JF2134: Focusing on Processes With Matt Larson

Matt has 14 years of real estate investing experience and is the Owner of Real Estate Matt Education and Easy Street Property Investments. Matt shares some of the reasons why he has been able to double his business year by year for almost a decade.

Matt Larson Real Estate Background:

  • Owner of Real Estate Matt Education and Easy Street Property Investments
  • Full-time real estate investor with 14 years of experience
  • His team has completed over 4000 real estate transactions
  • Currently renovates 35 homes per month, and manages 1400 units
  • Based in Davenport, Iowa
  • Say hi at www.realestatematt.com 
  • Best Ever Book: How I Raised Myself from Failure to Success in Selling

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Best Ever Tweet:

“We are very process-oriented.” – Matt Larson

JF2133: Anti-Financial Plan With Chris Miles #SkillsetSunday

Chris is the founder of Money Ripples, also the host of the Chris Miles Money Show, and has been featured on CNN Money and US News. He has had experience coaching people in the stock market, owning rental properties, and financial advising. At age 28 he was financially independent due to affiliations, and rental properties. He shares how he went from financial independence to losing everything and going back into the rat race and working his way back out.

Chris Miles Real Estate Background:

  • Founder of Money Ripples
  • Author and Host of the Chris Miles Money Show
  • Has been featured in US News and CNN Money
  • Has helped his clients increase their cash flow by over $200 Million in the last 10 years
  • Based in Salt Lake City, Utah
  • Say hi to him at http://moneyripples.com 

Click here for more info on groundbreaker.co

Best Ever Tweet:

“Cash flow creates options if you have more cash flow that creates freedom” – Chris Miles

JF2132: 100 Years Of Experience With Dean Marchi

Dean is our sweepstakes winner! If you were not aware, we did a sweepstake for the first time ever for a lucky listener to enter for a chance to be on the show with Theo Hicks and ask questions or discuss their story. Dean was randomly picked and is part of a family with over 100 years of real estate experience. Dean focuses on development deals for multifamily and buyers of apartment buildings. 

 

Dean Marchi Real Estate Background: (SWEEPSTAKES WINNER)

  • Full time in real estate development 
  • His family started in Manhattan in 1929, but Dean bought his first deal outside of the family in 2005 and did his first development deal in 2009
  • Portfolio outside of family properties consists of 4 multifamily properties, 2 development sites, flipped 26 apartments
  • Based in New York City, NY
  • Say hi to him at: www.GrandStreetDevelopment.com 
  • Best Ever Book: Best Ever Apartment Syndication Book 

Click here for more info on groundbreaker.co

 

 

 

Best Ever Tweet:

“Focus on every deal your involved in, build up a track record and people will begin to talk about it and you will find investors” – Dean Marchi

JF2131: Going From Singles To A 20 Unit With Nate Shields

Nate is the Co-founder of School Dispatch and has been investing for 4 years with a portfolio consisting of 28 units in 3 states. Nate’s goal is to have 100 doors in 10 years before taking money from his properties. So far during his progress, he has faced the challenge of de-converting a duplex into a single-family home and also the fortune of finding a miss-marketed deal which helped them snag a winner. 

 

Nate Shields Real Estate Background:

  • He is the co-founder of School Dispatch
  • Has been Investing for 4 years
  • Portfolio consists of 28 units in 3 states
  • He has also flipped 6 properties
  • Based in Madison, Wisconsin
  • Say hi to him at his Youtube channel: Dude Real Estate
  • Best Ever Book: Zero to One by Peter 

 

 

Click here for more info on groundbreaker.co

Best Ever Tweet:

“Investing in a single-family home to a 20 unit isn’t as difficult as it may seem. At the end of the day, it’s just bigger numbers” – Nate Shields

JF2128: Investing As A Insurance Agent With Stacee Evans

Stacee is an insurance agent who bought her first rental in 1996 and slowly started to buy rentals and sell them. She has bought and sold 10 rentals and currently has 3 active properties that she rents out and 1 AirBnB. While living in California, she bought a house sight unseen in Houston, Texas, and shared the specifics of how she found it, the mistakes, and lessons she learned. 

Stacee Evans Real Estate Background:

 

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Best Ever Tweet:

“The reason I want to learn more is because of all of the mistakes I have made” – Stacee Evans

JF2127: Cross Collateral Deals With Matt Deboth

Matt served 8 years in the Marine Corps as a force recon marine and has 9 years of real estate experience with a portfolio consisting of 174 rental units and has 25 flips. He shares how he uses cross collateral financing to help him acquire more properties with little to no money down. 

 

Matt Deboth  Real Estate Background:

  • Served 8 years in the Marine Corps as a force recon marine
  • 9 years of real estate experience
  • Portfolio consists of 174 rental units and flipped 25 rental units
  • Currently rehabbing a 48-unit apartment in Des Moines, Iowa
  • Located in Des Moines, Iowa
  • Say hi to him at: www.TripleHoldings.com  
  • Best Ever Book: Titans by Rockerfeller

 

 

 

Click here for more info on groundbreaker.co

Best Ever Tweet:

“One tip that will help you grow your business is to bring value to brokers without looking for something in return.” – Matt Deboth

JF2126: Questions to Consider With John Bogdasarian #SkillsetSunday

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

John Bogdasarian Real Estate Background:

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

Click here for more info on groundbreaker.co

Best Ever Tweet:

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


TRANSCRIPTION

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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JF2125: Early Problems With Out Of State Properties With Elenis Camargo

Elenis bought 5 rental properties all acquired sight unseen and from out of state. She shares how she managed the rehab process with her properties being in an entirely different location. During one of her first deals, her tenant abandoned the property and she talks about how she was able to handle this difficult situation.

Elenis Camargo Real Estate Background:

  • Works full-time as a digital marketing professional in healthcare
  • Portfolio consists of 5 rental properties, all acquired sight unseen and from out of state
  • From Brooklyn, New York
  • Say hi to her at: www.thirdstoneproperties.com 

 

 

 

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Best Ever Tweet:

“I talk to alot of people, I learn from a lot of people, and I teach people as well. This is a people business, and it’s really important to learn from and help each other out ” – Elenis Camargo


TRANSCRIPTION

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

Elenis Camargo: I’m doing great, how are you?

Joe Fairless: I am doing well, and looking forward to our conversation. A little bit about Elenis – she works full-time as a digital marketing professional in healthcare. Her portfolio consists of five rental properties, all acquired sight unseen, and from out of state, from Brooklyn, New York. With that being said, do you wanna give the Best Ever listeners a little bit more about your background and your current focus?

Elenis Camargo: Sure. Thanks again for having me. I’m originally from Miami, Florida. My husband and I moved to Brooklyn, New York four years ago, and after realizing how expensive it was to buy an apartment that we wouldn’t really love in Brooklyn, New York, we decided to invest in Florida, and narrowed down the market to Jacksonville, Florida.

So like you said, we’ve had five properties sight unseen. We focus on buy and hold investments, so most of our properties are rehabbed, and we add value by rehabbing the properties… And then we’ve also been helping other investors acquire properties in Jacksonville, since I’m licensed in Florida.

Joe Fairless: Okay… So a lot to unpack there. When I was reading your bio, it reminded me of what I was doing, when I was living in New York. I bought four single-family homes, all sight unseen, in Texas… So I can certainly relate to your story, even though you bought five and I only bought four that way.

So let’s talk about your approach, because one thing that I know I wasn’t doing is I was not rehabbing properties, except for one, and it was a disaster, one of the homes. So talk to us about a specific deal, and how you managed the rehab process, and just from start to finish.

Elenis Camargo: Sure. I’ll go into our first one. That one we acquired with an inherited tenant, and at the beginning — this was our first rental, this was February 2018. At the beginning we thought we had a great tenant, she was communicating great, and paying on time. A few months in she started having personal issues, started paying late, and eventually she pretty much just disappeared. I couldn’t reach out to her by phone, email, text; I tried everything and she wouldn’t answer… So we posted a [unintelligible [00:05:14].27] vacate notice.

Eventually, once we started the eviction process, she emailed me saying that she abandoned the property and that we can keep her security deposit. So as a new investor at that time, five months in, to  have our tenant abandon, it was a huge deal for us…

Joe Fairless: Right out of the gate…

Elenis Camargo: Exactly. Most people it takes time, but with us it was right off the bat. Luckily, I had met a contractor online. I had started talking to him, and he really was the one that helped me a lot throughout this process. We didn’t even have keys to the property that worked. He ended up climbing through a window, and getting in, taking pictures… My husband and I wanted to fly down there and get things fixed, but the reality was it would have cost us more money to fly down there, and get a hotel and all of that stuff, versus just having him fix it.

So he sent us pictures, and we made a list of the things we wanted to get done. She left the place a huge disaster, as you can imagine…

Joe Fairless: Of course.

Elenis Camargo: A lot of personal belongings, everything needed to be taken out… So we made a list. Our contractor gave us pricing, started working on things, and a few problems came up along the way, like – he noticed that the bathtub had some sort of water in between when he stepped in it, and it ended up being that it had a bath fitter that wasn’t installed correctly over the bathtub, so he ended up ripping that out, refinishing the bathtub… We did new flooring, we tore down some walls, cleaned up the place, and reglazed the bathroom tiles just to make them look new. We painted the outside… Just made it a fresher look.

And then after that I had already started interviewing listing agents as well, so I was kind of working ahead of myself a little bit. We didn’t have a team in place ahead of time. We only had our realtor; that was pretty much it.

We quickly got the property listed after the contractor finished the rehab. We spent around $8,000 on the rehab, so it wasn’t too bad, considering all the work we did… And our listing agent got someone in there in about 3-4 weeks, and we raised the rental value by 43%. So it was originally being rented for $1,050, and we raised it to $1,200. That was almost two years ago, so now it’s being rented for $1,250 with another set of new tenants that we got in there.

Joe Fairless: Well, it’s surprising to me that you only invested $8,000 to get all that work done. It seems like that was a pretty good deal for you.

Elenis Camargo: It was. We did vinyl flooring, and he got it on special. The house is around 1,300 sqft. I think the flooring was most of it, around $4,500 if I remember correctly… And painted all of the insides. He did a lot of work for that amount of money, for sure.

Joe Fairless: And just so I heard you correctly – because I heard you raised it by 43%, but then I think I heard the numbers and for some reason it’s not jiving for me, but maybe I’m misthinking it. You said you raised the rent from $1,050 to $1,200 – is that correct?

Elenis Camargo: Yes.

Joe Fairless: Okay, so you raised it $150.

Elenis Camargo: Yes.

Joe Fairless: Okay. And I think I heard that you say that yo met the contractor online… Did I hear you correctly?

Elenis Camargo: Yes, I did.

Joe Fairless: Okay. Please elaborate.

Elenis Camargo: I met him through a real estate forum.

Joe Fairless: Bigger Pockets?

Elenis Camargo: Yes, through Bigger Pockets. He was the first contact that we made on Bigger Pockets, and just luckily he just happened to add me as a connection. I reached out to him, seeing that he was a contractor, and we started talking on the phone. He was an investor as well, and I just kind of wanted to start the conversation just in case this tenant ended up moving out; we knew that the property needed work… So the connection started from there. He’s helped us a lot on many of our properties.

Joe Fairless: One of the benefits of meeting people through Bigger Pockets is there is social accountability. So if you had met a person on Craigslist, or even through a referral – because I think the contractor might not be as concerned about burning a bridge with one person… But if they are concerned about you lighting fire to the reputation on an online forum like Bigger Pockets, that’s a whole other issue… That’s why Bigger Pockets is such a great tool for investors.

Elenis Camargo: Definitely. It was a huge trusting experience, because I had just met him two months before, and here he was, climbing through a window in my house and fixing things for me… [laughter] So it was a pretty big deal.

Joe Fairless: How did you meet the listing agent?

Elenis Camargo: The listing agent was one of my sister’s best friends at the time, and she was in real estate for a few years. Oh, sorry, that was the realtor. She gave us the contact for our listing agent that we used at the time.

Joe Fairless: Okay. What did you buy the property for?

Elenis Camargo: That one was 90.5k. It appraised instantly for 108k…

Joe Fairless: Wonderful.

Elenis Camargo: …when we bought it. Then a few months later we did a HELOC on it and it appraised for 118k at the time. That was November 2018. I’m assuming now it should be a little higher than that.

Joe Fairless: So you had 98.5k all-in to the property, which is 1.2% of rent to all-in ratio. A lot of people say you’ve gotta at least beat the 1% rule… You’re 1.2%.

Elenis Camargo: Yeah. We usually do with all of our properties, except one where we purchased it with the intent of rehabbing it in the future. This other deal – we bought it for 123k, it had tenants in there that had been in there for 12 years, so we were pretty certain they wouldn’t be leaving any time soon… And the ARV for that one is 190k or more… But it needs a complete renovation inside: new kitchens, new bathroom, everything…

So down the line when we’re ready we’ll give the tenant sufficient time to move out, rehab it, and then either sell it for a profit, or maybe cash-out refi it.

Joe Fairless: What would it cost approximately to get it to that level?

Elenis Camargo: That one should be 25k or 30k.

Joe Fairless: Okay. So all-in 150k-155k(ish) with ARV around 190k?

Elenis Camargo: Right.

Joe Fairless: Okay. And what does it rent for now?

Elenis Camargo: That one is renting for $1,100, so that’s the only one that doesn’t meet the 1% rule… And that’s because they’ve never had their rent raised in 12 years that they were living there.

Joe Fairless: And what are your thoughts on that? So you inherited tenants who had been there 12 years, they haven’t had their rent raised, and now new owner comes in – how do you approach it?

Elenis Camargo: Right. That was a little bit of a difficult situation. They didn’t leave a security deposit. We knew that they didn’t have enough money to leave a security deposit or have their rent raised significantly; they were on disability. So we raised it very little, $5… Originally it was $1,095, so we raised it to $1,100 right off the bat, just to kind of start the idea “We’re gonna be raising rents every year.” And then this past year I think we raised it another $5. It’s very little, but just to get a little bit more income coming in. Probably next year we’ll raise it a more significant amount if we’re not already rehabbing it.

But it was difficult to speak with them. They were very skeptical. The property has passed through different owners over time, and the previous owners, as with all of our other inherited tenants – we’ve had three – they don’t take care of their tenants… And when we come in, they immediately have a list of things that are broken or need fixing… So with this property, they actually didn’t have hot water for a month. And as soon as I introduced myself, they told me that, and we had it fixed within an hour. It was something really easy to fix.

So we take pride in making sure the tenants are good, living in a clean home, and with things that are functioning. And I think that built a lot of rapport with them, where they trust us now and they know that we’re not just gonna throw the property away, or just not keep it maintained.

Joe Fairless: Wouldn’t that come up in an inspection report?

Elenis Camargo: That’s really interesting… Yeah, it didn’t come up on that. I’ve never even thought of that. [laughter] But it did not come up on the inspection report.

Joe Fairless: So that was one house, 123k purchase price; the other was 90.5k. How are you financing these, and where are you getting the equity? Is it from your W-2 job, so you’re taking money that you’re earning from your W-2 job and you’re buying these single-family  home investment properties?

Elenis Camargo: With conventional financing. So we’ve usually put down 20%. On that 123k deal we’ve put down 15%, and we’re paying PMI. The numbers just made more sense when we did them… But yes, pretty much our jobs fund our investments at the moment. Eventually, we’ll want to get [unintelligible [00:13:55].19] and get into doing more cash-out refinance deals so that we can continue to invest more without taking time to save up the money.

Joe Fairless: How have you improved your process? And that’s pretty broad, I understand that, and I’m doing that intentionally… From your first purchase to the fifth purchase?

Elenis Camargo: Great question. So my husband built originally a model that we used to analyze deals, so that’s been improved over time… Our process now is we get MLS listings, we also get wholesale deals, and we look through those every day. The ones that look more promising – we put them on the list, and then we look at those together. Versus before, we didn’t write anything down, it was just “Oh look, this house looks good. Let’s send it to our agent and see if we can get more information on it.” It was just kind of like one shot here, one shot there. Now we have a list of properties that we’re looking at, and writing down notes; we keep track of them, if there’s any price drops or price changes, so we can see that the seller is more motivated if they’re dropping the price. So we have more of a system in place now…

We also use other tools, versus at the beginning we weren’t really using any tools to track anything.

Joe Fairless: Like what?

Elenis Camargo: We use Cozy for payments and for property management repairs, and then we use Stessa for our expenses and keeping track of value accounting.

Joe Fairless: Oh, cool. I’m very familiar with both of those companies. The challenge that you might have come across is the renovation part and overseeing renovation  – even though it sounds like you hit a home run with the contractor, but you’re still in Brooklyn, they’re in Jacksonville… How do you oversee the renovation process? And the reason why I ask that is – one, for obvious reasons, but two, I mentioned that I bought four single-family homes while living in New York City, sight unseen, and the fourth one was more of a renovation project, and it was a disaster, because the renovation team was not doing what they said they were gonna do. They didn’t have much work, so they were all on the job for  a very long period of time, just kind of hanging out, milking the clock… And my sister happened to drive by and see them, and she’s like “Joe, how do you keep track of them?” and I’m like “I don’t really have  a process.” So can you talk about your process?

Elenis Camargo: Sure. I have two contractors that I use at the moment, and we’ve done three renovations and now we’re about to do the biggest one for another investor that just purchased three multifamilies and he’s rehabbing 3 out of the 7 units next month… So it’s more than just that one that I got lucky with; we have another one now. And there was one that we got rid of throughout the process, but… It’s also about not paying them in advance. So with one of them I do pay materials in advance, because I guess he doesn’t have the bandwidth to do the renovation without the materials, and then we pay the job when it’s done… And the same with the original contractor. We actually didn’t pay him anything upfront, so they’re more motivated to get the job done… And if it is a bigger job, like the ones that they’re doing next month, we’ll do payments over time; probably maybe two payments. But the key is just making sure that they’ve finished it as quickly as possible, staying on top of them…

I’m in constant communication with them during a rehab, pretty much every day, and my job is flexible enough where I can take calls and get on video chats with them or see pictures and go back and forth.

And then I also try to save money by ordering some materials myself online, and having them pick up the materials… So it’s pretty much a joint effort to get the rehabs done, and get them done quickly, so that they can get paid quickly and we can get the property rented out.

Joe Fairless: What deal, if any, have you lost money on?

Elenis Camargo: If you consider the money we’ve put into all of them, we still haven’t broken even on any of the properties… But it’s a long-term play for us, so…

Joe Fairless: Right. So you haven’t sold anything.

Elenis Camargo: We haven’t sold anything.

Joe Fairless: Okay. That makes sense. What deal is the most profitable so far? I guess it’s a poorly-worded question, considering your previous answer… So what deal has generated the most cashflow as a result of the income minus expenses, to date?

Elenis Camargo: Sure. I would say most likely our fourth property that we purchased with a partner of ours. That one didn’t need a rehab or anything. We just put in probably around $1,000, getting it cleaned up and painted… And then we had tenants in there within two weeks, that have been paying on time every month… So I would say that one.

We’ve put the least amount of money in that; we’ve put 30%, our partner put in 70%, and then we split everything down the road 50/50. Now, we haven’t had to obviously do any renovations or get many things fixed, so I’d say that one’s the highest right now.

Joe Fairless: How does the loan approval process work with a partner?

Elenis Camargo: It’s a little trickier, because usually all loans are set for two people, usually a married couple… So having a third person involved, it required having additional forms and making sure that he was on all the paperwork… And we all have umbrella policies if we’re buying these under our personal names with conventional loans. So he had an issue with his umbrella policy where he needed to be the first person on the homeowner’s insurance… So everything is set for two people, and here we were, trying to do things with three people. So we had a situation where we had to cancel our existing homeowner’s insurance policy and rewrite it with him as the first person on the loan. I think I was the second person and my husband wasn’t even listed on the homeowner’s insurance… And he was able to get his umbrella policy. So it was a little tricky, things like that…

We are planning on purchasing more properties. We’ll most likely just put his name and either mine or my husband’s name on it, and not do it with three people again.

Joe Fairless: Okay, yeah. What lender do you use to get that type of transaction done?

Elenis Camargo: This last time we used Carrington, and I pretty much followed my loan officer… We used a company called Ditech and they ended up filing for chapter 11, so that’s why we’ve got such great deals at the beginning… [laughs] With our points, and with fees, and things like that. So he went to Carrington and we ended up following him there. He tried to match the same rates he was giving us before. But with Ditech we were able to get origination fees waived, very low points and things like that just because they knew they were filing for chapter 11 down the road.

Joe Fairless: Hm… The inner workings of corporate America.

Elenis Camargo: I know, it was interesting.

Joe Fairless: Alright, so the fourth property has brought the most cashflow, for multiple reasons, it seems like. One is there was no rehab, or little rehab, up to $1,000. Two is you have less money in, but you’re getting a disproportionate amount of profits based off of your expertise and the work that you’re doing, correct?

Elenis Camargo: Correct. Our investor is completely passive. He trusts us to do all the work. I manage the property, obviously without charging the partnership any additional money, and he put in more money at the beginning of the deal. So it works out really nicely for us, and I think down the road we’ll be able to acquire more properties with him than if we were just on our own, trying to save up all the money.

Joe Fairless: For someone looking to buy single-family homes as investment properties, who’s listening to this but has no purchased their first one yet, what’s an activity that you recommend they take on in order to eventually  purchase that property?

Elenis Camargo: I would say at least analyze one property a day. I think a lot of new investors get hung up on trying to learn everything, or build their entire team before investing in their first property, and in our experience it wasn’t necessary to do that. We built our team over time. But I think analyzing at least one property a day kind of gives them an idea of what the current market is like where they’re wanting to invest, what the properties are like, and it just kind of gets them used to it and more comfortable… And I would say start placing offers. I know it seems scary for a new investor, but it’s free to place an offer. They can back out at any time. And then it most likely wouldn’t get accepted on the first shot anyway. We’ve never had an offer accepted on the first shot, so… It just gets them more comfortable with the activity of going through with a deal, versus just sitting on the sidelines and trying to learn.

Joe Fairless: And now, based on your experience as a real estate investor – and this doesn’t have to be directed towards first-timers, just overall, based on your experience… What’s your best real estate investing advice ever?

Elenis Camargo: Wow, that’s a good question. I would say don’t be scared to put in lower offers. That’s something that other people have asked – how much lower can they put an offer in for? And since I’m working with multiple investors as well, they’re scared to lose a deal by putting in too low of an offer… But I feel like you need to put in the offer that makes sense for you, and not fall in love with the property and get it just because you want another property. It has to make sense for you, and don’t be afraid to put in a lower offer than what it’s listed for.

Joe Fairless: Can you give us a specific example of what a property was listed for and what you offered, and the result of that?

Elenis Camargo: Sure. Our latest purchase was listed for 222k, and we originally offered 170k, so it was much lower than the listing price… And we ended up settling at 195k. We went back and forth a few times; our best and final was 200k, and their best and final was 210k. So after we told them we can’t go up to 210k, they waited a few days and then they came back to us and said “Okay, we’ll take your 200k deal.”

And at the time we wanted to delay the closing a little bit because of our job situation… I was switching jobs and I wanted to make sure that that was secure beforehand… So I asked them for a 90-day close, and the 200k price, and they agreed to that. And then eventually, down the road, during the inspection we realized there was foundation issues, and also the appraisal came in lower at 195k, so they agreed to the 195k price. We closed 30 days sooner than they originally asked for, and they paid the 5k foundation repairs; they put that in escrow for us. So we ended up with a much lower price.

But all of our properties – we’ve acquired them at least 10k below what it was listed at.

Joe Fairless: We’re gonna do a lightning round. Are you ready for the Best Ever Lightning Round?

Elenis Camargo: Yes.

Joe Fairless: Alright, let’s do it. First, a quick word from our Best Ever partners.

Break: [00:24:22].26] to [00:25:13].17]

Joe Fairless: Best ever resource that you use in your business?

Elenis Camargo: I would say people. I talk to a lot of people, I learn from a lot of people, and I teach people as well. So I would say this is a people business, and it’s really important to learn from each other and help each other out.

Joe Fairless: Best ever way you like to give back to the community.

Elenis Camargo: I would say the same way I talk to a lot of new investors, I write a lot of content, a lot of blogs, and I have a newsletter, so I like to give back to the real estate community by writing the knowledge that I’ve acquired over the past few years, and then a lot of new investors reach out to me and ask me questions, and I pretty much give them my time, just as I would have wanted someone to do for me when I was starting out.

Joe Fairless: And on that note, how can the Best Ever listeners learn more about what you’re doing and read that content?

Elenis Camargo: Sure. So they can sign up to our newsletter on our website, which is ThirdStoneProperties.com. They can also follow me on Instagram @investoremc. I post on there regularly and share our content on there as well.

Joe Fairless: Thanks for talking about how you’ve built your portfolio remotely, sight unseen, and how you have built your team on the ground to help you execute on those projects… And then how you got creative with a business partner to continue to grow the portfolio.

Thanks for being on the show. I hope you have a best ever day.

Elenis Camargo: Thank you so much.

Joe Fairless: Yeah, I enjoyed it. And talk to you again soon.

Elenis Camargo: It was great being on.

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JF2124: Beginner Tyler Caglia Shares 5 Steps In Investing Out of State

Tyler has always been interested in investing in real estate but living in California he has always felt like it was tough to do so since the houses were so expensive. He recently discovered and consumed Joe’s show and Bigger Pockets content and afterward has quickly started investing in long-distance single-family homes in Ohio. He shares his 5 step process on how he goes about investing.

Tyler Caglia Real Estate Background:

  • Full-time project manager managing multi-million dollar projects for a civil construction company
  • Has been investing for 10 months
  • Currently owns 3 long-distance single-family rentals based in Ohio
  • Based in Clovis, California
  • Say hi to him at tcagliareiATgmail.com

 

 

 

Click here for more info on groundbreaker.co

Best Ever Tweet:

“If you over analyze everything and overthink it you will never finish your first deal.” – Tyler Caglia


TRANSCRIPTION

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

Tyler Caglia: Good, Joe. Good to be here.

Joe Fairless: Well, I’m glad to hear that, and it is nice to have you here. A little bit about Tyler – he’s a full-time project manager, managing multi-million-dollar projects for a civil construction company. He’s based in Clovis, California. He’s been investing for ten months. He currently owns three long-distance single-family rentals. Based in Ohio. With that being said, Tyler, do you wanna give the Best Ever listeners a little bit more about your background and your current focus?

Tyler Caglia: Yeah, Joe. So I’ve always been interested in real estate, but living in California, as we all know, it’s very expensive and the conditions can be unfavorable for landlords… So about a year ago I discovered the Best Ever Podcast…

Joe Fairless: I recognize that…

Tyler Caglia: Yeah. As well as Bigger Pockets… And I read, as everyone seems to do, Rich Dad, Poor Dad. I was hooked from there. So I kind of realized how accessible real estate can be, and I was determined to jump in, and right away started buying long-distance properties. Ten months later, I’ve got three in Columbus, Ohio.

Joe Fairless: So talk us through how you ended up there.

Tyler Caglia: I’ve kind of got a five-step strategy that I outlined a little bit.

Joe Fairless: Oh, nice!

Tyler Caglia: Not just for finding Columbus, but just for deciding on my strategy overall…

Joe Fairless: Okay, please. Yeah, good.

Tyler Caglia: So I kind of started with education, obviously, which there’s plenty of great books out there, podcasts, like I’ve already said, and I’ve done a lot of research… I identified a strategy; that was my second step. With California being so expensive, I wanted to go long-distance. I think most people are familiar with the BRRRR strategy, which I felt like was attractive… And I wanted to self-manage before I hired a property manager, so I can understand the whole process and what I’m looking for.

For funding, I took out a HELOC on my primary residence.

Joe Fairless: Okay. Are we still on number two, identify strategy, or are we on three, funding?

Tyler Caglia: Alright, so number three would be funding.

Joe Fairless: Okay.

Tyler Caglia: So I took out a HELOC on my primary residence…

Joe Fairless: Alright… And how much was the HELOC for?

Tyler Caglia: I’ve found a HELOC that was 100% loan-to-value. I ended up getting — due to some natural and forced appreciation of my personal residence, I was able to get one for 100k. So that was really cool. It took a while to find a lender that would do that, but once I did, it was a pretty easy process.

Joe Fairless: Let’s talk about that a little bit, and then we’ll go to four… Natural and forced appreciation on your primary residence – what did you buy it for? And I assume it appraised for 100k, since it was 100%…?

Tyler Caglia: Well, they allowed me to go up to 100%. So I was at about 80% with my primary mortgage.

Joe Fairless: Oh, got it.

Tyler Caglia: So the HELOC covered that other 20%.

Joe Fairless: Okay. So you got 20k.

Tyler Caglia: No, sorry – so basically my balance due on my mortgage was about 240k. My home appraised for 340k.

Joe Fairless: Understood. Every other person who’s listening was understanding it except for me, so it was my bad. Got it. So you have a 100k line of credit, and you had a mortgage on it, and the line of credit allowed  you to go up to 100% of the loan-to-value. In this case it was like 240k to 340k, right?

Tyler Caglia: Exactly, yeah.

Joe Fairless: Alright, cool. I’m with you. So you said that there’s forced appreciation… What did you do?

Tyler Caglia: So with my construction background, I’ve kind of utilized that to do a lot of — and I know it’s more difficult to do forced appreciation for a single-family home, but we’ve done a lot o upgrades around our house that really helped when we got it appraised. We basically got it appraised for the highest dollar per square foot in the neighborhood, essentially…

Joe Fairless: Oh, nice job.

Tyler Caglia: So that’s how we forced it.

Joe Fairless: But let’s talk specifics. What exactly did you do at that house to force the appreciation?

Tyler Caglia: A lot of basics – paint, updating light fixtures, new baseboard…  That kind of stuff goes a long way. We also completely redid the backyard, redid the bathrooms… I’d say overall we probably put 30k or 40k into it, and we got every bit of that back in the appraisal.

Joe Fairless: How much did you buy it for?

Tyler Caglia: 275k.

Joe Fairless: You bought it for 275k… And how much did you put into it, would you say? Approximately 30k?

Tyler Caglia: Let’s say 35k.

Joe Fairless: Okay. I apologize, you just said 30k — so 30k to 35k, got it. So you put in about 30k-35k, and you bought it for 270-what?

Tyler Caglia: 275k.

Joe Fairless: 275k. Quick math, 305k, and it appraised for 340k.

Tyler Caglia: Yeah.

Joe Fairless: And some of that was the neighborhood appreciating over the period of time that you owned it, and then another part of it was just being the best house in the neighborhood, and the proof in the pudding is it was valued at a higher price per square foot than any other home in the neighborhood.

Tyler Caglia: Essentially, yeah.

Joe Fairless: Cool. Congratulations on that. You said that finding a lender to give you a HELOC for 100% of the loan-to-value was challenging… And I’d like to know – and I’m sure a lot of listeners would – how did you find that lender?

Tyler Caglia: Most lenders wanna go up to 80% max; there’s some that would go up to 90%. Honestly, I used Google and just kept calling, and this credit union in San Diego happened to have a 100% LTV program. I’m sure there’s others out there, but this is the one I was able to find that would lend to a property in California.

Joe Fairless: How many phone calls did you make?

Tyler Caglia: Dozens… I spent probably a couple weeks, because I knew [unintelligible [00:09:07].03] heard of it, but it’s one thing to know that it’s out there, but it’s another thing to actually find it. So I’d say I spent a couple weeks just googling and calling, and then I found it and it was super-easy from there. I’ve referred them to quite a few people now.

Joe Fairless: In your case, it’s easy math – it was the difference between if it’s 90%, $10,000; if it was 80%, then it was $20,000. Right?

Tyler Caglia: Yeah.

Joe Fairless: So you got that line of credit, and then what did you do with the line of credit? And I understand that we’re still going through your five-step process, but I’d love to hear what you did exactly with that 100k once you had access to it.

Tyler Caglia: I essentially used that to buy my first rental… So using a HELOC when you’re buying a property – it’s essentially the same as cash. So I used that to purchase my first rental in Columbus outright.

Joe Fairless: Okay. And what are the numbers on that? Purchase price, renovation costs, what’s it rent for, what’s the value of it?

Tyler Caglia: The first one’s a three-bedroom/one-bath, with a garage, that we found  on the MLS. They were asking 65k, and this was actually on day one of looking for a property. So I just by chance got lucky. They were asking 65k, and my realtor said “Hey, this one’s gonna go fast. If you want it, you should probably offer more.” So we offered 71k, they accepted the next morning. Rehab was about 18k, and it appraised for about 107k once I refinanced it six months later.

Joe Fairless: Wonderful!

Tyler Caglia: Yeah.

Joe Fairless: You said six months later; okay, got it. Six months later, you’re done with the rehabs, and it appraises for about 10k-15k more than what you’re all-in at?

Tyler Caglia: Yeah.

Joe Fairless: Okay, cool. Congratulations on that, right out of the gate. It’s day one of looking on the MLS and you’re making not only your offer, but you’re making an offer higher than what’s being asked for the property. Any thoughts going on in your head at the time, like “Wait a second… What am I doing here? I’m making an offer day one of looking. One, am I jumping the gun? And two – listen, I see that you want 65k, seller, but I’m gonna hook you up with 71k.” Any alarm bells going off? And it ended up being a good deal, it sounds like, but any internal dialogue that you had about that?

Tyler Caglia: Yeah, absolutely. Of course, it can be nerve-wracking to buy something that really I’ve never seen. My realtor – he’s fantastic. He walks through it and sends me a very detailed video as he walks through the property and kind of points everything out, and then we come up with a rehab budget… But ultimately, you’ve gotta be prepared to just kind of make that decision on the spot. If you over-analyze everything and over-think it, you’re never gonna known out that first deal, and you’re never gonna get to that second deal.

So eventually I had to take that leap of faith and realize that I’m dealing with a realtor that I had known at that point for at least a month; he has fantastic reviews on Zillow, Realtor… Anywhere you can check, he’s got five stars, with hundreds of reviews and dozens and dozens of recent sales. So at some point  you’ve gotta realize that somebody with that kind of a reputation is mostly likely not going to risk that reputation to make a couple thousand bucks on a commission. Not to say it doesn’t happen, but that was kind of my thought process, that at some point I have to trust that his advice is solid, and my research is solid, and I’ve just gotta take that leap of faith. I knew the market was hot, and I wanted that first deal, and at 71k I knew it was still a good deal.

Joe Fairless: Earlier you said “we”. When you said “We were looking at the MLS”, was that you and your real estate agent, or was that you and your business partner, significant other…?

Tyler Caglia: My agent.

Joe Fairless: Your agent, okay. And are you single?

Tyler Caglia: No, I’m married.

Joe Fairless: So what was the conversation like with your significant other? “Hey, I’m gonna look at properties today. Oh, I’m gonna buy a property. Oh, I’m gonna make an offer more than what’s being asked for this property,  and as you know, we’re gonna use the equity we have built up in this house to purchase it.”

Tyler Caglia: So it’s a crazy process, especially buying it with HELOC, or essentially cash… You sign everything over DocuSign, essentially. It’s not like a typical mortgage where you have a notary… So it’s crazy. You’re buying a house and you’re just doing these electronic signatures… It’s a crazy process. And she trusts me… I had done a lot of research, and she knew that I kind of knew what I was looking at, and I had found the best realtor I could essentially find, who owns dozens of his own rental properties; so a rental property is nothing new to him. Eventually, she trusted me and I trusted the process and I trusted my agent, and we just kind of went for it.

Joe Fairless: Step one, learning. Two, identity strategy. Step three, identifying where or how you’re gonna fund the property. What’s step four?

Tyler Caglia: So step four was where I found the market. I’ve had a lot of new investors reach out to me on Bigger Pockets especially, saying “This is where I can tell they get stuck.” They get stuck in analysis paralysis. And in my opinion, a lot of times they over-analyze this part, identifying a market. I’ve heard people say they identified thousands of markets, and this and that… And to me, that’s more important the bigger you go, but for single-family homes I think you just need to stick to some of the basics… Because in reality, that home is surrounded by other property owners, and you can do all the research in the world, but nobody knows exactly what that neighborhood is gonna look like in 20 years. You don’t have the kind of control that you would with an apartment complex.

So I tried to stick to the basics. Priority number one was a price to rent ratio – I wanted that strong cashflow, so I started just basically networking and doing some basic research to identify where are people talking about the cashflow is. And then I would kind of follow up by just looking at some basic data of what are homes selling for and what are they renting for.

And then of course, overall you wanna look for good employment and population data. You obviously don’t want it to be dependent on one industry. Columbus seemed to be strong in that aspect. I wasn’t too concerned about long-term appreciation right now, and in the Midwest typically you’re not gonna find that as much. So from there I kind of narrowed it down to 5-10 markets pretty easily… And finally just kind of picked one and jumped in.

I was looking for neighborhoods with low crime, B- to C ratings, and then I wanted to be all-in for over 100k.

Joe Fairless: Now, one follow-up question I should have asked you about that property that you bought with the home equity line of credit – I asked you the numbers, we talked about how much you bought it for, how much you put into it… You bought it for 65k, you put in about  18k, what it appraised for afterwards… But what’s it rent for?

Tyler Caglia: It rents for $1,150, and it’s a good neighborhood. The renters that I’m getting – they work for banks, and solid jobs like that. So it’s a cash-on-cash return, plus or minus 28%. After expenses, I’m cash-flowing about $350.

Joe Fairless: Amazing. That is a good cashflow. So how do you think about that with your line of credit? Because you did buy it all cash… So if you look at “Hey, I’m making $350 on that amount of out of pocket”, your cash-on-cash return from that standpoint is not as strong as if you had leverage.

Tyler Caglia: Yeah, so that doesn’t take into account that the money came from a HELOC. Exactly. That’s a great point.

Joe Fairless: Any plans to refinance that out into a loan and get access to that HELOC money again?

Tyler Caglia: Well, I guess I never explained — so when I refinanced at six months, I then paid off the HELOC.

Joe Fairless: Oh, got it. Okay, cool. Good.

Tyler Caglia: Yes. So during that six months I was putting my own cash, paying off the HELOC to the point where when I refinanced, essentially my HELOC was whole again. So in reality I did have essentially my own cash in the deal. It ended up being about 12k or 13k overall. So at 25%-28% cash-on-cash – I’m pretty happy with that.

Joe Fairless: I think everyone would be pretty happy with that. Nice work. So what are the numbers on all three of the properties? We talked about the first one, so you don’t have to talk about the first one.

Tyler Caglia: Yeah, so what’s funny – you asked about whether it was nerve-wracking buying more than they were asking… That was actually my best deal. The second and third are pretty close… The second one – again, we found it on the MLS. They were asking 69.5k and we bought it for 69.5k. We put about 17k into it. I’m refinancing it now, and it should appraise for about 110k. And I’ve got a renter in there for $1,125. And again, cashflow after expenses is about $350/month.

Joe Fairless: And the third one?

Tyler Caglia: The third one – that one’s a little trickier. So all three of these are 3-bedroom/1-bath. This one we got from a wholesaler. He was asking 80k, we bought it for 77.5k. It’s occupied, and I’ve had to put about $1,000 or so into it. They needed a new fridge and some smaller repairs. I’m refinancing that as well, and it should appraise for about 100k.

My problem there – and I realize how difficult it is to take over an occupied property… He was only paying $580/month, and the market rent is about $1,000. They’re on a fixed income, so I’m trying to raise it slowly, hopefully to $800 or so shortly, and then I’ll try to raise it at 10% or so after that per year. So once I get it up to market rent, I’ll hopefully cashflow about $300/month… But right now I’m kind of breaking even.

Joe Fairless: 3-bedroom/1-bath for all three of them… Why that setup, instead of say 4-bedroom/2-bath?

Tyler Caglia: We’ve put in offers on some 4-bedroom/2-bath, and I think the cashflow would be even better… I just haven’t been successful yet, for some reason, in this area. In Columbus there’s a substantial amount of 3-bedroom/1-bath homes, which I’m not used to as much; at least it seems like in California you see a lot of 3-bedroom/2-bath… But yeah, that’s just kind of the hot spot right now, what we’ve been successful with.

Joe Fairless: What’s step five of  your strategy? Steps 1) learn, 2) identify strategy, 3) funding, 4) market… What is five?

Tyler Caglia: Five is finding the team. That’s what I found with my real estate agent. One of my favorite quotes from David Green, “Rockstars know rockstars.” That couldn’t be more true, at least from my experience. My agent introduced me to a great lender, and then I’ve also been introduced through other investors to a good property manager that I’ve recently hired… And it’s been good.

Joe Fairless: You’ve found the agent through what method?

Tyler Caglia: Essentially just on Zillow, actually. I said I’m gonna go ahead and just try to call the highest-rated guy I can find, and go from there. Zillow shows you who has the most recent sales and the highest ratings in the area, and he kept popping up, so I said “He probably won’t be able to take me on right now, but I’ll give him a call…” And we just kind of clicked. I had a good strategy in mind, and he saw that, and he kind of had a good idea of what I was looking for, and it worked out great.

Joe Fairless: Based on your experience, what’s your best real estate investing advice ever?

Tyler Caglia: I would say don’t overthink it when starting out. Think of the first few properties as the learning experience and look for base hits. I wouldn’t say any of my deals have been home runs, but the amount I’ve learned is unbelievable, and my cashflow is stronger than expected. If I had been waiting for the perfect deal, I’d probably still have zero properties right now.

Joe Fairless: Based on what you’ve learned, how would you approach deal 1 differently, if presented the exact same thing now?

Tyler Caglia: I don’t know that I would change deal number one. Funny enough, but I think —

Joe Fairless: Deal number three, the tenant? [laughter]

Tyler Caglia: [unintelligible [00:21:40].26] Deal number one, I think the biggest thing was the six-month seasoning for the cash-out refi. I’ve since done a lot of research and figured out a way around that.

Joe Fairless: How?

Tyler Caglia: From what I’m told, it’s essentially put the rehab price on the settlement statement, you put it on the purchase side, on the seller’s side. Because when you do a cash-out refi, essentially you can refinance out what you purchased it for. So if you put the rehab on the purchase side, you can refinance out the purchase price and the rehab. That’s yet to be done, but on my next purchase that’s what I’m hoping to do, so that I can refinance it out as soon as I finish the rehab.

Joe Fairless: We’re doing a lightning round. Are you ready for the Best Ever Lightning Round?

Tyler Caglia: Yeah.

Joe Fairless: Let’s do it. First, a quick word from our Best Ever partners.

Break: [00:22:31].23] to [00:23:22].19]

Joe Fairless: Best ever book you’ve recently read?

Tyler Caglia: Funny enough, when I got asked to do this podcast, I had just finished your book, The Best Ever Apartment Syndication Book. It was fantastic.

Joe Fairless: I’m glad to hear that. What is the best ever way you like to give back to the community?

Tyler Caglia: I’ve been networking a lot recently, sharing the numbers for my first three deals with new investors, and a lot of them have reached out to me, private-messaged me, and I’ve been trying to give back in that way.

Joe Fairless: On that note, how can the Best Ever listeners learn more about what you’re doing and get in touch with you?

Tyler Caglia: You can find me on LinkedIn, Instagram, or even preferably just email me, tcagliarei@gmail.com.

Joe Fairless: Tyler, thanks so much for being on the show, talking about your 5-step process for how you get started, and put idea to actually action, and then the lessons you’ve learned on each of the three purchases, how you got creative… And quite frankly, just you make it happen with what you want to do, from Google searching, and continuing to call the credit unions until you find one that is what you’re looking for with the line of credit, to just taking a very practical approach of “Hey, I’m gonna find the best agent rated on Zillow, I’m gonna call him/her and I’m gonna try and work with them.” That makes a lot of sense. It’s very practical and logical, but you also have to have persistence, and you clearly show that… So thanks for being on the show. I hope you have a best ever day, and we’ll talk to you again soon.

Tyler Caglia: Yeah. Thanks, Joe. I appreciate it.

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JF2121: Trial Run to Successful Growth With Cory Iannacone

Cory is an attorney in Harrisburg, Pennsylvania with Pillar+Aught and in 2016 he started to get involved in real estate investing. His first deal was with his mother where they decided to rehab his father’s place and rent it out for his mother. This experience worked out as a great trial run for him and a great investment for his mother. He shares how he was able to go from 2 units to 18 and a parking lot in one year.

 

Cory Iannacone Real Estate Background:

  • A Lawyer with Pillar+Aught.
  • From Harrisburg, Pennsylvania
  • Been Practicing law for the past 15 years.
  • Started in real estate in 2016.
  • In 12 months Nov 2017-Nov 2018 Coy went from 2 units to 18 units and a parking lot. Putting under contract over 1M in real estate investments at that time 
  • Say hi to him at : Cory.iannacone@gmail.com  

 

Click here for more info on groundbreaker.co

 

Best Ever Tweet:

“I will gladly pay a couple of hundred bucks for somebody who is actually reliable, who can get the job done and I don’t have to worry about it” – Cory Iannacone


TRANSCRIPTION

Joe Fairless: Best Ever listeners, how 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, Cory Iannacone. How you doing, Cory?

Cory Iannacone: Very good, Joe. Very good.

Joe Fairless: Well, I’m glad to hear that, and a little bit about Cory – he’s a lawyer, he lives in Harrisburg, Pennsylvania, been practicing law for 15 years. In 2016, started real estate investing while maintaining his job and 12 months, from November 17 through the next November, November 18, he went from two units to 18 units and a parking lot. He put under contract over a million in real estate investments at that time, he’s used all types of financing. So we’re going to dig into that and talk about it. So with that being said, Cory, first do you want to give the Best Ever listeners a little bit more about your background and your current focus?

Cory Iannacone: Yeah, I think you nailed it with the background right there. I am an attorney in Harrisburg, Pennsylvania. I’m originally from Maryland, and I’m up here in Harrisburg, Pennsylvania now. That’s my primary job, an attorney, but in 2016, I started getting involved into real estate investing, just something different to do. I have passion for it and it’s just taken off for the last three or four years.

Joe Fairless: What type of attorney are you?

Cory Iannacone: A good one.

Joe Fairless: You’ve used that line before.

Cory Iannacone: I have. You’re not the first one that’s asked me. I specialize in labor and employment issues. So people getting fired from their jobs, suing their employer, discrimination issues and also union issues.

Joe Fairless: Okay, got it. So I interrupted you. You had a good flow going and I just jarred it. So from a real estate standpoint, tell me about the latest.

Cory Iannacone: My focus, I think it’s what we were talking about, is multifamily. Cash flow. Just looking for that passive income is something different to do than the 9 to 5 or exchanging your time for money; I just hate that idea. So that’s been my focus, and that’s just what I’ve been doing for the last three years. Most of my properties are smaller. They’re the two to four-unit size. You mentioned before, I do have a parking lot in there, which was interesting. It was part of a package deal I bought, and it turned out to be probably my best purchase, I’d say.

Joe Fairless: So let’s dig into some specifics. So did you just have an epiphany in 2016 that you wanted to start real estate investing?

Cory Iannacone: It was either epiphany or a midlife crisis. I was flying down to my sister’s wedding in Key West and I picked up Rich Dad, Poor Dad by Robert Kiyosaki; cliche, but I have to read for my job. So I mean, I read all the time, but not really fun… And I knocked that book out in two days. I’ve never read something that quickly or not been able to put it down. I think what it was is he was just able to put into words what I’ve always thought in the back of my head for the last 36 years of my life, and just something clicked. And I remember flying back from the wedding and– by the way, backstory – my grandfather passed away two years prior and his house had just been sitting vacant all that time. So I’m flying back with my mother and I turned to her on the plane and I said, “Let me rehab pop’s house and rent it out for you. I mean, right now, how much money do you pay here in taxes, the electric bill, the utilities and it’s just doing nothing. If you let me do this, I promise you’ll never have to pay another penny out of pocket, but even better, you’ll get a check every month, put money in your pocket; you’ll make money off of it.” So that’s really my epiphany/midlife crisis back in 2016 that started this big snowball rolling down the hill.

Joe Fairless: So first one, was it a duplex?

Cory Iannacone: That was just a single-family house. That was my grandfather’s house. So what I did was– it’s a longer story, which I don’t think we should get into, but I was going to purchase it initially, my mother didn’t really want to get rid of it. So long story short is she just kept it. She was willing to finance the rehab and I used it as an opportunity to just get the experience of what exactly you need to do – the construction part of it, the rehab, renting it out. It was a trial run for me where I really wasn’t putting any of my money into the deal, and it’s working out great for her. It’s listed at top rent, she gets a check every month and it just coasts. But once that happens, I’m up in Harrisburg, I decided to find a duplex closer to me. A lot of shopping around and eventually I landed on a duplex that my realtor said he hasn’t listed it yet, but he’s getting ready to list it and I just jumped on that opportunity.

Joe Fairless: Okay, so let’s talk about that one. Tell us about that deal.

Cory Iannacone: It’s located in the historic district in Harrisburg, which is an up and coming area. They spent the last 15 years or so– a lot of revitalization going on the area. So they’ve been taking these old historic houses that were built in around 1900 and just updating them. They have great bones, they’re all brick houses, they’re gorgeous on the outside, but the inside just needs some love. A lot of these houses were chopped up back I think in the 70’s including duplexes, triplexes, quads and turned into rental units. So that’s what this was. Old house, it was a duplex. So the first floor apartment’s rented out, but the second floor apartment was just rough and needed a lot of love and it was vacant. So that’s when I jumped in and purchased it.

Joe Fairless: What are the numbers?

Cory Iannacone: I ended up paying $115,000 for that. And you always end up learning, you put more money into that place that you initially budget for and anticipate, especially on your first deal; a lot of things come up, especially the older houses. So I think I ended up putting in around $40,000; and I rehabbed that second apartment that was vacant, so that’s part of it, but then the first floor apartment became vacant about 10 months later. So that includes that too.

Joe Fairless: You started out with a duplex and in the bio, it says, “Two units to 18 units and a parking lot.” Now, are those 18 units in total how many, or did you buy an 18 unit?

Cory Iannacone: No, no. It’s in total and they’re all comprised of two-units and three-units. There’s actually going to be four two-units and then there’s three three-units, plus the parking lot.

Joe Fairless: So you found something that you like that’s working for you that’s the two and three-units. Tell us about of those purchases, which one has been the most challenging?

Cory Iannacone: I’d say, financially the most challenging would definitely be a duplex, which I love today. It’s a great house, great building, but it just required way more money than I initially anticipated when I bought it. I bought that one for $110,000. It was all single-metered for everything, the gas and the electric. So I looked at the numbers and the numbers looked atrocious from the seller, because he was paying that bill all himself. The places need to be fixed up, so I ended up splitting the electric and splitting the heat which was very expensive, and more than I initially anticipated.

Joe Fairless: How much?

Cory Iannacone: The electric, I ended up spending between $2,000 and $3,000 at the end. And the longer story there – I had an electrician I was working with, but I decided I really should shop this around, and I got a new electrician in there, but he wasn’t licensed in the city and he had issues pulling the permits, and…  I would have been better off just paying extra couple hundred bucks with the person, and that was a tough lesson to learn there.

Joe Fairless: Why did you switch initially?

Cory Iannacone: Just because I was new at the time and I was using the same electrician; getting good work, but I always felt that I was paying just a little more.

Joe Fairless: Okay.

Cory Iannacone: I always thought, maybe I could save a few dollars here and there. But going back to that same guy because you know what, I will gladly pay an extra couple hundred bucks for somebody who’s absolutely reliable, gets the job done and I don’t have to worry about it.

Joe Fairless: Alright. What about the heat?

Cory Iannacone: That was more expensive. That was closer to $10,000, because I had to put a new furnace in there. So at least the first floor apartment, we ended up putting central air in there, because that’s the new heat source we put in for the first floor apartment. All the other ones were running on a gas boiler. So we just kept that to run this apartment number two, which was floors two and three of the building.

Joe Fairless: Okay, and did you know going into it that splitting the heat was going to be 10k?

Cory Iannacone: No. Initially, I think I was budgeting for $6,000. So it’s just a couple thousand dollars add up, but it’s that and there’s a lot more that added on to that.

Joe Fairless: What was it that changed the estimate? Because I imagine that did your research and you spoke to someone like, “Hey, I got to split the heat. I need to make an offer. You need to make sure these numbers work. How much is it? 6k? Great. I’m gonna roll with that.” What changed?

Cory Iannacone: I don’t know, honestly. It’s a great question, but when you’re backs to the wall and things needs to get done, I don’t really have a bargaining at that point. I know the electric initially– the first guy I told you [unintelligible [00:11:30].08]. So he’d probably get this done for $2,000, and then he was saying, “Well, no more than $3,000,” and that’s where I got a bad feeling and I said, “Let me get somebody else in who I know is definitely gonna get this done for less money,” and that’s what caused the issue there. The heat, I think part of it had to do with those radiators were much heavier than I realized in the building. It was removing the radiator, cutting holes, and I don’t know if that was the only thing. So it’s just an estimate in the beginning when he initially just looked at it, and then we actually get in there, and then he gave me his final quote.

Joe Fairless: Is this deal the one that you did the most amount of work on in terms of dollar amount?

Cory Iannacone: Dollar amount? Yes. So one other thing I missed was repointing. These old historic houses are all built brick. I’ve repointed before. That first duplex I told you, I did some repointing there, but this one needed the entire side repointed and I just didn’t catch that when I initially went through to purchase it, and they’re big buildings too. So the same guy who did repointing also added some gutters. I ended up paying him just over 7 grand between repointing, brickwork and gutters on the place.

Joe Fairless: After the dust settled, how did the numbers look on that one?

Cory Iannacone: So that one, I bought for $110,000, and I ended up putting close to $60,000 into that place by the end of the day when everything was done, and that includes rehabbing both apartments.

Joe Fairless: What’s it rent for, all-in $170,000?

Cory Iannacone: Oh, yeah. The first floor apartment rents for just over $1,000; it’s $1,005, and upstairs rents for $1,250. So it’s just under $2,300 a month on that duplex; and then my mortgage on the thing’s $1,100, and I’m on the hook for water, sewer, trash. So trash, I spent 30 bucks a month and water sewers, something around $70, $80-ish a month. So it’s still cash-flows at the end.

Joe Fairless: How did you find so many properties within a relatively short period of time?

Cory Iannacone: Good question. So I did the first duplex, and you notice – it’s so addictive, especially when you’re getting started that I was depressed when I finished it. I rehabbed that first apartment and I was like, “I want to do this again; this job’s done. I can’t just sit back and do nothing.” I called my realtor and another duplex had just gone on the market, and we went and looked at it the same week I finished the rehab on the first one and rented it out, and I told him to just put an offer on the thing. I did and I got that and that was November of 2017. So that’s the first duplex, which ends up getting rehabbed. I finished that one up in February of 2018. Once that’s done, I did my own direct mail marketing campaign. I sent those all out and I got some hits off of that, but what I did was a cash out refied on those two duplexes I had and I got close to $50,000 cash. I had enough for two down payments on two more buildings just like the ones I just did. So that’s what started that. I found two more. I found somebody in Colorado who had a three-unit and a two-unit. The one two units, the one we were just talking about, the money pit one.

Joe Fairless: Someone in Colorado, so an out of state owner?

Cory Iannacone: Yeah, he used to be here, but he ended up moving out to Colorado. He got one of my mailers and so he called me. So I bought those as a package. Once I signed the contract on that, another three units in a perfect location went on the market and it was way below value. So I called my realtor right away and I said, “I want to put an offer on this place and go take a look at it,” and he told me this is way undervalued. It’s going to go for way more than that. So I said, “Alright, I’ll offer $105,000.” He said, “You’ll never get this place for $105,000. It’s gonna go for a lot more” and I said, “I’m okay to offer up to $110,000,” and he goes, “You’re never going to get it. It’s going to go for a lot more,” and I said, “Make it a cash offer because I don’t care. I don’t even have the money because I’m buying this three-unit and two-unit. So that’s where my cash is going anyway. So I don’t have $110,000; it doesn’t matter if I don’t get it,” and he calls me later that night and he says, “You’re not gonna believe this. You got that three-unit, and the reason I told you you weren’t going to get it is because my other clients, he put in for $125,000 for it, but he did a conventional loan. You did cash and they were really scared. The seller’s agents just not from the area and doesn’t realize what this thing’s worth and was scared it wasn’t gonna appraise. So they want you to buy it.” So it was like– I don’t know what the feeling was. I was happy but—

Joe Fairless: Confused? [laughs]

Cory Iannacone: Confused, sad, scared, all of it. I mean, it was like I was going through all these emotions at the same time. It was late at night; it was 8 or 9 o’clock at night. I went to bed, I woke up the next morning, I just got on the horn and started calling everybody who told me, “Oh, we’re totally in. If you ever find a deal, let us know. We’re totally in.” Well, I don’t know if you’ve ever done that, but everybody who says they’re in when it actually comes to [unintelligible [00:16:15].02] to play ball, people get nervous about it. They’re like, “Well, my money’s tied up in brokerage accounts. So maybe in December, maybe three months from now.” I was like, “No, I got seven days to come up with cash.”

So long story short, there was a doctor who I had a relationship with and he’s like, “I’m gonna give you $60,000 for this. I’m behind this, I want to learn about real estate anyway, I trust you.” So he gave me $60,000. I got hooked up with a hard money guy who’s like, “I’ll give you $100,000.” I was like, “Just give me $60,000. That’s all I want right now.” So he gave me $60,000, I closed on that deal, and that one turned out– that one cash-flows very well. So there’s three units in that. The first two rents for $900 and upstairs, which is not rehabbed yet, that one rents $600. So you’re up to $2,400 coming in. My mortgage on that one’s just over $900 bucks a month. So it was my most anxious one probably I ever bought, but it also was very profitable.

Joe Fairless: How many people did you speak to prior to getting to the doctor?

Cory Iannacone: Well, I talked to the doctor the first time; he said, “No.” That was two or three follow up phone calls. He actually told me, “I’m pulling in if this other guy’s in.” I was like, “Well, the other guy actually said he’s not in.” So then he’s like, “Well, I don’t know. Let me think about it.” I don’t know. I sent so many emails. This is just on one day. I would imagine I hit close to 20 people between emails and phone calls. Just anybody I know who said they might be interested in it.

Joe Fairless: You had multiple calls with that doctor… Was it initially no, and then you’re like, “I’m gonna give them one more call” or was it, “Maybe talk to me in a day or two”?

Cory Iannacone: Well, initially, it was, “I’m totally in if someone else’s in,” because we all know, we all three go in together, and I was like– I already knew the other guy was not in because his money’s tied up and it just wasn’t the right time for him. So I was like, “Look, the other guy’s not in. It’s just gonna be you and me,” and he’s like, “I really got to talk to my wife about this. I’m not sure.”

So it was two or three follow up phone calls where he talked about “well, how would it be arranged? What’s the second one were we doing? Am I gonna get an ownership interest? Am I just loaning you the money?” We talked that through, and then I remember getting the email. He actually emailed me later that day and said, “You know what? I spoke to the wife. We’re in. I trust you 100%.” So that was that.

And then right at that same time, right after I closed on that, and the other two from the Colorado guy, the three unit and the two unit, I got another hit on a mailer who is this woman who said, “My mother, she’s 87 years old. She’s living in the area. She’s got 50 units. She’s been doing this for 30 something years, and she’s moving to North Carolina. Do you want any of them?” She lived in a duplex in a great location. Next door to the duplex was a three unit and there was also a single family that was next to it, and there was also a parking lot which she owned all of them. They were all right next to each other. So I was feeling ambitious after I got that one three unit with no cash, so I told her, “I’m grabbing [unintelligible [00:19:09].02]

Joe Fairless: Cash. I’ll pay double.

Cory Iannacone: Well not that ambitious. Not that ambitious.

Joe Fairless: Okay.

Cory Iannacone: I told her– I go, “I’ll take them all, but I have no money, and I need you to finance the deal,” because I knew she owned the mall outright; except she had a HELOC on the two units she lived in. But the other one she owned outright. And she said, “Okay, that’s fine,” and I asked her to delay the closing on the two unit, so we get the other ones locked up, and she was fine with that. So she financed those deals. One was the parking lot and that was probably my more interesting deal if you wanted to hit on that.

Joe Fairless: Real quick. I wanted to ask you about that, yeah. Will you, just high level?

Cory Iannacone: Yeah, real quick. So my realtor told me– I think the parking lot’s probably– I ballparked $60,000 or $70,000 is probably what you should go in for an offer. I had known from the daughter, the daughter told me the neighborhood already offered $24,000. So I said, “You know what? I’m going to offer you the same the neighbor did, $20,000.” She came back with $30,000. We agreed on $25,000. The day I closed where she was financing, I called my bank and said, “I need a mortgage on this thing.” I actually told her not to renew any leases on these parking lot spaces, and what I did was I paid the rent for the parking lot for the first month, so she wouldn’t renew it, and I did brand new leases where I increased the rents on all of them, because I knew they were way below market value. So when I called my bank, I said, “Here’s all the new financials on the parking lot.” The bank came out, they appraised it at $60,000 with the new rents on there; it’s commercial. So within a month, I had her paid off, because the bank gave me a 75% loan on that. So $45,000 out of which $25,000 goes to pay off the seller, and there’s an extra check for $20,000 leftover which I used towards rehabbing some of the other properties.

Joe Fairless: That is such a sophisticated move. Nice work on that. Clearly, you’ve been practicing law for 15 years, so you’re a smart cookie. But just from a real estate standpoint, to pull that off into that type of structure, bravo to you. Nice job.

Cory Iannacone: Thank you. I appreciate it. It’s exciting, anxious at the same time, but it keeps life interesting.

Joe Fairless: Based on your experience, what’s your best real estate investing advice ever?

Cory Iannacone: I would focus on mindset. Honestly, you have to be in this right mindset to do anything and that’s in life in general. If you can get your mind in the right place and practice every day, whether meditation or whatever it is, I think that’s the key to everything in life, not just real estate.

Joe Fairless: We’re gonna do a lightning round. You ready for the Best Ever lightning round?

Cory Iannacone: Let’s do it.

 

Break [00:21:27]:08] to [00:22:21]:03]

 

Joe Fairless: What’s the best ever way you specifically one way – and you might do multiple – one way that you hone your mindset?

Cory Iannacone: Meditation. Every day, spend ten minutes, whatever it is just in silence and think and focus.

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

Cory Iannacone: About me specifically?

Joe Fairless: About you specifically.

Cory Iannacone: You can find me on BiggerPockets. I have some articles up there. That story that we just talked about going from two to 18 units, there’s an article that BiggerPockets blasted out. So that’s the best place to find me.

Joe Fairless: Awesome. Well, Cory, thank you for being on the show talking about some challenges with that duplex and splitting the heat, splitting electric, the challenges with some other things, but holy cow, some major wins too with those mailers. I think that’s obviously a key part of this, as well as the parking lot in that creative structure. So I enjoyed our conversation. I hope you have a best ever day and talk to you again soon.

Cory Iannacone: Thank you Joe. I appreciate it.

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JF2120: Jumping In The Market With Patrick Menefee

Patrick served in the army for 6 years and is the founder of Invest DGP. Patrick started investing in June of 2019 and has acquired 12 units. Patrick is very open to sharing some of the hard lessons he learned from jumping in the market quickly and how he was able to improve his units and double his rent collections. 

 

Patrick Menefee Real Estate Background:

  • Founder of Invest DGP
  • Served in the Army for 6 years
  • Started investing in June 2019
  • Owns 12 units
  • Located in Charlotte, North Carolina
  • Say hi to him at : https://www.investdgp.com/ 

 

 

 

Click here for more info on groundbreaker.co

Best Ever Tweet:

“Never have your inspector and appraiser go out to your property at the same time.” – Patrick Menefee


TRANSCRIPTION

Joe Fairless: Best Ever listeners, how 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, Patrick Menefee. How you doing, Patrick?

Patrick Menefee: Hey, Joe, I’m good. How are you?

Joe Fairless: Well, I’m doing well and looking forward to our conversation. A little bit about Patrick – he’s the founder of Invest DGP, he served in the Army for six years – so thank you, Sir, for that – and he started investing in June of 2019. He owns 12 units, and he’s located in Charlotte, North Carolina. So with that being said, Patrick, you want to give the Best Ever listeners a little bit more about your background and your current focus?

Patrick Menefee: Absolutely. Thanks, Joe and thanks for having me on. So like you mentioned, six years in the Army right out of college, and then I ended that in about February 2018, transitioned into financial services consulting, working with banks, financial institutions, traveling every week for the last two years. As I moved and transitioned to Charlotte, that was when I realized that I wanted to get involved in real estate in some facet or another; I just wasn’t quite sure what. So I turned 30 towards the end of 2018, and that was when I started setting some goals for myself, realized what I wanted to get to, and I spent a lot of time over the next six to seven months doing a lot of education, networking, listening to podcasts, meeting as many people as I could, reading all the books that I could get my hands on… And it was in, as you mentioned, June of the following year 2019 that I really decided to start taking action, and then within about five weeks, I had 10 units under contract. They were all small multifamily; one of them a fourplex, another one was a portfolio of three duplexes that were all side by side. The fourplex, I did it down by myself and then the duplexes were all with a partner.

So once I had a little bit of a foundation, once everything was– I actually made a decision to take action. Everything happened rather quickly after that. So as you mentioned, now I own 12 by the end of the year. The other two units are also small multifamily with a partner as well, and that’s really been my focus right now. It’s been small multifamily property. Ultimately getting into some of the bigger commercial, but primarily small for right now.

Joe Fairless: You were doing a lot of education, and then when you decided, okay, now it’s time to rock and roll, in five weeks, you had 10 units under contract. What was the tipping point where you made the decision now it’s time to go buy some property?

