JF2728: The Key to Multifamily Asset Management ft. Kyle Mitchell

Kyle Mitchell, Founder of Limitless Estates and Managing Partner of Vertical Street Ventures, returns to the Best Ever Show to share his insight on multifamily asset management. In this episode, he details the importance of having a good asset manager and how to create an efficient, scalable business using this role.

Kyle Mitchell | Real Estate Background

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Slocomb Reed: Best Ever listeners, welcome to The Best Real Estate Investing Advice Ever Show. I’m Slocomb Reed and I’m with Kyle Mitchell. Kyle is joining us from Scottsdale, Arizona. He’s the managing partner of Vertical Street Ventures. He’s a GP on 107 million in assets under management. Kyle, can you start us off with a little bit more about your background and what you’re currently focused on?

Kyle Mitchell: Yeah. Thanks, Slocomb, happy to be on. My background is now in multifamily real estate, we focus on value-add apartment investing in the Arizona and the Texas markets. We’ve got about 14 different properties that we’ve done syndications on; I’ve been in real estate since 2010. In my previous life, I was on the golf management side of things, so property management, but for golf courses. I did that for about 20 years, got burned out on it, and I ended up finding an online course for real estate, and then 11 months later I left my full-time job to pursue it full-time. So I’ve been full-time in multifamily for the last three and a half years, and I live in Scottsdale where we acquire most of our properties in the Arizona market.

Slocomb Reed: So you’ve been full-time in real estate investing in the last three and a half years. You’ve acquired 14 properties in that time?

Kyle Mitchell: That is correct.

Slocomb Reed: Gotcha. You’ve been busy.

Kyle Mitchell: Busy for the last 12 to 18 months, I would say. Yup.

Slocomb Reed: Okay, how many of those deals are in the last 12 to 18 months?

Kyle Mitchell: Seven of those deals were in the last 14 months, actually.

Slocomb Reed: Seven deals since basically the beginning of 2021, end of 2020?

Kyle Mitchell: Yup.

Slocomb Reed: And what markets are those in?

Kyle Mitchell: We have one that we closed last November in Arlington, Texas. That was a 352-unit property. And then the rest were between Phoenix and Tucson, which is where our core markets are.

Slocomb Reed: Phoenix, Tucson, and Arlington, Texas. It’s not like you’re the only guy who’s looking for deals there. I imagine the vast majority of people who are looking for deals in those areas, even those with your experience, aren’t locking in seven deals in about the last five quarters. What do you perceive to be the differentiator between you and the other people writing these offers?

Kyle Mitchell: Yeah, I made a big move in my life last year, actually, in April; I moved from Southern California to Arizona. Prior to moving to Arizona, I was still flying into Arizona every other week, but I just wasn’t able to build the right relationships, or better relationships, like I do now, and also being able to react much quicker. So now that I live in Arizona… If a broker sent me a deal, in the past, I would say, “Yeah, I’ll be there next week. I’ll take a look at it.” Well, by that time, 20 other people have taken a look at it. We’ve literally been sent a deal on a Saturday, I go look at it, we underwrite it, and we’re making an offer by Saturday afternoon or Sunday, before anyone else looks at it. So that’s been a huge factor. I’ve been able to be the boots on the ground and really build the relationships with the brokers here, and then been able to react very quickly.

Slocomb Reed: Gotcha. So moving into your target market from SoCal. And that’s not the time that you were going full-time; you were full-time for a couple of years before that, weren’t you?

Kyle Mitchell: That’s correct.

Slocomb Reed: Gotcha. So you perceived yourself losing out on deals because you couldn’t get to them quickly enough. So you’re already full-time doing this… Why not go be where you’re looking to buy deals, so that you can be Johnny-on-the-spot? You hear about on a Saturday, Sunday you’re there, and Monday you’re writing your LOI. Is that about right?

Kyle Mitchell: Yeah, exactly. There’s even the same day that we’ll write an offer or provide feedback to the brokers. When you can provide feedback to brokers the same day, they tend to like that. And whether I do that one deal or not, they’re going to continue to throw deals our way, because we get back to him pretty quickly and we move quickly. So that’s been a huge factor. And just the fact that I live in this market, I can see it real-time, things that are gentrifying, areas that are good, that are not good, that we’re not interested in, and then just understand the market and building the relationships – it’s just gone a long way for us since we moved here. We’ve grown exponentially since we moved to the market.

Slocomb Reed: Gotcha. I understand, Kyle, obviously, you’re involved in acquisitions and deal-finding. I understand you’re also involved in asset management. Is that correct?

Kyle Mitchell: Yup.

