JF1931: How You Can Rent Your House With No Headaches, Just Checks with Dave Friedman

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Dave recently launched a new business venture in which he helps people rent their homes, hassle free. They help homeowners from A to Z with every aspect of turning your home into an investment property. Once they have placed a renter, they continue to do everything for the owner, and send them checks from their investment. If you enjoyed today’s episode remember to subscribe in iTunes and leave us a review!


Best Ever Tweet:

“People are worried less about square footage, and more about how many people they can squeeze in a space” – Dave Friedman


Dave Friedman Real Estate Background:

  • Founded Boston Logic (now Propertybase) in 2004, grew it into one of the largest software providers to real estate brokers, and sold it in 2016
  • recently co-founded Knox Financial, which offers a frictionless way to turn a home into an investment property.
  • They raised $1.4M, launched a pilot in Boston, and began accepting units onto the platform
  • Based in Boston, MA
  • Say hi to him at https://knoxfinancial.com/
  • Best Ever Book: Hillbilly Elegy


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

Dave Friedman: Awesome, thanks for having me.

Joe Fairless: Well, I’m glad to hear that, and it’s my pleasure. A little bit about Dave – he founded Boston Logic, now called Propertybase. In 2004 grew it to the largest software provider to real estate brokers, and sold it three years ago, in 2016. Recently co-founded Knox Financial, which offers a frictionless way to turn a home into an investment property. They raised 1.4 million, launched a pilot in Boston, and began accepting units onto the platform. Based in Boston, Massachusetts. This is gonna be a fun conversation… With that being said, Dave, do you wanna give the Best Ever listeners a little bit more about your background and your current focus?

Dave Friedman: Sure, happy to do it. I’ve been in the real estate tech world pretty much my entire career. As you noted, I founded a company called Boston Logic. We make software for real estate brokerages and the agents that work there; the people who help you buy, sell and rent a home – they are the users of the software. It’s actually pretty likely that most of your listeners have interacted with our software, and they didn’t know they were doing so, because it’s white label software.

I built that company over about a 12-year span, and sold it to a 50 billion dollar private equity firm, who said “Hey, this is a great company, but you guys need more stuff, so we’re gonna start buying other companies.” I still sit on the board of that company, it’s a lot of fun… And now that company owns half  a dozen software products and has clients in 60 countries, and offices all over the world. So that’s a fun ride… After that, I took a little time off, had a son…

Joe Fairless: Congratulations!

Dave Friedman: Thank you, sir. There’s another one on the way…

Joe Fairless: Congratulations!

Dave Friedman: Thank you! Last year, along with a friend and former colleague Spencer Taylor, I launched Knox Financial, which is my current day job, we might say. At Knox we make it incredibly easy to turn a home you own into an income property. If you already own an income property, we make owning that property as simple as owning a share of Apple or Microsoft. So  you put your home in the program,  you step away, we take care of everything else. We send you a check and a statement every quarter, we send you a 1099 for your taxes at end of the year, and other than  that you should have to do almost nothing.

Joe Fairless: Really? Okay… So I’ve got a house that I live in, I want to move to another house, but I hear about this and I’m like “You know what, I’m not gonna sell my current house, I’m just gonna sign up for Knox Financial.” You said just now that I put my home in your program, and then I step away, you make magic happen, and then I get money – what, every quarter, every month… And then I get some tax document at the end of the year. Is that accurate?

Dave Friedman: That’s pretty accurate. Let’s get into a little more of how that happens. You’re living there today, it’s time to move, and you say “You know what, this home – it’s been going up in value the entire time I’m here. This neighborhood is highly desirable, and that’s never gonna change. Why would I sell this fantastic investment?” It’s a common thought. Millions and millions of people have this thought every year. And we say “You’re right. Don’t sell it. Sign up with us.”

The first thing, you might need to do a refinancing of the home in order to afford your next home, for the down payment. Well, we have a financing arm. Next thing  – you’re gonna need a different insurance policy, because a homeowner’s policy is different than the policy you need for a renter. Well, we’re an insurance brokerage as well. Then you’re gonna need to find a renter, there’s gonna be maintenance needs, someone needs to pick up the phone on Saturday night at 11 PM, when there’s a leaky sink; we’ve got that function as well. If you need legal, and leasing, and background checking – we do all that.

So we find a renter, we put them in the home, we manage all the move-in/move-out, keys – you name it, we’ve taken care of it. We also do all the accounting and bookkeeping. So we collect the rent, we pay all the expenses on your behalf, we actually manage a bank account for you as a homeowner, and at the end of the quarter, every 90 days – again, just like a share of Microsoft or Apple that might pay a dividend, we send you the net profit on your home… And at the end of the year, because every single expense is run through us, we can send you a 1099 and it makes filing your taxes incredibly easy.

Joe Fairless: Huh. Alright… What are your fees?

Dave Friedman: We work different than the ways other people work. Other folks who might hire a property manager for somewhere between 4% and 8%, or higher… A realtor will charge you a month’s rent, so they get paid for more turnover. We never thought that made sense to us. You need to have a bookkeeper and an accountant, all that stuff. We charge 10 cents on every dollar we collect. So I don’t charge to put a renter in, I don’t charge for professional photography… We do professional real estate photography in every single unit in order to get better rent. We don’t charge rent collection fees, we don’t do any of that. All we do is 10% of the revenue that you see is paid to Knox.

Joe Fairless: Okay, so your fee is 10% on the collected income.

Dave Friedman: That’s right.