Patrick Menefee: Actually, I’d purchased my own primary residence back in March, and the company and the guy that I bought it through, they were having a networking event. I still remember the day; it was June 6th, and I was networking with people, talking to some people. I had my plan initially, which was going to be to use the VA loan and [unintelligible [00:05:36].02] houses and slow roll it and live in a house for a year, rent it out; that was my plan, and maybe pick some up along the way that made sense. But there was one couple that I was talking to. I can’t even tell you exactly what they said, but it was the exact conversation that hit me, and I realized that they had a couple of condos that they were renting out. They were actually doing what I wanted to do, and something right there just really kicked me and said, “Why aren’t you just taking action?” After that conversation, I doved in, and that was when I found– I actually had the fourplex. I technically didn’t get under contract until July, but I found it about a week later and started the negotiations with the seller. So it happened very quickly.

Joe Fairless: Okay. So it sounds like you had just built up knowledge and things were bubbling, bubbling, bubbling, and then there was some breaking point, and perhaps in retrospect, it’s an insignificant conversation. Maybe it was similar to other conversations that you had previously, but you were just ready. It was just that time and this conversation just happened to be at the right point and place and time where it just made you have that decision.

Patrick Menefee: Yeah, it definitely did. I probably had some more conversations, five or six times a month before that, but that one just did it.

Joe Fairless: Well, let’s talk about your purchases, those 10 units. You did the fourplex yourself, you said, and then you got three duplexes side by side with a partner. How did you structure those transactions with the partner?

Patrick Menefee: It was interesting. It was a mix of– by accident when that finally worked out, and then just some overall planning. I was looking for a partner on it, and I’d been doing a lot more networking and branding to let people know what I was doing. So as a result, some people from work were interested in working together on a deal.

So I was talking to one of my really good friends that I was in the army with, and we were talking through some of the options for how I might split this up and how I might pull off a partnership with him, especially because the guy was going to be someone out of state, was primarily just going to be investing cash. We worked out some terms that we thought made sense, and then at the end of it, I could work with this guy, but I didn’t even think to ask, “Do you want to do this and do you want to get involved instead?” and he said, “Sure.” So we worked out the terms, he brought the majority of the cast to it, and I did everything else. So it ended up– because it was six units, and this was something I wasn’t totally prepared for at the time, but since it was six units, I couldn’t get a conventional mortgage, so I had to get a commercial loan; and then on top of that, the way that we worked out the negotiation, the way we worked out the partnership was he was providing the majority of the cash, but I was going to be primarily on the loan. So that was not something that I could typically do going through most of the normal Fannie/Freddie loans, because if you provide that money, it either needs to sit in your account for two months, or it needs to be from someone who’s also on the loan. So we structured it that way, and then we split the equity accordingly. Me doing all the management and all of the activities and all of the primary effort and some of the bigger portions, but we worked it out in a way that worked out perfectly for both of us.

Joe Fairless: Reminds me of the saying, “If you ask for money, you get advice. If you ask for advice, you get money.”

Patrick Menefee: I have to write that down. It’s a good one.

Joe Fairless: That’s what happened here, right? You’re asking him for advice, and you got money.

Patrick Menefee: Yeah, that’s absolutely what happened.

Joe Fairless: Well, you said you got a larger portion of– is it each of the three deals based off of your responsibilities?

Patrick Menefee: Yeah, it’s very close to 50-50, but yeah.

Joe Fairless: How do you structure it? So 60-40?

Patrick Menefee:  It’s 55-45.

Joe Fairless: Okay, got it. Very close.

Patrick Menefee: Yeah. We, on this one — it worked out really well. We said– based on the fact that I was going to be doing all the work, we set the all-in cash as a percentage of the investment. So we said, “50% of the investment is going to be for the cash. So if you bring 100% of that, you get 50% of the deal. If you bring 50% of that, you get 25% of the deal.” So that was how we worked it out. He brought 90% of the cash and got 45% of the deal.

Joe Fairless: With the three duplexes – are they located in Charlotte?

Patrick Menefee: They’re just North of Charlotte. They’re about 45 minutes north in Statesville, North Carolina.

Joe Fairless: Okay, and what about the fourplex?

Patrick Menefee: That one’s just west. All of mine are just surrounding the Charlotte area, just because multifamily is hard to come by with solid cash flow within Charlotte. So the fourplex is in Gastonia.

Joe Fairless: Okay. How did you come across the fourplex?

Patrick Menefee: It was on the MLS, actually. It had been sitting on the MLS for almost six months.

Joe Fairless: Why do you think it wasn’t snatched up?

Patrick Menefee: As I’m still dealing with it, because it was a nightmare. They had it listed way too high. It was an older couple that had a large portfolio that they were selling. So this was one of them. They had it listed at $210,000. I ended up– after negotiating with them, I ended up getting it down to $160,000, which was fantastic, but they [unintelligible [00:10:29].22] did $210,000. Yeah, I think that was a big part of it, too. A lot of people saw $210,000 and said, “Absolutely not. I’m not interested in that,” because it was way overpriced at that, but at $160,000, it worked out. So I think that was a big part of it; and it’s also a 100-year-old house. They didn’t take care of it all too well. It just got neglected over time, and it was an old farmhouse that got converted into a fourplex. So it was the perfect storm of not too great, but a great opportunity.

Joe Fairless: So, talk to us about some challenges that you’ve had with it?

Patrick Menefee: Oh boy, where do I start? How long did you say we have? [laughs] I had problems from the acquisition part initially, not even getting into what the house was. So after I got it under contract, I started going through the due diligence process. I got it under contract at the beginning of July and was supposed to close at the end of July; I wound up closing on September 13, instead of July 29. Yeah, I almost lost the deal a couple of times. I had four closing dates scheduled and I had three different appraisals done.

Joe Fairless: What’s going on?

Patrick Menefee: The first time around, the first appraiser, I learned one very important lesson that I will, at any point, share with as many people as I can, and that’s – never have your inspector and your appraiser go out to the property at the same time. I now will base all of my properties around that, because the inspector looked at some of the stuff at the house. He was just having a casual conversation with people that were around them, pointed out a bunch of problems…

Joe Fairless: They love to talk.

Patrick Menefee: But he happened to point–

Joe Fairless: They love to share their knowledge.

Patrick Menefee: Yeah, and he’s a great guy, and he’s inspected all my properties, but he just said it to the wrong guy.

Joe Fairless: Yep. He was doing his job. He was inspecting the property and documenting everything, right?

Patrick Menefee: Yeah, absolutely. Unfortunately, the appraiser also documented that. So I had it under contract for $160,000, and he appraised it at $160,000, but he appraised it as– I think it was a C4 or a C5, so it was in too poor of a condition for banks to loan on; and I went in the inspection report, and it wasn’t like he cited specific things, he just cited comments from the inspector. So aside from getting it reappraised, I couldn’t go fix a certain thing and then get it back. So I went a different route, got a different appraiser. The next appraiser did the inspection. I actually went out and got the inspection done, and then no one ever heard from him again; just fell off the map. Very strange.

Joe Fairless: That is very strange. Okay…

Patrick Menefee: And then I finally got a third one. He did do the inspection; was very slow about all of it. He actually submitted the report, but when he submitted the report, he left the address off, which then took another week to get.

Joe Fairless: Goodness gracious!

Patrick Menefee: I don’t know how he left the address off of the report. Yeah, that could have been a sign upfront of things to come… But finally got it closed. It had tenants in it, which I thought at the time was a good thing, because I could go one by one and keep producing cash flow while rehabbing each one of the units. That turned out to be a huge problem. I evicted two of them. Dealing with the units themselves has been definitely challenging just because of how poorly they were taken care of, and then one of the tenants, on the way out, she, I think, I would say out of spite, she never registered any maintenance requests or anything like that, but on her way out, she called the city and registered a complaint. So I had a city inspector out there and all that stuff.

Joe Fairless: What was the complaint?

Patrick Menefee: It was just a general complaint of code violations. I had interacted with her before when I was out there doing some other work, and she had also said in other cases, she had talked about the lease and said how the lease was full of landlord-tenant violations. I have a other property manager that manages all of that, and I was asking her about it. It’s not something that we want to do… What’s wrong with it? What do we need to do? She said, “Well, it’s just old.” So it’s one of those lessons in dealing with tenants. So there’s nothing that’s ever going to be right.

Joe Fairless: Yep, some people you can’t please, no matter what.

Patrick Menefee: Yeah.

Joe Fairless: Alright. So where are you at with the business plan right now?

Patrick Menefee: Overall, on the six units, we initiated the refinance yesterday.

Joe Fairless: On the three duplexes?

Patrick Menefee: Yes.

Joe Fairless: Right. No, I’m talking about the fourplex. You were talking about the fourplex before, right?

Patrick Menefee: Oh, I’m sorry. Yeah, I’m sorry. When you said the business, I thought you meant overall.

Joe Fairless: Oh, sorry, yeah. So with the fourplex, where’s the business plan at?

Patrick Menefee: That one, I have two units that the rent has been increased. I made modest updates to them. I would eventually like to go in and do a little bit more, but kept the current tenants in and got a pretty good ROI on the improvements that I did make. I almost doubled the rent for each of those two units.

Joe Fairless: Tell us the numbers, please.

Patrick Menefee: Yeah, so when I took over, all four units were at $350 a piece. So $1,400 dollars a month total rent. I’m now getting from the two units that I did — I put a probably about $3,500 into those two units, and increased rent to $1,350 between the two. So pretty solid return on investment.

Joe Fairless: Wait, I want to make sure I’m hearing that right. You put in $3,500 per unit, correct? So $7,000 total?

Patrick Menefee: No, no, I’m sorry. $3,500 total.

Joe Fairless: Okay, even better. So you put $1,750 total, and… Let’s just do unit by unit. That one unit is now renting for how much more?

Patrick Menefee: One unit is up to $650. The other unit’s up to $700.

Joe Fairless: Wow, that’s incredible.

Patrick Menefee: Yeah, it’s a pretty solid return on investment.

Joe Fairless: Yeah, so let’s just do the $700 one. So that’s doubling your rent from $350 to $700. Wow, it’s quite the increase. If you hadn’t improved those units, and you just turned them over to a new tenant, could you have increased the rent at all from $350, and if so, by how much?

Patrick Menefee: Yeah, I could have. I probably could have turned them to about $500 or so.

Joe Fairless: There was already value-add built into it.

Patrick Menefee: Yeah, there absolutely was. Those units had been– I mean, I think the rent had been kept the same for– I can’t even speculate. I have no idea– for a very long time; that hadn’t been touched in a while. So there was definitely room to start with.

Joe Fairless: Nice. So you increased the rent $350 and you put in $1,750, correct?

Patrick Menefee: Yes.

Joe Fairless: So that’s 20% return on those renovation dollars. Nice job.

Patrick Menefee: Yeah, I can’t really complain about that. The other ones are getting to be a little bit more — and the one thing that I will say as a caveat is because they are lived in, there was a lot of stuff that I wasn’t doing. So I didn’t rip out and replace all the cabinets. I just updated what was there, and did some stuff in the bathroom, and replaced flooring where I could and all that stuff. But doing a full sweep of it, it will definitely, when I eventually get there, it’ll cost a little bit more, but it’ll also further increase rent by probably another $50 to $100 a month.

Joe Fairless: That area supports those additional rent increases?

Patrick Menefee: Well, I guess, given the current situation, I don’t know how much rent increases are gonna happen, but generally, yes.

Joe Fairless: Okay, got it. Well, now I interrupted you on the financing for the three duplexes. Will you pretend I did not interrupt you? What were you saying about that?

Patrick Menefee: Yeah, sorry about that. We had gone through the commercial loan — because they were all three on the same property when I bought them, the first thing that I did was subdivide them. So they’re all each on their own property now, and that way, I have a lot more flexibility if I need to sell one off to recoup some cash or whatever I need to do. So I’m refinancing them also into a 30-year fixed. So I initiated a refi last night; it’s definitely not a full BRRRR. Neither of them are going to be. Definitely not going to pull out everything that I put into it, but on this one, and especially that the six units, because I only put in 10% of the down payment to start with, I’m not going to see personally a big return, but I’m going to get my investor about somewhere between $15,000 to $25,000 back. I know that’s a– I had to give him a range, but with the whole electronic appraisal and everything that they’re doing with the virus, I’m less confident in my numbers now than it was a couple of weeks ago.

Joe Fairless: Yep, and just for the Best Ever listeners, we are recording this in the middle of the Coronavirus pandemic. So I recognize that this episode airs many months after we actually record it. So when he says virus, that’s what he’s referring to.

So the interesting thing that I heard, or one of the interesting things that I heard from you is that one of the first things you did was subdivide the three so that you have more flexibility. I thought I heard you say that you got a commercial loan on it initially. If I heard that correct, how did the conversation go with the lender where you said, “Hey, I know I’m getting this commercial loan, but I actually like to subdivide it and break it up”?

Patrick Menefee: That’s a great question. The one that I used is a regional lender. So I had the conversation with him upfront. I let him know what ultimately I was trying to do, and weighed out essentially the full roadmap. I’m looking to purchase these, I’m looking to subdivide them, I’m looking to rehab them and then ultimately look into refinance into a fixed loan. So I’ve had multiple conversations with a lot of different lenders before I settled on this guy, and a lot of places weren’t okay with it and understandably so, but as long as– it was, as long as when I refinance, everything is done at the same time, and they’re made whole on the back end, everything was A-OK.

Joe Fairless: What gave you the idea to subdivide?

Patrick Menefee: That’s a good question. I knew the conventional 30-year fixed route, and I knew that that was a way to get there. So that was really the only plan that I really had all along. But as far as what triggered it out at the very beginning, I think it was just because that was mostly what I knew, and I realized that it was a possibility that would likely add value, but also give me a lot of flexibility.

Joe Fairless: Absolutely. In my opinion, it’s an advanced thought process for you to think that way. So bravo to you on that, and it’s always good to have more flexibility than less, and especially if you can get more favorable residential financing even better… And get some of your money back out. I mean, there’s so many instances — and I would guess that more than 50% of investors would miss that part of the process and not subdivide; first off, not think about it, and then secondly, if they thought about it, not go through the process that’s required in order to subdivide. So bravo to you on that.

Patrick Menefee: Well, I appreciate it. I think that’s one of the big takeaways for anybody. I had no experience with subdividing, I had no idea what I was doing, but everything is easy enough if you just start taking action and figure it out. So I made a couple of calls and I started asking people and–

Joe Fairless: Who was your first call?

Patrick Menefee: I called my real estate agent and asked him if he knew anybody that did subdivision or anybody that he had worked with as a surveyor. Then next call after that was to the city to ask them what they recommended and what needed to be done.

Joe Fairless: And then who ultimately was the point person that you got a lot of help from?

Patrick Menefee: Everything after I had that initial conversation with the city planner, and she just laid out what needed to be done, I used the contact that my real estate agent gave me, who was a surveyor, and he took care of everything. He went out, and about the only involvement that I really had– my initial thought was, I didn’t even necessarily know if I wanted to separate all three individually, and I wasn’t sure if I could because of some of the setbacks. So we had a couple of conversations on that and he just showed me some of the property lines from before – because it used to be split as well. So he showed me some of those options and said that we can just revert back to what it was; and not only did I get all three split out, but I also saved money from what I thought I was going to pay, because he just went back to the previous one. So credit the enemy, did a great job and took care of all that for me.

Joe Fairless: Bravo. Based on your experience today, what’s your best real estate investing advice ever?

Patrick Menefee: I think the biggest thing is what I mentioned before, just dive in and start taking action. You can spend all day trying to figure everything out like I did before, but the second that you jump in and decide to start taking action, a whole different world opens up to you and you learn a lot as you go.

Joe Fairless: We’re gonna do a lightning round. You ready for the Best Ever lightning round?

Patrick Menefee: Yeah, let’s do it.

Joe Fairless: Alright, let’s do it. First, a quick word from our Best Ever partners.

Break: [00:22:48]:05] to [00:23:41]:04]

Patrick Menefee: Best ever book you’ve recently read.

Patrick Menefee: Tribe of Millionaires. I just finished it a couple days ago. I read it about two hours, couldn’t put it down. Speaking about the importance of accountability and mastermind and really being involved in something bigger than yourself. So it’s got me on the path to start some accountability groups.

Joe Fairless: What’s a mistake you’ve made on a transaction that we have not talked about already?

Patrick Menefee: On that fourplex, the one thing we didn’t talk about is I didn’t listen to what the inspector said. I think I got a little bit excited and blinded by the first deal and the numbers on paper. His recommendation was to get everybody out there, all the contractors out there, plumber, roofer, electrician, all of that. I didn’t end up getting all that stuff ahead of time, and now I’m working through all those pieces as I pull some of the other two units apart. So definitely not listening to an inspector.

Joe Fairless: Best ever deal you’ve done so far.

Patrick Menefee: I think those three duplexes have got to be the best one. They’ve produced consistent cash flow the entire time. Having six units, if I have a vacancy, I’ve got five other units to cover it up, and it’s really been a very solid investment and a very good learning experience between the subdivision, the partnership, the commercial loan, the refinance. I’ve really run the full gamut on that one.

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

Patrick Menefee: Probably the two best places are going to be my Instagram account. I try to post on there regularly with lessons learned and always respond to anybody that I can; so that’s @investDGP. And then my website, investdgp.com, where I try to share a lot of what I’m doing; and then also anybody can reach out to me at any time, patrick [at] investdgp.com.

Joe Fairless: Patrick, thanks for being on the show. Thanks for talking about some moves that you’ve made in your real estate ventures, one of them being buying three, side by side duplexes that were all on one lot, and then subdividing it and maneuvering around the financing, as well as partnering up with a friend of yours to get those deals done; and then also your business plan for the fourplex and the 20% return on the renovations that you’re doing and the challenges that you overcame in order to get to that point with the inspectors and the appraiser and a couple other things. So thanks for being on the show. Hope you have a best ever day. Talk to you again soon.

Patrick Menefee: Thanks Joe. Really appreciate the opportunity.

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.

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Oral Disclaimer

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JF2119: Infinite Banking & Taxes With Mark Willis

Mark is a returning guest from episode JF1567. He is a Certified Financial Planner and is a #1 Best Selling Author, and in this episode, he will share with you the benefits of infinite banking and paying for your tax bills.

 

Mark Willis Real Estate Background:

 

Click here for more info on groundbreaker.co

Best Ever Tweet:

We will provide you with what you need to know and what you need to do in order to increase your net worth.” – Mark Willis


TRANSCRIPTION

Joe Fairless: Best Ever listeners, how 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, Mark Willis. How you doing, Mark?

Mark Willis: Hey, I’m doing great, Joe. How are you?

Joe Fairless: I’m doing great as well and looking forward to our conversation. So first off, Best Ever listeners, Mark’s name probably sounds familiar because you’re a loyal Best Ever listener, and he was interviewed on Episode 1567 titled, Increase Net Worth and Have Your Money Working For You, talking about infinite banking. We’re going to be talking about the same concept, but with a different application, and that is how to use that to help pay for your taxes. A little bit of a refresher on Mark – he’s a certified financial planner, he’s an author and the owner of Lake Growth Financial Services, based in Chicago, Illinois. So first off, Mark, do you want to give a refresher on what infinite banking is, and then we can go into how it can be used to pay for your taxes?

Mark Willis: Sure. So as a certified financial planner, using the infinite banking, or we sometimes referred to it as the “bank on yourself” concept, is not generally taught or even encouraged among the classically trained CFPs out there. It’s buy term, invest the rest in paper assets on Wall Street. So the infinite banking concept is using a high cash value dividend-paying whole life insurance contract that you own the asset, the equity, the money, the cash value and the policy, and use it for all of life’s needs. We’ve talked elsewhere about how to use this for real estate, but today we’re talking about our life’s biggest expense, which is our obligation to the IRS.

So using the policy affords you a couple of things – one, it grows on a guaranteed basis every single year outside of the market; two, you can access that money without taxes due if you design it correctly; three, when you borrow from the polic– see, not all policies do it, but if it’s designed correctly, the policy will continue to grow, even on the capital you borrowed against. To say that another way, you borrow money out of the policy and it continues to grow as if you hadn’t touched a dime of the money. And then four, it is life insurance. So you’re leaving your family more than you could ever save for them, because every dollar you put into the policy is a multiple when you decide to graduate. So that’s it in a nutshell.

Joe Fairless: Yep, and I am a proponent and also I have moved forward with infinite banking as well. So let’s talk about paying for your taxes with bank on yourself or infinite banking. What do you mean by that and how does it work?

Mark Willis: Well, it’s funny. I say, they picked the right acronym, because you put the word ‘the’ and IRS together and you get the word, ‘theIRS’.

Joe Fairless: Never thought about that, yeah.

Mark Willis: It’s all theIRS. The IRS is pretty young, though. It’s only been around since 1913, but it’s fun to– well, fun is a relative word, Joe. But it’s fun to look back over history and see that the country did just fine without an income tax for over 150 years. In fact, they had surpluses. It was started as a temporary tax on the most wealthy people to cover the expenses of the Civil War and then World War I, but it became permanent when the government needed to replace other revenue sources with more permanent taxes on their own citizens. So that’s where the IRS got their start.

Joe Fairless: Thank you for that. I didn’t know that.

Mark Willis: Yeah, it’s interesting, and I’d say, as we look at our current situation, we’re in a very interesting season right now. So the next five, six years, we are all in a lower tax bracket than we will be — unless Congress acts, we’ll be in a lower tax bracket right now than we will be five years from now, and that’s the law. That’s literally the tax code. We all get a tax raise on us at the end of 2025, just five years from now. And most people aren’t aware of that, but I asked folks, “Do you think taxes will be lower or higher in the future?” Almost everybody I talked to, Joe, says, “Yeah, they’re going to be higher.” So the question is – Well, why is it that most of us and our CPAs included are recommending that we put money into tax-deferred vehicles like 401Ks, IRAs, that sort of thing? If we know there’s a day, a month and a year when we know that taxes will be higher, why delay or defer a root canal? The same question.

Joe Fairless: Well, their stance might be time value of money, because if I’m delaying it today and I’m investing it and I’m making a return, today’s dollar’s worth more than tomorrow’s dollar.

Mark Willis: That’s a great point, and I hear it too, but the math works out where it’s literally the exact same money, whether I pay tax on the seed or I pay tax on the harvest. We can get into the math if you want to, but literally, it’s the exact same.

Joe Fairless: Please do, yeah. We’ll get into that math, will you?

Mark Willis: Sure. So let’s say that you put a certain dollar amount into a policy, or let’s say you put a certain dollar amount into a tax-deferred vehicle, one or the other. So a life insurance policy is after-tax, similar to a Roth IRA or something like that, and a tax-deferred vehicle might be like, say, an IRA or a 401k. Let’s say you put in 1000 bucks, and let’s say you’re in a 30% bracket. So a life insurance policy or a Roth IRA will have 700 bucks at the end of the year after tax – 30% off of a thousand is 700 bucks. Let that money grow at the same rate of return, and it’ll be a smaller number after 10 years, 30 years, whatever; and in the meantime, the tax-deferred vehicle, you got to keep all your $1,000 in there growing on a tax-deferred basis. So it’s going to be a bigger number at the end of 10 years, 30 years, whatever it is. With me on everything so far?

Joe Fairless: Yep.

Mark Willis: Now the key is, what happens? How do we get the money out of that tax-deferred vehicle? Well, it’s going to get taxed, and if taxes are the same 30%, you’re going to take your money out of that retirement account and 70%’s gonna be left in your pocket and 30%’s going to the government. Again, it’s all about how much is the tax rate when you put the money in, and you take the money out. Mathematically, if the taxes don’t change, tax-deferred and after-tax dollars are exactly the same on a mathematical basis.

Joe Fairless: And then an outlier for this, I believe, would be a 1031, where if you just 1031 till you die, you’re never gonna pay taxes.

Mark Willis: That’s right. Yeah, and then that lovely step up in basis. Yeah. So the 1031 is a great option for folks that are looking to defer, defer, defer. I would say buy, borrow, die, as others have said. So that’s the strategy if you want to just avoid the tax completely, for sure.

Joe Fairless: Okay, cool. Now going back, we went off a little bit, but I’m glad that we went in that direction for a little while. Now coming back to using this to pay for your taxes – will you continue that thought process?

Mark Willis: Sure. So again, think about how powerful it is to let your money continue to compound even when you’re using it to make big purchases. We could talk about how powerful that is when you buy a car. Let’s keep it simple first, then we’ll talk about real estate, and then we can talk about taxes too.

There’s only a few ways to buy things in life. You can borrow from somebody else, you can finance it, you can pay cash for that car or you can use a policy. So in the first instance, you’re sending interest payments and control over to the bank down the street to buy that car, where they charge you interest and they could repo the car if you don’t pay them on time. If you pay cash for that car, that feels good in the moment, but you’ve lost all the opportunity cost to continue earning compound on that money, had you not bought the car and left it invested instead.

The power of this strategy is, when I borrow from the life insurance cash value, the insurance company sends me the money and I’m paying them back. I’m using my life insurance cash value as collateral, and while I’m paying the loan off, the policy can continues to generate a full dividend, even on the capital I borrowed, meaning no interruption of compounding.

So the eighth wonder of the world is uninterrupted compound growth. So that’s cool when it’s coming in cars and whatever, but let’s talk about what it means when we’re actually paying our taxes. Some people say, “Well, Mark, I don’t really pay a lot in taxes. I did the math.” Let’s say you’re a 35-year old who’s putting away and has to pay $6,000 a year. That’s just your payroll taxes. You’re a W-2, your payroll taxes… Most of us are paying a lot more than that. But if you’re single, earning 50 grand a year and you’re 35 years old, you never got a raise and if taxes never went up, you’d be paying six grand a year, over 35 years. That’s $210,000 to the IRS. But what if you could save that money? If you could earn a return on $6,000 a year for 35 years at 5% interest, that’s over half a million dollars, and that’s only up to age 70. Of course, government still charges you taxes in retirement too, especially on our 401ks and IRAs. So that’s half a million bucks. But what would happen if you move some of that money into a life insurance policy? Literally, warehousing your tax payment in your life insurance all year long, and then borrowing out that cash to pay your taxes as you normally would, and then paying off the loans on those policies and premium payments as you have windfalls in your real estate business. So here’s where things get, I think, pretty interesting.

So let’s imagine for example, a case study. Let’s give him a name. Let’s call him Tommy Taxpayer. Let’s say, good old Tommy’s got a $90,000 a year tax problem, and he knows– he knows the story of that case study I just mentioned, where if you’re paying six grand a year to the IRS, half a million dollars over your lifetime, it’s a heck of a lot more if you owe 90 grand a year to the IRS. I know a lot of clients that take a zero or add a zero to that number. Folks pay big checks to the IRS, whether it’s on April 15 or all year long, just total it all up.

So Tommy Taxpayer has a $90,000 a year tax problem. So what we did in these numbers – I’d be happy to share the numbers with any of your Best Ever listeners that want to see it, but let’s say that he puts away into a life insurance contract that’s designed for cash accumulation. 90 grand a year is as premium. Now, in order to be able to really build the policy well, we have to factor in that there is an insurance cost on any life insurance policy, but he also knew he needed to save for his own retirement eventually as well. So this business owner wanted to save and he didn’t want to use a 401k or an IRA. So to do that, he combines his tax payment of $90,000 with a retirement savings amount of 50 grand a year. That was what he felt like he could save, but wasn’t convinced that a tax-deferred or tax postpone retirement plan like an IRA or 401k was the best place to keep it.

Joe Fairless: So all in $140,000 putting towards this problem.

Mark Willis: There you go.

Joe Fairless: Cool.

Mark Willis: So day one, month one, he has a cash value of $95,000 and a death benefit of $3.3 million. Day one, month one. So he’s got more than enough in that cash value in the first year to pay his tax bill, which is the key; and let’s say that he does that. He puts the money in, retirement money plus tax money, borrows out 90 grand, and let’s say for whatever reason, he never pays off that tax bill, that loan against the life insurance policy. Well, again, if it’s a non-direct recognition company, Joe – and most mutual life insurance companies aren’t non-direct recognition, but if they are, if this was a non-direct recognition company, the policy will continue to pay you interest in dividends on the $95,000 of cash value, even though you’ve only got five grand left in there after you take the loan to pay your tax bill. So let that  sink in for a minute; that is tremendous. That is the eighth wonder of the world, as Einstein says.

Joe Fairless: What does non-direct recognition mean?

Mark Willis: It’s a good question. Talk about deep cuts vocabulary… What it means is, they simply don’t recognize that you’ve taken a loan. Now, there are two kinds of insurance contracts out there – one is direct and one is non-direct. A direct recognition life insurance loan is recognizing that you took the money out, and thereby reduces or penalizes you, reduces your dividend if you borrow against the policy. That to me is a non-starter. I wouldn’t use the direct recognition —

Joe Fairless: Is it a one to one ratio for the reduction and debit?

Mark Willis: Correct. They will reduce your dividend based on whatever’s left or noncollateralized in the policy’s cash value.

Joe Fairless: Okay.

Mark Willis: Whereas a non-direct doesn’t recognize that loan was taken, and it continues the compounding.

Joe Fairless: Why would there be any non-direct companies? Because it doesn’t make sense from a business standpoint to me?

Mark Willis: Well, it’s all about business model. So some insurance companies encourage loans and others think that they could do better investing in bonds and other fixed-income assets. So the insurance company that has a non-direct contract simply is making a statement that they encourage your access to the cash value, and they would allocate their general fund accordingly. Most insurance companies are going to be well reserved with funds and policy loans and term insurance premiums. All those are the profit centers of insurance companies. If it’s a mutual company, Joe, no doubt, you know this – like a mutual life insurance company, you’re getting the profits, the dividends from that portfolio. So it’s just a business decision. Non-direct companies think ” You know what, we’re going to let our policyholders have a benefit when they access the cash value. We’ll use that policy loan as a part of our overall investment returns.”

Joe Fairless: Okay.

Mark Willis: Okay? So back to Mr. Tommy – after 20 years, let’s imagine a world where he never pays that tax bill off. In fact, Joe, let’s say he takes a new $90,000 loan every single year for the next twenty years paying his tax bill; every year for 20 years. So he starts at age 45. So now he is 65 years old, 20 years later, and he’s got a massive policy loan of $2.8 million, because he never paid off that policy loan, and yet, he still has $1.2 million in cash value because the earnings and growth of cash, and a $5.8 million death benefit, even though he never paid off the policy loan… Which I don’t recommend, but it’s technically possible. So if he was to pass away, the death benefit would still be left to his family at $5.8 million, and if he wanted to, he could just spend down the $1.2 million in cash as a retirement income stream; and if we designed it correctly, it would come out income tax-free.

Joe Fairless: But the money that he hadn’t paid back, that would be deducted when he dies, right?

Mark Willis: Yeah, that $5.8 million already accounts for the loan balance.

Joe Fairless: Okay, so eventually the insurance company is getting that money back. They’re taking it out of the death benefit.

Mark Willis: Well said. Exactly right. So they collateralize your death benefit. Some people have compared this to a HELOC in some ways. If your house is worth a million bucks, and let’s say, you’ve got a HELOC for 300 grand on that house, your house is still growing in the neighborhood at a million bucks. It doesn’t matter if there’s a HELOC on it or not, Zillow still thinks it’s worth a million bucks. The same is true with non-direct recognition life insurance. If you have a million dollar cash value and you borrow 300 grand, that policy is still going to earn a dividend and guaranteed cash accumulation of whatever the dividend was on the full $1 million, without the loan notwithstanding. But you’re right. The insurance company knows they’re going to be paid back upon death or beforehand, which is why they’re willing to let us have any repayment schedule we wish… And our good friend Tommy Taxpayer went 20 years without repaying a penny of that loan. Now what I’d recommend again, but it’s totally possible.

Joe Fairless: Why wouldn’t you recommend that? Because it sounds like a pretty good scenario for Tommy.

Mark Willis: Yeah, he still ends up with a decent retirement. If he was to repay that loan, it would lower the loan interest rate. He’d have a lot more at retirement, which I’ll mention in just a minute, than what he’d have if he could pay that loan off every couple of years. But there’s a risk too if you never pay off a loan on these policies and the loan exceeds the cash value, [unintelligible [00:19:21].24] and you might have a taxable event, if there’s gains in the policy.

Joe Fairless: How would the loan exceed the value?

Mark Willis: Yeah. As the loan is earning interest, there’s a loan interest on policy.

Joe Fairless: Okay, so you’re paying an interest rate on the money that you borrow, and that’s what, 5%?

Mark Willis: 5% on a simple interest schedule. So if you never pay the loan off, it would be a straight 5%. If you pay it off– over four years, Joe, I’ve seen policy loans APRs at about 2% if you pay the loan off over, say, a four year period. Yeah, it a good question. So you do [unintelligible [00:19:59].13] or you leave your family less if you never pay off that policy loan. So I do recommend we manage the thing well.

I tell folks, these loans should be paid off over a reasonable period of time, and folks will ask me, “Well, what’s reasonable?” and generally, I’ll say, “It’s really, whatever a regular schedule would be for any other bank down the street.” A car loan? Maybe four years is reasonable to repay a policy loan to pay off a car. For a mortgage, maybe 10, 15, 30 years. Who knows? It’s just whatever is reasonable for the cash flow in your life.

Joe Fairless: I’m glad you walked us through this scenario. What else should we talk about if anything that we haven’t talked about already, as it relates to this situation?

Mark Willis: If I may, let me share one more alternate universe for our good friend Tommy, and then I can talk through what may be better than letting that loan just grow, grow, grow. So imagine now Tommy’s still doing the same $140,000 in contract premium and he’s borrowing the same 90 grand every year, but every five years, his business is profitable enough to send a windfall into his policy. Most business owners I work with, if they have a $90,000 tax problem, they’re making a profit somewhere. So where’s that money gonna live?

I think one of the key things a good financial planner should ask their clients, and we try to do that ourselves is – where do you want your money to live? Your money needs to reside somewhere, and I can’t find many places better than a high cash value dividend-paying whole life policy. But the problem is, for Tommy, he can’t pack more than 140 grand in premium into this policy. That’s the limit that the government set on his particular policy. Now you can have a limit as low as 14 grand or 140 grand or three-quarters of a million. Each policy has their own engineered limit; but we found a way with the policy loan to pack in way larger windfalls. In his case, every five years, he writes a check to his policy and repays his policy loan to wipe out that loan balance, and every five years that happens to work out to 490,000 bucks. That was the loan balance every five years, and he gets a profit every five years in this hypothetical scenario, and he wipes out that policy loan every five years. So he’s limiting the interest that’s charged when he does that. He’s also freeing up a huge bucket of cash that he could use for other real estate investments or anything else, and just to cut to the chase, Joe, at age 65, his death benefit is $8.7 million, and he has a liquid retirement fund, let’s say, or a cash value of $4.1 million. At that point, he stops funding the policy and he just takes that $4.1 million out as another tax-free retirement income stream.

Joe Fairless: When you explain the situation to someone other than me, what are some typical questions that come up?

Mark Willis: What’s the catch? Why haven’t I been told to do this by my CPA? I think one of the things is the CPA is really good at helping you find deductions this year. That’s how they keep their job. Life Insurance is after tax. You’re paying your taxes today on the seed, not the harvest. So they’re not getting your smiles and grins for the big juicy tax deduction this year. When you put premium into life insurance, it’s usually using after-tax dollars.

A lot of folks will say, “Well, Mark, how can I possibly save 140 grand into a life insurance policy?” and I say, “It’s not about Tommy’s numbers, it’s about your numbers. You’re already paying your tax bill somehow, either you’re using cash to pay for it every month, every quarter, every year – a lot of our folks have quarterly payments – couldn’t you be saving that somewhere? Where’s that money saved better than a savings account?” A lot of folks who can’t save at all, I wouldn’t recommend this policy to. You do have to still pack money into the policy. It’s not a magic pill, and don’t look to this policy to become wealthy overnight. If you’re looking for hedge fund-like returns, you’re going to be bored to tears with the internal rate of return of the policy. I think in previous episodes we’ve talked about; it’s low to middle, single digits, 4%, 6%-something present. So it also means you have to think a little different than the average taxpayer, which is a roadblock for some folks as well.

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

Mark Willis: Yeah, thank you, Joe. If folks want to find out more about this, we’ve done a few podcast episodes on this that dive deeper at Not Your Average Financial Podcast. Or if you want to reach out and connect with me or one of my team members, go to growmorewealth.com.

Joe Fairless: I enjoyed this different thought process about how to apply infinite banking. Thank you for walking through that example, and Mark, thanks for sharing this area of expertise that you have with us. So I hope you have a best ever weekend and talk to you again soon.

Mark Willis: Thanks so much, Joe.

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.

JF2118: Broad Experience With Alix Kogan

Alix is the President of Ashland Capital Fund and has 20 years of real estate experience owning 1,700 apartment units, single-family rentals, commercial and developments. He started in high-end custom homes and more recently has been focusing on student housing deals. Alix shares one of his new strategies which is investing in second lien mortgage debts.

Alix Kogan Real Estate Background:

  • President of Ashland Capital Fund
  • 20 years of real estate experience
  • The portfolio consists of 1,700 apartment units, single-family rentals, commercial and developments
  • From Chicago, IL
  • Say hi to him at:https://ashlandcapitalfund.com/ 

 

 

 

Click here for more info on groundbreaker.co

Best Ever Tweet:

“My broad experience in real estate has helped me tackle new projects” – Alix Kogan


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, Alix Kogan. How you doing Alix?

Alix Kogan: I’m great, Joe. How are you?

Joe Fairless: Well, I’m doing well, and I’m glad to hear that. A little bit about Alix – he’s the president of Ashland Capital Fund, he’s got 20 years of real estate experience, the portfolio consists of 1,700 apartment units, single-family rentals, commercial and developments. He’s based in Chicago, Illinois, and he has now turned his focus towards student housing. So we’re going to talk about his background, what his focus has been, and then what his focus is now. So with that being said, Alix, do you want to first, give the Best Ever listeners a little bit more about your background and what you’re focused on now?

Alix Kogan: Sure. So I started in high-end design build, building custom homes for clients in south-west Colorado, ran that business for almost 20 years and I had a successful exit late last year in December. So pretty recent, but I have a parallel track for a good 18, 17 years or so. I started developing a single family portfolio, did some ground-up development, townhomes, condos, small subdivisions, and then as of three years ago or so, pivoted into multifamily, and that is, of course, how you and I met, and I’ve been doing that.

I’ve been partnering with groups as a key principal, lending out my balance sheet, and let’s see– distressed debt is another asset class I invest in, and then as of late, I’ve been pursuing some student housing deals; I’m excited about that opportunity as it’s not tied directly to the market’s economy as much as multifamily is. So it’s just another asset class to diversify for me.

Joe Fairless: When you said you were doing development for townhomes and condos, what are some differences from that versus the high-end custom homes?

Alix Kogan: It’s really completely different. The high-end custom homes, we always build on client’s land, there’s really no risk per se. It’s really — we’re working for a fee. So transitioning into development is a whole other world. Of course, it’s still a construction, but you’re assessing risk, you’re assessing the market. So really, it took a completely different mindset and skillset candidly to do that; the common thread, of course – we’re building. So it was interesting; it was good, and we rode the tailwinds of a great economy up until, of course, the recession of ’08, ’09. Then we ceased all development activity and concentrated on custom homes and rode through the recession. Well, a lot of our clientele actually came from Texas, and that market was doing very well. A lot of our clients were already the tail end of their careers that made their money, they put their money away, so they were still on a place to retire and build their retirement dream homes, and continue down that path and not be too affected by the recession.

Joe Fairless: You said you’re now focused on looking at student housing. What are some things you’re doing now in student housing?

Alix Kogan: We’re pursuing a couple of different deals currently. It’s a similar play, I suppose, to multifamily. What I like about it is in recessionary periods, like we’re likely heading into now with everything that’s going on, a lot of people go back to school, or they stay in school longer. So you’ve got that natural protection, as opposed to say A class multifamily where I think, where you could have some higher economic occupancy with that asset class — but student housing is an interesting plan. So we’re pursuing that. There’s some opportunities out there, there’s some groups that got over-leveraged, and looking to get out of their assets. So it’s an interesting time. So that’s what we’re– no, I wouldn’t say we’re completely focused on that. It’s just a second asset class in addition to multifamily that we’re looking at.

Joe Fairless: How are you coming across groups that are over-leveraged? Where are you getting those connections from?

Alix Kogan: We’ve made a great connection with a best-in-class property manager, and they of course, have connections with owners all over. They’re also an investor, as well as a property manager as well. So they are an interesting group where they understand the investments side as well as the management side, and they have a very specific buy box for a number of reasons with their business plan. But they’re running into portfolios or individual assets that don’t meet their buy box, and I’ve developed a good relationship with them where they’re bringing me those deals, so it’s a win-win. They get to property manage the asset if we are successful in taking it down. So there’s some good synergies in that relationship.

Joe Fairless: So I’ve never bought a student housing project. Educate me and perhaps some listeners on what would be a buy box. What components are in a buy box for student housing, and then what your buy box is compared to, say, the property management companies?

Alix Kogan: Sure. So the first one would be pretty easy to answer. So the relationship that I have there, they only buy core A Class assets, and they have to be pretty significant size to execute their business plan and to comply with their investors’ buy box, in essence. So in terms of what I look for, I can buy a smaller deal. I don’t have a specific buy box in terms of has to be a large deal, although I can take down a large deal; we’ll look at — for example, right now we’re looking at an opportunity about the $7 million acquisition range. That is considered somewhat small for some of the large players. They’re going to be in that 15+ million acquisition range.

In terms of what we look for, and that’s fairly consistent from whether you’re buying large or small, you’re looking for a successful school with growing enrollment, and that’s pretty key today to be successful. I think, that’s one of the biggest metrics. So not only does the asset have to be a good asset, you’ve got a school that’s got a great sports program; so tier one schools. So you look at that, you look at the asset itself, you look at similar dynamics; you’re of course looking at your rent comps, are you under market, amenities is also a big factor in terms of your rent growth and where you are in the market. So those are some of the big things that we look at.

Joe Fairless: Based on your experience with high-end custom homes and townhomes and condos and investing in multifamily, what do you think, from that experience, is most relevant to help you be successful in student housing?

Alix Kogan: I would say I’ve been fortunate that I’ve had a broad experience in different asset classes, and the common thread is real estate. So I don’t know that there’s one thing other than I may just have a broader view, I may look at different things. So I can’t think one major skill set other than just the broad experience.

Joe Fairless: Let’s narrow it down then. For the high-end custom homes that you did for 20 years and you said you exited successfully, what were some ways that your company differentiated itself from your competitors?

Alix Kogan: That one’s pretty easy – we were very early to the game in design build. So while a lot of my competitors were typical, what we call bid build, where they’re bidding on plans through architects or through clients directly, that have plans drawn… We adopted the design build model right out of the gates 20 years ago, where at first, we partnered with some outside resources. We’d outsource some of the design work, but really controlled the whole process from design to build, and then eventually became much more fully integrated with architects, interior designers. So that was certainly a key to our success.

In addition, of course, doing great design and won more awards than anybody in the area in south-west Colorado, and organically grew. Building a great team – no surprise, when you become the largest in the area, you need a great team behind you. So I was fortunate to have a great team to do that with. But those were some of the — great design, great team and the design build model that many people tried to follow, but fewer successful in doing it.

Joe Fairless: You mentioned distressed debt. What have you done with distressed debt?

Alix Kogan: That’s been an interesting space. I started down that road with non-performing notes. So buying defaulted mortgages in large pools and then working them out. So I’ve been doing more of a niche portion of the distressed debt, which is buying non-performing second liens. So rather than buying first liens, which– it’s a bit counterintuitive, but if you understand my business plan and the plan that we’ve been doing, which is buying non-performing seconds behind a performing first.

So I’ll give you an example. If you have a $500,000 house, you might have a $400,000 mortgage of $100,000 worth of equity, and then you also took out, say, a $100,000 home equity loan to finish your basement. You fell on hard times, you stopped paying in your home equity, but you continued to pay in your first mortgage. So those are what I’m buying as the second mortgages.

I like them because, obviously, it’s been demonstrated that the borrower still has some financial capacity because they’re paying on their first; and because I’m buying the second lien, the non-performing lien or note, at such a discount, I have the ability to go back to the borrower and help them stay in their house and say, for example, “You’ve been paying, $500 a month before you defaulted. Can you afford to pay $250 a month?” So because I’m buying at such a discount, I can work with them, help them stay in their home and get them current, and that’s been a really good investment class. It’s not the easiest business to learn, a pretty high barrier to entry, but once you get it dialed in, it’s a very interesting business model.

Joe Fairless: What discount are you buying those second liens on?

Alix Kogan: It’s a broad range. It also depends on what state. Every state’s got different foreclosure laws and timelines. So I would say anywhere from 5% of the unpaid balance up to 50% of the unpaid balance, and everything in between. So you literally have to underwrite each individual asset separately. How much equity does it have? How nice of a property is it? Because that, in essence, is your ultimate security; it’s that asset. Because you can, of course, foreclose from a second position subject to the first.

And then there’s more of a qualitative analysis of the borrower profile. You really have to understand who the borrower is, look at their credit, look at their specific situation, and somewhat assess what is the percentage that that borrower can do work out with you. So that goes into the pricing as well, of course.

Joe Fairless: So you said 5% to 50% that you’re paying. So just so I’m understanding correctly, depending on the state, depending on the situation, if it’s $100, you’re paying between $5 to $50 for that second lien position.

Alix Kogan: Yeah.

Joe Fairless: Wow. So your discount is between 50% and 95%?

Alix Kogan: Yeah. I’ve bought some assets where there’s a lot of risks, and  I’ve even bought them at 1%.

Joe Fairless: Alright. Give us that example, that specific example. Tell us a story about that property.

Alix Kogan: Something that you bid that low, there is no equity.

Joe Fairless: How much you pay for it?

Alix Kogan: So that borrower is completely upside down. So that’s one of those that you’re likely not going to pursue. You might take that asset, put it on the shelf and just wait until that borrower sells the house, and you may be in a position where you get a payoff. So that’s obviously very high risk; but if you have $100,000 unpaid balance and it’s still secure and you’re buying it for $1000 bucks, you can afford to just stick that in a drawer and just wait… Versus other loans that have equity, and the borrower is obviously more motivated to protect and keep that equity. They’re obviously motivated to do a workout with you. So those you’re going to pursue more aggressively, and spend time placing that with a servicer, or spending money investing in whatever legal you need to invest in, so that you could monetize that loan.

Joe Fairless: I know you said you’re buying large pools. So are the large pools of these defaulted mortgages, are they grouped into varying risk profiles, or…?

Alix Kogan: No, no. They generally are just sold in a pool. So you get a spreadsheet with a bunch of assets, and it’s really — you’re doing your own group and you’re assessing the risk and you’re saying, “Okay, 20% of these are in a judicial state, New York, for example, and the foreclosure time is very lengthy and expensive.” So I’m going to price that portion of the pool at whatever it is. 20 cents on the dollar versus, say, for example, California loans, which is a non-judicial state, and very quick foreclosure time. I may price those at 45 cents. So it’s all over the board.

Joe Fairless: Did you say California is quick to–

Alix Kogan: Yeah, believe it or not…

Joe Fairless: That– I would have missed that on a true-false test.

Alix Kogan: Right, exactly. With all the legislation and everything that happens in California, it actually is a non-judicial state. So you can foreclose and get at the asset in 90 to 120 days. So it’s a much faster process in California.

Joe Fairless: Tell us a story of a defaulted mortgage, either a pool of mortgages or an example or two where you’ve lost money.

Alix Kogan: Sure. I had a recent loan that– and fortunately, we were pretty careful. I don’t buy really high-risk loans, but in order to buy a pool of loans, apparently, you have to buy some loans that are higher risk; but I try to keep those at a minimum. So I only honestly have one that was recent; a Kentucky loan that basically foreclosed and we got wiped out by the first lien and completely lost. It was a $7,000 investment, [unintelligible [00:17:37].26] a million dollars that we took down. So that can happen, but if you’re careful, that’s pretty rare.

Joe Fairless: Yeah. So how can you be careful and make that rare if you’re buying a large pool of loans, and it sounds like that’s just gonna happen during the course of business?

Alix Kogan: Well, one, they’re gonna price them at a risk price. So it’s all modeled into it. Think of it as you’re buying a portfolio of single-family homes, you know you’re going to have some delinquencies in one home. Somebody stops paying rent, but you have the income from the other homes to offset that. It’s really the same principle. I’m going to make money, I’m going to hit home runs on some. I mean, I’ve had some that I’ve made 200% return on my investment, and then I have one that I lose $7,000 on. So you just price the risk into it, and then there’s some people that specialize in unsecured and no equity loans. It’s just their business model. So I would even resell some of those loans, and just get my money back and focus on the good loans that I prefer to work.

Joe Fairless: Okay. Tell us the story of, on the flip side, one that you’ve made 200% on or just done really well, just a specific example.

Alix Kogan: Sure. Just recently I invested $113,000 in an asset in California. The house is worth $270,000. We, unfortunately, had to foreclose, got that house back, and up until just a couple days ago, I had a contract for $270,000. So you can do the math on that. That would have been a great exit strategy. Unfortunately, with what’s going on in the world right now, that buyer fell out of contract.

So we’ve got the house, it’s worth $270,000. I can turn it into a rental. I’m hopefully going to sell it to somebody else, but you can see the return is huge if I can obviously monetize, which I’m sure I will… And that whole timeframe was about seven, eight months.  Okay. So let’s talk about the team. I don’t think you’re the one tracking down all these owners and having conversations based on what I know about you… So who’s your team? How do you structure it? How are they compensated, that sort of thing? Sure. I’m on the acquisition side, so I’m developing relationships and finding the assets. Once I find the assets, I have an asset manager in California that works remotely. He’s got 30 years experience in servicing the distressed debt space.

Joe Fairless: How’d you find that person?

Alix Kogan: Just the whole networking, talking to different people, and I met him, and that’s been a great relationship. So he’s literally working out of his house.

Joe Fairless: If you can think back to who introduced you to him, I’d love to know exactly how you found him. You don’t have to name names, but just throw us the breadcrumbs.

Alix Kogan: I think the trail started on LinkedIn or I connected with somebody on LinkedIn, and they had pointed me in his direction for just networking, and that he may know sellers, and one thing led to another, where you think you’re going to buy an asset or get some referrals for sellers, and before you know it, you’re talking to a guy who actually is an asset manager that may have excess time and be able to develop a relationship. So that’s what we did.

It started off as — for him, I was somewhat of a side hustle in addition to other asset management work that he was doing, and as my portfolio grew, he’s come on board nearly full time with a little bit of consulting that he still does with outside funds and outside investors.

Joe Fairless: Wow. So you were randomly reaching out to people on LinkedIn based on what they have in their profile, asking them about distressed debt?

Alix Kogan: Yeah, specifically targeting sellers of distressed assets at that time, and just happened to run it across the guy. So there’s multiple ways that you can do this, and you also, of course — to answer your question fully in terms of the team, there’s also third-party servicers that we use. So they’ll do some of the work, and then my asset manager will serve an oversight with them as well as borrower outreach and talking to the borrowers as well. So it’s really a small team, a small little boutique firm, if you will, in that asset class, and I’m soft capitalized, I don’t have investors in that world. So it’s really a third bucket of my business plan – student housing, multifamily and distressed debt.

Joe Fairless: Based on your experience as a real estate investor, what is your best real estate investing advice ever?

Alix Kogan: Learn the asset class well. It seems very obvious, but in terms of investing in different assets, learn that asset class well before you invest. Then if you have an opportunity to invest passively, learn as you go. I think that’s a great way, and you’re a prime example. I invested with you early on and got my feet wet in multifamily until I got comfortable enough to start looking at my own deals, and I think that’s a great way. And that’s also what I did with distressed debt. I invested passively in a more of a joint venture with a guy when I first started and learned the business, and then of course, the natural progression – I felt that I could do it on my own, and hire an employee that knows more than I do, and that’s just the way you scale and grow.

Joe Fairless: That’s a pretty good formula for people – invest passively to learn the ropes, plus build your ally group up so you can form allegiances, and then you learn the business simultaneously as well as actively learning, then go active and then hire someone who has more experience than you. But now you’ve got some experience and you know the ropes, you just don’t know the intricacies of someone who’s been in the business for decades. That’s a really good formula. I’m glad that you walked us through that. We’re gonna do a lightning round. You ready for the best ever lightning round?

Alix Kogan: I guess.

Joe Fairless: All right. Well, we’re gonna do it anyway. So hopefully you are. First though, a quick word from our Best Ever partners.

Break: [00:23:39]:05] to [00:24:34]:03]

Joe Fairless: Alright, what’s the best ever book you’ve recently read?

Alix Kogan: A book name Lifescale, which is interesting; a book that I’m halfway through.

Joe Fairless: Okay, Lifescale. Okay, got it. What’s a mistake you’ve made on a transaction?

Alix Kogan: Bad partner. Easy to say in the rearview mirror. He looked good on the front end, but I think more due diligence on the partner than the asset class is important. I got myself in trouble a few years ago with — and fortunately, we unwound that well, but… More due diligence on the partner than the asset.

Joe Fairless: What are some questions knowing what you know now that you would ask prior to engaging in a future partnership?

Alix Kogan: I think it’s more time getting to know someone, really as much as you can learning how they think, definitely more reference checks… But I think it’s time, and unfortunately, we’re in a business that moves pretty fast, whether it’s notes or multifamily or student housing – the deal comes up and it comes to you from a potential partner. So I’ve learned to slow down and only move forward when it feels right and I have enough of a comfort level with a partner. So as you know, I’m a KP on deals and people bring me deals all the time, and I really have to just slow that process down to get to know them better.

Joe Fairless: On that note, how can the Best Ever listeners learn more about what you’re doing and get in contact with you?

Alix Kogan: Ashlandcapitalfund.com is my website, and my direct email is alix [at] ashlandcapitalfund.com

Joe Fairless: Alix, thanks for being on the show talking about your areas of focus that you’ve had, and then now what you’re focused on, the three areas, with one of them being student housing and why you’re focused on that; you also talked about non-performing notes in your process there. Thanks for being on the show. I hope you have a best ever day. Talk to you again soon.

Alix Kogan: Thanks, Joe. Take care.

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.

JF2117: Big Renovation Projects With Joseph Bramante

Joseph is the co-founder and CEO of TriArc Real Estate Partners. He purchased his first multifamily property in the US in 2011 sight unseen and now his portfolio consists of 1100 units. He shares his story on how he started out buying a 26-unit apartment complex and almost went bankrupt during his first deal and he ended up making a 207% return on the refi. 

Joseph Bramante Real Estate Background:

  • Co-founder and CEO of TriArc Real Estate Partners
  • Purchased first multifamily property in the US in 2011 sight unseen
  • Current portfolio consists of 1100 units, increasing net operating income by over 80% on average within 48 months post-acquisition
  • Based in Houston, TX
  • Say hi to him at: https://www.triarcrep.com/ 
  • Best Ever Book: Raising the Bar

 

 

 

 

Click here for more info on groundbreaker.co

 

Best Ever Tweet:

“The books give you this 30,000 view of the industry but its a completely different ball game when you are out there in the field executing” – Joseph Bramante


TRANSCRIPTION

Theo Hicks: Hello Best Ever listeners. Welcome to the best real estate investing advice ever show. My name is Theo Hicks, and today we’ll be speaking with Joseph Bramante. Joseph, how you doing today?

Joseph Bramante: Hey, man. I’m doing well. How about yourself?

Theo Hicks: I’m doing well too. Thanks for asking and thanks for joining us on the show today. A little bit about Joseph – he is the co-founder and CEO of TriArc Real Estate Partners, purchased his first multifamily property in the US in 2011 sight unseen; current portfolio consists of 1100 units, and they focus on increasing net operating income by over 80% on average within 48 months post-acquisition. He is based in Houston, Texas, and you can say hi to him at triarcrep.com. So Joseph, do you mind telling us a little bit more about your background and what you’re focused on today?

Joseph Bramante: Sure. So I’m an engineer by trade, spent the first five years of my career with Exxon, as well as overseas when I bought that first property; I’ve lived in some pretty cool places. I was in Australia for a year and then Papua New Guinea for two years. I was working on a $22 billion project, of which a billion was the cost that I was managing directly. I got into the industry in 2011, purchased that first property sight unseen. I originally was trying to buy 80 foreclosed houses, and then after all these banks kept telling me no, they finally said, “Just go buy an 80-unit apartment complex,” but I couldn’t afford a 80-unit apartment complex, but I could afford a 26. So that’s how I jumped into the industry with the first 26-unit property, and almost went bankrupt on that first deal and turned the whole thing around by performing a $30,000 per door renovation… Which was really nuts considering one, that was my first deal and two, it’s a large rehab. In general, most people don’t even do those big of rehabs, let alone, on their first deal. And I turned the whole thing around, made a 207% return on the re-fi. I still own it today. We’re actually talking with architects right now, getting ready to scrape it and redevelop it to a mid-rise. So that property is going to be paying us three and four times what we made on it.

So that was the start, and then through that, I met my current two partners. We formed TriArc Real Estate Partners; originally the foundation of the company was back in 2013, but then rebranded in 2016 as TriArc, and our MO has just been these big value-adds. Started with the first one at $30,000, added 22 and 18, and we’re currently doing a $37,000 per door renovation over 220 units. So we really mastered that, and that’s how we were able to produce such big NOI growth in the first 48 months, like you quoted, because we’re doing these big rehabs on our deals. We’re not just doing base hits, because that’s just– one, that was what was available. You guys know, back in 2012 and 2013, there was a lot of property to renovate. Now it’s harder and harder to find those deals. People know how to resurface and whatnot by now, so it’s very rare you’re going to find something that hasn’t been through at least one or if not two renovations about the time you’re getting it. So we’ve transitioned more into the lower value-add, which is fine. If you’re really good at doing big rehabs, you’re gonna be even better at doing smaller rehabs.

So from there, we further expanded in 2016 into new development. So I saw that the spread between new construction and renovated assets was shrinking, and it was only a matter of time before new development was gonna make more sense than buying existing and renovating. So we started exploring that area and we’ve got our first 500-unit two-phase project, garden style; we’re breaking ground on later this year, and then we’ve also got two other new developments that are in the pre-planning phase. They’re gonna be mid-rises; one’s nine stories, the other is 12 stories, Class A plus properties. So it’s been interesting.

New development’s certainly, completely different than acquisition, in that there’s really no roadmap for it. It’s very much an open book, and it’s hard to find mentors and whatnot for it, and we’ve had to figure a lot of this stuff out on our own, but finally, three, four years into it, we’ve really gotten the right people around us who’ve done this before and helped us… And that’s what really real estate, in general, is all about. It’s all about the network, having good people around you, who’ve been through different components of whatever you’re trying to do, and forming teams. And that’s how, really, we formed our company. I’m a co-founder, I’m one of three, and that’s been really advantageous for us, because it gives investors and lenders a lot of confidence knowing that between the three of us, we’ve owned or operated over 43,000 units and 1.7 billion in assets in the last 30 years. So we have that history behind us, so that when we’re going forward, while our company is still growing, we do have quite a deep bench of experience.

Theo Hicks: Thanks for sharing your entire story there. I want to dive in and unpack a few though. So one thing that you said, the first thing you said that piqued my interest is that on that first deal you bought sight unseen was a 26 unit property, that you did the 30k per door renovation, and then resulted in a 207% return on the refinance. So that was the first deal right?

Joseph Bramante: Right.

Theo Hicks: So you said that you did the 30k in renovations, and then now you’re looking to go back and put in even more money into that deal, to bring it up to another level. So do you mind just walking us through– so was the original business plan to take it from C to a B, and now you’re going from a B to an A? Did you know going in that, that is what you’re going to do or that’s something that evolved later on, based off of the market that the deal was in? So maybe walk us through that thought process a little bit.

Joseph Bramante: Sure. So the original plan – it left a lot to be decided. There really was no plan. It was my first deal. The broker had said that it needs $3,000 per door in renovation, so that’s what we budgeted for. And then we get into the deal, and it’s a really long story, but just to keep it short – within the first six months of owning it, our property had gotten down to 85% occupied. We had four units down for renovation that we had taken sheetrock down on, we were renovating, we were installing central ACs, and then as part of the permitting process for that, we had to do an environmental, because we were idiots and we didn’t do one on the closing like every other one of your listeners knows to do, and of course, it came back hot for asbestos.

So we’re six months in, four units down, we have asbestos, we’ve had fraudulent insurance… The broker that sold us insurance – well, he sold us insurance from a company that was a fraud. So we don’t have insurance, we’re going into hurricane season, and then I lose my job at Exxon on top of all that. So it was really a very dire situation I was in, and I joined a local real estate group because that’s what you did back in 2012; there were no podcasts or anything like that… And all the mentors of that group were like, “You’re screwed. Sell the property, take a loss, lesson learned; don’t do that again.” But that didn’t really sit well with me, for a couple of reasons. One, I would have to lost five years of my life at Exxon, and that would have not been good. I’d have done all that work for nothing. And then two, I would have had a negative track record to go and raise money for. So that would have meant I had no career in multifamily either. So that was also not good. So I rolled the dice on that first one.

Me and my business partner who I had met out of that group, she had done large renovations before for other owners. She was a property manager, and she said, “Look, you’re in a great location.” That was the one thing that I did right. Two, actually. Location, and we knew it needed new roofs, because that’s what the PCA said. So those are the only two things I’d give us credit for. But location is everything; everybody knows the real estate motto – location, location, location. So we were in a prime location in Houston, and we’re surrounded by these million-dollar homes. So we did this massive renovation, went all in. I cashed out my 401k, took the penalty, all in. I stayed unemployed for six months and just focused on the real estate, took a bunch of courses, and we executed this rehab, and it was the craziest moment of my life, because our rehab was $700,000, the purchase price was $650,000. So it was just insane to think of, you’re doing a rehab that’s greater than the purchase price of this property.

We had to vacate the whole property down to zero, because it’s really not a good look to have guys in hazmat suits walking around while you’re doing an asbestos abatement with residents on site. You’re just asking for a lawsuit. So we vacate the property, we did the abatement, came in behind them, we did the big renovation, then leased it all up, and that was probably the most stressful nine months in my life, and it worked. We doubled the rents, we leased it up, stabilized it, refinanced it… And it’s just an amazing feeling on that first refi when you get that money back, because until you’ve actually done it, it’s all just stories and theories and whatnot for you, and when it was proved positive for me, that’s when I knew I had a new career interest, and that was multifamily. So that was our first deal, and then that was supposed to be the end of it. The plan was to hold it and maybe sell to a developer. That was our thinking in 2014, because we knew we were on prime real estate; and then in 2016, 2017, we started developing the skills to be developers, and now, here we are in 2020, we’re working with some of the top architects in town to scrape our entire complex. So just bulldoze the whole thing and come up with a mid-rise design and raise all new equity for it etc, and expand it to include not only our site, but the neighboring sites around us on our block. We’re going to do a JV with them to all partner together and do this mid-rise construction.

Theo Hicks: I’m really glad that you shared that six to nine months journey that you went through. Just one last follow up question on that deal and then I want to transition to the other thing we talked about, which is increasing net operating income by over 80%. So it was a $700,000 rehab – all that came out of your pocket?

Joseph Bramante: It was me and one of the partners. So we were 50-50 partners on the deal and we financed the rehab, so we had a bridge loan.

Theo Hicks: Okay. So you cashed out your 401k and used that as a down payment for bridging back on the rehab? Okay.

Joseph Bramante: Exactly. The first time I didn’t though. The first time, I was paying cash for the rehab, because I didn’t know any better. My education in real estate at that time was I read about six books on multifamily, and some of the good ones… David Lindahl is always on your list. Multifamily Millions, that was one of the books I read, and a couple others… And they give you this 30,000 foot level understanding of the industry, but it’s a completely different ballgame when you’re on the field and you’re out there executing in your specific market.

Theo Hicks: Perfect. Okay, so let’s transition into your bread and butter business plan now, which is increasing the net operating income by over 80% on average within 48 months. Correct me if I’m wrong, but you can’t just pick any deal to do this on. So obviously, the front end is making sure you’re selecting the right deal. So you already mentioned location, so we don’t need to talk about that again. Is there anything else that you have? What’s your checklist when you’re looking at a deal or a piece of land, so that you know going in that you’re going to be able to increase the net operating income by high double digits?

Joseph Bramante: For us, we’re really just focused on doubling our investors’ money over five years. We keep it simple, we target a high single digits cash-on-cash and double their money in five years; and for the most part, we’ve been very successful at that.

Now, part of the reason we’re at 80% is because we’ve had some really big deals. We’ve had about three or four big deals that have really skewed those results. We just closed on a 2015 construction about a year ago, and it’s more of a base hit deal. We’re exiting right at about a 2x multiple, but we’re not increasing NOI by 80%. Also part of that, just to be honest, is because I was buying smaller deals. So when you’re buying smaller deals in the beginning, it’s very easy to magnify and grow that NOI by a very large number, because that’s just how the math works. It’s the percentage and denominator factor.

So as I was buying these large deals like that first deal we did, I think we increased NOI by 400%. It was something stupid, because there’s 26 units, and the guy was really mismanaging it really badly, and we more than doubled the rent. So it had just a stupendous growth to the NOI there. But then of course, eventually what happens on all value adds is eventually the taxes catch up with you, which we’re just now, six years later, dealing with that effect. But to your point though, we’re not targeting 80% NOI growth. It’s just something that happened on its own, because we have big deals. Our targets for deals are high teens IRR, 2x multiple and high single digits cash on cash five year holds.

Theo Hicks: Perfect. So what you’re doing is you’re finding these deals, you’re putting them through an underwriting model and you’re finding what the purchase price is that results in that return, and then if the purchase price makes sense, you offer, if not, you pass.

