ever advice was, know who you are, have that self-awareness to know what you aren’t good at, and [inaudible] maybe apartment syndications is not for you, and if it’s not for you, there’s still plenty of other ways to make money out there.

The next example you gave before you gave that advice was how you’re really good at speaking in front of large groups of people, like on stage, but you have difficulties and gets a lot of anxiety working a room, whereas your wife’s the exact opposite. So you have the self-awareness to know that about yourself, and rather than forcing yourself to be the person who’s in charge, walking around the room, you just let your wife do it. You follow her around and then accomplish the same thing without the anxiety. So I appreciate you sharing all that advice, Bruce. Best Ever listeners, as always, thank you for listening. Have a best ever day and we’ll talk to you tomorrow.

Oral Disclaimer

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

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JF2197: Two Years In Real Estate With Jeff & Taylor Adams

Jeff & Taylor Adams are a husband and wife team attacking the real estate world. They share how they began investing with house hacking to out of state investing due to the cost of real estate in their area. Being only two years into their journey they have faced many different situations and they were very willing to share to help you pursue your personal real estate adventure.

Jeff and Taylor Adams  Real Estate Background:

  • Jeff is a software engineer and Taylor is a realtor and co-founder of @womensinvestmentnetwork
  • 2 years of investing experience
  • Portfolio consists of Duplex and a mix of long-term rentals/AirBnBs, a single-family home, and one 5-unit building
  • Based in Boston, MA
  • Say hi to them at: Instagram @TaylorColemanAdams
  • Best Ever Book: Four Hour Work Week

 

 

 

Click here for more info on PropStream

 

Best Ever Tweet:

“Listen to what you want to do and make sure you network with as many people as you can and try to add value to those relationships” – Jeff & Taylor Adams


TRANSCRIPTION

Theo Hicks: Hello, Best Ever listeners and welcome to the best real estate investing advice ever show. I’m Theo Hicks and today I’ll be speaking with Jeff and Taylor Adams. Jeff and Taylor, how you guys doing today?

Jeff Adams: Great, how about you?

Taylor Adams: I’m doing great. Thanks for having us.

Theo Hicks: I’m doing great. Thanks for asking and thanks for joining us. Looking forward to our conversation. Before we get into that, let’s go over Jeff and Taylor’s background. So Jeff is a software engineer and Taylor is a realtor and the co-founder of Women’s Investment Network. They have two years of investing experience. Their portfolio consists of a duplex and a mix of long term rentals and Airbnbs, a single-family home, and a five-unit building. They’re based in Boston, Massachusetts, and you can say hi to them at their Instagram page, which is @taylorcolemanadams. So do you guys mind telling us a little bit more about your background and what you’re focused on today? And we’ll start with Jeff.

Jeff Adams: Our background is so intertwined. I mean, we’re a married couple, obviously. We met in college, we did the whole “We’re gonna get jobs…” I became a software engineer in robotics and Taylor went through a few things, you can talk about that… But really, the thing was, we needed to figure out how we were going to buy a house that we could actually live near our jobs and afford. The prices in Boston are crazy and our jobs were in the city of Boston. And the commute to get into Boston, if you’re even just 10 miles from the city, can take an hour and a half. So we started looking at single-family homes, but they’re just too pricey. So then we started looking more towards the duplexes. I mean, I’ll let Taylor do some of her background before we get into the real estate side.

Taylor Adams: Yeah, absolutely. So my background, I graduated from Northeastern University, and I started in finance, found out that was not for me, and I moved into higher education where I was before I left that work to become a real estate agent.

So I transitioned into real estate after Jeff and I started investing. So going off of what Jeff was just saying, we were looking for our single-family home to start out our lives together and decided to move forward with the duplex. At the time, we didn’t know anything about house hacking or BiggerPockets, and we eventually decided that we wanted to continue to buy properties because we got the bug. But we wanted to buy locally with our own money and realized that was going to take too long and it was going to be too expensive. So we started to explore out-of-state investing, and that’s what led us to dive into the properties that we purchased over the last two years.

So we dove in to test the waters in Tennessee with a single-family house. We found out we loved it and decided it was time to scale up to a five-unit. Given all of this happening, the market in the Boston area was super, super hot, and Airbnb was something of a lot of interest to us. So we decided to turn our upstairs unit into an Airbnb in our house hack. So we were full steam ahead at this point. We’re ready to scale up into large multifamilies. We had a 25-unit under contract. We ended up backing out of that because the numbers didn’t work out, and then COVID hit. So now we’ve been pivoting our strategy a little bit to try and take advantage of all the new opportunities that we’re seeing.

Theo Hicks: Perfect. Thanks for sharing that. So let’s start with the duplex. So you didn’t know about the house hack, but was it a house hack deal? Did you owner occupy it and then rent upstairs to cover your payments?

Jeff Adams: We did, exactly. We rented out the second unit.

Theo Hicks: Great. So do you mind telling us the numbers on that deal?

Jeff Adams: Yeah. So I’m more of the numbers person in the partnership… So it was on the market for $650,000 which around here was a pretty good price at the time. It might be crazy for some areas of the country. We did the inspection, we found some issues, we were able to negotiate down to $625,000. There was a renter in place that was paying $900 a month. So we asked that it be delivered vacant, because they were month-to-month renters. So then, we were able to get that rented out for $2,000 a month upstairs – that’s a three-bedroom – and then we lived in the other unit that’s a two-bedroom.

Taylor Adams: And we did 4% down using an FHA loan for that.

Jeff Adams: Yep.

Theo Hicks: You guys still live there now right?

Taylor Adams: We do.

Theo Hicks: Okay, perfect. So then after that, you said that you wanted to keep investing and you moved to out of state. So why did you select Tennessee?

Taylor Adams: We were evaluating a number of different markets, but we found out that the cash flow in the Sunbelt was really appealing. So we narrowed our search down, landed on Memphis for the cash flow, the low barrier to entry as far as pricing, and then started speaking to some of the more substantial property managers in the area to get a better sense of the market, and that just propelled us to move forward with Memphis.

Theo Hicks: How did you find these property management companies? What type of questions did you ask them? How many did you talk to? What was the timeframe between speaking with them to buying a deal, things like that?

Jeff Adams: There’s a few places you can look for the list of property managers to call down. Back then, we didn’t know as much. So we were looking at Google and looking at just Zillow, who was renting out the most units and stuff, which wasn’t a terrible strategy, but there’s also lists of qualified property managers that you can go through. So we actually compiled a list – I think we had 10 or 15 – and did more research on them offline, looking at reviews and stuff, and we could just cross off a whole bunch right away.

So I think I ended up talking on the phone with three of them. And it was the questions like– a part of it was how do you handle vacancies and turnovers and just the logistical questions, but a lot of it for us, too, was trying to get a sense of whether we could just trust this person. If they’re 1000 miles away from us and handling an asset that we put money into, and it’s going to be giving us money every month, is this a person that we feel that we can deal with? Some people on the phone, you can tell right away. Your gut just says, “This isn’t the right person for me.” Maybe for someone else, they’d be fine, but not for me. So we finally narrowed it down to the person who said the right things and we actually trusted, and then went and saw him in person and did a tour of Memphis for the whole day with him and then decided, “Yes, this is definitely the guy.”

Taylor Adams: Yeah, and the guy that we ended up going with, he is really well connected in the area. When we met him, you could tell that he really had a good relationship with lots of different contractors and people in the area and he could build those relationships and that was really important to us.

Theo Hicks: For sure. So at this point, you knew that you were gonna do Memphis and you were just trying to find the right team on the ground in Memphis.

Taylor Adams: Yep, exactly.

Theo Hicks: Okay. How did you find the deal?

Jeff Adams: So the property manager also has his real estate license. So he actually helped us find it. It was just on MLS, on Zillow, all that, and we just went through a whole bunch. We went down there and physically looked at ten properties. It didn’t end up being one of those. A few days later, after we got back, we found the one after maybe ten more that we investigated.

Theo Hicks: What was the number? So similar to before – what did it cost? Did you put your money into it? Was it turnkey? And then what’s it renting for now?

Jeff Adams: We got it for $65,000. I think that was $5,000 less than his price. We only had to put about $2,500 into it. There wasn’t too much to do; just the little stuff that comes out of inspections and just like you’ve got to fix that system and this thing. And then it was already rented out for $895 a month, and I just– they had a year left on their lease, so that’s lasted for a while. We actually had to evict them because they stopped paying last fall. But that was a pretty easy process in Tennessee. It’s very landlord-friendly down there. And then we got a new tenant in for the same price, $895 a month, and that one’s been going pretty smoothly.

Taylor Adams: And that one, we did 25% down on that property.

Theo Hicks: Yeah. So it was a pretty steep price reduction from the 650k in Boston down to 25k. So [unintelligible [00:10:24].11] difference. Perfect. Okay, so then the next deal after that, you said, was a five-unit, right?

Taylor Adams: It was, yep.

Theo Hicks: Was that also in Tennessee?

Taylor Adams: Also in Tennessee. Pretty close to our single family.

Jeff Adams: Yeah. So that one, five units, it was listed at $140,000. We did an inspection, got it down to $120,000, renting it out. It’s on average, I think, $400 a unit right now.

Taylor Adams: And I think we put 20% down on that property.

Theo Hicks: Was that an MLS or was that off-market?

Jeff Adams: That was on the MLS, yeah.

Taylor Adams: And that one’s been quite a bit of work. That one is definitely more of a BRRRR strategy. We’ve put quite a bit of money into it so far and will continue to, and we hope to double the value of the property, so that we can refi it at around $240,000.

Theo Hicks: Okay, so are you gonna increase the rents on that after you do the repairs?

Jeff Adams: Yeah. So we actually got two vacant units when we bought it. So we rented those out, and then there’s two units that are way below market. They’re at $350,000, and we can get them probably up to $450,000 or $500,000 if we redo those units.

Taylor Adams: Yep.

Theo Hicks: Okay, something else you had mentioned during your intro was that you had a larger multifamily under contract and then backed out and then Coronavirus it, and then you’re pivoting to take advantage of new opportunities. What are these new opportunities?

Taylor Adams: When everything happened, we had planned on continuing to move forward with syndication, but our investors were feeling a little bit unsure about what was going to happen during lockdown and whatnot. So what we decided to do was really focus on our house hack, which we hadn’t really been focusing on at all. So over the course of the lockdown, we refinanced the property, we’ve done a ton of renovations, and we’re actually in the process of transitioning our Airbnb upstairs to a long-term rental, because it just makes more sense for our area at the moment. And by doing these two things, the refi and turning upstairs into a long term rental, we actually are going to be able to get another house hack. So that’s something that we’ve been focusing on with the assets we already have.

And then really just trying to free up cash and focus on what are going to be the big opportunities that happen once we’re in a “post-COVID” world. So we’re thinking about, do we want to continue to look at large multifamilies or does it make sense to continue our approach around smaller multis? Is there opportunity in other asset classes? So we’re trying to keep our investors in mind and what they’re interested in and make sure that we are putting them in positions where they’re not at a ton of risk, given the uncertainty of the market right now.

Theo Hicks: Do you have any potential new asset classes you want to move into in the post Coronavirus world?

Taylor Adams: Yeah, this might sound crazy, but we’re really curious about retail space right now. We know that because a lot of smaller businesses, unfortunately, are going out of business, we anticipate that’s going to be a burden on these landlords who are holding these retail spaces. So we’re interested in keeping an eye on what happens with some of these and seeing if that’s an asset class that we can move into.

Theo Hicks: Yeah, that’s definitely an interesting approach. Alright, so starting with Taylor, what is your best real estate investing advice ever?

Taylor Adams: My best advice would be to listen to what you want to do. So people who have never invested will have lots of opinions and tell you to not invest in real estate. But this is your journey, so you should pursue it anyway if it’s something that you’re passionate about.

Theo Hicks: And then Jeff?

Jeff Adams: So going off of that one, some people are going to say things that you don’t know anything about what you’re doing and you shouldn’t listen to that, but there’s also gonna be a lot of people out there that have already done exactly what you’re looking to do. So networking is just so important, getting to know those people. And you don’t want to pester people every day like, “Well, what do you do about this?” But just being around them, you often pick things up that you just wouldn’t have otherwise. So being able to add value to them and network with those types of people is going to help you on your journey.

Theo Hicks: Before we go into the lightning round, I do have another question. What advice would you give to others out there who want to start a real estate business with their husband or wife in order to make sure that that goes smoothly? What are some things you guys do to make sure that the business functions smoothly together 24×7?

Taylor Adams: Yes, especially right now, we’re together a lot. Well, first of all, it’s a ton of fun. So I think that the biggest thing is communication and making sure that you’re on the same page. We very much treat this like a business. So we’re doing quarterly, monthly, weekly meetings to make sure that we are on the same page and we’re approaching this in a very specific fashion, and I think that helps to balance it out. But then also do not forget to take time to not talk about real estate and to talk about something else, or else you could be talking about real estate 24×7.

Theo Hicks: Anything to add there, Jeff? Or you’re just, “I agree”?

Jeff Adams: Yes.

Taylor Adams: Yes, I agree.

Jeff Adams: That’s another key, is agreeing.

Taylor Adams: Yes. [laughs]

Theo Hicks: Alright, are you guys ready for the lightning round?

Taylor Adams: Yeah, I think so.

Break [00:15:40]:03] to [00:16:43]:09]

Theo Hicks: Okay. And we’ll just do for all of these, we’ll do Jeff first and then Taylor second. So what is the best ever book you’ve recently read?

Jeff Adams: For me, it’s the 4-Hour Workweek by Tim Ferriss.

Taylor Adams: And then for me, I’m gonna say that it’s the Seven Levels of Communication by Rick Masters.

Jeff Adams: [unintelligible [00:16:57].21]

Taylor Adams: I’m sorry. Seven Levels of Communication by Michael Maher.

Theo Hicks: Perfect. Okay, if your business were to collapse today, what would you do next?

Jeff Adams: We’re just always starting new businesses. This isn’t the first thing that we’ve done. We’ve started software-based things… I think we would just find a new business to create.

Taylor Adams: Yeah, we’re a little bit of serial entrepreneurs. I think that the other thing that I would say is that we would figure out a way to make it work, because I think we’re really passionate about real estate. So we would want to figure out a way to pivot in a way that allows us to continue to do it even if it’s not exactly what our strategy looked like before.

Theo Hicks: What is the best ever way you like to get back?

Taylor Adams: So I’ll go ahead and say… So I actually started a community for women who are interested in investing in themselves, in their future. I definitely see that there’s not as many women in the investing world as I would like. So this is something I’ve created to help women gain the confidence and just inspire them to get involved.

Jeff Adams: Yeah, and we just like to help people get there. We help to mentor other people that just haven’t done anything yet. So that’s why I’m really excited for what Taylor’s doing with her women investors network.

Theo Hicks: And then lastly, what is the best ever place to reach you.

Taylor Adams: For me, that would be my Instagram @TaylorColemanAdams.

Jeff Adams: And for me, email is fine. So it’s jeff.adams.c@gmail.com.

Theo Hicks: Perfect. Well, Jeff and Taylor, thanks for joining us today and walking us through your two-year journey. I really enjoy these conversations. I really like getting into the weeds and details on specifically what you guys have done to get started because other people who haven’t started can take a look at what you did over the first two years and replicate that so they can get their first deal.

So we talked about your first deal is that duplex in Boston and then from that, you transitioned to doing out of state investing with that single family property in Tennessee. We talked about why you chose Tennessee because of the low barrier of entry and cash flow. We talked about the process for understanding the market out of state, not really knowing it, never being there, or at least not living there, and that was through property managers. You created a list of 10 to 15 managers, you did some online research like looking at reviews, and you narrowed down to three. And then when you spoke to them, you obviously asked them the logistical questions about how they operate properties, but you really wanted to know if it was somebody that you could trust.

And then ultimately, you landed on one person who you ended up actually going down and touring Memphis with this person who was really well connected in the area and you ended up going with them. They also help you find this first deal, which is that single-family home. You went through the numbers on that. After that, you scaled up to the five-unit, which you also found on the MLS. The plan on that one is to do more rehabs and increase the rents. And then your next thing was to do the Airbnb upstairs, which we didn’t really talk about, which is fine. And then now, you said you’re going to be focusing on your house hack. So you refinanced it, you’ve done a lot of renovations and rather than doing the Airbnb upstairs, you’re going to do a longer-term rental.

And then in the future, that plan is to do another house hack, as well as making sure you’re freeing up some cash to focus on other opportunities, which you said you’re looking into the retail space because all these smaller businesses are going out of business and the people who actually own these retail spaces are probably going to be motivated because they’ve got no one paying them.

We talked about your best ever advice. For Taylor, it was to listen to what you want to do as opposed to letting other people tell you what you want to do. And then for Jeff, it was making sure that you’re networking with people who are already doing what you want to do. And then we talked about some best ever tips for working with a spouse or significant other – communication, making sure you’re on the same page, making sure you’re still structured in doing your quarterly, monthly and weekly meetings. And then you mentioned that it’s also important to take time to talk about things that aren’t real estate related and then obviously, making sure that you guys are agreeing a lot on things. So Jeff and Taylor, again, appreciate you guys coming on the show. Best Ever listeners, as always, thank you for listening. Have a best ever and we’ll talk to you tomorrow.

Website disclaimer

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Oral Disclaimer

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

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JF2196: Underwriting Multifamily Acquisitions With Robert Beardsley #SkillsetSunday

Robert is the author of The Definitive Guide to Underwriting Multifamily Acquisitions and today he will be sharing the process of underwriting so you will be able to take away some ideas to implement into your underwriting process. 

Rob Beardsley Real Estate Background: #SkillsetSunday 

Click here for more info on PropStream

Best Ever Tweet:

“On a larger property, a $100,000 additional expense on your cap-ex budget isn’t really going to make or break the numbers, but missing your rent pro forma by $25 can make or break your deal” – Robert Beardsley


TRANSCRIPTION

Joe Fairless: Best Ever listeners, how are you doing? Welcome to the best real estate investing advice ever show. I’m Joe Fairless. This is the world’s longest-running daily real estate investing podcast where we only talk about the best advice ever; we don’t get into any of that fluffy stuff. Well, first off, I hope you’re having a best ever weekend because today is Sunday, got a special segment for you – you know what it is – Skillset Sunday. Today on Skillset Sunday, you’re going to learn the process for underwriting multifamily acquisitions, and well, I figured we should interview the author of The Definitive Guide to Underwriting Multifamily Acquisitions, Rob Beardsley. How you doing, Rob?

Rob Beardsley: Doing very well. Thanks so much for having me on.

Joe Fairless: Well, my pleasure, and looking forward to our conversation. A little bit about Rob – he’s a principal at Lone Star Capital Group. In the past three years, he’s led over 100 million of multifamily acquisitions, based in New York, New York. With that being said Rob, first, do you want to give the Best Ever listeners a little bit more about your background just for some context, and then let’s go right into how to underwrite multifamily acquisitions?

Rob Beardsley: Absolutely. So the quick background in terms of real estate is I grew up in a real estate family. Both my parents worked at home, and I heard them on the phone all the time making deals, running a real estate brokerage firm in Silicon Valley. So I really absorbed a lot of real estate that I didn’t even realize until I actually got in the business later on… Because initially, growing up in Silicon Valley, my parents pushed me to go into tech and learn to program and go to school for computer science, and that’s what I did. Of course, eventually, I had to come back to my family’s passion and business, which is real estate, and the path I chose was multifamily. And shortly thereafter, I was very fortunate to meet my business partner at none other than the Best Ever conference.

Joe Fairless: I know what conference that is. I recognize that name.

Rob Beardsley: Yeah. So that’s been a very fortunate thing for us. Kevin and I founded Lone Star, as you said, and we’ve been enjoying the process.

Joe Fairless: Well, let’s talk about the underwriting process. So first off, why write a book about underwriting acquisitions for multifamily?

Rob Beardsley: It’s not the sexiest topic. It has gotten a little more interesting over time, but most people don’t write a book that’s pretty much a how how-to manual. So that’s something that I really wanted when I first started in the business, because there was just really no one resource that you could turn to and learn this. You could maybe take a $2,000 weekend workshop or find some other mentor who would maybe help you out, but there was no book, and I love consuming content through a book. So I started having a lot of people also ask me, “How did you learn and what book did you read?”, and I had nothing really to offer to them. So I told myself very early on that I would compile my thoughts and write a book on this, just because I felt that it was something that I’m passionate about, people are asking me a lot about it.

And then the additional point is the passive investor side. I think passive investors – they don’t even know that they don’t know this, and they should endeavor to get proficient at underwriting and evaluating deals if they want to actually be in the game long term, as a passive or active investor. So that’s something that I’m hoping to address which is a big need in the market.

Joe Fairless: So let’s talk about the way you structured the book, and then we’ll get into some specifics. So how did you structure the book?

Rob Beardsley: I tried to keep the book as short as possible. It’s not a memoir or anything like that. Like I said, it’s a very straightforward how-to manual. So I start out with just a quick introduction about what is underwriting, why is it important, and why should you learn it, and how should you go about learning it. As far as learning it, you can choose to build your own underwriting model, and whether that’s in Google Sheets or Excel or some other program, I recommend and say, “That’s perfectly fine. You’ll learn a lot doing that.” But if you don’t have the time, definitely just pick one that you trust. There’s many out there that you can get your hands on. I recommend getting all of them. So that’s the start of your journey. And then the actual process that I go through the book really starts from getting the information that you need, whether that’s directly from the seller or from the broker that you’re working with all the way through what data do you need in terms of websites and what should you be looking for, for key metrics, and then plugging that in. Every single input of my personal spreadsheet, I actually go over and give you guidelines on how to input it. So it really– it leaves nothing left out. Every single input is addressed, which I think would have been really helpful when I was first starting.