Slocomb Reed: A bit of my background, Kyle – I am an owner-operator, so I’ve worn all of the hats, or almost all the hats for all of my properties thus far. And I’ve read the Best Ever Real Estate Syndication Book multiple times. Because of my experiences as an owner-operator – I’m the property manager, I’m the asset manager, I am the person to whom I have to answer on most of my properties. You guys hire third-party property management then?

Kyle Mitchell: We do right now. We’ve had the discussion about bringing it in-house now that we’re over 1,000 units. I came from the property management side of things, but from the golf course perspective. But it’s the same thing. It’s a lot of people, low margins, it really is a thankless business. So for me, if we can have a strong third-party property management company that allows us to customize things and works with us on a lot of our key performance indicators, our targets, and how we do things, then for right now I’m okay with having a third party.

I can see why people bring it in-house, but that’s not something I would pull the trigger on yet. Like I said, it’s a tough business, there are a lot more moving parts because you have a lot of employees involved, and that changes things, so we’ve decided not to bring that in-house. However, we are bringing construction management in-house, which is somewhat similar, but the goal of that is to help alleviate some of the supply and labor constraints that are out there right now.

Slocomb Reed: Over 1,000 units, you have some property management background… Tell us, Kyle, what’s factoring into your decision? You guys are considering bringing property management in-house, but you haven’t done it yet, and it sounds like you’re not going to, based on your current portfolio. What are the factors in that? Why is that?

Kyle Mitchell: It’s just tough to manage people. The more people you have in your business, the tougher it is to manage. We’re happy with our third-party property management company to this point, and we are probably one of the larger groups with them, so we get some flexibility. We sit down with the owners, and they allow us to customize certain things the way we want to see it. So as long as we have a partner in that, we want them to be focused on what they do best, and we can focus on what we do best, which is finding the assets, and then managing from an asset management level, execution of the business plan. But if you have a strong third-party property management company, I do like the fact that they’re focused on that and what they’re really good at. Again, I understand why people bring in property management in-house. A little bit more control, there are some ways to save and increase your NOI.  But right now, I think we’re sticking with a third party.

Slocomb Reed: Thank you, that’s very helpful. When it comes to asset management, tell us a little more of what the, not necessarily day-to-day, but month-to-month and quarter-to-quarter of that looks like in your relationship. Do you have one property management for the whole portfolio?

Kyle Mitchell: We have two. We have one that is based in Tucson and one that is based in Phoenix.

Slocomb Reed: Gotcha. And then you’re using another property manager in Arlington, Texas as well?

Kyle Mitchell: Actually, the same one that’s in Texas, because they also manage properties out in Texas. They have a portfolio out there and that they manage so that’s worked well.

Slocomb Reed: Okay, nice. Yeah, that is convenient. Tell us about what asset management looks like for you guys. What is it that you’re focused on in your relationship with your property manager, but also, what are your key performance metrics, the ones that you’re tracking? And how frequently are you pinging the property manager to see how things are going?

Kyle Mitchell: When it comes to asset management, I think a lot of people think that you can just hand the keys to the property management company, they’re going to execute the business plan, and you call it a day, you move on to the next property. But really, you do value-add investing, and the more you can force the NOI up, the more forced appreciation, the more value you’re going to get on the property. Asset management is critical to make sure that the property management company, number one, understands what your business plan is, they know going in, and they execute it properly.

As I mentioned, property management is a people business, and people are not perfect, so there need to be systems in place to manage people and manage the execution of the business plan to get the best results. That’s where asset management comes into play.

We look at it more as a partnership with our property management company, where we’re partnering with them to execute our business plan together. Asset management, one day, could just be hopping on a call with them, understanding and letting them know what the budget is for a certain project, and making sure they stay on time. Another day, it could be going to the property, double-checking their work, and really pushing them to hold them accountable for things that are not getting done properly. But what our cadence looks like is during the value-add phase, we have weekly calls with our property management company, and we have a checklist that we go over, and a task list that we go over every week, to make sure everything’s staying on track. Once the property is stabilized, we’ll go every other week, or even once a month, depending on how the property is performing and all that. That’s a lot of what asset management has to do with; we have a full-time asset manager on our staff who does all this. But right now, especially with where we are in the market, in my opinion, I think speed, execution, and efficiency is critical. Making sure that you’re working in tandem with your property management company to finish out that business plan as quickly as possible is crucial.

Slocomb Reed: Speed, execution, and efficiency are words that everyone’s using about the acquisition process, and we were just talking about you moving your life to Arizona to make that possible with acquisitions. Meeting with your property manager once a week during the value-add phase – how often is a member of your team visiting each of the properties, during the value-add phase and then afterward?