Joseph Bramante: Yeah. And I would say the only difference between us in regards to why we’ve had some of the big home runs is because we’ve positioned ourselves in our market as the guys that buy the big hairy deals. So the one we’re doing right now, which is $37,000 per door across 220 units on the rehab, that came straight to us. We were the first people to see that deal, because the brokers already know that we do these deals, and if anybody’s going to do a big hairy lift like that, we would be the ones to do it.

Theo Hicks: This goes back to your first deal, or this could be just in general… How do you find the right contractor for these $30,000 plus per door renovations?

Joseph Bramante: Well, I’d say we’re a bit unique in that we’ve got construction in house; that’s as of January of this year. But we’ve been through two or three GCs, and unfortunately, it’s a lot of recommendations, a lot of tried and tested and just going through the motions. So you’ve got to hire these guys, try them out and really hold their feet to the fire on deals. But my background’s with Exxon with project management, so we had a little bit of a leg up on managing GCs and contractors, because that’s what I did for a living for five years. So for us going into these deals, you’ve got a big primary GC, then you might have a couple of other subs below doing other stuff that you feel like you can handle yourself and do it directly, and you don’t want to deal with their markup. So we’re going to have a detailed contract for the primary contractor, whereas the other guys might just be a PO or something like that.

So it’s really all about what you put up in the contract, setting expectations, putting a schedule, putting good terms in and developing a relationship with GCs. So we’ve been through, as I mentioned — I think our current GC we’ve hired is our third GC; they don’t all work out. My first two, they were great people, I have nothing against them, but they just have different price points, different quality levels… And it’s not necessarily the GC. I think what people need to understand about a GC is they’re more of staff contractors than construction guys, because all they’re really doing is they’re managing all the subcontractors. They’re not physically doing the work. Some of them might have their own crews, but they’re supplementing their crews depending on the size of the project with additional subcontractors. So if you’re getting bad work on a deal, it may not be the GC’s fault, it may just be that the sub that he hired did a bad job.

Theo Hicks: Okay, really quickly, how did you start raising money for deals? Was that after that first 26 unit deal?

Joseph Bramante: Yeah. After that first 26 unit deal, I had a pretty solid track record at that time. I was one for one and my first setback was a home run, at the ending. I mean, during the play, it looked like I was about to fall on my face pretty badly, but after that first deal is when I really started raising capital quite heavily, and started targeting these big value-adds.

The other thing I would say, just as a side note, is that doing a big value-add, once you’ve done one, especially on my first one, very few things scare you. And so I think a lot of what– the hesitation is for people to do value adds is that it’s scary. There’s a lot of unknowns, a lot of risk, a lot of things can happen, but once you’ve gone through it a couple of times, you get used to and are more comfortable with that risk, and you know how to respond in real-time to what’s happening; then you’re not as afraid of doing it. I think that’s probably, just my guess on why people don’t do as many big value adds, because they say they’re risky. But the reality is, in some ways, this big rehab we’re doing is actually less risky than a smaller rehab, because we’ve got so much money behind us on the rehab that any little nuance things that we discover have very little impact to us because of how much weight or how much money we’re spending on per unit basis; it’s easily absorbed by the GC.

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

Joseph Bramante: My best advice would be patience. I think there’s so many people who want this really quickly, they want to grow… And we’re only just over 1000 units, 1100 units, which isn’t really that big, to be honest. There’s some guys with these monster portfolios, and we’re more of a small to medium guy, to be honest. But that’s okay, we’re going at our own pace, and we’re doing deals that we feel comfortable with, and I feel like a lot of people – they’re rushing, they’re trying to get in quick and build these massive portfolios quickly, and the danger is, if you’re a syndicator trying to do that, that you’re growing and learning along the way. So if you quickly buy a bunch of deals when you’re still learning, then there’s a risk that you’re going to buy a bunch of deals and make the same mistake on those same several deals, versus just the progressive nature and maturing of you as an investor by taking your time, that if you bought those same deals over a five year period, by the time you’re [unintelligible [00:21:04].15] comes around, you’re buying that last deal, you’re underwriting and your execution on that deal is going to be significantly better than it is on the first deal.

So I think that’s the huge risk that people run into, and if you’re a passive, and you’re doing the same thing, trying to grow very quickly and deploy a whole bunch of capital, I think you run the risk of one, picking bad deals to go into, and two, you miss some market cycles. I think one of the benefits that people have is by– like right now, if you had dumped all your money last year, you would have been in a really bad spot, versus if you would paced yourself and done your investments over a couple year timeline, then you would have been taking advantage of potentially some really good deals that are about to hit the market.

Theo Hicks: Perfect, okay. Are you ready for the Best Ever lightning round?

Joseph Bramante: Let’s do it.

Theo Hicks: Alright. First, a quick word from our sponsor.

Break: [00:21:51]:03] to [00:22:46]:05]

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

Joseph Bramante: The best ever book I’m actually currently reading is a book called Raising The Bar by Gerald Hines. Hines Development is one of the top developers in the country. Gerald Hines is 95 years old. He started the company himself back in the 50’s, and he’s based here in Houston, his office is up in Williams Tower, which is right next to my house, and I hope to one day, get him to sign my book… But it’s just really inspiring to see his whole biography and his story and how he started and growing his company, which has 100 billion AUM; it’s just absolutely incredible. He’s strictly done development his whole life, and he’s an engineer like myself, so I gravitate towards that side of it as well… But it has been a really cool book to read, because I like to read books about great people who’ve done great things in my industry.

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

Joseph Bramante: So I’m a member of Rotary, it’s a business charity group. It’s one of the oldest charities I believe, or it has some significance in regards to that fact. It’s been around for a while. But I like Rotary because it allows me to give back in a variety of ways, both with my money and with my time, and the cause that goes back is always a different cause. We do a lot with housing, but we also do a lot with schools and helping kids and various other initiatives; it’s great. I’m a busy person and I don’t necessarily have time to do a lot of the research, so Rotary does a great job of vetting a lot of the charities beforehand, allowing us to give and know that it’s going to a good cause, and then also, like I said, get involved with our time and really get hands-on, which is really something special.

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

Joseph Bramante: The best place to reach me would be on LinkedIn. I’m on there, I’m pretty active on LinkedIn. The other way is, just send an email to info [at] triaarcrep.com and it would eventually make its way to me. But LinkedIn, if you want to get directly in touch with me is the best way. And if you do reach out to me on LinkedIn, let me know that you heard me on this show and I’d be glad to hear from you.

Theo Hicks: Perfect, Joseph. I really appreciate you coming on the show today and sharing your best ever advice, but I think what’s gonna resonate with people the most is you telling a story about buying your first property sight unseen. So you bought that 26-unit building; the original plan was, like you said, that there really wasn’t a plan at first. You were just modeling what the broker said, which is 3k per units in renovations, and then six months in, you had four units down that you were renovating and found asbestos once you did an environmental on it, and then you had some fraudulent insurance, and on top of that you’d lost your job.

So you joined a local real estate group, and it sounds like people there were telling you to just sell the property and take a loss, but you realized that not only would you have lost all the money you had saved up from your job, but you would have that negative track record. You [unintelligible [00:25:38].20] for one and would have a hard time raising money after that. So you met someone at that actual meetup who ended up being your business partner, who specialized in those large renovations, and told you that you’ve got a great location and that you could do a large rehab project and turn the property around. So you cashed out your 401k, got a bridge loan and did the $700,000 rehab, even though the purchase price was $650,000.

You vacated the entire property, and after the rehab, you were able to double those rents and refinanced, pulled some money out. You also mentioned, what sparked this whole conversation – now the plan is actually knocking the entire thing down and develop a brand new property because of the location. I really appreciate you sharing that story.

And then you also mentioned a few things about how you’re identifying deals. So you gave us your return targets, and that you really just positioned yourself in the market as being the team that does these big deals, and so brokers actually bring these deals to you, which was just very beneficial. You gave us some tips on finding the right contractors; obviously, you’re doing an in-house now, but it really just comes down to just getting in contact with a few recommendations and just testing them out, holding their feet to the fire, making sure you’re setting proper expectations with the contract and setting a schedule, but at the end of the day, it’s really just trying it and seeing how they do. And you mentioned how you’ve gone through a few contractors. Then lastly, you gave your best ever advice, which I really like – just to be patient. So again, Joseph, I really appreciate you coming on the show. Best Ever listeners, as always, thanks for listening. Have a best ever day and we’ll talk to you tomorrow.

Joseph Bramante: Thanks, Theo.

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JF2114: Creating A Deal Through Nurturing With Robbie Faithe & Tosh Hoshino

Robbie & Tosh, are partners who have 13 years of combined experience. They share a story in finding a mobile park deal that was attained by nurturing a relationship over an extended period of time. You will learn how they determine if a mobile home park is a good deal or not and what they like to focus on.

Robbie Faithe & Tosh Hoshino Real Estate Background:

  • Robbie has 11 years experience in real estate
  • Tosh has 2 years in real estate
  • Robbie current holdings consist of 66 doors mix with single family, Multi-family, & a Mobile Park
  • Tosh has 59 units under management including 1 single family
  • From Albuquerque, NM
  • Say hi to him at: www.Robbiefaithe.com 
  • Best Ever Book: Everything Store, Pitch Anything

 

 

Click here for more info on groundbreaker.co

Best Ever Tweet:

“Find out where you want to be, and find a mentor who is crushing it. Listen to podcasts, and always educate yourself. ” – Robbie & Tosh 


TRANSCRIPTION

Theo Hicks: Hello, Best Ever listeners. Welcome to the best real estate investing advice ever show. I’m Theo Hicks, today’s host, and today I’ll be speaking with two guests. Today we have Robbie Faithe and Tosh Hoshino. How are you guys doing today?

Robbie Faithe: We are doing great!

Tosh Hoshino: Thanks for having us.

Robbie Faithe: Yeah, thanks for having us. Great to be here.

Theo Hicks: Absolutely. Thanks for joining us. I’m looking forward to our conversation.

Robbie Faithe: A little bit more about their backgrounds – Robbie has 11 years of experience in real estate, and Tosh has two years of experience in real estate. Robbie’s current holdings consist of 66 doors that are mixed between single-family, multifamily and a mobile home park. Tosh has 59 units under management, including one single-family home. Both are from Albuquerque, New Mexico. Say hi to Robbie at robbiefaithe.com. Do you guys mind telling us – maybe start with Robbie – a little bit more about your current background and what you’re focused on today?

Robbie Faithe: Yes, absolutely, and thank you again for having us on. It’s an honor to be here. So I got started in real estate actually when I was in college; I got my real estate license when I was finishing my undergrad degree at the University of New Mexico. This was about 2009 at the time. The market was not doing so well, and I had accumulated  a couple homes, and I decided the best thing to do at this current point in time was to sell the homes, and I decided rather than to hire a real estate broker to sell my homes, I just reallocated that money into my own education and got a real estate license. That’s how I got started as a broker, and I’ve been selling real estate ever since.

So I started with a brokerage that focused on distressed sales. So I really cut my teeth on the REOs and distressed sales, short sales as well, and just kind of built my business from there.

Right now, as you’ve mentioned, I’ve got about 66 doors that I currently own. It’s a mix of single-family, multifamily and a mobile home park, and the focus now is starting to get more involved in some of the larger multifamily properties, with the most recent acquisition being that mobile home park.

Theo Hicks: Thank you for that. Tosh, what about you?

Tosh Hoshino: For me, I think probably like most of the people, I just bought a residential property to live in, and met my wife, and moved in with her… And since day one had a tenant, who’s lived with me, and I guess 14 years later I still have a tenant, and the house is paid for. That’s how I got started. And the recent acquisition of the mobile home park with Robbie… And for me, I’ve been a commercial real estate broker for two years now, and before I joined this industry I was in the car business. My qualifying broker recruited me after I’d decided that I just did not wanna be in the car business any longer… And it’s been just eye-opening every day, just learning about the industry.

My focus is mobile home park acquisitions and dispositions. I sold three mobile home parks currently, and trying to find a good deal, which is pretty tough to come by nowadays… But analyzing deals, and trying to get more under our belt.

Theo Hicks: So how are you two involved together? Is it just that mobile home park deal?

Tosh Hoshino: I’ll answer that, Robbie, if it’s cool with you.

Robbie Faithe: Yeah, go ahead, Tosh.

Tosh Hoshino: So the car business that I was telling you about – I met Robbie through that relationship. He’s bought two cars from me, and he was in real estate at that time, and after I’d decided to leave the industry and join the commercial real estate world, I read — just doing research about what are good investments, and mobile home parks kept coming up. We have always kept in touch, but – I mentioned about the mobile home park, and I think at that time, around the same time or right before he was really getting into it… So when this opportunity came up, we’ve known each other — and of course, not business-wise, but I think just understanding his character, and we just decided to partner up and jump in it. That’s how this happened.

Theo Hicks: So you were interested in becoming a broker, and decided to pursue the mobile home park deals. You found this deal and presented it to Robbie, and you guys both agreed to go in on it together?

Tosh Hoshino: It’s actually the other way around.

Theo Hicks: Oh…

Tosh Hoshino: So Robbie, why don’t you fill in on that part?

Robbie Faithe: Yeah, so I’ve been researching mobile home parks, and it’s a very interesting asset class… I decided to start out by building  a database… I decided just to kind of go down this road and see what I can do to find an opportunity. So I built out a database of local mobile home parks, I was able to skip-trace the owners, and I just started cold-calling.

This park actually was the second phone call that I made, and it took months and months of nurturing the relationship before we even got to the point where the seller was comfortable enough providing me with information… But that’s pretty much how it happened. I just cold-called someone in my database that I built out, and just asked simply if she was interested in selling, the answer was yes, and we immediately scheduled a coffee meeting, and built rapport, and eventually got it under contract.

After it was under contract, I was really interested in bringing on someone who may have a little bit more experience in this realm, and I did. Tosh was already more versed in mobile home parks than I had been at the time, so we decided to partner up on it.

Theo Hicks: You said it took you a long time to nurture that relationship… Do you mind explaining maybe let’s say from the first phone call – what you said on the call, and then what steps were taken with that individual until you eventually got the deal under contract?

Robbie Faithe: Absolutely. It was just a very casual conversation. I simply called the seller up, and she happened to answer, and I just told her who I was, and I asked her if she was interested in selling that park. The answer was “Well, maybe…” So the conversation was just very casual, I just was trying not to be too intrusive and ask too many personal questions; I just kept it very casual, and decided that the best thing to do was just to get the seller more comfortable with me. So I decided just to see if we could schedule a coffee meeting. We met at Starbucks, and it probably took about 5-6 different meetings for her to get comfortable enough to disclose some of the financials on the park.

It was definitely a process. We were in escrow for about ten months after we got it under contract, because this is a typical mom-and-pop operator, very sweet lady, we still keep in touch post-closing… But she didn’t have the best records, so it was a little tricky to obtain all the necessary information that we needed to make an educated decision. Eventually we got there, but that’s kind of how the conversation started.

Theo Hicks: One follow-up question on the actual back-and-forth… So you said you had that initial coffee meeting, and then you guys met 5-6 more times. Was it just quick coffee meetings, just catching up on life things, was it just talking about  the property itself? Because you mentioned it took a while to actually get numbers on the property, so I’m just curious what you guys talked about all those times.

Robbie Faithe: Yeah, she was pretty good about just giving me some general information. I had a bunch of questions about the property. So it was a lot of discussing how the property was being operated, who was managing it, her involvement, what her goal was in the case that she would want to sell it… Just so I can get an understanding for what the motivation was.

Then a lot of the rapport building was just kind of talking about where she came from, her family, a little bit about myself and my family… So by the time we were into the second, third, fourth meeting, we established a pretty good friendship, and that really helped enable us to get the terms that we were looking for. We were able to get some wonderful seller financing terms, and that was partially because during those conversations I was able to find out what her motivation was. She was at the point where she was looking to divest, and she didn’t want to be involved anymore in the operational aspect of the park. She was just interested in receiving monthly income, so it worked out perfect. That was a great segue for owner-financing; she was educated on it enough to feel comfortable pursuing that… So that’s how we were able to get those terms.

Theo Hicks: Thanks for sharing that. I think it’s gonna be very helpful, because a lot of people talk about “You need to cold-call people, and built rapport”, but not many people get into the specifics; you went into a lot of specifics there, so thanks for sharing that.

So you also mentioned that you were in escrow for ten months after getting the property under contract. It sounded like it was difficult getting all the information you needed to fully underwrite the deal… So either one of you can answer this – do you mind telling us overall what types of things people need in order to fully underwrite a mobile home park? And then maybe you can also talk to us, if this is true, about how to make assumptions when all the data isn’t there. Because it sounds like a lot of these are owned by mom and pops who aren’t using the fancy property management software and they track every single line item. So the two questions are “What do I need to underwrite?” and then “How do I get all the information if it’s not readily available from the owners?”

Tosh Hoshino: As far as the “What do you need to underwrite it” – rent roll is definitely important, and just checking that along with the bank statement; make sure that the income is coming in… And just the operating expenses – what is the seller paying, and what are the tenants paying, and what are the maintenance and repairs and any cap ex items that has been done in the last few years. Let’s say if some of those items are missing, then – it’s not a rule of thumb, but if it’s tenant-owned homes, then you would typically use 30% to 40%, 40% being that if the water and sewer is not charged back; and if it is, then you use typically 30%. So that’s some of the things that we use… But both of us actually underwrote it, and just  kind of comparing notes and make sure that we were on the same stance as far as the financials.

Robbie Faithe: Yeah. He’s talking about expense ratios when he’s saying 30% to 40%.

Theo Hicks: Okay. So rent roll, along with the bank statement… So is that something that you can get before you put the deal under contract, or is that after?

Robbie Faithe: I think it’s on a case-by-case basis, depending on how the property is being operated. In this particular instance we had an idea what the general numbers were… And this was just purely off of conversation, when we were talking. She was able to eventually share some of the financial information about what the monthly gross scheduled income is… And sometimes that’s just what the sellers are willing to share with you. But in this particular case, we were able to get some supporting documents after contract; it does sound a little backwards, but before we went into contract I made sure just to have a conversation with the seller, that “I understand you’re not wanting to share a ton of financial information for me at this point; I’m okay, I’m going ahead and putting together an offer for you based off of the numbers that you’re representing. In the case that there’s some inaccuracy here, I just need you to understand that we’re gonna need to adjust the price again.” And that’s actually what happened.

Initially, we went under contract and it was based off of a monthly figure that she had given us that was not accurate. After we went under contract and we obtained rent rolls, tax returns, it turned out that she didn’t intentionally misrepresent the property, but she was factoring in some of the utility bill-backs into the gross scheduled rents… So after incurring the utility costs she wasn’t actually collecting that monthly amount… So we were able to actually negotiate $100,000 off immediately, before we even really began physical due diligence on the property.

Theo Hicks: That was my follow-up question, which is “What types of contingencies did you put in place, or conversations did you have before putting the deal under contract?”, when you don’t have everything; but you mentioned what to do there, so thanks for sharing that as well.

Alrighty, for the money question – what is your best real estate investing advice ever? Let’s start with Tosh.

Tosh Hoshino: I would definitely say that listen to a podcast, always educate yourself… There’s an invaluable amount of information out there. So that’s the advice that I would give to anyone.

Theo Hicks: And Robbie?

Robbie Faithe: It’s a really good question… My perspective on that is find out where you wanna be, and find somebody who’s just crushing it in that area. If you can find a mentor who’s already in a position or a place where you see yourself or where you envision your business going, then that’s the most valuable think you can do – get a mentor who’s already at a place that you wanna be at.

Theo Hicks: Alright, perfect. Are you guys ready for the Best Ever Lightning Round?

Tosh Hoshino: Yup.

Robbie Faithe: Yes.

Theo Hicks: Okay. First, a quick word from our sponsor.

Break: [00:16:19].21] to [00:17:10].26]

Theo Hicks: Okay, so – Lightning Round. Both of you guys can answer these questions in whatever order you want. The first one is what is the best ever book you’ve recently read?

Tosh Hoshino: For me it’s “The Everything Store”, about Amazon and Jeff Bezos, and just his vision about being customer-oriented, looking for the future, and just not letting anyone getting in the way of his vision.

Robbie Faithe: Yeah, that’s a great one. For me it’s “Pitch Anything” by Oren Klaff. This is a fascinating book. It kinds of links science and psychology into sales, and there’s a lot of value there for folks who are in sales, and just people in general.

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

Robbie Faithe: Tosh, do you wanna get that one?

Tosh Hoshino: That is a good question, “What would I do…?” I don’t know. I’ve never thought about that. I’ll let you answer that, Robbie.

Robbie Faithe: I think that having done a decent amount of deals, I really learned and discovered that you don’t necessarily have to have the money to be able to put together a good deal. You have to find the opportunity. So I would just continue to do what we’re doing, deal sourcing; I think that’s kind of the top of the food chain. Once you can secure a deal, the money always tends to flow… So if I had to start over, I would just focus 100% on just finding opportunities, and bringing the people together to be able to make that come to fruition.

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

Tosh Hoshino: I would say that just be available to anyone who reaches out to you, and just give advice as much as you can, that you’re competent of. That definitely will come back to you to help you as well.

Robbie Faithe: Best ever way I like to give back is I do some casual one-on-one coaching on the side. I’ve been able to create financial independence for myself, and I’m super-passionate about how real estate has enabled me to create that lifestyle. I love to educate others on how real estate investing can do the same for them.

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

Robbie Faithe: The best ever place to reach me – I’ll go ahead and give out my email. It’s Robbiesellsabq [at] gmail.com.

Tosh Hoshino: And for Tosh it would be thoshino [at] gmail.com.

Theo Hicks: Alright, thank you guys for sharing your personal email addresses. Hopefully a lot of Best Ever listeners take advantage of that and reach out and ask some questions about mobile home parks and other things you guys are experts in.

Just to summarize what we’re talked about today – we talked about how you guys both got started in investing, and how you guys met (interestingly) at a car lot, where Robbie bought a few cars from Tosh… And then for the mobile home park that you guys worked on together, Robbie decided to do mobile home parks, started building a database to find opportunity, skip-traced to find the owners, started cold-calling and found a mobile home park on the second call.

You talked about how you initially met this person for coffee and it took multiple months to nurture the relationship… And we talked specifically about what you did. You called them, had a casual conversation, asking if she was interested in selling. She said “Maybe.” You guys met for coffee, you had about 5-6 different interactions after that. She talked about how the property operated, who managed it, what her goals were, you talked about her family, where she came from, your family… Just to build a personal relationship, but also get information about the deal.

Eventually, she began disclosing the financial information; you guys put the property under contract… And something that you mentioned is that usually you’re not gonna have all the information that you need to underwrite the deal – the rent roll, the bank statements, the operating expenses, the cap ex… So you make assumptions based off of what you were told, and then based off of the 30% or 40% expense ratio rule, and then let them know that “We’re basing this off of what you’re saying; if it turns out to not be true, we’re gonna have to adjust the price”, and you mentioned that you were able to adjust the price by $100,000 right off the bat, because of some misinformation… Not purposefully, but just misrepresenting something on accident.

You mentioned that the property was in escrow for ten months as you ended up buying it, and so we talked a lot about that deal. Then we also talked about your best ever advice; for Tosh, it was to listen to podcasts and always educate yourself, which if you’re listening right now, you are on the path towards doing… And then Robbie’s best ever advice was to find out where you wanna be, find someone who’s there already, and attempt to bring them on as a mentor.

So Robbie and Tosh – I really appreciate you guys coming on the show and sharing your story today about the mobile home park. Best Ever listeners, as always, thanks for tuning in Have a best ever day, and we will talk to you tomorrow.

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JF2113: Locking In Deals With Jesse Fragale

Jesse is a real estate agent and broker working in the commercial space. He is also an investor with experience in student rentals, single-family rentals, and apartments. Jesse also gives some ideas on how being a real estate agent can help you find good deals and shares with you a specific line he uses to lock in good deals.

 

Jesse Fragale Real Estate Background:

  • A commercial real estate broker and investor    
  • 10 years of real estate investing experience     
  • Located in Toronto, Canada
  • Say hi to him at: https://www.avisonyoung.com/ 

Click here for more info on groundbreaker.co

Best Ever Tweet:

“Noone is looking to sell but when you have an offer in front of them, maybe they are looking to sell.” – Jesse Fragale 


TRANSCRIPTION

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

Jesse Fragale: I’m doing great. How are you?

Theo Hicks: I am doing great, and thanks  for joining us. A little bit about Jesse – he is a commercial real estate broker and investor, has ten years of real estate investing experience, is located in Toronto, Canada, and you can say hi to him at AvisonYoung.com. Jesse, do you mind telling us a little bit more about your background and what you’re focused on today?

Jesse Fragale: Sure. My background in real estate is twofold. Like you mentioned, I’m a real  estate agent or broker. I work in the commercial real estate space, predominantly in office, but we’ll do industrial, as well as retail. As an investor, I have been investing for about approximately ten years. I got my start in student rental properties, so started out like everybody else, with one, and then slowly built a little bit of a portfolio on the student rental market. From there, I kind of grew towards over the last ten years continuing in student rentals, purchased a few single-family investments, condo investments, some assignments or wholesaling (depending on which nomenclature you use), and then moving into apartments today, and that’s what I do.

My partner and I – we’re always looking for multifamily apartments (the more units, the better) and we’re buy and hold investors. So that’s kind of the snapshot.

Theo Hicks: Do you still have a lot of those single-family rentals?

Jesse Fragale: No, not really. We have kind of transitioned. We’ve purchased some more condos. In my market it’s very tight – the Toronto market – it’s probably most similar to San Francisco, Boston, New York… The yield is very tight, and one thing we’ve had is a very big constraint on supply. Condos have kind of made up for the lack of purpose-built apartment buildings. There’s a few reasons for that, but fairly briefly, it’s the fact that we have in recent memory pretty tight rent control programs. One of the ways to avoid some of that rent control has been newer product.

The condo market has basically been there as kind of a shadow market for rentals, which is a little unfortunate, and hopefully in the future we already have started to build more purpose-built… Long story short – that’s why we’ve purchased quite a few condo rental investments. Those would be most similar to single-family homes in other markets.

Theo Hicks: So for the rent control, if you buy a newer condo then there are no rent controls?

Jesse Fragale: So the way it worked until fairly recently – 2017 was the change – was that provided that you had new construction, you weren’t subject to rent control. There was a policy – basically, buildings built after 1991 were not subject to rent control; buildings built before 1991 were subject to rent control, which basically meant that you had a certain guideline that the province in Canada (or the state in the U.S.) would allow you to raise it… And it would be indexed with inflation, which as you can tell, is very low. So what would happen is you’d wait for a tenant to move out, and then you could mark-to-market the rents. Then you could take the rent and bring it up to market value.

So what happened was we were in a little bit of area with our government a few years ago that they wanted to get rid of this policy that said new construction would not be subject to rent control. That was reversed in 2017. So what we have seen is actually a 40% increase in permitting applications for purpose-built. So that’s a good sign for Toronto, that we’re going to hopefully in the future continue to be building more purpose-built. The majority of the stock of rental properties in the Greater Toronto Area – and I’m pretty sure the province – were built prior to 1970. So we have just this old stock. The idea that you go to an American market and you see these AAA buildings, these beautiful apartment buildings is kind of foreign to us, because the majority of apartment buildings are old stock. So hopefully we’re moving in the direction of being able to  supply more apartment buildings.

Theo Hicks: So will that same concept apply to those newer apartment buildings? So if someone builds a new apartment building, it will not be subject to rent control?

Jesse Fragale: Yeah, and that’s why we’re starting to see a lot more builders – I’m not sure if RioCan or some other major builders that are basically focusing on building apartment buildings now that the rent control — they’re not subject to those kind of constraints. I think this year we’re allowed to raise on existing tenants 1.4%. At that point, why bother the tenant with the rental increase?

Theo Hicks: Okay, perfect. So how many condos do you currently have as buy-and holds?

Jesse Fragale: Buy and holds  I believe it is seven condos right now… And the apartment building – we have one apartment building about an hour West of Toronto, and that’s an 11-unit apartment building, which we’re trying to put another unit on. To give you some context, for the apartment buildings down here, the average price for an apartment building per unit in Toronto is about 275k to 300k/unit.

Theo Hicks: Do you mind walking us through that 11-unit deal? How you found it, and then what you bought it for, and then what the business plan was. I know you already mentioned you’re trying to add another unit to it, but anything else about it, from a business plan perspective?

Jesse Fragale: Yeah, no problem. That particular apartment building we were generally looking in the area; if you think Brooklyn to Manhattan, that’s this place called Hamilton, just West of Toronto. So what we did like about it was the prices weren’t as crazy as the downtown Toronto market. It was a little bit in the periphery. I think initially it was actually a marketed property; I don’t think it was off-market. I think the gentleman that was marketing it – we were looking at a different property of his… So he said that there was this 11-unit he thought might be interesting to us. We went, we checked out the unit, and it was. It was under-rented, so quite a few of the rents were under-market, which we noticed. That was one checkmark for us, and it checked off one of the boxes.

One of the other things was that there was a motivated seller. Unfortunately, it was an older gentleman, and we didn’t know at the time, but I don’t believe his health was particularly good… So I think just managing and owning an apartment building was just too much for him at the time. So for better or for worse, that was a positive for the deal, obviously, because he was motivated… And basically, we looked at the apartment building and we saw that there was quite a bit of potential lift in the actual rent. We looked at it as a buy and hold strategy, but we kind of balanced the fact that it was still getting decent income. So we basically came from the perspective that we were gonna be able to get pretty good financing on it, which we did… So we went out to our mortgage broker, gave him the rent roll, the area, all the expenses, and  we were able to strike a good deal from the lending perspective.

Then come offer time, we put together what we thought was a great offer, with a little bit of back and forth, and we were able to secure the property. That was the pre-deal mechanics, and we were happy with the purchase. Looking back now, we wish we bought ten of them, because the market has continued to increase… But in terms of what we wanted to do initially – we did the roof, we did just some minor work, housekeeping things to get it up to where it should be; a lot of the fire code, all the electrical…

And then in terms of other value-adds, like I said, we are looking at adding another unit, but as of right now, we’re just trying to continue to raise the rents where we can, and go from there.

Theo Hicks: Perfect. So let’s talk about the condo deal next… It’s obviously a little bit different than the apartment, so maybe walk us through one of your more recent condo deals, and the same thing – how did you find it, what did you buy it for, and what was the business plan?

Jesse Fragale: Actually, the place I’m in right now, I can give you kind of an example. This was supposed to be a rental, which I ended up moving into just because of life circumstances… But we’ll take you back to — I believe it was 2016 that I purchased this deal. They’ve just finished building this about 4-5 months ago. It’s actually currently in construction right now… And it was 411k, pre-construction condo. For pre-construction, in my market, you typically ask to put 20% down over a certain period of time, so $400,000, 5% installments, getting up to $80,000 as a down payment.

In this particular market, these condos – just to give you an idea of how crazy our market has gotten – 2015, $411,000. Probably today I could probably get about $3,000/month, so just shy of $40,000/year on this condo. So $40,00/year, $411,000 purchase, 10 on a gross rent multiplier. If you work out the cap rate on that, I don’t know what that really would come to. Say you use like a 50% rule on $40,000, so you’re down at $20,000… You’re in a pretty decent cap rate environment.

Now, this particular condo, today you probably would not be able to buy this for less than $850,000. So just to give you kind of an idea of how the numbers just have completely stopped making sense from a cashflow perspective, and that’s why I mention that our market is much more similar to a San Francisco market than it is to, say, Memphis. That would kind of run you through some of the math of the condos. I genuinely don’t know how anybody is buying them today, unless they are just putting a massive down payment, or they’re just not concerned with cashflow.

Theo Hicks: I was gonna ask you – I’m assuming you’re not buying these types of condo deals anymore…

Jesse Fragale: Not in this market, that’s for sure. To give you just an example of a condo market deal, if it’s an hour-and-a-half away from Toronto – say it’s a student rental property, because they’re starting to build a lot more in condo form – then it’s a little different. You’re able to buy these condos at like 200k, 250k, while still not having a ridiculous low income… Even then, the reality is our market is just very tight, and cap rates  – just to give you an idea of cap rates on AAA office towers in the downtown area, they’re trading at 2.9%-3.1% cap rates. It’s very tight.

Theo Hicks: So you’re transitioning now to moving into apartments. You’ve got that 11-unit… What’s the next step? Do you have anything in the works right now, apartment-wise? What types of things are you doing to generate apartment leads, things like that?

Jesse Fragale: For us, basically we have a list of apartments… Like I said, Toronto, for rent – $300,000/unit. It’s very tough to just go out and buy 50 units. It’s just millions of dollars. So for us, we’re looking at anywhere from 15 to 30-unit apartment buildings. The way we’re reaching out is either direct mailers to apartment owners, or just as agents, we have the luxury of being able to look up CoStar, or Altus, different online programs that other people don’t necessarily have access to, because these subscriptions are so expensive… And we’ll call owners directly, basically ready to put an offer in.

Right now we’re looking at a ten-unit apartment building, but an hour from where I am, and we’re just kind of going through the process. This was a direct outreach to an owner. I wasn’t looking to sell. We knew where his apartment was, we called him, and we said “Hey–” We always come from the perspective that we would list it, which we would if it’s big enough as agents… And then we say “Listen, if we could bring you an offer tomorrow, at this amount, would it interest you?” And that’s how we basically did it with this guy. We gave an opinion of value, and he said “If you can bring me an offer in that range, I’ll take it seriously.” That’s kind of how we’ve been approaching it, and I guess we’ll see what happens… Given the current environment, with life on lockdown, at least in our world, it just gives you a little bit more time to reach out to these owners.

Theo Hicks: That’s a good strategy for those who are looking to get started and buy a deal in a competitive market – get your license and you’ve got access to all those subscriptions… Call them up, ask if you can list it for them, and then, as you just mentioned, say “If I can bring an offer tomorrow, would you be interested?” I like that strategy.

Jesse Fragale: Yeah. I always tell young guys in our office – you can’t leave the conversation by just asking “Are you looking to sell?” and they say no. It’s like, nobody’s looking to sell. But when you’ve got an offer in front of you, maybe you’re looking to sell.

Theo Hicks: Exactly. Alright, so the last question before the money question – how are you funding your projects? Maybe give us an example of a project in the past. Is it the same thing – is it your own money, is it other people’s money, strictly banks…?

Jesse Fragale: Right now I’ve been fortunate to continue to use our own capital – and when I say “our own”, my partner Jonathan – him and I have been investing in the last few years. We haven’t hit a wall yet, and I understand that for most people it’s not a matter of the idea that you’re just gonna keep using your own capital. You will hit a point where if you’re gonna continue to invest, you need to look at outside funds.

So for the apartment building, for instance, my partner John and I – we’re fortunate to make a pretty good income as agents, in commercial real estate, especially with the run we’ve been on for the last few years… So we have taken that money and invested it into investments. I think we both put in about 150k of our own capital. The rest went through a mortgage, and then I think we did a line of credit for $100,000… That was kind of the structure of that deal.

The condos – again, we’ve been using our own capital… But like I said, we were just talking before the show – Matt Faircloth has a great book on raising capital, and the reality is you will hit a certain point where you will have to use other people’s capital, and you need to make sure that you know how to actually raise capital, and you are right now making a track record for yourself… But yeah, we’re not at that point yet. As long as we can continue to fund these with our own capital, we’ll do so… But like I said, there will come a time where we start needing to use outside resources.

Theo Hicks: One more question – what percentage of your time is spent on investing-related duties, and what percent of time is spent on your full-time job as a broker?

Jesse Fragale: My 9-to-5 (air quotes) is as a broker. So that part, the Monday to Friday, coming into the office at 7-8 o’clock, leaving at 6-7 o’clock – that is my life as an agent. So I would say maybe 60/40 type of thing… As  you know, as an investor you can call it passive, but you never really turn off that part, because that is always happening. But in terms of actually looking for new acquisitions, managing current ones – yeah, I’d probably be a 60/40… Because everything we had is managed by a third-party property management company. So we’re not actively managing anything except the managers.

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

Jesse Fragale: My best real estate investing advice I would say by far is figure out what your strengths and weaknesses are in life in general. And it sounds kind of vague, but what I mean by that is there are certain areas, whether it’s attention to detail, whether it’s big-picture thinking, whether it’s doing the spreadsheets – there’s gonna be areas that you excel at, and there’s gonna be ones that are just not your forte… And the worst thing is going 5, 6, 7, 10 years and trying to do something that you should be outsourcing to somebody else. Once you do outsource that to somebody else, you start really seeing how  your business grows.

For instance myself, as much as I love the deal-level of the different investments we do, when it starts getting really into the minutiae, I’m not a detail-oriented person in that way. And I know that there are people that I work with that really excel at that… So identifying that person and delegating those tasks to that person – it’s just gonna save you so much time and headache in your investments… And I think, like I said, in life in general. Any task you do or anything that you kind of embark on that you’re trying to achieve, I think just understanding where you are in terms of your strengths.

Theo Hicks: Alright. Are you ready for the Best Ever Lightning Round?

Jesse Fragale: I think so.

Theo Hicks: Alrighty. First, a quick word from our sponsor.

Break: [00:18:49].24] to [00:19:41].24]

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

Jesse Fragale: Oh, recently? That’s a good one. You know what – I’ve read it recently; it’s kind of an older book… Not an older-old, but it’s basically The Morning Miracle.

Theo Hicks: By Hal Elrod?

Jesse Fragale: Yeah, Hal Elrod. That was a great book. It reminded me of just kind of like getting everything in order… But there is a really good book by Kelly McGonigal that I read recently called “The Willpower Instinct.” That’s a fantastic book. It’s not necessarily real estate-related, but I think it would benefit anybody that has goals they’re trying to achieve in their life.

Theo Hicks: If your business were to collapse today – and I guess in this case businesses – what would you do next?

Jesse Fragale: My real estate business – if everything collapsed again today, I’d probably take the knowledge that I have been fortunate enough to receive over the last ten years and probably apply it back to the beginning of how I got into real estate. That started at a bookstore; research what you’re interested in.

The biggest thing I find people don’t do, that you hear people give as advice, is get a mentor. It will fast-track everything. There is no substitute. Find somebody that you see what they’re doing, that you wanna do; find those people, because they will just save you years in your path towards that, if that’s your goal.

Theo Hicks: So besides the condo you’re in now, which was definitely an amazing deal, what was your best ever deal? It could be a condo, or it could even be one of your deals as a broker…

Jesse Fragale: The best ever deal would probably be first or second student rental property I bought, only because you learn so much on your first couple deals, and you don’t realize at the time that you’re going through a school of hard knocks with investing. So that would be one of the first properties I bought, $250,000. I think it was 2009, and I had five university girls living in there from one of the universities not too far from me. Basically, through that particular property… The reason I say it’s the best ever deal – it wasn’t the biggest return on investment, but when all was said and done, I think I sold that at $470,000 a few years after that. I think 5-6 years after that. But the reason it was great for me was I learned how to take an under-market property, bring the rents to market… I learned how to deal with tenants for the first time, and I’d never done that before.

I learned how to deal with contractors, ranging from going in the back and having the city make us remove 5-6 gigantic trees. I had no idea that the city could do that at the time, and how many thousands of dollars it takes to remove trees. It was a house that was build in the early20th century, so it was dealing with knob-and-tube electrical… Just everything you can imagine that a 20-year-old guy had no clue of at the time. It kind of shaped me up and made me think a lot more diligently and a little bit more thoughtfully about future investments… So call that one the best deal ever.

Theo Hicks: Yeah, I can definitely relate with that. The best ever listeners have heard this story a bunch of times, but I forgot to turn the utilities on and transition it to my name on my first property… So the first day I walked in there, there was a waterfall in the basement because the pipes burst. I totally understand; that was probably my best ever deal as well.

Alright, what is the best ever way you like to give back?

Jesse Fragale: The best ever way I like to give back… First of all, in downtown Toronto (and I’m sure in a lot of major cities) I’m trying to give knowledge to other people that are trying to get into our industry as well, and that’s why for me – I started as a contributor for the Bigger Pockets Podcast and YouTube videos – anytime I can give information that will help people… And I can’t remember who was saying this to me recently, but they basically said if you have an expertise in something, or if you even generally have more knowledge than the average person in something, he said that you have a duty to share that with people. I thought that was an interesting word. It wasn’t just like “Hey, take a YouTube channel and start saying stuff, or telling people”, but just an obligation to give that knowledge to other people.

Aside from that, trying to help out where I can with causes in Toronto… Avison Young is a big believer in a lot of the  major causes in the downtown area, whether it’s heart and strike, melanoma – we do what we can from that point of view as well. But yeah, just also carving out a little bit of time in your day, whether it’s ten seconds or ten minutes, to just think a little bit about gratitude and what you’re grateful for, and a little bit about the advantages I have, that other people don’t.

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

Jesse Fragale: Best ever place to reach me is probably go on Instagram or YouTube. On Instagram it’d be @jfragalz, and Jesse Fragale on YouTube. If you google that, I’m sure Google will explain how to spell it probably.

Theo Hicks: Do you guys always say zed for z?

Jesse Fragale: I go back and forth, but when you get some super-Canadian people, they’re just like “It’s not zee, it’s zed”, I’m like “Alright.|

Theo Hicks: I guess it does sound like C, and it can get mixed up.

Jesse Fragale: Yeah. It depends how close you are to — Toronto is like Chicago; you’re in a major market… Whereas if you go to Newfoundland or you go into some periphery markets, you start hearing a little different twang in somebody’s voice.

Theo Hicks: Good stuff, Jesse. Well, thanks again for joining us today to talk about your experience and your transition into apartments. Just to summarize what we’ve talked about – we’ve talked about how you’ve got ten years, started off with those student rental properties, purchased some SFRs and condos, dabbled in wholesaling and then moving into apartments. We talked about rent control and how new construction is not subject to rent control, so you’re seeing a pretty big uptick in purpose-built permitting applications.

You said you’ve got seven condos right now, and you’ve got the 11 units. We’ve talked about where you’re at – multifamily is pretty expensive, so you’re not looking at 50 units; you’re focusing more on the 15 to 30-unit buildings.

We talked about specifically your 11-unit building that was a little bit further out from downtown. It was initially on-market, you ended up getting it from a motivated seller who was in bad health, the buy and hold strategy. It was a few minor things – roof, fire code electrical, you were looking to add another unit.

We talked about your condo that you’re living in now, which you bought in 2016 for 411k, and now it’s worth $850,000, which is why you’re not focusing on condos as much anymore, because you really can’t get  cashflow at that price point. You talked about how, again, your plan now is to focus on those 15 to 30-unit apartment buildings, and the strategy I really liked was you’re a broker-agent, you’ve got access to some of the better, CoStar-type online applications and programs, so you’re calling owners directly, and as you mentioned, you don’t wanna just say “Hey, do you wanna sell us your deal?” and they say “No” and you hang up. You tell them, “Hey, if we have an offer, would you be willing to sell your deal? Would you be interested?” And you also look at it from the perspective as an agent, saying that “I can list this property for  you”, and then transitioning into submitting an offer.

You’ve talked about how personally you and your partner are funding your deals right now, but you eventually want to transition into raising capital, or will have to eventually transition into raising capital, and that your experience will make the process a lot easier, since you had that track record.

Then we talked about your best ever advice, which is to figure out what you’re good at and what you’re bad at, in real estate, but also just in life in general… So if you notice you’re not very detail-oriented, then make sure you’re outsourcing those types of things to other people, and then vice-versa.

Unfortunately, we didn’t get into any of the brokerage stuff. I’m sure you’ve got a lot of solid advice on that, so maybe we can get you back for a Skillset Sunday to talk about how to be a best ever commercial broker in a crazy market like Toronto… [laughs] But until then, thanks for joining us. Best Ever listeners, thanks for listening. As always, have a best ever day, and we will talk to you tomorrow.

Jesse Fragale: Awesome. Thanks.

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.

JF2112: Verifying Applicants Through Software With Stephen Arifin

TRANStephen is the founder of The Closing Docs, a software company based in Seattle that provides automated income verification for property managers and lenders. He explains how he evolved his software over time to cater towards property managers, he explains how they started inserting certain pieces of data to help provide more clarity and reliability for the lenders and managers.

 

Stephen Arifin Real Estate Background:

  • Founder of The Closing Docs, a software company based in Seattle that provides automated income verification for property managers and lenders
  • They handle income verification for over 600,000 properties and growing
  • Based in Seattle, WA
  • Say hi to him at https://www.theclosingdocs.com/ 

Click here for more info on groundbreaker.co

Best Ever Tweet:

“We’ve tried a lot of things to find what works and now we see a compliance rate of 97%” – Stephen Arifin


TRANSCRIPTION

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

Stephen Arifin: Hey, Joe. I’m doing great.

Joe Fairless: I’m glad to hear that, and looking forward to our conversation. Stephen is the founder of The Closing Docs, which is a software company based in Seattle that provides automated income verification for property managers and lenders. They handle income verification for over 600,000 properties, and growing. First, Stephen, do you wanna give the Best Ever listeners a little bit more about your background and your focus, and then we’ll go from there?

Stephen Arifin: Sure. My name is Stephen Arifin, and my focus right now is taking technology to help automate tasks in the real estate industry. I was born  in Texas and lived there for 21 years, and now I live in Seattle. I’ve spent several years at Microsoft as a software engineer, and learned how to build and scale software. Now I’m taking my learnings into the property management industry. Now I’m building The Closing Docs, where we’re focused on automated income verification for property managers during the tenant screening process.

Joe Fairless: What brought you into real estate and property management in particular?

Stephen Arifin: To be honest, I had no background in property management. I was really looking for a business idea and how I can use technology to streamline an outdated industry. I usually look for industries that have a lot of paper and pencil processes, and I know that there is a lot of innovation in those industries. So I knew that it was this upcoming tech where financial data providers and banks are opening up their information to the consumer, with their consumers’ permission, so I figured that there might be an opportunity here in the lending space to help verify income using this new technology.

And while I started in the lending space, there was a lot of regulations that I could really dip my feet into, so I went into property management. I found a partner who is also based in Seattle and owns a property management company. We partnered together and I wrote the software for his property management company to verify income, and he became our first customer. Once we nailed the product down, we started selling it to property managers all across the nation.

Joe Fairless: Ah, good for  you two. That sounds like a very logical progression. When you first created the software, what did it do or not do, compared to its current state today?

Stephen Arifin: Let’s see… That was ways back.

Joe Fairless: How long ago was it?

Stephen Arifin: It was about 2,5 years ago.

Joe Fairless: Oh, come on. That’s nothing. [laughs]

Stephen Arifin: That’s true.

Joe Fairless: Many iterations ago though, right?

Stephen Arifin: Right, right. It took a long time to get the data that property managers wanted to see in a report. So I was new to this industry back then, and I was learning as I went… And I learned what type of data property managers wanted to see when they were verifying an applicant for income. For example, we would just print out the annual net income for an applicant. The annual net income and the monthly net income. But we didn’t really have the data to back it up, or we didn’t show that data in the report. So as we got more feedback, property managers were like “Hey, I see this number, but I don’t really see where is the proof of this number.” So we started adding in all of the transaction  data and the direct deposit data to back up that claim. That was one of the ways that we helped improve the product.

Another way was that the applicants themselves – we were a little bit hesitant, because in order for you to use our service, it’s consumer permission data, so the applicant has to give permission to pull the data from their bank. And we were like “Will any applicant do this? Is it easier for them to get pay stubs, or W-2’s, or the traditional ways of verifying income?” and we found that with the correct messaging and many iterations the applicants actually love it, because it’s super-easy for them. They don’t have to dig around for pay stubs, or W-2’s or bank statements, and it takes them about 30 seconds. So we think we really streamlined the income verification process.

Joe Fairless: I imagine that messaging was pretty tricky, because you’re basically asking “Can we get access to your personal bank account?” Right? That’s basically what you’re asking.

Stephen Arifin: Correct. Just read-only access. We just take a snapshot. But yes, it was tricky.

Joe Fairless: How does that work? Do they have to give you their password?

Stephen Arifin: Yeah, so essentially we’ve partnered with a lot of data providers that handle this, so we actually never see sensitive credentials… But the way they authorize their bank for us to pull data is that they just log in to their bank account. Sort of like Mint. I’m not sure if yo’re familiar with Mint.

Joe Fairless: Yeah, I am. I signed up for Mint more than ten years ago. I don’t use it anymore… But remind me how that works again, with Mint.

Stephen Arifin: So Mint is a financial aggregator and an investment aggregator. You can see all of your investments and your accounts in one place. They’ve fixed the issue for manual data entry by just automatically linking to your bank account. So you can sign into your bank and then they will consistently pull transactions, and Mint will show you an overall snapshot of your finances.

I think that sort of helped our service with the acceptance, because more and more people are starting to realize that this is actually a thing, and they’re more willing to authorize their bank for us to do this.

Joe Fairless: What messaging at the beginning did not work?

Stephen Arifin: I think it would be easier for us to say which messaging did work, because we’ve tried a lot of things…

Joe Fairless: [laughs] A lot of it didn’t work, and then you landed on the right messaging, and now it’s pretty smooth?

Stephen Arifin: Yeah, we’re actually seeing a compliance rate of 97%.

Joe Fairless: Wow…

Stephen Arifin: It’s blowing my mind as well.

Joe Fairless: What did it use to be, in the worst of the days?

Stephen Arifin: We didn’t explain to the applicant really what was going on. We were sort of like “Hey, sign into your bank. Okay?”

Joe Fairless: “Trust us.”

Stephen Arifin: And everyone was like “What the hell?” But now what we do is we help educate the applicant of what’s going on…

Joe Fairless: How do you do that? I understand the wording you said… You train the staff, or do you have a pamphlet, or is it an email, or what?

Stephen Arifin: So during the income screening request, how it works is that the property manager sends a screening request, and what that does is it sends an email or a text to the applicant, and they get directed to our site. And before the actual screening request occurs, we break down this process; it’s a three-step process. The first thing you do is you connect your bank, and you do that by authorizing your bank account by logging in… And then once you connect your bank, we’ll actually show you the income report and the income data to the applicant. They’re not able to change it, but we show it to them, for one, to comply with FCRA, and also number two, it gives them more of a reason to authorize their bank.

So it’s like, “I’m gonna authorize my bank… I’m gonna see my data first, before the property manager sees it, and I’m gonna make sure it’s all correct.” And once the applicant confirms that their data is correct, they produce the report, which gets sent to the property manager, and a copy gets sent to the applicant. And really, just breaking down those three steps in the very beginning has really helped a lot.

Joe Fairless: So let’s talk about income verification and what specific things that you provide. You mentioned that you provide the proof needed to show the annual monthly net income… What if someone does not have a typical salary/direct deposit job? Is there any way that you can verify income through a non-traditional employment?

Stephen Arifin: That’s a great question, Joe, and we get that question a lot. So we have algorithms running, and it can classify which deposit streams are regular deposits… And those are usually the easy  ones. The pay stub every two weeks, like clockwork. But a lot of renters don’t have that steady income, and they could be receiving income by check, they could be cash-based earners, tip-based earners, like waiters and waitresses… And we actually have a classification in our income report called Irregular Deposits. So what that does is it classifies all of the deposit history that don’t come in at a regular time. This can include tax returns, alimony deposits, and check deposits. So we try to classify which deposits are recurring, but we don’t filter any other deposits out… Because I think it helps paint a better picture. Not everyone makes a paycheck every two weeks.

Joe Fairless: What’s a couple other updates that you’ve made recently, if any?

Stephen Arifin: We’ve added the ability for the applicant to add a comment or an explanation to the income report, and that really helps, where they can say “Hey, I’ve been on vacation for the past three months” or “I’ve been paternity leave for the past three months, and that’s why you see a gap in our income between these dates”, which just helps the property manager spend less time… Because the property manager would ask “Hey, I see a gap. What’s with this?” and then they would have to have a whole email correspondence. Instead, the applicant can just put in some comments, and it would appear on their income report. We’re all about trying to have the property manager save time.

And a change that is in the works is that we want to support multiple banks. Many people split up their direct deposits between different financial institutions, and we want to be able to collect the whole holistic picture of their financial snapshot. So that’s coming in the works.

Joe Fairless: When someone works with your company, how much does it cost?

Stephen Arifin: Our retail price is $10/report.

Joe Fairless: And when you say “retail” – I guess there is a bulk order, or how do you structure that?

Stephen Arifin: Yes, we partner with a lot of software companies, and they look at us and say “Hey, everyone’s got credit screening, everyone’s got background screening, but we wanna include your income verification into our products and be able to provide that to our landlords and property managers. So that’s how we grow really fast, and doing wholesale sort of partnerships where they can order our income verification from their software. It’s a really tight integration.

Joe Fairless: Anything that we haven’t talked about that you think we should as it relates to the income verification process that you all provide?

Stephen Arifin: I would say the biggest thing that really made us take off and our customers start to love us is when we started building integrations with other property management software companies, like AppFolio, Buildium, Yardi, RentScreener – all the popular ones. We made it so that property managers can request income screening requests directly from, let’s say, AppFolio. So they no longer have to open a new window, just have some sort of disaggregate workflow. It can be directly from AppFolio’s site, and that makes it really easy to train their staff about this new tool… Because every time you use a new tool, you have to change your process a little bit. And I think what has helped the uptake with our income verification tool is that it’s so simple. It’s really simple, so we wanna keep it that way.

Joe Fairless: Stephen, how can the best ever listeners learn more about what you’re doing?

Stephen Arifin: They can email me at Stephen [at] theclosingdocs.com, or they could just go on our site, and we have a contact form there, at theclosingdocs.com.

Joe Fairless: I enjoyed learning about this. I always love talking to entrepreneurs. I have a lot of respect for entrepreneurs, and the process in which you came to this point is such a natural evolution, and it makes sense for why you’re offering what you’re offering, and clearly there’s a lot of need for that… As you said, you looked for paper and pencil processes and ways to automate that so it’s not the case, and it saves us all time and money, and actually could make money too on that.

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

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.

JF2111: Going From Duplex to 89-Units With Brock Mogensen

Brock is 2 years into real estate and essentially started after seeing his dad owning 2 duplexes and how it can help with your income. His first deal was a house hack on a duplex and afterward, he saw the potential and took off running. Now he has a portfolio consisting of an 89-unit apartment, 20,000 sq ft of retail space, and 18,000 sq ft office space. 

Brock Mogensen  Real Estate Background:

  • Principal at Smart Asset Capital
  • Portfolio: 89 unit apartment, 20,000 sq ft of retail space, and 18,000 sq ft office space
  • Investing in real estate for 2 years
  • Located in Milwaukee, WI
  • Say hi to him at: www.smartassetcapital.com 

 

 

Click here for more info on groundbreaker.co

Best Ever Tweet:

“Partner with people that lack your strong suit and vice versa because I think those are the best partnerships where each can complement each other” – Brock Mogensen


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 Brock Mogensen. Brock, how are you doing today?

Brock Mogensen: I’m doing great. How are you doing, Theo?

Theo Hicks: I’m doing great as well, thanks for asking and thank you for joining us. Looking forward to our conversation. A little bit about Brock – he is a principal at Smart Asset Capital. He has 22,000 sqft. of retail space and 18,000 sqft. of office space. He’s been investing in real estate for two years, is located in Milwaukee, Wisconsin, and you can say hi to him at SmartAssetCapital.com. Brock, do you mind telling us a little bit more about your background and what you’re focused on today?

Brock Mogensen: Absolutely. I’m about two years into real estate, so somewhat new compared to the more seasoned people… But essentially, in a nutshell, I got into real estate after seeing my dad having on two duplexes. So on a smaller scale, he owned that and I just saw what it can do for your income. So I knew right away, as soon as I got to college, I’d save some money up, buy a duplex, and get going. So I did that about two years ago, I saved some money, bought a duplex, house-hacked it. After I did that, it really just opened up my eyes, like “Wow, there is massive potential in this space.” And from there, I kind of spent some time on “Which route do I wanna take? Do I wanna do the wholesale thing? Just accumulate a portfolio of single-family and duplexes? Do I wanna flip houses?” And I ultimately ended up on syndication.

From there, I kind of spent 6-7 months just really learning it, paying for courses, going to the events, reading books, podcasts, all of it… And just kind of spent some time really learning it. Specifically, I focused on the underwriting side. I come from an analytical background, so that’s where I thought I could provide the most value. So I spent some time learning that.

From there, once it came time where I felt confident, I kind of realized I don’t have the background, I don’t have the net worth, I don’t have any of it to be able to go out and buy these larger deals. So I did some networking, and ended up finding two partners that do have the experience and everything needed to get into it… Through the component of underwriting, the analytical side of real estate I went in where they lacked their knowledge in, and we created Smart Asset Capital.

After that duplex – it was about 6-7 months after that, where we ended up getting this 89-unit deal under contract, closed that… So that’s about a year ago now. Then from there I just kind of saw, based on — you kind of heard that I have some retail, and office in our portfolio… We kind of just came across those opportunities, and they made sense. Multifamily still remains to be our core, but we kind of took advantage of those situations, and now we kind of have different asset classes and are willing to pivot where we see right opportunities.

Theo Hicks: So you went from the duplex as your first deal, and then decided to scale up… And the next deal about 6-7 months later was a 89-unit deal, and you did it with two partners. Let’s go step-by-step and let’s focus on the partners first. How did you find them, and then how did that conversation go? Either they convinced you to come on board, or you convinced them to come on board and partner up…?

Brock Mogensen: Finding the partners was actually through Bigger Pockets. I’m just always on there, messaging people, networking… I had been meeting up with one of my partners a few times for coffee, and at the beginning stage we were always talking “We wanna go big”, and we were talking about it… And through those six months we kind of both had the same vision, and we were like “Well, we have the same idea. Let’s partner.” So us two partnered.

Then we came across the 89-unit deal and we realized we might be biting off more than we can handle. He had another buddy that already had a big portfolio, has a full property management in-house, the whole thing. So it was like “Let’s bring him on.” We did, and that’s what created the three partners in Smart Asset Capital that tackled that 89-unit deal.

I think that my first partner I had already kind of convinced, but the one that brought the experience to allow us to do that deal – I definitely had to do some convincing, because obviously I have a duplex, I don’t have a lot of cash in the bank to be able to get on the GP right away… My convincing came through the aspect of my corporate background and what I’ve kind of studied so far.

I consider myself strong in the side of reporting, underwriting, and then [unintelligible [00:07:13].18] most stuff that takes place behind the computer is what I like doing. So I handle all investor reporting, all that stuff. They saw the value in that, where they didn’t necessarily wanna do that side of it, or that wasn’t their strong suit, and they kind of saw the value in bringing me on. So that’s kind of where I found myself getting on the GP.

Theo Hicks: Okay, perfect. So there’s three people on the GP. It sounds like you focused on the upfront underwriting, and then the ongoing — I guess, in part, asset management, and investor relations…?

Brock Mogensen: Correct, yeah.

Theo Hicks: Okay. What do the two other partners do, and then could you tell us a GP breakdown? What percentages did you get, what percentages did the other two get?

Brock Mogensen: I’d say they both are definitely more heavy on sales. They both come from the sales background, so obviously that goes hand in hand with having a bigger investor database. That’s definitely where they’re strong. But I think different than a lot of other syndicators – we all intertwine our roles, we all put a hand in on asset management… Although I handle most of the reporting and KPIs on a weekly basis, we all kind of lend a hand there.

So I won’t say we have specific, defined roles and they don’t cross paths, but yeah, as far as their strong suits, they’re more on the sales side, and they’re able to bring in investors better than me. But yeah, I think that’s really what I’ve found, and I tell people – partner with people that lack your strong suit, and vice-versa, because I think those are the best partnerships, where you can each complement what others lack.

Theo Hicks: And how did you decide who got what percentage of the GP?

Brock Mogensen: We split it a third, a third, and a third. It was just real basic. We didn’t really [unintelligible [00:08:42].08] each other on that. We just split it 33.3% each.

Theo Hicks: Perfect. Do you mind telling us what your normal day-to-day is like as an asset manager? I think not many people focus on talking about that, so maybe getting in the nitty-gritty details… When you wake up on a Monday, and then you go to bed on Friday, what do you do in-between, work-wise?

Brock Mogensen: Yeah, great question. I agree, not many people talk about the asset management. That’s one of the most important things, I’ve come to learn. I think really on a weekly basis — we have a weekly call with our property manager on Monday night, and every Monday morning I put together an extensive KPI report, where we pull all of our information off AppFolio – pretty much everything you can think of that you wanna track on a weekly basis.

We recently hired a virtual assistant. Previously, I was handling creating that report every Monday. It only takes an hour or so to put together, if that… So I’ve kind of trained our virtual assistant and handed that off to him, so he runs that report every Monday morning, and it hits our inbox. We’re able to see all the KPIs.

And then on a weekly basis, what I will do is I will keep a running Word document each week… And as I’m always in AppFolio – every other day, pretty much, looking at the numbers, and going through there… And I’ll just keep notes throughout the weekly basis, like “Oh, this and this… I wanna ask our property manager about this.” And I’ll create an agenda. So throughout the week I’ll just tally up some notes, Sunday I put it together in a nice format, drop it in a Google box, our VA attaches that in the weekly Monday morning email, so right then and there on our Monday night call we go off of that email. We have our KPI report we’re reviewing, plus that agenda, and that’ll go through every topic that we need to talk about. From there I’ll take notes, and then just kind of ever-evolve and keeping that agenda going.

Theo Hicks: Are you doing this full-time, or do you have another job?

Brock Mogensen: I do have a full-time W-2 in marketing… So yeah, balancing both – it’s possible. I think it requires a lot of work. To my benefit, I’m a single man, no family, so I have more free time than most people… But I think that’s a lot of people’s limiting belief – I don’t have time/I have a full-time job.

When I got started – I’m working a full-time corporate job; at the time I was finishing up my MBA, so I was taking three classes at once for that… And I closed that 89-unit deal, all at the same time. So it’s possible. I think people that say “I don’t have time to do it” are just making excuses. If you really wanna do it and you’re set on it, you’ll make time to get it done.

Theo Hicks: Do you have a plan of what point you’d be able to quit that job, or do you plan on just continuing to work and doing this part-time?

Brock Mogensen: I go back and forth on it. I do have a cashflow goal; I think I kind of laid that out, what I wanna hit to be able to support my expenses and my lifestyle… So I think once I hit that goal, then I’ll kind of make the decision. But for now, I do alright. My corporate job – I’m able to have both streams of income coming in. It definitely helps to have that second stream… So I don’t have a definite plan as of right now. I think one day it is the goal, absolutely, but I think right now I’m just kind of taking it step by step and seeing how it goes… And if I can balance doing both right now, why not have two sources of income?

Theo Hicks: Perfect. Do you mind telling us more about that 89-unit deal? You and your first partner found the deal… Can you tell us how you’ve found it, and then what you bought it for, and what the business plan was?

Brock Mogensen: We found that one on LoopNet, actually. I actually saw it first come through off-market, from a broker; so it was from a broker. And we kind of had our eye on it; the price wasn’t right for us, and I kind of kept my eye on it. 4-5 months later I see it pop up on LoopNet. We stay in touch with the broker, we  were emailing him saying “Oh, what’s going on with this deal?” It happens to be that it fell out of contracts, and we kind of saw that opportunity. We were like “Let’s put an offer in at the price that makes sense for us.” We did, the seller was over it and wanted to just get rid of it, so we ended up picking it up for a discounted price, just purely from following up with that broker, knowing that it was under contract, but you never know what happens… So we did that.

We ended up picking it up for 3.55 million… So yeah, 89 units, in the Milwaukee, Wisconsin area, C-class. The value-add we saw on that — it wasn’t a huge value-add. Essentially, what we saw was expenses were ran super-high… So having the in-house property management has allowed us to not bring it down by a huge amount, but by a certain percentage point that over the long term we saw it as a value-add play.

Theo Hicks: And then what about the capital for that deal? Out of a four million dollar purchase price, how much money did you raise and then where did that money come from?

Brock Mogensen: Our total raise on that was 830k. We did agency debt on that. That was purely raised through private equity, mostly through my partners’ connections. We each raised a portion of it, and then we also bought 10% on the LP side, just because it kind of aligns our interests when we’re talking to investors. I’m personally putting an x amount of dollars into this deal, so I have vested interest, not just our free equity, you could say. So that’s essentially how we did it.

Theo Hicks: How much of that did you raise?

Brock Mogensen: Not much. Under 100k. It was around there.

Theo Hicks: Who did you raise that from?

Brock Mogensen: Just existing relationships. People I’ve met throughout the past few years at meetups, and stuff, a few family friends… So not necessarily a large amount of the raise, but my partner brought most of his connections for that.

Theo Hicks: Okay… So you got 89-unit deal, and then you’ve got 20,000 of retail space, 18,000 of office space… Is that one building, multiple buildings?

Brock Mogensen: Two different buildings. Those were both bought in the past couple months, and those were kind of just bought through my partner’s relationships. He has  a full-fledged brokership as well, so he was able to source those deals off-market, direct to owner.

Theo Hicks: How was the asset management different on the apartment versus the retail and the office space?

Brock Mogensen: The KPIs are gonna switch up a little bit. None of us are experts in either of those spaces, but we’re learning a lot around structures. We have triple net leases; that’s a great part of it that we were able to bake in, and we’re also learning more about how that works operationally.

The asset management – we’re doing the same structure, with weekly reports, weekly calls… But I think it’s still kind of ongoing, learning more about  both of those spaces. We just kind of saw an opportunity to pivot when cap rates are so low in the multifamily space. There’s obviously great deals out there; we actually have another one under contract right now… But I think we just kind of pivoted and saw a good opportunity there, against the risk, so we pulled the trigger on both of those.