Joe Fairless: Okay. So when I refinance with you, when I get a new insurance policy, there are no fees to do the refinance?

Dave Friedman: No, the nice thing for a homeowner is that we do make money doing that, but it’s not you who pays, it’s the market. So banks pay for us to find the borrower. The bank pays us, or the insurance carrier pays us. Let’s say we go out to the market of insurance providers and Schwab is the insurer that comes back with the best deal for you – Schwab actually pays any insurance broker, for you bring them that policy. So we make money not from you, but from the market.

Joe Fairless: So on the refinance there are no fees to your customer; they are paid by the lender to you all. So the customer does not have to pay any fees.

Dave Friedman: The customers do not pay a fee to us. The lending market is its own beast, so there are times as markets go up and down that there may be fees for the loan. These days you’re very unlikely to pay fees. Certain borrowers might pay PMI, or something like that… But again, that’s a bank, and Fannie/Freddie thing, not something we really control.

Joe Fairless: Got it. So how many customers do you have on this platform?

Dave Friedman: We launched less than 90 days ago and we’ve got ten units on the platform so far.

Joe Fairless: Nice. Congratulations on the launch. You have a lot of things going on, personal and professional. You launched 90 days ago, and ten units are on…

Dave Friedman: I should say less than 80 days ago, but it’s coming up on 90 days.

Joe Fairless: Coming up on 90 days, ten units are on… Is that your friend, your best friend and some close relative of yours ten units?

Dave Friedman: No, it’s none of that, actually.

Joe Fairless: They’re  your enemies.

Dave Friedman: Yeah, exactly. At the heart of what we do – we’re a data and automation company, actually… So what we’ve done is we’ve looked at hundreds and hundreds of thousands of homes, because — I should say, we’re only focused right now in the Greater Boston Area. We actually run larger-scale models, but when we run the model in Boston, we looked at a few hundred thousand homes, and used the data  – we’ve identified the actual homes that we want in our program. Because we know which homes should be good rental investments and which should be cashflow-positive, or at least break even.

Based on that, we also look at the dataset and say “Okay, who is likely to move soon?” And those are the folks that we are targeting. We’re planning to scale a very large company here. Yes, we have ten units now, but we’re brand new, right?

Joe Fairless: Of course.

Dave Friedman: So we plan to soon have 10 units a month and then units a week entering the program. Then we’ll go into other markets; we’ll go from Boston to, say, Atlanta, and San Diego, and Chicago, and so on and so forth. And in order to do that, when we go into a market we need to do so in a scalable way, and it’s not only gonna be our friends and family; it needs to be that we can run a marketing campaign, describe the value we deliver, and have folks say “Yeah, Knox is a great investment. I’m gonna jump in that program.” So we’re launching that and figuring out how to do that in Boston first.

Joe Fairless: What do you need to accomplish in order to then move into another market?

Dave Friedman: That’s a great question. It actually comes down to a couple of things. First of all, we need to be able to acquire customers at a certain rate, for a certain customer acquisition cost. This is sort of business growth 101 if you’ve scaled a business in the past. So what does it cost me to acquire a customer? What do I see in revenue for that customer? …and therefore, is that a scalable revenue model?

One of the funniest things – it’s been in the news lately; I go a little bit off-topic here… It was in Lyft’s S-1, when they went public, they said “We’re not profitable. We may never be profitable”, and Uber said “We’re gonna need driverless cars in order to become profitable.” I thought that was amazing… Like, “How are you not making money every time I get into an Uber or get into a Lyft?” I just couldn’t believe that.

Joe Fairless: Details… No one needs a profit. It’s just speculation. That’s the foundation of our economy. [laughter]

Dave Friedman: Yeah, exactly. So we do not exist in that reality.  I don’t know how to get over there in that reality. We live in the real world, so we need to prove that in this market we can run units in a profitable, scalable way, and ideally in a very profitable way… And that’s where the automation parts of our business really shine.

Again, if we can acquire customers for a reasonable amount of money… If I have to market and spend $10,000 in ads buy to acquire a customer, I’m never gonna make any money. So we need to get some brand recognition out there, we need people to tell their friends and be happy about the service that we’re delivering, and so far all of our clients are very happy.

Then, say [unintelligible [00:10:38].23] we’ve got a few hundred units here in Boston, we’re growing. Let’s go do that in another city, and then two more, and then ten more.

Joe Fairless: Help us understand a little bit about how you’re making money with that 10%. I imagine it’s because of the infrastructure you set up, one and done, and maintain and enhance while you go… But the bulk of the work is upfront with your software, and then you rock and roll. But please, will you elaborate?

Dave Friedman: Sure. For starters, we have made certain things that are best practice standard in our product. For example, every single lease we sign – it includes a direct debit form for the tenant. We automatically collect rent. We will not be chasing rent checks. That automatically deposits that rent into an account; again, separate for every units, we don’t co-mingle funds. And then we automatically pay all the expenses on the unit. So we’ve created this automated financial management system so that the money flow is taken care of.

These accounts are also where maintenance costs come out of. So we have not built a construction company or a maintenance company; we have a license deal — that’s the wrong term… We have a contract with large maintenance providers at a rate that’s far below what a homeowner could get on their own. So we don’t include the maintenance cost in that 10%. If you’ve got a home that’s in good repair, you’re not gonna have a lot of maintenance costs. If you don’t, it might not make a good rental, and we’ll tell you that, we’ll be honest with you about it. But in that 10% we’re doing the financial management, not the actual work of nuts and bolts and hammers and screws on the home.