Joe Fairless: Every input addressed – is that every input for the spreadsheet that you use?

Rob Beardsley: Yeah.

Joe Fairless: Okay. And you mentioned earlier that you recommend getting all the versions of the underwriting spreadsheets that you can come across. How do you determine who’s right and which aspects you should include in yours and which ones you should not?

Rob Beardsley: That’s a great question, because not many people would think that there is deviations. You would think, “Well, this is math and this is cut and dry,” but it’s really not. There’s a lot of art and science and subjectivity, and I think why I recommend going out there and looking at all the different spreadsheets that you can get your hands on is because it will expose you to the different ways that people are handling certain assumptions and forecasts, and you can evaluate all of them and say, “I really like this. I don’t really like this.” One of the reasonings that I personally use in developing my assumptions and forecasts is  what’s the easiest to explain and what’s just the least complicated? Because if someone’s going to evaluate my deal or check my work essentially, I don’t want to have to come up with some crazy explanation about, “Well, I got to this number because I used the trailing three income, but then I also use the trailing 12 expenses, but then I adjusted the taxes.” So I favor simplicity.

Joe Fairless: So let’s talk about some things – and perhaps you mentioned them. Let’s talk about some things that you don’t like about other underwriting models that you’ve come across.

Rob Beardsley: I think a simple one that some people may overlook is your pro forma should be built on a monthly basis, because annually is just not granular enough and it’s more prone to make mistakes. As you’ll find, once you’re getting more involved with more deals and looking at different situations that are more unique, you’re going to want to have the control on a monthly basis, and having that monthly basis will allow you to tweak certain things such as renovation schedules and stabilization timelines. A big mistake people make is just being too aggressive with assuming they’ve got a 200-unit property on their hands, and they’re going to renovate all 200 units in the first year and the rents are gonna be up 20% in year one. That almost never happens. So on an annual basis, it may push you to make that assumption or push you to make the two-year assumption, so having a monthly can really let you be more accurate and potentially more conservative.

Joe Fairless: You mentioned earlier you go into what information you need to run your analysis. What information do you need to run the analysis?

Rob Beardsley: So the bare bones starting point is always a trailing 12-month profit and loss statement and a rent-roll. Both of those are very important and they’re different in their own ways. So quickly just to go over that if people aren’t familiar, a trailing 12-month profit and loss is also known as just a T12, and that shows the trailing 12 months of historical operations for the property, all the revenue, all the expenses to essentially come to a net operating income. So that’s a 12-month snapshot, whereas the rent roll is just one day, one snapshot in time. They complement each other, because the rent roll will tell you potentially what’s going on today or on a more recent basis, whereas the T12 gives that historical context, which is really important.

I was actually talking with a 30-year veteran in the business who said, “Yeah, I’ve probably forgotten more about evaluation than you know.” He said that “Back in the day, we would always look for the trailing 36.” They didn’t even call it a T12 back then. He’s like, “I don’t even know what you mean when you say a T12.” So they would look at the trailing three years, and he said, “Yeah, if you went that third-year back, you’d always see what the seller was potentially hiding.” I thought that was really interesting, because a lot of people these days aren’t even looking so much at the T12, and lenders and investors alike are willing to discount the later months in a T12. And really focus on the T3 or even T1, which – there’s some truth to that, but it is an interesting take.

Joe Fairless: So that’s the minimum… What’s the best-case scenario? You have a good friend who is selling you the property. They don’t care about money. They just want to make sure you make all the money that you possibly can by evaluating this property in its entirety, so they give you everything you could possibly wish for. What is that?

Rob Beardsley: That’s a really interesting question, because that’s starting to get into more of due diligence, which, obviously, we all know due diligence is hugely important. But in terms of underwriting, what I would potentially want to see is color to help inform my assumptions. For example, understanding the tenant base. Where do they work, and obviously, how much money do they make, and understanding the average tenancy, because if I know the average tenancy, I can calculate the turnover rate which will help me pin down my repairs and maintenance costs. If I know how much they make and where they work, I can better evaluate the risk of the income, and I can understand how far we can potentially push rents before we get into territory where there’s just unaffordability. So those would be helpful.

Looking at their maintenance log and seeing– this is actually very interesting, more on the due diligence side… But evaluating the maintenance log and seeing what are the most common maintenance requests, that might inform you of deferred maintenance and potential opportunities to cure deferred maintenance or potentially even create savings somewhere. So I would say, from the seller, those would be extremely helpful. Do you get them prior to executing a PSA often? No. But those would be helpful.

And then aside from what the seller can offer, there’s great public information and data services as you know, like CoStar and Yardi, that will provide a lot of that information. But we look at free information online as well, like Justice Map – highly recommend that resource – to really look at the incomes and the demographics on an extremely granular level.

Joe Fairless: CoStar is one resource to use. What paid subscription services do you use right now?

Rob Beardsley: CoStar and Yardi.

Joe Fairless: Why do you use both and not just one?

Rob Beardsley: Well, the simple answer is because we have the luxury of both. But really, they do the same thing. What I will say though if anybody’s considering them right now, Yardi does a little better job with sales and loan data and CoStar does not. This is specific mostly to Texas, so I can’t speak for all across the country, but that has been my experience. But CoStar does other things well.

Joe Fairless: You mentioned Justice Map as a free resource. What are some other websites you know you’re gonna go to, to check out a property’s area whenever you’re looking at a deal, that are free?

Rob Beardsley: I forget the exact domain, but it’s greatschools.com, I believe.

Joe Fairless: Yeah, Greater Schools or something, yeah.

Rob Beardsley: Right. So schools are hugely important, especially if you’re looking at a property that has larger floor plans like three bedrooms, schools are very important.

Joe Fairless: You’re actually right. It is greatschools.com.

Rob Beardsley: You were quick on that.

Joe Fairless: So greatschools.org, final answer. Alright, move on.

Rob Beardsley: So schools are important. Other places I like– I forget. I’ve got a bunch of links that I’ve just have copied and pasted into my underwriting model, so I can just click on them quickly from there. If I want to reference crime, I think it’s crimespot.com or something like that. So crime, schools, and then this is something that I actually heard you say on a podcast just the other day, which is looking at Reddit to understand where the hipsters get their coffee. I thought that was super interesting.

Joe Fairless: Yeah. I think someone I interviewed mentioned that. I don’t remember but yeah, I agree. That is very interesting. They really get the flavor of the community by going to Reddit, and take it with a grain of salt, certain profile people are on Reddit, but it’s just interesting. You mentioned that every input that you have in your underwriting model, you address it in the book. What are some inputs that you added to the spreadsheet that perhaps others might not have?

Rob Beardsley: That’s very interesting. So I’ll talk about the core model itself, and then maybe branch out to the sensitivity analyses and things that are more add ons. But I’ll talk about the core, which is one interesting component is the stabilization timeline, which in terms of value add, this is where models all start to deviate and they aren’t all the same. In terms of income and expenses, it’s pretty straightforward. Everyone’s pretty much the same. But the way that somebody projects how their value-add plan takes place over the first one, two, three years is very unique. So some people choose to input how many units they’re going to renovate per month, and then they have some schedule that they run, and then they calculate how many units are renovated and multiply that by the certain rent.

Rob Beardsley: So everybody’s got their own way, and again, going back to simplicity, the way that I have chosen to build that out is to simply have a stabilization timeline calculated with months. So you’d input a 12-month stabilization timeline, for example, and you would have your in-place rents and your pro forma rents. So right off the bat, you’re in-place rents would grow to your pro forma rents linearly over your stabilization timeline. So if you had, let’s say, $900 rents and your pro forma was $1,000 and your stabilization timeline was ten months, well, the model would just slowly build that rent up by $10 per month over those ten months, until it achieved the $1,000. Similarly, with your loss to lease, your vacancy, bad debt, concessions. The way that the model works is it all starts with the in-place numbers. So what’s currently happening at the property, and then it slowly linearly changes just like the rent to what our stabilized assumption.

So if we have 3% bad debt, but we think we can clean it up to one point, we’re not just going to go to 1% in the first month of ownership. The way we would do it is over our stabilization timeline, we would slowly linearly trickle it down. So that’s something I think is unique and really keeps it simple. But actually, if you compare it to some other ways, it’s quite a bit more conservative, just given the timeline. Obviously, you can use a faster timeline, but I think construction and project things typically take longer than you’d expect. So that’s one really important thing to address, because it actually has a lot of impact on the results of your underwriting more so than you’d expect. You wouldn’t expect that “Well, if I finished my renovations in 12 months versus 18 months–“, you wouldn’t expect that you’d get potentially a 2% bump in your IRR.

Joe Fairless: Yep, that’s substantial. One aspect that you mentioned was make sure that you’re factoring in monthly and not annual in your calculations, which yes, definitely, and I’m glad that you mentioned that. One thing it made me think of is, if you are doing monthly and you are getting granular with your assumptions, do you factor in the leasing period? For example the summer, you lease more units most likely than December?

Rob Beardsley: No, the simple answer is no.

Joe Fairless: How come?

Rob Beardsley: Well, again, coming back to simplicity. So one thing I like to say– and I could be wrong. There’s plenty of people much smarter than me. But one thing I like to say is my underwriting really isn’t trying to precisely forecast the future, including the depths of the winter and the booms of the summer. Similarly, if I think rent growth — obviously we all know rent growth isn’t just going to simply be 3% or 2% every year for eternity. But we use some more general assumptions like that to keep things simple and to just have a general understanding, and to — again, coming back to simplicity, I can easily compare apples to apples of different deals when I use more general assumptions and try to keep things as simple as possible. When I start really getting in the weeds and trying to get too specific, then it’s harder to compare to another property because you’re making so many assumptions. So my goal is to be as accurate as possible with as few inputs and assumptions as possible.

Joe Fairless: How do you know how to walk that line? And what is too granular, versus what is “You know what? I probably should go granular on this thing”?

Rob Beardsley: That’s a tough one, but I think the answer is understanding what is most sensitive to your outputs and your results. So an interesting example I give is people would be surprised to know that on a larger property that we’re used to dealing with, a $100,000 additional expense on your cap-ex budget isn’t really going to make or break the numbers. But missing your rent pro forma by $25, that could make or break your deal. So a $25 difference in your rents is a far greater impact than the $100,000 difference in your capital expenditures budget. So understanding what actually moves the model can tell you, “Okay, this is what I really need to focus on and make sure I get it right.” So we’re very, very focused on our rents and making sure that we’ve got our rents right, and that they’re defensible via comparables. That’s the next chapter of the book is once I tell you how to input every single input and say, “Okay, well, how do I prove that I’m right?”, and you need to do that with most importantly, rent and sales comps.

Joe Fairless: Rob, I enjoyed this conversation, and I know a lot of the Best Ever listeners have as well. How can they learn more about what you’re doing and get in touch with you?

Rob Beardsley: So the best way to check us out is at lonestarcapgroup.com. There, you can check out our articles, newsletter and most importantly, click the link at the top on the homepage and you’ll get a copy of my underwriting model that we talked about today emailed directly to you.

Joe Fairless: Rob, I enjoyed, as I mentioned, our conversation. I hope you have a best ever weekend and talk to you again soon.

Rob Beardsley: Thanks so much.

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JF2195: Future of Shopping Centers Post Covid19 With Beth Azor #SituationSaturday

Beth was a guest in a previous episode of JF1974 so be sure to check out her first episode to learn more about her. In today’s situation Saturday she will be sharing what it is like to be a shopping center investor during the Covid19 era. 

Beth Azor Real Estate Background:

  • Owner of Azor Advisory Services, Inc. 
  • Has 30 years of investing in retail shopping centers
  • Portfolio consist of 6 centers currently $80 million
  • Based in Fort Lauderdale, FL
  • Say hi to her at: https://www.bethazor.com/ 

 

 

Click here for more info on PropStream

Best Ever Tweet:

“As a landlord, the COVID19 recession is completely different than the ‘09 recession” – Beth Azor


TRANSCRIPTION

Theo Hicks: Hello, Best Ever listeners and welcome to the best real estate investing advice ever show. I’m Theo Hicks and today, we’re speaking with Beth Azor. Beth, how are you doing today?

Beth Azor: I’m doing great, Theo. Thanks for having me.

Theo Hicks: Thanks for joining us again, actually. So Beth is a repeat guest. Her last episode was Episode 1974. So make sure you check that out. And today is Saturday, so we’ll be doing Situation Saturday, talking about a sticky situation that our guest is in and lessons learned, things she’s doing to get out of it. So before we get into that, let’s go over Beth’s background as a refresher. So she is the owner of Azor Advisory Services. She has 30 years of experience investing in retail shopping centers. Herr current portfolio consists of six centers valued at $80 million. She’s based in Fort Lauderdale, Florida, and her website is bethazor.com. So Beth, before we get into the situation Saturday, do you mind telling us a little bit more about your background and what you’re focused on today?

Beth Azor: Sure, Theo. So my background has been mostly retail, 35 years in the industry, started investing about five years in, so 30 years is correct. I’ve owned and operated shopping centers solely in South Florida. My six that I own today are within ten minutes of my house. So I definitely have some market knowledge there and some control. I like to have control. I also train leasing agents, how to lease vacancy around the country for large REITs, private investors, wealth funds, institutional clients, and I’ve canvassed knocking on doors over 10,000 hours.

Theo Hicks: Well, that’s a lot of door knocking.

Beth Azor: That’s a lot of door knocking.

Theo Hicks: So as I mentioned, it is Situation Saturday. So we’re going to talk about the future of shopping centers post COVID. So Beth, I’m gonna let you just take it any direction that you want to start off, and then I can ask some follow-up questions after that.

Beth Azor: Sure, Theo. So in March, when COVID hit, and some of the tenants started calling us, the landlords, crying, “We might not be able to pay our rent,” I held my first rent relief reduction webinar with over 700 people that attended, and I was very firm. “Let them go to their business interruption insurance, hold firm, tell them no”, and I had three since, so I’ve had four in all. And boy, what a change things have made. When the government shuts down your retail and the nail salons cannot open and the hair salons cannot open, the landlords have to pivot, because if those tenants aren’t taking in a dollar, you can’t really be the tough old landlord that we might have been in ’09. People ask me all the time, “How’s this recession compared to ’09?” It’s completely different. It’s a million percent worse, because the government shut down the retailers. They told them, “You cannot open.”

So I had acres and acres of parking lots with no cars in them, and it was very challenging. I went from talking local tenants, mom and pops off ledges crying to me on the phone, to talking to national tenants who had huge balance sheets, who were being rude and saying, “Sorry, we’re not going to pay rent for the next year.” As a landlord, after about three or four weeks of that, probably in the April to May range, I decided that I had to have the local mom and pop day of phone calls and the national phone calls, because I literally had to change my strength and armor and empathy depending on who I was speaking to, and that’s something that, in 35 years, I never thought I was going to have to do. Okay, so today’s my day where I’m going to talk to all my mom and pop, hair salons, barbershops, little coffee shops. Now tomorrow, I’m going to talk to these big-box retailers who have the balance sheet, who can pay me my rent, so that I can pay the mortgage, but are just choosing to be jerks and not doing so.

So that has been a huge, huge challenge, and just looking back and seeing how day one, “We need to be tough”, to now day, I don’t know, five months later, where we’re really propping up some of these mom and pop tenants, because if we don’t, we will end up with 20% to 30% to possibly 40% more vacancy than we had five months ago. And there will be a lot of landlords and lenders having big discussions, because I’m not sure if the lenders want to take back these properties full of vacancy. It’s really sad and scary.

Theo Hicks: So for the mom and pops, when you say helping them out, propping them up, can you get a little bit more specific on exactly — not just what the conversations are like, but what’s the results of the conversation?

Beth Azor: So again, back in the beginning, we were like, “No waivers. Tough landlords. We’re not going to give any waivers. We’re only going to do deferrals,” to now five months later, where we have to give waivers. I had hair salons and nail salons that literally were not open for over two and a half months, not pressing the cash register. So we can pretend to defer the rent for them to pay back later at some future date. But in reality, they’ve lost those sales forever, they’re never getting them back. And even if we were smart enough or the tenant agreed to a 12-month payback of a deferral, how likely is it that they are going to recover to where they pay that back? So we are doing waivers for tenants that weren’t open. Now, I have a sub shop guy that is doing 50% more business during COVID. Dining rooms closed. He has an app, he’s doing deliveries, he’s doing curbside, and he’s killing it. So he’s doing double the sales that he did pre-COVID. So he’s not getting any waiver or deferral and nor is he asking.

So the tenants that are asking, smart landlords are helping and we’re helping in ways of either deferrals and or waivers. With the national tenants, what we’re doing, and even with some of the locals, is if we make a deal, it’s as short term as possible. So hopefully we’ll all get back to some semblance of order soon; and if we can get something in return for the waiver, or the deferral, that would be great.

For example, I had a lease with a Panera Bread, and they wanted to defer, I think, April and May’s rent or half 50% of April and May’s rent to first quarter 2021. So I said, “Sure, but your lease is coming up in two years. I want you to renew now your second five-year option,” and they said, “No problem.” So now I have a seven-year lease left, which is great for me, and all I did was be their short term lender, where I just postponed getting my rent till first quarter 2021.

Theo Hicks: And then in order to get the information to know – so this is more for the mom and pops – to know what situation that they’re in. Is that what you’re talking about on your phone calls and getting an idea of where they’re at, what they can do so you can figure out what the best course of action is?

Beth Azor: That, and then requesting their sales reports. So actually knowing what they’ve done… And there are some tenants that, like the national, some don’t report, and there’s this new tool called geofencing, which is mobile data. I’ve had some national tenants reach out and say, “We’re doing horribly. We are the worst in the chain,” and then you can fill up the geofencing tool and actually see that their traffic is back to where it was pre-COVID. So it’s amazing how technology can help the landlords, much to the tenants’ unhappiness. I did have a few nationals that tried to play a little game with me and then I was able to say, “Hmmm. Look at this geofencing report. I can see how many people were at your store yesterday, and it matches to February’s traffic. So it’s not going to help.”

Theo Hicks: You said that was geofencing, like a fence?

Beth Azor: Yes, geofencing, and it’s mobile data. So in retail, for the last 35 years that I’ve been in business, demographics is hugely important. So when you’ve got a Starbucks or a Panera or a TJ Maxx, or even some local tenants, they come to your shopping centers and they’re interested in leasing space, they want to know what is the income, what’s the daytime traffic, the employee base in the area, what are the traffic counts, etc, etc. Now there are tools… Uber has one and a company called Placer.ai, and they have the ability to target your shopping center and tenants inside your shopping center, and they can provide you with a report that shows how many people were at your Panera Bread or your Starbucks up till yesterday.

Theo Hicks: Wow, that’s crazy.

Beth Azor: It’s crazy, and demographics for the last 35 years were always based on census data, which is only done every ten years. So for us, in the retail industry, to be using census data today that’s based on 2010 in South Florida is completely full of errors. So to have this tool where I know exactly how many people drove into my parking lot up till midnight last night is very, very, very valuable.

Theo Hicks: Perfect. So we talked about what you’re going through right now. What is– and I know this is probably an impossible question, but… So I positioned it to say what are your expectations for shopping centers moving forward, both from the perspective of your existing portfolio and then what your plan is to whether acquire or get rid of some of your existing portfolio?

Beth Azor: So I’m not going to get rid of anything because I love all my projects and they’re performing regardless. But looking forward, my big wish is that we get our kids back to school because the parents need to work and that gives them disposable income to be able to come back and shop at our shopping centers. And while they’re stuck at home, helping their kids homeschool is a problem for the retail world and the economy. So I’m praying that that happens. But to defend against that, I’ve been encouraging and even myself, putting tutoring places even at no rent almost like a PSA, a public service, in any vacancy in a shopping center where we could have a Zoom setting where we hire a college student, and parents can drop their kids off and get a couple hours reprieve at home because if they can work, they’ll get more disposable income and that will filter down to us. They’ll be able to eat out more, go shop more, etc. So it’s schools. If schools aren’t open, what can we as shopping center people with vacancies do to mitigate that and then bring employees back? Because a lot of my small tenants said, “I can’t get my employees back because they need to be at home with their kids.”

So that’s what I’ve been preaching – How can we in the real estate industry help schools and help parents so that we can get people shopping again? I’m predicting 30% of the malls in our world have closed are indoor malls, and I’m predicting that 50% of those never reopen. So us outdoor shopping center, strip center, power center, lifestyle center owners need to shift and start talking to those mall tenants. For example, Sephora and footlocker, those tenants in those markets where their malls have closed will start looking for alternative opportunities and that will be to us, the non-indoor mall people. So I do think that it will shift and you’ll see “Oh, I used to go to that store in the mall”, and you’re going to start seeing that be in a more outdoor, strip center, power center opportunity.

Theo Hicks: And then what about buying? So were you– or what’s your overall recommendation for people who are currently investing in shopping centers or want to get into shopping centers. Is now a good time? Should we wait? Should we not invest? What would you say back to that?

Beth Azor: I think that in the next year to two, there will be a lot of opportunities, especially with CMBS loans because as all of our community lenders have worked with us as our tenants didn’t pay, the CMBS lenders did not. So if you have a loan with the CMBS, a commercial backed security mortgage, there was no deals made, and I think that the tenants don’t make it. There will be a lot of CMBS loans going into default and those will be opportunities. So my recommendation to anyone that’s listening that would like to invest in retail, is retail’s very community neighborhood-based. Like I said my six centers are within ten minutes of my house. So I know those centers, I know the market, I know the other landlords and I know the tenants. I shopped in these markets.