Theo Hicks: Alright, Brock, what is your best real estate investing advice ever?

Brock Mogensen: I’d go back to just — if you have your mind set on wanting to get into syndication… I know there’s people who think you can’t do it, you have to have experience, you have to have this… I think my story kind of just goes to show that if you wanna do it, you can make it happen. I always tell people, the best way to do it, and just kind of going off of how I did it, is find one aspect of syndication — there’s many different aspects… Find one aspect of it and become an expert in it. Spend a lot of time just becoming an expert in that aspect, and then you’re gonna have to find partners if you don’t have the experience. Do like I did, find partners that lack that component, and just [unintelligible [00:15:15].24]

Theo Hicks: Alrighty. Are you ready for the Best Ever Lightning Round?

Brock Mogensen: I am.

Theo Hicks: Alright. First, a quick word from our sponsor.

Break: [00:15:26].10] to [00:16:18].15]

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

Brock Mogensen: I think the best one I’ve recently read — I’m reading “Trump Style Negotiations” right now. That one’s pretty good. It’s all about his attorney and different real estate deals he’s done, and how he’s negotiated them.

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

Brock Mogensen: What I’d do, and what we’d kind of go in, especially going in the timing right now going in, we keep strong reserves, so I always make sure to have enough reserves on-hand to cover any uncertainty… So a big component is making sure you have the reserves in the bank to cover stuff.

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

Brock Mogensen: Right now it’s through education. I’m always available to get on a call with people that are looking to get into syndication. Any time people wanna ask question about it or are looking to get into it, I’m always willing to make time for that. In the future I do have bigger goals of giving back monetarily, but until I get to that point, that’s the way I’m giving back.

Theo Hicks: Okay, I’m gonna make this one up on the fly, and it’s gonna be about asset management… So what’s the one component of asset management that you think is the most neglected?

Brock Mogensen: Incorporating data. When it comes to asset management, the most important thing to me is data. You have to be able to first have the tools to access that data. That’s usually through a property management software. So if you’re hiring a property manager, make sure they have a system in place to where you wanna see real-time data, and then being able to take that data and incorporate it into models that display in real time your KPIs. That’s why I’ve kind of developed a KPI template on my website, actually, that people can access if they wanted to. But yeah, just being able to track on a real-time basis I think is the most important part.

Theo Hicks: Perfect. And that is at smartassetcapital.com?

Brock Mogensen: Correct, yeah. At that website you’ll see at the Education tab I have a few different eBook downloads, and that asset management template there for people to download.

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

Brock Mogensen: Through the website. That will prompt me to get an alert. Otherwise, my email is brock [at] smartassetcapital.com. I’m happy to talk to anyone.

Theo Hicks: Best Ever listeners, definitely take advantage of that one, whenever someone provides their personal email address. Brock, thank you for joining us today. You are a testament to the fact that you not only don’t need a lot of experience to get into syndication, but you can also do it while having a full-time job. I think those were the two biggest takeaways that I think the best ever listeners will get from this conversation.

Just to summarize our conversation – we talked about how you got into real estate because your dad actually owned two duplexes, and you saw what it could do for your income. So you got your first deal through a house-hack, so a great way to get into real estate is through house-hacking a duplex, which is owner-occupying it. You ended up moving on to syndication about 6-7 months later, after a bunch of education… And this goes into your best ever advice, because you focus specifically on underwriting. So find something about syndication that you can become an expert on, focus on that.

Then you found two partners that had a lot of experience but were lacking underwriting. So find your area of expertise, and find partners who lack that area of expertise. Then you talked about how you’ve met your two partners, how you met the first one on Bigger Pockets, and then you met him for coffee… Classic Bigger Pockets is reaching out to people and meeting them for coffee and finding a business partner or some sort of opportunity out of that, so I’d love to hear that. Both came across the 89-unit deal and decided to bring on a third partner, who had the experience with doing deals in the past. They had sales experience, they could also bring on the investors… And then you talked about how the GP is split a third each way.

You talked about what your week is like as an asset manager… So weekly call with the property management company every Monday night, you do your Monday morning KPI report, which is created by a full-time VA, and during the week you have a running Word document that you use to keep notes, with questions, to create an agenda for that call. Then we went into specifics about your 89-unit deal, the importance of continuing to follow up with brokers on deals that aren’t necessarily able to secure upfront. Then we talked about how the asset management is a little bit different for retail and office. You use the same structure, but the KPIs are different.

Brock, thanks again for joining us today. Best Ever listeners, thank you as always for listening. Have a best ever day, and we will talk to you tomorrow.

Brock Mogensen: Thanks, Theo.

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JF2110: Actively Investing Part-Time With Aundrea Newbern

Aundrea is a full-time internal audit executive who is a part-time real estate investor spending about 8 hrs a week managing properties and when acquisition mode, she spends about 15-20 hrs a week. All of her deals were 100% on her own without any partners. 

Aundrea Newbern Real Estate Background:

  • Works full-time as an internal audit executive with a mortgage company
  • Started investing in 2016
  • Current portfolio value is slightly under $3M, all deals are 100% self-financed
  • Based in Brunswick, Georgia 
  • Say hi to her at blueprintrealestateinvestment@gmail.com 
  • Best Ever Book: The power of habit

 

 

 

Click here for more info on groundbreaker.co

Best Ever Tweet:

“Always, every day I’m looking for a deal.” – Aundrea Newbern


TRANSCRIPTION

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

Aundrea Newbern: I’m doing well, how are you?

Theo Hicks: I’m doing great, thanks for asking, and thanks for joining us today. I’m looking forward to this conversation. Before we jump in, a little bit about Aundrea – she works full-time as an internal audit executive with a mortgage company. She started investing in 2016. Her current portfolio value is slightly under three million dollars, and she’s done every deal by herself, without any partners.

She is based in Brunswick, Georgia. You can say hi to her at blueprintrealestateinvestment [at] gmail.com. Aundrea, do you mind telling us a little bit more about your background and what you’re focused on today?

Aundrea Newbern: Absolutely. First of all, thank you for having me on today. A little bit about me – I was born and raised in Brunswick, Georgia, and when I was 18 I left to go off to college; I did the normal route of getting my undergrad degree, and then subsequently my MBA. I graduated right when the market crashed, so I had some difficulty getting a good job for quite a while. I did eventually get one and moved up quite fast in my company.

Then in 2016 I decided – while I love my job and I love what I do, there has to be a way to have some passive income in case there ever was another recession and I couldn’t find a job, or needed some way to pay my bills.

So I did a lot of research out there, and decided that real estate was probably gonna be the best path and the fastest path to develop that wealth and be able to have a passive income.

So in 2016 I purchased a condo that I lived in for a little while in Atlanta, Georgia, and then moved out and moved to Chicago for a little bit. I ended up selling that a few years later for quite a nice profit, and over the last four years I have purchased about 15 different properties, multiple doors – some of them are multifamily.

My focus right now is actually in the South-East, around Brunswick, Georgia. I do multifamily, single-families, Section 8, higher incomes… You name it, I probably have a property  in that asset class.

Theo Hicks: And you’re doing this while working full-time as an internal audit executive…

Aundrea Newbern: That is correct.

Theo Hicks: What is an internal audit executive?

Aundrea Newbern: I manage internal audit, which is kind of an assurance function, for a mortgage company. So I make sure the company is doing what they’re supposed to be doing, basically.

Theo Hicks: Okay… So how much time do you spend on your real estate investing each week?

Aundrea Newbern: Surprisingly not a lot. I would say on an average week it may be about eight hours, just managing properties. When I’m in acquisition mode, that obviously goes up quite a bit, so those weeks are probably 15-20 hours.

Theo Hicks: And you said you’re kind of all over the place, you have all different types deals – low-income, high-income, multifamily, single-family… You said you’ve got 15 different properties. How many doors does that total?

Aundrea Newbern: That is 27 doors.

Theo Hicks: Okay, so what was the first investment property you bought after that condo?

Aundrea Newbern: I jumped to a duplex in South Georgia right after that.

Theo Hicks: Do you mind walking us through that deal? So how you found it, what you bought it for, and what the business plan was?

Aundrea Newbern: Absolutely. I wouldn’t say there was much of a business plan at the time, but I knew that I would make a little bit more money the more units I had… So I reached out to an agent here in Brunswick, Georgia. She happened to know someone that was about to list a duplex in a pretty decent neighborhood, so I jumped on that pretty quickly.

Do you wanna know a little bit of information about the duplex in terms of costs, what I spent on the rehab etc.?

Theo Hicks: Yeah, exactly.

Aundrea Newbern: So that purchase I got for, I  believe, 155k. Again, a duplex, so two units. Each unit was renting for about $900, both sides. I had to put 15k into it to do some repairs, I’ve upped those rents now to $1,150 a piece, and I only have about 90k of debt left on the property. It’s been a pretty good one. It’s been one of my better deals so far.

Theo Hicks: Nice. So the duplex — and then what was your biggest purchase in terms of number of doors?

Aundrea Newbern: The biggest has been a fourplex so far.

Theo Hicks: A fourplex… Can you  walk us through that one, the same info?

Aundrea Newbern: Yeah, that’s actually been one of my better and worst, at the same time. So I purchased a quadplex – this is in St. Marys, Kingsland, GA, so right near the Florida line… And this one was purchased from another investor who got it at an extremely good deal, and then was flipping it around, but he didn’t really put any repairs into it… I had months of negotiation on this one. I knew it wasn’t gonna appraise at what he expected… So I got the fourplex for 270k. I think he was trying to sell it for 350k… And the day I purchased it, a hurricane hit South Georgia (Hurricane Irma) and just completely flooded out the units. So that one ended up being about 75k in repairs out of pocket. There was no flood insurance policy on it, it was nowhere near a flood zone… So that actually ended up costing me a lot of money… but the silver lining of that is I was able to raise the rents quite a bit. The property is in great shape now, and it’s now appraised for 350k.

Theo Hicks: So you bought that from the investor? How did you find the deal?

Aundrea Newbern: He had that one listed on the MLS.

Theo Hicks: Okay. So are you always looking for deals, or is it just whenever you have enough money to fund the down payment is when you start actively looking again?

Aundrea Newbern: Always. Every day I’m looking for a deal. So I do keep cash reserves to be able to that, if I need to pull the trigger on something, but I do wait until the right one comes around, which has been a little bit harder the last year or so.

Theo Hicks: So what types of things are you doing? Because I’m assuming you’re doing this at night or in morning, and on weekends…

Aundrea Newbern: That is correct. I wake up usually between 4 and 5 AM every morning and I take care of my real estate portfolio for what I can, without any customer interaction during the mornings… And then I do a little bit of the work at night. I also got my sales license here in Georgia, just so I can have quicker access to properties and don’t have to go through a middleman/agent to be able to do that.

Theo Hicks: That’s smart. So is that how you’re finding all these deals, they’re all on the MLS?

Aundrea Newbern: Some of them. I also work with wholesalers here that bring me deals, and then I do some direct marketing as well.

Theo Hicks: What type of marketing are you doing? Direct mail?

Aundrea Newbern: I do direct mail, I also do skip-tracing, direct phone calls…

Theo Hicks: Is there any specific deal that you’ve found through direct mail?

Aundrea Newbern: Yeah, I actually just did a recent campaign and had someone contact me… This is another investor that owns a duplex. It was just a simple mailer, to let them know that I was interested in their property. They contacted me, they told me that they’re ready to sell, they’re a little bit nervous about what’s going on with the market, so we’re in the process of trying to get that deal closed right now.

Theo Hicks: Nice. That was a pretty quick turnaround. Are you still negotiating on that deal right now, or have you actually bought it already?

Aundrea Newbern: No negotiations. It was pretty easy. I paid a good price, I didn’t try to low-ball them on it, and they were ready to sell.

Theo Hicks: What about with the wholesalers? Have you got any deals from them?

Aundrea Newbern: I just got a wonderful deal from a wholesalers that we’re trying to go to contract actually today on this one… And this is gonna be a flip property.

Theo Hicks: Do you mind telling us what the plan is for that one, and maybe also explaining not just necessarily how your relationship is with the wholesaler, but how the whole process works? If I want to start getting deals through wholesalers, what do I need to do? How do I find them? Do I need to talk to them all the time? How do I get them to send me their best deals? Things like that.

Aundrea Newbern: Absolutely. A few different ways… We have a group here that recently started a local real estate meetup, so I’ve met a couple wholesalers through that group. I made sure they got my business card, I got added to their mailing list… I also reach out to people on Bigger Pockets that I see that are actively wholesaling deals, trying to get added to their mailing list… And then they reach out to me if they think they have a deal that fits in with what I’ve told them I’m interested in; they reach out to see if it’s something I want, and I make a best effort to close as quickly as possible, and do fair terms, and it works out pretty well usually.

Theo Hicks: Before I ask you the money question, what advice do you have for (let’s say) someone who has a full-time job and wants to get started in real estate, but has the limiting belief that they don’t have enough time? Obviously, they do have enough time; they can get up earlier and stay up later… But obviously, it’s probably more about a mindset block, so… If you’re talking directly to someone who says “Hey, I wanna invest in real estate. I work as a full-time employee. I don’t have time to do it… How are you doing this, Aundrea? I don’t understand. Help me.”

Aundrea Newbern: Well, I think you touched on a key thing – it’s mindset, and making sure you’re committed, and that you understand why you’re wanting to do this… Because if you don’t have a why, you’re not gonna want to do it. You’re just gonna be tired all the time and not see the value in it.

One thing I would say is being able to time-block… So set your schedule each night, say “Okay, tomorrow morning from 6 to 8 AM I’m going to be prospecting or trying to understand how to get into real estate”, and every single day you wake up and you make that a habit. You don’t let anything else get in the middle of that time, and you do it.

The other thing is really setting up systems for things. If you can set up ways to automatically prospect without having to do a lot of work, and being able to use technologies to do those types of things – that’s gonna significantly cut down on the time you would be manually spending looking for these deals.

Theo Hicks: Do you work just in the mornings and at nights on the weekdays, or do you work on weekends, too? Or are those your breaks?

Aundrea Newbern: I work on the weekends too right now, unfortunately… So it is very time-consuming, but it’s worth ramping up very quickly to have to do that just for a couple days.

Theo Hicks: Is it a plan to continue to be a part-time investor, or is it a plan to eventually transition into being a full-time investor?

Aundrea Newbern: Well, if my company is listening right now, it’s never to transition to a full-time investor. [laughter] However, I like the idea of maybe in 5-10 years looking at potentially transitioning at that point.

Theo Hicks: What time do you go to bed at night when you’re waking up at 4 AM?

Aundrea Newbern: I go to bed pretty early. I’m usually in bed before 9.

Theo Hicks: Okay, so you’re getting 7(ish) hours of sleep.

Aundrea Newbern: Oh, yes, definitely.

Theo Hicks: Because whenever I hear people telling me they get up at 4 AM, I’m just like “The only time I ever get up that early is when I need to catch a flight, and I’m just a mess the entire day…” Because I don’t go to bed at 9 o’clock.

Aundrea Newbern: Exactly.

Theo Hicks: That’s like when my day almost begins. Anyways, Aundrea, what is your best real estate investing advice ever?

Aundrea Newbern: It’s keeping the right mindset. Anyone can do this. I consistently tell myself “You have more to lose by not doing this than doing it.” So no matter how many mistakes you’re gonna make, assuming they’re not huge mistakes, you’ve gotta just get your feet wet and start doing it, and after a few deals you’ll understand the value of it. So just step out and get it done.

Theo Hicks: Alright, are you ready for the Best Ever Lightning Round?

Aundrea Newbern: I think so.

Theo Hicks: Alright. First, a quick word from our sponsor.

Break: [00:12:50].07] to [00:13:39].27]

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

Aundrea Newbern: The best I have read recently is The Power of Habit, by Charles Duhigg. Fantastic book.

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

Aundrea Newbern: Start it back up the next day.

Theo Hicks: So we talked about some of your good deals… What is a deal you’ve lost the most money on? How much did you lose, and what lesson did you learn?

Aundrea Newbern: That is by far the fourplex, regarding not having a flood insurance policy active during hurricane season, even though it wasn’t in a flood zone. So going forward, I make sure that all of my units have a flood policy, no matter where it’s located.

Theo Hicks: And do you make sure you take that into account when you underwrite it, so the insurance is a little bit higher expense-wise?

Aundrea Newbern: Absolutely.

Theo Hicks: What is the best ever deal you’ve done, besides the one that we’ve talked about already?

Aundrea Newbern: I’m looking forward to the one that I’m trying to go under contract with today, because I think that’s gonna probably make about a 60k-70k profit… So I think that’s going to be. Otherwise, I would say that first condo that I bought, that I lived in for a couple of months, and then sold it three years later. I made a net profit of about 68k on that.

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

Aundrea Newbern: I work a lot with local animal rescues, and I foster lots of dogs, and I monetarily help with that. So with the animal community here.

Theo Hicks: Nice. And then what is the best ever place to reach you?

Aundrea Newbern: So that’s gonna be probably either through Bigger Pockets or the email address that you gave out, so blueprintrealestateinvestment [at] gmail.com.

Theo Hicks: Perfect. And on Bigger Pockets just Aundrea Neubern.

Aundrea Newbern: Yeah, so the last name is Newbern.

Theo Hicks: What did I say?

Aundrea Newbern: Neu…

Theo Hicks: Oh, gosh. Sorry. I’m really dyslexic when it comes to reading things, so I apologize.

Aundrea Newbern: It was close enough…

Theo Hicks: Alright, Aundrea, I really appreciate you joining us today and giving us advice on how to scale a real estate investment business while working full-time. You mentioned that you’ve been able to buy 15 different properties since you began investing in 2016. You said you spend about eight(ish) hours per week on managing the current portfolio, and that will double whenever you’re actively acquiring a deal or working on a deal; you’re working on a deal right now.

We talked about your first purchase after that condo was a duplex, you got it by reaching out to an agent. Your biggest deal was a fourplex, that you got from an investor who wanted to flip the property without actually repairing it… That was actually the deal you lost the most money on, or I guess the hardest deal because of the hurricane hitting it, the flooding of the property, and it was nowhere near a flood zone, so you didn’t even think to get flood insurance. Now if you buy a property near hurricanes, then you get flood insurance no matter what.

You talked about becoming an investor while working full-time. You mentioned getting up really early to work on your business, and working a little bit after work, making sure you go to bed early enough, so you actually are functional at 4 AM in the morning.

We talked about having a strong why for why you want to become an investor, making sure that you time-block really well… So the night before you go to bed, schedule your next day, and exactly when you’re gonna work on your real estate investing business and what you’re going to do, and then where you can, try to create systems so that you can automate things, so you don’t need to actually spend time on that part of your business. We also talked about how you are finding deals – MLS, wholesalers, direct mail, we talked about a duplex you got through a simple mailer, we talked about wholesaling and how you meet wholesalers at local meetup groups, and you reached out to people who were actively wholesaling on Bigger Pockets…

And then lastly, your best ever advice was to make sure you have the right mindset. I really liked when you said “You have more to lose by not doing anything, unless something goes really wrong. But even then, I still think that you probably have more to lose by not doing it.

Aundrea, again, thanks for joining us. Best Ever listeners, as always, thank you for listening. Make sure you take her up on her offer and reach out to her email address. Again, that’s blueprintrealestateinevstments [at] gmail.com. Have a best ever day, and we will talk to you tomorrow.

Aundrea Newbern: Thank you so much, 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.

JF2107: Brothers Working Together With Chris & Ashton Levarek

Chris & Ashton are brothers and the owners of Valkere Investment Group, LLC a multi family real estate investment firm. These brothers explain how they were able to grow their business through raising capital, to doing their first deal, and tips on being able to overcome inexperience. 

 

Chris & Ashton Levarek  Real Estate Background:

  • Owners of Valkere Investment Group, LLC a multifamily real estate investment firm
  • Currently have 42-units
  • Chris is from Phoenix, AZ
  • Ashton is from Portland, Oregon
  • Say hi to them at:https://www.valkeregroup.com/

 

 

 

Click here for more info on groundbreaker.co

Best Ever Tweet:

“Networking is very important, find the person who is connected and it will make your job easier.” – Chris & Ashton Levarek


TRANSCRIPTION

Theo Hicks: Hello, Best Ever listeners. Welcome to the best real estate investing advice ever show. I’m Theo Hicks, and today we’re speaking with Chris and Ashton Levarek. How are you guys doing today?

Ashton Levarek: Good. Thanks for having us.

Chris Levarek: Doing great. Good to be here.

Theo Hicks: Absolutely. Thanks for joining us, looking forward to our conversation. A little bit about Chris and Ashton – owners of Valkere Investment Group, a multifamily real estate investment firm. They currently have 42 units. Chris is from Phoenix, Arizona, Ashton is from Portland, Oregon, and you can say hi to them at ValkereGroup.com. Do you guys mind telling us a little bit more about your background and what you guys are focused on today?

Ashton Levarek: Go ahead, Chris.

Chris Levarek: Okay, so as you said, we are brothers; we got started in 2018, started with a duplex, and just investing in multifamily ourselves. We partnered a lot with private lenders, we did joint ventures, and did some LLC joint ownerships, and we scaled up to now doing syndication. We just did a 16-unit in North Carolina, and right now we’re focused mainly on scaling up to the next level, so doing just bigger and better apartment syndications. 30 to 60-unit is our next target. Is there anything you wanna add, Ashton?

Ashton Levarek: No, that’s about right. It’s a good summary.

Theo Hicks: So for the duplex – was that a house-hack situation? Did you guys live in it together, or did you guys just buy it and rented it right away?

Ashton Levarek: We bought it, we joint-ventured with another individual. We bought it, rehabbed it and then rented it out. Initially, we started trying to BRRRR (buy, rehab, rent, refinance, repeat), but then we got into the syndication. The first few were all purchased and then rehabbed and rented out.

Theo Hicks: How did you meet the JV partner?

Chris Levarek: I’ll take that one. It was actually a co-worker of mine, nice guy, and we had an existing relationship, of course. I’d known him for about five years. I started getting into the Bigger Pockets scene, and getting more involved in real estate. I didn’t have all the funds I needed to pull an acquisition of over 150k or 200k cash, which is what we were trying to do just to be able to renovate it… So I started that dialogue, I started presenting “Well, here’s how we would do it”, started showing how an attorney, and a deed of trust, and a promissory note might work… And just giving that credibility, and then it kind of expanded from there and we worked together.

Theo Hicks: What were the numbers of that deal? What did you buy it for? Was it all cash? What did you put into it, what did you sell it for? And then maybe tell us a bit about –there’s of you on the deal, so tell us how the profit structure worked.

Chris Levarek: Sure. On the first one – yeah, it was a private loan arrangement. We did 70% funded by a private lender; it was an all-cash purchase. The purchase price was 209k, and then we did 172k or 170k private lender, at 9%, promissory note. They got a deed of trust and a promissory note. And we actually did a joint venture agreement just to get all the lines crossed.

Then my brother and I, we got HELOCs (home equity lines of credit) on our house; we used that money to fund the rest of the renovations, as well as the down payment, the difference between 170k and 209k. I think we did get an additional private loan, and used some of our Roth IRAs as well, distributions. We pulled out of Roth IRA and were able to use those tax-free.

Theo Hicks: What were the profits on that, and how are those split?

Chris Levarek: So the private lender got a 9% interest for about eight months… The renovations were done in 4-5 months, but it took about 7-8 months to get that refinance back out. They refinanced out… So we bought them at 209k. It was two duplexes, actually, so each duplex was 104.5k, and then when they were done with renovations, renovations totaled about 95k, so it was a good 47k each. So when all was said and done, their ARV value was 240k each, so a total of 480k ARV, which means we were able to refinance to get a loan of about 336k. That covered all our costs, so we were able to pay back the private lender, we were able to pay back our HELOCs, and basically have a  cash-flowing asset. It wasn’t amazingly-cashflowing for us, but we were the sole owners on that deal, so… It was something like $300 cashflow after everything is said and done with that new mortgage.

Theo Hicks: Just to confirm – the private lender was the co-worker, correct?

Chris Levarek: Correct.

Theo Hicks: Okay, perfect. So from there you did a 16-unit next?

Ashton Levarek: 16 was the biggest deal. Then we did a couple duplexes, a five-plex, a 13-unit, and then the 16.

Theo Hicks: What was your first syndicated deal?

Ashton Levarek: It would be the 16-unit. That’s officially syndicated. We partnered with other people’s money on every deal, actually… But our  first official syndicated deal was the 16-unit.

Theo Hicks: Let’s talk about that deal. We’ll first focus just on the acquisition aspect, and then we’ll focus on the raising money. Same question – what did you buy it for, how did you find it, and what was the business plan?

Ashton Levarek: So how we found it was we had been building up relations with commercial brokers in the area. He had actually brought us the 13-unit prior to that one, and we could close, and he brought us the 16-unit. I think initially they were asking 1.1, after negotiations we got it down to 960k, and then after we got it under contract, we closed it for 950k, I believe that’s right. And then – what was the last question?

Theo Hicks: What was the business plan after acquisition?

Ashton Levarek: It’s a value-add play. There was a lot of deferred maintenance, rents were below market, so it was kind of an easy, age-old strategy of just buying it, making all the repairs that needed to be done, repainting, that kind of stuff, and then raising the rents as we go. We’re still in the process of doing that, so… We have 3-4 units finished right now, because we’ve only just bought it in February.

Theo Hicks: This would probably be a better question for that 13-unit, because this 16-unit deal came from a broker… And the reason why they brought it to you was because they knew you could close, because yo closed on another deal… But how did you win that deal, and if it involved building a relationship with them, what were some of the things that you did to build that relationship, to show them that you had the credibility and the ability to close?

Ashton Levarek: Well, I know they’d seen that we’d done a bunch of smaller multifamily – a 5-unit, two duplexes, and then two other separate duplexes prior to that… But I’d also been to several meetups, been talking to him, and talking about how we raised money… Additionally, thanks to my brother, he’s really strong and we have our own website, we had our Facebook page, Instagram, and just building credibility that way on the social side as well. I think that helped out a lot. And then being able to secure those loans, and talking to the right people as far as building the team on the backside. We had the property managers, the contractors… All the people that had the experience that we didn’t have, that we could really rely on to make those good decisions. He saw that when we were asking the right questions, and when we were looking at the property.

Theo Hicks: I’m gonna back-track again, because you mentioned something that brought up a question that I was gonna ask earlier… So on those first two duplexes – it sounds like it was a pretty hefty renovation. Do you mind telling us a little bit about how you were able to find the right contractor for that job? I know an issue that’s kind of recurring is finding that right contractor, that right GC for your deals. It sounded like it worked out well for this first deal, so maybe give us some advice on how the Best Ever listeners can replicate that success.

Ashton Levarek: Absolutely. And I can speak to that, because I was there the day we interviewed five different contractors, two different property managers… So we had them all come to the property at different times, and I was there all day, and we walked the property, and let them take measurements, putting together quotes for us, really. But what really helped us was finding the property manager. The property manager had all those connections already. When we found that rockstar property manager, it was five different contractors, one of which never talked to me again or answered my phone calls, and two – I think they sent me quotes, but they were way above what I wanted… And then – I can’t remember what happened on the last two… Maybe two didn’t show, or something like that. But it was kind of disappointing at first. But Chris found a property manager on Bigger Pockets, and he’s the one who came through… He recommended a couple of contractors, and we went with his recommendations actually.

For anyone starting out, I think that if you can find the right people that know the right  people, that’s the way to go. Networking is the way to go. You don’t know what you don’t know, and relying on those people that work in that field all the time is the way to do it. So developing those relationships – that’s how we did it.

Theo Hicks: Exactly. You find one solid team member, and then let them find the rest. It’s a good strategy. Alright, going back to that 16-unit deal… I understand that you’ve raised money in the past, so maybe you can apply this to all of your deals if it wasn’t different, but maybe tell us a little bit about your money-raising process… Again, overall, or for that specific deal. For that specific deal, what was the compensation that you offered to those investors, for that 16-unit deal?

Ashton Levarek: Chris, do you wanna take that one?

Chris Levarek: Sure. For the money-raise it was pretty important for us — on the 13-unit we had done a co-ownership LLC with a single investor, and we started to see that if we’re gonna scale up to these bigger properties, we need to build that pipeline of connections and that network for investors before we find the next deal. So I really started doing that; we started systematizing how we’re in-taking those calls from people interested, or reach outs on Bigger Pockets, and we really built out about — I wanna say we built out about 100% of what we needed, and then we tried to build up to about 150% of what we thought we needed. So if we thought we were gonna close on a million dollar property, which was our target range, we needed to come up with either 500k on that raise, just to be safe. So we aimed at that, and then when we hit that number we started pulling the trigger on some of these offers on bigger properties, and that’s kind of how we structured it.

Did everyone we had in the pipeline close? Not really. I would say more than half, when the deal was getting fully documented and ready to go, to be signed upon, we had quite a few people lose interest at that time, or we didn’t maintain the contact, or they went a different direction. This was all happening actually over the holidays, so that was a great time to do a capital raise. So we learned a lot in that process, but we were able to continue to offer the deal up to different people through our network. It was a 504 syndication, so we actually weren’t advertising, of course.

What it turned out to be – what was projected was a  13% return. We were very conservative, so this one will probably go up to a 15% return… But we added in a lot of numbers. We got confirmation on market rents from three different property managers, and really checked our numbers on the renovations, of what we could hit, accurately… But it was more about building in those buffers, the reversion cap rate, really making sure we’re selling at a cap rate a lot higher, just to be able to ensure what’s gonna happen in a couple months, or a year, or two years, after we get this deal done. So we really built it in as 13%, and our investors were comfortable with that, but I believe we’ll hit around 15.7%, actually.

Theo Hicks: Okay. And then all these investors – did you know them, or were they friends and family, or were they people that you found… Because you mentioned that you had a process on Bigger Pockets – was it through that? And if so, what was that process?

Chris Levarek: Sure. I’ll speak, and then I’ll let Ashton… So Ashton at the time was stationed in Fort Bragg, North Carolina, so it was good that he was close by, but he was also building his network (I’ll let him talk on that). On my end, it was co-workers, friends, family, it was people I met at meetups… I’d go to three different meetups a month. I’m very active on Bigger Pockets, and I think there were about 3-4 different people from Bigger Pockets alone on this deal… In total, about 14 different investors. So that’s kind of how we built that connection. Not all the friends and family that committed joined along, so we actually had to just keep going through meetups and Bigger Pockets and getting new connections as we were even doing the process, so… Do you wanna speak to how you did it, Ashton?

Ashton Levarek: Yeah, I think something we’re leaving out too is while we had only done so many of these smaller deals – and I’m sure there’s a lot of guys that are gonna listen to this that have done bigger ones, but… When you walk into a room when you have the confidence to talk about what you’re doing, people wanna work with you. We had done a lot of studying, a lot of looking at markets… Joe Fairless’ book was a big guiding factor in that, of course… But that’s what really built it up.

So I know that my brother in the Phoenix market, and then myself over in North Carolina – we’d been going to a bunch of meetups, we’d given talks on how to BRRRR and how we’re doing different things with real estate, and that really helped out a lot as far as credibility, and then people wanting to work with us on this deal. But it was the same for me, and it was friends and family, of course, and then co-workers… A lot of co-workers actually got involved, which is really cool to see… But yeah, networking.

Theo Hicks: And then the last question before the money question – I thought it was interesting, because I know it’s very important to confirm the market rates with your property management company, but you mentioned that you got it from three management companies, and I’m assuming you don’t have three management companies working at the properties, so how did those conversations go?

Chris Levarek: Myself and one other partner, actually — we just had them come over and walk the property with us to give us their opinion on what we could get for rents, and what we would have to do to get them up to those market rents… And we just set appointments with three different property management companies. Is that best practice? I don’t know, but it really helped us out, because we didn’t know the market as well as they did, and we didn’t wanna just rely on one property management company. We wanted to see how they work… Not only their opinion, but how they work, what management software they’re using, how many contractors they’re working with, how they turn a unit, that kind of stuff. So it was really important to  us to talk to as many experts in that market as possible.

Theo Hicks: I think that’s a fantastic approach, because I think most people will interview management companies – three management companies, let’s say  – and then pick the best one, but they do this before they have a deal… You guys had a deal and then you interviewed them, so you could get a lot more information out of them, to help you not only with that specific deal, but also learn “Hey, which one should I choose?” I think that’s a really good strategy.

Alrighty, so what is your best real estate investing advice ever?

Ashton Levarek: For me, I like that quote, “No one is smarter than all of us”, so I really think my best ever advice is to really get out and network with the people that are down in the business you wanna get into, and learn as much from them, and then bring them in on your team. Try to build up that team of people you’re gonna work with.

Chris Levarek: Yeah, I agree with that. I think you’re only as strong as the people that you’re surrounded with. They’ll not only elevate you, but they’ll support you in your weaknesses. I would say — I’m in IT in my W-2 job as well, on the side, so I do love the systems and the processes, and I think a big part of it is if you come into an area that you’re weak, or you hit a roadblock, it’s fine to get through that roadblock and that challenge, but how do you correct it in the future? You’ve gotta create some kind of process or system that then in the future will either simplify that challenge, or make sure that doesn’t occur at all. Then you’ll be able to get through to whatever goal you’re trying to achieve without hitting those same roadblocks every time.

I think that’s a big part of it, because a lot of people just “Oh, well, I’ll get to that next time. I won’t worry about it.” And then when it comes up again, they’re like “Dang it! I wish I had corrected this from the last time. I forgot how I did it.” So just creating those minor tweaks in those systems and processes are huge for investing in real estate, so you don’t keep repeating the same mistakes.

Theo Hicks: Okay, are you guys ready for the Best Ever Lightning Round?

Ashton Levarek: Let’s do it!

Chris Levarek: Let’s do it!

Theo Hicks: Okay. First, a quick word from our sponsor.

Break: [00:18:33].01] to [00:19:22].24]

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

Ashton Levarek: Vivid Vision.

Chris Levarek: The One Thing.

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

Ashton Levarek: Start over. Keep pushing.

Chris Levarek: Pivot. Try something new.

Ashton Levarek: Yeah. Failure is not an option.

Theo Hicks: Perfect. I’m gonna change this one up a little bit… So it’s gonna be either the best ever thing, or if you want the worst ever thing in regards to working with your brother. [laughter]

Ashton Levarek: You can’t control him. And the competitiveness.

Chris Levarek: Yeah… The unpredictability. I like systems and I like that predictable, and I like repeated consistency, and Ashton is fun because he keeps it unpredictable. [laughter]

Theo Hicks: He keeps you on your tones. Some of the guys definitely complement each other very well.

Ashton Levarek: Exact opposites, yeah, on the — what is it, the DiSC profile?

Chris Levarek: Yeah.

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

Ashton Levarek: Right now, talking to new investors. We’re still fairly new, but super-motivated, and I really like seeing other people get involved. I’m finishing up 20 years in the military, and talking to a lot of military members. If I could do it again, I would have started a lot sooner, while I was in the military. So that’s where I focus a lot, giving back to or teaching other military members how they can get involved and start building up that extra stream of income.

Chris Levarek: Yeah, I would agree on that. We give out a lot of content. I’m probably posting on Bigger Pockets five times a week, and even now I’m working with two investors on a duplex, just a side project, and just constantly teaching in that regard… We do like to do veteran charity projects; we’re doing [unintelligible [00:20:55].12] here in Phoenix, Arizona, so just doing a fundraiser for that… But yeah, we really like to spread the knowledge, because both of us didn’t have any idea about this kind of thing until 2-3 years ago, and we’d like to let everyone else know that this is an option, and stocks and 401K’s are not the only way to go.

Ashton Levarek: Yeah.

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

Ashton Levarek: You can reach out via our website, but we’re also on Facebook, we’re also on Instagram, and then Bigger Pockets.

Chris Levarek: If you just look up our names, Chris Levarek on Bigger Pockets, or Ashton (same last name). Otherwise, our handle on Instagram, Facebook, at Valkere Investment Group. We’re pretty active on those, and we’re on LinkedIn as well… But the website probably is the best just to get an access to all that, so just go to the website ValkereGroup.com.

Theo Hicks: Alright, guys, thanks for joining us today. I enjoyed this conversation a lot, and I learned a lot as well. Just to summarize some of the things we’ve talked about – we’ve talked about your first deal, two duplexes; it was a JV deal with you two, and then a  private lender who was a co-worker of Chris’s. You bought the deal all-cash; to  renovate it, the lender funded 70%, and then between a HELOC loan, as well as your IRA, you funded the rest. ARV allowed you to get a loan for 336k, which covered all the costs. You paid back the lender, you paid yourself back, and you have a cash-flowing asset.

We’ve talked about your 16-unit, your first syndication. You got the deal through a broker you had done a deal with previously. It was a value-add deal, and you were able to knock the purchase price down from 1.1 to 950k. The value-add was deferred maintenance and below-market rents, so bread and butter value-add… And again, you mentioned that in that 13-unit deal you were able to get on the broker’s side by the fact that you’d done a lot of smaller multifamily deals, you had the experience aspect, but you also talked to them a lot in-person at meetup groups, as well as the branding side of it – your website and your social media presence all portrayed your ability to close on the deal.

We talked about your process for providing contractors… You set up appointments for five different contractors – and this is those duplexes – and had them come out, and that’s how you were able to narrow down which contractor to use, but you also mentioned that you guys had a lot of success finding a property management company and then using them for all the connections you needed thereafter… And you found them on Bigger Pockets.

We talked about the money-raising… On your 13-unit deal you had one investor, you realized you need more, so you systemized a process to make sure that you were able to get 150% of the money you needed to close on the deal. It was from co-workers, friends, family, and people at meetups.

I’ve done three interviews today and every single person I’ve talked to today has had some massive success from meetups groups… So people, get out there and go to meetup groups. There’s a lot of opportunities out there.

You also mentioned that the fact that you’d done previous deals and done a lot of research, your confidence in presenting the deal also was able to convince a lot of people to come on board and invest.

And then lastly, we talked about your best ever advice, which was 1) all about the team, so “No one is smarter than all of us”, and you’re only as strong as the people you surround yourself with. You talked about how you wanna go out there, network with people who are doing what you wanna do, and then bring them in on your team. And then the other best ever advice was if you ever face some sort of issue or challenge, figure out a process to put in place so it just automatically doesn’t happen again, as opposed to pushing it down the road and letting it potentially happen again.

Again, thanks Chris and Ashton 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.

JF2106: Charge Your Roommates With Nicole Heasley

Nicole Heasley has been in real estate for 4 years and started out by house hacking single family homes. She has house hacked single unit homes with 3 rentals and in this episode, she will share how she went about doing this and why it was nothing out of the norm for her. 

 

Nicole Heasley Real Estate Background:

  • 4 years of real estate investing experience
  • Currently owns 3 rentals
  • From Boardman, Ohio
  • Say hi to her at: heasleyhomebuyers@gmail.com 
  • Best Ever Book: 

 

 

 

 

Click here for more info on groundbreaker.co

 

 

Best Ever Tweet:

“Start meeting people now, find that meetup and attend now. You need to know people.” – Nicole Heasley


TRANSCRIPTION

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

Nicole Heasley: I am wonderful, thank you guys so much for having me on.

Theo Hicks: Absolutely. Thanks for taking the time to join us. A little bit about Nicole – she has four years of real estate investing experience, and currently owns three rentals. She’s from Boardman, Ohio, and you can say hi to her at heasleyhomebuyers@gmail.com. Nicole, do you mind telling us a  little bit more about your background and what you’re focused on today?

Nicole Heasley: Absolutely. I graduated from Kent State University in 2015, and I got a job with a large REIT that owns, redevelops and manages outdoor retail shopping centers. So I was looking to move from Kent to Cleveland, and I didn’t know the area that well. I was gonna get an apartment, and a roommate, and my dad said “Why don’t you get a house, and let someone pay your mortgage for you, instead of paying someone else’s mortgage?” And I thought “Okay.”

I got an FHA loan, 3.5% down, and fortunately, North-East Ohio is a very affordable place to live. So for less than 5k I was able to get into a 3-bedroom house, and live near the Cleveland clinic, and some universities, and I rented out the spare bedrooms in my house for three years. And then of course, I was getting commercial real estate experience doing accounting work and short-term leasing for the REIT that I was working for… And I kept going from there.

The original plan was to pay down my student loans, but then once someone paid my mortgage for me, I was like “Can I find someone to make my car payment also, and maybe pay down a vacation, and put some money in my retirement account?” Once you get that first check, you’re kind of hooked.

So instead of taking that money and paying down my student loans – which I should have done, kind of – I went ahead and bought more properties. I bought two more properties over the next three years. Now I’m out of that house in Cleveland, so I have three rental properties.

Theo Hicks: Perfect. Are all three of those single-family homes?

Nicole Heasley: They are all single-family  homes. One in the Cleveland area, two in the Youngstown area.

Theo Hicks: Let’s talk about the numbers on that first deal. So you got it for less than 5k down… What was the purchase price, and then maybe tell us — I know this is the house-hacking strategy, but typically when you hear of house-hacking it’s a duplex, so you live in the other one… Whereas here you’re kind of renting it out — people are all living in the same unit, basically.

Nicole Heasley: Right.

Theo Hicks: Maybe walk us through, for people who want to house-hack a single-family home, some of the things to look out for when finding roommates, basically.

Nicole Heasley: Absolutely. So it never occurred to me — I didn’t know that I was going to fall in love with real estate. Remember, I’m fresh out of college, I’ve got this accounting degree… I originally wanted to be an English teacher, but I figured out “Well, they don’t make a lot of money.” I had no idea what I wanted to do with my life, and I was just kind of following whatever doors I could kick open. So I had already been living with roommates in college for the past five years… What was another year or two?

So it didn’t seem weird to me to share a bathroom and a kitchen with someone, because I had already been doing that for so long. And I had also already lived with strangers before. You’d figure in a dorm you’re kind of living with a stranger, but also there was a summer where I was kind of between houses. My one friend was moving was moving out of our apartment, I was gonna move in with some other friend 3-4 months later… So I had to go to Craigslist and find some roommates and find a place to live for 3-4 months… And I didn’t die. I didn’t get scammed, or killed, or robbed, or any of those things.

I met the person at a public place, I scoped out their social media to make sure — they said they went to Kent State, so I made sure I saw some pictures of them around campus, or wearing a Kent State sweater, or have connections that are also at Kent State. I could have taken it a step further and ran a background check on them, but I didn’t go that far.

So I had some experience to rely on to tell myself “I can keep doing this, even though I’m not in college anymore.” And again, with the Cleveland Clinic nearby, I had a lot of nurses live with me, I had a lot of medical students live with me. I also had a teacher and a social worker. So I had just young professionals come and live with me. And same thing – we met at a public place, we scoped each other out on social media, I made sure someone was present when they came and saw my house for the first time. They usually brought someone with them to come see the house for the first time… And I never had an issue with it, not once.

You also wanna get the numbers, I’m sorry — so I bought that house for 108.8k, and I put 3.5% down. So I got them to pay for my closing costs. I didn’t pay the closing costs, I just had the down payment, really. So it was just that 3.5% down on 108.8k, which would probably be between 3k and 4k, I think.

Theo Hicks: Three-bedroom house… Obviously, you live in the master suite, I’m assuming…

Nicole Heasley: I didn’t. I took the smallest bedroom, because I could get more rent out of the two larger bedrooms.

Theo Hicks: That’s smart. So what were the two rents you were able to get?

Nicole Heasley: I started out at $525/month per room, utilities included. I did want the garage space. If I’m gonna buy a house, I want a space, because we get a lot of snow… I want a garage space. If I’m giving up the extra bedroom, I at least want a covered car. So whoever rented the other side of the garage paid an extra $25/month. And then everytime someone would move out once a year, I would up that number by $5/month.

So I think at the end I was making close to $1,100/month, and my payment was $1,000.

Theo Hicks: Perfect. That was my last question, what was the payment. So basically cash-flowing $100/month, while having free rent.

Nicole Heasley: Yeah.

Theo Hicks: So when you moved out, you had your room rented out, and the other garage space, and then what did you do from there? Had you already had those two properties, or did you house-hack again?

Nicole Heasley: No. The second property – it was funny, my dad also caught the real estate bug and he decided that he wanted to try to flip a house. And he did pretty good for his first flip, but he finished a lot later than he thought he was going to. So he finished around August, got it up on the market, someone buys it, then they decided that they’re gonna go buy a car, and they lose their financing. At this point it’s probably October and no one moves in October in North-East Ohio.

So he pulls it down from the market, because he doesn’t want people going on Zillow or the MLS and seeing 300 days on market. And he keeps telling me “You should buy this house, you should buy this house.” Well, I had loaned him my savings money to do the flip, and I said “Dad, you have all my down payment money.” So what he did was he added my name to the title, I took out a Home Equity Line of Credit on the property, and I paid him out with that. So that was property number two.

Property number three was actually the house that I grew up in. My dad was driving down the street and saw that it was for sale. We looked it up, the price was right, we went ahead and did 20% down, and just bought it conventional. It was already fixed up, ready to do.

Theo Hicks: So for the deal you bought from your dad – a single-family home again, and then you rented it out?

Nicole Heasley: Yeah.

Theo Hicks: What was the rent and what was your monthly payment?

Nicole Heasley: My monthly payment, because it’s a Home Equity Line of Credit is $250/month, and my rent is $740/month. Now, that doesn’t include taxes and insurance. Because it’s a Home Equity Line of Credit, it’s not all in one payment, like a mortgage would be. I think my taxes are maybe $35/month, and insurance is around $70-$75. So all-in — I’m getting about $350/month out of that house.

Theo Hicks: And then for the childhood home – that’s pretty cool. What did you buy it for? You said it was already turnkey, so you just bought it, rented it… What was the monthly payment and what was the rent?

Nicole Heasley: I bought that for 49.9k. That payment is $400/month, and that’s including taxes and insurance, and I get $875/month out of that, including pet rent, because she has a little Yorkie. Now, also, I am not including maintenance, vacancy… I always put away at least 35% a month for vacancy, for repairs and maintenance. My dad is my property manager, so he gets that fee each month as well.

Theo Hicks: You said $35/month?

Nicole Heasley: 35%.

Theo Hicks: 35%, okay. So 35% for [unintelligible [00:11:16].04] reserves, and then – how much do you pay your dad to manage the properties?

Nicole Heasley: 10%.

Theo Hicks: Okay.

Nicole Heasley: Pretty standard for the industry.

Theo Hicks: How do you find these deals?

Nicole Heasley: So the second house was a rental that my dad’s friend owned, and he was losing his renter and he was gonna get rid of it, and my dad saw the potential there. So he found that deal off-market. And then, like I mentioned, because my father is local, he saw the second deal just driving down the street, happened to see the For Sale sign in the yard.

What we’re finding now, now that people know that we’re doing this and they know that we’re doing it well, people are starting to come to us when they know someone who wants to get rid of the house.

We also have built up a pretty good network in the area – other investors, other agents, just from networking. So occasionally I’ll get a message from someone who will say “Hey, I saw this. It looks like something that you guys like to own. I just want to send it your way in case it interests you.”

Theo Hicks: Alright, so how did you build that network? Just by doing these deals? Or are you doing stuff outside of these  deals, like attending meetup groups, and stuff?

Nicole Heasley: One, I’m on Bigger Pockets. I try to get on there every day, at least 15 minutes, chat on the forums etc. I started attending meetups in Cleveland, and then once I left Cleveland, I started my own meetup in Youngstown. I joined real estate groups on Facebook, and I just tell people, I talk to people about what I do. Now, since my 9-to-5 job has always been real estate, and it still is – I’m not at the REIT anymore, but I’m working for a company that produces property management software… So I’ve kind of always been surrounded by real estate people. And I just tell people what I do. I talk to them when I’m looking at a property, when I’m buying a property. I just talk to them about my activity, I tell them about the meetups. When I come into work the next day, “What did you do last night?” “Well, I went to a real estate meetup.” Sometimes I’d go to them on my lunch breaks when there wasn’t a quarantine.

Theo Hicks: Yeah, that’s really nice, because I know a lot of people who work full-time jobs and do real estate on the side can’t really talk about it at work, or are afraid to talk about it at work… So that’s nice that you’re able to do that.

Nicole Heasley: When I switched jobs — it’s such a part of my personality; if I didn’t talk about real estate, that would take up most of the things that I have to talk about… So I kind of felt things out when I interviewed for my current position, and they were really enthusiastic about my real estate endeavors… So that was a greenlight for me.

Theo Hicks: Perfect. So for someone who hasn’t bought a property before, maybe just graduated from college or just got out of high school, what would be your best real estate investing advice ever to that type of person?

Nicole Heasley: Start meeting people now. Find that meetup. If you can’t find one, if you can’t attend one in person right now, find a virtual meetup, start a meetup. You need to know people, you absolutely need to know people.

Theo Hicks: What’s one tip you’d give to someone who wants to start their own meetup? What’s the first thing that they need to do, or what’s one tip you have for them to create a successful meetup, that lasts a long time and it’s not just a few meetings and then it kind of fizzles out.

Nicole Heasley: Consistency. We hold ours at the same place, on the same date, every single month. It is the second Wednesday of every month, and it’s at a local bar/restaurant. We are there every single month, without fail. We try not to move it, ever.

Theo Hicks: Perfect. Okay, Nicole, are you ready for the Best Ever Lightning Round?

Nicole Heasley: Yes.

Theo Hicks: Alright. First, a quick word from our sponsor.

Break: [00:14:43].00] to [00:15:33].03]

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

Nicole Heasley: I’m going to say — gosh, it just floated out of my head… Shoot, do you know Scott Trench, CEO of Bigger Pockets? It’s the wealth-building book.

Theo Hicks: Is it called Set For Life?

Nicole Heasley: Yes, thank you. Thank you so much. [laughs]

Theo Hicks: I just googled it.

Nicole Heasley: That book has been really helpful. It pushed me to make  a job change… But I’m also going to say, for people who are quarantined, and they’re thinking this is the worst thing ever, and their life is over, and this and that – read the Diary of Anne Frank. If you wanna talk about being trapped somewhere, and being in a really dire circumstance… It could be worse. And you need that attitude adjustment.

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

Nicole Heasley: Start rebuilding it. [laughs] I’d get on board with my network and I would talk to them and I would say “Hey, what do I do?” I have some awesome people in my life who would help me figure it out.

Theo Hicks: Well, I’m gonna ask this question and then I’m gonna ask a different one to kind of throw you off-balance a little bit… But I think you’ll be able to answer it. What’s your best ever way to give back?

Nicole Heasley: To the real estate community?

Theo Hicks: It could be that, it could be other communities, or something in general… But if you want, you can answer it based on giving back to the real estate community. It’s like charities, things like that.

Nicole Heasley: I think real estate investors are overlooked as an asset to the community, because when they fix up a property, they improve the value of that property, they’re also improving the value of all the properties around them. So I think that just by being someone who cares about their properties, you inherently give back to the community, by someone who makes sure that the paint looks good, that the lawn is mowed, that the roof is intact, that people have a safe, clean, habitable place to live, and affordable – that in itself gives back to the community.

That being said, I also try to just stay involved — when new people have a question about real estate, even if it’s a question that is asked all the time on Bigger Pockets, or that other people might get annoyed with, I just try to take the time and answer those questions… Because we were all new once.

Theo Hicks: Alright, so this is a unique question, which — I don’t know why I didn’t think of this earlier; I should definitely add this to the Lightning Round… What’s your best ever way to stay sane during the quarantine?

Nicole Heasley: Running. Getting outside.

Theo Hicks: How many miles do you run at a time?

Nicole Heasley: Usually around 3.5 to 4. I try to do that every other day. But I used to do a lot more, and I’m trying to use the quarantine to increase that… But taking on old hobbies that you’ve maybe forgotten about, or starting new ones. And Zoom meetings.

Theo Hicks: There you go. Alright, and then lastly, what’s the best ever place to reach you?

Nicole Heasley: Probably LinkedIn or Bigger Pockets.

Theo Hicks: Perfect. So you just search Nicole Heasley on LinkedIn or Bigger Pockets. Well, Nicole, thanks for joining us today and walking us through your journey through three rental properties. So we talked about your first deal that you did with the FHA, 3.5% down loan, single-family home; you rented out two of the rooms, as well as the garage space, and ended up moving out, and eventually renting out that third room. Then you gave us some tips on how to find roommates, some of the best practices for living with strangers.

Second deal was a house your dad actually flipped, and you were able to buy it by taking equity from your first deal to buy that, so we talked about the numbers on that deal. Third deal was your childhood home; you bought it with 20% down, and you also gave us some numbers on the reserves (you do 35% each month), as well as 10% for the property management.

We talked about how you found the deals… It sounds like none of the deals — maybe the first one was an MLS; I didn’t ask you how you found that one, but…

Nicole Heasley: Yeah, that was from the MLS.

Theo Hicks: Okay. So the first one – MLS. Second one was an off-market deal from a friend of your dad’s… And then the third one – it was on-market, but your dad found it by essentially driving for dollars.

Nicole Heasley: Yeah, he saw the For Sale sign. We weren’t looking on Zillow, or anything.

Theo Hicks: Yeah. And then you mentioned that now people are actually coming to you for deals because of the network you built up, so you gave us some tips on the things you do to build your network – Bigger Pockets 15 minutes a day, attending meetups, starting a meetup group, Facebook groups, and just telling everyone you meet what you do and your recent activity.

And then lastly, your best ever advice for someone who wants to get started, which is to start meeting people, start building your network now, and following the advice you gave about how you created your network… And your tip for a meetup group was consistency, so make sure you’re meeting at the same place, happening at the same time, the same day every single month, being consistent. You host yours at a local bar/restaurant.

Nicole Heasley: Don’t forget social media – Facebook, Meetup.com and Bigger Pockets. Any place that you can post it.

Theo Hicks: Perfect. Exactly, posting it to those sites, so you find people to attend. Alright, Nicole, I appreciate you coming on. Enjoy the rest of your day. Best Ever listeners, as always, thank you for listening. Have a best ever day, and we’ll talk to you tomorrow.

Nicole Heasley: Thanks, Theo. I had a great time.

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JF2105: Making Money Through The Phone With Marx Acosta Rubio #SkillsetSunday

Marx Acosta Rubio is the CEO of Onestop. He started off making $10 million and losing it then having to remake it back all through cold calling. In this episode, Marx, shares how he goes about the process of cold calling.

Marx Acosta Rubio Real Estate Background: 

  • CEO of Onestop
  • Onestop generates $30+Million in revenue a year 
  • Lost his entire fortune and had to rebuild it for a second time
  • Based in Southlake, TX
  • Say hi to him at: www.callmarx.com 

 

 

 

Click here for more info on groundbreaker.co

Best Ever Tweet:

“99% of people who say they are modeling success are actually modeling the wrong things” – Marx Acosta Rubio


TRANSCRIPTION

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

Marx Acosta Rubio: I’m doing great, Theo. How are you, my friend?

Theo Hicks: I’m doing great as well, thanks for asking. Marx is a repeat guest, so we’ll be doing a Skillset Sunday today, and we’re gonna talk about — well, a lot of things. We’re first gonna talk about how he was able to make 20 million dollars using cold calling… And then hopefully dive into some other topics as well, but that’s where we’re gonna start. But before we get into that, we’re gonna talk about Marx’s background. Again, he’s the CEO of Onestop, which generates 30+ million dollars in revenue each year. He lost his entire fortune and had to rebuild it for a second time. He’s based in Salt Lake, Texas, and you can say hi to him at his podcast, Steps To Success. Alright, Marx, do you mind telling us a little bit more about your background and what you’re focused on today, and then we’ll move into the Skillset Sunday?

Marx Acosta Rubio: Fantastic. The background is born in Caracas, Venezuela, I came here in 1977. I’m 50, happily married to my beautiful wife for 32 years, three kids (22, 20, 18) and to show that our stuff works, my 22-year-old has a company that’s worth ten million dollars right now with [unintelligible [00:04:23].01] Our 20-year-old is going back to serving in a mission, and our 18-year-old, who was on America’s Got Talent, is headed off to college. We’ll be empty-nesters… And life is grand. Not without challenges, obviously, but it’s fun.

Theo Hicks: Thanks for sharing that. So we’ve got how you made ten million dollars twice, so a total of 20 million dollars, by cold-calling, using your Marx Success Selling System. Do you mind first maybe giving us the steps of the Marx Success Selling System, and then you can tell us the story about these two ten-million-dollar deals?

Marx Acosta Rubio: So I don’t know that we call it the Marx Success Selling System; I think that’s what Ashley sent your way. It’s really the success system that never fails, which I stole from a  book written by W. Clement Stone. The title of it is “The Success System That Never Fails.” It was ten million the first time that I lost, and then 20 million the second time… And it’s all based on cold-calling. It was cold-calling the most exciting, incredible product in the world, which is toner cartridge. If you don’t know what a toner cartridge is, it’s just like toilet paper – nobody really cares, unless either a) you need it and don’t  have any, or it breaks in your hand when you’re using it.

So we had to figure out how do we go to market, how do we beat Staples, how do we beat all these other companies. At the time – this was back in 1994 – we had no marketing experience, no ability to go out to market with lots of dollars, so we started cold-calling. Now, I didn’t invent it; I did improve it… And then along the way I was working for a company, got fired, started Onestop, and read every book, attended every seminar, and through trial and error I figured out what worked for me. Then when I hired the first employee, who at the time was also (I didn’t know) a drug addict… This was not the guy who was addicted to crack; that’s a different guy. And I thought “Hey man, we can do this together.” He had no idea what to do, so I kind of showed him what I was doing. Then I realized that what I had uncovered wasn’t necessarily common knowldge; it was very uncommon, the way I did it… So I put together a little training manual over the years. We — I wouldn’t say perfected it, Theo, but we’ve made it better…

And then you know a system works when you can duplicate it with somebody else, meaning if you do it and you’re amazing at it because you’re just this gargantuan, this super-talented individual, and then you show me and I can’t produce the same results, then it’s just you being fantastic. But if my dummy self can do at least somewhat as good as you – maybe 70%-80% as good as you – you know the system works.

So we kept giving it to individuals who weren’t necessarily — you know, when you’re selling toner cartridges via the phone, you’re not attracting (I don’t mean this to be disparaging) the  top of the top MBAs, super-smart people. You’re getting those who wanna be actors and musicians, and they don’t have much ambition in life, and they’re just kind of in the job… And if you rely on them, on their base talent and skill, you won’t go very far as a company. But if you can bring them in and show them a system and plug them in and have it work and produce somewhat the same result, then you’re on target. So we did that, and then we made Inc. 500 Fastest-Growing Companies list, and Inc. 3000 etc. And then I made some terrible business decision. Just horrendous. And I learned that you’re only 1, 2 or 3 moves away from greatness or disaster.

I lost it all, and then I had to rebuild it, but this time we did it a little bit different. We built it virtual, but using the same selling system, with a few modifications that we had before. And I also made some changes in how I manage individuals, because I hated managing people, so we cut that out.

Theo Hicks: Perfect. So would you mind telling us what the system is, that you gave to these musicians and actors so that they’re the top-tier cartridge sellers?

Marx Acosta Rubio: To give you an idea before, the top producer at my company was making about a half million dollars a year. His name [unintelligible [00:08:08].18] and he was a crack addict. He broke all records. Most people were making 300k-400k a year, but he was at 500k, and he did it in an interesting way. But the system is not that complicated; like most sayings, simplicity is elegance and beauty. It consists of intricate pieces that are presentations, overrides, stalling questions, closes, and flow charts… And then also certain six-steps, which are not difficult to explain, but it’ll take 30 minutes to explain each step, because if I just give you the rundown, that won’t be helpful.

So what happens is most people wing it when they do sales. And if you look back at NCR, and IBM, and W. Clement Stone, all these companies and all these guys, they have presentations… And we’ve gotten away from that. People are like “Oh, consultative selling”, and that stuff doesn’t work. In fact, the guy who had the most sold houses I think still holds the record – Tom Hopkins, who learned from Jay Edwards [unintelligible [00:09:01].26] had everything memorized and pre-scripted. Because like an actor or an actress, when you’re confronted with a situation, you don’t wanna have to think about what you say next. You wanna be able to have the lines pre-written and then how the delivery shows up.

So we had that, but then we had language patterns inside of it using phonetic ambiguities, and a bunch of other cool language patterns to get the individual involved in the presentation, so that they decide to make the purchase, versus feeling like we’re pressuring them. Because you’ve got these two schools of thought – one is the used car salesman, push-push-push-push, and then you’ve got the other one, just kind of “Well, I’m gonna consult you and you’re gonna make your own mind.” And neither of them actually work. We define selling as getting someone to take action, no matter what it is. So if you don’ get them to actually do something, then you’re not persuading them.

And then we boil it down even further, saying “Look, people make decisions based on the five Fs: fear, fight, flight, fornicate and feed.” So when you hit the reptilian brain, the amygdala, then there’s an impetus to take action… But you can’t do it externally, you have to build it internally. And this is where people confuse persuading with consultative sales.

So this system really revolves around — first, we’ve gotta make sure it’s the right thing for them, because you can never really get from someone to do something that isn’t good for them; or at least you shouldn’t, because it’s unethical. But so long as your product is good and [unintelligible [00:10:23].27] for them, then it’s your duty like a doctor and a patient to give them the medicine or do what’s best for them, so they can then make an informed decision.

So the system is pretty simple. It’s the presentation… An override we define as someone has an objection (we call it a knee-jerk reaction), and then you basically answer it, and you have three of those memorized. We use what’s called the Cha-Cha-Cha (one-two-three) system, which — I was so terrified of sales. It was all phone sales when I first started. I was so terrified of sales that I literally had to invent the one-two-three system. And this is gonna sound super-stupid, but I’m gonna share it with you anyway.

They would give an  objection, [unintelligible [00:11:01].26] and then I would override, “Well, that’s no problem, Bob, blah-blah-blah”, and I would touch my thumb to my ring finger. And then I would touch my thumb to my middle finger, and that implied that I had to close. One-two-three.” Because I had read a while ago – this was many decades ago – most human beings don’t make a decision until you’ve asked them at least five times… Which is why people try to say “You’ve gotta visit them five times, you’ve gotta have five interactions” etc. Well, my impatient self – I can’t wait to have five phone calls. I need to eat, and I’ve gotta make the sale.

So what if I ask them eight times [unintelligible [00:11:34].03] for the order. There’s two things – one, it got them to give me the real objection, which is never what they tell you, and two, it gave me the impetus to understand that human beings usually don’t make a  decision right off the bat, and it’s our job to get them there. Now, not by persuading in terms of pushing them, “Come on, Bob. Buy, buy, buy!” but by asking questions and leading them gently, yet with a directive focus, as to where they wanna go.

I know I’m babbling, so give me a minute. When I started this, I had given my first employees all the stuff that I had written out for myself, and they were doing okay. But one thing I noticed was when they were on the phone, the prospect would say something and they would just sort of go on this rabbit trail, and this random path, and I was like “Where are you going?” And it took me a minute – and I say a minute, [but rather] a couple years – to realize that I had a certain flow chart. “If this, then this. If not this, then this” in my mind. So I wrote that down on a piece of paper, three flow charts. One for the accounts, one for reorders. And I said “Look, guys, this is what you need to do.” Box one is “Make receptions feel good. If you don’t do that, you can’t go to box two.” And so on and so forth.

These are the four questions we must ask in order to go and make the presentation. If you don’t get the answer to those four questions, you can’t make the presentation. And what it forced them to do was when the prospect wanted to go off on a different tangent, they would say “Okay, that’s no problem”, and they would bring them back into that box, because they couldn’t go to the next box until they had that box checked. And this revolutionized my business, and it made them significantly more effective.

Think about it – if you’re producing X, and a simple thing like a flow chart gets you to 2X, it’s a huge impact. Then we realized, as this was going along, that some people were giving up. Because remember, it’s cold-calling to get the new accounts, and you have to basically maintain that account and grow it. But the cold-calling is the most difficult part. So we realized these guys were maybe closing, but not closing a ton. So they were getting lazy. So I invented the numbers sheet, which is a sheet that says “200 phone calls a day, 20 presentations, each one you’ve gotta ask for the order eight times.” And then we started seeing ratios, and then that increased our sales and our profitability even more.

Eventually, we sort of put all this thing together, which is more elaborate than I describing, because there are a lot of moving pieces, particularly language patterns. Theo, when you use the word “now”, if you use what’s called a phonetic ambiguity, meaning you tie it to the end of a sentence and to the beginning of a new sentence, it sends a sort of subconscious command or suggestion to the subconscious mind to do something.

Anyway, long story short, you’ve gotta create the language patterns that also help people make better decisions, if that makes any sense. That was a lot, huh?

Theo Hicks: That was a lot. So let me ask one follow-up question really quick, because I missed — so we’ve got presentation, overrides, stalling questions, and then I’ve got closing, but I know I missed one. What was the one that I missed?

Marx Acosta Rubio: The overrides?

Theo Hicks: I think there’s five steps: presentation, overrides, stalling questions, and then something that I missed, and then closing. What was that things that I missed?

Marx Acosta Rubio: No, there are six steps to the selling process.

Theo Hicks: Six steps, okay. I missed two of them.

Marx Acosta Rubio: Right. The six-step selling process is different than the system itself.

Theo Hicks: Okay. So was it just those four – presentation, overrides, stalling questions and closing?

Marx Acosta Rubio: And flow charts.

Theo Hicks: Flow charts, okay. There you go. Flow charts.

Marx Acosta Rubio: And the numbers sheet. You have the numbers sheet, you have the flow charts, you’ve got presentation, stalling questions, overrides and closes.

Theo Hicks: Okay, and then you said this is different than the actual selling process itself, which is another six steps.

Marx Acosta Rubio: Correct.

Theo Hicks: Alright, let’s go to that then.