In addition, we are all about keeping tenants happy. Anybody who’s been a landlord knows the turnover will kill you, because a) you have the cost of turnover, and b) you have the risk of vacancy. That is something we work very hard to eliminate. We are treating tenants in a very different way.

I’ll give you an example… When you move into a Knox property, we send you a toolkit. It’s a gift. It’s got our logo on it. But we say to you “Hey, someday you probably wanna be a homeowner.” If you call us and say the garbage disposal is broken, we say “Hey, there’s this number 3 Allen wrench; go under your sink and just wiggle this. Put the Allen wrench in there and wiggle it. It’ll be fixed.” Tenants love that. So we’re treating tenants in a different way, and hopefully they’ll stick around longer.

Joe Fairless: Oh, alright… I thought you were going a different direction. You’re actually saying “Here’s  a wrench, go fix it yourself”, in a nicer way. What else is in the toolkit?

Dave Friedman: Oh, jeez. It’s like a 50-piece toolkit.

Joe Fairless: Name three or four others, please.

Dave Friedman: There’s a screwdriver, and then…

Joe Fairless: Oh, so they’re actually tools. [laughs]

Dave Friedman: Yeah, it’s a toolkit. [unintelligible [00:13:17].20] “You have to do your own maintenance.” If they say “No, I don’t wanna touch that thing”, we’ll send someone there.

Joe Fairless: You’re strongly implying it. [laughs]

Dave Friedman: To some ext– but this is one of the many ways we’re treating tenants differently. Also, for example, we require renters’ insurance on every single unit, on every single tenant. And we can offer that. We don’t make much money on renters’ insurance. It’s like $15/month. Most of that money goes to the insurer. But we’re treating tenants differently, and we’re actually treating homeowners differently.

When they jump in the program, they go “Oh, you guys are doing all of that?” Professional photography, and all these other things that we do that — yeah, there’s probably some property managers on the phone going “Oh, we do professional photography”, but they’re the really rare ones. So we’re really sort of packaging an awful lot of best in practice, and then we’re doing the bookkeeping and the accounting, and then we’re making sure they’re paying less in insurance and less on maintenance. When you add it all up, it’s a win/win.

Joe Fairless: Yeah, it’s a whole lot of stuff that you’re doing, as any landlord knows… I imagine there has to be a certain price point of rent that you look for in order to have the home participate in your program, for it to make sense for you… So what is that price point, if there is one?

Dave Friedman: That’s a great question. We have not figured that out yet… And for that matter, we don’t know if or when we might come into such a situation. The fact is we launched in a top five market… So I’d say the lowest value of any home we’ve brought into our program is over $400,000, and the average home in America is worth $230,000. So we’re almost double the average American home, just by being where we are.

There will come a day when we will launch in some great cities that just have a lower average home value. We’ll go into Houston some day, third-largest MSA in the country, but the average home value is like a third of the Boston area, and we’ll figure out how to operate there.

Joe Fairless: And I’m just curious, why are you talking about home values when you’re compensated on the collected income? In my mind, I would be thinking about the rental income. So out of the ten homes, the lowest amount or rental income we’re getting is $3,000, so we’re still getting that spread of $300.

Dave Friedman: That’s a good point. There are obviously — or maybe I shouldn’t use the word “obviously.” Home value and rent are proportional. They’re not necessarily linearly related, but if you take a look at the ratio – and [unintelligible [00:15:39].05] large data model, so let me paint this picture for you…

Joe Fairless: Yeah. Please.

Dave Friedman: If you look at the ratio of home value to 12 months of rental income opportunity, of a home or of an entire market… Let’s say you take all the two-bedroom homes in Houston and compare them to the two-bedroom homes in Boston; you take the average value of a home in Boston, the average value of a home in Houston, you take the average rental projected for that two-bedroom in Houston and Boston, and you get a percentage. That percentage rate in Boston is about 6%. That percentage rate in Houston is about 12%. So your rental potential to value ratio is actually much better in Houston, which is really interesting. That said, what insurance costs in Texas is very different. Insurance is more expensive.

So you can develop these models to be pretty darn intelligent, understanding where you’re gonna be breakeven or cashflow-positive, and what kind of profitability you can see on the units… But it is somewhat indexed to value.

Joe Fairless: As an entrepreneur, this is number two for you, right? Three — what was the other one?

Dave Friedman: I started  a small real estate investment partnership a long, long time ago. We bought some assets and then we liquidated them. It’s mostly like you buy it, you let it sit, and then you liquidate… But that was a long time ago.

Joe Fairless: How long ago?

Dave Friedman: We sold out in maybe ’05 or ’06… So that was the end of the [unintelligible [00:17:00].09]. It was like an ’03 to ’05 or ’06 story. It was pretty quick, because back then we could do that kind of thing. You could buy, the value would go up 10%-15% a year, and you could be out. We returned 56% per year cash-on-cash to people before tax… The financing terms you could get back then – that’s all evaporated now.

Joe Fairless: It would have been an interesting story if you had waited till ’09 to sell. [laughs]

Dave Friedman: Right. You know what’s funny – I’m trying to remember the exact… For the Boston market we were at the cusp. Things were leveling off and you just knew give it another 6-12 months they were gonna come down. It was already getting harder to get financing when we sold. We could not have recreated day one of that deal on day final, but we were able to still sell.

Joe Fairless: Yeah. Thank goodness. Alright, so this is round three for you on ventures… What in your approach have you honed, knowing that this is round three, that wasn’t as honed in round one and round two?… which sounds like they were a tremendous success, round one and round two, but you learned some stuff too along the way, and you get better as you go, regardless of the outcomes.