So for anyone that’s interested, pick a little area that you know well. Maybe you own a mobile home park down the street, maybe you own multifamily nearby, maybe you own office buildings. So pick an area that you know and start researching who owns this property. The more vacancy in the asset, the more likely that that’s going to go back to the bank or the lender, and you might have an opportunity to pick that up, and just start talking to retail leasing agents around that property to get information and get knowledge. If your instinct is this was successful before, it’s probably going to be successful again. When I buy, I look for strip centers that are parallel to busy streets. So there’s no L-shaped corner spaces. They’re just flushed to a main street.

I like high-income neighborhoods, high-income demographics where people have a lot of money. So even if they’ve hit a little bit of a hard time, they still have disposable income, and I like smaller– I don’t like power centers, and I’m not really a grocery-anchored center investor. I’m not going to compete with all of the REITs out there that need to invest their money in grocery-anchored. So I look for the multi-tenant, smaller strip centers, 20,000, 30,000, 40,000, 50,000 square feet that are right on the road, lots of traffic, great visibility. That’s where the retailers want to be. They want to have great parking, they want to have great visibility to the main area where there’s a lot of daytime traffic, lots of employee traffic nearby to feed the businesses and the restaurants.

Theo Hicks: Going back to what you said about the properties that have CMBS loans on them, that there weren’t any deals made with those lenders, and so you expect there to be properties going back to the banks. If I want to keep a lookout for that, how do I find those properties? Is there a website I go to, I need to talk to a leasing agent as you said, or someone else?

Beth Azor: I think that you can reach out to the CMBS loan lenders themselves. You can find mortgage brokers and capital market’s investment brokers in your area. Ask the leasing agents who are the top investment sale brokers. They can probably get you in, but it’s really a who you know game there for sure. I don’t think they published lists. There are watch lists, but you need to know who to call to get that information, and it’s a very tight club.

Theo Hicks: Okay, Beth. Is there anything else you want to mention as it relates to shopping centers and COVID or any other call to action you have before we conclude the interview?

Beth Azor: Well, my call to action is go shop local, go out and pick up from your local restaurants, shop your local tenants. Those are small businesses who support our economy all across the country. So shop local, love local. And then if you have any other questions or want any more information for me, I have a website called www.azoracademy.com, and that has a ton of free information. I have over 150 free videos on YouTube under Beth Azor. So anything about retail, leasing, you can find all of the information on either YouTube, bethazor.com or azoracademy.com.

Theo Hicks: Perfect. I’m actually following your advice right now. I’ve got Uber Eats on the way from a local restaurant. So I’m doing what you told me to do already.

Beth Azor: Alright. Good job.

Theo Hicks: Alright, Beth. Thanks for joining us again and providing us with your insights into what you’ve been doing since the onset of the COVID outbreak. The biggest takeaway that I got was you had your days where you talked to the mom and pops where you were more open and listening and sympathetic, and then you put your arm around to talk to the national tenants. You mentioned that you weren’t necessarily just listening, but you were also confirming what you were hearing with the mom and pops. It was by requesting the sales reports to confirm that their revenue had actually gone down or was non-existent.

And then you mentioned that technology called geofencing to check the mobile data at some of your national tenants who claim to have reduction in traffic, whereas in reality, it didn’t. And then you mentioned some of the things that you want to see happen in order to help your residents, people going back to work, how you mentioned how you’re putting up free tutoring in some of your vacant units.

And then you also mentioned that you think that a lot of the malls that closed down aren’t going to reopen. So there’s going to be opportunities for shopping center landlords to bring on new tenants that are traditionally in the mall and you gave some examples of that. And then opportunity wise, in the next few years, you think there’ll be a lot of properties that currently have CMBS loans that will be foreclosed on because there weren’t any deals made with the lenders and in the end, the owners.

And then you also mentioned that if you are interested in buying, make sure that you are buying on centers that are parallel to busy streets, high-income neighborhoods. You don’t like the power centers, you don’t like grocery-anchored, and then it’s very community and neighborhood-based. All of yours are within ten minutes of each other. So pick an area that you already know well. Maybe you already own property there, maybe you live there, and then start figuring out who owns those properties, what their vacancy is right now, how did they perform pre-COVID. Ask your leasing agents to get this information to see if it makes sense to buy.

So Beth, thanks again for joining us. Best Ever listeners, as always, thank you for listening. Have a best ever day and we’ll talk to you tomorrow.

Beth Azor: Thanks, Theo.

Website disclaimer

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

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

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

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

Oral Disclaimer

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

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JF2194: Important Development Deal Steps With Shane Melanson

Shane is a full-time commercial real estate developer who started investing in 2004 and dived into commercial real estate in 2007.  Shane goes step by step on how he goes through a development deal by utilizing one of his very own deals and sharing the details. 

Shane Melanson  Real Estate Background:

  • Full-time commercial real estate developer
  • Started real estate investing in 2004 & specifically has 13 years of commercial real estate experience
  • Portfolio consist of an Apartment building, retail property, and several rental properties and development land
  • Based in Calgary, Alberta
  • Say hi to him at: https://shanemelanson.com/ 
  • Best Ever Book: Keys to the vault 

 

 

 

 

 

Click here for more info on PropStream

Best Ever Tweet:

“Just because you think there is a market, doesn’t mean there is, you have to verify before you proceed” – Shane Melanson


TRANSCRIPTION

Theo Hicks: Hello, Best Ever listeners. Welcome to the best real estate investing advice ever show. I’m Theo Hicks and today I’m speaking with Shane Melanson. Shane, how are you doing today?

Shane Melanson: I’m doing great, Theo. Thanks for asking.

Theo Hicks: Well, thanks for joining us. Looking forward to our conversation. Before we get into that, a little bit about Shane’s background – he is a full time commercial real estate developer, he started real estate investing in 2004, and he has 13 years of commercial real estate experience. His portfolio consists of apartment buildings, retail property, several rental properties, and developed land. He is based in Calgary, Alberta, and you say hi to him at shanemelanson.com. So Shane, could you tell us a little bit more about your background and what you’re focused on today?

Shane Melanson: Sure. My background is, I grew up in a small town. So I wasn’t born into developing or investing in commercial real estate. Both my parents were teachers, and when I grew up, most of the jobs I did were labor. I built logging roads and… Anyways, probably my first year of university, I was back in Whitecourt, and I was working for a good friend of mine, his dad, building roads. My buddy, who is quite entrepreneurial and pretty successful, probably five or six years older than me, brought an investment opportunity to my dad and myself. Just to condense it, the deal didn’t work out. I put all $13,000, which for a 19-year-old kid or 18-year-old kid, that’s a lot of money. But my dad, he remortgaged his house and put $100,000 into that investment, and unfortunately, just saw it evaporate. So they had just paid off their home, and now he was going to spend the next ten years – he was a principal, my mom is a grade one teacher – to pay off that mistake. So that set me on a bit of a different tangent, where I thought the only way to be wealthy was to work hard and save money, but that only gets you so far.

So I think I was in my fourth year of university. Well, I took longer in university because I partied and worked multiple jobs. But my best friend at the time, I was living with him, and he was investing in residential real estate, and he had about three or four homes and I was noticing that he was living– he had no payments, because he had roommates that were paying for his mortgage. He invited me to a real estate conference up here in Canada called REin. So I went to it, I started to learn more about this concept of investing in real estate. I was still very jaded from losing money in the past. But I realized that if I was going to get ahead, that I needed to expand beyond just trading time for money. So I got into fixing and flipping. I went full into real estate. I got my real estate license, my mortgage license, I worked as an appraiser or an assessor, I should say. Then I was in urban planning. I got a job at Sun Life. That was where I got into commercial real estate. There I was a lender, and I was in a meeting one day with two gentlemen that were syndicating a real estate deal that was about $12 or $13 million. They were maybe 10, 15 years older than myself, but I learned that you could pull money from high net worth individuals and buy these larger properties. But it was wasn’t until I met my father-in-law that I was actually able to do a deal like that myself. So I tried to compress my history into how I get into commercial real estate…

Theo Hicks: Perfect. Thanks for sharing. So maybe tell us a little bit about what you’re doing now.

Shane Melanson:  Sure. So today, what I do primarily is… Well, between 2016 and 2019, I was doing mainly developments, and the reason for that was, I found the market to be hyper-competitive and I was looking for a way to leverage the skillset that I had, and that was going out and finding opportunities. So for example, we found three acres of industrial land by the airport. We tied it up for four months, spent some money, call it $30,000 to $40,000 probably or more on architectural plans, drawings, marketing material, and we pre-sold 70% before we removed conditions. So this was an off-market deal, or maybe better to call it a pocket listing from residential brokers that were trying to do more commercial. So that was deal number one. We ended up pre-selling the entire building by the time we closed.

So our risk then, was really on execution because my partner Jason, who’s got a lot of development experience – and I’ve got some, but he’s really more the hands-on and I was more on the money-raising, marketing, selling and negotiating with the tenants… That was a very good deal. We sold out in, I think, 16 months. Sold out, meaning that the actual condo units were sold off to the end-user. And then we found a retail property. We secured an anchor tenant there; that’s on about two acres, and we’re just actually developing phase two. I’ve got offers on multifamily and to do some land development for purpose-built, smaller, under 50-unit multifamily right now here in Calgary. So that’s what I’m up to.

Theo Hicks: Do you mind walking us through with more specifics on that first deal you were talking about? Maybe some numbers as well?

Shane Melanson: Sure. We bought 2.9 acres. I think it was $925 an acre. Our construction hard costs were about $135 a foot, and then obviously, you have soft costs. So let’s just say the all-in number on 30… There’s differences between what was the gross square footage versus the net square footage in terms of what you actually sell, but let’s just call it 35,000 square feet, and we were selling anywhere from $300 to $340 a square foot, depending on the size of the bay, the location, and these were small bay industrial warehouses. So a person might say, “Wow, $300 bucks sounds like a lot per square foot.” We have to remember these were three buildings, so you have less economies of scale. Number two, you’ve got smaller base, so a lot more demising walls, more HVAC rooftop units. So all this adds to the cost of being able to do an industrial development. We also didn’t have the– what’s the correct term. Our site coverage was much less than you would have in, say, a typical industrial development. You might see 40% to 44% site coverage. But because this was more retail office industrial, we were closer to 30% or 29.5%, I think, was the actual site coverage. So your cost per square foot of land goes up. If you look at $925 an acre, we’re probably $64 to $66 per square foot. So happy to break it down into more detail or walk you through how that deal all came together, but–

Theo Hicks: I’m curious to see how that came together because again, I’m not as familiar with development deals. I think our audiences isn’t as well. So maybe try to look at the specific numbers. Maybe walk us through more specifically how you found it. And then after you found it, you said you held it out for a little while and spent money on certain things. What happens during that process? And then maybe take us more like a step by step process through that deal.

Shane Melanson: Sure. So this deal, the step by step was two gentlemen brought us the opportunity Like I said, it was off-market. It was owned by a very large developer. So generally, in those situations, you don’t get to negotiate much on price. We tried, but they said, “Here, take it or leave it.” So we said, “Okay, you want the price. I want terms.” So we tied it up for four months, because I learned on a previous development where I was involved, I was the CEO of a company where we did 1,153 acres resorts in Ontario. So in that deal, what I learned very quickly was just because you think there’s a market, you have to verify it, and the only way to verify it is to actually get money and deposits. So what we did is, we said, “We think that the market is x and we tested it, and we were wrong. The market wasn’t 3,000 to 5,000 square foot base. It was 1,350 to 1800 square foot base.” And really what that meant was a price point under $500,000. So what I did  is I said, “Okay, based on that, let’s design three buildings so that we can maximize the site coverage. Here’s the renderings,” and we told our brokers — even though I’m a licensed commercial real estate agent, I could have done that, I didn’t have the relationships in that area of Calgary. So we essentially gave up, whatever you want to call it, paid our brokers very well, about $550,000, I think, in commissions. But they were responsible for profits of over $2 million.

So four months due diligence, multiple iterations, going back to the market, and really, I think it’s important having proper expectations of what an agent does. An agent is there to get the deal, to bring two parties together, and then it was really up to my partner and I to negotiate and make sure that those deals a, closed and b, we were designing buildings that these guys were going to be able to occupy and run their businesses out of.

Theo Hicks: I just want to jump in really quickly. So you’re talking about this broker is with the people who are going to actually lease or buy the [unintelligible [00:12:01].20] once they’re developed. Is that what you’re saying?

Shane Melanson: That’s correct. Yeah. So the broker that brought us the land also went out and pre-sold these units. So when I say pre-sold, they’re no different than when you could build a rental apartment building or you could build for sale, for condos. This was a condominiumized industrial building, and there was 24 units. So we needed about 70% pre-sales before a, we could get construction financing and b, before I felt comfortable going out and raising capital from investors because I didn’t want — a, I wasn’t gonna build it on spec, or speculating that we could sell it. So really, it was relying on our agents to bring us qualified buyers and we secured those with letters of intent, and then switch to purchase and sale agreements. We put the money in escrow, and that was verification that there was demand for the product we were building.

Theo Hicks: So did you actually get the money first?

Shane Melanson: Well, there’s different ways… The money goes into our lawyers’ trust account, and there are ways that developers can access it. We didn’t want to jump through those hoops, so we raised money from our investors. I think in this deal, we raised $2.7 million. So that meant we bought the land outright, and we have money for soft costs. The deposits were there and we did not draw down on them. We had a construction loan from our bank, RBC. So once you hit certain milestones, you’re able to start drawing down. So I want to say, in this case, we were able to build those three buildings, including site work in under 11 months. I think it was even closer to eight months once we started actually doing the construction.

But I think it’s important for people to know that there was about a six-month period where you’re going in for development permits. In here in Calgary, you have what’s called the DSSP, which is your deep services plan, about how water is going to move around on your site. And that took four months, about three months longer than we had anticipated.

Shane Melanson: So in Calgary, one of the other things is you’ve got winter. So all of a sudden, you’ve got a fixed price contract from your general contractor, but that doesn’t include heating and hoarding. So if you’re building and pouring concrete, for example, in the winter, tack on 80,000 bucks plus or minus or more if you’re pouring concrete, doing taping and mudding… So there’s a lot of things that a developer learns when you’re getting into a deal, and I think one of the biggest mistakes I see newer developers or builders making is thinking because they’ve got a fixed price contract, that they’re set. The reality is that there’s a lot of exclusions in those contracts, number one. And then number two, you’re dealing with people. So just because you think someone’s going to show up, a trade is going to do their job, there’s mistakes. And is that trade gonna honor their work? Are they going to come back and fix it? Or are you, the developer, going to be left high and dry? And fortunately, we had an excellent general contractor. Some of the trades squeezed us, so you’ve got to absorb that.

Theo Hicks: So you said it takes 11 months to build the buildings, correct?

Shane Melanson: Yeah, even less than that, actually. Because when you’re just doing steel frame, they go up pretty quick.

Theo Hicks: Okay. So then, once you’re done, at that point, are you completely out of this deal. You get your money, do you pay off the loan, and you’re out completely?

Shane Melanson: In that case, because they were industrial condos, that’s right. Now let’s say, we own one or two, we wouldn’t be able to get out. Now, we also had to set up a condo board, so we had to sit on the board for a year, but we brought in a property manager. But for all intents and purposes, we got our money, we paid our investors back, we closed down the companies and you move on to the next deal. So the next one, the retail I’m working on, that is for lease. So we will keep that and if someone comes along and offers us too much money, we’ll probably sell, but we’re very happy with our tenants and [unintelligible [00:15:38].16] there.

Theo Hicks: So we at Ashcroft do apartment syndications. So obviously the type of person, at least from what I understand, the type of person who invests in apartment syndications have different goals than the type of people who invest in these development deals. So what are the goals of your investors? When you’re talking to them, when they’re trying to figure out if investing in your development deals is going to be a good fit, what are the types of things that they’re saying, that makes you say, “Okay, they’re a good fit,” and maybe what are some things that they say that makes you think that they’re not a good fit?

Shane Melanson: Well, I do multifamily syndications as well, and I would say that the profile of the investors is they’re looking for good returns. In my experience, these investors, high net worth individuals, they’re really betting on the team and their ability to execute. So obviously, if you’re buying a value-add multifamily that has maybe 6% to 10% cash on cash returns and a 15% IRR, well, much less risk. If I’m doing a development deal, these guys are looking for 25% to 35% returns because they understand that there’s more risk. So we explain that upfront and we show them the downside. We show them, “Look, I’ve got my house on the line, and we’re mitigating risks in as many places as possible.” So for example, pre-sales, pre-leasing, you want to verify that demand as much as possible to give comfort both to myself and to my investors.

I think the other thing I would say is some investors– you’re right, I’m very careful. So if someone wants to come into one of these deals, has never invested in commercial real estate, is just looking at the big cash on cash or IRR, and they don’t have an appreciation for the fact that it’s illiquid and they’re putting in their last $100,000 or $150,000, generally speaking, those would not be good investors. Most of the investors I’m dealing with, I would say 70% of the people that come into my deal are either developers themselves, some of them are on publicly traded companies, doctors, dentists, that have a significant net worth, and are looking at this as just another avenue to invest with higher returns, and really they’re betting on the team and a track record.

Theo Hicks: Okay, Shane, what is your best real estate investing advice ever?

Shane Melanson: I think the best real estate advice I could give someone is that this business is a relationship business, and one of the things that helps me in all of my deals is the fact that I don’t have an ego in the sense that I think I have all the answers. So like I just alluded to, if I’m doing a deal, I’m going to triangulate all my information from mortgage brokers to lawyers to lenders to other developers, and I’m going to also get people with skin in the game that have experience in commercial real estate to guide me and make sure that I’m not making a mistake… Because it’s very easy to fool yourself into thinking you have a great deal, but you really want to test that, and the best way to do it is just from your relationships in the business.

Theo Hicks: Okay Shane, are you ready for the Best Ever lightning round?

Shane Melanson: Let’s do it.

Break [00:18:40]:03] to [00:19:43]:04]

Theo Hicks: Okay, Shane, what is the best ever book you’ve recently read?

Shane Melanson: I think the best ever book is a book that I’m reading right now for a second time by Keith Cunningham. Keys to the Vault, I believe it’s called.

Theo Hicks: If your business were to collapse today, what would you do next?

Shane Melanson: I would probably go back to commercial brokerage and continuing to help people buy and sell in commercial real estate.

Theo Hicks: What is the best ever way you like to give back?

Shane Melanson: There’s a couple of things, but one of them is through the Junior Achievers here in Calgary. Going in and specifically with grade sixers, talking about entrepreneurship as well as some of the stuff that I do with respect to how to invest in real estate.

Theo Hicks: And then lastly, what is the best place to reach you?

Shane Melanson: Best place is my website, shanemelanson.com. There, you can find my podcast, my book, all that stuff.

Theo Hicks: Well Shane, I appreciate you coming on the show and talking to us today about your background, what you’re doing today, and then your best ever advice. I always enjoy having conversations with people on here that do things that I have very, very minimal knowledge on. So I definitely learned a lot today.

So you walked us through your first deals that you did by yourself, the 2.9-acre deal where you turned it into three different industrial buildings. Something that I thought was interesting, and I really want to think on of myself more is when you talked about how you learned that you need to verify that there is a need, a demand in the market, that you have the right need and demand in the market. So for this deal, you originally thought that it was going to be larger base.

Shane Melanson: That’s right.

Theo Hicks: And then once you actually went through your month of due diligence, you realized that the demand was actually for smaller base. So you do that before you actually go out and raise capital and before you actually start building. You don’t assume you know what you’re doing. So I thought that was very interesting. I’m sure there’s ways that everyone listening, no matter what type of real estate niche you’re investing in, you’re gonna find a way to apply that to your business. I really appreciate you showing that.

And also, you talked about the brokers and how you yourself had a broker’s license, and you could have technically, legally done the pre-sales and gone out and found buyers, but you didn’t really know the market that well, and you knew that you could pay a broker really well, and they’d go out there and make sure that they find you qualified buyers. That you were able to get the pre-sales you needed to order to qualify for financing, and that sure, you pay them upfront a lot, but the ROI from that would be much higher. So you gave us numbers on that as well. And then you also talked about the investor profile for a developer and how typically they’re experienced in developments. It’s not someone who’s putting in their last dollars into a deal and hope to hit it big, and that they are expecting higher returns compared to your value add apartment syndication because of the higher risks involved.

And then your best ever advice which was that this is a relationship business, which I talked about in your broker advice, and then that you realized that you don’t have all the answers and making sure that you’re triangulating and getting all the information you need from the brokers and the lenders and the contractors. And then you also try to work with someone else who has experienced in developments, they have skin in the deal, and that they can guide you so you don’t make any massive mistakes. I really like that. I really like all of the advice that you gave. I’m sure the Best Ever listeners did as well. So again, Shane, thanks for joining us today. Best Ever listeners, as always, thank you for listening. Have a best ever day and we will talk to you tomorrow.

Website disclaimer

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

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

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

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

Oral Disclaimer

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

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JF2193: How To Go From Navy Pilot to Owner Of Two Businesses With Bill Allen

Bill is a former Navy Pilot and Founder of BlackJack Real Estate and CEO/Owner of 7 Figure Flipping. He initially started flipping one house a year and as he started to gain the confidence he then went full-time. He recently bought a new real estate company called 7 Figure Flipping. Today he shares how he has been able to grow from Full-time Navy Pilot to business owner.