Marx Acosta Rubio: [laughs]

Theo Hicks: Go. [laughs]

Marx Acosta Rubio: Well, I think the six steps are gonna vary depending on who you ask, so I don’t think they’re gonna be too valuable for your audience. Things like getting them engaged in the offer, getting them to say no… This is honestly more than 50 minutes over what we have. But I’ll give you one piece, and this was popularized by a book by Chris Voss called Never Split the Difference… But it really goes back to neuro linguistic programming, back from the 1970s, and that Harvard talks about. So you don’t want people to say yes to your offer, because you’ll get fake yeses. So we knew 20+ years ago that we wanted the no, for two reasons. One, psychologically, you teach your salesperson that you want them to say no and not yes, which alleviates the fear of getting them to say no. Because it’s all about “Get the yes, get the yes, get the yes.” No, you don’t want the yes, you always want the no’s. And the second thing is it makes the prospect feel more in control, which we’ve talked about, and Chris expands on it in his book.

So we focus on getting them to say no, because we believe – and we’ve taught this to a bunch of other companies – the sales process doesn’t start until they say no. And if you read all the older negotiation books by the greats of the greats of the greats, they’ll tell you “Always ask for more than you expect to get”, and all this other stuff, which basically leads to getting people to say no.

Here’s what’s the big takeaway on having a system – you cannot wing your way to success when it comes to sales… And what we’ve experienced,  what we’ve seen and done and helped other companies – you have to create a system. Because when you have a system, you can modify, you can tweak it, you can track it, you can improve it, and it also gets you to feel like you succeed every day. Because if you have a goal to make a certain income every day, and you don’t achieve it, you’re like “Boy, I’m a failure.” And maybe you are, by definition. But if you have a system and you apply this system and you get better, even if you don’t make any money that day, but you know you’ve applied the system, you feel like a success.

So we realized – and this is a whole different conversation – in managing salespeople, which is very unique and very different to do, we needed symbols, rituals, magic, all kinds of stuff, just like anthropologists will tell you. [unintelligible [00:17:13].19] or religions. In order to do that, we had to give them a feeling of empowerment. And in order to do that, you have to make them feel like they succeed, so they don’t go back to work because it feels fantastic, they go back to work because they have an environment where they feel empowered, and they feel in control, and they see progress. And all of this sort of evolved over decades, but the idea is to create a system that works for you, that has a template, so that you can apply it.

If you look — Jim Rohn, who’s one of my mentors and favorite people of all time, said “Success is nothing more than a  few simple disciplines practiced every day.” And if you look at W. Clement Stone, if you look at all the greats of the greats who started this personal growth development system, along with Napoleon Hill, of course, who was the genesis of it, really it’s about systems. They call them habits now, and all this marketing [unintelligible [00:18:00].23] that’s really stupid, but it really is creating systems, if that makes any sense.

Theo Hicks: It totally does. So last question – you tell people “I need to create a system”, you’ve got your system of presentation, overrides, stalling questions, flow charts, numbers sheet, closing… Is this like a Word document, is this a PDF, is this like a custom software that you use? And then based on how you answer that, if I myself want to go out there or a listener wants to go out there and take the system that I have in my mind, that I have to follow every single day, how should I actually create that in the real world? Is it me making a PowerPoint presentation, do I have a bunch of Post-it notes, do I print off a piece of paper? How does that actually look in reality?

Marx Acosta Rubio: Got it. Great question, and I hope I can answer it in the time we have left. Number one – for us it’s both PDF, and it’s in the software system, or CRM… But if I was to print it, it’s probably 150 pages, all said and done. Because you’re talking about — for example, just on the overrides, if somebody says to you “The price is too high”, you need three prewritten, pre-memorized responses, and then at least a dozen closes that you can move forward.

Some people say “Well, just say “Compared to what?” Okay, you can use that, but what about two more? So when you have a presentation, your presentation might be long, it might be short, you have a flow chart, each one is about one sheet, and you end up having two or three different flow charts. So for us it’s about a 150-page document. We have it all over the place. How do you create your own success selling system? Well, I think if you want us to help you with it, just email ashley@callmarx.com. And I’m dyslexic, so I hope I got that right… And we’ll give you some tools and tricks and tips, so we don’t take up time here.

But how do you do it in the real world – okay, so this is what’s really interesting. I’m 50, and I’ve been pretty healthy most of my life, and I almost died April 13th. I went into what’s called diabetic ketoacidosis. I had no idea what that was, but I was peeing every couple hours, I was lethargic, I looked like a walking zombie… It just was not good. I tested my blood sugar and ended up being on the ICU, in the hospital for three days. Basically, I’m what’s called a type one diabetic, which is when  your pancreas is attacked by your white blood cells, so it doesn’t make insulin. So I’ll be on insulin for the rest of my life.

So of course, that freaked me out, but I read every book in the last 30 days on diabetes, I found the world’s two best doctors, and created a spreadsheet. So now I monitor my blood sugar every hour, and I see how diet and insulin and how exercise affects me, so I can try to get to that 83 and have a flat 83 consistently. So when you create a system, you have to look at what metrics are important, and what moves those metrics. For us in selling, we realized that connections was a metric, how many times you closed was a metric, then the phone calls you made was a metric, and then also language and the attitude by which the salesperson spoke was a metric.

So once we understood that those are metrics we wanted to  change, we thought “Well, what changes those things, and how do we change that?” So if you’re gonna create a system for real estate, what are the metrics that matter for you? Is it knocking on doors, is it sending Facebook posts? I don’t know. You find out those 6, 7, 8, 9, 10 things. Hopefully six, give or take a few, that matter, and then go “What factors make those numbers change?” And then you iterate. Or if you’re really smart, you find somebody who’s already succeeded at it, in your industry or in another industry, and then you copy them while you get your metrics together. Does that make sense?

Theo Hicks: Yeah, I like that. The copying things is huge in real estate, and I’m sure it’s really big in selling, too. People are already doing what you want to be and are performing at a level you wanna be at… So I really appreciate you sharing that system with us and how to do it ourselves.

Marx Acosta Rubio: But there’s a caveat real quick, Theo, with modeling. Modeling became popular with John Grinder Richard Bandler with neuro linguistic programming, and then Tony Robbins made it super-popular. If you haven’t heard of Tony Robbins in real estate, then you’ve been living under a rock, because he’s sort of a grand daddy of all this seminar type stuff.

But here’s the problem… 99.9% of people that we’ve encountered in the last 20+ years of doing this, who say they’re modeling success, are not modeling the right things. In fact, most people who are successful at doing something, if you ask them what it is that they’re doing, they’ll you something that isn’t true. Not that they wanna lie to you, it’s that they themselves don’t know.

Case in point, Elon Musk says that if you wanna be very successful, you’ve gotta work 80 hours a week. Well, that’s not true, because if hard work alone made you successful, then the ditch digger who works 80 hours a week would be a billionaire. So we thank you, Elon, for letting us know what you believe, but you’re not necessarily eliciting the proper strategies that you may have that make you successful. So the challenge for me early on was I was really good at this on the phone, but mind you, I’m dyslexic, English is my second language, I speak way too fast, and I’m an introvert. I don’t like people; stick me with a book, I’m good. So I had to sort of elicit, what am I really doing, and it took a minute (when I say a minute, it took a long time) to figure out.

So be very careful, because if we apply the 80/20 principle — and there’s a great book coming out there by a good friend of mine, Richard Koch… Richard Koch wrote The 80/20 Principle and a bunch of other books. He’s got a book coming out called The Reasonable Success (in August). It’s a great book. Richard himself is worth a half a billion dollars, by the way, and he works one hour a day. I think he’s 67 now. He has three houses.

Anyway, if you look at the 80/20 principle, you realize the majority of things are trivial, and we have not disassociated  effort from reward in society. We think we work really hard, therefore we make a lot of money, and that’s not entirely true, because in that hard work, if we apply the 80/20 principle, a few factors [unintelligible [00:23:39].21] “the vital few”, 20% or less, will account for most. So you’re busy doing all this stuff, but you haven’t yet extrapolated what really moves the needle, where is really the leverage.

This is the biggest caveat I’ll give you, because when you model success or you look at your own success, what you’ve done in the past, you really do need to think, and you have to say “Well, is that really true?” and you  have to then test it. So for us, we knew, because we had been at this for years and years, and we’ve got into a bunch of different companies and individuals, and it’s not hard for us to do, because we’ve been doing it forever… But that is the caveat… Because I don’t want people out there modeling or mimicking somebody and then taking all of what they are doing and they’re not getting the same results, because they’re missing out what it is.

Bruce Lee said “Absorb what is useful, discard what is useless, and add specifically your own.” Jim Rohn said “Whatever you do, make sure it’s a product of your own conclusion. Be a student, not a follower.” So be very careful and be very selective as to what it is you think does it for them.

For me, in all of this, it was applying this system, but it really was the language patterns that I used, and everything else revolved around those language patterns… Because I would, as an example, say something to a client, and they would laugh and think it was really cute and funny… And my very first employee, a guy named Chuck Fletcher – he would say it, and they  would call me to complain about what he said. Same words, but how they were put together was this big a-ha. So I had to teach them how to say it.

Anyway, I’m trying to give you a lot in a short period of time, and I’m sorry for rambling, but I wanna have that caveat as a disclaimer.

Theo Hicks: No, I think what you’re calling a rambling is very powerful. You’re saying a lot of things that I never thought of before, and this is definitely gonna be worth a relisten on my part, and I’m sure the Best Ever listeners feel the exact same way, Marx.

Again, I really appreciate you coming on the show. You can tell we could probably talk about this for multiple days on end, the amount of information you have from your background…

Marx Acosta Rubio: It really is a great, interesting, fun topic. And you know what, Theo – most people unfortunately who are in the business of selling books and motivational programs and stuff, especially when it comes to sales of real estate, are doing  a disservice to the community. That’s what prompted me to start this podcast is I wanna interview guys who I know who are really wealthy and successful and happy, and share things that really work. They may not be famous authors, or they may be (I don’t know), but it’s challenging… If you look in the real estate field, I guarantee you the top of the top of the top in real estate, whether it’s investment, whether it’s construction, whether it’s development, whether it’s sales, they do something very different. But the majority of you who try to emulate them lose sight of what it is that they do that’s different. And it may be as simple as an internal dialogue; it may be as simple as how they talk to themselves.

Napoleon Hill in his book “This and Grow Rich” gives 13 steps, and later 17 steps, and he said the brain was like a receiving station and a sending station. He’s really talking about vibration. It’s now scientifically proven to be true – with sympathetic resonance, and mirror neurons and all this stuff… But Napoleon Hill knew – in fact, Emerson knew it before Napoleon; the Bible knew it before… How the brain functions. So it may be that this person has a different thought that consumes them, and then they use their reticular activating system to find opportunities. So it’s  a nuance that is challenging, but once you get it, it’s very easy to discern those who are successful for you to emulate them.

Theo Hicks: Absolutely. So guys, make sure you check out his podcast, Steps to Success Podcast, to learn more about what he was just talking about. Alright, Marx, I appreciate you coming on the show today.

Best Ever listeners, as always, thank you for listening, have a best ever day, and we’ll talk to you tomorrow.

Marx Acosta Rubio: Thanks, Theo.

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JF2104: Financial Samurai With Sam Dogen

Sam Dogen is the founder of Financial Samurai and has been providing content to the world through his free blogs and articles around topics that will help you with your financial literacy and goals. He Has also been in the real estate investing experience for 17 years and shares some of his experiences with this and his personal journey.

 

Sam Dogen Real Estate Background:

  • Founder of Financial Samurai
  • Has 17 years of real estate investing experience
  • Owns multiple properties in San Francisco, Honolulu, and Lake Tahoe
  • Commercial real estate portfolio consists of 15 properties
  • Based in San Francisco, CA
  • Say hi to him at: https://www.financialsamurai.com/ 
  • Best Ever Book: Thinking in Bets

 

 

 

 

Click here for more info on groundbreaker.co

 

Best Ever Tweet:

“I love the green marble theory.” – Sam Dogen


TRANSCRIPTION

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

Sam Dogen: Good. How are you?

Theo Hicks: I’m doing great, and thanks for joining us. A little bit about Sam – he is the founder of Financial Samurai. He has 17 years of real estate investing experience, owns multiple properties in San Francisco, Honolulu and Lake Tahoe; he has a commercial real estate portfolio consisting of 15 properties. He’s based in San Francisco, California, and you can say hi to him at his website, FinancialSamurai.com.

Sam, do you mind telling us a little bit more about your background and what you’re focused on today?

Sam Dogen: Sure. I actually grew up overseas, all across Asia and in Africa, because my parents were in the U.S. Foreign Service. I came to high school in the United States, and then I went to college at William & Mary in Virginia. Then I went to work on Wall Street in 1999. So I worked in finance, mainly international equities from 1999 to 2012, and in 2012 I decided to negotiate a severance and get out of there… Because after the global financial crisis in 2008-2009 it just wasn’t fun working in finance anymore. We were always the bad guys, even if we had nothing to do with the housing market.

Again, I was in international equities, specifically Asian equities, and it just didn’t feel good to work in that field anymore. Also, the pay wasn’t commensurate with the performance anymore. You could have done really well with your clients, generate a lot of business, but you wouldn’t have gotten paid commensurately, because Wall Street finance was busy subsidizing a lot of money-losing departments. So I decided “You know what – it’s been a good career.” Originally, I wanted to work until I was 40, but instead I left the industry when I was 34, and I decided to travel, spend more time with my wife, and focus on FinancialSamurai.com, which is a personal finance site I started during the depths of the previous financial crisis, in July 2009.

Theo Hicks: So Financial Samurai is like a blog where you post personal finance advice… Does that tie into real estate? Is your advice for people to go out there and buy real estate, or is it dependent on their personal situation?

Sam Dogen: FinancialSamurai.com is a personal finance site. I talk about everything from investing in stocks, to real estate, to early retirement, to career, to negotiating your layoff, to family finances, insurance and so forth. So I try to cover every aspect of what someone would think about in their lives. And money really touches upon all of us.

Real estate is about 40% of my net worth, and is something that I’ve been doing since 2003, in San Francisco… And real estate is my favorite asset class to build wealth, because it’s a tangible asset, it generates income; it’s pretty sticky on the way down during tough times, and you get to benefit from the upside, and it provides utility.  What an amazing asset class to be able to enjoy it, to provide shelter for your family, experience great memories, and maybe even make some money in real estate. So real estate has been my favorite asset class to build wealth.

Second has been stocks. I was in the stock market, in that business for 13 years. However, I think my favorite after stocks is online real estate, so owning web properties such as FinancialSamurai.com.

Theo Hicks: Nice, I never thought of it like that, online real estate; I like that terminology. Okay, so you have 15 commercial properties… Is that your entire portfolio? Are those the ones that are in San Francisco, Honolulu and Lake Tahoe?

Sam Dogen: No, the property that I owned in San Francisco, Honolulu and Lake Tahoe are physical real estate properties that I’ve bought, and that I enjoy, and I use, and I rent out, and I’m an active landlord there. And regarding my commercial real estate portfolio, it’s essentially through real estate crowdfunding, where after I sold one of my main San Francisco rental properties in 2017, because I wanted to simplify life and diversify out of San Francisco, I basically invested in a fund that had 17 commercial real estate investments, and two have exited, and there’s still 15 left.

So my thesis was to diversify across the heartland of America, because back then I was thinking to myself “Well, the cap rates are so low in San Francisco…” We’re talking 2% – 3% cap rates… And it’s just so expensive here, and I have so many investments already that I needed to diversify.

So with the proceeds that I got from the sale, I decided to diversify across the nation, and the thesis was that work from home would be more and more prevalent, telecommuting, people would be able to go to lower parts of the country to still earn a similar amount of income, but save a lot on costs. And with the lockdowns and the global pandemic I think that trend is definitely accelerating, and I’m excited to see what happens next.

Theo Hicks: How did the returns from that fund you invest in compare to your rental properties?

Sam Dogen: In San Francisco real estate has been going up; at least since 2012 it’s been a bull market. Real estate is about 80% to 100%, and now it’s probably plateauing right now… So San Francisco real estate probably increases by 6% to 7% a year. It has been. And that’s been pretty good. Obviously, let’s say with 20% down, so you have leverage… So a 6% return times five, that’s 30% return on your cash… So that’s great. But it slowed down in 2018, and 2019 was kind of “Meh…” and it started picking back up at the end of 2019. In early 2020 it was pretty good, until everything started getting locked down. So now everything’s in a wait and see mode.

In terms of commercial real estate, since about 2015-2016 when I started investing – because I invested before; I’d sold my main San Francisco rental property in 2017 – the returns have been around anywhere from 12% to 16% a year, which is great, especially if you don’t have to manage the property. And that’s one of the things that I like about investing in these properties – because it’s 100% passive income; you’ve got a professional manager there, you’ve got the lawyers and all those people doing the stuff, and  you just collect income and then you have to file the taxes.

Now, in 2020, things have obviously changed a lot due to lockdowns. So I will have some losses on properties that are in the hospitality space. For example a hotel. Surely, that property’s gonna be going down in value because nobody’s going at the hotel. It’s like an airport hotel, a Sheraton in Dallas. But the portfolio is 15 properties, so I’m assuming there’s gonna be some losses, but overall I think it’s gonna do well. If we can rebound and get out of this lockdown phase sooner rather than later, hopefully third quarter of 2020, I’m optimistic that things will get back on course.

Theo Hicks: Just to confirm – that fund of 15 properties, you’re getting 12% to 16% per year?

Sam Dogen: Yeah.

Theo Hicks: Wow. How did you find that fund?

Sam Dogen: Well, there’s a lot of real estate crowdfunding platforms. Financial Samurai is a relatively large website; it’s got about one million visitors a month organically… So there’s a lot of opportunity; you just have to go wade through a lot of opportunity. But there are many real estate crowdfunding platforms out there. I’ve been able to talk to a lot of the top ones and a lot of the big ones, and some of them don’t make it, frankly… But some of them do. And the assets they allow you to invest in are separate LLCs that continue to go on regardless of what the platform does.

So in the old days you would basically invest in a real estate fund through your network. You have a friend who’s in real estate development, he wants to raise some money, you participate, you’re a limited partner etc. Today you can go online, you can obviously buy REITs, you can buy private REITs, and you can go directly through these platforms that connect you with other sponsors.

Theo Hicks: So you’ve found this deal through your website. Someone came to you with the deal, or someone posted it on your website?

Sam Dogen: Yeah, through my website, for sure.

Theo Hicks: One thing that we stress a lot is about building a brand – our’s is a podcast website – for building a real estate company. You talk about personal finance. Is that something that — you also mentioned owning online real estate, owning websites… So what’s some advice you have for someone — well, I guess then you also have a million organic views per month… So what’s your advice for someone who wants to start getting into what you call the online real estate and owning a website? Should they build their own, should they invest with someone else’s website? What does investing in someone’s website even look like? …things like that.

Sam Dogen: I think one of the key things you have to do is own your brand and build your brand. You don’t want another platform to own your brand, for example Facebook, Twitter, LinkedIn, whatever. They are already huge companies, and they’re getting rich off your content and your brand. So instead of spending all your time tweeting about random stupid things on Twitter, build your own brand and start your own website, and start talking about all the things you care about on your website. It’s the green marble theory that I like to think about and say, and that is if you have a green marble, maybe it’s the ugliest green marble in the world; you put it on eBay and someone will find that green marble and wanna buy it. So if you put yourself out there, based on your own brand and what you care about, you’re going to find your tribe organically eventually. Google obviously has been around for over a decade now. They’ve done their algorithms very well. They’re gonna help people who are looking for stuff that you like, and connect. And that is really key, to build your brand and do it on your own platform.

The other thing is you need to be consistent. You can’t give up before the roses bloom. Too many people I see just work for six months, maybe a year, and then they stop doing it… But they stop right before things start getting good. So I believe the secret to success is to do something very consistently, for 5-10 years. After about three years you should definitely start seeing some results, but too bad people can’t stick with things for more than one or two years, because they just want instant gratification. But this is a long game, and if you plan to be alive for decades, then you have plenty of time to build your brand.

Theo Hicks: That’s really good advice about building your website, but specifically the 5-10 years, thinking in terms of decades rather than days and weeks and months. So you did mention about not going out there and tweeting your thoughts, as opposed to building your own website and then you’ll [unintelligible [00:13:37].23] organically. So do you recommend just posting on the website and that’s it, and then letting people find you on Google organically? Or should I still be sharing the content from my website on social media?

Sam Dogen: Of course, you create the hub. You create your pillar, awesome content, whatever it is you wanna talk about. If you wanna talk about real estate, go ahead. If you wanna be a real estate specialist, go ahead. If you wanna be a personal finance generalist, or just focused on stocks and real estate and family finances… Whatever you wanna do. The world is big enough; there’s billions of people on the internet. Focus on what you care about and you are best at. And then the spokes are social media; make sure what you’re doing on social media is helping you build your brand, not hurt your brand. A lot of people have blown themselves up on social media saying things and then just getting fired, or just crushed.

So think about the spokes after you build your hub, your own brand. So the spokes are maybe doing a podcast, getting on a podcast like this one. Social media. Maybe speaking at conferences, if they ever come back. But focus on the hub.

Theo Hicks: Okay, Sam, what is your best real estate investing advice? You can also apply it to personal investing advice too, but what’s your best ever investing advice?

Sam Dogen: In terms of real estate, I would say be patient. Every time you see an amazing property, it’s just human nature to get all excited and say “I’ve gotta buy this. This is amazing. Please, nobody else bid against me. I’ve gotta buy! Buy, buy, buy, buy!” But the reality is if you miss this one, it’s okay; there’s gonna be another amazing property that’ll come along. So I really stress patience and running the numbers, especially during a turning point where we don’t know what’s gonna happen with the economy, with 40 million-plus people unemployed. Is the government really gonna support us indefinitely? Are we gonna find a vaccine within the next 12-18 months? There’s a lot of uncertainty, so right now patience is a virtue. Don’t rush, don’t go panic-buying, don’t go panic-selling. You’ve really gotta run the numbers and think things through. If you miss out, it’s okay; there’s gonna be other opportunities along the way.

Theo Hicks: Alright, perfect. Are you ready for the Best Ever Lightning Round?

Sam Dogen: Sure.

Theo Hicks: Alright. First, a quick word from our sponsor.

Break: [00:15:53].00] to [00:16:42].07]

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

Sam Dogen: Let’s see… I have been recently reading Annie Duke’s “Thinking in Bets.” I think it’s an excellent book and an excellent way to think about investing. There’s never a 0% probability or a 100% probability. There’s always going to be some kind of grey area, and you’ve gotta think in bets, think in percentages.

So right now, with the S&P 500 at 3,000, for example, it’s rebounding by over 32% from the mid-March lows… What is the expectation or probability that it’s gonna go up back to its record high, another 10% up from here? I would say maybe 30%. But that also means 70% is not gonna get there. So in that regards, I position my portfolio according to the probabilities that I believe in. So thinking in bets.

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

Sam Dogen: Right now I have about 250k-265k in passive income, excluding my website, except for 50k. 50k comes from selling a severance negotiation book… So if my website collapsed today, I would have about 200k to 215k a year in passive retirement income. So that would be a 20% loss to my passive retirement income. Then I would basically look at my budget and make sure I’m spending within my means… Because that’s obviously the bottom line of personal finance – spend within your means.

Now, in terms of the active income I was making from Financial Samurai through advertising and so forth, I would first take a moment to grieve, because I’ve been working on this for 11 years, and then I’d take a moment to be thankful that it’s given me so much back in terms of community, in terms of learning from other people, in terms of doing something that provides me joy… And then I’d think about maybe taking a six-month break, and then I would think about maybe starting something else better or newer, and learn from my mistakes.

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

Sam Dogen: In terms of giving back, I think the best way to give back is to write on Financial Samurai. Every single article is free, there’s no paywall. I talk about highly, highly pertinent things in our lives right now, whether it’s “What should you do after the stock market has rebounded by 32% from the bottom? Should you buy, hold, sell?” I talk about “Should I apply to pre-school and spend $2,000/month? Yes or no. Should I save x amount in my 529 plan so my child can go to college in 18 years, when everything will be free and college will be completely not worth its value?” I talk about these important things for free, and to help people engage and to encourage the audience to share their perspective, so that we can all learn from each other… Because nobody knows everything, and we all only know from our experiences and how we can do things better.

So I think that’s the best gift – to share what you know, consistently, for free, to as many people as possible? Because so many people will just go through and live the same thing that you went through just the past 5, 10, 15, 20, 35 years, and they could avoid all those landmines if the experienced people spend some time sharing what they did wrong and what they did right. That’s my plan.

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

Sam Dogen: Oh, just financialsamurai.com. I’m always reading the comments, you can always leave a comment. It doesn’t matter how old the post is, I’ll see it. You can go on Twitter if you want, but Twitter is something that I try not to spend too much time on. Basically, those two places are probably the best.

Theo Hicks: Perfect. Sam, I really appreciate you coming on the show today and providing your best ever advice. I think the biggest takeaway for me was your advice on owning websites and your analogy of the wheel, and how you don’t want to let other larger online platforms own your stuff. So you don’t wanna just be posting on Facebook or LinkedIn or (as you mentioned) Twitter. Instead, you want to be the hub yourself, so have your own website, focus on what you care about and what you’re best at on that website. And then the spokes are the secondary outlets, things like social media, podcasts, getting on a podcast, speaking at conferences. So those things are not the hub. The hub is you and your own website. So start working on your own brand and building your own brand, and make sure you’re the owner of it.

And then how to actually grow that – you talked about the green marble theory; you’ve got a green marble, and even if it’s really ugly, you put it on eBay and someone’s gonna want that green marble. So if you put yourself out there and you talk about what you care about, and you do it consistently, and you don’t give up before the roses bloom — and by consistently you mean 5-10 years… Not giving up after a year or two years or three years – then eventually you’ll find your own tribe organically.

And then obviously you talked about your real estate portfolio, the types of returns you’re getting on it, how real estate is your favorite asset class to build wealth, followed by stocks, followed by owning real estate… So again, Sam, I really appreciate you coming on the show. I look forward to reading through some of your content. I really liked what you said about the college thing; I hadn’t thought about it like that before… But again, thanks for coming on the show.

Best Ever listeners, as always, thank you for listening. Have a best ever day, and we’ll talk to you tomorrow.

Sam Dogen: Great. Thanks a lot.

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JF2103: Part-time Out Of State Investing With Nick Giulioni

Nick has 3 years of real estate experience, working full time in e-commerce sales for a large tech company. While working full-time he has acquired a 48 door portfolio consisting of singles, duplexes, and triplexes in Indianapolis, and he is based in San Francisco. He explains how his W-2 has helped him pursue real estate investing because of the insurance of a guaranteed income.

Nick Giulioni Real Estate Background:

  • 3 years of real estate experience 
  • Works full-time in eCommerce sales for large tech companies
  • Has a 48 door portfolio consisting of singles, duplexes, and triplexes in Indianapolis
  • From San Francisco, California 
  • Say hi to him at: https://giulionirealestate.com/
  • Best Ever Book: Never Split the Difference by Chris Voss 

 

 

 

Click here for more info on groundbreaker.co

Best Ever Tweet:

“Trying to make my partner happy and get them across the finish line was my top priority.” – Nick Giulioni


TRANSCRIPTION

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

Nick Giulioni: I am doing so well. I appreciate you having me on.

Joe Fairless: Well, it’s my pleasure, and I’m glad you’re doing well. A little bit about Nick – he’s got three years of real estate experience, but get this, he’s got a 48-door portfolio consisting of single-family duplexes and triplexes in Indianapolis. He’s based in San Francisco though, so we’re gonna talk about that. He works full-time in e-commerce sales for a large tech company.

With that being said, Nick, do you wanna give the Best Ever listeners a little bit more about your background and your current focus?

Nick Giulioni: Absolutely. I have been extremely lucky over the last several years. I got into my first investment down in Southern California. Actually, it was a house-hack that my wife and I bought just about two weeks after we got married. If that didn’t prove that we can make it, nothing will. And since then, I’ve really invested myself into learning more and more about out-of-state investing. I’ve built an incredible network out in Indianapolis, and done a variety of different strategies, including portfolio acquisitions and seller financing to balloon my portfolio in that time and really be able to give back a little bit more.

Joe Fairless: Portfolio acquisitions and seller-financing. It sounds like you’ve got a couple tricks up your sleeve for how you’ve gotten to 48 units in three years, versus plodding along doing one deal of a single-family house at a time. So let’s skip to the good stuff – portfolio acquisitions and seller financing. Talk to us about maybe a specific example for each of them.

Nick Giulioni: I’ll tell you a little bit about a combination that I did. It was my most recent large deal I’ve done, and it was actually a 32-unit deal that was on the market for about 2.2 million dollars. I looked at it and really realized there was no way for me to be able to take it down, and went and negotiated with the seller a little bit; I negotiated down to a price that I thought was a little bit more fair, in the 2.15 range. I was able to bring a partner in to come buy six of those doors on their own, through traditional financing, and have the seller actually seller-finance the entire rest of the acquisition just to myself over the course of 20 years.

Joe Fairless: Okay, let’s unpack that… Let me make sure I’m writing that down correctly… A 32-unit, originally listed for 2.2?

Nick Giulioni: 2.2 million, yeah.

Joe Fairless: 2.2. You then said “No, I don’t want 2.2, I want 2.15”, so a decrease of approximately $50,000, because you said it was about that… You said the range…

Nick Giulioni: Yeah.

Joe Fairless: So you now have an interested seller at 2.15… But do you have the money to purchase that?

Nick Giulioni: This is actually an interesting one… I had no money.

Joe Fairless: You had no money. So you did not have any money to purchase anything… [laughs] Let alone a 2.15 million dollar property. So then you brought in a partner, that partner purchased six of those, and then the remaining units were seller-financed over 20 years.

Nick Giulioni: Yeah, that’s correct. So really, what I did is I sat down and I tried to have empathy for everybody involved. I kind of sat down and looked at it from everybody’s shoes… So this seller was in a position where he probably didn’t want to vacate the units, individually sell them, deal with all of the hassle associated with that… So he wanted a single transaction in order to get it all done.

Then I looked at it from my partner’s point of view – they were looking for a great deal. They weren’t looking for as much leverage or as much risk as I necessarily was… He just wanted to buy something below market value and add it to their portfolio… And for me, I wanted as many doors and as much cashflow as I could possibly get. So really, I just kind of had to look at it from all sides, and from the seller’s perspective, my partner coming in with traditional financing – that actually looked like cash to pay off their outstanding notes. So in all of this, I was able to piece something that was pretty darn special together.

Joe Fairless: Got it. So was it two separate transactions, or…?

Nick Giulioni: It was two separate transactions contingent upon one another.

Joe Fairless: Okay. Did the both close on the same day, or the same week?

Nick Giulioni: They did, they closed on the exact same day. It was actually one of the smarter moves I’ve made recently. I actually had it closed on the second of the month, and by doing that, I actually received a check at closing for prorated rents and taxes and all that stuff… So I actually got a check of $30,000 to take down all of these doors. About 1.6 million dollars of property.

Joe Fairless: Right. You say 1.16?

Nick Giulioni: No, 1.6 million.

Joe Fairless: Got it. So it was like 550k for those 6 units?

Nick Giulioni: Yeah, my partner brought in about 550k.

Joe Fairless: And he paid it all cash for those six units?

Nick Giulioni: They did use cash off of a HELOC of an existing property they had.

Joe Fairless: Got it. And when we say “partner”, is this person in the seller finance deal with you as well?

Nick Giulioni: Nope. Completely separate transactions.

Joe Fairless: So when we say “partner”, it’s really he bought his thing, you bought your thing, and then you went about  your separate ways.

Nick Giulioni: That’s correct, yeah.

Joe Fairless: Okay. Wow, props to you on this. The seller financing terms – can you talk to us about that? You mentioned it was over 20 years, but any other details?

Nick Giulioni: Absolutely. It is a 20-year amortization, 20-year term, so I don’t have to worry about it over that period. The rate was actually on the higher side, at 6%, but this was actually about 9-10 months ago. I’ve actually gone to the seller since then and asked if they would be willing to renegotiate those terms, given where current market conditions are. Now, this have gotten a little wonkier here in the last couple days, but generally, rates are in the low-fours to five, and I have actually gone back to them and we are currently negotiating a refinance to change that to over 30 years, and a 5% rate.

Joe Fairless: Okay. And what is their position, where they were amenable to doing this type of structure. You said they wanted the ease of transaction, but can you talk a little bit more about why they would do this?

Nick Giulioni: Yeah – for them, they needed to move out of the Indianapolis area, and they had been self-managing for years, and were really just looking to retire. So from their perspective, this looked like a continued passive income; it meant that they didn’t have to necessarily pay capital gains all at once across their entire portfolio that they had spent decades putting together… And it was an easy transition for them. They knew that at some point there was a decent chance I may end up refinancing and they could get cashed out… Or they may just carry it to term.

Joe Fairless: Okay. And approximately how old are the sellers?

Nick Giulioni: They’re on the older side. This was definitely a retirement play for them.

Joe Fairless: Okay. So 50, 60, 70…?

Nick Giulioni: I would say in the late 60s.

Joe Fairless: Late 60s, okay. And the property – I think I picked up on that based on what you’ve just said, that these units are spread out over Indianapolis… But will you elaborate? I might be misinterpreting it.

Nick Giulioni: No, these were actually all very close to each other; they’re in a neighborhood called Irvington. Definitely one that’s on the upswing quite a bit. It’s been appreciating quite well for me. It’s an area I’ve loved for actually a long time, and this just happened to fall in my lap, so it was pretty convenient, from my perspective… Actually, several of them are on the same block. There’s this one block in Irvington that — basically, I own the entire thing, on both sides.

Joe Fairless: The gentleman who used a HELOC to get the six units for about 550k – how did he choose the six units that he chose?

Nick Giulioni: That was a lot of horse-trading going out throughout the entire situation, and making sure that there was enough equity within the pieces without putting me into a negative equity situation… So it really just came down to “Hey, where do we think these are all worth? Let’s figure out how to build some equity for you on the buy, because I’m getting so much value with the 100% seller financing.”

Joe Fairless: Okay. So during that horse-trading, what are some lessons that you learned or some observations that you had as a result of those conversations? …because a lot of people haven’t been in that type of situation, with this type of structure.

Nick Giulioni: I probably could have been a little bit harder and been a better advocate for myself. I was just feeling so lucky that this whole thing was working out that I wasn’t being too tough, or anything. At the end of the day, I was trying to be fair to everybody involved, and I felt like I was getting one heck of a deal, no matter what happens. So for me, trying to make my partner happy and  get them across the finish line was my top priority… But there were several ways I could have probably improved it for myself, and gotten a property that I would have preferred… But in the grand scheme of things, it’s a small price to pay.

Joe Fairless: Doing some quick math – and correct me if I’m wrong, but $550,000 is $91,000 a door.

Nick Giulioni: Yup.

Joe Fairless: And the difference is 26 units remaining, and that is a 1.6 million dollar all-in price, which is 61.5k/door. So your per-unit cost is significantly less than what his per-unit cost is in a similar area… So what am I missing, where it sounds like you’ve got a really good deal, because you’re paying much less per unit?

Nick Giulioni: That’s a great question. I definitely took on some of the lower-end properties that needed a little more work, and  have thus invested since then to get them up to my expectations. I also took on more of the multifamilies. There were quite a few duplexes and triplexes in this, and the per-unit on those were significantly lower, where my partner was more interested in the single-family space.

Joe Fairless: Okay, got it. Where does the money come from to rehab the ones that need help?

Nick Giulioni: So I was being a little flippant when I said I didn’t have any money to invest. I actually did, and at that point I had 20 doors, give or take… So I was essentially using cashflow to do it. And like you talked about, I am extremely lucky to work in e-commerce sales, and am able to throw that W-2 in there. My wife and I live well below our means, and are trying to accelerate this as quickly as humanly possible.

Joe Fairless: You live in San Francisco. Are you from Indianapolis?

Nick Giulioni: I am not from Indianapolis. I do have family out there… I just listened to way  too many podcasts early  on, and found out that Indianapolis was a pretty strong market, and opted to lean in there.

Joe Fairless: Why did you pick Indianapolis?

Nick Giulioni: A variety of reasons why I like it. Number one, it’s affordable, and when I was starting out, I definitely had less capital to work with… So that was a good starting point. It cash-flows fairly effectively. The 1% rule tends to work on almost every deal there, assuming you’re not in a super A-class neighborhood. And in the grand scheme of things, it’s actually a pretty cool city. I know a lot of people probably that are listening here haven’t actually been there, but it’s a darn cool place to go hang out. And if I get to see family AND I get to make money, it’s a win in my book.

Joe Fairless: How did you find the deal?

Nick Giulioni: This particular deal actually came to me from a seller’s agent who I’d worked with in the past on a different portfolio acquisition, and actually had come to the table with a relatively similar transaction style… So this agent knew “Hey, Nick’s a creative guy. Even if he doesn’t have the money, he’ll figure out a way to get it done and bring some partners into the equation. She actually brought it to me off-market.

Joe Fairless: And how did you initially have that relationship with her again?

Nick Giulioni: We had done a 13-unit deal together about a year earlier, and had come up with a similar type of arrangement… She had found my buyer’s agent at that point, and honestly, it was just luck and happenstance that  that first transaction actually occurred… And then the second one followed just given my reputation at that point.

Joe Fairless: What deal have you lost money on?

Nick Giulioni: Oh, yeah… My second deal in Indianapolis – gosh, that one still hurts! I had done one awesome triplex deal with this new hungry agent, and had done very well with it, trusted him, and he said “Hey, this duplex is a slam dunk. Go for it.” He gave me some estimates… It turns out that he didn’t really inform me that he was representing both sides of that deal. And I remember getting into the house after investing about 50% more than his rehab budget, and just looking around and sitting there in tears.

Joe Fairless: You literally cried?

Nick Giulioni: Yeah, I was literally crying in the place and realizing I could never let somebody live here… So that’s when I called my new buyer’s agent, who I’d had brief interactions with, and I said “Hey, we’re listing this one.” I think I lost about $5,000. And I’ve gotta tell you, best education I possibly could have had was that $5,000, because I learned a variety of things… How to build a  more effective network, how to make sure that you have different parties that are watching your backs that are not related… It was a very cheap education as compared to a lot of it out there.

Joe Fairless: And when to cut your losses.

Nick Giulioni: Absolutely, yeah. We closed on that house the day before Christmas Eve. It was the best Christmas present I possibly could have asked for that year… And definitely, I sent the guy — because the guy was moving in actually on that day… I made sure that he had a Christmas tree delivered on his front porch when he got there.

Joe Fairless: Oh, that’s pretty cool. Okay, so the real estate agent was representing both sides, didn’t disclose it, or wasn’t announcing it very transparently if it was disclosed somewhere… But from a numbers standpoint, regardless of if he was repping both sides, it still boils down to the numbers, and if the deal makes sense… So what about your process have you changed in order to validate the numbers?

Nick Giulioni: I’m no longer trusting agents to give me any estimates of rehab. That certainly has changed. Or at least if I do trust their initial estimates, I’m always making sure that prior to closing and prior to my inspection window closing I always have one of my contractors go through and check it out, and actually give me at least a little bit more detailed scope of work. So that’s definitely an important lesson in that one.

On top of that, I will oftentimes now have my property manager check out the house, check out the area prior to that inspection window closing, making sure that they’re comfortable actually representing in that particular area, and just kind of validating, making sure that there’s a certain amount of accountability. The agent obviously wants to make the sale. That’s how they make their commission. But then you have to make sure everybody else along the chain is holding that individual accountable for what they say.

Joe Fairless: I’d love to learn about your process when you come across a deal, and how you verify the deal is a good one, knowing that you don’t live in that city… So let’s just pretend — or maybe even use an example, the last deal you closed on; you heard about it, then what took place to say “Yup, I’m definitely making XYZ offer.”

Nick Giulioni: My most recent is a condo. I purchased it from a buddy of mine who’s actually a wholesaler. I think he’s an incredible, incredible guy; we’ve been friends now for about a year… But I’ve gotta tell you, I wasn’t gonna trust his numbers without having him validated…

So he’s a wholesaler… I had him actually walk out there with my inspector (that I paid for), and go through this house and put together “Hey, these are the challenges with the house.” I had then my contractor, who wasn’t able to get in there prior to closing – I had him actually look at the inspection report and put together a scope of work based on that. And to be honest, the repairs that I would wanna do were slightly above where my buddy’s estimates were… And that’s okay, because the two of us chatted it through and made sure the numbers made sense… Because this is one that I’m hoping to BRRRR, and then do  short-term rentals on. It’s an incredible condo. But I just had to make sure that he understood that the $5,000 estimate wasn’t where it was probably gonna come in. It was probably gonna come in closer to 10k-11k, in that range, and just make sure the numbers made sense on those new criteria.

Joe Fairless: What’s been a surprise that you’ve come across, that we haven’t talked about, while purchasing these properties?

Nick Giulioni: Yeah, there’s a lot of challenges that I’ve faced that have been surprising. I’ll tell you the most recent of which – and I apologize I’ve gotta be a little more vague than I’d like to… I recently had a property manager go out of business pretty immediately. And unfortunately, there was no warning and there were no funds to get my security deposits back, get my rents, anything like that. Currently, we’re exploring options with insurance, and stuff like that, to get it fixed, but… This happened actually right before this last Christmas, and having to scramble there on the 18th of December to find new property management for not just my properties, which obviously was tough, but trying to protect all the other investors out there who were affected. That was definitely a challenge I hadn’t accounted for. And you don’t build that into your proforma; that’s not something that exists in any of those Bigger Pockets calculators.

Joe Fairless: [laughs] How were you notified that they’re closing the doors?

Nick Giulioni: I was informed by one of the employees, and validated it with a different employee. The funds were no longer there, and the company was shutting down.

Joe Fairless: Oh, wow… And besides insurance options, are there also legal options that are being considered?

Nick Giulioni: They’re definitely being considered. I think at the end of the day nobody wants to end up in court… So I think finding the insurance option is probably everyone’s best bet.

Joe Fairless: What type of insurance would cover a property manager disappearing in the middle of the night?

Nick Giulioni: It would potentially be called errors and omissions insurance. All agents should have that insurance. I’m learning a whole lot more about this currently…

Joe Fairless: [laughs] More than you wanted to…

Nick Giulioni: Way more than I wanted to… So maybe that’s a follow-up call. Once I’ve seen this whole thing through, you and I can talk a little bit more about what it looks like on the other side.

Joe Fairless: What’s the most profitable deal that you’ve got so far?

Nick Giulioni: I’ve gotta tell you, that one I was telling you earlier, about the big seller finance deal, where I was able to get 26 units – that thing’s been absolutely incredible. From a high-level, I actually don’t really cash-flow on it all that effectively, given how highly leveraged I am, and being at 6% interest rate… It cash-flows a couple hundred dollars, but if we really look at the total internal rate of return on that one – I have no money in the deal; I actually got paid, so I have negative money in the deal…

Joe Fairless: What about the renovation though? I thought you were renovating the units…

Nick Giulioni: Yeah, you’re right; I’ve probably invested about 50k.

Joe Fairless: Well, that’s a lot of money…

Nick Giulioni: That’s a lot of money, but I got a check for 30k at closing, so let’s consider that 20k invested, which again, is real money… But then my monthly paydown, just all my loan by itself, is in the range of $5,000 at this point… And I’m still getting a couple hundred dollars of cashflow. On top of that, the houses have actually appreciated, and I believe will continue to appreciate even in these kinds of crazy times. So I would say that for $20,000 locked in a  deal, I’m certainly making out like a bandit in that one. Heck, I think I’ve paid for it just in the loan paydown in the last couple months.

Joe Fairless: Props to you for putting that deal together, and having the creativity and the resourcefulness to get it done by bringing in the partner to buy cash, and then doing seller financing.

Based on your experience, for someone who is wanting to educate themselves about portfolio acquisitions and seller financing, what’s your best advice ever to that person?

Nick Giulioni: I think I said it earlier, but you’ve gotta have empathy, and really sit down and try and understanding it from everyone’s point of view. One of the books that really resonates with me – I actually read it after this particular deal, but I’ve found it very helpful in understanding the mechanisms by which I was working – was actually “Never Split the Difference”, by Chris Voss. It’s one of the best books I’ve read. I probably re-read it every quarter or so, just to remind myself… There are so many tactics that are just absolutely incredible. And it’s not necessarily just about portfolio acquisitions, it’s about negotiating in general and having empathy for those you’re working with.

Joe Fairless: We’re gonna do a lightning round. Are you ready for the Best Ever Lightning Round?

Nick Giulioni: I’m so ready!

Joe Fairless: Alright, then let’s do it. First, a quick word from our Best Ever partners.

Break: [00:22:49].13] to [00:23:24].08]

Joe Fairless: What’s the best ever book you’ve recently read, besides “Never Split the Difference” by Chris Voss?

Nick Giulioni: Man, a tough one… I definitely love to read; I try and read at least a book every single week, and write up a book report… So I’ve gotta say the most recent one that I’ve really enjoyed was “The Infinite Game” by Simon Sinek.

Joe Fairless: Well, you can’t just slip in there you write a book report about books that you read and then me not ask a follow-up question… [laughter] What is the outline for the book report that you write?

Nick Giulioni: I actually just kind of free-form it as I go, and try and find what the most important points are, and just [unintelligible [00:23:52].05] for myself. I read so much, and I’m trying to learn so much that it’s easy to forget things. So if I’m able to just kind of go back and quickly reference the key points… I actually send this out to a couple of friends that hold me accountable, but… The general approach is to just get a couple of key points so that I can remember what was actually important in everything I read.

Joe Fairless: Do they send you their notes on books they read?

Nick Giulioni: Not as many as I should be getting. I should be giving them a much harder time.

Joe Fairless: [laughs] But it’s understood that this group of friends or this group of people exchange reports on books that are read…

Nick Giulioni: No, I’m just the weird one that actually sends out an email blast.

Joe Fairless: You’re the one, okay. Got it. Alright. [laughs]

Nick Giulioni: I’m just the weirdo over-achiever.

Joe Fairless: What’s a mistake you’ve made on a transaction that we have not talked about already?

Nick Giulioni: In my infinite wisdom once, in a portfolio acquisition that I did – it was four units. I was trying to think ahead and realized that if I got them all on individual notes from the same seller, then it would be easier to refinance, versus having to refinance all of them simultaneously. What I didn’t realize is that by doing that, I was actually taking up one of those 10 golden slots that you talk about when doing conventional financing… So in my infinite wisdom of trying to make it easier to refinance, I basically screwed myself up for conventional loans moving forward.

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

Nick Giulioni: I love reaching out to people and helping people get started in real estate. My wife has started helping me with a blog, but I hop on calls with people, 5-10 different investors every single week, trying to help them get started… So that would be my way of giving back.

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

Nick Giulioni: You can reach out to me on Bigger Pockets, you can find my website at giulioni.com; I hope it’s in the show notes, because it’s got a lot of vowels… And I would love to help anybody who would like to reach out.

Joe Fairless: Is giulionirealestate.com also your website?

Nick Giulioni: That’s correct, yeah. They both go to the same place.

Joe Fairless: Good stuff. Nick, thanks for being on the show, talking about your portfolio acquisitions and seller-financing deals, how you structured it… One key thing that you do for any deal, and that’s have empathy for all; one resource for practicing that – Never Split the Difference, by Chris Voss… And getting into the numbers of the deals, which we all love.

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

Nick Giulioni: Thanks so much.

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JF2102: From Military to Millionaire With David Pere

David Pere is a full-time active duty Marine and the founder of “From Military to Millionaire”. He has bought and sold 54 units, holds 13 rentals, and is a general partner in a 146-unit apartment. He discusses one of his deals that he had a headache within creative financing and shares what he would have done differently. David also goes into his process of mailing to absentee owners.

 

David Pere Real Estate Background:

  • Active duty Marine
  • Started investing in real estate in 2015
  • Founder of “From Military to Millionaire”
  • Has bought and sold 54 units (one of them being a 40 unit), holds 13 rentals, and is a general partner in a 146-unit apartment
  • Based in San Diego, California
  • Say hi to him at: www.frommilitarytomillionaire.com 
  • Best Ever Book: Like Switch 

 

 

 

Click here for more info on groundbreaker.co

Best Ever Tweet:

“Stuff isn’t always going to go your way, don’t invest money you can’t afford to lose.” – David Pere


TRANSCRIPTION

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

David Pere: I’m doing well, brother. I appreciate you having me on. I love your show.

Joe Fairless: Well, I thank you for that, and I’m glad to hear it. First off, you’re active duty marine, so thank you, sir, for everything you do, and you and your colleagues letting us have this time to be free and have these conversations… So first and foremost, I have a lot of respect for you and all of your colleagues.

Dave started investing in 2015. He’s the founder of From Military to Millionaire. He has bought and sold 54 units, 40 of those 54 being a 40-unit property. He holds 14 rentals and is a general partner in a 146-unit apartment community. Based in San Diego, California. With that being said, do you wanna give the Best Ever listeners a little bit more about your background and your current focus?

David Pere: Absolutely, brother. As you mentioned, I mentioned the Marine Corps in 2008. Sometimes, I would say a lot of the world, like it’s a great thing, sometimes I’d say too much of the world… But I had a lot of experience just with people in different cultures. In 2015 I was a recruiter in the Midwest. Someone handed me the book Rich Dad, Poor Dad, I told them I don’t read, kind of joking… Like, “I am a marine… What do you think? I’m hard-headed.” And the guy literally pulled a CD disk out of his pocket and was like “Well, you spend a lot of time driving in your car, so here you go.” And I was like “Ahh, he got me. I’ve gotta listen to this.”

Within three months I had closed on a duplex, house-hack – living in one side, renting the other, doing that good thing… And then about six months later I got orders to Hawaii. I was like “Man, it’s a lot more expensive over here.” I got a bunch of offers declined, I couldn’t find anything that worked to buy… So I just kept buying in Missouri. I started a long-distance thing. I had the duplex, then I bought a single-family that we did the BRRRR strategy before I knew what that was. We renovated it, then we rented it out, and then a few years later — we didn’t refinance, we pulled a HELOC on it, and we used that HELOC to buy a ten-unit.

I then bought a 40-unit, did some  stuff on it, I got rid of the 40-unit, turned around, flipped a house… So during this, I’m partnered on a couple of flips in San Diego, small partnerships here and there made some money, and then flipped a home in Missouri… And then I’m currently under contract on a duplex; so that’ll be 14 and 15 that I just plan to hold indefinitely in that little market.

Then a general partner came in the last few months. So the big trend for me is just trying to balance being a full-time marine, traveling all over the place, with investing in various markets, with a lot of just sight unseen stuff, building teams, and networking, and relationships. So that’s a little bit about me… I’m just continuing to grow all of that.

Joe Fairless: Let’s talk about that 40-unit, since you’ve taken that full-cycle… Tell us about how you’ve found it, what the business plan was, what you bought it for, what did you put into it, what did you sell it for… All that good stuff.

David Pere: We bought this thing for about 150k down. We bought it at a 2.795, with some great financing options. So that one’s just kind of a strange ordeal. Realistically, that one wasn’t a huge profit. That one ended up being something that we got out from under, because it was a deal that didn’t quite work out to what it was supposed to be… So that’s probably the one deal in all of this that — I haven’t actually lost anything on it yet, but I got out from under, because it just did not work out.

So the guy didn’t uphold his end of the contract, things went super-sideways… And in essence, a year and a half later in a fun legal battle I was trying to pull all of our original capital back out of it.

So I may say full-cycle on that one, but that was the one big mistake — it’s funny, because one of your Lightning Round questions is “A big mistake you’ve made on a transaction”, and that was gonna be my answer to that…

Joe Fairless: [laughs] I sniffed it out right out of the gate.

David Pere: Yeah, so that’s good.

Joe Fairless: That was just dumb luck on my part.

David Pere: No, it’s totally good. I thought about bringing all that up before we got on the call, but… In essence, the gentleman that I was under contract with – there were things that were very clear in the contract, like “This needs to be done by this date” or “Seller owes buyer this”, and it just didn’t happen.

Joe Fairless: Like what? What’s an example?

David Pere: The roof needed to be replaced by the 90 days after closing, or seller owed buyer $100,000.

Joe Fairless: Okay.

David Pere: 120 days into the deal, it’s December and I’ve got commercial tenants — it was a mixed-used; it was 25 residential, 15 commercial on a four-story building in the South-West… And in essence, the two commercial tenants on the fourth floor broke their lease, because come December they have a leaky roof and no HVAC, and the two things in the contract were “Replace the roof and put HVAC on the fourth floor.” And it’s December in the Midwest, so it’s snowing outside, and I have a wedding venue and it’s 45 degrees inside this building; we’re done. Some crazy stuff.

There were four units that were in the contract; they were supposed to be finished with renovations by 45 days after closing, and when we brought the city inspector in, he’s like “We’ve put a cease-work order on this four months ago” and they finished it without a permit. So all of those walls needs to be removed, that plumbing needs to be removed,  and the guy was basically like “Well, the contractor said I had to finish them.” “Um, they’re not finished.” “No, they’re done.” “No, no. They have to be finished up to code…” So it’s things like that.

What we did was we just basically offloaded it and we said “Hey, we want our down payment back, plus–” Because it had been cash-flowing up until we lost the commercial tenants. At that point, the guy had had 30 days to pay us for the work he hadn’t completed, and we were just getting the same “Oh yeah, I’ll get to it.” “No, that’s not quite how this works.” So we broke the contract, asked for the down  payment back, got told it was non-refundable, and we have a court date set for July, finally, to finish all that out…

But I guess the biggest thing I would say for that, if we’re talking as far as lessons for your listeners, because I have no problem being the guy to talk mistakes, is document everything… Even if it’s a phone call, follow-up with an email “Hey, this is what we agreed to you while negotiating on the phone call. Please reply to confirm.” Because there’s one or two emails that I should have sent, that I didn’t…So we have “He said/She said” addendums to the contract, that were made afterwards, that there’s just no record of… Which isn’t gonna screw me, but it’s gonna make things very difficult.

Joe Fairless: Yeah.

David Pere: So I would just say document everything like that, and… Hey, stuff’s not always gonna go your way. Don’t invest money you can’t afford to lose… Because this didn’t stop me. I’ve bought three more rental units since then, flipped a house, and partnered up on a GP for a big apartment complex… Because it was money I could afford to lose.

So don’t go in over your head, and just have a plan. Stuff’s gonna go wrong, don’ let it stop you from investing.

Joe Fairless: This is interesting, because it’s creative financing, and that is talked about in a positive light the majority of the time when you’re talking about real estate transactions. In this scenario, because it was creative financing, it did not work out, because there was another party involved due to the creative financing… Whereas if it had been traditional financing, then you wouldn’t have that person involved. But on the flipside, you would have had to get the work done yourself, and get it budgeted and get it financed, or some sort of financing or cash out of pocket and do the work.

So my question is if presented another deal, that’s a very close cousin to this, other than it’s just a different seller, how would you structure it to make the deal work? If it would be creative financing, then what are some things that you’d make sure you had in place?

David Pere: That’s a great question, I love that. I’ve done a lot of thinking about this, because the reality is looking back, you can kick yourself about all the things that went wrong, but if I knew everything I knew going forward, I would probably still close on that property. I don’t know any other way that I would have gotten 4%. This is in 2018, where interest rates were not as low as they are now, but 4% interest for the duration of the loan, and interest-only for the first year – those are some pretty competitive terms for commercial financing in 2018.

Joe Fairless: How long was the loan?

David Pere: I had eight years to the balloon payment, but it was amortized for 25…

Joe Fairless: Got it.

David Pere: But those are some fairly competitive terms for commercial property, and the deal – at the time I bought it, it was only 80% occupied, and it had a lot of room to grow… And it was below market. There was a huge value-add.  It was a really cool property, it had a lot of history in the town, a lot of people knew the building… I don’t know that I would change the fact that I bought it, and honestly, given the same options going forward, I would probably still do it. For sure, the first thing I would do is all of the “Do this by this date, or owe this much money”, I would escrow all of that cash upfront. I would say “That’s great, but I want all of this into the escrow fund, so that if you don’t do what you’re supposed to do, I still get my cash.” And you can do the work out of the escrow fund, that’s totally fine, but it’s getting escrowed, so we don’t have a “Oh yeah, I’ll get to it” payment. That would be the first thing I would do.

The second thing I would do – and this is a little bit on the smaller scale – is I would bring my personal management team in immediately. And this might just be a personal thing because of the experience, but the manager seemed incredible when we took over the place. I just didn’t realize that the manager was getting an under-the-table commission portion of the sale. So while the manager wasn’t terrible, they weren’t nearly as good as they made themselves out to be… So going forward, I’d probably just say “Hey look, I trust you. You look awesome,  you seem great, that’s wonderful, but my team is gonna take over this going forward, because I know them, I trust them, and no matter how good you seem, I’m taking a risk on what you might be like after the fact, while they’ve already been tried and tested.

So those would probably be the two biggest things I would change. And as far as the creative financing, I’ve bought other properties and they’ve all gone really well. I think it’s less of the financing model and more of just the people involved, that can sometimes be the make or break… Which is unfortunate, but I guess maybe I would just do a better job of background checks… But even then, the few references I had and the little bit of a track record I had in town, the gentlemen checked out, so… I don’t know if maybe I just got unlucky, but it is what it is.

Joe Fairless: On the flip side, what deal have you made the most money on?

David Pere: The most money I’ve made probably so far is my 10-unit, which I still own. The 146 will ultimately end up being the most money, but it’s just a little bit newer in the cycle… So the 10-unit – this is Missouri prices, so it’s fairly affordable, but it was valued at 240, I bought it at 212, and it was under market rent, and I got the bank to bring in 86% financing, seller to carry ten, and I came out somewhere in the 4% to 5% range for down payment. So I was able to get in super-creative, super-low… This was my third purchase, so I still was fairly strapped for capital. I was still in the “Please help me so I can save for money.” So I bought it and it cash-flowed about  $1,200/month on average from day one. So about 100% cash-on-cash return. And we’re up to about $1,600/month that it cash-flows.

At the 18-month mark I refinanced, paid off the seller financing… And I didn’t pull cash out really for myself, I pulled just enough out to cover my down payment… So at this point, 2,5 years later I’ve got nothing in it, I have no seller financing, I’m at about 69% loan-to-value, and I’ve got $92,000 in equity, and it cash-flows about $1,500 to $1,600/month.

Joe Fairless: Wow… That’s a grand slam.

David Pere: Yeah, it was awesome.

Joe Fairless: How did you find it?

David Pere: Ironically, I was mailing out to absentee homeowners about duplexes. And basically, I got this phone call, and he was like “I got your letter.” I’m like “Oh, awesome.” He’s like “I don’t wanna sell my duplex.” And my first thought was like “Why are you calling me? Thanks… You just didn’t have to–” Anyway.

Joe Fairless: [laughs]

David Pere: He’s like “But… I have this other property.”

Joe Fairless: He could have been lonely.

David Pere: Yeah, it may be. If it was during quarantine, I’d be much less skeptical.

Joe Fairless: [laughs]

David Pere: But he says “But I’ve got other properties.” And I’m like “Okay, great. What do you have?” And he shot me a couple different things, and they just didn’t really work. I was like “Okay, that’s cool… If you ever come across any other multifamily, or–” At this time I was still looking for duplex, single-family properties…

Joe Fairless: Yeah.

David Pere: He’s like “What about 10-units?” “Well, I’m interested. Talk to me.” And he gave me a price of 235k, and we went back and forth on it… And then we went under contract at 225k, which still would have been a great deal for me… But throughout inspections and stuff we were able to negotiate a little bit more of that down. So it all worked out. He was great for seller-financing, and the cool thing is – I don’t know that he understood paper, or that he really just didn’t need the cash, but when I refinanced, he let me go no prepayment penalty, no nothing. So ultimately, over that year-and-a-half I think I paid like .75% interest on my seller financing to him, because I had only paid down 1.5% of the seller financing by the time we refinanced, and he didn’t ask for interest on any of the remainder. So it was basically free money for me to buy a property, so it was pretty cool.

Joe Fairless: Yeah. You were mailing out to absentee owners about duplexes… Will you describe the process that you used?

David Pere: Yeah, I’m a pretty simple guy… So I just go into ListSource and I just really dive down into a specific zip code, or you can even draw out on a map a square block or whatever that you want… And you can just narrow down in there to absentee homeowners. As you know, people who don’t live in the home, but they own it… And you can pick out equity percentages, you can pick out age of the property… And basically we were just mailing out to people who had owned the property since right around the crash or longer; so the people who had owned it for at least ten years, who theoretically would have at least 40% equity hopefully, and be able to negotiate a little bit… Because I knew that I was gonna try to at least get some angle on the seller financing, whether that was 100% seller finance, or part of the down payment… Because I was in the bootstrapping phase of the business.

So I had narrowed it down to length of ownership, equity percentage being over 40%, absentee homeowner, and really at the time I just put 2-4 units because I didn’t know anything about the commercial stuff and it was kind of intimidating to me… So the 10-unit was a stretch for me going as a first property, but the numbers made sense, so I just let myself jump off the cliff. I guess that would be the short answer to that.

Joe Fairless: What did the note say? And was it a postcard, was it an envelope with a letter inside of it?

David Pere: At this time I was not doing mass, so I literally had a yellow piece of paper, and I remember I had  a 24-hour duty shift which we do in the military here and there, and I sat at this desk during that 24-hours and handwrote 110 letters of “Hi, my name is David Pere. I’m a real estate investor in your market, and I’m interested in your home at Such-and-Such address. I can close fast, please contact me for more information.” And I got a great return. I probably got 19% or 20% callbacks on all those handwritten letters. They were in blue inks… I would throw one or two pennies in the envelope, I would throw a picture of my family in the envelope, and I would hand-sign every letter… So I’m sure every single one of those got opened. But I’ve learned very quickly that that is miserable; so I never did that again.

At this point, if I’m driving around and I might see a property that looks like it has a ton of potential, or if I’m targeting a specific home or two, I’ll handwrite everything. Otherwise, what I did was I basically found a font that looked somewhat like my handwriting, and I’ll print that out on paper and then I’ll sign it in blue ink… And I still to this day will hand-address the envelopes, because I think that definitely speaks volumes for how much your envelope gets opened. And I still stuff in  an envelope and go; I’m not sending thousands and thousands of mailers out, but that’s kind of my go-to. My open rate has definitely dropped. It’s probably 5%, maybe on a good day 10%…

Joe Fairless: You mean your response rate?

David Pere: My response rate, yes. Sorry.

Joe Fairless: Okay.

David Pere: But I would rather send 500 and get 10% responded or 5% responded than handwrite 100 of them (that takes me two days) and get still less responses in the grand scheme of things, even if it’s a higher percentage.

Joe Fairless: The picture of your family – are you wearing a military outfit?

David Pere: It depends on where I’m mailing to. When I lived in Hawaii, for instance, that didn’t really hold any weight, because everybody around the base was military. So I would just go with a normal picture, like a fun in the sand, beach, Christmas photo that I have of us, all in pajamas, on the beach, and Christmas stuff…

Joe Fairless: Okay.

David Pere: If I’m mailing somewhere like the Midwest though, where they’re very military-friendly, then yes, it’s generally gonna be something with — either in a Marine Corps shirt, or hoodie… I generally don’t enjoy the uniform; there’s just something about that that seems kind of cringy to me as a service member… But I will at least have a picture where I’m in a big, very obvious Marine Corps hoodie, with the family. So it’s more focused on the family than the military service, but maybe some subtle hints in there.

Joe Fairless: What about the pennies? Is there a reference there in the note to why pennies are included?

David Pere: No, I totally should do that though. That’s a great idea. I should put a line in there that just says —

Joe Fairless: No, don’t do it — what you’ve got is right; don’t let me mess it up. I’m just asking questions.

David Pere: [laughs] So the pennies, for those of you who aren’t listening – it’s really just because if you’ve got an envelope in the mail and something was rattling around in it, would you open it?

Joe Fairless: Or I’d call the FBI… [laughs]

David Pere: Yeah, one or the other. But hey, the FBI will open it and tell you what it says, so either way you’re gonna read what I wrote.

Joe Fairless: [laughs] Okay, that’s cool. I’m glad that you talked about this in detail. It’s a way that can help others get their letters opened and noticed. Did you ever consider having an assistant who’s time is $10/hour or much less to write those?

David Pere: I actually have several virtual assistants for various things. I have yet to make my administrative one write my letters for me… But I will tell you  a funny story from a good friend of mine, who basically ran a letter sweatshop out of his office. If you ever get him on the show, I apologize [unintelligible [00:21:33].21] Basically, he had 2-3 marines come over, and he would provide alcohol and pizza, and they would spend eight hours handwriting letters in his house. It was only scalable for a month or two before he couldn’t convince anyone else to come do it anymore… But that’s probably my favorite.

This guy probably put out 2,000 letters one weekend, and he had six guys over, and basically was just like “I’m providing alcohol, I’m providing food… This is gonna be fun.” But no one ever returned, so he said it wasn’t worth the relationships he might be ruining.

Joe Fairless: [laughs] Well, he’s given them food and alcohol…

David Pere: I would do it, but I might be crazy. Taking a step back, based on your experience, what’s your best real estate investing advice ever?

Joe Fairless: Man, just get out there and do it. I tell people from the military — I have a safety net, so I’m allowed to take really big risks, in my opinion, because if all else fails, I’ve got housing and food and clothing etc. taken care of, and a fairly stable job. Basically, when I tell people my favorite advice, this is always like “Learn, network and take action”, but my best advice is get out there and take risks, but just make sure that whatever risk you take  won’t break you. It doesn’t matter how many times you fail as long as you’re able to recover from that risk. And as long as you’re  not gonna get broken by whatever risks you’re taking, the pay-off will always end up being bigger in the long run.