Dave Friedman: The number of things that you learn along the way are actually critical, and we should have done a few years ago… And then this time we’re putting  in place [unintelligible [00:18:12].15] is enormous. Putting in the right marketing software, putting in the right CRM, putting in the right accounting software, mechanizing any part of the business process you can to make it simpler and more repeatable and accurate – all that.

Joe Fairless: What CRM do you recommend?

Dave Friedman: Salesforce, all day long.

Joe Fairless: How come?

Dave Friedman: Well, with Salesforce if you’re a relatively technical person — I don’t mean like you have to be a coder; I’m not personally a coder, by the way. But if you have an attitude of like “Hey, I’ll get into something and I’ll figure it out. Enough clicking and button-pressing, I’ll figure just about anything out”, and if you’re an entrepreneur, you’re probably that type of person, you can get so much done with Salesforce. That’s bullet one.

Bullet two, it’ll scale with you to whatever size you wanna be. And third, it connects to everything. We’ve got Salesforce connected to Hubspot, which is our marketing automation system, it’s connected to DocuSign, which is how we do all of our contracts electronically… DocuSign saved my butt more times than I can tell, or just saved me thousands of hours of my life.

Joe Fairless: Yes… I use AdobeSign, but… Either one.

Dave Friedman: Yeah, sure. One of the cool things here is that DocuSign will actually take information out of Salesforce and fill in the fields for you if you do the integration correctly.

Joe Fairless: Wonderful.

Dave Friedman: So it accelerates that. We’re connecting – we haven’t done it yet – DocuSign to NetSuite, which is owner by Oracle; great accounting package and GL package. You need to have a third-party middleware company to connect them, but we’re doing that… So Salesforce becomes the hub for your data, it’s not just a CRM. That’s why I think it’s really great.

If I was more strapped for cash than I am, I might be using the out-of-the-box CRM in HubSpot, because I use HubSpot anyway and it comes with it… There’s a lot of decent CRMs out there. Even NetSuite comes with a CRM, so technically we have access to three of them, which is ridiculous.

Joe Fairless: That’s good. I’m glad you talked about that; I’m just interested in hearing your perspective. Alright, what’s your best real estate investing advice ever, based on your eclectic experience as a real estate entrepreneur?

Dave Friedman: Yeah, it’s funny, I just contributed to an article for Forbes. They asked a similar question… Their question was “How do you maximize value in a home?”, so this is sort of a top-of-mind answer… If you look at a property and there’s a way to add bedrooms, do it. This could be like you’ve got a house you’re buying and you’re gonna rent it out. I once turned a two-bed into a four-bed when I bought it. I’m actually in the process of turning a one-bed into a two-bed that I’ve just bought recently… And it’s usually not that much money to  put up a wall and a closet. You could do it on a  weekend if you’re handy. You could do it for a couple grand if you hire a contractor, or a few grand… Maybe you need to put another light switch or something, so maybe it’s five grand if you want it really crazy…

Joe Fairless: You need the egress and ingress too, but yeah…

Dave Friedman: And the rent you’ll get is just dramatically greater. And if you’re looking at a large multifamily, look at every unit and go “Okay, what’s my total number of bedrooms here?” Can I squeeze 10%, 20%, 50% more bedrooms out of this property? And suddenly, you’re renting better. In today’s market people are worried – in rentals anyway – less about square footage total, they’re worried more about “How many people can I squeeze into this house?” And that’ll get you better returns.

Joe Fairless: The thing I enjoy about this conversation is you’re coming at this from an investing standpoint, but then also from a data standpoint, right? So I imagine you’ve taken a look at the data, and that’s what it’s also showing you…?

Dave Friedman: Oh, yeah. Let me give you an example. One of my favorite places to look at data is short-term rentals, actually. One of my rental properties is only short-term rentals – Airbnb and VRBO. If you happen to own one – or even if you don’t – search in your neighborhood for one-bedroom rentals on those platforms, and then go and  search for five, or six, or seven-bedroom rentals. You’ll find there’s dramatically more competition when there’s fewer bedrooms. Again, you pay the same amount for the house, it’s got the same amount of square footage, it costs the same amount to heat, the bills are the same, you’ve still gotta plow the driveway, that costs the same… All your costs are the same, but one more bedroom? Revenue goes up.

So the minute you buy it, invest in putting in that extra bedroom for the lifetime that you own it, and you’re making more money.

Joe Fairless: That’s something to think about for every landlord. Thank you for that tip, and again, I really like it because it’s coming from your analysis of data, in addition to your first-hand experience. Alright, we’re gonna do a lightning round. Are you ready for the Best Ever Lightning Round?

Dave Friedman: Let’s do it!

Joe Fairless: Alright, first a quick word from our Best Ever partners.

Break: [00:22:38].12] to [00:23:19].06]

Joe Fairless: Okay, best ever book you’ve recently read?

Dave Friedman: Best ever book I’ve recently read… I’ve recently read an amazing book, Hillbilly Elegy. What’s amazing about that book to me is it’s an economic look at what happens to the Midwest – I don’t even know if Midwest is right; sort of like the Tennessee Valley and the Ozarks, that whole area – basically in the last century. And what it’s meant for the economic outcomes for several generations of people, and how they migrated for work and how populations have shifted, what that’s meant for housing… There’s a bunch of real estate meta. What it meant for the author, because it’s a memoir… So it’s an awesome book. It’s not a lot about real estate investing, honestly, but it is an amazing book.