 

Bill Allen Real Estate Background: October 15th air date

  • Navy pilot, Founder of BlackJack Real Estate and CEO/Owner of 7 Figure Flipping
  • He and his team at BlackJack RE currently flip and wholesale 200+ deals per year
  • Based in Nashville, TN
  • Say hi to him at: www.blackjackre.com 
  • Episode JF905 – May 2017
  • Best Ever Book: Extreme ownership

 

 

 

 

Click here for more info on PropStream

Best Ever Tweet:

“Listen to a podcast that is educational, and surround yourself around people who are strong where you are weak” – Bill Allen


TRANSCRIPTION

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

Bill Allen: I’m doing good, Theo. How are you?

Theo Hicks: I’m well. Thanks for asking and thanks for joining us again. So Bill was a guest all the way back in May of 2017, on Episode 905. So make sure you check that episode out. We’ll be talking about what Bill’s been up to since then. But before we get into that, a little bit about Bill – he’s a Navy pilot as well as the founder of Blackjack Real Estate, and CEO and owner of 7 Figure Flipping. He and his team at Blackjack currently flip and wholesale over 200 deals per year. He is based in Nashville, Tennessee, and his website is blackjackre.com. So Bill, do you mind telling us a little bit more about your background and what you’ve been up to since we last had you on the show?

Bill Allen: Yeah, you told me May 2017, so I can’t believe it’s been that long; over three years now. So I have a Navy background. I was an engineer and went through as a Navy pilot, and I thought that’s what I would be doing my whole career. I bought a couple of houses as rental properties. I moved around 15 times in 18 years that I have been a Navy so far, and just bought a house everywhere I went. I started to expand into doing a flip on the side; made a bunch of money. You make $45,000 in a couple of months, it starts to feel really good, and you figure out how you can do more of that. So I did one a year before I started scaling up a business, and then eventually I was able to leave the Navy full time and I’m a reservist now. So I fly part-time.

Over the past four or five years, we’ve been able to do over 100 deals a year. I have a team of about 15 or 16 people in that company, and it’s pretty nice. I’ve got to the point where — I talk about passive income a lot. I don’t really do a lot in that business anymore in Blackjack Real Estate, so my COO runs the company. He does the day to day ops. I spend two hours a week with him on a call and he does the magic, and the team’s awesome. It’s really incredible to get to that point. So that’s my background.

We primarily wholesale houses in the southeast. So Nashville, Chattanooga, Pensacola. We do some deals in Atlanta, Birmingham. If something pops up, we might do some marketing in some different areas. It’s pretty much all virtual now. COVID pushed us into a virtual world. So we’re closing everything over the phone. We’ve got a system set up where we don’t actually have to go see the house anymore. So it’s been a great journey. I don’t know — last three years, my COO’s got up and running, and I’ve been able to remove myself, and then I bought another business and I’m running that now. So that’s where I spend my world in that 7 Figure Flipping company you’re talking about now. It’s where I spend about sometimes 80 hours a week doing that.

Theo Hicks: Perfect. So the Blackjack is a machine that’s running on its own. Well, not on its own, but you’re not running it, and then your focus now is on 7 Figure Flipping.

Bill Allen: Yeah, I spend all my time in that mastermind company for single-family wholesaling, flipping. Blackjack’s great because I have a phenomenal team. We have a great leadership team. I don’t have to look over their shoulder. They hold each other accountable. We operate off with a system called EOS, so the Traction by Gino Wickman, that system… And everything runs. I can just pop in there, look at the scorecard, see how they’re doing. I show up every month and give them a meeting over some rah-rah, talk about how amazing things are doing. The Inc. 5000 list just came out yesterday and we were number 206 in growth from 2016 to 2019, which is amazing to see that. So I can celebrate those things with them and do something else. My passion moved somewhere else, and to be able to do that and build another company and put the right people in place has been fun.

Theo Hicks: So in my notes here, this is from your first episode, is that in 2016, you had flipped 13 houses and wholesaled 54 while you were working full time, and now you’re telling us that you’re spending a few hours on that business. You’re doing over 200 deals a year. So double, triple what you were doing at the time. What are the two or three things that you’ve done that have allowed you to not only increase the amount of deals you’re doing, but decrease the time investment on your end involved in doing those deals?

Bill Allen: Well, I think the first thing is listen to podcasts like this. Understand that it’s possible. When you hear somebody that you can relate to and realize that they’re just a normal person doing things like this, it’s possible for anybody to figure out how to do it… And then surround yourself with the right people. I brought in staff members and team members that were better in areas that I was bad at.

A lot of people say strengthen your weaknesses, and I really believe in that work on your strengths, know what your strengths are, and then surround yourself with the people who are strong where you’re weak, and that’s what I was able to do. I was able to put this team together that when I’m sitting at the conference table and I’m talking about marketing, I’m not the know it all at marketing. Somebody else knows a lot more than me. So when I started listening to other CEOs, other business owners to figure out how they got to the place that they got, it was mostly about the fact that every decision doesn’t have to go through them.

So putting the right people in the team, and — you guys have that here, right? You guys have a great relationship here with your team, with Joe and you, and it’s really cool to see that. So when you can bring the right people in on your team to do the things that you’re not very good at or don’t want to do, it frees you up to do the other thing. So first of all, a little bit of education and just really honestly, it’s all pretty much mindset. Believing that you can actually do it, that’s the first step. And if somebody else can do it, so can you. Lots of different people have been able to do this. It’s possible. It’s real. There’s a lot of people out there doing it. And then finding the right people. Those are the big things. We talked about systems and automation and process. It’s the people that are involved that are most important. Whether it’s the people in the deal, the people on the team and staff, that’s the important part in business as far as I go.

Theo Hicks: How did you find the team members? Did you just post a job listing? Did you get a recruiter? Are they people that you knew previously? Where did you find them? And then how do you know that they are the right fit? You mentioned that you want to find people who are good at what you aren’t good at or don’t like doing, but I guess tactically, how do you know that this person is actually good at these things?

Bill Allen: I think the first step is knowing yourself. So once you know yourself and what you’re good at — because people ask me all the time, who should I hire first? The answer to that question is it depends. I can tell you who I hired first, but who you hire first might be somebody totally different. It might be a project manager, it might be a bookkeeper, it might be a salesperson.. It’s really where are you weak and what do you not good at; that should be the first person that comes in. So knowing yourself, get to know yourself, your personality, what you’re good at, what you’re not good at and be honest with yourself. And then you interviewed me in 2017; 2016 is when I started hiring people, in early 2016, and it was like a Craigslist posting. We don’t do that style anymore. You can still do that…

The thing that I think you need to do is you need to cast your vision. You need to know where you’re going. Because that first person that comes in when you have no company and you have no track record, why should they leave another job or believe that coming to work for you is a stable way for them to do what they want to do? Casting the vision for them is the most important thing. Getting them on board and getting him to believe and buy into your vision. So what we do now is we hire off Indeed. That’s the only place we post, and we have ads running all the time. We look at the personality profile that we want somebody to have. So you can use a free resource like the DISC test. Kolbe is another one, Myers-Briggs is another one. We use a paid service called Culture Index. They cost anywhere from $6,000 to $10,000 a year depending on the size of company that you have. But I have two companies, we have about 50 people that work for the two companies combined. So it’s a great resource for us. I actually pay two licenses, one for each company. It’s that valuable to me.

So we set the personality profile that we’re looking for, and that’s who we are. What’s in your DNA? From the time that you’re 12 years old, you have these characteristics and traits that are in you. It might not show up, you might be able to work through it sometimes, but when you get stressed out, and things are going wrong and everything happens, you go back to that natural state that you’re in, and we’re constantly under stress as a real estate business. I think it’s safe to say that 70% or 80% of the time, there’s problems and things are blowing up. So I want the people that show up that can naturally go back to being salespeople or naturally going back to being admin people or naturally being good at bookkeeping at that point in time, and they’re not going to miss the details. So we look at that personality profile, and then we look at skillset. So a lot of people do it backwards. They look at skillset and they look at the resume, and then they hire somebody.

So I want to know who you are as a person, what your core values are, what you believe in, and if you can fit in with the team. I have a team member of mine, she’s amazing. She said one time, “They’ve got to pass the beach test. Would you go to the beach and sit on the beach and hang out with them for a little bit, especially as a small company?” I’ve hired some people before, they just don’t really fit the culture and it’s just the wrong fit. They can be great at that position, but they got to fit into the culture, the core values and all that stuff that we believe in, who we are.

So we post on Indeed, we create the personality profile that we’re looking for, and then we write the job ad on Indeed based on attracting that personality profile. So we use adjectives that when somebody reads it, they’re like, “That’s me, that’s me, that’s me.” Instead of talking about what the job is, we talk about who the person is that would be interested in this, and then we look at the resume.

So it’s like a funnel, just like your leads are. If you look at hiring just like you do going out and looking for leads for houses or for buyers or for raising money, whatever that is – same thing with hiring. And then we ask the same questions, we compare apples to apples. We write down the questions that we’re going to ask. We don’t change them, because a lot of times, you’ll go one way with the candidate on an interview and you’ll go another way on a different candidate on an interview, and you can’t compare apples to apples that way. So we ask them the same question. It’s very clear, it’s very obvious that we’re just being systematic about our approach. So that’s a short answer on hiring. There’s a lot involved in this stuff, but if your gut says no, don’t do it.. If your gut says this might not be the right person, but they have the resume… I’ve gone against my gut a couple times, big mistake.

Theo Hicks: That’s something I wanted to ask too, is how do you know when it’s time to fire someone, and then how does that approach work? Is it just one day it’s done? Is there a warning system? How much time do you give them to turn it around? I’m just curious of how that works.

Bill Allen: Yeah. That’s the answer again – it depends. For me, the problem is, I know that I’m an emotional decision maker, so I’ll hold on to people longer than I should. When my confidence runs out in somebody or it’s in question, it’s very hard to climb back up and get back on the good side of me and the company. Once I lose a little bit of trust and confidence in them because of their performance or what they’re saying or it doesn’t line up and my gut starts telling me this is the wrong fit, that’s the time that I should be letting somebody go, or having that first conversation. Usually what I do is I’ll have a basic conversation with them. I’ll give them some time to turn it around, and it’s never worked out for me. So from the HR side, I’ll say yes, we’ll give people a couple chances.

We use EOS. So we use something called the people analyzer as a tool inside of this EOS system that we use, and when they get below the bar on the core values or the Get it, Want it, and the Capacity, that’s when we go to them and say, “Hey, you’re below the bar. This happened, this happened, this happened.” So what I do is I give them three different times of things that they did in the past that highlights this core value being below the bar, and then I say, “You’ve got the opportunity to get back up, but this is what you need to do. You have two weeks or one week or three weeks or whatever we put a plan in place to get above the bar.” Because if it’s one instance, they say, “Oh yeah, but this happened,” or, “Oh, it was because of this.” But if it’s three times, they really can’t defend the fact that three times, they’re not showing up. And for us, it’s extreme ownership, stewardship, hard-working, integrity and personal professional development.

So if they’re not showing up with integrity, for me, you’re pretty much gone. There’s not going to be a warning for integrity. But if there’s some hard-working, maybe they had something going on with their family, they’re just not working as hard as they should be or showing up the way that they should, then that’s something that’s coachable. Personal professional development, if they’re not putting enough time into developing themselves professionally, then we can have a conversation and try to start to talk through some of that stuff.

Ownership, if they show up to that and go, “Yeah, but that was this person’s fault or this person’s fault or this person’s fault,” then they’re not even going to get through that meeting. We’re just gonna fire them right there. So it just depends on who the person is. But when your gut tells you that it’s time for somebody to go, it’s probably too late. Don’t be afraid to fire somebody in the first couple weeks, the first month, the first two months. You pour a lot of time and effort and energy into these folks, but there’s a lot of opportunity cost lost by holding on to the wrong person for too long.

We just had a quarterly meeting. One of our teammates was below the bar, and we had the opportunity to coach her, but she just wasn’t coachable and it was time to go, and we just parted ways on good terms. I’ll tell you, every single person that we let go so far, pretty much every single person, has written me back a year later. Every person I let go, I said, “Look, this is the best thing that I could possibly do for you. You don’t understand that this is not the right fit, you’re not in the right seat, this isn’t for you. You’re going to go find your dream job. Believe me that you’re going to be happier somewhere else. Here’s a couple of recommendations I have based on your personality profile, what I’ve seen; maybe go try this,” and I’ll get an email or a phone call six months, a year later, and somebody will say, “You know what? You were right. I found the incredible job. I love my job. I love what I do now. Thank you. Thank you for firing me. Thank you for letting me go. Thank you for caring about me that I’m actually not doing what fills me up.”

I think it’s pretty rare that employers actually look at their staff to see if they’re happy, if they fit the culture, if they’re enjoying what they do, and looking out for them. That’s the way I look at it is if they’re not happy, we’re not happy; they’re just working for a paycheck. Let me figure out where to put them and move them somewhere else, and if they can’t fit inside of our team, then what can I recommend for them?

Theo Hicks: That’s probably even more rare, is not only looking out for what’s best for them and for you, but also saying, “Hey, here’s what you probably can do based off of your personality profiles. So I wanted to ask a quick question about 7 Figure Flipping, the mastermind group. Is that traditionally an in-person event or is it online?

Bill Allen: Yeah, it’s traditionally in-person. So we have a big event every year in October called Flip Hacking Live, and last year, we had over 600 people there. We were planning on having it in Orlando this October. And then it’s traditionally quarterly meetings in person that we have, mastermind meetings, that we have transitioned to virtual meetings recently. So it’s been quite a challenge. We even just had one here in Nashville. I live in Nashville. We had it scheduled in Chicago. About a month before, we said, “Nashville is opening on July 1st. Let’s move it to Nashville because Chicago’s a no…” and it was in the middle of July. Two weeks before the event, we moved it into Nashville, got the contract in place, and then sure enough, July 3rd, they were just like, “Shut down Nashville, too.” We had to plan three events in a month. It was crazy.

Theo Hicks: Well, I wanna ask you, what are some of the things you’re doing for these virtual events to engage with people through their computer? What are some of the things you’re doing to engage with people?

Bill Allen: Well, you’re looking at some of it right now. So you can’t see, but I have four computer screens here. So when I’m presenting at these events, I’ve got a professional camera, lighting, set up my studio, I’ll move things around, and I can see every single face that’s at the event. I got the standing desk because of this. I got a lot of different new tech and things like that. I invested a ton of money into figuring out how we could deliver an experience to them. We learned a ton of things in Zoom. We do Zoom breakout sessions. We gamify some of the stuff. The biggest thing for me was to be able to see everybody, look at their reactions, and make sure that the content that I’m delivering is strong, and also coach up some of our other team and saying, “Hey, I need you professionally dressed. I need you with a nice background. I need you in a quiet place. Make sure that your internet is strong.”

We’ve put on probably six virtual events that we have learned how to do things. You can do a lot of cool stuff with zoom. You can do breakout sessions where you can send them to breakout sessions and then bring them back into a general session.

We’ve run two simultaneous events in the same weekend with six breakout sessions with different speakers and people running the room. So we’ve had to get lots of different licenses, do things like that. It’s been interesting. This October event that we have, we have the same event planner that does Tony Robbins’ event. He just did this Unleash the Power From Within; it had over 40,000 people. At his event, he had a 360-degree monitor. So what we’re doing for October is we’re building out a studio in Charlotte, where I’m gonna be there, I’m gonna fly the speakers out, and we’re gonna present a live event from stage to everybody and stream it to them.

We’re sending boxes ahead of time, we’re sending all the stuff that you would normally get at an event like that to their house ahead of time. We’re giving them point systems to gamify it, win some prizes and stuff, using private Facebook groups to get them interested and excited and network ahead of time. Networking sessions, breakouts, bringing keynote speakers in that we couldn’t afford before, all that stuff. Just taking it–  elevating it to a point where it’s not just a Zoom call or another webinar, because people are tired of that right now. I’ll tell you – a three-day Zoom call, they’re just not gonna be interested.

Theo Hicks: Okay Bill, what is your best real estate investing advice ever?

Bill Allen: Best real estate advice ever. I would say looking back, build the foundation and the mindset of what you want to do. I usually say take action, but I feel like that’s so played out. I really feel like when I look back, my success is because of what I tell myself in my mind all the time. So your mindset and the way that you show up with failure, with loss, with issues, with problems and the stories that you tell yourself in your head, that’s the most important thing. So if you can start with that and understand that you’re building the foundation on rock instead of sand with your mindset and where you’re going, you’ll be unstoppable.

Theo Hicks: Okay Bill, are you ready for the Best Ever lightning round?

Bill Allen: Ready.

Break [00:19:26]:04] to [00:20:28]:03]

Theo Hicks: Okay Bill, what is the best ever book you’ve recently read?

Bill Allen: Extreme Ownership by Jocko Willink and Leif Babin. Absolutely amazing book. It will change your life. Make sure your entire team, your family, your friends all read that book. It’s amazing.

Theo Hicks: If your business were to collapse today, and we’ll say Blackjack, what would you do next?

Bill Allen: I’d keep doing what I’m doing. I’ll tell you what I would do if Blackjack fell apart. I would probably look at what the marketplace looks like and figure out how to pivot the people that I have inside that business to something else. If it was because of the fact that we’re wholesaling real estate and that started to tighten up or close down, I have phenomenal people that we could have a rockstar donut shop right here in Spring Hill, Tennessee if we needed to. So look at the marketplace and look for opportunity and figure out how to pivot.

Theo Hicks: What is the best ever way you like to give back?

Bill Allen: I’m actually the Tennessee Director for Operation Underground Railroad. So I absolutely love giving my time and money and raising awareness for that. That’s an organization that frees trafficked kids from sex trafficking, sex slavery. In the US, about 500,000 sex slaves here in the US that are kids and almost 2 million total, so over 1.5 million abroad. So it’s a pandemic, it’s an issue. We’re fueling the problem as Americans and that’s it. Operation Underground Railroad, ourrescue.org. You can check it out. It’s absolutely amazing. It’s changed my life, opened my eyes to something I had no idea was a problem.

Theo Hicks: And then lastly, what is the best ever place to reach you?

Bill Allen: Well, that event, Flip Hacking LIVE, absolutely amazing. I recommend anybody to check it out. But 7figureflipping.com, you can reach me there.

Theo Hicks: Alright Bill, thanks for coming on the show again. I really appreciate you catching us up on what you’ve been up to, and congratulations on such massive growth since we launched talk. Again, went from 13 houses flips, 54 wholesales, full-time to working a few hours and having a self-generating machine of 200+ deals a year.

So we talked mostly about team. So we talked about the two main reasons why you’re able to scale – one was education and mindset; the other one was, surround yourself with the right people, complementary skill sets. You mentioned that you’ll post a job on Indeed, and rather than looking at the resume first, you’ll focus on the type of person, the values that you want, the personality you want for that job.

And then as you create the job listing based off of that, they’ll take the personality test, then you’ll look at the resume and then when you interview them, you’ll ask them all the exact same questions so you can compare apples to apples, and then ultimately, it comes down to your gut. If your gut tells you no, well, it’s probably not gonna be a good fit. We talked about the process of firing someone and your three examples of if they weren’t aligned with specific values. But again, if your gut tells you it’s not working out… You said that you’ve never had a time where you’ve lost confidence in someone, and then they’ve been able to turn it around. But I really liked what you said that when you do fire someone, you don’t just say, “Good luck.” You actually will try to give them advice on what might be a good career field based off of their personality test. You gave us a lot of advice on how to effectively do virtual events, whether it’s a meetup group as you’re doing every single month or a one-time yearly conference, and that would be your 7 Figure Flipping.

You talked about investing in a studio and making sure your team also has a nice camera, lighting, background. You said you use Zoom a lot for the breakout sessions. You get point systems, games, private Facebook groups to get people excited. And then something else you said that I thought was interesting was you can get bigger name speakers to talk. So you don’t have to fly them out, pay for their hotel. They don’t have to do an in-person event and spend a full day or full weekend. Now they can spend an hour at their computer doing it. So that was also interesting. And then your best ever advice was to build a foundation and a mindset first before you go out there to start taking action. So Bill, thanks again for joining us. Best Ever listeners, as always, thank you for listening. Have a best ever day and we’ll talk to you tomorrow.

Bill Allen: Thanks, Theo.

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JF2191: Retail Shopping Centers With Beth Azor

Beth is the owner of Azor Advisory Services, Inc. with 30 years of experience investing in retail shopping centers. Beth chooses to focus on retail shopping centers because she likes the variety of dealing with all different types of businesses. She shares some advice on how she deals with small business owners versus well-known companies.

 

Beth Azor Real Estate Background:

  • Owner of Azor Advisory Services, Inc. 
  • Has 30 years of investing in retail shopping centers
  • Portfolio consist of 6 centers currently $80 million
  • Based in Fort Lauderdale, FL
  • Say hi to her at: https://www.bethazor.com/ 
  • Best Ever Book: The War of Art

Click here for more info on PropStream

Best Ever Tweet:

“The majority of my marketing for new businesses is now through Facebook. Facebook gives me access directly to the decision-maker” – Beth Azor


TRANSCRIPTION

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

Beth Azor: I’m doing great, Theo. Thanks for having me.

Theo Hicks: Absolutely, and thanks for joining us. A little bit about Beth – she’s the owner of Azor Advisory Services, she has 30 years of experience investing in real shopping centers, her portfolio consists of six centers currently valued at $80 million. She is based in Fort Lauderdale, Florida, and you can say hi to her at bethazor.com. So Beth, do you mind telling us a little more about your background and what you’re focused on today?