Joe Fairless: We’re gonna do a lightning round. Are you ready for the Best Ever Lightning Round?

David Pere: I am ready for the Lightning Round.

Joe Fairless: Alright, let’s do it. First, a quick word from our Best Ever partners.

Break: [00:22:58].23] to [00:23:34].17]

Joe Fairless: Alright, what’s the best ever book you’ve recently read?

David Pere: The best ever book I’ve recently read – I would have to go with either Like Switch, which is a book dedicated completely to how to build relationships through body language… It’s another FBI agent writing a book about body language, but it’s a super fun read, and really intuitive, and just little things you can do to make yourself a little bit more likable.

And I’m just gonna plug Big Debt Crisis by Ray Dalio, because I’m reading it right now, and it’s fairly applicable to where we’re at in the economic cycle. It’s a heavy read, but it’s good.

Joe Fairless: Yeah, I will buy Like Switch. I have not heard of that, and I am looking forward to reading that. What is the best ever deal that you’ve done? It doesn’t have to be monetarily, because we’ve already talked about that, the 10-unit… But just best ever deal. If it’s the 10-unit, then that’s fine, we can move on.

David Pere: That’s a good one, but I think the best ever deal I’ve done – this is gonna be super-cliché, because we already  mentioned the actual deal-deal… It’s gonna be the word “networking”. I have gained more out of whether virtual or in-person relationship building, so I would venture to say that the relationships I’ve built are probably the best deals I’ve ever made.

Joe Fairless: Best ever way you like to give back to the community?

David Pere: Free content and helping others. I’m out here just trying to help others avoid some of the mistakes I’ve made along the way. So if I can help someone avoid a  mistake or answer a question for them, that’s the easiest way for me to add value.

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

David Pere: My social media handle is @frommilitarytomillionaire, but if you google “military millionaire”, I’ll pop up all over the place… And the hope is just to help other service members, vets and normal people learn how to build wealth through real estate and entrepreneurship.

Joe Fairless: Well, Dave, thank you for being on the show, talking about your 40-unit and the creative financing and a couple things that you do differently if presented a similar opportunity like the escrow fund, as well as bringing your own management team to the property immediately, regardless of how well the pre-existing team checks out.

And talking about 10-unit too, the grand slam 10-unit – that’s phenomenal. Congratulations on that. And then also talking about direct mail, too. Lots of really interesting and actionable items from this conversation for everyone, myself included. Thanks for being on the show. I hope you have a best ever day, talk to you again soon.

David Pere: Thanks, brother. I appreciate it.

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.

JF2100: Start Now With Heath Jones

Heath is a Neuroscientist for the US Army, helping the soldiers reduce hearing loss through studying and testing. Heath jumped in with both feet when he started into real estate, buying a 4-unit and a 16-unit back to back. Heath mentions that his confidence to jump in came from many free resources available online, including the Best Ever Show.

Heath Jones Real Estate Background:

  • Neuroscientist for the US Army
  • He started investing in February 2019 purchasing a four-plex
  • Now he has 5 properties: 4-unit, 16-unit, and 3 rentals SFRs
  • Located in Enterprise, Alabama
  • Say hi to him at:  www.hsquaredcapital.com 

 

 

Click here for more info on groundbreaker.co

Best Ever Tweet:

“Start now, it’s never too late to start, and there are no real good reasons not to start.” – Heath Jones


TRANSCRIPTION

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

Heath Jones: I am doing fabulous, thanks for asking me.

Joe Fairless: Well, my pleasure, and I’m so glad that you’re doing fabulous. A little bit about Heath – he’s a neuroscientist for the U.S. Army. He started investing in February 2019, when he bought a fourplex. Now he had five properties – a 4-unit, a 16-unit and three rental single-family homes. He’s located in Enterprise, Alabama. With that being said, Heath, do you wanna give the Best Ever listeners a little bit more about your background and your current focus?

Heath Jones: Yeah, so my day job is helping to protect hearing of soldiers by doing research and experiments to test apart things that may be contributing to hearing loss, and finding ways to reduce that. I started investing in real estate because at one point I was a contractor for the DoD, and then I transitioned to a more permanent role with the federal government; that came with a decrease in annual salary, but loads of benefits…

But that crunch month-to-month was definitely gonna be a big chunk, so my wife and I had started talking about ways of increasing our monthly income, and started doing research and came across real estate as a potential option. That really spoke to me, because I don’t understand stocks and bonds; it’s all Matrix code to me, on a ticker tape… But I do understand going to a property, seeing a building, and then cashing a rent check each month. So that really spoke to me.

We started looking at getting rental property. This was Thanksgiving of 2018; we were talking to some friends who had done this, one single-family a year for ten years, and they had a 10-home portfolio. We were like “Oh, that seems like a good idea. Why don’t we do that?” So we started to look at properties. That was Thanksgiving 2018. I’m from Texas originally; we go home for Christmas, we’re driving back to Alabama, and we’re like “Alright, one property a year, five years – we’re gonna do it.” When we got back, we started looking at single-family homes, and trying to run the numbers and find a way to make the deals work, but all of our analysis – the best we could squeeze out of a place was maybe 200 dollars extra a month. I was like “Man, that’s a lot of upfront capital to put into  a place to just make 200 extra dollars a month. Why don’t we try to look at multifamily?”

So we started looking at four-units, how much they were going for; there weren’t any on the market at that time… And as soon as the first one came up – it was a triplex. We ran the numbers, it worked, we put in an offer, but we didn’t get that one… Luckily. It was actually overpriced, as we learned later.

Then we did the four-unit. It came on the market at 3 PM, we had an offer to selling agent by [5:30] that day, and had it under contract by the next morning. After that, I was looking for other properties that were multifamily. I found a 16-unit and I showed it to my wife; she’s like “Oh, that’s a good five-year goal…”

Joe Fairless: How soon after that?

Heath Jones: Oh, I actually had the 16-unit under contract before we closed the four-unit.

Joe Fairless: Wow! Okay, please continue.

Heath Jones: So I kept telling her we could do it, and at that time I was listening to your podcast, I was listening to Michael Blank, I was watching Matt Faircloth’s videos on YouTube, the DeRosa Group. So from what I was researching, from the things I was reading, the content I was consuming, it seemed very possible to me for us to acquire that 16-unit. I just had to get my wife on board. So the strategy I used was I started watching the videos while we were laying in bed together just loud enough for her to hear… [laughter] So I’d be listening to something and she’s like “Hey, they just said X, Y and Z. What do they mean by that?” So I’d pause the video and I’d start talking to her about it… And she was like “Well, if you actually make the 16-unit happen, I’ll be all-in with you.”

So I worked hard; I had to raise about 120k, because all of our money was tied up in the four-unit… So I did research about setting up a PPM, and getting investors, and it seemed like it was gonna cost $15,000 to have lawyers draft up a private placement memorandum… So what I ended up doing was going to friends and family members and saying “Hey, I’m starting a real estate business…” And this was primed, so over the course of several weeks I would mention that I was doing real estate. “Oh, we’ve got this 4-unit under contract. We’re looking at multifamily.” So I had prepped my family to know that I was doing this, and then at one point I was like “Hey, I was wondering if I could set up a personal loan in which I would guarantee you–” For all my loans it was 5%. I was like “It’s not as good as you can find in other places, but we’ll keep the money in the family instead of going to some hard money lender…” Because I told them “I’m gonna make this happen, with your help or not. I just wanna get this first big property acquired.”

So I set up personal notes with all of them. So I have little loans for the down payment, which we’ve been paying off over this first year of owning it.

Joe Fairless: So how much in total were the loans?

Heath Jones: 120k.

Joe Fairless: Okay, so that was the equity.

Heath Jones: That’s correct.

Joe Fairless: So you’ve still got another loan on the actual 16-unit.

Heath Jones: Right. I have it on a seller-financed note. I negotiated with the seller to do seller-financing for 5.5%, with a five-year term, with a balloon payment at the end of five years. But we also wrote into the contract that I could get an extension if I needed to for a rate of no less than 6%. So by the time the fifth year comes up, I’ll have to either refinance, or exercise that extension… But the property needed some work; I’ve done a lot of work to it to begin with, and hopefully getting the rents up. I got a lot of bad apples out that weren’t paying rents.

That was one of the first lessons I learned – the difference between economic occupancy and actual occupancy. So they were full, but there were three people that hadn’t paid rent in 2-3 months, and I kind of inherited those headaches… But I got it all turned around, and rockin’ solid now.

Joe Fairless: Well, let’s talk about that… You said the seller financing note after five years is “no less than 6%.” Is there a cap?

Heath Jones: The language actually states that it will be whatever the market rates are. I wish it would have just stayed like that, because then I would just refinance with all the rates now… But I think at the same time they didn’t want it to be lower than the 5.5% or 6%.

The way it’s structured is that if the rates jump up to 6.2%, 6.3% or something like that – I think that’s what it would cap at, whatever the market average is… But if the market average is lower than 6%, then because I’m asking for a five-year extension, then that’s kind of what I’ll have to pay to keep the note [unintelligible [00:10:15].19]

Joe Fairless: Oh, it would be an additional five years?

Heath Jones: Yes.

Joe Fairless: So in total it could be ten years.

Heath Jones: That is correct.

Joe Fairless: Wow. Okay. And I was wondering about the 5% loan on the equity, what lender would allow you to borrow money like that for the equity… But mystery solved. It’s a seller-financed deal.

Heath Jones: Correct. Typically, most lenders won’t carry the first if you’re carrying a second note… So that was alleviated by the fact that I’m financing the property through the seller themselves.

Joe Fairless: Okay. And as far as having the conversation with the seller about seller financing – was that your idea, or his/her idea?

Heath Jones: That was my idea. So the way I went about it – I actually found this deal on LoopNet. This was — just getting started, you just use the resources that you have available. You don’t have any connections, there’s not really anybody at my local real estate meetup who are doing multifamily… All the agents here are mostly single-family homes, so they  might sell some four-units, or they might try to sell a 16-unit, but they don’t really know the ins and outs for the transactions of this size.

So I found it on LoopNet, and what I ended up doing is I didn’t wanna go through the broker that was listed there, because I knew that was gonna be a large amount of money for the seller… So I actually went to the county records, and I found out who owned the building. They had an LLC listed, I looked up the LLC, and of course, there was a number online. I called, and spoke with the secretary of the owner, told him I was interested. I got a call back maybe 20 minutes later from a broker friend of the seller, who – we were then talking and I was like “Hey, would you be okay with seller financing?” And they said “We would have to discuss it. We need to meet you. We like that you’re local in the area, and that you’re there.”

They said they had gotten 8 or 9 LOIs (letters of intent) on the property, but whenever I sent them mine, they knew that I was gonna be their guy… Because I had not only included in my letter of intent the terms that I was looking for, but I also included an amortization  schedule, what it would look like, how much they would make in interest payments over a 5-year, how that added to the balloon at year five, and got them close to what they were asking for.

They were asking 635k for it, and I had evaluated it based on what I thought the cap rate was for this area to be — what did I say…? It was 45, and I told them I would give them 500k for it… And we met at the middle at 560k. But then after the due diligence process there were some things like the insulation needed to be brought up to code, little things like that that kind of added up… So I was able to negotiate another 20k off the price.

So all in all, I got it for 540k, with the 120k down payment seller-financed for a 30-year amortization at 5.5%, with a 5-year balloon, and the extension.

Joe Fairless: Bravo on navigating that. That is not a cookie-cutter deal, especially as your largest one.

Heath Jones: Well, I have to say I wouldn’t have been able to do it if it wasn’t for your podcast, your YouTube videos, Michael Blank and Matt Faircloth… The information that I got from reading your guys’ articles and watching the information you’re providing – I don’t know if I could have navigated it as easily. So I’m just so grateful that you guys have been doing what you’re doing… And to be a part of it today, it feels pretty amazing. So I thank you again for having me on.

Joe Fairless: Well, it’s one thing to listen and to read, it’s another to put into practice. And you put it into practice. Let’s talk about challenges that have come up on the 16-unit since you’ve taken over. How long ago did you close on the 16-unit?

Heath Jones: We closed on the April 4th, 2019.

Joe Fairless: Okay. So what are some challenges that you’ve come across.

Heath Jones: A couple of the challenges is finding contractors to do work that you need done, and having them be reliable and not overcharge you… When you do find contractors, it’ll show up consistently them pricing it up a little bit more, because they know they’re consistently showing up… They get the job done… I’m a little OCD, I have to say, so there’s a lot of times where I watch them do the job, or I come and look, and I’m not really as happy with the work, but they did meet the statement of work, what I asked for.

Another challenge was — since I was self-managing, I did everything by myself. I do have to say, my wife was one of the big reasons we got the extra 20k reduced. She is a negotiation master, and helped guide me on that side of things. I couldn’t have done it without her. But I was the one who was going to the property and knowing on doors and asking people to pay rent. And that’s not really what I was used to, but I wanted to take the first year to understand how to property-manage, I wanted to learn what I could ask a property manager to do if I was to invest in a property that’s far away or out of state… I wanted to see what it would take to actually try to increase rents… More specifically, I also wanted to know if they were going to be taking me to the cleaner’s for flooring, and paint jobs… I now have a better sense of how much things cost.

But the challenge was getting the bad apples out, trying to do things without evictions… I didn’t have to do cash for keys, luckily, but eventually the persistence of asking them for the rent, remaining in constant contact with the bad apples kind of made them know that the management was different, and that the Notice to Quits – we were about to take action; so they ended up moving out anyway.

Now I’m screening a lot more stringent than the previous property management company, so my tenants are good, paying rent in time… So just interacting with the tenants was something that I hadn’t thought about while I was filling out my Excel sheets and making phone calls, and things like that. So that was a challenge for me that I had to get past.

I have one year experience as a property manager, and I do have to say, for the good property managers out there – they deserve a lot of credit. They do a thankless job sometimes, and… They are making their share for doing that job, but I’ve got a lot of props out to the good property managers that are out there.

Joe Fairless: Here’s a hypothetical scenario – tomorrow you come across a 16-unit in a similar area. What are a couple things that you might do differently on this next approach? Whether it’s on the negotiation side, the terms side, the execution side, budgeting side… What are a couple of things you would do differently?

Heath Jones: The one thing that I would do differently is I would also build up a capital expenditures reserve account. My number one goal was first get the down payment; at any cost, I need to get the down payment to close this deal. So that was the watermark on the wall that I was trying to hit. With that being said, since I knew that trying to raise additional money for any of the fixes – what I ended up doing was I also asked the seller and I negotiated it to have deferred payments for the first three months. So what I was anticipating was that for the issues that I knew about, I would need X amount, and the gross income at that time would cover most of those. So I was gonna pay for the repairs out of those first three months of the rental income.

And of course, you always have more repairs than you anticipate, and you always have more issues that come up, that cost more than you thought… So the one thing that I would do differently is to build in a bigger budget, or raise more money for the capital expenditure budget and reserves.

At that time I hadn’t really come across interest-only payments, so deferred was kind of the strategy I employed… I might defer payments for a little bit longer, or I might ask for interest-only payments during the first year, while I fix everything and get the bad apples turned.

Joe Fairless: How much would you build into the cap ex reserve account for that hypothetical 16-unit?

Heath Jones: Oh, man… I would feel comfortable — and this is assuming that you don’t have to replace roofs, or HVACs, or anything like that. Well, I would feel more comfortable if I had maybe 20k to 30k in a reserve, that I could deploy if an HVAC went down for some reason, or the roof started leaking and insurance wouldn’t cover it. Turning the carpets — so what I’m trying to do as well is I’m trying to move away from having carpets in the units, so I’m trying to put in LVP that is sectioned, so if there is some damage, I can just remove a particular panel and then not have to redo the whole floors… That is running anywhere – depending on if I also have to do the carpets upstairs, which I wanna do LVP upstairs as well – between 2k and 3k for the apartments right now.

And painting as well. Painting costs a lot more than I thought it did, and it’s either gonna cost you in sweat and agony if you’re doing it yourself, or it’s gonna cost you to have someone go do it for you. So I guess a little long-winded response to why I would wanna keep at least 20k or 30k for the 16-unit in reserves, and then keep replacing that whenever I don’t have any issues. That way it’s still there in case I need it.

Joe Fairless: Based on your experience, what’s your best real estate investing advice ever?

Heath Jones: Oh, man… Start now. It’s never too late to start, and there’s no real good reasons not to start. Just excuses. Everybody I’ve read, or watched, or talked to, they all say the same thing. They all say “I wish I would have started sooner.” You would be amazed and surprised at what you can accomplish if you make the decision to start and you set your mind to completing that particular goal.

Joe Fairless: We’re gonna do a Lightning Round. Are you ready for the Best Ever Lightning Round?

Heath Jones: Yes, sir.

Joe Fairless: Alright. First, a quick word from our Best Ever partner.

Break: [00:21:30].20] to [00:22:05].23]

Joe Fairless: What’s the best ever book you’ve recently read?

Heath Jones: I’ve read a lot of real estate books, but just getting close to the finishing is Crucial Conversations.

Joe Fairless: I love that book. What’s the best ever deal you’ve done?

Heath Jones: The best ever deal I’ve done is the 16-unit. I got it for a really good price and a lot of favorable terms in the way I financed it.

Joe Fairless: And the best ever way you like to give back to the community?

Heath Jones: Oh, man… I have a five-year-old and a three-year-old. My daughter is in Girl Scouts, so we give back to the community through Girl Scouts. They just finished doing all their cookie sales, and we’re still dropping off cookies at places… So I’m helping the community through her Girl Scouts. I’m a former Eagle Scout, so that kind of fits the way I have done things in the past, and that’s how I like to deal with that.

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

Heath Jones: You can find our Facebook group, the Multifamily Real Estate Experiment Facebook group. My partner Hutch (the Marine Investor) and I, we started that Facebook group. We have a podcast with the same name, you can find us there. You can also email me at heath [at] hsquaredcapital.com. You can also go to our website hsquaredcapital.com. I’m on Bigger Pockets… I actually took your advice from the Best Ever conference this year and I’ve started going in and posting and trying to answer questions that I might have some information about, or try to start discussions… So I’m on Bigger Pockets. I’m also on LinkedIn… So any type of way, feel free to connect; I’m more than happy to talk real estate, talk strategies… I’m just here to help other people improve their lives as well, through real estate or any other means.

Joe Fairless: That 16-unit is just a spectacular case study for how to manufacture a deal. You found it on LoopNet, you have seller financing, you got creative with how to get the down payment (with the promissory notes), and then you were not the only LOI in the game, according to the seller’s broker (there were about 8 LOIs), but you put the amortization schedule in there and you were very detailed… And should you come across a similar opportunity, a couple things that you would do differently is in additional to deferred payments have interest-only payments for X period of time, as well as build up a cap ex reserve account and bring that to the deal (about 20k-30k).

Thank you for being on the show, I enjoyed it. I hope you have a Best Ever day, and we’ll talk to you again soon.

Heath Jones: Sounds good. Thanks for having me again.

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.

JF2099: TowerHunt With Matt Marino

Matt is the Co-Founder of Tower Hunt, an online network of commercial real estate dealmakers. He brings his 15 years of real estate experience to the show and sheds some insight into real estate deal-making. 

 

Matt Marino Real Estate Background:

  • Co-founder of Tower Hunt, an online network of commercial real estate dealmakers 
  • Has 15 years of real estate experience 
  • Located in Boston, Massachusetts
  • Say hi to him at: www.towerhunt.com 

Click here for more info on groundbreaker.co

 

Best Ever Tweet:

“You should really take every line item from the top to the bottom of that cash flow, and look at it and ask yourself “What it means and why those numbers are moving around?”” – Matt Marino


TRANSCRIPTION

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

Matt Marino: I’m doing well, thanks. How are you?

Joe Fairless: I am doing well, and looking forward to our conversation. Matt is the co-founder of Tower Hunt, which is an online network of commercial real estate dealmakers. We’ll get into the specifics in a bit. He has 15 years of real estate background and he’s located in Boston, Massachusetts. With that being said, Matt, do you wanna give the Best Ever listeners a little bit more about your background and your current focus?

Matt Marino: Yes, sir. I wanna first thank you for having me on. I spent — from 2011 to 2017  I was at a capital markets firm called Eastdil Secured, that was located in Boston. They tend to function in gateway markets like Boston, New York, DC, San Francisco, Los Angeles. I started there as a very junior team member, and ended up kind of at the mid-level before I left to start Tower Hunt, and in the process I underwrote 11 billion dollars’ worth of closed transaction volume, and had the opportunity to work on a couple of cornerstone transactions in that market.

By the time I left, I was more focused on some internal projects. The firm was trying to build some proprietary technology to take advantage of a lot of the deal data that they aggregated. That allowed me to cut my teeth a little bit in technology and how software gets built, which is something I’ve always had a passion for.

I ended up leaving the company in 2017, and co-founded  Tower Hunt, and we’re working on a network for commercial real estate dealmakers. The goal is to quantify somebody’s relevance in a way that you can’t do with a place like LinkedIn, because relevance in commercial real estate is power. It allows you to be independent, and not rely so much on the brokers in the market and some of the larger parties that tend to control all the information.

Joe Fairless: Keep talking about it please, and maybe I’ll ask some follow-up questions. I’d love to learn more about what exactly this is.

Matt Marino: Sure. I hope it’ll be kind of a back and forth, because  I’d like to learn and incorporate the things you’ve done well… But I’ll keep coming back to the idea of relevance here, and I’ll define relevance as momentum in a market that somebody else cares about. Momentum – what does that mean? Momentum can be deal flow, momentum can be some kind of insight that you have… It could be experience or skills that you’ve built up doing something in the industry. In my case, I had a ton of industry experience doing very detailed underwriting at the institutional level, and then packaging up transactions, and eventually interfacing with my counterparts on the principal side.

Insight could be research that you’re doing into a specific pocket of the market, or it can be an isolated data point about something like a development project and what’s going on there that others in the market may not know about. So if you have that momentum, then in theory people who overlap with the market that you’re in should want to take your phone call, or should want to call you to get information. And it’s from that that you can aggregate data and corner opportunities that other people don’t get to. I think that’s something that you can speak to just as well as I can, with the work that you’ve done in growing your platform, and how you go about isolating deals that maybe other people can’t get to.

Joe Fairless: That’s interesting… What an idea, and what an undertaking! [laughs]

Matt Marino: Yeah, very difficult… Networks, and especially anything to do in an industry like real estate that’s very resistant to change – it’s a challenging undertaking. So I think first and foremost you’ve gotta be willing to fail, and be okay failing, and have that comfort that you can take your skills and go do something else if it doesn’t work… But this was something that I felt the industry really needed, and I would have regretted not taking a shot at it… So we’re gonna give it the best we can and then we’re gonna see what happens.

Joe Fairless: I see on your website there’s three prompts. One is “Where do you focus?” So these are questions that I imagine the new user who’s signing up for this platform would answer… So where do I focus? In your example you’ve got equity sale, data origination, equity recap, the market, the asset class and the price point, as well as the deals that you’ve done… And then how active are you, and it shows a map of where those deals are, with a certain location… So if you’ve done, say, Dallas-Fort Worth, if you’ve done some in Carrolton, if you’ve done some in Duncanville, wherever – then it’s gonna have those placed on there. And then who do you work with, so then it helps identify people who you have worked with on previous transactions or other deals, with the logic being “Well, now you’ve worked with them, so they might be good advisors/partners/colleagues to other people.” Is that basically the three steps that you would go through as a new user to fill out information, and then gain access to other information that other people fill out?

Matt Marino: Yeah, the core of the product initially, given that the network is very small, is to provide you with a way to build your resume in real estate… In the same way that you might go to LinkedIn to say where you went to school and a list of companies that you worked at. If you work in the industry, that stuff is a lot less relevant than being able to talk to somebody about the pockets that you’re in within a market; so that’s a geographic area, like you saw on the page. Typically, that’s one or more product types, typically it’s one or more strategies on the risk spectrum… Like Stabilized, Transitional, Distressed development fields. Some people have a limit on their deal size… So it’s being able to articulate that, and then kind of on a go-forward basis, as you operate in that market and do deals, it’s a way to very simply add the deals that you’ve done, and then what the system is doing is it’s automatically categorizing things against your markets.

The end result is that you have a profile that will quantify what you’ve done in an area, and that’s really kind of the conversation you typically are having, especially as a new investor or a new participant, broker/lender in a market – you get introduced to somebody and you immediately recite “Well, I’m from XYZ company. We’re trying to do development deals in the multifamily space between 2 and 10 million on the South Shore of Massachusetts.” And you recite that, and if you’re disciplined, you’ll follow up on that… But it’s all in voice, and email, and it gets lost, and there’s no way to search it, so fundamentally we wanna start by trying to provide just a really good resume that you can share with people as a leave-behind, that people can come and search by these extremely detailed criteria to find people… And then understand what have we actually done; you just say you wanna be in this market, or are you in this market?

Joe Fairless: What’s the benefit of someone who is not starting out to joining this network?

Matt Marino: If you’re an established operator or an established participant?

Joe Fairless: Yeah.

Matt Marino: It depends on where you are within an organization. If you’re somebody within an established organization and you have a track record, one use case for this could very easily be if you’re looking to make a change from one side of the business to the other, it allows you to quantify, again, what you’ve done, what your skillset and experience is. If you’re focused on driving deal flow on an established platform, there’s constantly competition, no matter how you segment the market.

The more successful you are and the larger the deals that you’re going for, the more you’re exposed to a better pool that typically includes equally sophisticated and capitalized people, so it’s a way to — I’ll use the example of being on the principal side, it’s a way to make the broker’s life a little bit easier, where when it’s time for them to go to their client and pitch why your pitch should be chosen over somebody else’s, they may have some anecdotes about you in the market, but there may also be just a really nice, clean way for them to show that person who you are and what you’ve done, and that when you say you’re gonna deliver on something, “Here’s the 90-day activity. Here’s 3-4 deals they’ve done in this market that show that they show up and get it done.”

Joe Fairless: What’s been the biggest challenge so far?

Matt Marino: Awareness is a challenge, and the so-called cold start issue of networks generally is a big challenge, where a lot of people at the beginning would visit the site, and in a  previous design we had a search capability right on the front page, and if you go in, people gravitated immediately to this, and they would go in and they would search for a market or a specific segment of a market, and there’d be nobody there. And they’d churn and they wouldn’t come back.

So trying to understand the challenge that that represents, and trying to provide something with the product that is independent of the size of that network, which kind of brings me back to starting with the notion of a resume in real estate. Something that we’re working on currently to flesh this out a little bit further is the idea that this can be a place where you can capture market intel information about things like industry events, tenants in the market, live deals that are anonymously sourced and put into the Tower Hunt network and then are filtered very specifically against your interests, as a way to just kind of try to provide value that isn’t dependent upon having 100 or 500 other people in your market on this system. But there’s no doubt that’s a big challenge to overcome, so you have to be patient and just really work hard and show up every day, and at the beginning personally interact with every single user who wants to have a conversation with you and provide feedback.

The page that you’re looking at right now – we’re in the process of visually overhauling pretty much the entire product in response to feedback, just because I built it myself at the beginning to get immediate feedback and exposure, and what’s there is not as intuitive as it should be, so we’re kind of redoing that… And you learn that by talking to people and measuring what’s going on, in a similar way to how I imagine it works when you’re operating your property – you’d better have it instrumented, so that you can understand who’s showing up, why are spaces leasing or not, why are expenses moving around or not, and then make adjustments.

That’s one of the interesting parallels I’ve found so far moving to the software side – you have to be just as aware of what’s going on tactically as you do with real estate stuff.

Joe Fairless: Yeah, I could see its use case, for sure, and I do like the examples. Hopefully, the examples on the next iteration will still be alive and well, where you’ve got email after an intro call, after an email to a sales broker, leasing broker and operator… But the before and after – I think that you do a good job showing the benefit.

And for Best Ever listeners who do not have this in front of them, an example is a sales  brokers before you saying “Hi, so-and-so. Following up to see if you have a chance to review information. It should be of interest, given your nearby holdings.” So this is you being a sales broker, I guess… But now you can simply have a link – “Here’s our track record” and explore the recent nearby deal activity.

I could just see this being a differentiator whenever you’re reaching out to owners about buying their property directly, and establishing that credibility… Because it’s a third-party source.

The question will come up “What verification process, if any, is there of this data?” Because someone could just be lying their face off. Is there any sort of checks and balances?

Matt Marino: Yes, the goal here is to ultimately make something that’s equivalent to the algorithm that Google runs to rank your search results. It’s a little bit of a black box, but they run your web page against everybody else’s on a number of different variables to figure out “How useful and relevant are you?” So when it comes to people in real estate, and this question about – okay, if you spam deals in there that aren’t deals you’ve actually done, I think one way to detect that and to reward the use of the network would be every deal that you put in, you have the opportunity to add participants to the deal. Those could be colleagues of yours within your firm, it can be counterparts on the other side of the deal, it could be the broker in the middle of the deal… And simply by inviting a couple of other, or even one other human being who was part of this deal, who doesn’t necessarily work with you – I think there’s a powerful social verification going on there. You won’t be forced to do it, but I think something that we’ll try and experiment  with is providing height and visibility to things where you verified it against other parties within that transaction. It’s a great question though, because bad data is everywhere.

Joe Fairless: Yeah, just like LinkedIn, right? There’s no LinkedIn police that I’m aware of, verifying that what you’re saying is accurate… But colleagues are gonna know who worked with you, if that information is accurate or not. So the more people connected together, the more accurate the data would likely be.

Matt Marino: Yeah, and the notion too that markets tend to be – with exceptions like New York, but a lot of markets have known players, and once you’ve established yourself or spent a significant amount of time, you start to know who the names are, and you probably interacted with some of those people… So if I allege that I sold a deal to ABC Co. and somebody from that company is added to this deal, and you show up looking at my profile and you know that other person, there’s some immediate credibility that’s lent to that record, versus me just saying I did the deal.

Joe Fairless: Taking a step back, based on your experience, what’s  your best real estate investing advice ever?

Matt Marino: I’d just say the devil is in the details. That’s the biggest thing I learned, coming from Eastdil Secured… And the way to make that concrete and applicable is think about the underwriting process that you go through. I was doing it from the brokerage perspective… But as a principal, if you’re underwriting a transaction, your end product is typically (among other things) a one-page cashflow that can be 5 or 10 years in length, and it’s kind of a property-level unleveraged, and then  you’re typically running a leverage model on top of that, and you may even run it through a waterfall to understand your relationship between yourself and the other investors.

The biggest thing I learned going through that over and over and over again, with hundreds of millions of dollars’ worth of deal volume, is as you dig deeper into that single output, that cashflow, it can challenge your understanding of the market if you let it. And I mean that in a good way, which is to say that some people will take a template, pump a bunch of numbers into it, print it out, and they’ll look at the price at the bottom and they’ll say “Okay, I get this deal, no problem.”

What I would assert to you is you should really take every line item, from the top to the bottom of that cashflow, and look at it and ask yourself what it means and why the numbers are moving around within that line item. What you’ll find is you can take any line item on the cashflow, whether it’s the top-line revenue, whether it’s the operating expenses, or a single line item in there, or the cap ex coming from TIs and LCs, and you can dive down a rabbit hole with that in a good way, where it forces you — if it’s an office asset, for example, it may challenge you to go and make sure that you’ve walked the space and you’ve seen the vacancies. Or in the multifamily space you may need to look at the different vantage points of that building, the different sides to the building, and understand “Why are we driving revenue more so from one space than the other? Is that a reasonable assumption to be making?” If somebody blows out of that space and it’s vacant, why do we have it down for three months? Why shouldn’t it be six or nine? And so on.

On the operating expense side, why did the historicals show this big variance in 2018? …and dig into understanding why that was. Or trying to understand what you need to do to execute a business plan around the op ex that you think you’re gonna put out at this building; who do you need to know, how do you need to contract with those people, what are the kinds of things within this asset that can go wrong? It’s just to me a super-fascinating part of the business, where it’s the same process on every asset, as you need to run through that underwriting… And if you’re really a student of the business and you’re a deal junkie, then that’s the area where you can really learn, and from that learning comes – again, back to this topic of relevance, where you can speak with authority after you’ve underwritten 5, 10, 15 deals in a market…  You can  really understand what makes certain parts of the cashflow stand out in that market, and why. And then you can go talk to other people about it, and it’s from conversations like that that you tend to move your whole career forward.

Joe Fairless: We’re gonna do a lightning round. Are you ready for the Best Ever Lightning Round?

Matt Marino: Yes, sir. We’ll see if I’m ready for it or not.

Joe Fairless: I know you are. First though, a quick word from our Best Ever partners.

Break: [00:20:23].20] to [00:20:58].17]

Joe Fairless: Best ever book you’ve recently read?

Matt Marino: I don’t know if it’s the best ever, but I’ve just finished Alone At Dawn, which is a book about a Medal of Honor recipient named John Chapman from the Air Force Combat Control, who was killed in combat in Afghanistan. Just a fascinating (for me) dive into a part of the military that I fully appreciate, and it’s really — within that branch of the military, it’s a deep, extremely specialized air force. The capabilities of those people and their willingness to do things that even the other elites, like Delta Force, Navy SEALs, SAS aren’t necessarily qualified to do… And it gave me an appreciation also for the humanitarian side of this particular part of the military, where their motto is “First there. Air Force Combat Control First there.”

That applies to military conflicts, but it also has applied to a number of humanitarian crises, like major earthquakes and things like that, where they can literally get onto the ground before anybody else. The highlight that stuck out to me was within 30 minutes they dropped on the ground into an airport in Haiti, after a massive earthquake, and within 30 minutes that airport was open and receiving aid deliveries from 50 countries around the world.

It made me cry like a baby on an airplane when I was reading the end of it, but just a powerful book… One that sticks out more within other things I’ve read in the last couple months.

Joe Fairless: It puts it in perspective.

Matt Marino: Yeah, we’re not curing cancer here, so… There’s other really powerful  things going on.

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

Matt Marino: I’d say come visit towerhunt.com. It’s likely that the product that you see the day you show up, when this airs, is gonna be different than the one you and I, Joe, are looking at right now. If I’m doing my job, it’ll be different and better… But please come visit it. And then, like I said, at the top, a big part of my job at the beginning is connecting personally with people who are passionate about the industry and want to differentiate and create an avenue for them to grow. So reach out to me.

Joe Fairless: Matt, thank you so much for being on the show, talking about Tower Hunt, talking about the idea behind it. It makes a lot of sense to me. I hope you have a Best Ever day, and we’ll talk to you again soon.

Matt Marino: Thanks, Joe. I appreciate it.

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.

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Oral Disclaimer

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JF2098: Have A Best Seller Book With Steve Kidd #SkillsetSunday

Steve is a 3rd generation minister and the best selling author who has coached 600 people to also become a bestseller. Steve gives ideas on how to get your book to become a bestseller.

Steve Kidd Real Estate Background:

  • 3rd generation minister
  • Best selling author and coaches others on becoming best sellers
  • Has helped over 600 people be best selling authors
  • Based in Oswego, OR
  • Say hi to him at bestsellersguild.com 

Click here for more info on groundbreaker.co

 

Best Ever Tweet:

“You need to have a very specific marketing campaign that will market your new book.” – Steve Kidd


TRANSCRIPTION

Joe Fairless: Best Ever listeners, how 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, Steve Kidd. How you doing, Steve?

Steve Kidd: I’m doing great. Thanks for having me.

Joe Fairless: Well, it’s my pleasure and looking forward to our conversation. Best Ever listeners, today is Sunday. So because it’s Sunday, we’ve got a special segment, Skillset Sunday, where you will walk away with a specific skill. Today we’re gonna be talking to Steve and I’ll give his background, and then we’ll talk about what his skill set is. So Steve is a third-generation minister, he’s also an author and coaches others on becoming bestsellers; he’s helped over 600 people become bestselling authors on Amazon. So what we’re gonna be talking about today, the skill set is one, the importance of being clear on messaging and how there are some fallacies in the publishing industry that he’s going to clear up for us, and just overall, the importance of having a book for your business. So with that being said, first Steve, do you want to get the Best Ever listeners a little bit more about your background, and then we’ll go right into the topic?

Steve Kidd: Sure, absolutely. I’m an international bestselling author. I have five books that have ranked number one in a number of different countries around the world, and I love, more than anything else, to help people really get clear on what their message is; not necessarily their message forever, but what is that conversation that will best help you in where you are in life and business, get to that next step for yourself.

In 2020, there aren’t a lot of money to be made in books, but without it, you’re always going to be leaving money on the table. You really need, especially that bestseller, to really have the best marketing campaign you possibly can… And I love doing that. I’m a third-generation minister, as you mentioned. My father is actually still, even though he just turned 80, still pastoring in a church, and I’m in the non-traditional route, working in and out of churches. And now I get to spend every day working with authors and helping them frame and shape who they are into a written book that will become a bestseller.

Joe Fairless: Okay, so what is your business model?

Steve Kidd: We have a system to help people write, publish and market their book to bestseller, and much like books like The Four Agreements, or literally any book that you’ve ever read by Sir Richard Branson or many others, we employ the concept of speaking to write. What you will find is that when we write – journaling is a perfect example, because it’s very cathartic – most all of our own writing is going to be very internalized. It’s very much a lot of who we are and what we’re feeling, but not so much listener-oriented. When we speak, especially if we’re speaking to a person, we typically are going to have their thoughts, their feelings and their needs in mind. So employing that speak-to-write process really allows you the ability to really serve the needs of the people that you know you’re meant to serve. We have a whole system to be able to do that, and we can actually take you from absolute chaos and confusion to being a bestselling author in 30 to 90 days, and we like to say we can really help it be effortless.

Joe Fairless: Yeah, and so the term bestselling author – it can be a little misleading, and I want to get to the heart of what your process is, because I think it’s interesting and I think there’s a lot of value. But just talking about throwing around the term bestselling author, how do you exactly become a bestselling author? What’s the approach that you take?

Steve Kidd: Well, I would always recommend that the most “real bestselling author” statistic is Amazon’s. Number one, Amazon sells more than 60% of all books around the world that are sold. Secondarily, they are the only list that I know of that are purely based 100% on statistics, meaning that if a book ranks, say, number two over another book that’s ranked number three, that legitimately means that that book has sold more copies of the book than the person who was number three. Now, they are updated on a regular basis, and although they reflect a somewhat hour by hour reflection of the sales that are happening on Amazon, it’s not exactly hour by hour, but that’s a good way of thinking of it. So it’s also very up to date as well…

Whereas the New York Times bestseller list is an editorial. They actually take the statistics from the Nielsen company, the same people who do rankings for television shows. They take that information, and then they write an editorial based on who they think should be listed as the bestselling books, and we could fill the whole show just with stories of people who statistically should have been on that list, but for whatever reasons– and don’t get me wrong, they’re a privately held company, they can list anybody they want to, but just from a purely statistical standpoint, they have left people out for whatever reasons they choose to. So we want to do something that’s systematizable, is predictable, and then a person when they say they did it, that means that they literally actually got their book in the hands of more people than the people around them did.

Joe Fairless: So what is your process for doing that?

Steve Kidd: We’ve been a marketing company for more than 20 years now. Everything we do starts from research. We research what keywords, categories, all of those kind of things are going to best serve the book itself, and then we use that to on the author’s behalf do some updates into their description and their keywords, the categories they’re in. If you wanted to try to rank as number one in the main parent category self-help, you’re going to probably need to sell about 10,000 books in an hour, which unless Tony Robbins or Oprah Winfrey is promoting your book is probably not really realistic.

There are other categories often that really are clear about what your book is that will serve you much better, and when you’re placed in a category that really is what your book’s about – because let’s be honest, self-help can mean a whole lot of different things, whereas your book might be how to be a good Christian mother, just as an example, which is a much more specific thing, and there are a lot of good categories that that can go in. I’m not talking about putting them in underwater basket weaving and gaming the system; I’m talking about a legitimate category, but one that’s going to be clear for the person when they’re searching and is going to do it. Ultimately, Amazon’s search engine– Amazon is a search engine for people looking to buy things, versus Google is a search engine for people looking for information, and having been in technology space throughout literally the inception of the internet, it is about appealing to that search engine and making that algorithm see your book in the best light possible, to rank as best as possible.

Joe Fairless: Are those the two main components – find the right keywords and then optimize accordingly, and then two, find niche subcategories that are hyper-relevant? Obviously, the book has to be good, but just from a marketing standpoint, are those the two main things?

Steve Kidd: That, and then thirdly would be, you need to have a marketing launch campaign. Most people, what they do is they launch their book and then they announce to the world that their book’s out there. You need to have a very specific, very structured campaign that is going to bring the people in as tight of a timeframe as possible, as well as the most number of people in various different ways, but an overall plan and not just simply doing like most people do and just throwing out a Facebook post that says, “Hey, I got a new book.”

Joe Fairless: “By the way, I have a book.”

Steve Kidd: Yeah.

Joe Fairless: Okay, and then on the marketing plan, bring people in to as tight of a timeframe as possible – what are a couple of effective things to do for that?

Steve Kidd: Well, number one is, even if while you’re listening today, you’ve decided, “Okay, I’m going to write a book,” you don’t have a word written, you have no cover, none of that stuff. The first thing you want to do is go out onto whatever social media platforms you use regularly and announce it. Tell people, “I am starting the writing of my book today.” There is probably no more powerful social media impact type of post you can make then when you talk about your book. People are always interested, you get lots of likes, lots of follows. We even actually had people who have built from no Facebook following to 1,500 to 3,000 followers in the course of their first 30 days, starting with the announcement of the fact that, “Hey, I want to let you all know who I am and the fact that I’m starting into the writing of a book.” So that would be the other thing is, is that really have a buy-in from the people that are in the tribe you either are part of or are building throughout the whole course of the process of your book, so that they feel like they’re part of it, and when it comes to your marketing launch day, they want to participate.

Joe Fairless: Got it. So it doesn’t sound like you subscribe to the philosophy of making it free for a period of time to artificially inflate the amount of people who get the book to then be on the bestseller list.

Steve Kidd: Well, there is all kinds of marketing programs. One of the most powerful programs that Amazon has available, is if you are part of Kindle Select, you can do up to five free days every quarter, and for people who the continuing marketing of their book is part of their marketing program, I would absolutely recommend that you make use of all five of those days; the number one of which being is on your initial launch. Yes, do do a free day. There’s more behind it than just having the book be free, but Amazon doesn’t quantify whether your book is free or you sell it for a million dollars. They’re looking at unique individuals as identified by your unique email address, and who actually got a copy of the book in their hands.

Joe Fairless: With the fallacies that you’d mentioned to me prior to us recording, where you said there are some fallacies about the publishing industry, what are some things that come to mind there?

Steve Kidd: Well, so the number one, of course, is that it’s hard. Most people would tell you that “I’m expecting to start my book and it’s going to take me a year to three or four years to get it done”, and that I need an agent to push my book to a publishing company, and all of those things. And really, that’s a very old concept, and ultimately if you go that way– and I’m not saying that there aren’t times when you need to use your traditional publisher, but if you go that way, you need to understand the publisher owns your book. One of my good friends that has several books out, she would be the first one to tell you publishing companies are like loan sharks. They may give you an advance, but the more of an advance they give you, the more it would cost you to be able to actually get the ownership of your book back. So that’s one definitely – it’s much easier than you think, and you really can own 100% of your book; you can be in control of it.

In fact, I’ll give you a perfect example. Terry Brooks, most people know the name Terry Brooks, one of probably the most popular fiction authors in the United States today. Terry Brooks has really never– there was one TV show that they finally did, but none of his stuff, with as hugely popular as they are, have ever made it into television or movies because of the publisher and what the publisher wants in order to be able to get there. Terry would be okay with it. I actually had a one on one conversation with him at a book signing he did, and he would be fine with it, but the publisher and the movie studio couldn’t come to terms, and therefore [unintelligible [00:15:34].03] our movie, for example.

Joe Fairless: Anything else that we haven’t talked about that you think we should about publishing?

Steve Kidd: So the second one is the concept that a book should be 350 pages. The reality is– and you probably even have some of these books on your desk now, Joe, that are books that are great, but you haven’t finished them, and maybe you never will, because you got what you wanted, and then you moved on, or you got busy and forgot that you didn’t finish it.

The 350-page book actually isn’t what people want. In fact, statistically, Amazon has tracked these statistics, and if a book is 100 pages or less, more than 60% of the people who get the book will finish the book. If it goes over 100 pages, if it’s 101 to 200 pages, that number drops down to 20% of the people will finish the book. If the book goes over 200 pages at all, that number actually drops down to less than 3% of the people who get that book will ever finish it.

So if you have things that people really should know about, then the very best thing you can do is write it in a way that is consumable by the people you’re writing it for. And in most people’s cases, what they have is not just a book, but they actually have a whole book series.

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

Steve Kidd: Sure, the best thing to do is go to our free Facebook group; it’s called The Best Sellers Guild. The easiest way to get there is just go to bestsellersguild.com and that’ll take you right straight to the Facebook group. Ask to join, we would love to have you in there. There are 3000+ people that are all the way from beginning to they’ve written several books now, somewhere on their bestseller journey.

Joe Fairless: Steve, thanks for being on the show. I hope you have a best ever day. Talk to you again later.

Steve Kidd: 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.

JF2097: Insight in Development Deals With Preston Walls

Preston is the CEO and founder of Walls Property Group, he currently manages a portfolio of 70 buildings valued over $300MM. Preston shares his experience through starting in residential to now development deals. Joe asks Preston to explain some different challenges he has faced in the development world so you can be better prepared if you choose to venture on this path.

 

Preston Walls  Real Estate Background:

  • Founder & CEO of Walls Property Group
  • Currently manages a portfolio of 70 buildings valued over $300MM
  • 16 years of real estate experience
  • Located in Seattle, Washington
  • Say hi to him at: https://wallspropertygroupre.com/ 

 

 

Click here for more info on groundbreaker.co

Best Ever Tweet:

“It was helpful to move forward with something in the face of somebody you respect and trust pointing out the reasons you should not do it.” – Preston Walls


TRANSCRIPTION

Joe Fairless: Best Ever listeners, how you doing? Welcome to the best ever 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, Preston Walls. How you doing, Preston?

Preston Walls: I’m doing great, Joe. How are you doing?

Joe Fairless: I’m doing well and looking forward to our conversation.

Preston Walls: Hey, likewise.

Joe Fairless: A little bit about Preston – he’s the founder and CEO of Walls Property Group, currently manages a portfolio of 70 buildings valued over $300 million, he’s got 16 years of real estate experience, located in Seattle, Washington. So with that being said, Preston, do you want to get the Best Ever listeners a little bit more about your background and your current focus?

Preston Walls: Yeah, I grew up in a real estate family. My grandfather was a professor and started a student housing business on the side, and my father’s a real estate developer, so I grew up with it in my blood. I went to school on the East Coast and worked in Manhattan for a few years; I thought I’d get away, but they called me back and I’ve been working in industry since 2002; moved back to Seattle, I worked with my dad for six years, we did some ground-up together and some renovations, and the downturn came, and he said it’s time for him to move on, and I’ve been doing it on my own since then.

Joe Fairless: Well, what did you learn from your dad? I know that it’s such a open-ended, broad question, but just some highlights.

Preston Walls: Two things come to mind. One, just the practical skill aspect of being a developer and what it takes to put a new construction development together. That was really valuable, just as a skill set. The other, he’s been a critic of mine as well, and if there’s ever a reason not to do a deal, he’s the first one to point it out. Especially in the early, early years, where you’re trying to get over the hurdle of, “Should I do this? Does it make sense?” Just trying to get the conviction and the confidence to do it, it was helpful to move forward with something in the face of someone that you respect and trust pointing out the reasons you should not do it.

Joe Fairless: It was helpful to move forward in the face — so going against what someone who you trusted said not to do? Did I hear that correct?

Preston Walls: You have to be really committed and feel really strongly about the deal to move forward with it, to purchase it, when someone is pointing out the way that it could go wrong.

Joe Fairless: Someone with more years of experience, someone who is very familiar with you, and you’re familiar with them, and you know likely he has the best intentions for you. So how do you ultimately – and if you have a specific example, even better – come to a realization that “You know what, I know he has the best intentions and he has more experience, and he’s saying I shouldn’t do it, but for XYZ reasons, I’m going to move forward”?

Preston Walls: One deal comes to mind. I was living abroad at the time, but I’d managed to put this building under contract. I had done my due diligence from afar as much as you can do without seeing the property. He was in Seattle and attended the walkthrough inspection, and–

Joe Fairless: What type of property?

Preston Walls: It’s a 26-unit multifamily building in Seattle. And his report was there are five active leaks in the parking garage and it wasn’t raining out. So you’ve got water issues, there’s a lot of deferred maintenance, the tenant quality in some of the units is fairly poor. He said roof needs to be replaced, “You should not buy this building. I would not buy this building.”

Joe Fairless: Very good summary, yup. Okay.

Preston Walls: He got caught up on all of these– maybe multiple plumbing leaks are not cosmetic things, but he got caught up on what I viewed as resolvable, fixable items, and the price that we were under contract at was at discount enough for fixing everything that could possibly be wrong with it. So I moved ahead anyway with that property and I still own it today; it’s been a great investment. What number transaction was that in terms of your transaction history?  It was probably in the 12 to 15. But even the first transaction that we did, this dynamic played out the same, same way.

Joe Fairless: Really?

Preston Walls: I remember it was a triplex in Seattle, and the first deal you do is the hardest one to get over that hump, and I had created so many models of so many properties that were listed, and I had done the architectural work, adding another unit to the building and doing some work in the existing units… I had bids from contractors, I had all of these variables ironed out, and he was still telling me of all the things that could go wrong and the reasons not to do it. And I moved forward with that one as well, and I still own that one today, and ultimately, he was supportive of my decision and congratulatory of how the deal played out, but it was hard getting there.

Joe Fairless: You mentioned number one, that the thing that you learned was the skill set required to put a development deal together. I’ve never put a development deal together. I have a lot of respect for developers, because of all the stuff that they go through, and some of it I’m not even aware of. What are the skill sets or some important skills that are required for being a developer?

Preston Walls: One of the biggest ones or probably the hardest one for me is capacity to take risk, because you’re in markets where entitlements take a long time. The soonest you can acquire the land and deliver the product is probably five years in Seattle. So you’re looking at a really long timeframe between when you start spending money and when you eventually see a return on that investment. So a lot can change over that course of time and you need to be able to withstand financial– your balance sheet needs to be able to withstand that, and you need to have a pretty accurate idea of where things are going to be. And that’s rental market, that’s construction costs market, that’s cost to get there, that’s carrying costs, all of those things that go into it. That’s probably the most challenging one that I face.

Joe Fairless: High level, you said the soonest is five years. What is that timeline and just walk us through high-level steps from day one to year five?

Preston Walls: I’d say, three years for entitlements. So you purchase property, you need to get a master use permit, which is the permit that allows you to apply for a building permit; get your master use permit, then you can apply for the building permit. So roughly three years for that. 18 months for construction, six months for lease-up and financing.

Joe Fairless: Got it. You’ve gone through the entitlement process. What are some things that surprised you when you first went through it?

Preston Walls: Wow. There’s so many unknowns and uncertainties, and you’re continually learning new ones. Environmental risk is big. I’m building a site now that’s on a steep slope. Just to get the variance to build in an environmentally critical area added probably another 18 months to the process. Historic risk is another one that you don’t really know when that’s gonna pop up. So there are historic zones and historically designated buildings, but there can be historic aspects of a building, a facade that the local jurisdiction wants to keep, and that can significantly hamper your project or the scope of what you want to do.

Joe Fairless: Have you come across that?

Preston Walls: I have. I purchased a building in a historic district. The structure itself separate from the district had a historic easement on it, which meant that I couldn’t alter the exterior facade of the building. Didn’t say anything about the interior; the interior is essentially open for redevelopment, whatever you want to do. But ultimately, the combination of those two, having to get approval and sign off in order to get a permit from both of those entities was painful and time-consuming, and ultimately, I moved on to a different deal.

Joe Fairless: Do you currently do ground-up development?

Preston Walls: I do. I’m building a 60,000 ft building right now and I’ve got another project that should break ground later this year.

Joe Fairless: So you love the pain. You’re in it and–

Preston Walls: Well, I feel that ground-up construction is really fun. It’s really challenging, it’s exciting. I love the vision component of seeing a site, seeing what it can become and producing something there, but it’s hard from a risk standpoint, it’s hard from a balance sheet standpoint, it ties up a lot of liquidity and it ties have a lot of risk on your balance sheet. So I use it sparingly and I do the projects relatively infrequently. The value add syndication is my bread and butter, and there’s a lot less risk in taking an existing asset, making it better, repositioning it and turning it around more quickly to stabilize it.

Joe Fairless: So just from an internal assessment standpoint, whenever you’re looking at an opportunity, what must be in place in order for you to do ground-up development, since as you just mentioned, value-add, lower risk and less headaches– you didn’t say that, but I’m assuming that’s the case. So what’s gotta be there?

Preston Walls: There has to be a really good opportunity and a really compelling reason. The reason is usually a vision component that the market hasn’t seen. So the building I’m working on now that’s under construction, I bought it on a cap rate because a previous developer had tried to entitle it and did a half-assed job with it with the city, and the city responded with a public record notice that said, “You cannot build on this site.” So the broker that was selling it was hamstrung by that. He couldn’t market the development opportunity with this knowledge from the city, or with the city’s decision ruling on it. So it worked on a cash flow basis, and I got the development potential as a zero cost option to work on. So that became a side project in parallel to operate in the units that were there. And you go one step down the road and if you’re successful, you go to the next step, and all of a sudden, I had variants from the city to build a building there, and then I could move forward. So I’ve got to have a strong value proposition that gives me a cost advantage over the rest of the market. That helps me feel more comfortable on taking the risk of going into development site.

Joe Fairless: So tell us about the deal that you’ve lost the most amount of money on.

Preston Walls: Probably the worst deal I did was the historic one, and part of the reason I bought it was the purchase price was really low.

Joe Fairless: What was it?

Preston Walls: It was $450,000 for this commercially zoned retail property on a main street in Seattle. So I sold it for 20% more than that, but I lost a year and a half of time, opportunity costs that I could have been doing something else. So that was frustrating.

Joe Fairless: That’s pretty good though, if you haven’t lost money on any deal, and the worst deal is that you made 20% on the purchase price. I understand opportunity cost is in play, but from a dollars and cents standpoint…

Preston Walls: Well, the other factor that goes into it is I’m typically not a seller of buildings. I’ve only sold three or four properties over my career. So my goal is to own properties for long term, not sell them and hang on and realize the cash flow that they produce.

Joe Fairless: What are your thoughts on selling them and then doing a 1031 and going into a larger deal with more cash flow? I know you’ve thought about it.

Preston Walls: Oh, I’ve definitely thought about it. Every time I think about that, every time I’m tempted by it, my mind goes back to Robert Kiyosaki and the question of whether you want to carry buckets or you want to build a pipeline. And it’s tempting to carry some buckets and make some money, hire some bucket carriers, but ultimately, the pipeline business is holding on to assets long-term and getting the cash flow from them.

Joe Fairless: Just help me understand a little bit more, because with the 1031, you are still holding on to the pipeline; you’re just building it out with new parts. So help me understand that.

Preston Walls: Yeah, there’s a leakage from your pipeline every time you transact. So there’s frictional transaction costs. It’s expensive to buy and sell property. There’s overhead on your part as the sponsor to find a new deal. There’s risk of not finding as good a deal as the last one. There’s time involved in creating and reproducing it, all of which is time that you could spend working on another deal, a new deal that’s more [unintelligible [00:17:34].19] to your portfolio.

Joe Fairless: I love it. Thanks for sharing your thought process. It’s good to hear.

Preston Walls: I get a lot of pushback on that one. In my syndications, that’s part of what you’re signing up for with me, is not having an exit timeframe. My LLCs are open-ended and I plan to hang on for a long, long time, and it’s hard to think about assets, real estate that way when the majority of the market is on a five to eight year time hold horizon.

Joe Fairless: What did you do in Manhattan for a few years before you came back to Seattle?

Preston Walls: I was an indentured servant in a couple of different investment banks.

Joe Fairless: Okay. Any takeaways you got from that, that you’ve applied to the real estate business?

Preston Walls: Yes. My breaking point occurred about 7:00 p.m. one evening. My cubicle was across the hall from an office. It was the guy’s office that you want to sit in, it’s where you want to get to, and every night that he was not traveling, he said goodnight to his kids on speakerphone from his office and it tore up my 20 something year old soul that — I hadn’t started thinking about having kids, but I knew that that was not where I wanted to be, a working for someone environment; I wanted the passive income that would allow me the flexibility to work when and as much as I wanted to.

Joe Fairless: How soon thereafter did you quit?

Preston Walls: I think I lasted four or five more months after that. My dad had been working on me for years to come back to Seattle, but I was certain that I was going to work on Wall Street and that’s what I wanted to do.

But ultimately…

Joe Fairless: [unintelligible [00:19:21].26]

Preston Walls: It sure did. [laughter] I moved back and we started renovating apartment buildings together, and I haven’t looked back since.

Joe Fairless: Based on your experience as an investor, what’s your best real estate investing advice ever?

Preston Walls: I would say don’t be afraid to go really deep into a narrow niche. I see a lot of investors that get distracted by the shiny new thing. There are so many different ways to be successful in real estate. Success for me has come from being really narrowly focused and concentrating on a specific niche, which is multifamily in a narrow geography within Seattle.

Joe Fairless: What’s your narrow geography within Seattle?

Preston Walls: There are five zip codes within Seattle that are within a 15-minute drive from my office. That’s my geography.

Joe Fairless: Have you ever bought outside of those five?

Preston Walls: I have not.

Joe Fairless: How many transactions have you done within the five? About.

Preston Walls: 40, 45.

Joe Fairless: So I introduced you “manages a portfolio of 70 buildings” so I’m assuming multiple buildings within one transaction.

Preston Walls: Some of those buildings are buildings that I had managed for my family, and we have a small third-party property management business as well.

Joe Fairless: Got it. What’s the name of that company?

Preston Walls: Walls Property Management.

Joe Fairless: Okay, I understand where the name came from. We’re gonna do a lightning round. Are you ready for the best ever lightning round?

Preston Walls: I sure am.

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

Break: [00:20:58]:06] to [00:21:37]:02]

Joe Fairless: Best ever book you’ve recently read.

Preston Walls: The Snowball by Alice Schroeder.

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

Preston Walls: Not understanding/respecting historic designations.

Joe Fairless: What about something we haven’t talked about? Maybe on a recent deal where you wished you would have done a little bit different?

Preston Walls: I’d say environmental on an acquisition where a bank was not involved. So a bank did not require– a phase one was paying cash, and that came back to bite me on a subsequent refinance round.

Joe Fairless: Okay, so the takeaway is always get a phase one.

Preston Walls: Yes.

Joe Fairless: What’s the best ever deal you’ve done?

Preston Walls: I’d say it was the first triplex that I did. Just being able to have the conviction to buy something with a lot of reasons not to. I still own it. It feels good to still own that asset.

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

Preston Walls: Our website, wallspropertygroupre.com. We’ve got newsletters up there and I’d love to connect with people if you’re ever in Seattle or want to chat. Look me up.

Joe Fairless: Preston, thanks for being on the show. Thanks for talking about your experience, what you learned from your dad who was a real estate developer and you worked with him, the entitlement process, what are the components of that process, and then also why you do not 1031, and why you focus on long term holds and building out, to use your metaphor – pipeline versus having the bucket. So thanks for being on the show. I hope you have a best ever day and talk to you again soon.

Preston Walls: Thank you, Joe.

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.

JF2096: Going From The Medical Field to Investing With Victor Leite

Victor and his wife both started off in the medical field and started to feel burned out after working 70hr work weeks for 5 years. They both decided to leave their jobs to go backpacking and upon their return, they decided to purchase their first home and discovered it would need a lot of work. This started their journey into real estate investing, and now they have a business with 17 investors. 

 

Victor Leite Real Estate Background:

  • Entrepreneur and investor who owns multiple rental properties
  • Portfolio of rentals includes a mix of single-family homes and multifamily properties
  • Manages a high volume Fix & Flip investment group, they successfully completed over 100 rehab projects in 2019 – mostly with funds from private individuals
  • Based in Virginia Beach, VA
  • Say hi to him at https://www.lvrinvestments.com/ 

Click here for more info on groundbreaker.co

Best Ever Tweet:

“Difficult roads often lead you to beautiful destinations.” – Victor Leite


TRANSCRIPTION

Theo Hicks: Hello, Best Ever listeners. Welcome to the best real estate investing advice ever show. I’m your host today, Theo Hicks, and today’s guest is Victor Leite. Victor, how are you doing today?

Victor Leite: I’m good, Theo. How are you?

Theo Hicks: I’m doing great. Thank you for joining us today. I’m looking forward to our conversation. So Victor is an entrepreneur and investor who owns multiple rental properties. His portfolio of rentals includes a mix of single-family homes as well as multifamily properties. He also manages a high volume of fix and flip investment group. Their project has successfully completed over 100 projects in 2019. Most of the funds come from private individuals. So we’ll be talking about that. And he is based in Virginia Beach, Virginia, and you can say hi to him or learn more about his company at 258capital.com. Alright, Victor, do you mind telling us a little bit more about your background and what you’re focused on today?

Victor Leite: Yeah, sure, Theo. My background is not like most traditional stories. I was born in San Paulo, Brazil, which is one of the largest cities in South America, and during the late 70s, Brazil went through a lot of political-economic turmoil. So my family, we immigrated to the United States towards the idea of achieving that American dream. So I followed the traditional paths – I went to school, I got good grades, I worked multiple jobs, I went to university, I went to medical school, I got my various degrees and accolades, and I thought I finally had reached that level of American Dream that everybody’s in search of. But after five years or so, working private practice, working 60, 70-hour workweeks, being on overnight call, the corporate structures with the pressures from the medical business world, it started really taking a toll on me, and really felt that burnout coming than most medical providers feel. My wife also practiced medicine; she agreed.

One day after a long day, I came home and had a strong conversation about our lives and what we really wanted. So we decided that we needed to make a change, and we decided to press the reset button. So we literally packed our lives into two small backpacks and decided to take off to travel the world for a year; nomad style.

So during these travels, we did a lot of soul searching and during the process of soul searching, I did a lot of reading. I read a lot of the motivational books, the Tony Robbins, The One Thing, The 4-Hour Workweek that took me to the Rich Dad, Poor Dad, and then I started listening to a lot of podcasts, including the Best Ever Show. I listened to it; it’s a great show. And what really started resonating with me is that in real estate, it’s a place where anybody can get started, with or without any experience or money, and then with a little bit of hard work, it can really bring you some form of financial freedom.

So once we got back from that year-long travel, we had a little bit of money saved up and so we decided that we’re going to buy our first little home. It was a fixer-upper to us, and it was located in Virginia Beach, Virginia. So we got all of our small little items out of storage. We drove down to Virginia Beach, we had the keys in hand, really excited, put the keys in the door lock, we open up that door, and our mouth and our hearts just dropped. The whole entire first floor of the house was flooded. We think that the pipe had burst in the wall a few days prior and just ruined everything, and we were completely devastated. We didn’t know what to do.

So there’s that saying that difficult roads often lead you to beautiful destinations. So we brushed ourselves off, we became motivated, and we decided to connect with local contractors, handymen that really helped us repair and elevate this property to a state that it wasn’t even close to before. And we did such a great job that we actually turned this one into our first flip.

And then we thought to ourselves after finishing this experience, why can’t we just replicate this over and over again? So we began our process. We educated ourselves on this vehicle of real estate investing, we networked heavily, we became close contact with local contractors who focused on rehabs, we met with local brokers and agents who focused on foreclosures, HUD homes, VA homes. We networked with wholesalers who brought us off-market deals, we networked in JV with a few investors, and we finally got to do another project of our own. And then, like that law of those first deals, it snowballed, and two became four, four became eight, and so on, and now, which is point here today, just like you said, we’ve done numerous of projects, and now today we’ve transitioned our model over into the commercial multifamily space.

We had a thesis that we wanted to prove and that thesis was that we can take our systems from the residential rehab side and transition over to the commercial side, specifically multifamily, and we feel like we did a great job so far, and we’re looking forward to growing our goals and continue scaling upwards.

Theo Hicks: Thanks for sharing that. So a few questions… Before we talk about the multifamily, let’s about the fix and flips. So you mentioned in your bio that you raised money for these deals. So at what point did you tap out of your own funds, and maybe talk to us about that decision-making process to go from funding the deals yourself to raising capital?

Victor Leite: That’s a good question. In the beginning, we had a little bit of money left over. So we were able to start slowly by ourselves and we leveraged a little bit of the money with credit cards and things like that, but we got to the point where we looked at our funds, and we looked at the project that we were going to do and we hit a roadblock. So we reached out to our network and we reached out to family, reached out to friends, and we showed them our business plan, we showed them what we were doing and they believed in us. They came in and started investing with us, and then from there on, we wanted to scale even further out. So we really began a philosophy of OPM – other people’s money. So we started with word of mouth, going off to friends of friends and college friends and co-workers and things like that, and we’ve definitely been using private money to get our business scaling to the point that we are today.

Theo Hicks: How many investors do you currently have?

Victor Leite: Currently, our company holds about 16 total investors. They’re a mixed bag – they’re retirees, they’re self-directed IRA investors, they’re cash investors… A very mixed bag of people investing with us.