I think the best book on technology that I’ve read in the last five years is The Innovators by Walter Isaacson. It’s a 200-hundred-year history of the computer and electronics industry starting in 1800. Isaacson is the guy who wrote the Jobs biography, the Einstein biography, the Franklin biography, and they’re amazing.

Joe Fairless: What’s the best ever way you like to give back to the community?

Dave Friedman: I was the president of my neighborhood association for a while, and I’ve found that incredibly rewarding, because it wasn’t just the community at large, it was literally my neighbors within a few blocks radius. It was great to be volunteering and helping out, but it was also great to build those relationships.

Joe Fairless: How can the best ever listeners learn more about what you’ve got going on?

Dave Friedman: Check us out at KnoxFinancial.com.

Joe Fairless: And we will include that in the show notes. Dave, I enjoyed our conversation, learning about Knox Financial, learning about your business model, how you arrived at that, thought process, what the value exchange is, talking a little bit about the services within it, and then also taking a step back – mindset, as well as the ventures that you had prior to this and how that’s led to some certain enhancements in how you approached your next venture.

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

Dave Friedman: Thanks, I really enjoyed it.

JF1788: Best Ever Interview Lessons #FollowAlongFriday with Jason Yarusi and Theo

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Theo has a new co host for today’s episode, Jason Yarusi. They will share with us a few things they learned last week that we as investors can also learn from. If you enjoyed today’s episode remember to subscribe in iTunes and leave us a review!

Best Ever Tweet:

“Take time to get to know the person first and the deal second” – Jason Yarusi

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Go to tenantscreening.com and enter code FAIRLESS for 25% off your next screening.



Theo Hicks: Hi, Best Ever listeners. Welcome to the best real estate investing advice ever show. I’m your host today, Theo Hicks. Well, it’s Friday, so that means it’s Follow Along Friday, where we talk about the lessons that we learned from the previous week’s interviews.

This week it’s gonna be a little bit different. As you can see, this is  not Joe talking. We have a new co-host for this episode, a new Theo, and that is Jason Yarusi. Jason, how are you doing today?

Jason Yarusi: I’m doing great, thanks for having me Theo.

Theo Hicks: I appreciate you being here. We’re gonna stick to the standard Follow Along Friday template, but before we begin, I wanted Jason just to quickly introduce himself, let you guys know who he is, what he does, where you can find him, and then we’re gonna jump into the lessons that I learned from interviews last week.

Jason Yarusi: Awesome. Thanks for having me, Theo. I’m really excited to be here. I’m Jason Yarusi of Yarusi Holdings, based here in New Jersey. We invest in multifamily assets in the Midwest and the South-East with general partners on about 450 units right now. I come from a heavy construction background where we’d lift and move buildings, a lot of it for flood reasons. I have a beautiful wife and three small children, and I run a ton; so if you wanna find me at YarusiHoldings.com, or check me out on Instagram at @jasonyarusi and you can see a bunch of the crazy runs I do every week.

Theo Hicks: What’s the longest run you’ve done the past seven days?

Jason Yarusi: The past seven days would be 17 miles; past two months would have been I did a 51-mile race.

Theo Hicks: Is it just you running in the morning on your own, or are those actual races?

Jason Yarusi: The 51-mile was an actual race; the long run – I usually do a long run every Sunday, and it’s just me running.

Theo Hicks: That’s funny. My wife is training for a 10k right now. Now, keep in mind, she’s had a baby four months ago.

Jason Yarusi: Oh wow, good for her. Congrats.

Theo Hicks: 10k is five miles, and you probably just run five miles for your warm-up, probably.

Jason Yarusi: Yeah, you have 6,2 miles, so that’s where it’s at. She’s getting ready for it. But yeah, I’m gonna do a 100-miler, I’m planning on it late September. That’s gonna be a beast. It’s mental first, and then just running second.

Theo Hicks: Good advice, because it seems like you’re pretty into fitness… Before we get into real the real estate stuff, what advice do you have for someone who’s been struggling to start a new workout regimen, or [unintelligible [00:04:15].04] what’s the first thing that you’d do?

Jason Yarusi: Okay, so one thing is nobody wants to get out there and do it; you’ve just gotta get out there and do it. But the other thing is you’re not gonna go from sitting on the couch to running a marathon, or sitting on the couch to bench-pressing weekly 300 pounds. It’s getting out there and just creating constant small habits, and those build over time.

People come out of the gates — it’s like new year’s resolution. You come out there, you get to the gym, you work out for three days, you’re so sore you can’t move for a week, and you’re out again. It’s just getting out there, doing small, consistent habits, just like you do in your real estate business, to improve over the long-term… Because this is just like real estate, it’s a long play; you wanna be healthy and happy for 50 years, not just workout, crush yourself and not be able to do something for two weeks.

Theo Hicks: I appreciate that. You learn something new every day on Follow Along Friday, not just real estate related… But obviously I’m sure running 100 miles is a lot more difficult than anything you do for the real estate business, that’s for sure.

Jason Yarusi: I’ll report back. I’ll come back in October/November and let you know what happened here.

Theo Hicks: I was listening to a podcast for a guy who did the 100-mile run; it’s kind of tough, but he did it. I think he actually does one of those every single year.

Jason Yarusi: Wow.

Theo Hicks: I can’t remember what his name is; I think he’s like an ex-Navy SEAL though.

Jason Yarusi: Yeah, there’s some incredible people out there just crushing some massive goals that you wouldn’t think are achievable. You see people doing races that are like 260 miles, and you’re like “Wow…!”