Beth Azor: Sure, Theo. So I’m really focused on getting rents today during the post-COVID craze. I am an investor in retail shopping centers. I love retail. I’ve been in the business for about 35 years, started investing about 30 years ago, and all of my shopping centers are within ten minutes of my house, which is great. I have tenants from Starbucks to Aldi to Panera Bread to Verizon. I have mom and pop, small businesses and national tenants. For the last four to five years we’ve been challenged with the whole online sales, and now we’re challenged with having our tenants have not been able to be open for business for two months. But the pent-up demand with consumers shows wonderful signs of rebirth, so we’re all keeping our fingers crossed that own shopping centers these days.

Theo Hicks: Thanks for sharing that. So I actually haven’t talked to someone who has retail shopping centers. I know a lot of people that I’ve talked to for Joe’s business who focuses on collecting rent from tenants who are living there. So are you seeing issues with both the small businesses and the national tenants or is it just one more than the other?

Beth Azor: So the challenge is– and I’ve been likening it to the roller coaster of emotions, because finally what I had to do after about the first two weeks is I had to seriously delineate my days off on certain days talking to the mom and pops and on certain days talking to the nationals… Because as a landlord, when you get on the phone with a mom and pop and they’re crying and you’re talking them off ledges and you’re just trying to keep them wanting to reopen when we can, you have to have empathy and understanding and you don’t want a mass exodus of tenants. And these are local businesses that literally had not been able to punch the cash register going on over 72 days in South Florida. So you had to have one state of mind dealing with them.

On the other hand, you got national tenants with huge balance sheets, Theo; huge balance sheets. And many of them were able to do either drive-thru sale or online sales or curbside pickup sales. So their cash registers were still being run somewhat. Certainly not like in pre-COVID, but they were getting a certain amount of customer traffic and income, and many of them– there were some nice ones, but many of them were not very nice, and making demands to landlords that was not very respectful, courteous or friendly.

So the first two weeks I was taking phone calls from one to the other, one to the other, and I did not really have my armor up. So I decided after two weeks, “Okay, I’m going to bifurcate this and on Tuesdays and Thursdays I’ll deal with my mom and pop tenants, and on Mondays and Wednesdays, I’ll deal with which sometimes were very rude national retailers.” Some of them I knew from being in the industry and going to conferences. I think that they were in job-saving mode and they didn’t like coming to me saying, “I can pay my rent, but I’m not going to pay my rent.”

I’m sure you and your listeners saw the article in Wall Street Journal and many other industry magazines or newsletters about a big national coffee tenant who sent all of us letters saying for the next 12 months we were going to need some rental abatement or deferral or waiver or whatever. So I came to the conclusion that these representatives of these Fortune 500 companies or public companies, they knew what they were doing to us, the little guys – I only own six centers – and they felt bad. And I think when people feel bad and feel guilty, they don’t really know how to handle it and sometimes they use different emotions than we landlords would like them to use.

Theo Hicks: Who do you talk to at these national companies? Is there a leasing person they have that you talked to constantly every month?

Beth Azor: There are real estate managers who sometimes are jumping in the fray on this because they’re not out looking for new stores. They can’t travel. So they’ve jumped in to help with their companies with these rental discussions. I have spoken to CFOs. I have spoken to attorneys. So it runs the gamut. It’s not consistent across the board. With the small businesses, you’re dealing with the small business owners, literally the mom and pop owner.

Theo Hicks: So we’ve talked on the show a lot about apartments and the types of deals and payment programs and things like that, that the property managers and the owners are having with their residents. So not talking about the nationals, but the more of the mom and pops. What type of, I guess, agreements have you come to? What are some examples of payment programs that you’re having at the retail shopping centers that are owned by mom and pops?

Beth Azor: Sure. It depends on a bunch of things. It depends on if they moved out, could you release it and how fast, if they have infrastructure in their space that is valuable to either them or a replacement tenant. If they are, let’s say, a jeweler who, a competitor, after waking up in about 30 days saying, “Wow, I’ve got a lot more vacancy than I ever thought. Let me go down the street and try to steal some other tenants that are easy”, midnight move type things. How long is their lease before it comes up for renewal, and what are things that they have we would like back? So maybe a mom and pop has a termination right. Maybe a mom and pop has an exclusive. Let’s say they’re a hair salon and they have a nail salon exclusive. Well, for me to be able to put in a nail salon when this hair salon hasn’t done nails in ten years, that’s very valuable. So you can make some exchanges with the mom and pops and even with the national tenants in exchange to give them some deferral.

Pretty much across the board – and I consult for landlords all around the country – we’ve all been trying to do deferrals like kicking the can, not full out waivers. So where we might do 50%, 30% rents over April and May, maybe take the difference out of their security deposit, and then anything leftover, they are to repay it in 2021; maybe the first six months. We don’t want to move it to the end of the lease term, because we want the tenant to renew and take the bump in the rent that the market rent in an option would include. So trying to get back any difference of any deferred rent in 2021, even if it has to be over 6 months or 12 months, it is not the end of the game there. It’s not a bad thing.

Theo Hicks: Perfect. Thanks for sharing all that information. So let’s maybe transition away from the COVID and talk more about your current portfolio. So you have six centers. Are these things that you’ve had for a long time or are you always actively selling one each year and buying one each year? What’s your overall business plan?

Beth Azor: I like to hold them. So the one that I’ve had the longest I bought in ’08, and then I’ve probably bought a shopping center every two years or developed. I developed from ground-up a five tenant shopping center with a Starbucks, a Verizon, a Blaze Pizza. I built that one from the ground up. I bought an old strip club in town. The town was getting rid of strip clubs. I called the owner and got them to sell me the building, knocked it down and built a five strip shopping center. And then three years ago, I bought an old office building that was built in the 70s. I knocked that down and built a Starbucks center on one half of the parcel, and now I have a future parcel to develop on. Most of my centers are unanchored strip centers, but I do have one that’s a grocery-anchored center, and that is anchored by Aldi. It’s a supermarket in parts of the country.

Theo Hicks: What does that mean, unanchored versus anchored?

Beth Azor: So anchor means a big-box tenant like a grocer or a Walmart or a Target or a large tenant that would anchor the rest of the small retail. So it’s like in the old days with the malls where Sears and Penney’s and Macy’s would drive traffic to the mall. They wouldn’t pay as much rent, but the other ancillary tenants would pay more, and they were paying for the traffic that those other anchors, those larger retailers would bring to the property. That’s the way it is. In our center – I have a Starbucks, a Blaze Pizza, a Verizon,  a Select Comfort and an ice cream. They’re all the same size, pretty much 2,000 or 3000 square feet. There isn’t one major anchor that drives the traffic… Versus I have another shopping center that’s 75,000 square feet and 20,000 of it is Aldi supermarket, and they drive a lot of traffic to the center. So tenants will pay more rent to be next to a traffic driver such as a supermarket.

Theo Hicks: Why do you choose retail shopping centers over other asset classes, other retail classes or just multifamily or warehouses? Why would you choose this one specifically?

Beth Azor: I like the variety of dealing with all of the different businesses. One day I might be dealing with an ice cream store owner, the next day with an insurance guy, the next day with Panera Bread, the next day with an athletic shoe store, the next day with a hair salon, Sherwin-Williams Paints… It’s a big variety of businesses and I like that.

Sometimes, we landlords have to evict people. Theo, I always had the motto, I never wanted to manage or own anything that had a bed in it because I didn’t want to evict someone from their bed. I know all of your listeners, unfortunately, sometimes have had to do that. So it’s not a fun time at any time when you have to evict somebody, but evicting someone from their business versus from their home, I can swallow that a little bit easier.

Theo Hicks: Yeah, I like the philosophy. This is an off the beaten path question a little bit, but do you get any discounts at these places like a Target or at all the whatever? I’m just curious.

Beth Azor: No, I would tell you that there probably are some property owners that do that. I learned very early on in my career, and it’s one of the first things I tell anyone that I hire, “Don’t go to the sports bar and ring up the tab, because there’s no discounts.” In fact– and tenants will try to give my maintenance guys or my property managers, “We got you this time”, and absolutely not. It’s a firing offense… Because at the time that I go and collect rent and I’m like, “Why haven’t you paid rent and you’re three weeks late?” “Well, your maintenance guy was in here and look at this bar tab.” I never want to have that conversation. So even my kids who are now 19 and 17, they are always with me hanging around the shopping center, and I have tenants who try to give them stuff, and they know that they’ll be in big trouble if they take anything for free from one of my tenants. But tenants would offer it, for sure, to get on your good side. It’s just a policy that I have to not accept it.

Theo Hicks: What does your day to day look like now compared to when you first started doing this? What types of things do you do now in the business as opposed to what you were doing when you first got started?

Beth Azor: So when I first got started, I would prospect by going store to store, and I still do that, but now I do more Facebook and Instagram prospecting, because I can get through to the gatekeeper so much faster. So back 30 years ago, there wasn’t such a thing as Facebook and Instagram. So I would just literally go hit 40 stores a day, go knocking on stores saying, “Hey, I own shopping centers in the area. What are your expansion plans? Do you want another location? Do you want to reload?” I still do that probably only about once or twice a month, and every day I prospect with social media and Facebook.

The responses that I get, I’ve never, in 35 years of doing business, have seen the response I get from Facebook and Instagram, social media prospecting, because you’re bypassing the gatekeeper. 90% of the businesses that have Facebook and Instagram pages, those pages are monitored by the business owner, because if someone’s complaining about the business, they don’t want their store clerk or their gatekeeper to see that and potentially erase it. They want to handle it themselves. So you can prospect them through direct message on Facebook, and it’s crazy. It’s about a 40% response rate within 24 hours, and of that 40% that responds, 90% will say, “No thank you,” and one or two of the responses will say, “Where is your property? Send me more information.” It’s just remarkable.

Theo Hicks: It’s interesting. So it’s worked for a Starbucks, for example?

Beth Azor: The Nationals, it’s a networking thing. So 90% of the Nationals have what’s called an exclusive tenant rep broker, and they are a local person who knows the local market knowledge and they hire them. They don’t pay them anything because we the landlords would pay the broker if we did a deal, but the landlords choose them as their exclusive representative. So if I wanted to do a Starbucks deal, I would know that this guy Don in our market reps them and I would call up Don and say, “Hey, I’ve got a new deal. I just bought a piece of land. I’m going to develop a shopping center. Starbucks isn’t anywhere around here. What do you think? Are they looking in this area?” And then Don would say, “Yeah, that’s definitely in our path of where we’re looking,” and I would be doing the deal with Don. Eventually, the real estate manager would come in and maybe I’d meet them on a site tour if I didn’t already know them.

So you collect those acquaintances and those connections by attending shopping center conferences. Before COVID we had a lot of those. You could literally be at a conference every other month and that’s where you’d shake hands in the old days and meet who’s repping who and who works for who. So simultaneously, you’re canvassing the locals to fill the local spaces and you’re collecting your connections of the people who work for the Nationals so you know who to call if you have an opportunity that you think would be good for them.

Theo Hicks: For someone who wants to get started in this shopping center, retail niche, what’s your best real estate investing advice ever for that person?

Beth Azor: Try to offer to work for free to a shopping center owner that owns properties, versus a broker. So if you’ve go to work for a brokerage firm, you’ll be responsible to have to go get your own listings, which is very, very difficult. But if you could find someone who owns six shopping centers like me or 20 shopping centers or 100 shopping centers, and anyway you can get in there– I have kids from college that come and shadow me all the time, and I always tell them, “Shadowing leads to internships and internships leads to jobs.” So if retail is something of interest, start figuring out who in your market owns the shopping centers and start knocking on their door. You certainly need to have a real estate license to be a leasing agent, but leasing is the future. I say to everyone always that go, “How did you end up owning six shopping centers?”, “I started as a leasing agent.” If you can figure out how to fill vacancies, you’re very, very, very valuable; very, very valuable. So be that person, learn how to fill a vacancy, and then the rest will be very easy.

Theo Hicks: And then a few other ways to fill the vacancies of what you talked about – social media for small business and then finding that Don in your local area for nationals.

Beth Azor: Exactly, exactly.

Theo Hicks: Perfect. Okay, thanks for sharing that. Alright Beth, are you ready for the Best Ever lightning round?

Beth Azor: Sure.

Break [00:19:05]:03] to [00:20:07]:09]

Theo Hicks: Alright, what is the best ever book you’ve recently read?

Beth Azor: So I have a book club for leasing agents every month, and last month the book was supposed to be The War of Art, but I changed it, Theo, to Man’s Search for Meaning, Viktor Frankl… Because we’re all going through a lot, and I think state of mind and perspective is crucial. So that was the most recent book that had a lot of impact on me because you can’t compare what we’re going through to the Holocaust. But sometimes when you’re stuck in your house for two months with kids and your business is severely being impacted, you can go down into a deep place. So I had about 100 people on that book club call and we all agreed that it was the perfect book to switch to in this time. So I’ll say that one.

Theo Hicks: Yeah, The War of Art. Make sure you definitely revisit that one. That’s one of my favorites.

Beth Azor: Cool.

Theo Hicks: Steven Pressfield, right?

Beth Azor: Yeah, I moved it up to September, I think. Yeah.

Theo Hicks: That’s a very solid book. Alright, if your business were to collapse today, what would you do next?

Beth Azor: Wow. Move to Hawaii.

Theo Hicks: There you go. I guess you can take your own rowboat right now. You can’t really fly there.

Beth Azor: Yeah, exactly. I’d have to wait, yeah.

Theo Hicks: Besides your first deal and your last deal, what’s your best ever deal?

Beth Azor: Buying the strip club. So I say I bought a strip club and built a strip center, and the city loves me for it. So I get more than my neighbors do because it helped clean up the city.

Theo Hicks: There you go. On the opposite end, what is a deal you lost the most money on? How much did you lose and what lessons did you learn?

Beth Azor: I bought a Winn-Dixie shopping center. We did a Staples office supply. I bought Winn-Dixie. They went bankrupt so I bought their lease. We spent $1.2 million. We had done the Staples lease at 20 bucks a square foot and thought, “Wow, this is awesome. I could probably get the Winn-Dixie at $15.” We never leased the Winn-Dixie. We were never able to lease it. Even though in the beginning, we had Walmart looking at it and a lot of people– I think my arrogance and my confidence in leasing the Staples so quickly at such a high rent blinded me. So once we had got control of the Winn-Dixie, I thought I could get $15, when I should have probably been happy and taken Walmart’s number at about $8 to $10. But my partner and I just believed that market knowledge was key and we just did the staples for $20, so certainly, we could get $15. And we ended up giving the keys back to the bank three years later. We had a balloon mortgage. The note was $16 million. We told the lender we thought it was worth $12. They said we can’t negotiate with borrowers, so we handed the keys back and they sold it later to someone for $12 a year later, and personally, I lost about a half a million and my partner lost probably about 5 million.

Theo Hicks: I had to ask you this earlier… Very quickly, how are you funding these deals?

Beth Azor: So the smaller ones I do personally, just with income from the other properties that I’ve saved up or just earned, and some I do family and friend money. I used to do institutional. That deal that lost the 5 million was BlackRock, an institutional partner, and after that deal, I said, “I would not buy properties that big anymore and have to have clients like institutions,” because I was happy to have them at the time, but it was a difficult relationship, obviously, near the end. So I decided smaller properties with family and friends.

Theo Hicks: Perfect. Okay. Another lightning round question. What’s the best ever way you’d like to give back?

Beth Azor: Well, currently I’m doing something called the Small Business series, and I’m interviewing small businesses and posting the interviews on my website and on my YouTube channel, and I’m trying to promote small business because they need it. Every time I call and ask if they want to be interviewed, they go, “What’s the catch or how much?” Nothing. I want to get the word out that you’re the best nail salon in town, or the best rib guy, or the best personal fitness gym. It’s been so rewarding, and they’re getting business from it, and it’s just been great. So right now, that’s my best way of giving back.

Theo Hicks: And then lastly, what’s the best ever place to reach you?

Beth Azor: Probably LinkedIn. Beth Azor on LinkedIn, but I’m also on Facebook, on Instagram, and my website bethazor.com. So type in Beth Azor, you can find me.

Theo Hicks: Perfect, Beth. Well, I really appreciate you coming on this show. I can’t believe this has been only 20 minutes. We’ve gotten so much information about retail shopping centers in just such a short amount of time. So we started off by talking about some of the challenges you’re facing with the Coronavirus. So we talked about how that’s different at the mom and pops, as opposed to national tenants. You talked about how you’re trying to delineate your days, so you’re not having this emotional rollercoaster anymore of talking to mom and pops who are very upset and national tenants who are not being as friendly as they probably should be. Then we also transitioned to talking about your business plan. So you’re buying and developing every two years. You really like to hold on to your property; the longest one being in 2008. We talked about the two main reasons why you like retail shopping centers. My personal favorite being the second one, which is you don’t want to own anything that has a bed because you don’t want to evict someone from their bed. I think it’s a really good philosophy.

We also talked about reasons why it’s not smart to take any discount or concession from your tenants because they might use that as an excuse to not pay rent. We talked about how your prospecting has changed from a lot of door knocking to now doing it on Facebook and Instagram for the small businesses, and then it’s still the local brokers that you meet at the shopping center conferences for the national accounts. And then lastly, we talked about your best ever advice, which was if you want to get started in retail shopping center, find someone who owns a center and either shadow them or be a leasing agent and help them fill vacancies, because you said that being a leasing agent is going to be the future, and if you can help owners fill vacancies, then you’re gonna be very valuable to them. So again, Beth, really appreciate you coming on the show and sharing your best ever advice. Best Ever listeners, as always, thank you for listening. Have a best ever day and we’ll talk to you tomorrow.

Beth Azor: Thanks, Theo. Thanks for having me.

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JF2190: Begin With House Hacking With Anthony Angotti

Anthony started out house hacking and after some time he met some business partners to begin investing in apartments. When he first started out he took the initiative to do the renovations himself so he would be better equipped for future deals when hiring help. Now he hires help rather than doing it himself since he now owns 76 units.

 

Anthony Angotti Real Estate Background:

 

 

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Best Ever Tweet:

“In the beginning, I was the handyman, leasing agent, I was everything while working a full-time job. If I would have outsourced sooner, I would have been able to leave my job much faster” – Anthony Angotti


TRANSCRIPTION

Theo Hicks: Hello, Best Ever listeners. Welcome to the best real estate investing advice ever show. I’m Theo Hicks and today, I’m speaking with Tony Angotti. Tony, how are you doing today?

Anthony Angotti: I’m doing fantastic. How are you?

Theo Hicks: I’m doing fantastic as well. Thanks for asking and thanks for joining us. Looking forward to our conversation. Before we get into that, a little about Tony – he’s a full-time realtor and investor with five years of experience, has a portfolio that consists of 76 units. He is based in Pittsburgh, Pennsylvania, and you can say hi to him at angotti.realestate@gmail.com. So Tony, do you mind telling us a little bit more about your background?

Anthony Angotti: Yeah, sure. I got started with house hacking. So that’s how we got started. We moved into an REO duplex, fixed up one side, lived in the other while we fixed it up, took that, repeated that a few times. We moved from duplex to duplex to duplex. But in the meantime, I met some business partners that were actually realtor clients when I first met them, and we started moving more into the apartment rental space. So we started buying small value add apartment buildings, and that’s how I’ve grown over time.

Theo Hicks: So when you said you move from duplex to duplex, did you continuously house-hack every single year?

Anthony Angotti: We have three, so a couple lasted a little bit longer, but we still live in the third one. My wife and I plan to probably do one more before we get sick of moving. Moving that much is quite the endeavor. So we’ll probably do one more this way and then move to a more traditional single-family house after that.

Theo Hicks: Would you mind telling us the numbers on that first house-hack that you did?

Anthony Angotti: Yeah, sure. So our local market wasn’t as hot at the time as it is now. Pittsburgh, the market’s been a lot more competitive. So we found an REO side by side, three bedrooms both sides, each one had a garage. So it was a pretty nice setup, pretty solid building outside of the repairs we needed to do. We bought it for $155,000, and then we used a 10% down portfolio loan on that. So with a local bank, it was an owner occupant loan, but we didn’t FHA or anything with that one. And then we did all the work ourselves other than there was a repair to the sewer line, and all the initial repairs cost around $15,000. So I don’t know if you have any questions on that specifically, but I could just go into the rents and stuff too, if you want.

Theo Hicks: Yeah. So you said you did all the repairs yourself. You did all the labor yourself?

Anthony Angotti: Yeah, yeah. Bought the materials, did a lot of the labor. That was a super beneficial experience to me because I learned a lot. I wasn’t particularly handy before. My father was helpful and YouTube was exceptionally helpful, but I had no real experience. By training, I’m a microbiologist. So it’s not like I came from a contractor background or something. But by doing that work, it really helped me understand what goes into projects, which then has led to a lot of benefit where I am now, because now I don’t do any of the work. But when I talk to contractors about different jobs or repairs or things, I’m a lot more knowledgeable because we’ve done that thing.

Theo Hicks: Did you just do the repairs yourself in that first house hack, and then after that contracted all that out?

Anthony Angotti: The house hacks – because we did three that way – each one that we did that way, we’ve done most of the repairs hands-on, at least for the unit that we lived in. For the properties that I didn’t live in, other than a couple at the beginning, we hired everything out. The apartment buildings, I haven’t really done any personal work in. But some of the smaller buildings at the beginning, that’s what we did, because we didn’t start with a ton of money, so it would have been very difficult for us financially to pay somebody to do every little thing.

Theo Hicks: What was the rent you demanded for the other three-bedroom and then about was the rent that you demanded for your unit once you moved out?

Anthony Angotti: So at the time, our total rent with garages is around $2,550 a month. Each apartment, before pet fees, they rent for $1,200 a month now. At the time, I think we rented the other side for $1,050, but the rents have gone up since then. And then we rent our garages separately from the tenants. So we pull in different rents for those.