Theo Hicks: Okay, and then what I’m leading to is I want to know what types of returns you’re offering to them, but I guess I’ll ask it in a little bit different way. So you say you’re transitioning into multifamily. So what has changed about your approach towards your investors from fix and flips to multifamily? So when you were doing the fix and flips, what was the compensation structure, what were the returns offered, what was the frequency of those returns, and then now that you’re doing multifamily, how has that changed?

Victor Leite: Okay, so in regards to residential real estate, we really began with more of note lending. So we were trying to offer something that was competitive with the market, but also not too high that we couldn’t guarantee those returns. So we went initially between some years ago, but we started at 5%, 6% returns, up to 10% to 12% returns for investors in residential real estate, and then now when we’ve transitioned over to the commercial space, we really try to push for larger returns with our investors in the low to high teens, and we try to give them their regular mailbox money returns, and then our goal is to run a product through the whole cycle and give them a return also in the end.

 

Theo Hicks: Then what types of conversation did you need to have with those investors when you transitioned from the fix and flip to the multifamily? …just because again, the returns are different for both. So were they onboard right away, did you guys do something convincing, or how did that conversation go?

Victor Leite: That’s another good question. We’ve developed these relationships, and everybody trusting us with their investments, and the majority of our conversations was that we really wanted to scale into a larger space where we had better returns, better asset protection, more consistent returns. We had depreciation and deduction opportunities for everybody… And because of the relationship that we’ve built, they were trusting of us to really follow through with what we were seeing, since we had done it so far over the last years that we’ve been working with them.

So we explained to them the differences of benefits from a residential fix and flip investments from a long term commercial buy and hold investments that we’ve been discussing with them. So that’s more of the differences in conversation. There was not much fight from that standpoint. Everybody was really happy to really have their investments grow for long-term.

Theo Hicks: How many multifamily deals have you done so far?

Victor Leite: So as a company, we’ve only done one official multifamily deal by ourselves. We have been working on junior venture partnerships, general partnerships and limited partnerships with other operators, but us as ourselves, we’ve done one so far in 2020.

Theo Hicks: Okay, and can you tell us about how you found the deal, purchase price, how much money you raised and the returns you offered to those investors and how many investors you have in that deal?

Victor Leite: Okay, so we did a small multifamily. We found this through a lead that we had, through one of the brokers we had a relationship with. It’s a small project. It’s a six-unit in Downtown Norfolk in Virginia. It’s literally a block from the hospital, a block from the university, a block away from the downtown shops and restaurants. We purchased this deal for $400,000, so it’s a $67,000 per unit, and like I said, we developed the same system to fix and flip and we moved it over to the multi.

So when we purchased this property, two of the units were vacant because they couldn’t get them rented out. It was the two top units. So what we did, we decided to go in there and we did our full interior upgrades of the units like we always do, and I can go into details about that if needed, but we did a full interior upgrade of the units, we brought them back up to pretty much be the best units in that building. We did two units and we found that there was a basement area of this property that in the entire history of this property nobody has ever utilized.

So we went there and we’re looking at opportunities of whether we can put a unit down in that basement, and the city gave us a little bit of a tough time doing that. So we transitioned over to our plan B which we turned it into an amenity. We did washer dryers, we did storage lockers, we did bike hookups, we did seating area, TV down there and we put a [unintelligible [00:13:08].12] on the outside, things like that… And we got all this done in ten days. We spent a total of $12,000, and we took the rents from where they were, which were $700 per unit, which was about 85 cents per square foot, and we moved it up to now they’re $1,000 per unit which moves our rent per square footage at $1.66. So we were pretty happy with how it turned out.

Theo Hicks: So you bought it for $400,000, you put 12k into it… Can you tell us a ballpark of what it’s worth now?

Victor Leite: Yeah, we had it appraised. It appraised at $510,000. So we have a little bit of equity left in it.

Theo Hicks: So when you bought that deal, did you bring investors in it, or was this out of your own pocket?

Victor Leite: This was out of my own pocket, because we wanted to show that we could transition our teams over fluidly without any hiccups… And it was a smaller deal so we really didn’t need any private investing for this deal. But now we’re using it as a case study for all of our future projects.

Theo Hicks: Perfect. The future plan– is the next deal you’re gonna buy on your own or are you gonna raise money?

Victor Leite: No. Next deal, like I said, right now we’re currently working on general partnerships on a 100-unit deal, on a 96-unit deal, on an 80-unit deal with partners in our Mid Atlantic region, and we’re going to try to be a strong partner. What I didn’t mention is that 258 Capital is our Capital Group, but we also have in-house, 258 Contracting. So we’re an all in one investment group where we have in-house contracting and labor force that can really go into a deal, and we can really make a really nice deal, a really great deal by controlling the renovations.

Theo Hicks: That makes sense, how you were able to deal with those two units and all that stuff in the basement, for 12 grand. I was like, “Wow. 12 grand…” are you just saying the basement or is that all in? Because it sounds like you were talking it was all in.

Victor Leite: All in.

Theo Hicks: It sounds like it’s definitely an advantage of having the contractor.

Victor Leite: Correct.

Theo Hicks: Alright, Victor. What is your best real estate investing advice ever?

Victor Leite: Okay, best advice ever. So I mentor a lot of young investors and things like that, and I say, the best advice I can give somebody ever is don’t be afraid to just take the action. Going back to my story, if we let our situation really discourage us, we would never be to the point we are today. I took action without really knowing where it really would lead us. So I say to the listeners that are listening now, you’re learning a lot of information, you’re taking it all in, but if you’re doing nothing with that information, information is just worthless.

So taking action on the information, whether it’s educating yourself on the vehicle of investment that you want, or developing or building your team. I can’t do this alone; I have a large team behind me that backs me up, and I’m talking about not just from contractors, but from partners, from project managers, from attorneys, CPAs, from my landscapers – everybody’s got a piece to play in this game. And then also you’ve got to network with like-minded individuals who are doing what you want to do. It will really raise your standard and your standard bar.

Theo Hicks: Alright, Victor. Are you ready for the Best Ever lightning round?

Victor Leite: I’m ready.

Theo Hicks: Alright. First, a quick word from our sponsor.

Break: [00:16:03]:03] to [00:16:48]:06]

Theo Hicks: Okay, so you said you like to read a lot of books… So what is the best ever book you’ve recently read?

Victor Leite: Okay, so I’ve read a few books recently. Now I gotta say, you guys are not paying me this or anything like that for the plug, but the Best Ever Apartment Syndication Book, we as a group just finished that and that book is awesome. It is a roadmap to really doing an apartment syndication from different angles, that other books don’t really talk about. So y’alls book is really a great book that you put out there. And I read a lot of mindset books, and The Power of Positive Thinking – I just recently just finished that. It really was a great mindset shifting book to really focus on confidence and restoring confidence and focusing on what are your fears and attacking those fears so that they don’t hold you back from inaction.

Theo Hicks: Well, thank you for that shout-out for the book.  It’s  The Best Ever Apartment Syndication Book, pick it up on Amazon, people. Okay, if your business were to collapse today, what would you do next?

Victor Leite: So if our business were to collapse today, which we have a lot of diversity, so we hope it never happens, but I think we’d go back to what really inspired me to do real estate in the first place. I’d go back to traveling again. Traveling opened up our eyes to different cultures and different mindsets and really allowed us to really press that reset button and get off our ridiculous crazy hustle, 9 to 5, and just say, “Hey, what is really truly important to us?” Also maybe, possibly volunteer. Volunteer medical services abroad. When we traveled, we saw a lot of people who are in need. There’s a lot of people in need all over this world. So I think that’s what we would do next.

Theo Hicks: What is the best ever travel destination?

Victor Leite: Oh, do you want my top three?

Theo Hicks: Yeah. Quick top three; just give them to me.

Victor Leite: Okay, quick top three. So obviously, I’m from Brazil. So a lot of people don’t know Brazil because Brazil doesn’t speak a lot of English, but the Northern part of Brazil is some of the most beautiful coastlines you would ever see. Also, Brazil is vast. So there’s a lot of things to do, but secondarily, if not Brazil, I would say, Vietnam. I know the US and Vietnam are not the best of friends based on history, but Vietnam – also beautiful landscape, beautiful ocean, beautiful people and great food. And lastly, we really enjoyed spending time in Bali. We really were able to really spend time in doing all that reading and tapping into our mindsets and focusing on ourselves. So those are my top three for your listeners who are looking to cut the cord and travel.

Theo Hicks: Perfect. I had to switch out one of the other questions because you answered it already.

Victor Leite: Oh, I did? Okay.

Theo Hicks: Yeah… Which is a good thing. So thank you for sharing that. So what deal did you lose the most money on and how much did you lose?

Victor Leite: We’ve done numerous rehabs, and to be honest, we’ve never really lost money. We’ve not made the returns that we were projecting. There was a deal where we made 1,000 bucks, but we didn’t really lose any money because we bought the deals right. We don’t just buy everything and anything that comes on the table; we have certain specific criterias that we look at with our business model and we try to avoid making mistakes, especially from others, who just think they can do anything and sell anything. So we’ve really not lost much. We just haven’t really met the marks we really wanted to on certain deals.

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

Victor Leite: Alright, so to reach us, you mentioned it, 258capital.com. It’s a place where you can reach out to us with regards to the commercial space. Lvrinvestments.com, that’s our rehab fix and flip business. You can see the projects we’ve done there. We can do a lot of stuff on social media now. We have Instagram and Facebook @LVrealty; you can follow us there. And right now, we’ve been really working on providing educational content on YouTube, so we started a platform called Thinking Thursdays, and that’s where we really try to interview high-performing people and try to learn their various habits that drove to their successes. So those are the areas that you can reach out to us and we respond pretty quickly.

Theo Hicks: All right, Victor. Well, again, thank you for joining us today and telling us about your journey into real estate investing. You talked about how you started off doing the typical corporate job and then ended up a nomad for about a year, and then eventually got into real estate, bought your first fixer-upper in Virginia Beach. It didn’t initially start off as planned, but you were able to connect with local contractors, fix the property up and now it’s your first flip, and you asked yourself, “Why can I just do this same thing over and over again?” So that project lead to another project and it has snowballed into a fix and flip business, and then you talked about how you wanted to essentially take the systems and processes that you created for your fix and flip business and use that in multifamily. That’s what you’re focusing on today.

We talked about raising money, and how you started focusing first on family and friends, showed them your business plan, they started investing, and then when you wanted to scale further, you reached out even more to friends of friends, college friends and co-workers. So you have 16 investors [unintelligible [00:21:28].00] retirees, self-direct IRAs and cash. You talked about the differences between the returns offered on residential and multifamily and that you were able to transition those investors into multifamily because they trusted you and you were able to tell them about better returns, better asset protection, and you really just followed through on what you said you were going to do in the past, so they trusted you to do it again in the future.

We went over your multifamily example where you bought a six-unit in Downtown Norfolk, Virginia. That came through a broker relationship, bought it for 400 grand, two units were vacant, you upgraded those units and then added some amenities to the basement. All in 12k because of your in-house contracting and labor force, and you were able to increase the rents from $700 a month to $1,000 per month increasing the value of the property to $510,000, so a great success story in the first deal.

And then your best advice was threefold, which was one, don’t be afraid to take action; two, make sure you develop and build your team and recognize that everyone has a role to play and you can’t do it all yourself; and then three is to network with like-minded individuals who are doing what you want to do.

So again, thanks for joining us, very solid advice. Best Ever listeners, as always, thank you for joining us. Have a best ever day and we will talk to you tomorrow.

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JF2093: Bad Decisions To Good Decisions With Will Harvey

Will is a Principal at CEO Capital Partners and recently left his W2 job to do real estate full time. He shares a great story of how he had a life of making some bad decisions in college related to alcohol and because of a great friend he was able to overcome this and now is a successful investor. 

Will Harvey Real Estate Background:

  • Will Harvey is a Principal at CEO Capital Partners
  • From Ashburn, Virginia
  • He started in real estate in 2016.
  • Personally owns over 1.5MM  in real estate mixed between rentals and Airbnbs
  • Recently left his W2 job to do real estate full time.
  • Say hi to him at : www.wealthjunkies.com  

Click here for more info on groundbreaker.co

Best Ever Tweet:

“Seek advice from qualified people.” – Will Harvey


TRANSCRIPTION

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

Will Harvey: I’m doing well.

Joe Fairless: I’m glad to hear that, and looking forward to our conversation. A little bit about Will – he’s the principal and CEO — he’s a principal at CEO Capital Partners…

Will Harvey: That’s right. Most people mess it up and say it how you originally said it…

Joe Fairless: Yeah, I was like “Wait, there’s a preposition there.” At CEO Capital Partners. He’s based in Ashburn, Virginia, right outside of DC. He personally owns over 1,5 million in real estate in the DC area, which is a mix between rentals and Airbnbs. He’s been investing in real estate since 2016, and recently left his high-paying W-2 job, so congrats on that. With that being said, Will, do you wanna give the Best Ever listeners a little bit more about your background and your current focus?

Will Harvey: Absolutely. Growing up, I was always on top of my dad. He’s been in business a long time… And he always taught me that — I’d go to a restaurant and I’d be like “I wanna work here one day.” I’d go to Chipotle when I was really young, and I’d be like “I wanna work here. The food is so good.” And he would always teach, “Now, you don’t wanna work here. You wanna own it.” So I was always instilled that whole “Own the ladder, instead of go up the ladder mentality.” So that was good.

I had a bunch of side hustles as a kid. I started out selling golf balls. I would find golf balls, clean them up, and sell them at a nicer course. As I went along with selling stuff  on eBay for people, and cut grass… And getting into high school I started going down the wrong path. I got into drugs and alcohol. Once I got into college, it got ten times worse. I just got real strung out on a bunch of stuff… I was there for three total semesters. My last semester was just a train wreck. I ended up pulling out of school, I came home…

Joe Fairless: What happened in that last semester?

Will Harvey: The main thing was just blacking out all the time.

Joe Fairless: It’s important to be conscious during college.

Will Harvey: Exactly, yes.

Joe Fairless: You’ve gotta be conscious during class time too, right?

Will Harvey: That’s right. So blacking out, and driving, and just doing all kinds of stupid stuff. Anyways, I came home, and I was actually home on winter break, and had just a total God moment. My Christian faith is what got me through everything that I went through. A family friend was in my parents’ driveway; I was living with them at the time. After a real bad blackout, my friend had punched me in the face a couple times, because I was trying to drive, and I was saying stuff about them… So the next day my face was all swollen and messed up, and this guy saw me and he’s like “What happened?” I was like “I don’t really remember.” And he thought about it — at the time he was sober 18 years; he was an alcoholic himself. So a couple days later he reaches out to me and he’s like “Hey, I was thinking about you over the last couple days, and I think this might be a little bit bigger than you think… So I would love to sit down — I’ll just tell you my story  and we’ll just go from there. No pressure.” And again, by the grace of God, I was kind of at the bottom, so to speak, so I agreed to meet with him.

Joe Fairless: And how did you come across this person in the first place?

Will Harvey: He was a family friend, lived in my neighborhood…

Joe Fairless: Okay.

Will Harvey: So I went and met with him. His story was identical to mine. I was sitting, talking to him, and I was like “Well, if he’s alcoholic and his story is exactly like mine, then what does that make me?” Two days later we told my parents; I admitted that I had a problem with alcohol, and ended up making the decision to pull out of school and get sober. I started going to AA meetings, and  all that.

Joe Fairless: Good for you.

Will Harvey: Yeah, I appreciate it. It was very humbling. Most 19-year-olds are not doing that, so it was very humbling, moving back in with your parents when you had the freedom of living at school and doing all that. Anyways, fast-forward–

Joe Fairless: And I’d say that everyone has areas in life that they need to have that sort of awareness and about-face; we’ve gotta do something else. It’s just that certain things, like alcoholism, drugs, other things – it’s more obvious from the outsider standpoint. But we’ve all got that stuff, right? Everyone has that.

Will Harvey: Right. Admittedly, now I’m addicted to work…

Joe Fairless: Well, your website is wealthjunkies.com, which after knowing this story — I was gonna ask you why you called it WealthJunkies.com.

Will Harvey: Exactly, that’s right… So fast-forward, after I was home and living with my parents, about a year and a half later I ended up walking on and playing football at a school in Ohio.

Joe Fairless: Which one?

Will Harvey: It was Ohio Dominican University.

Joe Fairless: Nice.

Will Harvey: It’s in Columbus, overshadowed by the other school in Columbus. [laughter] But I ended up playing there, and that was great, until I had double hip surgery. Then I came home and I kind of started my real estate journey. So I got into the mortgage business; a family friend got me into the mortgage business in 2015. I learned the business for about a year, and at the end of 2016 is when I went off into sales. So 2017 was my first year. I did well, and it was phenomenal; I lived it, breathed it, slept it… And it was actually before I started in sales. I was able to buy my first house.

The way that it all happened was I was in the mortgage business, and I didn’t know a ton about real estate, but I knew that it was a good thing, and I knew that I should buy a house, because I can  start building wealth. But I was making $30,000 at the time, and living in the DC area, you won’t qualify for [unintelligible [00:08:11].16]

So I went to my dad and I said “Hey dad, I have a potential opportunity for you.” And he’s like “Oh, great. Here we go.” So I showed him his house, and I was like “Look, I can’t qualify on my own, but I’ve done my research. This is the rental income that I can get. I’ll live in one room, I’ll rent out the other two. Can I borrow your ability to qualify?” So he agreed, and signed on the loan. I was able to get the house.

In the first month with two tenants – one was my brother and one was another family friend… The first month they paid me the rent, it almost covered the entire mortgage, and I was hooked on real estate. Hook, line and sinker. It was a house-hack before I ever discovered Bigger Pockets or anything like that… And I highly advocate that to anybody that I talk to, especially if they’re single and don’t have kids, or anything. I highly advocate for doing that.

Fast-forward a little bit more, I started originating and I started making good money, and at the end of ’17 I bought another house. Then fast-forward another eleven months from there I bought another house. Again, the houses here are ridiculous in price. One of those rental properties was over $400,000.

Joe Fairless: Dang. And you were putting like 20%  down?

Will Harvey: I put 10% down, because I moved into it. So each property I bought, I bought as a primary residence and moved into it. I had the lender’s consent, used the same lender, and they were cool with it. So that helped. All the rates are in the three’s, which is nice; I wasn’t having to do investment loans.

But after I got to three, I just realized that there was a serious scalability problem with what I was trying to do, and that’s kind of what led me into multifamily. So that’s when I started learning about it and going from there. If you wanna ask some questions based on all that…

Joe Fairless: Sure, yeah.

Will Harvey: Or I can keep going. What do you want me to do?

Joe Fairless: Well, your “personally owns” part – mystery solved  there. Because I introduced you as personally owning 1.5 in real estate in the DC area. Three homes, 400k(ish) a pop. There’s that. Is that all the portfolio, or is there something else?

Will Harvey: I actually have one more, and I had one that we sold; it was a flip. And then there’s another flip I’m doing with a partner right now… That was just a killer deal. I own it, but it’s in a company, and it won’t be owned for long; it’s not a long-term house.

Joe Fairless: Okay. And just to get an idea of cashflow, just pick one of the four homes, please, and tell us what’s the income, what are the expenses, high-level, and what are you making per month?

Will Harvey: Yeah, sure. I’ll pick the second one. It was the most expensive one. The cool thing about this one is that it was bleeding at one point. So I was able to kind of use the knowledge that I learned from multifamily and apply it to this. That’s what helped.

Joe Fairless: Oh, okay… Yeah.

Will Harvey: So I did have one person renting the majority of the house, and then I had Airbnb in the lower level; it was a separate entrance. The house was perfect for that… And I put a lock on the outside of the door, so they couldn’t access the rest of the house. It’s like a separate unit, essentially. And I had someone else renting the rest of the house. But what I did – once their lease was up, it was a three-level townhouse.

Instead of just doing the Airbnb and renting the rest of the house out as one lease, I kept the Airbnb and I did two separate leases for the two bedrooms that were upstairs. And by doing that – it was crazy; it turned it around phenomenally. Now it’s cash-flowing about $400/month… Which doesn’t sound like a lot, but since I’ve bought it, it went up in value $50,000. So it’s a high appreciation area. I know you preach the three rules – not to go for appreciation…

Joe Fairless: Right. Well, my approach is buy for cashflow, and then increase the value through value-add plays… And here you go, a value-add play. You kept the Airbnb, but then you changed it from leasing the other one as a regular rental to leasing it by the bedroom…

Will Harvey: Exactly.

Joe Fairless: …and then you separated that out. Let’s compare the Airbnb income per month, versus one-bedroom per month. What’s the difference there?

Will Harvey: The Airbnb is about $1,100/month. If you average it out, that’s what it comes out to. So it’s about $1,100/month.

Joe Fairless: Income?

Will Harvey: Income, yeah.

Joe Fairless: Okay.

Will Harvey: And then from that $1,100 — there’s not a whole lot of expenses. Let’s say about $60/month in expenses. There’s a cool app I’ve found where you can get a turnkey cleaner; it’s pretty cool. It’s called TurnoverBnb, for anybody listening…

Joe Fairless: Thank you. I wasn’t gonna ask that, but I should have, so thanks for offering that…

Will Harvey: No, absolutely. TurnoverBnb. So that’s about $1,100. But that room is so much smaller than the rooms that I’m doing a lease. So apples to apples, it’s hard to compare them… But it’s still more than what I’m doing for the leases.

Joe Fairless: What’s the bedroom rent?

Will Harvey: The master is $1,000, and then there’s another — there’s like a master two, and that one is a little bit smaller than the true master; that one is $950. So the Airbnb is better. The Airbnb is tiny compared to both of those rooms, and I’m still getting more rent.

Joe Fairless: So the reason why I asked that question was because of the follow-up, which is why not have all three be Airbnbs?

Will Harvey: Because it’s more of a headache to do it that way. I see it as more of a headache. Airbnb is not passive. People are coming… And I have it very passive now; I’ve been doing it for over two years, so I’ve kind of worked out all the glitches and have  it pretty automated… But one of the renters in the house I know very well, and she kind of oversees everything. So I’m giving up a little bit of income by not doing Airbnb for the sake of having peace of mind.

Joe Fairless: What, if anything, does she get compensated for overseeing it unofficially?

Will Harvey: If it’s something where I need her to clean it, she will, and I’ll just knock $50 off a rent. If it’s an emergency cleaning and the TurnoverBnb can’t do it in time, or there’s something that comes up with a guest, and they need something – then she’s there, and I kind of compensate her as I go. It’s a good arrangement that we have.

Joe Fairless: In terms of the process, with the Airbnb over the last couple of years you said you’ve got it down more or less to a smooth system… What are some major changes that have taken place over those two years?

Will Harvey: Getting rid of the stupid keyless entry that was giving me so many problems…

Joe Fairless: Oh, really?

Will Harvey: That’s a huge one, yeah.

Joe Fairless: Getting rid of it?

Will Harvey: Yup. It sounds crazy. That’s the reason I got it, was because I thought that it was gonna be so easy, nobody will lose a key, they [unintelligible [00:15:00].14] but it created so many problems.

Joe Fairless: Which one did you have?

Will Harvey: It was Schlage. They’re a name brand product, and it would always mess up. I’m not trying to dog on them, but…

Joe Fairless: You’re just speaking facts.

Will Harvey: Yeah, exactly.

Joe Fairless: So the battery went down sometimes, or…?

Will Harvey: No, it actually wasn’t the battery. It was really — I know I’m kind of getting in the weeds here, but there was this part inside, and it was like a little disk, and it would slip, and basically it would just spin freely, and it wouldn’t turn it. So I’d have to take it apart…

Joe Fairless: So why not just get a refund and get a different type of keyless entry?

Will Harvey: I don’t know, I bought it a while ago, and everytime I’d go over there I would just wanna fix it and be done with it and move on. So I’d youtube it, try to figure out how to do it… It would work for a little bit, but then a month later it would go bad. So the solution there was get a lockbox and have a key. So far, the good old-fashioned keyed entry has been fine.

Joe Fairless: Okay. What else?

Will Harvey: Another thing is I have a virtual assistant who handles all guest communications. A big thing with Airbnb is being a super-host, so you wanna do that… You wanna become a superhost, and in order to do that you’ve gotta get a bunch of reviews, and you’ve gotta be really good. So I had a virtual assistant – she’s awesome. Her name is April. And I’ve put together a process where as soon as someone books, she sends them a message and says “Hey, here’s the Wi-Fi, here’s this, here’s that.” There’s those frequently asked questions, so we kind of answered all of those questions in this first message.

So she would send that, she would say “If you need anything, let us know.” On the day they arrive, she would message them again, and basically reiterate that and say “If you have any issues with check-in, let us know.” And then while they’re there, for the long-term people, every Thursday she would message them and ask if they need anything. And then when they leave, there was a sequence where she would message them and try to get them to complete the review.

So that’s huge, in automating it… Because I was always too busy to ask for reviews and do all that. So having a system in place where she would do it was very helpful for me.

Joe Fairless: How did  you find the VA?

Will Harvey: UpWork. Neal Bawa motivated me to do that.

Joe Fairless: And how many VAs did you work with until landing with this woman?

Will Harvey: She was the very first one…

Joe Fairless: Wow.

Will Harvey: Yup. There’s a lot of people that have gone through a lot of VAs and not been satisfied, but knock on wood, she’s awesome.

Joe Fairless: Where is she located?

Will Harvey: Philippines.

Joe Fairless: And how much per hour?

Will Harvey: Five dollars and five cents.

Joe Fairless: And any bonus for doing stuff?

Will Harvey: I’d give her a Christmas bonus… If she makes a decision and it’s thinking outside of the box, she does something that’s impressive, I’ll give her a bonus. 10 bucks, 25 bucks, somewhere around there.

Joe Fairless: Had her for how long?

Will Harvey: I’ve had her since July or August of 2019.

Joe Fairless: Wow. Good. I’m glad to hear that.

Will Harvey: Yeah. It’s going great.

Joe Fairless: So now your focus is what?

Will Harvey: Multifamily.

Joe Fairless: Where are you at with that?

Will Harvey: Myself and four partners – we started a group about a year ago… And we got involved as a co-sponsor on a few different deals, and we were able to raise money on our first one. We raised about half a million dollars… And then about three weeks later there was another opportunity that came up, where we were able to co-sponsor… And that’s where we’re at now. We have one that we’re working on, and as this records, it’s under contract in Columbia, South Carolina… Which is pretty cool, because it’s the school that I was at, where I was a colossal screw-up, where I was getting into all the drugs.

Joe Fairless: Is that the Gamecocks?

Will Harvey: Yeah, University of South Carolina.

Joe Fairless: Yeah, nice. Now they’re USC.

Will Harvey: Yeah, exactly. That’s right.

Joe Fairless: I’m sure I’ve just made a lot of South-Caroliners upset when I said that… [laughter]

Will Harvey: Absolutely. That’s what everybody says.

Joe Fairless: Alright. Well, I’ll just join the crowd then and just blend in and run away.

Will Harvey: [laughs] You’re good.

Joe Fairless: So based on your experience, what’s the best real estate investing advice ever?

Will Harvey: When I was in the mortgage business and I started learning about multifamily, and I knew it was something that I wanted to do, like you said in my bio, I was high-paid, I was making a couple six figures, and I was in my early twenties… But I just wasn’t happy. I wasn’t enjoying it. I felt like a hamster on a wheel. And I would ask people advice. And everybody that I was asking was in a position where they weren’t financially independent, they weren’t financially free or anything like that. They were working. So the advice – what I’m getting at is seek advice from qualified people.

Everybody I was seeking advice from was not in a position where I wanted what they had, so why was I asking them for advice? That’s my advice – try to find people that are actually qualified to give you  advice on what you’re asking about.

Joe Fairless: That’s a good reminder… Because there’s all different areas of life that we need advice on, and we might have a trusted friend that we always go to for advice, but is that trusted friend qualified in that particular area of life to give advice on? That’s interesting…

Will Harvey: You’re not gonna go to somebody and ask them about your marriage if they’ve been divorced five times… You know what I mean?

Joe Fairless: Well, it would be good to hear their advice and then just do the opposite.

Will Harvey: Yeah, that’s a good point. [laughter] That’s right.

Joe Fairless: Alright, we’re gonna do a lightning round. Are you ready for the best ever lightning round?

Will Harvey: I am.

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

Break: [00:20:35].17] to [00:21:20].03]

Joe Fairless: Alright, what’s the best ever resource you currently use in your business, that you couldn’t live without?

Will Harvey: I would say with the personal portfolio I have – I will keep it with that – I would say the TurnoverBnb and the VA. So two.

Joe Fairless: Yeah. We talked about obviously you go over to TurnoverBnb – that’s an easy Google search – and then for the VA you talked about going to UpWork and finding a VA.

Will Harvey: That’s right.

Joe Fairless: What’s a deal that you’ve lost the most amount of money on, if any? I don’t think there is one based on what we’ve talked about. Maybe a flip, or something.

Will Harvey: No, there was no actual deal where I’ve lost money, but I’ve lost money when I first got into multifamily. There was a deal that I was trying to do on my own. It was a 14-unit property in a rural part of Virginia. I had deal goggles on, I wanted to close it so bad, and it was a pain in the butt. The seller was asking for stuff that was unreasonable. Long story short, I had the attorney do the contract over and over and over. The deal ended up dying, and then I got the bill for the attorney, and it was $9,000.

Joe Fairless: [laughs]

Will Harvey: That wasn’t fun.

Joe Fairless: What were some unreasonable deal points that the seller was asking for?

Will Harvey: I was so naive and inexperienced… He wanted to save money on closing costs; instead of doing a traditional purchase, he wanted me to purchase the underlying LLC that owned the property. I was getting advice from everyone saying that’s such a bad idea. You don’t know if he’s in litigation with someone… So it just created a lot of billable hours.

Joe Fairless: Yeah, that’s a pretty hefty attorney fee for a purchase and sale negotiation contract.

Will Harvey: That was my “Welcome to billable hours” moment. I wanted to throw up when I got that bill.

Joe Fairless: It sounds like you  had a very responsive attorney.

Will Harvey: Yes… [laughs]

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

Will Harvey: My mom started a non-profit, and you guys actually featured it on the Best Giving, or Best–

Joe Fairless: Best Ever Causes, yup.

Will Harvey: Best Ever Causes, yeah… Helping Haitian Angels. It’s an orphanage in Haiti.

Joe Fairless: Oh, yeah. That was fairly recently. Best Ever listeners, you can go to BestEverCauses.com. If you click on Recent Causes – I’m on there now – you can see that organization Helping Haitian Angels. Good, I’m glad to hear that.

So how can the Best Ever listeners learn more about what you’re doing?

Will Harvey: They can go listen to our show. We got our motivation from you, Joe, like we were talking before this started. I got roped into doing a daily podcast because of something Joe talked about at the conference… So thank you so much for that, Joe. It’s a lot of work, as you know…

Joe Fairless: Yes… Yes, it is.

Will Harvey: It’s awesome stuff. Our podcast is Wealth Junkies, you can find us there; or you can just shoot me an email, will [at] wealthjunkies.com.

Joe Fairless: Thank you, Will, for sharing your story, some challenges, some ways you overcame it, some lessons learned, like make sure we ask advice from people qualified in the area that we’re looking to get advice on, your Airbnb approach, TurnoverBnb, the VA, adding value to one of the properties that you own; it was losing money – what do you do? Let’s rent out by the bedroom, and let’s make sure we have that Airbnb rockin’ and rollin’. Some really applicable stuff, as well as what you’re focused on now with the multifamily.

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

Will Harvey: Awesome. Thank you, Joe.

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JF2092: From IT Sales to Multi Family Investing With JP Albano

JP started in IT sales and later found an interest in multifamily investing. Today he owns 70 units in Houston, Tx, and 165 units across the metro Atlanta area. His first deal was partnered syndication, where he learned a lot of lessons that he implemented in his journey forward in acquiring multiple properties. He shares some of the lessons he learned from a deal where he lost over six figures.

 

JP Albano Real Estate Background:

  • Owner, of JP Albano
  • He started in IT sales and later found an interest in MultiFamily investing.
  • Today he owns 70 units in Houston, TX, and 165 units across the metro Atlanta area which are currently undergoing successful repositioning.
  • Resides in Serenbe, Georgia
  • Say hi to him at https://www.jpalbano.com/

Click here for more info on groundbreaker.co

 

Best Ever Tweet:

“Partner with a more experienced person in a group and seek to offer value in some way.” – JP Albano


TRANSCRIPTION

Joe Fairless: Best Ever listeners, how 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, JP Albano. How you doing, JP?

JP Albano: I’m doing wonderful. I’m so excited to be here, Joe.

Joe Fairless: Well, I’m glad to hear that and I’m glad you’re doing wonderful. A little bit about JP – he started in IT sales, found an interest in multifamily investing because he wanted another way to provide for his family. Today, he owns 70 units in Houston, Texas, and 165 units across the metro Atlanta that are currently undergoing repositioning, so we’re going to talk to him about that. Based in Serenbe, Georgia. Did I say that right?

JP Albano: You got it, Joe.

Joe Fairless: Serenbe, Georgia. So with that being said, do you wanna give the Best Ever listeners a little bit more about your background and your current focus?

JP Albano: Absolutely. So background, as you mentioned, has been IT sales; I got into multifamily as a way of trying to figure out how I can generate – I’m doing air quotes, but passive income. I’m still waiting for the passivity to kick in, but what I didn’t realize is number one, how much I would enjoy pursuing multifamily deals, and just how incredibly rewarding it is to work in an industry where everybody wants to partner and everyone wants to get things done. Compare that to my sales career, it’s a bit of an uphill battle. You’ve got customers who don’t want to talk to you, competing partners that want to sell competing products… So it’s a refreshing place where I can come into it and pick up the phone and call people and welcome the opportunity to partner and grow and build together. So where we are today, we look at assets that are B and C class. We do the value add. like everybody else.

We have a different spin on multifamily than most people. We really want to dial-up and change the way multifamily is done today by adding up higher levels of customer service, and really treating the people that live there with more dignity and respect than they’re otherwise getting today, and we’ve got a whole business model around how we do that. We look for properties that are 250 units in size, across a variety of markets here in the south and southeast.

Joe Fairless: Okay, so up to 250 or 250 plus?

JP Albano: 250 plus.

Joe Fairless: Okay, have you closed on a 250 plus?

JP Albano: No, the biggest we’ve got right now is almost 100 units. Well, we’ve had a 100-unis and a 60-unit, so in total, that’s the 165. But the biggest we have so far is a 96-unit.

Joe Fairless: Okay, biggest is 96. So why aren’t you focused on other 96 units?

JP Albano: It’s a great question. In order for us to really demonstrate our ethic and our core values for our business here at significant lifestyle communities, to demonstrate that customer service level, we really need to support the staff, and we found that in order to do that, we need properties that generate enough revenue to support the payroll “burden”, and 250, that’s the sweet spot.

Joe Fairless: Okay, so you’ve got 70 units in Houston and 165 across the Atlanta area.

JP Albano: Yes, sir.

Joe Fairless: What came first of those two?

JP Albano: The Texas properties.

Joe Fairless: Texas properties. Okay, tell us a story about the Texas properties.

JP Albano: So my first deal was really more of a key principle or limited partner in a deal. The idea going into that was that I was going to get some experience or at least talking points that I can use to leverage that with brokers and get access to more deals. What I found that is 1) it gave me more confidence, but 2) it didn’t really necessarily lead to more door openings; maybe it did, maybe it didn’t. But my real, real first deal for the Best Ever listeners here is a 28-unit property in Houston, Texas, that me and three other gentlemen, we pulled down, we syndicated. That was our first deal that we really did on our own. We syndicated the deal on top of that. Talk about baptism of fire. There’s a lot of learning opportunity there and a lot of growth that happened. What really got me excited was the personal development that came from that; coming from most people when they’re getting into active real estate investing, getting rid of a lot of limiting beliefs, the idea of “asking people for money” instead of looking at it as providing opportunities for people to get great returns; just going through all those sorts of things. But that was about a $2 million acquisition price. We raised about $700,000. We got a number of friends and family with about $20,000, $25,000 or so, and the property is currently undergoing a really successful repositioning. We had some battle with a third party property manager that seemed like he was saying all the right things and doing the right things. The problem was they weren’t really delivering. So that was a really good learning opportunity that came out of that.

Joe Fairless: Okay, please elaborate.

JP Albano: Yeah, sure. So we had a property where our business plan was to go in and renovate the units, increase the rents, the normal stuff. The problem was we weren’t getting tenant showings. People weren’t biting on the higher rent increases, our renewals were falling through, and we had very little visibility into what the current third party PM was doing. We had a portal that we can log in, we could see leads, but they use a different system outside of that to actually nurture the leads. So we couldn’t see that. So as far as we could tell, we’ve got people putting emails and phone calls in and no one really following up.

Then we found ourselves in a funny spot where we tried to move away from them and suddenly realized that that size property, 28 unit, is a funny place. It’s not small enough for the single-family people to want to care about, and it’s not big enough for the bigger real property managers to wanna deal with. So we almost were forced to take over property management ourselves, which we ended up doing. So we bought some big boy property management software, which we’re moving the rest of our portfolio into, and one of my partners who’s local to the deal took over the day to day management. I’ve gotta say, it’s probably one of the best things we ever did because in a matter of, I want to say, two to three weeks, we got all of our vacant units rented up, and we have a waiting list for our property.

Joe Fairless: You said the first deal you did was at 26 units. Did I write that down correctly?

JP Albano: Yeah, this one we’re talking about right now was 28 units.

Joe Fairless: 28, sorry. 28 units, and you syndicated it…

JP Albano: Yes.

Joe Fairless: So how much equity did you raise in the syndication?

JP Albano: The total raised was about $700,000 to $800,000 if I remember correctly.

Joe Fairless: Okay. What was the purchase price?

JP Albano: It was a $2 million purchase price. So we also raised money for the capital improvements and there was an extra, above ordinary closing costs.

Joe Fairless: Okay. Do you know about how much the legal fees were to syndicate that?

JP Albano: It wasn’t that bad. I want to say it was between $8,000 and $12,000. Yeah, it wasn’t awful.

Joe Fairless: Okay, cool. So with that deal, it was you and how many partners?

JP Albano: It was four of us total. So three other gentlemen.

Joe Fairless: Okay, and how did you split up your roles and responsibilities?

JP Albano: That was a good learning opportunity as well. That when we split up pretty much evenly amongst ourselves. Everyone got 25% from an ownership standpoint. As far as responsibilities go, we didn’t really define who would be doing what, we just had the understanding that each of us is going to contribute in whichever way was possible or wherever we need help; that sort of mentality. It worked out fairly well. As time went on, we saw that the property required a lot more care and feeding than we were expecting, simply because we were under the impression that our third party PM that we were paying money for was gonna be managing the property, but the reality was we were working on the property almost every day for the first four to six months.

Joe Fairless: Okay, so that was your first deal. Do you still partner with those same three other people on deals that you’re working on now?

JP Albano: We are still in communication on other opportunities as they come up. Absolutely, yes.

Joe Fairless: Okay, so what’s the last deal you bought?

JP Albano: Last deal we bought was – oh, this is an interesting one… This one was in October, it was a 57-unit in Hapeville, Georgia, which is a city inside of Atlanta. It’s just north of the airport in Atlanta.

Joe Fairless: Okay. Did you have the same three partners on that one?

JP Albano: No, that was a different deal, different opportunity. I partnered on that one with my current business partner, Matt Shields, on that one, and a few other friends and family. We did not syndicate that one, we just raised money from about eight other people because we bought the property for a song.

Joe Fairless: Okay, got it. So it was a joint venture then.

JP Albano: Exactly, exactly.

Joe Fairless: Okay, so you had a joint venture on that one. So tell us the business plan on that, and first off, how’d you find it?

JP Albano: That property was interesting. My real estate coach, Bill Ham, had notified me. He knew I lived in the area, and he knew that there was something that I and my team could take down. He was at the same time closing, he found himself in a situation where he was closing two properties at the same time. This one would require a lot more work, so he was a little disinterested in it. So his offer was, “Hey, pay me a finder’s fee and you guys can have the contract.” So that’s what we did. We call it a unicorn, really. It was an original owner for 60 years. You wouldn’t even tell this property existed, because when you get off the highway to get there, it’s down the street of a dead-end road. So unless you venture down the street a little bit past the trees, then you’re greeted by this oasis of a smorgasbord of different houses.

The gentleman that was running it previously, was running it as a weekly rental property, again, for the last 60 years. Rents for about $100 a week or $400 a month, and this is in a submarket where a one-bedroom apartment was average rents are $915. So we saw an opportunity to increase the rents, not necessarily to $400, but somewhere in the $500 to $600 range. We had a variety of challenges around not having actual financials. This was the definition of mom and pop. So things were written on carbon copy paper. There were no systems in place, there was very little documentation, so we had to underwrite that with really good finger in the air assumptions on things and being very aggressive with respect to what losses we can expect, things like that.

I can happily say so far, knock on my thick  Sicilian head, that things are turning out a lot better than we ever anticipated. There’s been a tremendous amount of demand for that type of housing. People have the ability to pay weekly because frankly, these people are in a financial situation where they just can’t manage their money well enough to be able to do monthly rents. And they like the area, they like the job opportunities that are there. They like being close to Atlanta. We have a waiting list and we haven’t even advertised any of the property.

Joe Fairless: With that deal, what’s been something that surprised you in a bad way about it?

JP Albano: In a bad way? I would say that– I guess I didn’t recognize or realize that the people that do live there — well, I feel like they’re trying to do their darndest best. A lot of them have sorted and troubled histories and backgrounds. I’m not surprised. I think there might be a few registered sex offenders that live there. So as a family man and a father of two children, two girls, I should say there’s that part that doesn’t sit super well with me, but at the same time, they are human beings. I’m sure that they have atoned for their sins in the legal system. So that’s probably how I would answer that question, Joe.

Joe Fairless: What deal have you lost the most amount of money on?

JP Albano: Oh, it’s a good question. So this was a deal that, as of last Monday, I should say that I learned that the deal was dead. It’s been dragging on for almost a year now. It was a 300-unit student housing property that I was part of the earnest money and due diligence contributor in the GP team; that was my contribution. The team that was running the deal lost the contract. It’s through a variety of mishaps, not being able to raise the capital, some shaky business with the loan, with the deal sponsors themselves. It’s a story for another day, but yeah, I lost a six-figure amount of money on that deal. Pretty sad.

Joe Fairless: I’m sorry that happened.

JP Albano: You know what the good part about is, Joe? It’s a good story to tell to other people in my community and other investors and show them, hey, bad things happen. And it’s okay because you grow from it, you learn from it, you make the best of it and you try to learn from those things, and that’s how I really moved on past it. Honestly, it doesn’t really bother me anymore. It’s just more [unintelligible [00:14:05].18]. It was more of a giant waste of time than anything else, and that’s really the biggest sucky part of it; just a waste of time, for no reason.

Joe Fairless: I get that. So knowing what you know now, if you were presented a similar opportunity somewhere else–

JP Albano: Oh, yeah.

Joe Fairless: –what questions would you ask, now that you know what you went through?

JP Albano: You ready? How much of your money, Mr. Deal Sponsor person or Mrs. Deal Sponsor person, are you putting in the deal? How much of your skin is in this game? And that was the problem; they didn’t have any skin in the game.

Joe Fairless: Got it. So they worked with partners. Those partners did put up the earnest money, they did not, deal fell out of contract, partners who put up earnest money lost money – is that basically what happened?

JP Albano: Exactly, exactly.

Joe Fairless: Got it. That’s a big question to ask. Any other questions? Because let’s say they say, “Oh, I’m putting in 50k of my own money.” Anything else you would ask about that?

JP Albano: I would, yeah. “Let’s also do a personal guarantee on that.” I would be comfortable with that, the personal guarantee, and also understanding how much they are on the hook for as well, and I think that’s fair. And maybe even hashing out a plan, a go-forward plan. Let’s say there’s a couple of partners in the deal and JP is being asked to contribute 20 grand or 30 grand for some due diligence stuff, whatever. “Okay, guys, what happens if we lose the 20 grand? Is everyone gonna contribute $15,000 or some amount of money to help recoup the cost?” I think that’s a fair way of doing it, and just having that conversation about, okay, what happens worst-case? Because those go down; it’s part of life.

Joe Fairless: Well, let’s reverse the focus, and let’s talk about the deal you’ve made the most money on.

JP Albano: That’s lining up to actually be this 60-year-old original owner property.

Joe Fairless: Well, let’s talk about money in the bank, as of this moment, out of all the deals that you’ve done. So the most amount of money in the bank you’ve earned from a deal to date. What is that?

JP Albano: That’s a hard one to answer because all of the money in the deals coming out of them are anywhere from $500 to $1,000 of distribution, which I’m extremely appreciative, Universe, but it hardly is that a number where anyone’s going to crash their car or hit repeat on their smartphone.

Joe Fairless: By crash their car, they’re crashing it because of excitement.

JP Albano: Actually, they’re staggered, they’re staggered.

Joe Fairless: Okay, I was wondering why they’d– that’s a lot of money. Okay, I’m gonna end it on a high note; go find the tree. [laughter]

JP Albano: The funny part about it, Joe, is I’ve been doing this for a number of years and I totally recognize this as a long, long haul game. I’m sure you’re in the same boat, and I’m okay with the very, relatively speaking, small returns right now, because I’m building something that’s going to be bigger than myself and bigger than the partners that I’m working on it.

So I see that there’s a lot of upside and a lot of impact that we can make on the people that we affect and touch in our communities and our investors’ lives as we make amazing returns to them. So that’s the part I’m more excited about right now, and the financial part will catch up to me later on.

Joe Fairless: On the 96-unit, for example, $500 to $1000 a month – I assume it’s from the 96-unit because it’s the largest one, but correct me if I’m wrong.

JP Albano: Yeah.

Joe Fairless: Was there not an acquisition fee? Is there not any–

JP Albano: Oh, yeah, you’re right. Yeah, you’re right. There was, actually. So the fee we got was a $30,000 split from that. So you’re right. Thank you for prompting my memory on that.

Joe Fairless: Okay. So you got probably like–

JP Albano: My portion was 30k on it.

Joe Fairless: Oh, well, there you go. Who needs 30k? Yeah, 30k is nothing, right?

JP Albano: I’m so good at spending money on building this business and scaling out a team that it’s really not.

Joe Fairless: Fair enough. Well, let’s talk about you’ve got the portfolio and you’re focused on finding another acquisition that’s twice as large–

JP Albano: Yes, sir.

Joe Fairless: –as what you’ve acquired, and you said at the beginning of our conversation, that you pride yourself on higher levels of customer service. Will you elaborate on how you deliver on that with the community level?

JP Albano: Yeah, that’s a great question. There’s a couple of aspects of that. One is really making people feel like they are part of a community, and I know that’s an often thrown around term, community and belonging and stuff like that. We’re building a business where that is a core, core function of our membership coordinators. The people that are greeting the prospective members and the people that want to express interest in living there.

For example, we have our people go out of their way to introduce a prospect to any other members of our community that might share similar interest, because you really want to show them that, hey, there are other people just like you that live here as well. Isn’t this wonderful? You want to learn about, ask questions about the people that are expressing interest in living in that community. And what I found is when I’m doing my secret shopping, going to different apartments, I can count on maybe one hand how many times a leasing agent actually asked my first name or even what brought me in today. The first question out of their mouth is usually, “When can you move in?” or “When do you need the unit by? How many bedrooms?” It almost goes without fail, and so I don’t feel that the industry is really delivering on this idea of excellent customer service. Especially in the workforce class housing product, where blue-collar people, hard workers, they’re honestly not used to being treated like if you were a resident at the Ritz Carlton. I don’t know if it has to be that extreme, but that’s just the direction that we choose to operate our business on. So it’s a tremendous opportunity there.

Joe Fairless: So a couple of questions that the person who greets the prospective resident asks out of the gate… What are some other tactical things that if a Best Ever listener’s listening to this and they want to implement something, what are some tactical things we can do?

JP Albano: Very basic questions, greeting them with a smile, standing up and maybe instructing your staff to be able to make it clear that they are excited that someone came in and is inquiring about your property. So asking the basic questions, what’s your name, greeting them by that name, showing a warm and caring welcome, ask them what brings them there today, and then easing into the topic rather about what brings you in and what answers can we provide to you about our community that you want to know about it.

Because reality is 80% of a person’s decision to move into your property is made when they pull up; that’s the whole curb appeal thing. The rest of the experience is either going to move the needle further in the direction of yes or it’s going to dissuade them from wanting to live there. So I just see a lot of properties falling short on that.

The other part of it too is really if your leasing agents are speaking with a prospect and Mrs. Smith walks by, and then in your conversation with this prospect you learned that they like gardening or they like dogs or whatever, have the leasing agent to go out of the way and introduce Mrs. Smith to this prospect. “Hey, Mrs. Smith, I wanted to introduce you to JP. JP here loves gardening.” What that shows you is it shows the prospect that, hey, this is a community that I can fit in, I can get plugged in right away and really have a sense of belonging. I think that’s what’s missing in multifamily housing today.

Joe Fairless: Once they are in the door, and they say, “I love to rent,” and they do rent, do you have anything within your system that delivers on that customer service aspect, that may be outside of — or when you were talking about it, were you really thinking about that initial interaction and impression with them?

JP Albano: Yeah, the initial interaction and impression is the biggest part, because they’re really just not going to get that anywhere else. At least not that I have experienced thus far.

Joe Fairless: Based on your experience as a real estate investor, what’s your best real estate investing advice ever?

JP Albano: If you’re early in your (we’ll call it) active investing or real estate investing career, you really need to show that you can close deals with brokers to win deals. It’s a very competitive market. So you’ve got two options, in my opinion – either buy a small property and you grow bigger over time. Eventually, you’ll gain credibility and the experience to show that you can close deals, and incrementally growing the unit size and your account a bit at a time.

Alternatively, option two is you partner with a more experienced person or group. Maybe you seek to add value in some way, offer help to raise capital by introducing your friends and family to them so they can start to build relationship with those deal sponsors. I guess, in a short time, you’ll start being part of the general partnership pool and you can point to those deals while you build up your investor base, allowing you to have more street cred, if you will, with those brokers, and give you the opportunity to really scale your business and scale your real estate career a lot faster.

Joe Fairless: We’re gonna do a lightning round. Are you ready for the Best Ever lightning round?

JP Albano: Bring it.

Joe Fairless: Alright, let’s do it. First, a quick word from our best ever partners.

Break: [00:22:45]:03] to [00:23:33].10]

Joe Fairless: What’s the best ever resource that you use in your business that you couldn’t live without?

JP Albano: Neighborhood Scout.

Joe Fairless: What do you use it for? Neighborhood research? [laughs] As soon as I asked that question, I was like, “Oh, that’s a dumb follow-up question,” but will you elaborate a little bit?

JP Albano: Glad to. So Neighborhood Scout is a great first pass tool to use to help get a sense of what a neighborhood or a market looks like where a property’s located without physically being there. Especially if it’s a market that you’re unfamiliar with, it’s a great way to get a sense of what the crime rate looks like, what the schools look like, what’s the median income… All the basic things you want to know before you make a decision if it’s worth to go physically there and visit this property.

Joe Fairless: Best ever book you’ve recently read.

JP Albano: Becoming Supernatural by Dr. Joe Dispenza.

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

JP Albano: So I’m an accountability coach with the Jake & Gino group. I enjoy helping students, I’m super passionate about real estate and also growth and personal development. So I like helping get them into the game. I also really enjoy pointing people in hopeful directions around health-related issues, as I’m very passionate about bio-hacking and health and fitness.

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

JP Albano: Check me out on jpalbano.com.

Joe Fairless: JP, thank you for being on the show. Thanks for talking about how you’ve built your portfolio, how you’ve partnered with others, some lessons learned on that 300 student housing project for what to do, questions to ask, and then just your overall approach to business. So thank you for being on the show. Hope you have a best ever day. Talk to you again soon.

JP Albano: Thank you so much show. I really appreciate 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.

JF2091: CEO of Real Estate Tech Company Groundbreaker Jake Marmulstein

Jake is the co-founder and CEO of Groundbreaker Technologies, a real estate technology company that he created to help solve the problems he was having when he was investing in real estate. In this episode, you will learn some ways to use technology to improve your real estate investing experience.

Jake Marmulstein Real Estate Background:

    • Co-Founder and CEO of Grounderbreaker Technologies, Inc
    • Over 6 years of real estate technology experience
    • Based in Chicago, IL
    • Say hi to him at: https://groundbreaker.co/ 

 

 

Click here for more info on groundbreaker.co

Best Ever Tweet:

“One practice that has really helped me grow is by getting outside of my business by helping other entrepreneurs.” – Jake Marmulstein


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, Jake Marmulstein. How you doing, Jake?

Jake Marmulstein: I’m doing great, Joe. Thank you for having me.

Joe Fairless: Well, it’s my pleasure and I’m glad to hear that. A little bit about Jake – he’s the co-founder and CEO of Groundbreaker Technologies. They are the sponsor of today’s episode, as you are well aware, and he has over six years of real estate technology experience, he’s based in Chicago. We’re gonna be talking about using technology to your advantage, solving problems with technology, and then also pitfalls when creating a real estate business that he’s seen from a back-office operation standpoint, among other things. So with that being said, first though, Jake, you want to get the Best Ever listeners a little bit more about your background and your current focus?

Jake Marmulstein: Sure. Thank you for the introduction. So Groundbreaker and my background blend together because when I was working in real estate investment, I realized that managing investors in the current way that we’re doing it, at the REIT that I worked in, we were doing institutional scale investments in distressed hotels, and I was doing all the underwriting and packaging of the materials, and then having to get on investor calls and answer investor questions. So through that experience, I realized that the process was pretty manual and there was a large lack of technology, and I wanted to make it better and couldn’t find solutions in the market to address these problems. So that’s where Groundbreaker came into play with my background. And ever since, I’ve been working with real estate syndicators to help them get their business into a digital realm, where they can manage things in a more automated and streamlined way.

Joe Fairless: So you were working at a REIT that was buying distressed hotels, and you said you were responsible for– I think you said underwriting, as well as answering investor questions. What type of questions would be asked by an investor when looking at these types of opportunities?

Jake Marmulstein: The investors would want to know some of the basic things like – what’s the minimum investment amount? Why this asset? Talk to us about the demand generators in the market and the competitive set. Some of the things that you would assume that they would already read in the pitch deck, but maybe they never even looked at what you sent them.

Joe Fairless: So answering those questions would be one aspect of it, and you mentioned that– okay, you saw that there was an opportunity to build technology to address what you were seeing wasn’t automated, but could be. So how does a solution like Groundbreaker help with that process if they’re not reading it in the first place? Is it, “Hey, you’ve got a place to log into and now, here it is right in front of you, and it couldn’t be more obvious that you should check this out”, or are there are other ways that this provides a solution for the challenges that you came across?

Jake Marmulstein: Yeah, this is only one small aspect of it. I remember spending a lot of time also moving files into different folders and organizing the backlog that was our database of information, and not having it all in one place, and managing several different Excel spreadsheets to keep track of contributions and distributions and investor data and the conversations that we had with investors, and having that all really based on Excel in an internal server.

So there’s a wider, larger problem of data storage and just the access to the information that we use to operate the business that causes the problem. But with regard to this specific one, Groundbreaker has a offering memorandum builder inside of it, so you can create your offering and have it live on the internet, and that means that we can track people getting access to the system, logging in and looking at the offering. So when we go to them to call the investors and look at the list of individuals that are most likely to invest, we can pick the people who’ve already looked, and we know for those who haven’t looked, where they’re at, so we can moderate the conversation and maybe they might be a different priority in our list of investors to call, but we go into the conversation with the information that they didn’t actually check out the deal yet.

Joe Fairless: I know that when you look at the backend, back-office operations that need to be present when you create a real estate business – when you talk to others, a lot of times they’re missing some things or they don’t know what they need to have included whenever they create a real estate business. Can you talk about some of the backend office operations that are needed in order to have something up and running?

Jake Marmulstein: Absolutely. So a lot of people are great at finding good opportunities, good deals, because that’s what most people get excited about is the deal. Let’s find that deal and let’s find that great opportunity to invest in and be able to pull the trigger. But before you can scale a real estate investment business appropriately, you may start out with a simple Excel spreadsheet and PowerPoint with a group of friends and family who know you and trust you. But when you want to scale beyond that, you’re going to need to have systems in place to get across your track record and do everything in a compliant way, manage data and track everything. So having a website helps to create transparency about your brand and who you are, and a lot of people spend way too much money and time on the design of a website and that holds them back.

I also find that people will pay a lot of money for operating agreements and getting their entity set up, and it will come out of pocket tens of thousands of dollars before they even have the chance to make any money. So that’s where a lot of people stop, is on that basic stuff. So you need to have your operating agreement in place and your entity in your bank account, and having a website helps you to create a track record and show the history of what you’ve done, and it builds trust and familiarity with you, so that you can have access to new investors, and when people refer business to you, there’s a place for people to go to get information on who you are. So I think all of that helps. And then if you’re able to attach an investor portal into there, which is what Groundbreaker would be able to provide, you have the chance to catch those leads, let them sign up, and then give them access to your deals. So it will create an infrastructure for you as a business, to be able to build trust, do things the right way in a compliant manner and operate in a system that can scale.

Joe Fairless: With Groundbreaker over the years, what are some major things that have evolved since the beginning?

Jake Marmulstein: In terms of–

Joe Fairless: In terms of the product itself.

Jake Marmulstein: In terms of the Groundbreaker product?

Joe Fairless: Mm-hm.

Jake Marmulstein: Sure. So when we started, we were just a fundraising tool. We allowed people to create an offering and share it with investors. And people told us that they wanted to have a private investor base that they could manage in a CRM system, where they could take notes and keep information logged, and upload reports and share information and be able to distribute funds. So we built all of that functionality, and then we made distributions electronic so you can send funds through direct deposit to investors’ bank accounts through the software, and that’s been a huge improvement.

We also have been able to make it easier for people to find information by having the CRM and having all of the information from every investment, every report, K-1, in the same place; so you don’t have to manage different systems to keep track of this data. Groundbreaker can act more like a headquarters for the business, and I think that has really helped a lot of people who might be relying on email or Dropbox to house the data, and so it still creates that problem of inefficiency when information is in different places.

Joe Fairless: What’s been the biggest challenge for getting more customers? Obviously– well, not obviously, but I’d say most businesses, they want more customers. So there’s always gonna be a challenge to getting more and more. So what’s been your biggest challenge in getting more customers?

Jake Marmulstein: Well, I think initially, the challenge was just the realization from the market that this solution is the future and the need for it. I saw it pretty early on that every real estate investment company would, at some point, have an investor portal, and as more companies adopt, the companies that don’t adopt are in a position of weakness. So that’s the market moving and getting in there– identifying the need for an investor portal to be able to offer transparency to their investors in a way that’s never been available before. So as the market gets more educated, Groundbreaker’s here to provide that service, and I don’t see any challenges outside of just getting the word out about what we do and people being educated about why they need to get on board with the solution, because there’s definitely enough companies out there managing things the old fashioned way. They’re not happy with the way that they do things, but they don’t know that there’s something else better out there that they could do.

Joe Fairless: Let’s talk about you as an entrepreneur because as real estate investors, we’re all entrepreneurs in varying degrees. At least, that’s my belief. What’s been the hardest day for you as an entrepreneur?

Jake Marmulstein: That’s a great question. I don’t think there is a hardest day, Joe; I think there’s a lot of hard days. It’s like a rollercoaster ride; some days you feel great and happy in what you’re doing, and some days you really question why you’re doing it. But maybe, I could say when I moved to Chicago and took on the current investors that are helping to help me grow Groundbreaker, that was a really hard day, because I moved from living in Puerto Rico in 2017, and seeing the sun every day, to moving to Chicago in the middle of winter in January. I didn’t have a place to stay, and I was staying in an Airbnb, and I was questioning whether I’d made the right decision or not, because I could see myself taking a major sacrifice in terms of what I wanted and the lifestyle that I wanted to live, because I enjoyed Puerto Rico very much, and I could see myself living there… But making a sacrifice to be able to grow the business and realizing that as an entrepreneur this was a lifestyle change that I was willing to take so that I could achieve something greater and that one day, with hard work and determination, this decision would pay off.

Joe Fairless: Mentally or rather emotionally, in that time period, what do you do to help yourself emotionally? You mentioned your thought process, “Hey, this is why I’ve gotta do”, but did you do anything to help emotionally keep you in good spirits during the dead of winter in Chicago, which is probably the coldest place that I’ve ever been to? It’s miserable, quite frankly.

Jake Marmulstein: Yes, and you’re currently in Ohio, right?

Joe Fairless: I am, but Chicago with that wind and the winter just puts tears on my face involuntarily, and then they freeze on my face; it’s just miserable.

Jake Marmulstein: You should have been here for the polar vortex.

Joe Fairless: Oh, well, I’d rather just hear about it through you. But anything emotionally that you did to help keep your spirits up? And I ask this, because I’m interested in you, but more importantly, for all the Best Ever listeners, if they’re going through something where they take a leap, then maybe what you did to help you emotionally just get through it could be something they could use, too.

Jake Marmulstein: So here’s what’s helped me as an individual get through some of the challenging parts in my life, and it comes from understanding that I’m making a choice for something that’s greater that I believe will pan out in the future, that the sacrifice is necessary to get there, and that if I work hard and I power through, it’s going to be okay, it’s going to be worth it, and I’ll be looking back at the moment, happy that I made that decision.

So there’s a lot of optimism, but then also knowing that I’m putting myself outside of my comfort zone and leaning into that and saying, “I’m outside of my comfort zone and I know this is uncomfortable and I know it’s hard, and this is where growth happens,” because I want to grow personally from anything that I do. Whether it’s true or not, I’m thinking that I’m going to grow, and there’s a good example of that… When I was in college, I went and I lived in Spain, and I didn’t speak any Spanish, and I didn’t know anybody, and I knew that that was an uncomfortable situation, and I had to learn Spanish and find out how to live as a adult in the free world… And that took me a lot of suffering, also mentally and emotionally, to be able to get to a point where I was comfortable. And then this is the same situation. When I moved to Chicago, I didn’t know anybody. I just knew that I would grow from the adversity.

Joe Fairless: It’s embracing it and knowing that there’s something empowering about what you’re doing, and then having the faith to say, “Okay,” as you said, “This is where the growth happens.” That’s so powerful knowing, whether that’s true or not, but if you believe it to be true, then most likely, it will become true that you’re going to grow through the experience and regardless, you’re gonna be better off. It might not be exactly what you thought it would be, the end result, and that’s something I also got from Tim Ferriss… He talks about whenever you enter in the new venture, identify regardless of if it is successful in whatever quantifiable way that you think it should be successful, regardless of that, find ways that you will be better regardless of the actual success of the project. And that way, you’re still going to get something out of the experience, whether or not it’s the actual results you intended is another story.

Jake Marmulstein: A hundred percent. You described it really well. I also– when it was winter, and it was very rough emotionally because of not seeing the sun and not having people to spend time with, I ended up going to the gym a lot, and I think that balancing that positive self-talk and long-term thinking with healthy physical habits to regulate your body and your mental state are necessary.

Joe Fairless: Yeah, and that could easily go the opposite direction easily for someone. If it’s really nasty outside, you stay inside and you do not go work out, and then you gain a bunch of weight.

Jake Marmulstein: Yeah, and you tell yourself as you’re running to the gym, “This is challenging and I hate it, and I love hating it, because it helps me grow.”

Joe Fairless: What a mindset to have, and it can only help us when we think about things that way. Anything else that you think we should talk about as it relates to as an entrepreneur, just some things you’ve learned, or also we talked about pitfalls when creating real estate business, spending too much time and money on a website when you don’t have the other aspects taken care of, or using technology to your advantage based off of your experience working with the REIT, buying distressed hotels? Anything else before we wrap up that you think we should talk about?

Jake Marmulstein: Yeah, I’ll share with folks this last tidbit. I think that it is sometimes really hard to focus on what you’re building when it’s all about what you’re building and it’s all about you. So something that really helps me to remind myself of what I’ve learned and what I’ve been able to do and how I’ve grown as a person is really getting outside of my business, and that’s how I give back. I give back through helping other entrepreneurs and advising them and helping them to think about their ideas.

When I do that, it reminds me of what I know. And even though some days are tough and I don’t get what I want at Groundbreaker, when I can help somebody, it just proves to me how much I’ve learned and what an impact I can make, and I can see it through the impact I make for somebody else. So that’s just something to keep in mind for all of you out there who might be frustrated with your own business, and in a way that you can give back.

Joe Fairless: Service many leads to greatness. I’m really grateful that you mentioned that. You’re probably wondering if I was gonna ask you your best real estate investing advice ever, or best ever advice, but I’m making this a special segment on the weekend. So that’s why I didn’t ask it. I’m glad that you mentioned it proactively. How can the Best Ever listeners learn more about Groundbreaker?

Jake Marmulstein: The best way is to go to groundbreaker.co. We took a lot of time to work on our website and share as much content about us as possible. So you can learn about us at groundbreaker.co.

Joe Fairless: Jake, thank you so much for being on the show. I hope you have a best ever weekend. Talk to you again soon.

Jake Marmulstein: Thank you, Joe.

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.

JF2090: Marketing With Groundbreaker Director Ed Cravo

Ed Cravo is the Co-Founder and Director of Marketing at Groundbreaker Technologies, Inc. He shares his journey into marketing and shares how Groundbreaker can help investors in their personal business. Ed explains how they can help you do more deals with less work while saving you money on operations and banking. The Groundbreaker software lets you streamline your fundraising, relations, distribution payments, and reporting in one easy-to-use tool.