Theo Hicks: A hundred first.

Jason Yarusi: Yeah, exactly, a hundred first.

Theo Hicks: Alright, so last week I did one interview. I interviewed a passive investor who goes by the moniker X-ray Vision. He’s anonymous, and we kept it that way. He actually is a radiologist, hence the X-Ray Vision moniker. He’s a passive real estate investor and  a blogger. His entire story is around him making a comeback after losing seven figures – almost basically a million dollars in a divorce. Then from there he discovered passive real estate investing and was able to climb out of that hole and achieve financial independence in his 40’s.

He was actually a -$800,000 net worth when he turned 40 years old. By the end of that decade — actually, I think he’s still in his forties right now, so I think he said by 48 he was able to achieve financial independence. A very powerful interview that will probably come out sometime in October, and I wanted to go over a few things that I learned from him.

One thing was obviously he’s a passive investor, he’s invested in a ton of deals with a ton of different sponsors… So I asked him what’s the best way to qualify a syndicator. Obviously, this is something that’s helpful for passive investors who are looking to find syndicators, but also it’s more important for people who wanna be a syndicator, because you can see from the perspective of the passive investor what they’re actually looking for out of you.

So a few things that he said – this isn’t anything too profound, but it’s simple and to the point, and still interesting… So obviously, you wanna do your due diligence on that individual and that company, but it’s less about looking at their experience level and how many deals they’ve done and more about how you actually feel about them as a person, and how you feel about their actual niche.

Obviously, in order to determine how you feel about them, you’re gonna want to make sure you set up an interview with them on the phone… Remembering that it’s actually a two-way street, so you interviewing them and they’re technically also interviewing you.

At the same time you wanna do all of your typical research online and determine “Okay, so if they’re investing in mobile homes, am I comfortable with that niche? Are they investing in multifamily – am I comfortable with that niche?” Retail, office, whatever – is it something that you’re actually comfortable with? Because at the end of the day, he was saying how no matter what niche you invest in, no matter who you invest with, that first deal is gonna be a leap of faith, and you’re gonna have lots of doubts just because it’s your first time giving someone else $50,000 to $100,000. So don’t let that stop you from doing it… Just make sure that you’re comfortable with the actual individual and you’re comfortable with the actual niche that they’re investing in.

And then one more thing that he said before I toss it over to Jason is obviously after your [unintelligible [00:08:04].11] you’re gonna wanna get a list of people who are investing in their deals currently, and actually in a sense interview those people as well, and talk friendly with them and just kind of determine how the deals actually performed compared to how they were projected, and then compared to how the syndicator said their deals performed during that initial conversation.

I know I’ve mentioned a lot there Jason, so you can just pick it apart… Any thoughts on that?

Jason Yarusi: Yeah, so there’s actually so much good stuff said there, and even more in the last part… Following up with people who have invested in their deals prior, just because a lot of people can put together a deal that looks great on paper, but actually when you get into the deal it’s really about the things that are gonna come up, because when you have an apartment building where there’s 100-200 people living in it, how did they react when they have to make a decision on there and how are they following back with those investors? Are the investors in tune to what’s happening on the deal?

Another point you’ve mentioned that’s key is that if that person hasn’t done this deal before or hasn’t done a multifamily deal, what’s their track record in life and in business before that? What else have they been doing, what else have they been making of themselves? Honestly, you may be a passive investor in this deal, but ultimately you’re partnering with this person from three, to five, to seven years. So if you don’t really agree with their views or agree with their take on investments, just having a good deal may not be enough for you to invest with them… Because you’re gonna be partnered with this person for that amount of time, and their reaction now is not gonna change; they’re still gonna have a reaction that may not suit you over time… So take your time to really dive into the person first, and then the deal second, because it’s gonna be the person that you’re gonna build with over the years.

Theo Hicks: Yeah. I didn’t ask this question to X-ray, but I did have a conversation with a passive investor and a syndicator – I think it was two weeks ago – and I was asking him “What would someone need to do if they’ve never done a deal before to essentially convince him to invest in the deal?” And you actually hit on that when you said that you wanna see someone that has experience in business. So have they started a business before in the past? It doesn’t have to be anywhere closely related to real estate; I wish I could remember what business he had started, but it had nothing to do with real estate… But because the act of starting a business, the act of starting something from nothing and dealing with all of the obvious hurdles that come along the way, you can take the skills that you’ve learned and then apply that to raising capital and doing a deal.

Obviously, I didn’t ask X-ray, but for people who haven’t done a deal before, and obviously, every single person who’s done a deal before has been someone who hasn’t done a deal before… And one of the best ways to get over that objection from a passive investor – “Well, I wanna wait until you do one deal first to see how it goes, because while I invest with you, it’s ideal that you have some sort of track record in some other industry that you can rely upon.” It can even be something like you got promoted every year for ten years at a company, and you’re a director, or whatever.

It’s all about how you position it to the investor. At the end of the day they have to trust you with their money, and if you graduated college and didn’t work for five years and then all of a sudden you’re wanting to raise capital, well you’re gonna have a little trouble doing that… Whereas if you didn’t do anything real estate related at all, or maybe you did a few deals on the side, but you worked for a big Fortune 500 company and climbed the ladder there, or if you started your own small business that was successful a.k.a. generated a profit, then you can leverage that to essentially convince people to trust you and invest with you.