Theo Hicks: So you rent the garages to someone else?

Anthony Angotti: Yeah. They’re detached garages, so I actually have a contractor that rents them. It’s my painter. He rents that from us, which is a pretty nice extra revenue source. It’s just on the back of the property, so it’s not like it’s connected to the tenants’ unit. It’s a totally separate thing. We’ve actually done that with a lot of our properties, because in Pittsburgh, there are quite a few properties that have detached garages and tenants are generally used to street parking. So since the market doesn’t dictate having off-street parking, we’ve usually just used the detached garage as an additional revenue source.

Theo Hicks: Is that something that you just proactively asked your contractor, your painter, if they needed a place to rent, or did they come to you, and then that’s how you got the idea?

Anthony Angotti: For that particular one, my painter actually lives on that same street. So I was just talking to him and he was talking about he needs a place for his stuff and I said, “Well, you can rent my garage. I’ll charge you $100 bucks a month for it,” and that’s what he did. But I did think about that initially as what I was going to do, and we’ve had good luck just renting them on Facebook groups for contractors. I’ll just join a contractor group on Facebook and list it for the area, or Craigslist or stuff like that. We found pretty good luck with that on the other ones.

Theo Hicks: Nice. And then last question about the house hacking before moving to the apartments. You said that you got a 10% down portfolio loan. Is there a reason why you didn’t pursue the lower down payment 3.5% FHA loan or one of the 203k loans that would include the rehab costs in the financing?

Anthony Angotti: I think, at the time, we had already just engaged that lender and I was brand new, so I wasn’t hooked up with a mortgage broker or anything; I just knew that bank. Additionally, that 10% down loan didn’t have PMI or anything because the bank kept it in-house. So if I would have done an FHA, I would have had PMI until forever unless I refinanced the mortgage insurance, if people aren’t familiar with the abbreviation. So we went with that, and the rate was a little bit higher, but the underwriting of it was nothing. Our documents we signed at closing were probably 15 pages. So compared to a secondary market loan that they sell to Fannie or Freddie, our underwriting and our document package was nothing. So it was a super easy loan. There were repairs on the property. There was a cracked vertical sewer stack, so that would have never passed FHA or something, and the bank was the one selling it, so there’s no way we would have got that repaired prior to closing. So that wouldn’t have been an option for us.

Theo Hicks: This portfolio lender – did you use them for all of your house taxes and also these apartments?

Anthony Angotti: We used them for the second house hack. We did FHA for the one we currently live in. I used that bank’s commercial division for some of my apartment buildings, although I do have other banks that I use, too. We have maybe three main local commercial lenders that we use for our apartment buildings.

Theo Hicks: Perfect. So let’s talk about the apartments. So I guess my first question is what’s the biggest apartment that you have?

Anthony Angotti: 10-units. So we focus primarily in smaller buildings. Two reasons. One is that’s what’s in Pittsburgh. There aren’t a ton of large apartment complexes. There are some, but they hardly ever come up for sale, and they’re just not very prevalent. Most of the apartment buildings are going to be in the 5 to 20 unit range, but that’s the biggest one that we have right now.

Theo Hicks: What was the second reason?

Anthony Angotti: Just how frequently you encounter them in the market. There just aren’t a ton, especially because we keep our portfolio pretty geographically tight. So it’s not Pittsburgh as a whole. We focus primarily around where I live. We can touch on it a little bit, but our strategy is to in-source everything. So we have an in-house property manager, we don’t have a third party company. We also are hiring an in-house handyman… So we try to keep our portfolio hyper-local to cut down on their windshield time, so they don’t drive as many places.

Theo Hicks: So let’s talk about the 10-unit deal. So the same run that you gave me for the house hack – How’d you find it? What were the numbers, and then what was the business plan?

Anthony Angotti: So the first one that I did was a 10-unit. It’s set up a little bit like a complex. So there’s actually a 5-unit building, 4-unit building and a little house all on the same parcel. So the way that we found that was actually… I have a few different partnerships. The one partnership that I worked with here, this building is a little bit further away from our normal geographic range, but the current owner was somebody I used to work with. So we’ll talk about it too later, but one of my biggest piece of advice is just to tell everybody that you know that you’re in real estate investing, because you never know where the next lead comes from. So this was just a former coworker and he had an apartment building that they were way under renting. So the market rent for the units– right now, we get $750, but he was renting everything between $350 and $400 a month when we bought it.

It was funny, because I told him what the market rent was, I was transparent with him, and I was like, “Why are you only getting $350 or $400 on this?” He said, “Well, we like a certain type of tenant and we fill it really fast when it’s like this.” And I said, “Okay” Then I found out later that the only place he was marketing his apartments was in the newspaper. So he was still just posting newspaper ads. That was the only way he was finding tenants, which explains why most of the tenants there, they’re all social security type tenants. They all just get their security checks, which is nice.

But we bought that for — I believe, it was $255,000 was the price… $255,000 when we bought it, and then part of that in first position was a commercial lender and the second part of it was seller-financed. So I believe about 70% of that is through the bank loan, and about 30% of that is the seller finance. So that’s the purchase info on it.

Theo Hicks: And then was it a turnkey type of deal, or you just took it over and turned the units over, or was there some renovations that needed to be done?

Anthony Angotti: There was nothing immediate that was pressing. However, like I said, when we purchased it, everything was super under rented. So our strategy when we went into it was to get everybody up to at least $600 a month. So we sent everybody, right after we bought it, a letter, everybody that lived in the building. They were all pretty decent tenants. There were no troublemakers in the building when we bought it. But we just said, “Look, we bought the building. All of your rents when your leases are up, they’re going to $600 a month. If you want to stay, that’s great, as long as you pay the rent. If you want to move out, we gave you plenty of notice. You should have time to find a place. All good there.” Over time, we’ve had five people leave, and we’ve just been renovating the apartments as they’ve left and our rent’s now, like I said, are around $750. I think all of them are $750 for all the ones that have left. So we have five tenants left at $600 and five tenants left at $750.

Theo Hicks: And then I don’t know the exact number, but I’m just curious… Let’s say you bump the rents up by $150. How much money did you invest into those units to get that $150 rent bump?

Anthony Angotti: Depending on what we’ve done, because the building does have older wooden windows, so on a few of them, we’ve taken the opportunity to replace the windows… But we’ve spent anywhere between $5,000 and $8,000 per unit. The units were in pretty good shape. They pretty much just needed paint, flooring, appliances, basic bathroom reno, just a surround and some paint and a ceiling fan, and then the kitchen was just painting cabinets, new countertop, that sort of thing. So it wasn’t a very expensive turn.

Theo Hicks: So you mentioned– and I hope this isn’t your best ever advice. I want to focus on this a little bit. So you mentioned that one of your good piece of advice is to tell everyone you know about investing in real estate, because you don’t really know where your next lead is going to come from. Have you ever done a deal off the MLS, or have all of your deals come through these word of mouth types of referrals?

Anthony Angotti: Well, the one I just mentioned was off MLS. A lot of what we do is off-market. Now, at this point, we send out a lot of mail and stuff like that, so we get a lot of leads that way too. But most of my smaller buildings, most of the house hacks that I’ve done– actually, all of those have been on MLS deals. That’s nice for me because like I said, the most recent one we did, we used an FHA loan. I’m also a realtor, so I got my commission. So this place was a free house. We used our seller assist and I got my 3% commission, so we’re out half a percent for down payment, so that’s pretty sweet.

But most of our buildings have either come off-market through our own efforts, whether it was mail or networking, or off-market through broker relationships. So we’ve had a few that came just commercial broker pocket listings that way. I don’t know that we bought any apartment building that has been publicly listed, to be honest.

Theo Hicks: And then the last question before the best ever advice, going back to the house hack. I house hacked, but I was single. Were you married for all of these house hacks?

Anthony Angotti: We were together.

Theo Hicks: Maybe give people some advice on how to navigate doing a house hack when you’re married, when you’re living with someone else.

Anthony Angotti: The funny thing about it is whenever we were renting, we were probably ready to get married then, and I was not thrilled about working for somebody else. It wasn’t really even a problem with a specific job, I just didn’t like it. So my wife just was introducing me to different things, and she introduced me to the Bigger Pockets podcast. She was like, “Hey, maybe this is something you could do to quit your job,” and I think the first episode I listened to was about house hacking. And then I told her– I was like, “Look, we have money to do one of two things. We can either get married or we can get this place and live for free.” Initially, she was obviously like, “Well I don’t know about renovating a house. I’d probably just get married first.” Then I said, “Well, just think about it for a week. Let me know.” After she looked at the numbers of that, she came to the same conclusion that I did – that you just save so much money that it can accelerate everything else in your life financially. So that’s what led us to do that the first time. I was just showing her the benefits, and also at the same time saying, “Well, we can still get married, but when we do get married, we’re gonna be in a way better place financially.” So for her, she’s been supportive from day one, so it wasn’t super difficult. But I think that having her see all the benefits financially of it was the biggest thing that helped her get on board with it.

Theo Hicks: Thanks for sharing that. Alright Tony, what is your best real estate investing advice ever?

Anthony Angotti: My best advice ever is to just not wait to outsource your tasks. So I think personally, I waited to hire somebody to help me for way too long. We’ve grown fairly quickly in five years, but I probably could have been, at this point, quit my job way sooner had I just hired out a lot of the stuff. At the beginning I was the handyman, I was the property manager, I was the leasing agent, I was everything, and I was also working a full time job. So my time to focus on growth, both of the portfolio and personal growth was just non-existent. So I think outsourcing, whether that’s to an employee or a third-party manager, third-party handyman, whatever, you’ll see double the return in income easily over what it costs to actually pay that person.

Theo Hicks: What’s the first thing people should outsource?

Anthony Angotti: If you’re self-managing, I think probably property management is the first thing that you should outsource, unless you have one or two properties. But once you get past two properties, you have to take management off your plate.

Theo Hicks: Okay. Are you ready for the Best Ever lightning round?

Anthony Angotti: Yep.

Break [00:18:57]:03] to [00:19:59]:07]

Theo Hicks: Okay, Tony, what is the best ever book you’ve recently read?

Anthony Angotti: Best ever book that I recently read was actually The Millionaire Real Estate Agent. So it’s not geared specifically towards investing. Like I said, I’m also a realtor. That’s by Gary Keller. The thing that I took away from it the most was just, like I said, about outsourcing, about building a business that works for you and you’re not so much working inside the business. So that advice really resonated with me. I believe he also has a book, Millionaire Real Estate Investor, that’s a little bit more specific towards investors. But that book was very useful for me.

Theo Hicks: If your business were to collapse today, what would you do next?

Anthony Angotti: Start building it again.

Theo Hicks: Very simple. Alright, what deal did you lose the most money on? How much did you lose and what lessons did you learn?

Anthony Angotti: We haven’t had one that’s lost significant money yet. The one that we’re currently in, the house hack that we live in now, was pretty costly. I did it because it was the last deal that I used my W2 income for before I quit my W2 job. So I would say that just being a little bit more patient to find a deal was what I learned from that. It’s not going to lose money long-term, but it’s definitely not super profitable.

Theo Hicks: On the flip side, let’s talk about the best ever deal you’ve done, and this is the deal you made the most money on whether it’s in rents or equity created.

Anthony Angotti: Oh, so the deal that I made the most money on… Probably that 10-unit that we talked about. We easily added just in expense reduction and income creation, over $175,000 on new value, and our cash flow is pretty ridiculous right now. I don’t have it up in front of me, but when it’s performing– it varies month to month, but we make easily over $2,500 a month in cash flow on that one. So that’s a pretty good one.

Theo Hicks: What’s the best ever way you like to give back?

Anthony Angotti: To the investor community, I host investor meetups locally, and I think even though the business benefit from that has declined a little bit the more business I’ve done, just helping everybody out with questions and their deals and stuff, if that’s useful. And then just in the general community, I coach ice hockey. I played ice hockey in college, so that’s something that I like to stay involved in.

Theo Hicks: Nice. So then what’s the best ever place to reach you?

Anthony Angotti: I just started a podcast called Be Free RE. You can find us on any of the platforms, but the unique thing about our podcast is that we actually answer listener questions on air. So people can call in and leave a voicemail, we play your voicemail on the show and then answer it. The number for that is 412-212-8366. And then if people want to reach out individually– I’m sure a lot of your listeners are on Bigger Pockets, so I’m on there as Tony Angotti, and then they can find me there.

Theo Hicks: Perfect. Best Ever listeners, definitely take advantage of that whenever people give out phone numbers or email addresses. Alright, Tony, I really appreciate you coming on the show. I always love talking about house hacking, because I did it and it’s always interesting to hear how other people have navigated that interesting strategy especially when it’s–

Anthony Angotti: It’s the cheat code to life; financial life, at least. It’s the biggest cheat code you can do to fix your finances.

Theo Hicks: Yeah, it really is. So you went into detail on the first house hack that you did. We went over the numbers. We also talked about how you were able to do all the repairs yourself, except for obviously that sewer line by using YouTube, as well as help from your dad, and that’s been beneficial to you when talking with contractors on future deals. You talked about how you were able to rent out the detached garages to someone who wasn’t the tenant for extra source of income, then we transitioned in talking about your apartments where you focused on that first deal and how you were able to increase the value substantially because of the fact that the rents were so under market rent. You learned to focus on the smaller buildings because of the supply in the area and you also like to make sure that everything is in-house, so you’re hyper-focused on a certain area so people aren’t driving around all the time.

And then you also gave us some advice on how to find the deals and that’s telling everyone you know about what you’re doing in real estate, because you never really know where that next lead’s gonna come from. You gave us advice on how to do the house-hacking when you’re married or dating someone and it’s really just explaining the benefits to them, and letting them agree and come to the conclusion that it’s a good idea themselves.

And then lastly, your best ever advice, which was not waiting too long to outsource some of the tasks like property management, leasing, doing the repairs yourself, things like that. So Tony, I really appreciate you coming on the show and sharing your advice. Best Ever listeners, again, make sure you take advantage of his offer to answer some of your questions on the podcast. Definitely call into that number. Thanks for listening as always. Have a best ever day and we’ll talk to you tomorrow.

Website disclaimer

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

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

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

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

Oral Disclaimer

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

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JF2189: Important Factors When Deciding to Sell Early With Jason Yarusi #SkillsetSunday

Jason is a 3-time great guest who has delivered valuable information to all of our listeners and he is now back with some new information to share. His previous episodes are  JF1157, JF1538, and JF1788. In this episode he will go over his recent 94-unit project and why he ended up selling even though it was doing so well.

Jason Yarusi Real Estate Background: 

  • Founded Yarusi Holdings, a multifamily investment firm with over 800 units under management
  • The host of “The Multifamily Foundation”
  • Has a family construction business focusing on raising and moving structures
  • From Westfield, New Jersey
  • Say hi to him at:https://www.yarusiholdings.com

 

 

Click here for more info on PropStream

Best Ever Tweet:

“How you lay out your plan to your investors is vital and can either create confidence or uncertainty” – Jason Yarusi


TRANSCRIPTION

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

Jason Yarusi: Doing great. Hey Joe, thanks for having me back.

Joe Fairless: Well, my pleasure. And I said again, that’s because Jason’s been on the show a couple of episodes – Episode 1538 and Episode 1788, and on a previous episode, Jason talked to us about a 94-unit that him and his team purchased with investors, and it returned a lot of equity. Jason, when you talk about — you can fill in the gaps on how much equity was returned… And you did a refinance on that deal, with the intention of holding on to it for a period of time. But – newsflash, he did not hold on to it for a period of time, or a longer period of time, I should say. Instead, he decided to sell it.

So the purpose of today’s episode is to talk about how do we think about the decision of should we hold on to this longer? What are the pros, what are the cons, versus selling it and exiting out of the deal if the deal is performing? So what are the things to consider? So a little bit about Jason – he founded Yarusi Holdings, which is a multifamily investment firm with over 800 units under management; he’s the host of The Multifamily Foundation, he is based in Westfield, New Jersey, and the website is yarusiholdings.com, which is in the show notes. So Jason, do you want to just give a refresher on the 94-unit, so we’ve got a little bit of context? Best Ever listeners, you can go back, there’ll be links in this show notes for the previous episodes, so you can listen to those episodes if you want to refresher… But can you give us a refresher, and then let’s go right into the thought process?

Jason Yarusi: Absolutely. So we bought this property back in May of 2017. It was our first large acquisition going from a three-unit to this 94-unit. So it was the first property that we brought through syndication with our team. It was a great find. We found it through – we’ll call it a distressed owner; but the owner had passed, his kids were now running the deal, and they really didn’t want to be in this industry; they don’t live in the state. So it was a prime product to really go in there and just improve the efficiencies of the property.

The buildings themselves were in good shape, but we were able to add a lot of value really just through capturing the loss to lease, getting rent bumps up to really a $100 to $125 per unit based on just the properties right across, and we did a number of savings programs on the property that we talked on prior episodes.

After month 13, we had knocked out really a majority of the business plan. It was really month five or six that we had knocked out a big portion of all the cap ex than we had planned on that, taking really conservatively between month 14 and 18… But really just got in there, knocked it out, and by month 13, we were able to refinance the property and pull out about 75% of the capital back to investors.

So our plan and our thought process was great. The property was optimized, we were just turning the units, just capturing really on turning it to classic units going forward. It wasn’t an area that really called for premium units. So that’s what we continued to do, and really just improving on making this a better place for people to live. And we were accomplishing on that and we were building it through.

What came up though, is that there was a large property around us, and that large property has about 284 units, and that really dictated the way the area was going. So one thing is that that submarket couldn’t warrant RUBS, but because that owner had decided against it, he was controlling the narrative. He didn’t want to do it. It wasn’t in his game plan. So other owners who had tried, who had smaller properties around it, were really getting hit back because tenants were saying, “Well, I could just go over to competing property that wasn’t having this with the billing system for the property.”

That property, he started going in there and doing premium upgrades and capturing some of the rent; then pretty quickly, he put the property up for sale, and it took a minute, but he sold it at a pretty astonishing price point; just really the market had grown so much and the path of progress was coming right down the pipe that we caught really just the wind of it moving along with us. So he sold this property at a very high price point, and that price point alone really would serve well for our property.

The biggest difference is he had a lot of two and three-bedrooms, where our property was predominantly one bedroom. So it was about 83 one-bedrooms, 11 two-bedrooms. But looking at the market and looking at where we were, we just had to give it a hard thought here. This was the best comp that was gonna be there for us; and when we took it over, that owner was a lifer owner, he had no intention to sell. So we really said okay, then we can track off that owner. But when he sold, he sold at such an attractive rate that we had to take a really hard look at our property, size down what we thought we could do and where we can go from that.

We had never had it in the business plan to do premium units. We didn’t capitalize for that and we were continuing to roll the property, doing classic units; we had turned about 65 of the units. So with that and with the way the market had grown, where cap rates were compressed and there was still very attractive debt, we decided that we were going to really just soft touch it to the market.

We didn’t list it, we didn’t put out there, but I had a number of connections where I reached out to about ten people and just said, “We’re considering listing this property. We want to give you the first opportunity to have a look.” What we found was because you could get really attractive debt and you had 94 untouched units that can now be turned to premium units, and it was not a lot of heavy lifting on the property, that we had six offers come over. So we knew we were moving in the right direction.

Looking at that, where we would sell at that point, we exceeded our investor expectations over a seven-year hold. So weighing on this cost and looking at the uncertainty that where we are, it makes us look great today, but where our thought process was that in year seven, we wouldn’t have this good comp, and ultimately how attractive things are today that we probably wouldn’t have the best market conditions, so now would be the ideal time to test the market, which we did, and we had a very attractive number.

Joe Fairless: Did you work with a broker?

Jason Yarusi: It ended up that I did work with a broker, but it was never listed. It was actually the same team who represented the seller when we brought it. I’d worked with them on other transactions and I reached out to them and talked to them about the potential of listing this, and he brought a buyer to the table.

Joe Fairless: Sometimes I get a question from our investors whenever we have an opportunity, and they ask, “Well, if the property’s doing so well, why are they selling it? Why don’t they just upgrade the units like you’re going to upgrade the units?” You have explained in your business model, you just didn’t have in the business plan to do those premium units. So you would either have to allocate some money from a refinance or supplemental loan, or you’d have to do a capital call, or you’d have to do a personal loan to the property in order to do that business plan. So you had a performing property, but you just had a different business plan than the buyer, right?

Jason Yarusi: That’s correct, and what I felt is that with this business plan being to simply go classic, that it did lead to a very attractive narrative for us to have a talk track for other buyers. So we could, but then it gets into us going through cash flow or going through reserves or just changing really the landscape of the property. But I also didn’t feel that this area, although two and a half years really could make a big difference in an area, I didn’t feel that the growth of this area could warrant 94 premium units and have all this go on and another 284 units going on where they were hitting all these rent bumps, and that the hard capture here is you have to think, “Okay, so if we do premium units, this is not 100% change of the model. How many tenants are coming in this area that can afford these rent bumps?”, and that would be a pretty big change to our existing tenant base, and we didn’t want to have to go through that hiccup where we’re going to have some delta between the vacancy levels just to get those rent bumps. We felt this was an ideal time that another bullish buyer would come on board, they’d be able to implement this business plan, and we’d be able to get the cash out to our investors at a very attractive rate.

Joe Fairless: Were there any discussions about doing one or two rent premiums renovations to prove that that business plan would work at your property?