Ed Cravo Real Estate Background: 

    • Co-Founder and Director of Marketing at Grounderbreaker Technologies, Inc
    • Over 4 years of real estate technology experience
    • Based in Chicago, IL
    • Say hi to him at: https://groundbreaker.co/ 
    • Best Ever Book: Drive by Dan Pink 

 

Click here for more info on groundbreaker.co

Best Ever Tweet:

“The ease of use is such a big deal for us” – Ed Cravo


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, Ed Cravo. How are you doing, Ed?

Ed Cravo: I’m doing great, Joe. Thanks for having me. Looking forward to not getting into any fluffy stuff.

Joe Fairless: That’s right. Well, you know the drill then. Best Ever listeners, you know Ed and his company Groundbreaker, because they’re a sponsor of today’s episode, as you are well aware. I’ve gotten to know his team through this process, and I know you’re gonna get a lot of value from this conversation.

So first off a little bit about Ed – he’s the co-founder and Director of Marketing at Groundbreaker Technologies, he’s got over four years of real estate technology experience, he’s based in Chicago. With that being said, Ed, do you want to give the Best Ever listeners a little bit more about your background and your current focus?

Ed Cravo: Absolutely. So I started my career in marketing right out of college, joined a search engine optimization company, and I started doing sales there, but just learned the entire marketing business as well, moved on to founding my own marketing company after that. In that marketing company we serviced real estate clients, construction clients, e-commerce websites, etc., and then shortly after that, it was a growing agency, but learning a lot, picking up a lot of skills, shortly after that I joined Jake at Groundbreaker and just started focusing on marketing and sales, and that’s been the story since the last four years.

Joe Fairless: Okay. So what was Groundbreaker when you joined?

Ed Cravo: Groundbreaker, when I joined, was already a software as a service company for real estate investment companies. What it did, and it’s the same mission, the same thing it does today, it helps real estate syndicators automate their day to day activities around fundraising, investor relations, reporting, etc, and elevating their brand as well and giving their investors an investor portal where they can gain access to their data and their investments.

Joe Fairless: How has the product evolved over the four years since you’ve been on the team?

Ed Cravo: That’s a great question, because it has actually evolved a lot. The goals are still the same, but what we learned– we were probably the first company to come out with the solution, and it was a bit more than four years ago; I joined a little bit after the company had already gotten started. What we learned over the first couple of years was that ease of use was extremely important, and as syndicators would provide the software to their investors, it was really important that their investors just loved it at the first try, so that they kept coming back, and that wasn’t always the case in the early days.

So we’re actually on the second version of the software, which we are relaunching or have relaunched most of it already or continuously improving on, and our biggest focus was how can we make this as easy as possible to use, how we can make this easy on the sponsors, how we can make this easy on the LP ambassadors… So that’s why it has evolved a lot. We try to do all of the things we’re doing, but with less clicks and less complication.

Joe Fairless: What are some specific examples of what it used to be from a use case standpoint and what you’re doing now to improve that process?

Ed Cravo: Things are easier to reach now. So for example, in the software, there’s this big search bar at the top – this is on the manager side – and if you want to create a new contact, you used to have to go to your contacts section and then click the plus button and then start filling information in. Now you can just click in the search bar and type ‘create contact’ and the option to go directly to that final location where you add the contact comes up. Same thing for creating new entities, for creating new distributions. So you can still navigate to all the different sections, but now you can navigate to everything by just typing what you want to do at the top. So that’s one specific example, but overall it’s just the user experience as well. Instead of having to click three or four different places to get somewhere, now you can get there with less clicks, less of a learning curve.

Joe Fairless: What are some of the responsibilities that you have with Groundbreaker? You said you’re the director of marketing, you’re the co-founder. What does that mean in terms of a day to day for you?

Ed Cravo: That changes over time.

Joe Fairless: I bet.

Ed Cravo: Yeah… But when I first started four years ago, what I did was I would help new clients get onboarded, as in I would deploy their platform, I would make sure that their logos were in the right place, etc, but at the same time I was doing marketing. I was getting the website set up so that we could start to drive a lot of search engine optimization traffic, which was our big focus in the early days. And that was in the beginning.

Nowadays, I’m mostly trying to develop our inbound marketing in all sorts of ways, whether that’s growing our blog, whether that’s establishing a partnership with you guys, or even setting up for the Best Ever conference, that and the entire thing set up, so that we can come in and try to perform our best while there.

Joe Fairless: You joined an SEO company out of college and you were on the sales team. What did you learn from that experience that you’re applying in your current role?

Ed Cravo: One thing that I didn’t mention with your previous question is also sales. So I have, at times, done too much marketing, to the point that we had enough leads that somebody needed to step into sales. This was years ago. So I jumped into that as well. So I think the things that I learned there, the biggest one was, how do you get a website to the first page of Google for a specific keyword? And that was the most valuable thing I learned earlier on, and of course, that’s an evolving art and science, search engine optimization, but I would say that was one of the biggest, most valuable things I learned early on, that I have applied to Groundbreaker and to any work that I do with marketing.

Joe Fairless: Let’s take a step back and let’s just talk about — is it fair to refer to your service as an investor portal?

Ed Cravo: Yeah, that’s one part of it. Investment management or syndication automation would be fair as well. It’s just we’re building different tools to automate a lot of those day to day activities, but the investor portal is a big part of it. That’s one of the things that our clients are able to give to their LP investors.

Joe Fairless: So let’s just talk about it in that context for just a moment, because I think a lot of the Best Ever listeners think about what you do in terms of an investor portal, and then there’s things underneath that that correspond to the investor portal. So with the investor portal, I can tell you personally, I was not on board for having one for our company because I was concerned about the transition from getting investors in our current deals from nothing, just email updates and no portal, and we would do one-off email responses when they asked to look at distribution histories, and we would manually change their information, whether it’s they moved or whether they just got a different bank account, we’d have to work with them on that… And we would do all that manually.

And I was against it initially, for a long time, because I was concerned with the transition period, because I thought it’d ruffle a lot of feathers with our investors, because now they have to have access to a new website with login information, etc. So what do you say to a syndicator who has those concerns whenever they’re talking to you about jumping on board with Groundbreaker for that solution, for a portal, but they get the same concerns I did?

Ed Cravo: Yes. “What’s this busywork that they’re trying to push on me? Why do I need this?” etc. It’s a really great question. I think we’ve seen the market move. I think 2015 is when we first started to say, “Okay, here is this technology we have.” We were trying to do something else with it at first, but then we started to talk to some real estate syndicators and tell them, “We can give you this in white-label, what do you think?” Some of them were interested and some of them bought it. They cashed in the early days to be able to use this technology. It wasn’t as streamlined to offer as it is today. What we’ve seen over time is that — this is a classic market adoption curve is what we’re seeing. First, there’s that under 2% of the market adopting a new technology. They’re called the innovators or early adopters. And the innovators and early adopters, what they want is they want the latest and greatest. They want the coolest toy, because they think that that’s going to give them a leg up in their competition; and I’m speaking in broad terms here, not just about our technology, and it is true.

The innovators and early adopters are often able to get a leg up on their competition by being the first ones to come out with something that the market’s going to demand later. They’re the first ones and people start talking about them, and maybe in this specific context, the innovator or early adopter, one of your LPs is sitting at dinner with some high net worth friends. And what do high net worth individuals talk about at dinner? Well, many times they talk about what they invest in, or their latest and greatest investment, or their latest and greatest call in the stock market, etc. So they might, at that point, pull up their investor report and be like, “Look, I invest in real estate right through this portal. This is how it works,” and show them right then and there on a tablet or phone. And those are the early innovators.

Joe Fairless: Yeah.

Ed Cravo: The early majority is the next section of the market, and you can look this up on online market adoption curve. The early majority is a big chunk of the market, and that’s where we find ourselves in today, and that’s when the actual LP investors are beginning to ask the syndicators for a portal saying, “Hey, I have a portal with this other syndicator that I work with. Why don’t we have a portal? I’d like to have a portal so I can log in and download my documents, I can log in and see my distributions, what’s coming, what’s past, etc.” So I think, right now, we’re in the market phase where the LPs are beginning to ask for it, and the syndicators themselves are starting to look for it.

We’ve seen the conversation online on LinkedIn, at the Best Ever Conference, where this is a point of focus now in our mind, and I believe it’s pretty clear that as the late majority comes in and the laggards come in – those are the later stages of the adoption curve. Pretty much every real estate syndicator out there is going to have some online experience for their investors. So yes, it’s all about timing, like you said, and yes, it may be a hassle to do it in the beginning, but I think it’s going to become a question of, is this even a choice anymore? Can I even continue to grow my business without these tools that are helping my competitors advance, that are helping the other companies grow faster, it’s helping them do more deals, spend less time, just give their LP investors a better experience in general. Can I afford not to have that? We don’t think that the answer is going to be, “Yes, I can afford to not have that,” for very long.

Joe Fairless: Thank you for sharing that thought process and the market adoption curve. I did a quick Google search, and I was following along with you as you were going through it. I’m actually proud that we’re in the early majority, and that’s when we jumped on board; that we weren’t in the late majority or the laggards. But exactly what you said, LPs started coming to us and saying, “What’s the login to the portal? How can I get access to it?” I’m like, “Well, we don’t have one right now.”

From a general partnership standpoint, as you said, it’s helping the competition with their business. So why not allow it to help us with our business? So I get that, eventually, it’s not even going to be a choice. You just need it. Let’s go back to the root of the question though, that I asked, and that is the transition period that could be painful for limited partners and general partners. So can you talk to us about what that transition period looks like, tactically speaking, and how you make it as pain-free as possible?

Ed Cravo: Absolutely. So without a doubt, introducing a new platform to a new group of people may cause a little bit of pushback, or you may feel that there’s going to be a little bit of pushback. So it’s important to do it right. It’s important to get it right, to plan it appropriately. So the way that is done right now with Groundbreaker is that we call it white glove onboarding. And what that means is that you have a customer success person on our team that is providing you and your LPs with the documentation, the instructions and the training that they will need in order to be able to make this transition over to the new platform.

So where they’re coming from is they’re coming from receiving emails and needing to make phone calls to you to get updates, if that was the case or if you’re providing updates to them via email. So they are still going to be able to receive emails from the general partner, but those emails may be done in an automated fashion through the platform, or they may be done in a scalable fashion (not completely automated) through the platform as well. But in the early days, it’s about training the LPs on how to use the platform, and it’s about training the GP and the GP team on how to not only use the platform, but communicate with the LP investors.

So in our case, specifically, we’re providing our GP clients with the documentation, with the training material that they can pass on to their investors, and then we’re supporting them throughout that entire process. But that brings it all back to the point that I was saying earlier where ease of use, ease of adoption is extremely important for this specific purpose, for that transition period. Let’s face it, many LP investors may not be the most tech-savvy. We’ve got a lot of LP investors who are extremely tech-savvy, and we’ve got a new wave and a new generation of LP investors who are extremely tech-savvy coming into– beginning to manage the family money or the money that they’re making themselves.

So it’s all about being able to offer that high touch support early on if needed, but primarily being able to offer something that does not need that much support in order for somebody to figure out how to use as well.

Joe Fairless: What’s something a competitor of yours offers currently that you do not offer and why?

Ed Cravo: In terms of functionality?

Joe Fairless: Yeah.

Ed Cravo: Let’s see. So Juniper Square is a well-known competitor of ours, and they offer a very robust waterfall modeling functionality. And at this point, we do not have anything as robust, and the reason why is because we just have not caught up with them on that yet.

Joe Fairless: Has there been a big need?

Ed Cravo: Well, everyone does distribution to waterfall. So there is a need for it, and the question is, will people trade the ease of the functionality? There’s still a way to do it through Groundbreaker. It’s not as automated, it doesn’t calculate as automatically, but there’s still a way to do it by uploading the distributions. Now the question is, are people trading the high-end functionality for the price or the price for dealing with the current workaround, which we are saying, “Hey, we’ll get this, we’ll make this better and better. Join us now so that we can grow together”?

Joe Fairless: What’s been something that has surprised you about the users as they experience the platform, whether it’s they spend more time here, or they really focus a lot on certain components of it that we didn’t think were going to be as important, but now we moved our efforts into development into that area – anything like that?

Ed Cravo: I may not be the best person to answer that question, and I do have an answer, but I’m not sure that it’s exactly what we’re asking here, because I’ve already said it, and it’s that the ease of use is such a big deal. Early on, we were really the first ones out there and we were like, “This works. It’s great.” Through the phone, you could almost see their eyes light up. Through the phone, you could almost see that. That was three or four years ago as we gave a demo. But then we just realized ease of use is more important here than any other technology we’ve seen in the past, because of the work that’s been done with the LPs.

Joe Fairless: Taking a giant step back, what’s your best real estate investing advice ever?

Ed Cravo: Oh, my best real estate investing advice ever would be to probably not listen to me on that advice because I’m not — I’m a technology and marketing person.

Joe Fairless: So let’s talk about that. So let me rephrase. Based on your background, as a technology and marketing person who works in real estate, what’s a tip or a piece of advice you have for someone who is focused on technology and marketing in real estate? Just whether it’s an SEO tip, or — you already talked about product adoption curve, which is really interesting, but what’s something based on your background?

Ed Cravo: Okay, now that’s much easier for me to answer. Thank you for rephrasing so that even I can understand it. So I would say two things. Biggest one– so this is specifically for the GPs out there that are trying to attract more LPs or trying to close more deals with LPs – it’s transparency. We’ve learned a lot about transparency recently with one of our mentors. Todd Caponi is the author of the book, The Transparency Sale, and it’s just such a powerful state of mind and mindset to have to be transparent… Because not only is that going to help you gain the trust of your LPs, but it’s also going to help you put forth the best offer that you possibly can. Because if you’re going to go out there and be 100% transparent about everything, you’re not going to go out there until you are comfortable with that being 100% transparent.

A couple of years ago we started learning this, and it’s just changed the way that people respond to us. It’s changed the relationships that we’ve built by just being brutally honest, brutally transparent with everything. It’s really made people build a better relationship with us. So I think that’s huge, even for PPs as well as they’re starting to build their businesses, they’re starting to expand and work with more LPs, is by figuring out “How can we be as transparent as possible with everything we’re doing?”

The other one I’d tack onto that from a marketing perspective is to figure out how you can be omnipresent. How can you be so present in the different channels, in the different watering holes that your audience is in that they can’t ignore you? If your audience is listening to podcasts, how can you be on the podcast? If your audience is reading BiggerPockets’ forums, how can you be on the BiggerPockets’ forums? Figuring out where your audience is, and then from there, making sure that you are present in those environments has served us really well at Groundbreaker.

Joe Fairless: We’re gonna do a lightning round. Are you ready for the Best Ever lightning round?

Ed Cravo: Absolutely, excited for it.

Joe Fairless: Alright, let’s do it. First, a quick word from our Best Ever partners.

Break: [00:22:12]:07] to [00:22:58]:09]

Joe Fairless: Best ever book you’ve recently read?

Ed Cravo: Best ever book I’ve recently read– not that many books, but I read very closely into them, maybe 10, 12 a year, and the recent one would be Drive by Dan Pink. It’s all about motivation. What motivates us? It’s so cool, because it really dispels a lot of thoughts you would assume about motivation, and they start out with an example about motivation in monkeys in the lab, and the author Dan Pink says, “This is the physics equivalent of letting the ball go and the ball flying up instead of falling down.” So they reveal this entire third driver of motivation. I don’t know if they call it specifically intrinsic motivation, but it’s all about intrinsic motivation.

It shows us that, sure, we are all motivated by rewards; that is undeniable. But there’s this entire third area of motivation, and the first one is just your basic human needs, and then there are rewards, and then there is this intrinsic motivation, which is people’s motivation to just be better. It’s people’s motivation to reach for mastery and become better at what they do, and it’s extremely powerful. Ever since reading the book, I see it everywhere. We actually included it in our hiring process from now on. We look for intrinsic motivation; it’s the number one characteristic that we look for every time we’re hiring. So I highly recommend it; very exciting, very eye-opening book.

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

Ed Cravo: About what I’m doing specifically, groundbreaker.co. We try to keep that very updated; that’s .co.

Joe Fairless: There’s also groundbreaker.co/joe, and you can get a free pitch deck template for all of you Best Ever listeners out there, and that will be very helpful for you as well.

Ed, thank you so much for being on the show and talking about your background, talking about portals. I know that’s just one component of your company, but the platform that you all have, and then addressing some reservations people might have about entering into this space if they’re just general partner, and as you said, eventually it’s not even going to be a choice; you just need to do it. So you might as well do it now, whenever you’re earlier on in the company, than later… Because the earlier you do it, the better off you’ll be, and I can tell you from experience, that’s definitely the case. So thanks so much for being on the show, Ed. I hope you have the best ever day. Talk to you again soon.

Ed Cravo: Thank you so much, Joe. Thank you for having me.

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JF2089: House Hacking to Commercial Property With Tiffany Alexy

Tiffany bought her first property while in college by house hacking and has continued to house hack continuously and is currently in her fourth house hacking property. Tiffany shares a story of bad luck when she decided to venture away from house hacking and into flipping. She talks about a combined strategy of house hacking and BRRRR with her office property

 

Tiffany Alexy Real Estate Background:

  • Began investing in real estate at 21 y/o with a 4 bedroom condo that she lived in and rented the other 3 rooms
  • Today, owns 10 units of commercial and residential properties
  • Started her brokerage firm, Alexy Realty Group in 2017
  • Based in Raleigh, NC
  • Say hi to her at https://www.alexyrealtygroup.com/
  • Best Ever Book: Ninja Selling by Larry Kendell 

 

Click here for more info on groundbreaker.co

 

Best Ever Tweet:

“Be creative” – Tiffany Alexy


TRANSCRIPTION

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

Tiffany Alexy: I’m doing great, thanks. How are you?

Joe Fairless: I’m glad to hear that, and I am doing great as well. A little bit about Tiffany – she began investing in real estate at 21 years old, with a four-bedroom condo that she lived in and rented the other three rooms. Today owns 10 units of commercial and residential property. Started her brokerage, Alexy Realty Group, in 2017. Based in Raleigh, North Carolina. With that being said, Tifanny, do you wanna give the Best Ever listeners a little bit more about your background and your current focus?

Tiffany Alexy: Sure. As you mentioned, I started investing in 2011. I purchased my first property as a senior in college, and I ended up house-hacking it… And that’s kind of what got me jump-started into my real estate investing career. I lived there for a couple years, and then I moved out, rented that one out  completely, and just kind of repeated the process, and have been doing so ever since about 2011.

Joe Fairless: What do you mean by “repeated the process”?

Tiffany Alexy: So after I rented that full unit out, I bought another one just across the street. It was a 3-bedroom/2,5-bath, and I lived in one bedroom and I rented out the other two… So I just continued house-hacking. I actually still house-hack today.

Joe Fairless: So the first one was a four-bedroom condo; the one across the street was a 3-bedroom?

Tiffany Alexy: Correct.

Joe Fairless: And you bought the first one, and then you got a loan and bought the second one, correct?

Tiffany Alexy: Correct.

Joe Fairless: And then what did you do after that?

Tiffany Alexy: I just kept doing it again and again, so now I’m in a three-bedroom townhome where I have my own room, and then I rent the other two bedrooms out.

Joe Fairless: Wow. How many properties have you purchased to do it.

Tiffany Alexy: I’m on my fourth.

Joe Fairless: You’re on your fourth – okay, cool. So you got  your first two that we talked about, and then you did it again, which was a – what?

Tiffany Alexy: It was a townhouse.

Joe Fairless: The third one was a townhouse. How many rooms?

Tiffany Alexy: It was a three-bedroom, and I rented one out. The roommates that I had at the time had access to the third room, so we used it kind of as a home office.

Joe Fairless: Okay. And then you’re on your fourth…

Tiffany Alexy: So I had one remaining in that one. Exactly.

Joe Fairless: And how many bedrooms is your fourth one?

Tiffany Alexy: It’s a three-bedroom as well. Same situation – I live in one and I rent out the other two.

Joe Fairless: Okay. And over how many years have you done this?

Tiffany Alexy: I started in 2011.

Joe Fairless: Oh, alright. I can do that math… [laughs]

Tiffany Alexy: So it’s been almost ten years. [laughs] Yeah, and there were some situations in between where I didn’t house-hack, but for the majority of the time I have been house-hacking.

Joe Fairless: Okay… So talk to us about the loans  that you’re getting on each of these four properties.

Tiffany Alexy: They’re conventional, owner-occupied financing. The first one I had to put 25% down, because it was one of those condo situations where there were a lot of investors to own the units, so it didn’t qualify for Fannie/Freddie financing… The Wells Fargo, Bank of America, the larger banks wouldn’t finance them. So I went through BB&T on the first one, and I had to put more down because of the investor concentration, essentially.

Joe Fairless: What about the next one?

Tiffany Alexy: The next one was the same situation – it was another high investor concentration, so I put another 25% down on that.

Joe Fairless: Okay. And when you say “high investor concentration”, will you elaborate on what you mean?

Tiffany Alexy: Sure. It just means the majority of the condo units owned in the neighborhood are investor-owned. So it’s not owner-occupied.

Joe Fairless: Okay. Even though you’re getting an owner-occupied loan.

Tiffany Alexy: Correct. I believe the rule is if it’s over 50% investors in the actual subdivision, then they require some additional steps.

Joe Fairless: Okay… I hadn’t heard of that.

Tiffany Alexy: Yeah, it’s called non-warrantable.

Joe Fairless: Non-warrantable, okay. Cool. So there would be an advantage to not have non-warrantable in the loan, because them you’d be able to have less money into the property, right?

Tiffany Alexy: Yes, and that’s exactly what happened with the second two of the townhomes. So the rules don’t apply with the townhomes. So my third – I was able to put 10% down, instead of the 25%. And then the one that I have now, I’ve put 3% down.

Joe Fairless: Wow. You’re getting better. [laughs]

Tiffany Alexy: Yeah, exactly.

Joe Fairless: How low can you go.

Tiffany Alexy: Exactly.

Joe Fairless: What is the reason why you were able to do 3% on this fourth one?

Tiffany Alexy: I don’t know, it was just a loan program. Conventional was going down as low as 3%.

Joe Fairless: Okay. Same lender on the 3% and the 10%, the last two?

Tiffany Alexy: No, different lenders.

Joe Fairless: Who did you get on the third one, and who did you use on the fourth?

Tiffany Alexy: The third one was First Citizen, and the fourth was Benchmark.

Joe Fairless: How do you find your lenders?

Tiffany Alexy: Honestly, they find me. It’s just word of mouth, networking, pretty much just organically.

Joe Fairless: Okay. So thinking back with benchmark, for example, what is the first time you came in contact with the point person that you ended up going with at Benchmark?

Tiffany Alexy: With Benchmark I actually found out about them through a client. I was helping a client purchase an investment property, and his lender was put in contact with me, because I was his agent… And I really liked the lender, because he was very communicative, always responsive, super on top of it. And my client got a great rate, so I was like “Okay, I’ll keep you in mind for the next one.” And it just kind of worked out that way.

Joe Fairless: Okay. You’ve been doing it for approximately nine years… What are some things that have gone wrong?

Tiffany Alexy: Oh, a lot has gone wrong… So I will tell you about a situation where I got in a little bit over my head as far as a flip. I purchased a 2,600 sqft. duplex in Ayden, North Carolina, which is about 15 minutes South of Greenville, where East Carolina University is. And you see HDTV and you think it can be easy… It’s not the case. I bought it from a wholesaler who had the contract on the property and was selling the contract. For that reason, I got it super-cheap; it was like 28k for this duplex. It needed a lot of work. I actually had FaceTimed my contractor through it, and she gave me an estimate of about $100,000 in work.

At that point I was like “Okay, that’s still not too bad, because I’m in for 128k, and it could rent for about $700/side.” So the numbers on that weren’t too bad. The only thing is the flip took a year. There were a lot of delays, just because it’s 2,5-hours away from me, so I didn’t have a lot of time to drive to the property and check on my contractor and make sure that he was running according to schedule.

Everything was just delayed. Windows took seven months to come in, and then one came in and it was broken, so we had to send it back and get a replacement… It was just a disaster. So after about a year I got a call from the town of Ayden fire department that it had actually caught on fire.

Joe Fairless: Ohhh… After a year, prior to you renting it out, after you’d completed the flip almost?

Tiffany Alexy: Exactly. So the flip was a little more than halfway done, and it just completely torched one side. It didn’t burn down, but the entire interior of the better side was gone. It was just up in flames. So that was kind of a learning experience, and at that point I was like “I don’t wanna put another 100k into this project. It’s never-ending.” We couldn’t even have utility to the property, because it has to pass inspection in order to turn on the utilities.

So it wasn’t an electrical fire. What I found out later was that somebody had broken in and had a party, they lit candles, and just left. They’d broken through that broken window.

Joe Fairless: Dang! They got in through the window that took seven months to arrive, that was broken, that you were waiting on a replacement?

Tiffany Alexy: Correct.

Joe Fairless: And then they burned the house down as a result of it.

Tiffany Alexy: Yeah, so that one was boarded up, and they just took it off.

Joe Fairless: Okay… Insurance?

Tiffany Alexy: So everything that could have gone wrong, went wrong. Yes, I had insurance, thank goodness. So I was able to get that money, and I was done. So I basically broke even, which is a lot better than what could have happened.

Joe Fairless: What was the insurance process like?

Tiffany Alexy: It had to be a vacant policy, because there was nobody living at the property. It was one that I had to renew every couple of months, because it was a vacant policy, and it was more expensive because of the risk associated… Which, obviously, for good reason.

Joe Fairless: Yup. Thank goodness you had that policy.

Tiffany Alexy: Yes, I’m very glad I did that.

Joe Fairless: What was the check amount that they cut you for the fire.

Tiffany Alexy: It was 67k.

Joe Fairless: Okay… So they cut you a check for 67k, and you bought it for 28k… What did you end up doing with the property?

Tiffany Alexy: I actually essentially just gave it to an investor I know, that was in the area. He was my property manager at the time as well, and I just wanted to wash my hands of it. So I sold it to him for $10.

Joe Fairless: Okay. [laughs] So you had put in 28k, and you got a check for 67k… So you had about 42k in profit. However, that doesn’t factor in paying the contractor, and holding costs and all that… So you’re saying essentially the 42k was wiped away? It was about that, it wasn’t anything more…?

Tiffany Alexy: Correct. It was between 40k and 45k.

Joe Fairless: People always ask “Well, why would someone give a house away? What are the circumstances?” Here’s a circumstance. You gave it for ten bucks.

Tiffany Alexy: Oh, absolutely. Yeah, it was just one of those where I didn’t wanna continue dumping money into it. I was busy with my brokerage at the time and I just didn’t have the time… And he was local, 10-15 minutes away from where he was, so it made sense for him, because he could get the property for very little, and essentially his money in would be all the repair costs, and then he could rent it.

Joe Fairless: Okay. And how long ago was that?

Tiffany Alexy: That was last summer. I sold the property to him in July.

Joe Fairless: Well, you “sold” (in air quotes), right? Ten dollars… [laughs]

Tiffany Alexy: Yeah, exactly.

Joe Fairless: And have you kept up with him and the status of the property?

Tiffany Alexy: No, I actually haven’t.

Joe Fairless: Aaagh…

Tiffany Alexy: I need to follow up with him and see what’s going on, see how he’s doing.

Joe Fairless: You haven’t talked to him since you got the $10 bill from him?

Tiffany Alexy: No. He sent me a referral or two, but I haven’t asked him what he’s done with the property.

Joe Fairless: That is a challenge, and thankfully you had insurance. I think that’s a big takeaway, having insurance on the vacant property. If presented a similar opportunity in the future, what choices would you make that are different from the choices you made on this deal?

Tiffany Alexy: First of all, I wouldn’t have bought it…

Joe Fairless: Why? Why wouldn’t you have bought it?

Tiffany Alexy: Well, I bought it sight unseen. That was my first mistake. Not necessarily that buying sight unseen is a mistake, but it was in a market that I didn’t know, and I just thought, “Okay, well, it’s 28k. Even if it goes South, it’s so cheap…” So I put it under contract sight unseen, which typically is not that big of a deal, especially in North Carolina, because you have the due diligence period, so you can still back out… But once I was under contract, I felt kind of obligated to purchase it. And not out of anything that anybody else was doing, it was just kind of my own feelings. So that was the first mistake.

The second mistake – I didn’t get a home inspection. It was primarily because I knew that it would need a lot of work. It was essentially gonna have to go down to the studs and be completely redone… So at that point I was like “Well, I don’t need a home inspection. I know that it’s gonna need a ton of money and a ton of work, so I might as well just save that money.” But what I didn’t know was the joists had been rotted out because of termites, so essentially it was about to go 20k over budget to replace the joists. And that’s what was partially why it took so long as well.

Joe Fairless: Windows and termites.

Tiffany Alexy: Exactly.

Joe Fairless: Thank you for sharing that.

Tiffany Alexy: Of course.

Joe Fairless: Those are takeaways that are applicable to a lot of people, and I’m grateful that you mentioned that. What else has gone wrong?

Tiffany Alexy: With that deal or with other deals?

Joe Fairless: With another deal.

Tiffany Alexy: That one was essentially my one and only flip experience. Everything else that I have has been buy and hold. So on the flipside, I’ll give you an example of one that has worked out really well. I currently have an office – it’s in Cary – and I kind of did a double strategy on this. We talked a little bit about house-hacking… If you’ve heard of the BRRRR method, which is the Buy, Rehab, Rent, Refinance, Repeat – I kind of combined the two on this office that I have, and it’s worked out really well.

Essentially, I bought it similar in a way to my owner-occupied properties. It’s just an owner-occupied office, because I was using it for my business. I’ve found it a couple of years ago, it was listed for 175k, and it needed a lot of work. These buildings were built in the late ’70s, so it was just really old, and hadn’t been touched since then. It still had a wood-burning stove in the main lobby area, that was connected to the chimney.

Joe Fairless: Well, that’s got some character.

Tiffany Alexy: Yeah. For sure, it does have character. Orange [unintelligible [00:16:59].03] carpets…

Joe Fairless: [laughs] Even more character.

Tiffany Alexy: Textured wallpaper… Exactly. So it was kind of an ugly duckling, but there’s not a whole lot of inventory as far as office goes here, so I snapped it up and paid the asking price. I’ve put in about just over 40k in work.

What I did was added the chair molding, the [unintelligible [00:17:23].26] put in luxury vinyl  plank floors, repainted everything… It has a lot of that intricate dental molding, it’s got that thick crown molding, and that was a pain to pay somebody to paint. So it took a lot of paint for that… But I essentially just redid everything, including the bathroom, and I rent out a couple of the other offices. So it’s got technically four office spaces. I use one. One of the other offices I rent for $500/month.

The upstairs is kind of an oversized office. I rent that for $650. And then the last office, that is not my own, is the largest one, so I turned it into a conference room. I use that for my clients, but I also rent it out on a website called LiquidSpace, which is similar to Airbnb, but it’s for office space… And it’s just like an hourly rate.

So between all that, I got it rented, and then I refinanced. So I was able to pull out most of my initial equity, because it got reappraised for 250k.

Joe Fairless: Awesome.

Tiffany Alexy: So it worked out really well for me… And of course, there’s a higher monthly payment, but because it’s tenant-occupied, I’m essentially breaking even on the payments.

Joe Fairless: Bravo! What tenants do you have in there?

Tiffany Alexy: It’s a digital marketing company and a software company.

Joe Fairless: Okay. What’s the square footage of the overall space?

Tiffany Alexy: It’s just under 1,400 sqft.

Joe Fairless: Alright… And how did you find the digital marketing and software company?

Tiffany Alexy: The digital marketing company – funny enough, I used to do property management, and they were one of my property management clients. And the software company – I believe it was just Craigslist, because I had posted a couple different ads online about the office space.

Joe Fairless: Okay. And the 40k in updates that you did – what was your role in those updates? Was it the money person, or were you the one overseeing it, or were you doing it?

Tiffany Alexy: All of the above. So I was the money person–

Joe Fairless: Oh, you did it?

Tiffany Alexy: Yeah. I hired a contractor, so I didn’t do the work myself… But I helped with the design process, picked out everything, I put up the money… So yeah, I was pretty involved.

Joe Fairless: Okay. What’s something that you learned from that experience, overseeing the contractor?

Tiffany Alexy: It’s definitely to have a contingency. I went in knowing that we were gonna go over budget, just because it always happens… But it turns out that there was a bay window in the back, in the conference room, and it was actually sagging, because it didn’t have a foundation… And this was something that my home inspector actually didn’t catch.

I kind of had two options. I could add a foundation to it, or I could just tear the bay window out and make it a regular window… So what I ended up doing was just tearing it out, because it was cheaper that way, and just putting a normal window in. But of course, my contractor had to reframe and tear out the actual bay that was sticking out… So that was another 5k that I was not anticipating…

So it’s definitely to have a contingency fund always over budget, because there’s always gonna be things that you will not know ahead of time.

Joe Fairless: How much should we over-budget when we put together a plan?

Tiffany Alexy: I usually just add 10% to the overall total.

Joe Fairless: Okay. So in this case, those 40k – what did you initially budget? Was it 40k, or was it 35k?

Tiffany Alexy: I initially budgeted 50k.

Joe Fairless: But you said you put in 40k, so–

Tiffany Alexy: Yeah, we still came in under.

Joe Fairless: You were under? Wow…

Tiffany Alexy: Yeah. So initially what I was thinking was 50k.

Joe Fairless: Okay…

Tiffany Alexy: So it worked out. But I always think more.

Joe Fairless: What caused it to be under?

Tiffany Alexy: There were a couple little tradeoffs… Let’s see. Upstairs, I initially was gonna put the LVP flooring, but I decided to go with carpet instead. One, for soundproof, and then also there were stairs that were a little bit narrow, so I didn’t wanna put the hard, slippery flooring, just in case. So I ended up putting carpet upstairs. That saved some money.

I got some quotes for the exterior, and I used a different contractor for the exterior, which saved me some money as well, because he actually was doing the office next door, so he was able to give me a better rate.

Joe Fairless: Okay. And how did you come in contact with that contractor?

Tiffany Alexy: The person who owned the office next to mine actually just sent me an email and said “Hey, I’m actually getting work done on my office. This is the guy that I’m using. He’s willing to help you out”, because he knew that I was doing work to my office as well.

Joe Fairless: Okay, cool. Good timing, and nice people, connecting the dots. Well, taking a step back, based on your experience, what’s your best real estate investing advice ever?

Tiffany Alexy: My best real estate investing advice ever would be to be creative. Situations where the office happens, everybody that hears about what I did with it – they’re kind of astounded that I did it, but it really wasn’t anything groundbreaking or magical; it was just a matter of me moving in and being creative and renting out the extra spaces that I didn’t need. So it’s creativity and efficiency, really.

Joe Fairless: We’re gonna do a lightning round. Are you ready for the Best Ever Lightning Round?

Tiffany Alexy: Sure.

Joe Fairless: Alright, let’s do it. First, a quick word from our Best Ever partners.

Break: [00:22:43].03] to [00:23:26].29]

Joe Fairless: What’s the best ever resource that you use in your business, that you couldn’t live without?

Tiffany Alexy: Oh, gosh… So I would say the book Ninja Selling, by Larry Kendall.

Joe Fairless: Great book.

Tiffany Alexy: I read this book many times. I’m actually re-reading it again. It’s a great resource for those who are in sales, or sort some sort of sales-driven career, but who aren’t necessarily wanting to brand themselves as that salesperson, if that makes sense.

Joe Fairless: I highly recommend that book. One of the big takeaways I got from that book  is – using the example of a real estate agent – a real estate agent could do a very good job with a client, and then five years later, when that client goes to sell the house, they might not be the first person their client calls, because they’re just not top of mind. So it’s important that we have to be top of mind in a relevant way on an ongoing basis with our customers, in order to continue to earn their business.

Tiffany Alexy: Absolutely.

Joe Fairless: What’s the best ever deal you’ve done?

Tiffany Alexy: The best ever deal would be one of my rental properties on [unintelligible [00:24:38].18] It was one that I purchased — it was an estate sale. It wasn’t a great deal, but I knew that if I rented the rooms out individually, I could make more money.

I purchased it for 145k a couple of years ago, and I rented it out for $1,800 at the time. Since then, I’ve done renovations to it, and I actually bumped the rent up, so now it rents for $2,300.

Joe Fairless: Wow. And what would it rent if you just rented the house, not the rooms?

Tiffany Alexy: Probably closed to $1,600.

Joe Fairless: Huge difference. How much more work is it from  a management side?

Tiffany Alexy: It’s really not that much more work, and the way that I market it is I calculate how much per bedroom it would be, and then I give a slight discount. These tenants at $2,300 – the last tenants were at $2,100, but with the last tenants I had marketed it at $2,300, but they all came together; so it was four tenants, and I said “Hey, if you all sign a lease right now, then I’ll give it to you for $100 off. So between that, and then they signed a two-year lease, I ended up giving it to them for $2,100. But that’s still a huge difference from the $1,600 it would rent for otherwise.

Joe Fairless: Best ever way you like to give back to the community?

Tiffany Alexy: My first actually hosts monthly get-togethers, and we always do it at local restaurants, or coffee shops, and I like to just support other local businesses with my marketing dollars, because we’re all in it together.

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

Tiffany Alexy: The best way would be Instagram. My Instagram handle is just @Tiffany.Alexy.

Joe Fairless: Thank you so much for being on the show. What a fun show, where I learned a lot, and there’s a lot of helpful information for people who are doing the house-hacking, and the type of financing to get, people who are doing commercial properties, and a case study for the office that you have, lessons on a fix and flip… I mean, you really covered a lot of asset classes today. [laughs]

Tiffany Alexy: Yes, I did.

Joe Fairless: This show has got a little something for everyone, so thank you for that. Again, I enjoyed our conversation, and I hope you have a best ever day, and we’ll talk to  you again soon.

Tiffany Alexy: Thank you for having me.

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.

JF2086: The Many Ways Investors Handle COVID-19 With Scott Westfall

Scott started his real estate career while in college managing properties for others and eventually found a passion towards real estate and began helping others through his own company called CGP Real Estate Consulting where they help identify, purchase, and operate investment properties. Scott works with many investors through his company and has seen how many different ways investors are handling situations during the coronavirus pandemic.

Scott Westfall Real Estate Background:

Click here for more info on groundbreaker.co

Best Ever Tweet:

“Real estate is a business, and if you can take the emotion out of it and go into it with a solid business plan, you should be able to weather these uncertain times” – Scott Westfall


TRANSCRIPTION

Theo Hicks: Hello Best Ever listeners. Welcome to the best real estate investing advice ever show. My name is Theo Hicks, and today we’ll be speaking with Scott Westfall. Scott, how are you doing today?

Scott Westfall: Doing well, Theo. Thanks so much for having me on.

Theo Hicks: Oh, absolutely. Thank you for joining us. I’m looking forward to our conversation. Today we’re gonna be talking about the Coronavirus, how it’s affecting Scott’s business, how it’s affecting investors that he works with, the business, some of the challenges they’re facing, and then things that they are implementing to solve those challenges, and that hopefully will help you during this time as well. But before we get into that, a little bit about Scott – he is the owner of CGP Real Estate Consulting, ten years of real estate experience, six being a realtor, based in Virginia Beach, Virginia. You can say hi to him at cgprealestate.com. So Scott, before we dive into the Coronavirus, can you tell us a little bit more about your background and what you’re focused on now?

Scott Westfall: Yeah, certainly. So I got into real estate and then business, learned it from the inside out. In my freshman year of college, I met a couple who had just inherited a real estate brokerage that was focused on vacation rentals and property management and sales at the oceanfront in Virginia Beach.

Through college, I did maintenance and contracting and project management with them. When I graduated in 2014, I got my real estate license and became the full-time property manager and really vacation rental manager for 120+ properties. I did that for about three years, and through that experience, I got to work with individual and large investors. I got to learn really what makes landlords and investors successful and what mistakes they can make. Through that experience, I came to a point in 2017 where I felt it was time to take the experience and the knowledge that I had and do something a little bit different. I saw a need growing in Hampton Roads for a different service in real estate, and I knew I was passionate about helping others build wealth through real estate. So I decided to put my license in my LLC’s name, CGP Real Estate Consulting, and today we are focused on being the leading expert in area in identifying, purchasing and operating investment properties in Hampton Roads.

Theo Hicks: Perfect. So identifying, purchasing and managing, correct? Those are the three–

Scott Westfall: That’s correct.

Theo Hicks: Perfect. So now that we’ve got our three categories to talk about today, I think the first one we should talk about is managing, and then we’ll work our way back. So how has management changed during these past few months with the Coronavirus pandemic, and maybe also tell us some of the major challenges you’re seeing investors face, and then the types of advice you’re giving them to address those challenges?

Scott Westfall: Yeah. So I would actually break it down into two subsets; really standard yearly rentals, and these presented their own difficulties, and then really a lot of investors I work with, with short-term rentals, vacation rentals, and they’re facing a whole different set of challenges.

So with the yearly rental is really, in Virginia Beach, in April, we only saw out of 60 tenants, four or five paid late, and as a management company, we gave those tenants really to the end of the month to pay their rent without charging a late fee, and made sure we communicated with them upfront.

I have some individual investors who are self-managing their properties, who have had tenants who are unable to pay rent because they’ve been furloughed, and those owners have fortunately been lucky enough to contact their mortgage companies and put things in the rear, so that they’re not missing out right now. And really, a lot of them have still charged late fees,or  are saying they’re charging late fees, but are being very lenient with the whole how they’re going to repay the rent that they owe back. So we can talk more about yearly rentals…

On the short-term rental side of things, those owners are freaking out a little bit. It looks like the summer, which is a bulk of their income here in Virginia Beach and Norfolk, really anything on the beach, seems to be non-existent or very spotty, and so I think those owners are starting to scramble. We’ve seen owners who have gone to just switching these fully furnished properties to long term rentals. They’ve really gone for yearly, and then we’ve also seen some people who are just holding out, waiting to see what happens, hoping to make the best of the summer. I think that right now, conversations we’re having is how can you get creative with your property and still continue to produce income and not let it sit vacant through the rest of this year.

Theo Hicks: So it sounds like, at least, from your circle, of the standard yearly rentals, it sounds like April was maybe, a little bit worse than most months, but nothing too crazy. I’m just wondering, do you have any expectations for May collections and maybe even into June? What do you expect to happen during those months? Then maybe based off of that, also what types of things should investors be doing now if you do believe that collections are still going to be lower during those months?

Scott Westfall: Great question. So I would say that my colleagues were definitely more concerned about May and definitely June, just depending on how long this goes. I would expect that we see the numbers of late payments or non-payments in May to increase, and really the reason that I would say that is because of the feedback we’re getting in communication. I think that would be my biggest piece of advice to every landlord out there, would be to communicate with your tenants and find out what their situation is; let them know that you’re not out to get them, but you also need to plan and protect yourself, and I think knowing where your tenants are will really set you up to prepare for what’s coming in May in June.

Theo Hicks: So just calling tenants, putting notes on their doors. I was talking to someone and it sounds like self-managers are gonna have a little bit easier time communicating because they can actually go out and do it themselves whereas people that have property managers have to rely on their management company to do that, because they don’t really know their residents. Is that what you’re saying too – it’s easier to communicate with the residents and get that feedback that you need if you’re a self-manager, and then how do you ensure you’re able to get that feedback if you aren’t a self-manager?

Scott Westfall: That is a great question. I would say that it definitely does depend on your property manager, and if you do have a property manager, how much communication you’ve been in there with him… But you’re correct in the assumption. Self-managing owners have definitely had an easier time and a closer relationship with their tenants, and getting that information and feel from where their tenants are.

From the management side, we, as a company, have really tried to stay on front of it and have a lot of resources to use to communicate with tenants and to communicate quickly and efficiently. So to that point, how many of them are responding? That is a question. So if you are an owner that is with a property manager, I would say continue to contact them and put the pressure on the tenant to respond and let you know where they are at this time.

Theo Hicks: Perfect, and then switching to the short-term rentals, because when I first started doing these COVID interviews, I felt like everyone I talked to was doing short-term rentals. So I’ve heard some very interesting, creative ways that they’re using their short-term rental properties to continue to make some income.

So you already mentioned people are– they’re switching them to long-term rentals, or they’re just holding out and waiting… Because from all the short-term rentals people I’ve talked to, May, June, July, August are the money months. So what are some other creative things you’ve seen people do to make sure they can bring in some income on their short-term rentals?

Scott Westfall: One interesting one up front that we’ve seen down here is we’ve actually had an influx of people from the North East who have rented the short term rental properties that have been available for March through May, for two months, and have come down in quarantine here, which has really been an interesting thing. But going into that, there is very much an emerging market, at least here in Virginia Beach, for a lot of these vacation beach destination towns for increased service monthly rentals over the summer. So it’s maybe transitioning, and it would be more than what you’d get as a standard yearly rental, but not as much as you would make with nightly rents throughout the summer, but if you can find somebody who’s willing to come and have a whole month-long beach vacation for $6000 when you were making $9000 that month, I think that is a good way to offset it. So looking for people who are looking to spend their summer months at the beach for an increased rate is good option.

The other option too is in real estate, you have price, location and condition, and if there’s no demand, you’ve got to have to use your price lever. So see where the market is at and test the market and see where you start to get inquiries, because there are still people out there looking and hoping to take advantage of the summer being a little bit empty to be able to have a less expensive vacation.

Theo Hicks: Perfect. Okay, so let’s transition into the other two things you focus on – identifying deals and then actually buying deals. So maybe tell us the general feel from the investors you work with. Are they more interested in buying deals right now, just waiting to see what happens, or selling their portfolio?

Scott Westfall: That’s a great question as well. Right now, the demand is more than ever. Real estate investing, in general, has just become so mainstream. So I have not seen the demand slow down. The demand has been there, and it’s the supply across the nation that’s been low, and has continued to remain low. So I feel like it’s been a tightening of supply, but the demand has stayed the same when it comes to investors looking to put their money into real estate right now.

Theo Hicks: It sounds like the demand for the buying is still there, and obviously if the supply is tightening, then people aren’t actually selling. So my next question would be, you focus on single-family homes, right?

Scott Westfall: Yes, single-family, and really smaller multifamily, so 4-units.

Theo Hicks: And then using those as rentals, correct?

Scott Westfall: Correct. Yes, sir.

Theo Hicks: Perfect, okay. So I want to buy a duplex right now. What are some of the main changes that I need to make when underwriting these deals?

Scott Westfall: I think that building into your models and your projections when you’re looking at properties, building in that vacancy rate and even making that vacancy rate a little bit bigger, planning for these unexpected times of no income… I think that what I’ve learned in my experience in real estate is that real estate is a business, and if you can take the emotion out of it and go into it with a solid business plan, you should be able to weather these types of things. So first thing I would just say is tighten up how you are analyzing deals and what you’re being very specific on what you need to cash flow moving forward.

Theo Hicks: Perfect, and then last question would be, people always say that when there’s times of economic uncertainty and people don’t really know what’s gonna happen, and typically once that ends, there’s going to be great opportunities to make some money. So if you had a crystal ball– and again, you don’t have to be perfect here, you can be very general if you want to, but it can be just one thing if you want it to be, or it can be multiple– some of the biggest opportunities in real estate investing that you see in the next, let’s say, six months to a year.

Scott Westfall: The first one is going to be is – on the short-term rental side, whoever can look ahead and see what the renters want, the demand is going to come back, but it’s going to look different, and whoever can look ahead and get ahead of that is going to be successful. So apparently, if you own a short-term rental, get ahead of it, start to think about what it’s going to look like after, because the demand is going to surge back.

In regards to just investing and identifying properties and looking forward, I think the supply is going to increase, but again, the demand is the same. So being patient and being prepared financially for a deal to come. Can you ask me that question one more time, Theo?

Theo Hicks: Yeah. So in the six months to a year from now, what do you think is going to be the next big real estate investing opportunity?

Scott Westfall: Man, that’s a great question.

Theo Hicks: What does your gut tell you?

Scott Westfall: My gut tells me that it’s going to be more of the same, and I think that investors will need to be wiser when they make choices about what properties they’re purchasing. I think there will be tightening on the lending side, but again, there’s going to just still be more of the same people wanting to put their money into real estate, because real estate is a solid long-term investment. Where we are specifically, I would say that, again, more of the same – we’re such a huge military area where it’s very cyclical, and we’re a little bit different than the rest of the nation in that regard.

Theo Hicks: Perfect. So is there anything else as it relates to the Coronavirus and real estate investing that you want to talk about before we wrap up?

Scott Westfall: The last thing I’d say then is that real estate, again, is a business, and if you have a solid business plan going into it, you can weather the storm. I know that it’s tough right now. If you are a homeowner in Hampton Roads or an investor in Hampton Roads and you’re looking to get creative with your property, to figure out how to make it through this storm, and then to continue to be successful moving forward, visit my website, www.cgprealestate.com. I’d love to hear from you and hear how you are handling that.

Theo Hicks: Perfect. Well, Scott, thank you very much for joining us today, and Best Ever listeners, make sure you take advantage of Scott’s offer. Just a few of the big takeaways I had today is you told us how your business is broken into three buckets. You’ve got identifying properties, then buying properties and then managing properties. You mostly focused on managing, because I think that’s where most people are facing challenges today with the Coronavirus.

So you mentioned how it was different for your standard yearly rentals and your short-term rentals, that you do think that May and June are probably going to be a little bit worse than April, most likely… Again, no one can really predict the future, but most likely based on the current trends, May and June collections are going to be a little bit more difficult than April… Therefore it is very important that you are communicating with your residents, so that you know specifically what their situation is, so you’re prepared and you’re not waiting until the end of May and realizing that no one’s paid rent that month. So that’s one big takeaway.

Second was if you’re a short-term rental owner, a lot of them are freaking out, but making sure that real estate, as you mentioned, is a long-term play. So sure, you might not be getting any income right now, but you do believe that demand will come back for short-term rentals, and that whoever is able to predict what that new demand will be like are going to be able to set themselves up for success.

Then lastly, when it comes to identifying and buying new deals, it’s very important for you to make sure you’re underwriting a larger vacancy rate for unexpected times of no income like today.

So Scott, again, really appreciate you coming on the show today and being willing to talk about some of the challenges you’ve seen other people facing in real estate investing. I know it’ll be a value add to the listeners. Best Ever listeners, as always, thank you for listening. 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.

 

JF2085: Fake it Till You Make it With Aaron Fragnito

Aaron is the Co-Founder of Peoples Capital Group and the Host of New Jersey Real Estate Network. Aaron is someone who developed a plan to become a real estate investor and went after it right away. He shares his journey from no experience to a realtor, wholesaler, flipper, and now syndicator. He shares some of the mistakes he made with management companies and how he is able to keep his 4 core investors even when he was making mistakes to now 30 investors.

 

Aaron Fragnito  Real Estate Background:

  • Co-Founder of Peoples Capital Group (PCG)
  • The host of New Jersey Real Estate Network
  • A Licensed NJ Realtor and a Full-time real estate investor.
  • He has Completed over 250 real estate transactions, totaling more than $40M, Fixed & Flipped over 50 houses, wholesale 100+ properties, and Manages an 8 Figure Portfolio of Private Real Estate holdings
  • PCG Works with qualified investors to create passive returns through local commercial real estate.
  • Say hi to him at: https://www.peoplescapitalgroup.com/
  • Best Ever Book: Mel Robbins books

 

Click here for more info on groundbreaker.co

Best Ever Tweet:

“I am always educating” – Aaron Fragnito


TRANSCRIPTION

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

Aaron Fragnito: Very good, Theo. How are you doing today?

Theo Hicks: I’m doing great, thanks for joining us. Looking forward to learning more about what you’ve got going on. Before we get into that, let’s talk about Aaron’s background. So he’s a co-founder of Peoples Capital Group, PCG. He’s the host of New Jersey Real Estate Network and is a licensed realtor in New Jersey as well as a full-time real estate investor. He has completed over 250 real estate transactions totaling more than $40 million. This is included over 50 fix and flips, over 100 wholesales, and he currently manages an eight-figure portfolio of private real estate holdings. PCG also works with qualified investors to create passive returns through local, commercial real estate. You can learn more about his company at peoplescapitalgroup.com. So Aaron, do you mind telling us a little bit more about your background and what you’re focused on today?

Aaron Fragnito: Sure. So I got started in real estate about ten years ago. Initially I was turned on to do it by Rich Dad, Poor Dad, of course. I’m sure everyone says that same story. I hear it all the time. So I read Rich Dad, Poor Dad around senior year of high school. I was an entrepreneur, major at Rowan University, wasn’t exactly sure what I wanted to do with my life, but I figured I did have a passion for real estate, and after reading that book, I recognized that the tax code is actually in favor of people who pay themselves through ownership of real estate. So I figured that out, and then I started reading David Lindell and Trump University, and I think I even looked into some Joe Fairless stuff at the time.

About ten years ago, Joe was getting started, the syndication space was really new then as well. So I knew I want to own a lot of real estate and want to make passive cash flow throughout, but just didn’t know how to get there. So I made a list and I said, “Okay, I want to own $10 million real estate and have a net worth of a million with $100,000 passive cash flow in ten years.” So that was about ten years ago; that was my goal. I wrote it down, and I said, “Okay, well, I’m gonna work backwards from here. I need to make connections, learn the industry, save some money, figure out how real estate syndication is created and run… And to do that – maybe I’ll get my real estate license to start.”

At the time, I actually moved out to Colorado to teach kids how to ski for six months after I graduated college, read a bunch of books on how to start a real estate investment company, they all made it look so easy, moved back to Jersey, got my real estate license and started executing on that plan.

I made a lot of mistakes, teamed up with the wrong people for my first fix and flip, lost a little money, did a lot of the wrong things, didn’t do the right due diligence, hired the wrong contractors – I got tons of stories – hired the wrong management companies getting started, ended up having to develop our own management company… But a couple years into the business, working as a realtor, you learn short sales and start to make some money.

I started working with Seth Martinez who is my business partner today, and we really complement each other’s strengths and weaknesses. So he’s great at operations and management of the real estate and improving our systems and strategies here in our business, and I’m more on the branding and fundraiser investor relationship side. So we work really well together. We bought a six family from a We Buy Houses sign that used to work really well, that I would staple on telephone poles in a suit and tie in the middle of summer. I’d get a bunch of listings and deals with those We Buy Houses signs. So we’ve had a six family back in 2013 or so, I bought it for about $220,000, put $50,000 into it, bought, renovated, refinanced out, it appraised for well over $400,000, got our money back and a little bit on top, and raised some capital and built on to the next level and got up to about 100 units over five years, all while flipping a lot of houses as well, and wholesaling at the same time with our residential division. So pretty busy and engaged so far.

Theo Hicks: That’s great to hear, and we do apartment syndications, so we’ve got a lot in common and I’ve got a lot of questions for you. Let’s talk about your first syndication deal. So did you syndicate that six-unit deal?

Aaron Fragnito: We didn’t actually syndicate it. Our first syndication deal was a 25-unit in South Jersey, and we put together four investors who all brought in $100,000 each, and we bought a 25-unit for below market value. We took the cash flow from it, put it back into the building, hired a few management companies. One was stealing money from us, it was a disaster, we had to take them to court. Another one just really over promised and under delivered. So by doing that 25-unit, we learned that sometimes you want something done right, and if you’re going to build a big portfolio in one central location, it makes sense to actually have your own management company.

So we developed our own management company through necessity with that first 25-unit, because like I said, the two management companies we hired, one was bad, the other one was worse. So we were like, “Well, if we switched to a third management company and they screw us too, we’re going to look really bad to our tenants in this building, and we’ll go downhill.”

So we developed our own management company about seven years ago, and that is our competitive edge now today that allows us to really reposition these buildings like a fine-tooth comb. So many moving pieces when you buy a mismanaged apartment building, and you’ve got to really knock it out of the park for your investors. So relying on other management companies was a risk I found and a flaw in the overall syndication model. So we tried to correct that with developing our own management company here. It does limit where we can buy, but we love this North Jersey market, and we do very well here with this North Jersey market.

Theo Hicks: You’re really good at proactively answering my questions. I was gonna say, “Oh, what are some of the pros and cons of having a management company?” but you answered all those for me. So we’ll talk about the investors instead. So your first 25-unit deal, you said you had four investors. Who were they and how did you get them to invest?

Aaron Fragnito: Well, let’s see. One of our first investors– great story. Well, the first monies I raised in real estate was actually for fix and flips, but those investors, I rolled them into buying the apartment buildings over time… Because in the fix and flips, we weren’t successful. I would like fail at a fix and flip, and be like, “Here’s what I did wrong. Here’s how I corrected and I got rid of that partner etc” They would reinvest me, so I salvaged those relationships. I also wrote checks to the closing table to make sure no one ever lost money as I was learning the business… But what I did is I went to real estate networking event and I made a beeline for the owner of the event, and I said, “Let me talk about what I’m doing. I’m learning short sales, I’m getting into a fix and flip, and my topic is going to be Fake It Till You Make It.” So I literally did a presentation called Fake It Till You Make It, and it was probably not a very good presentation. By the way, my wife today was in the crowd. I met her that night, ended up marrying her few years later. So just a wild story. The first presentation I did in real estate ended up being about how I met my wife, but different story…

So there were some people in the crowd that were intrigued with what I was doing, and I always enjoyed public speaking. They saw my passion for this industry and they decided to invest, and that was how I got one investor around $100,000 and another investor was from Seth’s network, actually. He knew a very wealthy individual in New York City that owns his own real estate, that he had worked with before in the medical building industry. So Seth had sold a medical building company, and he knew this doctor. Yeah, it’s great business to meet doctors. So just because Seth knew him through medical building and that relationship, it didn’t mean he couldn’t convert that trust into investing in us in real estate. Even though it was our first syndication and we, really looking back now, didn’t really know what we’re doing and had a lot of challenges in front of us.

So again, one investor I had messed up with a flip and made good on it, and she decided to reinvest in me. Another guy was a doctor I knew from a whole other industry, and doing business with years earlier, and just cultivated that relationship into investing them, and then one was actually some people on Seth’s family as well, and then just another investor, but I think it was actually one of Seth’s aunts. So luckily, Seth was a little older and had a little more capital and had good resources there. So I think, actually, three out of the four investors were from his network and I brought in one investor as well. That’s why it’s so important to have partners that have great networks and complement what you’re doing so that you can make sure you raise the capital and have those resources of private investors that Seth brings in and I bring in as well.

Theo Hicks: So for your first deal, you had about four investors, you said, and you mentioned how you found them. That was five years ago, you said?

Aaron Fragnito: That was back in 2013.

Theo Hicks: Okay. So six, seven years ago. How many investors do you have now?

Aaron Fragnito: Over 30.

Theo Hicks: Over 30 investors. So do you wanna talk about how you grew from 4 to 30?

Aaron Fragnito: Sure. Well, it was quite a journey; a lot of hard work behind the scenes. Just recently, I have really, in the last two years, made a conscious transition in my business to not only just stop working so much in my business and more on my business, because as any entrepreneur, I get really caught up answering emails, moving deals, and I’ve really got to focus on my systems overall, and what’s my main goal five years down the road… So in the last two years we really redeveloped our branding system into being more of a thought leader, more polished and professional, but also aimed at just high net-worth individuals, people in this area in North Jersey here. There’s a lot of wealth, and we do events in our office.

I have an office here in Berkeley Heights, and I used to throw a lot of money into fundraising. I’d go into the Hyatts, fancy hotels; I’d put down $3,000, get everyone dinner, and I would do a lot of networking events in there, and that was great; we raised a lot of capital that way. So we started a real estate networking event. We went on meetup.com, we started New Jersey Real Estate Network, and this was about eight years ago or so as well, and I started raising capital that way.

So I would do dinners every month at a hotel and people would come, and I don’t think I made any money on the events. I would charge money to get in, I’d have some sponsors, and at certain times, it felt like I was more of an event planner than a real estate investor, but those events really helped us build our brands. I would then go out and speak in other REIAs. Again, I would go to networking events, I’d make a beeline for the owner of that group, and a lot these guys, they need investors, they need people to come in and speak. They want people to speak at the events, they need a new speaker every month. So even if you’re starting, that could be a great story. Talk about your first fix and flip or whatever it is, your first gig you’re doing, and that’s how I would also meet investors. So I’d speak at events, I’d be honest, I’d talk about my starting points and then my struggles there, but how I powered through them and made good to my investors, and I built the brand that way.

I’d get people to come to my event, I’d feed them dinner, I’d tell them about what we’re doing, and I’d raise capital, and quite frankly, it was very easy to raise capital for fix and flips. So I kind of got off track for about three or four years with Seth, and we did about 50 fix and flips. We had some crazy projects going on, and we got off track with that, but it was a great way to bring in a lot of investors, because people love the idea of getting a first lien position, getting a 12% interest rate and getting their money back in a year or they could take the property back. It’s a pretty good position and it’s pretty quick turnover for investors.

So we raised a lot of capital that way and flipped a lot of houses and made some money and lost some money, and around 2016 or so, we started to recognize that scaling up a house flipping business is, in my opinion, really not all that profitable. It’s not the most profitable part of the business. What’s the most profitable part of real estate is being a listing agent or owning apartment buildings, in my opinion. So we realized that and about two to three years we focused on our apartment building syndication business. As we sold that 25-unit, we made a nice profit, our investors were very happy, and we said, “Wait a minute. It’s actually easier to buy and reposition a 25-unit than it is to flip a dozen houses in a year, and we make the same amount.”

So what we figured out was we want to really double down on that, and then I changed our brand a little bit to attract longer-term investors who were looking for a passive investment, and that’s really a different person than the house flipping individuals you meet at REIAs and such. They’re looking to be more hands-on, and they’re looking to really do a quick investment, get in and out, maybe make an interest rate. What works better for us are individuals that are busy working nine to five, maybe they’re a doctor or a banker or just a high net worth earner, or they just have an IRA with $30,000, they can self-direct into a syndication with us, and they’re looking more for a longer-term passive investment. It’s a different type of investor than the ones you might find in a real estate networking event.

So I had to consciously convert my fundraising brand and my fundraising message to attract the right type of investor over the last two years, which has been one of the bigger challenges for me, not only raising capital, but figuring out who I want to get in front of, what’s that ideal investor I want, and then getting in front of them, whatever that means. Facebook ads, marketing ads, whatever it takes to get in front of that person in the right professional manner, and then know what to say when you finally meet with them.

Theo Hicks: So for the fix and flipper investors, you’d find those at the meetup groups like in-person events, and then for these longer-term passive investors, you’re finding them through online ads?

Aaron Fragnito: Correct. Facebook marketing. I do four seminars a month here in my office in Berkeley Heights. I do six webinars a month as well. I teach how to self-direct your IRA, I go over case studies, I go over current offerings we have on buildings, I have realtor events, I have luncheons, I have evening events, we feed you here as well. So I do roughly the same seminar twice a week or so, but I get all new people coming in to see it, I put different spins on it, but I am just always, always educating. Fundraiser in the syndication space is really just an educator. Now we don’t sell education, we don’t sell books or CDs, we focus on just selling one product we have here which is a turnkey investment into New Jersey apartment buildings, but I’m always educating and it’s all free, and that’s how we raise capital. We build relationships with investors, they come to our events, they see us here, they see another 12 or 15 investors here at the luncheons and whatnot, and it’s chance to ask a lot of questions, listen to a 60 minutes seminar, and about half the crowd usually decides to fill out a form to move to the next step, and that’s a great turnaround, I think, as far as sales goes.

Theo Hicks: Yeah, thanks for sharing that. So we focused a lot on the raising money. The other thing I wanted to talk about a little bit more was the property management company. So I’m going to merge that together with the money question. So what is the best ever advice you have for– well, I guess, a little more context. I know a lot of syndicators will do third party, and you mentioned why you don’t do third party, but now I want to talk about the how to start your own management company. So what’s your best ever advice to an apartment syndicator for starting their own in-house property management company?

Aaron Fragnito: That’s tough; there’s so many moving pieces to a management company. I’d say, the first thing is working with good technology. We do work with AppFolio, which is a very helpful technology, and there’s tons of things like that. We feel like AppFolio is one of the best, so we went with that, and that really helped organize our business and it  allows us to scale up to managing 100 units without having to staff up. It’s almost like bringing on a staff member. Secondly, I have a phenomenal property manager. I have a phenomenal employee, A. Delgado, who does all of our property management, and she’s one of those individuals who, I think, was born to be a property manager. She’s so organized, she’s so good with the tenants, she’s so patient. I couldn’t do what she does. It’s really hard to be a property manager, it’s a thankless job, and there’s so much little nitty-gritty detail to it, and of course, tenants are going to lie to you and break your heart and it’s a tough gig. Same like working with contractors; Seth’s really good with that and I’m not.

So a good system overall also, just not only working with AppFolio, but working with our systems here in office. When work orders come in, working with the right contractors – that took years. I used to have a really good contractor, then I’d put him on payroll and started paying him hourly, and all of a sudden, the jobs took twice as long and cost me twice as much. So I realized you’re actually better off having the contractors as independent contractors, get multiple quotes, make sure they understand they’re not always going to have a job here, they’ve got to give us good production, good service and show up on time and get the job done properly. So we have a lot of good boots in the ground, great contractor relationships here. We’ve got the right small handymen, mid-level handymen, plumber, electrician etc, the right people for the right things… And then just the small guys too that bring out the garbage and clean the hallways. When you have enough units in one place, you have economies to scale, so I can have someone do all that, shovel our walkways when there’s snow, for a lower price, because we have a bunch of units in one area, and these individuals will work for us for a better price because of that.

Theo Hicks: Alright, Aaron. Are you ready for the Best Ever lightning round?

Aaron Fragnito: I think so.

Theo Hicks: Let’s do it. First, a quick word from our sponsor.

Break: [00:19:32]:04] to [00:20:18]:04]

Theo Hicks: Alright