Jason Yarusi: Yeah, absolutely. When you think about it — you’re spot on, we all start without having done a deal before, and it just comes down to what we’ve built up in the rest of the parts of our life. I was just having a talk with someone the other day – they’re successful in opening restaurants, but they want to now start raising capital to help others achieve financial freedom through investing in apartment buildings. He’s like “I don’t think people will take me seriously.” I’m like “Well, why not?” He’s like “Well, I haven’t done this before.” “Well, yeah, everybody’s gonna start at that point. But you’ve opened three successful businesses. Do you have employees there?” “Yes, I do.” “Well, are the employees now being paid, doing their job successfully because of what you’ve put together? Are they now feeding their families from what you’ve put together? Think about that track record and use that to your advantage. You’ve done that successfully, you’ve built your team, you’ve built your processes through that; allow that to transfer over to this business.”

Theo Hicks: Yeah, building a team is also a big one too, because obviously in syndications 100% of the success is dependent on the syndicator themselves… But they have to select the right team, because the team is gonna be managing the deal from a day-to-day operations perspective, [unintelligible [00:12:28].24] a business before and you’ve got  actual employees, that’s huge. Obviously, if it was successful and it was profitable, that’s also…

One more note on this one, and then we’ll probably move to the second point I wanted to talk about, which is he mentioned a big red flag that he would see. So he talked about what he does not wanna see, and the one red flag that he mentioned was unrealistically high or inflated returns. It’s kind of implying that the person who is a passive investor has experience analyzing deals. He mentioned that he analyzed a ton of deals from a ton of different sponsors. So that’s one thing that you should do as a passive investors – analyze a lot of deals – because then you can recognize “Okay, I’ve looked at 100 deals. 99 of those deals had between 8% and 10% return, but this guy is telling me he can get 15% cash-on-cash return with a very similar deal – I know something is most likely going on here.”

Or if you’re even better at crunching the numbers and able to analyze the actual — not the actual cashflow calculator, because they’re not gonna send you that, but just looking at their proforma, and seeing “Wait a minute, this expense seems like it’s really low”, or “I think they’re missing this expense” or “Wow, they’re gonna raise rents by this much money by only investing $1,000/unit?” Something that just looks unrealistic, but really the only way to know what’s realistic and what’s not realistic is to analyze a bunch of investment summaries and go on a bunch of those new investment conference calls or webinars.

Jason Yarusi: Yeah. This is a great point for people that wanna be active and wanna be the syndicator themselves and raising money and buying deals… Because ultimately, you say “Well, I can’t find a good deal” – well, you should be analyzing as many bad deals as possible, because as soon as a good deal comes across your table, you’re gonna know it so quickly because you’ve already gone through all the bad deals that are out there on sites and are just being pushed around from person to person.

Theo Hicks: Exactly. So this X-ray guy, and then other passive investors I’ve interviewed – they’re on all the email lists, so whenever a syndicator gets a new deal that gets sent to them, they’ll go on the conference call. It only takes a few hours a week. If you look at one deal a week, it’s maybe a few hours in a conference call, and then maybe another hour reviewing the deal… So spending five hours, maybe an hour a night, and over time you’ll learn what’s good and what’s bad. Not even that, you’ll be identifying what’s good and what’s bad. And then, as Jason mentioned, once that good deal comes, you’ll be able to see that.

The second point I wanted to mention – and this is short – we were talking about his blog focuses on financial freedom and helping people achieve financial freedom through passive investing… I was asking him, “Do you know a different definition of financial freedom and different ways to go about doing it?” For him, he gave me two different categories of financial freedom. One was called lean fire; Jason is lean… But I guess this is kind of the opposite of that, because the lean fire is you just doing your basic needs; so figure out exactly how much money you need to make to cover your house, your food, your family and whatnot. That’s lean fire, and where that number is, that’s your goal.

Then on the opposite end of the spectrum is fat fire, which is your basic needs plus let’s say you wanna splurge on vacations, you wanna buy a really fancy house, and buy a new car every year… So depending on what your definition of financial freedom is, you need to set a number based on that. So first you figure out your burn rate – your lean fire rate; the basic amount of money you’re gonna make per month in order to survive. And then whatever else you wanna make on top of that, you add that to your basic needs number, and those two together is your total number that you want to make per year. And then obviously you work backwards to figure out exactly how much money you need to invest passive at x% return to make that money.

Something else that was interesting that he mentioned was something called the Trinity Study. This can go either way, so let’s say you know exactly how much you want to spend each year in expenses; then your nest egg that you’re gonna need to retire is gonna be that number times 25. And the other way around is if you have a nest egg of whatever, and you wanna figure out how much money you can spend each year, you divide that by 25. And the whole idea behind that, I’m pretty sure — [unintelligible [00:16:30].15] live for 25 more years, or it’s that the return you get on that nest egg is gonna be 4%, and then that’s what you’re gonna be living off of, is that 4%.

Jason Yarusi: Huh. That’s a pretty cool way to think about it, but what’s just key here is he’s breaking it down to real actual numbers. We all talk about we want financial freedom, but what that means for me versus what that means for Theo and what it means to everybody listening to this is gonna be completely different. But if you think about that – your basic needs, if you wanna add on top of that and start breaking it down and looking at your investments, well now it becomes real and it can become concrete, because you can put steps to it, put actual steps to it.

Theo Hicks: Yeah, and I like the whole concept of reverse-engineering it, so saying “Okay, I’m gonna make 50k a year. Okay, well how much money will I need to invest from a passive investor’s perspective? How much money do I need to passively invest in deals in order to reach that number? Okay, well how many deals do I need to do per year, to passive invest in? Alright, so how many deals do I need to look at in order to passively invest in that many deals? Okay, how many syndicators do I need to talk to?” Kind of just breaking it down to “What do I need to do every single day in order to make my goal?”