Jason Yarusi: Actually, no. It moved so quick and I made a quick decision that I didn’t want to go through the process there just for any reasons, because I set my mind that this was the right time, and for whatever reason, I just moved quick on it with the prospect of it happening.

Joe Fairless: From a return standpoint with your investors, how do you think about that? …Because there might be one or two of your investors or a small percentage of them who say, “Well Jason, we’re doing so well. We just killed it on this refinance. Why don’t we just hold on to this puppy for the long run? What’s the rush?”

Jason Yarusi: Funny enough, I actually did not have any feedback in that response from any of the investors. I think because the way I laid it out, I said, “Listen, I feel that this is our best comp and this isn’t going to be available again for us in four years. I also feel that the market conditions are the most favorable we’ve seen them, and just to think that we’re gonna have another four-year runway here would not be a conservative thought process for me. So I’m making this decision that we’re going to move forward to sell the property.” Another point is that, it’s not like when we sold the property we were at a big lag on where the potential returns would be. We actually were right at where our multiplier was going to be on a seven-year hold, and we just crushed the IRR from where we were. So there wasn’t much pushback from any level on the investor side.

Joe Fairless: Anything else that you think we should talk about that we haven’t talked about as it relates to the thought process you had when thinking about this decision to sell early?

Jason Yarusi: Yes, I would definitely talk to legal. I would definitely talk to your accountants. You want to know where it falls from responsibilities here. Also, we had done a cost seg study with the thought process that we were going to hold this for the long run. So you want to see what the effect’s going to be and how that’s going to trickle down, not only to you but your investors overall.

You also want to have a survey with your investors too, because the narrative has to be that if we’re going to give them back a chunk of money, they’re gonna have taxes they’re gonna pay, but ultimately they may not have another opportunity to put it into. Maybe they’re fine with that, maybe they’d like to have money back into their pocket, but ultimately, you want to make sure it’s not putting a large part of your majority base in some difficult position. But the group was very excited about it. They were very opportunistic about what’s going forward next and where we stand today. It put us in a good light that we’ll be ready for future opportunities quickly as they come about.

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

Jason Yarusi: Go over to yarusiholdings.com, like you said. If you want to see me run 100 miles, 37 miles, somewhere in between pretty frequently, go over to @jasonyarusi at Instagram. I run a lot, and we usually track it in some fashion, and we actually encompass The Multifamily Foundation podcast into our parent podcast; we almost called our channel now The Jason and Pili Project, because we were finding we were doing so much fitness, self-development, mental fortitude along with the real estate that we really just wanted to bring that to the masses.

Joe Fairless: Jason, I love following you. I’m not on Instagram, or I personally am not. I think my team on my behalf is on Instagram, but I personally am not, but I see you on Facebook and we were talking before just how much of an inspiration you are for others and myself. I love seeing what you’re doing from a fitness standpoint and just from a mindset standpoint. So thanks for sharing with us the thought process, congrats on this deal and talking to us about the different components of what we should consider prior to moving forward or not moving forward with the sale early. So thanks for being on the show. I hope you have a Best Ever day and talk to you again soon.

Jason Yarusi: Thank you.

Website disclaimer

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

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

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

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

Oral Disclaimer

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

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JF2188: Fake Rent Checks With Jack Gibson #SituationSaturday

Jack is the President & Co-Founder of High Return Real Estate and also a returning guest from episode JF1252. Before he started into real estate, Jack started off by selling products for a multi-level marketing company, taking him 9 months to make his first commission check of $14…and after sticking it through and learning the business his business is now generating around 20 million in sales. In this episode, he goes into a sticky situation that he recently ran into by working with a company and finding out he was receiving “fake” rent checks.

Jack Gibson  Real Estate Background:

  • President & Co-Founder of High Return Real Estate
  • Returned guest from episode JF1252
  • Portfolio consists of 80 turnkey properties
  • Based in Indianapolis, IN
  • Say hi to him at: https://highreturnrealestate.com

 

 

Click here for more info on PropStream

Best Ever Tweet:

“The number one lesson I have learned is to trust, but verify” – Jack Gibson


TRANSCRIPTION

Theo Hicks: Hello, Best Ever listeners. Welcome to the best real estate investing advice ever show. I’m Theo Hicks and today, we are speaking with a repeat guest, Jack Gibson. Jack, how are you doing today?

Jack Gibson: Great, Theo. Thanks for having me back. Appreciate the opportunity.

Theo Hicks: Thanks for coming back. I’m looking forward to our conversation. So today is Saturday which means it is Situation Saturday, so we’re going to be talking about a sticky situation that Jack was in, what happened, lessons learned moving forward, so that you can apply that to your business and not get in the same situation in the future in your business. But before we get to that, let’s talk about Jack’s background. So he’s the President and Co-Founder of High Return Real Estate. Make sure you check out his first episode, which was Episode 1252, where he talks about his turnkey portfolios; right now, his portfolio consists of 60 turnkey properties. He is based in Indianapolis, Indiana, and you can say hi to him at his website, which is highreturnrealestate.com. So Jack, before we get into your sticky situation, could you tell us a little more about your background and what you’re focused on today?

Jack Gibson: Yeah, I got started in entrepreneurship when I was 19; I’m 42 now. I was going to college, living in the dorms. My parents said, “Get good grades, study hard.” They checked up on me, went to all my parent-teacher conferences in college, if that gives you any type of idea of what household I grew up in. It was great, but there was high expectations.

One day, I get this flyer while sitting in my dorm room about an opportunity to sell nutrition products in a multilevel marketing company. At first, I thought, “Man, this is probably a scam, this isn’t gonna work, how am I going to sell this?” So I just threw the flyer to the side, and then I don’t know, something hit me and I said, “Why not just take a look?” This is how opportunities are found, is that you really could just take a look and research and see. So I looked into it and I was excited. So I signed up, and that business today– it was a rough start. I think it took me nine months to get my first commission for 14 bucks. So I was selling some products and making a little bit of money along the way, but I didn’t get my first official commission check until nine months in. But from that point, I started figuring things out and that became a million-dollar business by the time I graduated college. So I’ve been doing that ever since, and now I think this year we’ll probably hit close to $20 million in sales in that operation. So it’s been amazing.

So that allowed me the opportunity with a cash flow business like that with very little expenses to be able to invest into real estate, and that’s when I started about five years ago with a turnkey property myself. So I bought from a turnkey buyer.

Theo Hicks: Perfect, thanks for sharing that. So let’s talk about your sticky situation. So I’m just gonna let you tell us what happened. Tell us your story, and then once you’re done, I will jump in with some follow up questions. The mic is yours.

Jack Gibson: Yeah, I just finished this book by Keith Cunningham, I thought it was fantastic, called The Road Less Stupid. I feel by sharing this, I’m sharing the road more stupid. But look, I’ve found that sharing transparently and sharing your successes and your failures and your mistakes and your stupid decisions and all of the bad things that happened to you along the way – that makes you more relatable. People really like that, because they probably all have their own similar story, maybe at various levels of stupidity, and have bad, sticky situations. But that original turnkey buyer that I bought from was called OceanPoint, and they sent me a mailer, and at that time, I had just done a trip into Indianapolis about three hours from my house here in Michigan, and I was looking into just buying a property that was already done and already performing. Their price to rent ratios were incredible, so I started buying up properties. I got up to 15 units with the owner-operator and I was getting really nice rent checks, over 20% returns. So naturally, we built up a really good trust, a lot of relationships with people over the last 20 years of doing business, and they know how I show up and I said, “Look, this is working for me. This is a good operation; I went in and checked it out. I’ve met him a few times, I’m getting rent checks every month,” and I started posting that on social media and just telling colleagues, friends, family, neighbors, and I sold $5 million. I referred $5 million in cash business in the first 12 months just from that.

So that was about– I don’t know how many investors maybe 20 to 30, somewhere in there, and we had about 130 units, including mine altogether. So it turns out, none of us got inspections. Maybe there was a couple of people that did and those did check out, but the vast majority of us that bought, including myself, we didn’t get any inspections. We just trusted the owner, and it turned out a lot of the rent checks were fake. So he was operating a Ponzi scheme almost, and we didn’t even realize it; none of us. So once everything crashed, and eventually that’s what happens in those types of situations; it’ll eventually crumble. They run out of money to keep paying investors, or whatever happens. Once we all realized the condition of our properties and how much they had been neglected, it was just a disaster. So everybody was looking to me to fix their situation, and I took responsibility for that. I look back now and I’m like, “Man, I ruined two years of my life taking on so much responsibility.” But that’s when you operate at a high level of integrity, you take full responsibility and just figure out what can we do? How do we get out of this?

So over the course of about the last two years, we just went back in and got contractors, fixed up all the properties, found new management, and then we found another management company after that, because the next one didn’t work… The contractors, a lot of them screwed us over again. So it’s just a really tough situation because we were left with essentially all these properties that were in bad shape, that were not performing, and we didn’t have the connections and trusted resources to be able to fix them back up and get them performing again. So it was that whole process, literally… And the bulk of it, I got done in about 24 months, and I still have my very last property today, three months later.

Theo Hicks: Wow. So Oceanpointe, how do they operate? You said that once you figured out what was going on, you got new management, you got contractors in there… So you bought the properties through Oceanpointe, and then were they also full service, they were managing it as well?

Jack Gibson: Yeah. Well, when you buy a property at a tax sale for $10,000, and then you sell it for $40,000 with a promise to do $20,000, $25,000 worth of rehab on it, then instead of doing $25,000 worth of rehab, which to get the bones of the property fixed up, which of course be the major cap-ex items – the roof, the foundation, the electrical, the plumbing, when you don’t do any of that and you just put lipstick on a pig and make it look good on pictures, and then you’re sending rent checks out, he was able to hide the lack of quality of the property. So we would look at the pictures, the pictures looked great, but what we found out later is that not one property had working plumbing or electric. Not one property was fully functional. Almost every property needed a new roof, too. So those are very expensive items, especially if you’ve already “paid for them” when you bought the property. So now you have to do that all over again. So now you have to put another 20, 30 grand into a property, and now you’re way over market value.

Theo Hicks: Yeah. Were the properties supposed to be renovated already when you bought them?

Jack Gibson: Yes.

Theo Hicks: Okay. So you were told that hey–

Jack Gibson: Well, some of them, but a lot of them were — you’re buying them pre-rehab; say you’re buying it for $20,000 and you give them $20,000 in rehab, or whatever the case. Maybe you bought it for $30,000 and you gave them $30,000 in rehab for a duplex type thing.

Theo Hicks: So probably what’s happening was this, he was saying, “Hey, I bought this for 10 grand, you buy it for $40,000, and I’ll do 30 grand renovations,” but instead of doing the renovations, he was just paying you rent checks from that 30 grand.

Jack Gibson: Exactly. You got it.

Theo Hicks: Okay. So once you figured out what was happening, you told me that it took you some time. Well first, before we get into that actually, before I ask you questions about how you found the contractors, how you found the property management company and maybe tell stories about how you had issues there too, tell me from the time you figured it out to after you talked to all the people – how did those conversations go? Did they call you? Did you call them? What did you say? How did they react?

Jack Gibson: One day I, all of a sudden, got five to ten texts or emails from people that were “Will you buy my property back, or can you help me sell this?”, and I’m like, “What happened?”, and every single one of them, their rent had dropped by about 70% to 80%. So what happened was he didn’t actually have a property management license. It had been revoked a year or two or more before. So he was operating under the management license of another broker. Well, that broker got really uncomfortable with what he was doing. In some cases, not even turning water on for tenants; that’s documented. We know that to be a fact. So now, he pulls the management away. So now you’re left with “Okay, who’s actually really paying?” So all of a sudden, it just dropped like a rock. Everybody’s messaging me and I’m like, “What just happened?” So then we realized that it hit the fan. Everything had just collapsed all of a sudden.

Theo Hicks: So you said you realized… So did you — at that point, once you started getting all these texts, did you call this guy? Did you go out to the property right away and see that they were in complete disarray? How did you actually 100% knew “Okay, this is bad”?

Jack Gibson: Well, we had some suspicions that things weren’t on the up and up, so at that time we were making plans with a new property management company to switch everybody over. So we knew that something wasn’t right, but we did not know by any stretch that it was to the level that it was at, because everybody was still getting rent checks. So if they’re still getting rent checks, we’re like, “Okay, I mean, we have no reason to believe that this isn’t real tenants paying. Why would anybody pay out fake rent?” Well, he was paying out fake rent to get people to buy more properties, to lure them in. So as long as the sales kept going, then he had enough money coming in to keep paying off the fake rents. Well, when the sales all of a sudden just dried up, his main guy stopped selling because he realized what was going on. Well now, he doesn’t have any income to pay out the rent.

So yeah, when that happened, I was calling him, texting him, but he wasn’t answering. He just went dark on everybody. We lawyered up and FBI has been to his home, and under indictment and probably got about 20 to 30 lawsuits coming at him right now. So that’s pretty extensive, the level of hot water he is in, but that didn’t do anything to make us whole. We had to figure it all out on our own.

So I went into town, got some contractors that I didn’t know, I started getting quotes from them. We had so many properties all at once that there just wasn’t a lot of time — we were under duress, so we didn’t have that much time to vet them as well as we would have liked. We’re just like “Here. You go here, you go here, you go here and let’s get these done and get these back performing again”, and that didn’t work, because they just took advantage of the situation and they didn’t really do a good quality of work. So then, finally I met up with a contractor. He’s my number one guy to this day. He is just an awesome guy. He’s a structural engineer and he went into every property that we still could salvage and he got them squared away.

Theo Hicks: How did you find this guy?

Jack Gibson: It’s funny. He bought a house on land contract from me… Because I was going to buy one of his houses that he had for sale. He had some back taxes on it and whatnot and he wanted to get that cleared. So he fixed up the house that I sold him on the land contract, did a great job, and I said, “If you ever do some jobs with me, I got plenty.” So it was about a few months and then finally came back, he’s like, “Yeah, I quit my job. They don’t appreciate me. I’d love to go to work for you.” So I just started giving them jobs left and right, and he slowly – I was very cautious this time around, but I gave them small jobs, and he did that well, and then started feeding him bigger and bigger jobs until the trust was established, and now I trust him as much as I do pretty much any human being on the planet. This guy, I can send him money and I know what I’m getting.

Theo Hicks: What about the property management? So you said that you had your suspicions before everything hit the fan, and you were already working with a management company to transition over to, but then you also mentioned that just like the contracting issues, you had issues with the next management company as well. So I’m assuming that that’s the management company you’re talking about. So maybe walk us through what happened there, how you found them, what the issues were, and how you ultimately found the management company that you’re using today.

Jack Gibson: They’ve done some acquisitions for us in terms of being able to find us houses that we could then sell, do a rehab and sell to investors. So we had a relationship with them, and they had property management experience, having their own portfolios in Indy. So they decided to start the management company to try to help keep investors happy that we needed to transition over promotion point. So they just couldn’t get the job done. I think they put a good effort in, but they were in way over their heads with the skill sets that they have organizationally. So I just had a lot of investors that just weren’t happy with the communication and the tenant placements weren’t being screened right.

So we went to a national company called Great Jones and they’ve been incredible because they have systems, they have technology, they are fully staffed, they have and so many resources, and they don’t mark up any construction. So that’s a very different approach and model compared to all the other property managers that we had interviewed in Indy. They all make– most of their money is by marking up tenant turns, marking up maintenance calls, marking up any construction costs… Which I don’t have any issue with that. That’s certainly– they’ve got to make money somehow. But with Great Jones, they have enough volume where they could just make the money off the 10% management fee and the tenant placement, and all the other stuff is just at the cost that they’re quoted. So that really puts all of our investors that we moved over there in a much better cash flow position.

Theo Hicks: If you could summarize for the listeners, what would be your top two to three to five lessons learned that you applied moving forward after going through this entire experience?

Jack Gibson: Well, I think that number one, the most important lesson is trust, but verify. So if we would have just done that and gotten these inspections, then we would have seen what kind of properties that we were dealing with. But I always tell– because I have younger guys that come to me because they know I have a pretty big real estate portfolio, and now it’s performing; it’s awesome. The rent checks that are hitting today are– it’s very exciting, but it took a while to get to that point. I tell them, “Look, you got to make sure that– there’s three major mistakes that you got to watch out for. If you don’t make these mistakes, then you should be in a really good position buying real estate.” Number one is don’t pay too much for the condition of the property. It’s okay to buy a property that needs a lot of work. You’re probably going to get your best equity position on those types of deals, but you got to make sure that you understand the market and understanding what’s out there and that you’re not overpaying… Because the stuff that we see, nine out of ten of them were passing on, because they’re just way too much, they’re not realistic for how much actual work the property really needs to get it to be a quality long-term property.

So then the second part is you got to be really careful with your contractors. There’s some great contractors out there and there’s some real shysters. So you can pay for a contracting, and then if you have to pay for all that same work a second time or even a third time – man, that’s crushing. So just having good quality contracting partners is critical, and then I think probably the third and most important thing for the long term performance of your property is the property management. They’re gonna make or break you on the cash flow with how they screen and place tenants, how they take care of their tenants, all the things that they do to get your property and keep your property performing.

So if you’re really paying attention to those three things– I mean, it’s not easy. If it were easy, everybody would do it. It’s much easier to just go buy stocks and just pray that they go up. That’s a lot easier proposition. However, I don’t like that plan because I’m not in control and I can’t control that much what’s happening, and the Board of Directors makes a decision and I just don’t have any say. So all I’m doing is just buying and praying that it goes up. Whereas with real estate, if I buy smart and get it rehabbed smart and have the right teams behind it, I’m gonna make some really nice cash flow every month and it’s going to be consistent.

Theo Hicks: Perfect. Okay Jack, is there anything else that you want to mention about this story, about your business that you haven’t talked about already before we wrap up?

Jack Gibson: Well, I think, it’d probably be good for me to at least show a little bit of positivity in terms of what we offer. Yes, we’ve made mistakes, but not only did we– I feel like, we stepped up to the plate in a big way and we took money out of our company and I took money out of my own account to help investors get funded… Some of them I gave back all of the commissions that I made when I sold the properties to the Oceanpointe, and partnered up with them. I gave all the commissions back and then some to the ones that really needed it in a bad way.

So I feel like, as far as doing business with us, we’re going to operate in the highest level of integrity. If something does go wrong, we try to stand behind it. Obviously with real estate, it’s never going to be perfect. You can do your best to put everything together the right way and it doesn’t mean you’re guaranteed, of course, any positive returns at any time, but you can put yourself in the driver’s seat where you have a really good strong chance of it…

But we learned a lot of lessons. We’ve got an awesome team and a lot of systems in place that helps us to make sure that the property is a very quality property. I mean, we put it through third-party inspections. It goes through the Great Jones test. They’re going in and they’re picking the property apart and finding all the things that need to be done prior to a tenant being placed. So there’s multiple steps of quality control to make sure that what happened with Oceanpointe never ever comes close to happening again. So those are the properties that we sell to investors. We are working very hard on scaling and creating our own portfolio, much more so now than before where we were focused more on the turnkey sales process. We still do offer turnkey properties, but we want to build up our own rent checks and our own holds. It’s shifted in terms of our focus. So if we do release a property, it’s something that we would be willing to hold for ourselves for the next ten years.

Theo Hicks: Perfect. Well Jack, I appreciate you coming on the show and being willing to share your story with all the listeners, as well as tell us your lesson. So just to quickly summarize the story… You bought turnkey properties from a person who ended up being a fraud, and once you found out that they’re a fraud after you and some of your colleagues had invested, you grinded to reverse the issues, to find contractors to resolve the issues, to find a new property management company, and then after all that is said and done, your top takeaways are one, the most important takeaway was to trust, but verify. A specific situation is applied to turnkey rentals is that make sure you’re actually doing the inspections and that not trusting the operator.

And then you also talked about the three mistakes to watch out for which was don’t pay too much for the condition of the property, which means, number one, you don’t necessarily have to buy a turnkey property because you can make a lot more money buying a property that needs a lot of work, but at the same time, just because the property needs a lot of work, it doesn’t mean that the price is still right. So make sure that you’re still buying right, understand how much money you need to invest into that deal so that you’re not overpaying. The second one was be careful with your contractors because just because you find someone who’s the cheapest option, if they don’t end up working out right, you have to pay someone else. So it’s better to pay maybe the middle of a higher option once then pay multiple people two, three, four times. And then lastly, you talked about how the property management company makes or breaks the cash flow at the deal. So again, Jack, really appreciate you coming on the show. Best Ever listeners, as always, thank you for listening. Have a best ever day and we will talk to you tomorrow.

Jack Gibson: Thanks, Theo.

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JF2187: Branding With Tonya Eberhart & Michael Carr

Tonya and Michael are partners from Brandface, a personal branding firm that helps real estate professionals differentiate themselves. They discuss the importance of creating a personal brand, especially in the real estate industry. You will pick up some tactics on what you should be looking at when it comes to creating and managing your personal brand.

 

Tonya Eberhart & Michael Carr  Real Estate Background: 

  • Tonya is the Founder of BrandFace a personal branding firm that helps real estate professionals differentiate themselves
  • Brandface has clients in 41 states
  • Michael is the COO and America’s top-selling real estate auctioneer.
  • Michael has over 60 investment properties
  • Tonya is from Columbus, OH and Micheal is from Jefferson GA
  • Say hi to them at: www.BrandFaceRealEstate.com

 

 

Click here for more info on PropStream

Best Ever Tweet:

“People don’t do business with a logo, they do business with a person” – Tonya Eberhart & Michael Carr


TRANSCRIPTION

Theo Hicks: Hello, Best Ever listeners and welcome to the best real estate investing advice ever show. My name is Theo Hicks and today we’ll be speaking with two people. We’ve got Tonya Eberhart and we’ve got Michael Carr. How are you guys doing today?

Tonya Eberhart: Good Theo, thank you for having us.

Michael Carr: Every day is Saturday, Theo.

Theo Hicks: That’s what I like to hear, and thank you for joining us. Looking forward to our conversation. Before we get into that though, a little bit about Tonya and Michael’s background. So Tonya is the Founder of BrandFace, a personal branding firm that helps real estate professionals differentiate themselves. Tonya and Michael are partners in BrandFace. BrandFace has clients in 41 states. Michael is also the COO of BrandFace and America’s top-selling real estate auctioneer. So maybe he can give us an example of talking super fast. Michael has over 60 investment properties. Tonya is from Columbus, Ohio. Michael is from Jefferson, Georgia, and their website is brandfacerealestate.com. So maybe starting with Tonya, and then transitioning to Michael, could you tell us a bit more about your background and what you’re focused on today?

Tonya Eberhart: Yep. I won’t be as fast-talking as Michael, but I can get it done. So years ago, I sold vacuum cleaners to pay my way through college. I did it for about three years, and then I sold a vacuum cleaner to a radio station engineer who suggested that I take a sales job at the radio station. And fast forward 18 years later, I was still in media sales. While I was in media sales, especially the very early days of my radio career, I noticed that when certain business owners walked into a room at an event or convention, they were almost like rockstars, and the things that differentiated them were that they were the face of their business, and they were almost always number one in their industry in the market as well.

So I understood very quickly between selling myself as a poor, young college student selling vacuum cleaners, and then helping to sell my own clients in developing their personal brands, how much it impacted their business. So that’s where BrandFace came from years later, and I’ll let this gentleman talk about how we met each other. He was actually the first real estate client for BrandFace, and hey, we became partners and I’ll let him take it from there.

Michael Carr: Well, my background is as an auctioneer. I started off my career as an automobile auctioneer. My dad had a car lot and I didn’t really want to be in that industry, but I loved it, and the guy that trained me to be an auctioneer, he said, “Hey, go get your real estate license because you might be able to call a farm sale one day, pick up an extra paycheck.” The industry was called a circuit auctioneer. So I worked a certain circuit in the Southeast, and next thing you know, I ended up with a Georgia real estate license and then a South Carolina real estate license.

Fast-forward to the year 2000, I really just used my real estate license to buy my own investments. I started buying residential properties in 1994 and I continue to buy them today. I just use my license as a way to get some kickback and commission. If anybody was invested in the late 90s, you could get 125% of what it was worth and make a commission on top of it to boot. It was fantastic years. We had to pay for it, of course, after the dotcom bust and all of that.

Fast-forward to 2006, I partnered with a company out of Irvine, California, and we got the Bear Stearns residential portfolio when they went under and we auctioned it off. We thought it would be about three years’ worth of work and ended up being about seven, and to date, I’ve been involved in over 78,000 residential transactions as a broker and an auctioneer. And then in 2013, we were working ourselves out of a job as all great auctioneers do, and I knew that REOs were coming to a flatline, and I just wanted something to do. So I came back to Jefferson, left the office in Irvine, the office in Seattle, Washington, came back to the office in the suburbs of Atlanta, opened up a arm’s length transaction brokerage, and needed help on marketing, met Tonya, and the rest, as they say, is history. She asked me after I executed the BrandFace principles to get known in the area as an investor, as a real estate broker, as a builder and developer. Then she asked me to co-write the book with her for BrandFace for Real Estate Professionals, and it’s number one in eight Amazon categories, including International Business. So it’s been a wild ride.

Theo Hicks: Perfect. Well, thanks for sharing that. So the name is BrandFace. You already mentioned, Tonya, in your background, how back in your radio days, you’d walk into certain events and business owners would just walk in and certain ones of them were just rockstars, and you mentioned because number one, they’re the face of their business; number two, they’re the number one in their industry. So BrandFace, they’re the face.

So I’ve talked to people about branding before a lot in the podcasts, and there seem to be two camps. The one is, be the face of your brand and the other one is to not be the face of your brand. Think of any major corporation. So why is it that being the face of your brand in real estate is better than being behind the scenes, making it more like a logo or having multiple people be the face? What’s the main benefit towards the face, making it personal, you’re the man or the woman?

Tonya Eberhart: Okay. It’s about a personal connection. In fact, you just hit on something, Theo. On the back of all our books, our mantra says, “People don’t do business with a logo. They do business with a person.” If you think about it, in every instance where you do business, there’s a person involved. So in real estate, on a local level, we already knew coming into BrandFace — we worked with many different business owners and entrepreneurs. Real estate has been our biggest sector so far. Number one, because of the success of this gentleman with me today, and number two, because it is an industry that already leans toward that way. A lot of real estate agents already have their photo on their yard sign or their business card, and they were one of the first industries to really go all-in with that, because they realized that no matter how many people are in a brokerage, the brokerage name is great, the brokerage might have their own brand. However, it’s the individual sitting across the table from you that is going to make you decide who to do business with.

Theo Hicks: Oh yeah, perfect answer. So follow up question, for some context. So do you focus mostly with real estate agents or is it agents, investors, anyone?

Tonya Eberhart: All of the above.

Michael Carr: All of the above. We work in every genre of business, from lawyers to honestly, to medical profession. It doesn’t matter. Anything that is customer-facing, we put a face forward.

Theo Hicks: What would you say, out of all your clients, the top maybe two or three? Just if you can focus on those ones?

Tonya Eberhart: I would say real estate agents, real estate investors, and then the others is splintered, because entrepreneurs come in all shapes and sizes. We have one surprisingly, that’s doing super well, is a skin care consultant, and she is doing incredibly well because she realized they were–

Michael Carr: On a global scale.

Tonya Eberhart: On a global scale. She realized there were many, many thousands of people like her and she wanted to set herself apart, for two reasons. Number one, for the customers who would purchase the end product, they would be the end-user of the product, and then for recruitment purposes too, because a great brand not only helps you to sell your products and services and connect with people on a human level, but it also helps you recruit the right people in for the culture you want to build.

Theo Hicks: Perfect. So most people listening to this show are going to be investors, so let’s talk about that. So let’s say I’m a real estate investor, and I either have no branding at all or I’ve been focusing more on having a really nice company logo and all of my content on my website is focused towards my company, and the only place where my face is on there is maybe in the bottom corner from my bio. So what’s the first thing that I need to do in order to start working towards building up my personal brand?

Michael Carr: The most important thing is to define what it is; that’s really big. When we build a brand, we look at about 77 different criteria, but they all boil down to defining the brand. So we take personal experience from people and their life experiences and what has brought them to where they are. We try to find a natural point of differentiation. We all have them as humans. We’re all uniquely an individual and uniquely special in that way, and then we also have other people who are naturally attracted to us and attracted to not just our facial features, but the story behind why we do what we do. So you have to define what that position is, and then you have to flag it and own it. That’s the most important.

Tonya Eberhart: Yep.

Theo Hicks: Okay, so you would say, come up with some stories in your past, and then figure out a way to make that be your main brand. So maybe give us a few examples.

Michael Carr: Well, let me tell you an example of a guy actually in the Atlanta marketplace that uses this principle extremely well. There is an investor in Atlanta, and you see his billboards all over the place, and he does it extremely smart. He’s got one point of differentiation – Get a guaranteed offer on your home. He buys remnant billboards all over the city, he puts his face on there, his name, his website. There’s not even a phone number to it, and everybody on earth knows that when you see Mark, he’s going to give you a guaranteed offer on your home. That’s a point of differentiation, and that is defining that point of differentiation, and then holding that position until the business comes to you, so much as you going after the business. Does that make sense?

Theo Hicks: So is the differentiating point the billboards, or is it the guaranteed offer?

Michael Carr: No, it’s the guaranteed offer on the home.

Theo Hicks: Guaranteed offer, okay.

Michael Carr: Yeah, get a guaranteed offer on your home, and that’s his point of differentiation.

Tonya Eberhart: They can range, Theo, from many different things. They can be personality-driven, they can be attributes, or things that just set you apart in how you conduct business. They can be a promise of doing business. It can be a differentiator that says, “I service this area or this type of customer.” It can really be anything you want it to be. The most important thing is, first of all, you’ve got to look in that definition phase who you’re trying to attract. Who are those ideal customers?

But here’s what happens a lot of when it comes to branding. People think of marketing first and branding later, and they’re two very different things. Marketing is utilizing platforms and vehicles to get a message out to the world. Get a message out to your customers and try to draw them in. Your brand is the message and image that you put out there on those marketing vehicles. So if you think about it this way, how on earth would you even begin to know what to put on any of your marketing, what to even post on social media, for goodness sake, unless first of all, you knew who it was you’re trying to attract. So in that define phase, we look at ideal customers and point of differentiation; those two things. Does that help with a little clarity?

Theo Hicks: 100%.

Michael Carr: For me, mine’s “America’s top-selling real estate auctioneer” because nobody’s auctioned off more residential properties than me, period. Because of that, even though it’s an arm’s length transaction brokerage that Tonya helped me try to launch, I still was a very active investor, especially in those times when there was still a lot of remnants laying around that we could pick up.

I moved directly from buying housing to buying building blocks because there’s this lag time of years there where nobody believed land was ever going to be worth anything anymore until they ran out of it, but they were still very excited about paying too much for houses at foreclosure auction. So what we did was we took my point of differentiation from my experience level, and then she taglined “America’s top-selling real estate auctioneer”, and then the secondary was the confidence at that time – 65,000 transactions. We leveraged the fact that no matter where you stood in line, if you wanted me to sell your house, I can sell your house for you. If you want me to buy your house, I could buy your house, and then we’d just show them the door one, door two, door three, and then let you choose which door worked best for your family type of situation. So we took my experience, and then we’ve defined it that way, and then pointed it at the ideal customers that we were trying to attract.

Theo Hicks: I really appreciate you explaining that right there. You said the top auctioneer, that crystallized in my mind. Ours is “the world’s longest-running daily real estate investing podcast”.

Tonya Eberhart: Yep.

Michael Carr: There you go.

Theo Hicks: It’s the same thing, same concept as yours.

Michael Carr: Yep, exactly.

Tonya Eberhart: It puts you in a position of differentiating yourself.

Michael Carr: Yep. Or even to the best ever, how y’all put “best ever” behind everything; that is a point of differentiation that makes you guys stand out and continue to stand out.

Theo Hicks: Perfect. So I’ve defined my personal brand and know what differentiates me, I’ve got my tagline, and I’ve got my ideal customer defined. Now, what do I do?

Tonya Eberhart: What’s next? Okay, the next phase– and by the way, we call this our freedom formula. It’s three Ds – define, develop and display. I will tell you why it’s the freedom formula here in just a moment. But in the develop phase, what you’re going to do now is you’re going to develop a strong personal brand wrapped all around that point of differentiation starting with your brand colors, your personal brand logo, imagery that resonates with what you stand for and what’s going to attract your ideal customers, photos of you that are very well done and portray the image you want to portray, and most importantly, in that development phase, it’s the brand messaging that sets you apart from your elevator pitch to your biography to what we call signature sound bites, which are bullet points, if you will, highlights of your brand at a glance. The most important thing about a brand is living it and breathing it, and it all starts with how do you communicate what it is that sets you apart, and that’s done in your brand messaging. So once you’ve got the messaging and all that imagery ready to go, the development phase is complete.

Theo Hicks: Perfect, and then after that you said, define, develop and then display. So I’m sure display is get it out there.

Michael Carr: Get it out there. Use the billboards, the park benches, the social media, and it all needs to be consistent, and you need to know your ideal customer. I didn’t do it for a long time as a real estate agent. As an auctioneer, I did it naturally. When people came into an arena and I was auctioning off a group of houses or whatnot, I sized everybody up pretty fast. I could tell who my main investors were, I could tell who end user homebuyers were, I could tell– you size them up, but we don’t do that enough in business. You have a lot of listeners that are investors that are like, “Hey, I just want to attract more business and find more business, but what does that have to do with it?” Well, if you know what the lifestyle of those people are for that ideal house that you want to buy, if you know everything about that particular owner; it might be a multifamily, small one to four multifamilies or even all the way up to something bigger 200, 300, 800-unit apartment buildings, whatever that might be. If you understand that, then your messaging in the display, that messaging is clear and towards those people.

Then when you display it, you actually get a return on your investment, and you’re not just throwing out money just to get known because Zillow has enough money to be able to get known whether they knew what they were doing or don’t know what they’re doing. But for those of us like the Theos and the Mike Antonios, well you have to watch an ROI on how much money we spend out there in the display stage. It’s very important that you’ve pointed that in the right direction.

Tonya Eberhart: Yeah, otherwise you end up with what we call spray and pray marketing. You just spray it against the wall.

Michael Carr: Yeah, I’ve done a bunch of that.

Tonya Eberhart: You put something somewhere it sticks.

Theo Hicks: What’s the best way to find out after you have your target audience very finely tuned and defined to find out what marketing avenues to use like billboard or you said, park bench, social media? How do I know, after I know who my audience is, how to get in front of them the best?

Tonya Eberhart: Okay. Well, that one happens to be honestly, one of the easiest things. So there are many, many ways to get to an audience. First of all, you’ve got to figure out where your audience is spending their time. So for some of our agents, like in Phoenix, for example, we’ve got an agent who focuses on empty nesters who are moving into lifestyle-driven communities, their home is all low maintenance, they have a golf course; it’s all about the lifestyle and retirement age. So he actually started his own small newspaper in that area. Now newspaper, you’d ask nine people out of ten, they say–

Michael Carr: What’s a newspaper?

Tonya Eberhart: Yeah, what’s a newspaper? But that still works for him because his audience still reads the newspaper every day, and it’s someone else who maybe after say, first-time home buyers or growing families, they may find that reaching them is a totally different thing. Maybe they’re encompassed in a certain number of neighborhoods and new canvas and farm those neighborhoods with postcards and door hangers and things like that. So you’ve got to first drill down and say, “Where are they spending their time? How are they consuming media? What is important to them? What’s their lifestyle like, as Michael said?”, and once you dial that in, then you choose within your own budget range, what you feel you can afford to do. If all you can afford to do is do some door hangers and some postcards in one or two neighborhoods, then max it out. But if you can afford to do more, go to maybe a little local radio station whose listeners are people who share a certain lifestyle or a certain belief system, and certain things that make them alive. So it’s different for everybody. There really isn’t just one set answer to that. It’s different for everybody because it’s very dependent on the area and who the ideal customers are.

Theo Hicks: Well, there’s one thing interesting that I noticed from everything you said is it sounds like it’s better to get more maybe, I guess, I’d say local with it and smaller scale with it as opposed to saying, “Well, I’m just gonna market on Facebook or Twitter or LinkedIn or Google or whatever.” You didn’t bring up any of those. I thought that was interesting. Very interesting.

Michael Carr: Well, here’s the thing, Theo, and I find this to be the case so much. I teach this to any agents that are coming in and even investors that would come in. There’s a couple of points here. First off, if you’re buying single-family housing in developing areas, say, a major metropolitan area or whatnot, you might be dealing with elderly people or with out of town family members that are dealing with that asset. So you do have to have your social media to back up. That’s why it’s very important during the define and development phase that you complete all of that because it can’t say a different message. I told you about the guy in Atlanta that runs the billboards. Well, there’s another guy that I follow in Greenville, South Carolina, and he’s a heck of an agent, and this guy does the same thing as I’m talking about, same thing I do, same thing Mark does – will buy a house or will sell it for you; what’s best for you, you tell us. But every billboard that this guy puts up is a different message and every one of them are forgotten.

So I’m going back around to what you said. It’s important that we have Facebook and we have our Instagram accounts and we have our website, definitely. That’s your central processing unit, that’s where everything’s got to culminate because you want to push everything back to that because that’s a main source of information, but don’t spend the money on your advertising there if that’s not where that person is going to be. They might go and check you out there, but they might not find you there. I’ve got a friend on the West Coast and he’s got buyers from Huntington Beach, California, all the way up past the bay. He’s got 12 guys; he runs Pennysaver ads – I buy estates, and about one out of every 12 estates that he buys, which is all the knickknacks that people can’t get moved down in a weekend and overly ambitiously thought that they could, he ends up buying about one out of every 10 or 12 houses because he gets there, they’re sick of it, they’ve been working for three days trying to get grandma stuff out.

Grandma’s in a nursing home and they live in Colorado and the plane leaves in four hours, and here comes Big Bill; Big Bill’s buyers. They’re like, “Well, I’ll tell you what. You got nothing but junk left. I’ll hold it all for you. Oh, and what do you want for the house?” He does the bulk of his advertising in Pennysavers – I buy estates. At other websites, he uses his estatesales.com and he just runs I ads – I buy estates, and he gets house after house after house from that. But once you do that though, obviously they may say, “Well hold on. Who’s Big Bill?”, and you want your social media to back up your story, and this is where it goes all the way back, the importance of the authenticity of the defined state because people are pretty savvy, and they’re going to pick up pretty fast if you’re shyster, is just trying to harm them or if you’re a fair investor that deserves to make a return on their investment.

Theo Hicks: Exactly. Okay, starting with Tonya then going to Michael, what is your best personal branding advice ever?

Tonya Eberhart: I would say it is about authenticity. So don’t try to be something you’re not; embrace who you are. We had an agent in New Orleans tell us last week how much she loved her brand and it had changed her life because she realized it wasn’t about helping her compete. It was really more about making sure she didn’t have to.

Michael Carr: Yeah, also an investor.

Tonya Eberhart: Also an investor.

Michael Carr: She has about 18 properties down there. So been an investor for years.

Theo Hicks: Perfect, and then Michael, what about you?

Michael Carr: Well, on the heels of that, if you’ve got the authenticity down, be bold. Prosperity favors the bold, and we say be bold. Some people would look at my career and say, “Hey, you’ve been pretty bold,” but I look at others and think, “Man, I wish I’d been bolder.” So I’d definitely say for me, it would be bolder.

Theo Hicks: Perfect, and then before we go into the lightning round, what was the three Ds. Is there a name for it? What did you call it?

Tonya Eberhart: The freedom formula – define, develop and display because it gives you the freedom to stand on your own merits. Take your brand with you wherever you go, because your brand is you.

Theo Hicks: Perfect. Alright, are you guys ready for the Best Ever lightning round?

Tonya Eberhart: We’re ready.

Break [00:24:37]:02] to [00:25:49]:08]

Theo Hicks: Okay, first question that I got. I like you both to answer these. Best ever book you’ve recently read.

Tonya Eberhart: Oh. Awaken the Giant Within. Reread it for about the fourth time.

Michael Carr: Every Man’s Tell mood.

Theo Hicks: If BrandFace were to collapse today, what would you do next?

Tonya Eberhart: I would do real estate investing. I’ve had a taste of it before. I would do it again because I absolutely love it.

Michael Carr: I’d find some way of helping people realize what they don’t realize about themselves.

Theo Hicks: What is it the best ever way you like to give back?

Tonya Eberhart: Right on the heels of what Michael just said, helping people unveil their inner star.

Michael Carr: I got to just stick with that theme, Theo. I gotta say it. We had a friend tell us a long time ago, “We love what you do because it’s hard to read the label from the inside of the jar,” and I think that I have to stick with that. The best part of our job is helping people realize the power that actually happens inside them.

Theo Hicks: And then lastly, what’s the best ever place to reach you?

Tonya Eberhart: brandfacerealestate.com. Everything we do is encompassed there and shoots out from there.

Theo Hicks: Perfect. Well guys, I really enjoyed this conversation. Branding is always a fun topic to talk about and from a personal business perspective, I could use this information from today. I know all the Best Ever listeners definitely get to learn something that you could apply to your business directly. The big thing we talked about was the freedom formula, those three Ds – define, develop and display. So essentially just define what a brand is, and then figure out who the ideal customer is, and then once you know what the brand is, you develop it around that unique differentiating factor that you have – your logo, pictures of you, your messaging, social media accounts, websites, and then focus on living and breathing that brand, and then obviously, determining how you’re going to direct that toward your target audience, and then display which is actually getting it out there and making sure that you are using the method that your target audience actually uses.

So figure out exactly how they’re consuming their media, what’s important to them, what their lifestyle is, then find a medium in which you can target them that you can actually afford. You also mentioned that Facebook and Instagram, the website are important. That’s more of a hub that people actually will go to once they actually find you and then how they find you. I thought that was a very interesting point to make distinguishing between the Facebook, Instagram and the other examples of billboards, park benches, local radio stations, things like that. Your best ever advice, Tonya’s was authenticity and Michael’s was to be bold. When you talked about the guy with all the billboards, I was like, “That’s pretty intense. It’d be weird driving around and seeing my own face on a billboard.” That’s definitely bold.

Tonya Eberhart: Michael has some billboards too, so I’ve never–

Michael Carr: I just don’t ever go that way.

Tonya Eberhart: That’s true. I’ll never forget the first time when we first started working together, I put him on shopping carts in the grocery store, and I said, “Michael, they just came out. The signs just came out. Can you please go in the grocery store and take a picture of one of those.” “Uh-uh, I’m not doing that.”

Michael Carr: I know.

Tonya Eberhart: He ended up doing it, but I think he did it in secret behind the produce.

Michael Carr: I did.

Theo Hicks: You should have done a video of you on the cart with the kids when they’re out of there flying across it. You should have done it and put it on Instagram or something. I enjoyed this conversation, Tonya and Michael. Best Ever listeners, as always, thank you for listening. Have a best ever day and we will talk to you soon.

Michael Carr: Thank you, Theo.

Tonya Eberhart: Thank you, Theo.

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