We kind of talk about the same thing on Syndication School about apartment syndications. Let’s say your goal is to make 100k/year. Well, you don’t wanna just stop there and be like “Well, based on the structure of my syndicated deals, what size deal do I need to do, or total size deals do I need to per year in order to make that $100,000 goal?” I’ll just do a basic number – “I need to do a million dollars’ worth of deals per year. Well, how much money do I need to raise in order to do a million dollars’ worth of deals? Okay, so I need to raise $350,000. Okay, well how many passive investors do I need? If I need ten passive investors, how many passive investor conversations do I need to have per week or per day in order to get those ten passive investors?” So taking it from a very high level and breaking it down into what you have to do every single day, as Jason mentioned, makes it real.

Jason Yarusi: Yeah, absolutely.

Theo Hicks: It makes it more tangible and gives you probably less anxiety about achieving it. Because if I just say “I wanna make $100,000 this year in syndication.” Well, what do I need to do? Do I need to do 10 million dollars, 100 million dollars, a billion dollars worth of deals to make $100,000? I don’t know.” So if you break it down, you know exactly what you need to do in order to get there.

Jason Yarusi: Yeah, and 100% attainable. If you say “Well, I just wanna go buy a million dollar apartment building because I think that can get me $100,000”, but you don’t know if you can actually put the work to be able to find that many people you can help and raise money from… Well, now you get that, and the stress is now “You HAVE TO raise this money.” This is about going out there and finding people that align with your investment criteria and align with your investment goals and helping them across, and now you’re ready to find out apartment buildings; you’re basically building yourself backwards into it.

Theo Hicks: Exactly. So those were the two long lessons I learned from a single interview last week.

Jason Yarusi: Yeah. I keep thinking the anonymous guy is like — you know, there’s an old Chevy Chase movie where he keeps being invisible and he’s running around in a suit; that’s this anonymous guy. I wonder what he goes under when he invests in these deals.

Theo Hicks: I know what his name is… [unintelligible [00:19:25].03] his blog is anonymous, but I’m pretty sure when he invests in the deals he just goes under his real name.

Jason Yarusi: I’m gonna keep thinking it’s the other way. Just give me some good thoughts here.

Theo Hicks: There you go. Alright, so moving on to the last two items… We have the trivia question; this is the month of the global trivia questions. I guess this is gonna be the last week of the global trivia questions. Last week I asked Joe what country has the highest percentage of renters, so renter-occupied units, highest-percentage. I think he said France. I mentioned it was in Europe. The answer is actually Switzerland. In Switzerland 56.6% of the population rents.

I’m pretty sure it might be one of the only countries that has over a 50% renting rate. [unintelligible [00:20:13].17] one more, but I thought that was interesting.

So we’re gonna go at the opposite rent of the spectrum, and this week’s question is “What country has the highest homeownership rate?” This number is 96.4% of the population owns their own home. I’ll give you a hint, too; this is a European country, and it’s actually an Easter-European country, so I’ll give you something even more specific.

Jason Yarusi: Croatia.

Theo Hicks: That’s a good guess. So if you want to win a free copy of the first Best Ever book, either submit your question via email to info@JoeFairless.com, or in the comment section of the YouTube video. As I mentioned, the winner will get a free copy of our book.

And then lastly, we’re discussing the free documents that we have on Syndication School. As a reminder, Syndication School goes live every Wednesday and Thursday, where I talk about the how-to’s of apartment syndications. Right now we are on series number 20, so we’ve got almost 100 episodes of that aired now.

Right now we’re talking about how to asset-manage deals, so make sure you check out those episodes that came out yesterday and the day before… But also check out all the previous series as well if you wanna learn how to do deals.

The free document I wanna talk about this week is from series number seven, which is where we talk about the power of the apartment syndication brand. So me and Jason were talking about today one way to get credibility in the eyes of potential passive investors is to have business experience. Another way to do that if you don’t have business experience is to focus on building a brand, a thought leadership platform – something like this, where we’re talking to expert real estate investors. Through them you gain knowledge, but also you’re perceived by other people as an expert because you’re out there actually talking to experts.

We have a lot of free documents from that episode, so I’ll talk about the rest of those in the next few episodes, but the first one we gave away was a branding resources document; essentially, it’s a list of all of the websites and different tips for constructing your brand: creating business cards, creating a website… So kind of the foundation of the brand. And then we go into more details on how to actually create a website, how to actually create your podcast or your channel or whatever. All that is available at SyndicationSchool.com. The branding resources are from episode 1534, or we’ll have it in the show notes of this episode.

Jason, I appreciate it that we got you on the show.

Jason Yarusi: Awesome. Thanks, Theo.

Theo Hicks: Just one last time, where can people reach you and learn more about you?

Jason Yarusi: Sure, you can find me at YarusiHoldings.com. Follow me on Instagram at @jasonyarusi, and the podcast is The Real Estate Investing Foundation Podcast with Jason and Pili. You cand find all the notes on the website, and all the other channels you’re finding… Joe and Theo for the Best Ever Show.

Theo Hicks: There you go. Alright, Jason, I appreciate it. Best Ever listeners, thanks for tuning in. Have a best ever day and a best ever weekend, and we’ll talk to you soon.

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JF 04: Experienced Property Manager Shares His Best Ever Advice

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