Kyle Mitchell: It depends on how heavy of a lift. If it’s a light value-add, it’s going to be much different than a heavy value-add I would say. If it’s a heavy value-add, it’s once a week, to be honest with you. But right now, if it’s just a light standard value-add, that’s our on the fairway type of deal, at least twice a month, and maybe three times a month.

Slocomb Reed: Kyle, what counts as a heavy value-add for you?

Kyle Mitchell: Well, we have a deal we’re closing on in a couple of weeks where we’re putting 70 grand a unit, $7 million into it, and it’s a 100-unit property.

Slocomb Reed: You’re putting in 70 grand a unit?

Kyle Mitchell: Yes. That would be a heavy value-add. I would say a light value-add for us in the Phoenix area is probably 10 to 15 grand a unit.

Break: [00:13:51][00:15:47]

Slocomb Reed: What are you getting for 70 grand a unit?

Kyle Mitchell: What are we getting for 70 grand?

Slocomb Reed: In Cincinnati, Ohio, 70 grand a unit is more than I want to pay purchase and rehab for most of the stuff that I’m looking at, Kyle… So you’re blowing my mind with 70 grand per unit for rehab. Well, first of all, tell me the gross rents on these things and what you’re doing to the gross rents by spending that much money. And then please explain what 70 grand a unit is going to get you in Arizona right now.

Kyle Mitchell: 70 grand a unit it’s going to get us a rooftop deck, it’s going to blow out the entire bottom floor, brand new amenities, brand new office space, offices, common area amenities, and exterior work as well, rebranding. What else are we doing to it? Interior renovations are going to be between 20 and 25 a unit, so that’s not [unintelligible [00:16:34] the interiors. This is a tower, it’s a nine-story tower, so we have a lot of interior work, and then deferred maintenance. I would say probably a third of the 70 grand is going to be to defer maintenance to things like the roof, plumbing, etc. But this is in a great downtown location, huge units, and so 70 grand a unit for this one. In-place rents are $400 below market on day one, and another $600 to $700 after renovations.

Slocomb Reed: You’re adding $600 to $700 per month per unit with your renovations?

Kyle Mitchell: Yup. But on day one, they’re $400 below market. So when it’s all said and done, from today until the end of the renovation, it’s over $1,000 in increase.

Slocomb Reed: Oh, gotcha. So you’re getting 1000 a month increase for 70 grand a unit?

Kyle Mitchell: Yup.

Slocomb Reed: Gotcha. Give us the bigger picture numbers as well. You gave enough math to figure out how many units there are. But how many doors is this? What’s the purchase? What’s the rehab? What are you expecting this to be worth? And what do you expect to be producing on the back end?

Kyle Mitchell: It’s a 96-unit building, ’60s build, downtown Tucson. Let’s see, 70 grand a unit is what we’re going to be spending on it; purchased it for about 27 million, and when we’re all said and done, looking at it to be worth about 43 to 45 million.

Slocomb Reed: Gotcha. So you’re going to be all in for around 34.

Kyle Mitchell: Yup.

Slocomb Reed: And it’ll be worth about 10 million more than that when you’re done.

Kyle Mitchell: Exactly.

Slocomb Reed: Underwritten to the five-year hold?

Kyle Mitchell: Underwritten to the five-year hold. Correct.

Slocomb Reed: Okay, and what kind of return are you projecting?

Kyle Mitchell: About 2.1 multiple, 17% IRR.

Slocomb Reed: Gotcha. Yeah, I’m willing to call this heavy value-add too, Kyle. How are you expecting your asset management relationship to go with this? And you mentioned you’re bringing construction management in-house; is that for this deal, because there are so many things going on?

Kyle Mitchell: It’s not specifically for this deal. The reason why we’re doing that is like I said, we’ve got about 14 deals, and about six or seven of them are still in the value-add phase. And we’ve just seen, between COVID and labor shortages, and supply constraints, what used to be eight to 10 units a month that we could do has really shrunk down to three or four. And we feel we’ll have a lot more control bringing it in-house; obviously, our team will only be working on our properties, so they don’t have to go to other properties. So we’ll have a little bit more control on being able to be more efficient when it comes to our renovations. The scope for that heavy value-add, we’re bringing in an outside general contractor, architect, design team, because it really is a huge lift, and our in-house team is not going to be able to blow out the entire bottom floor of a building and do all that. So that’s kind of separate. But again, it’s really been the market environment for the reason that we’re bringing construction in-house.

Slocomb Reed: Gotcha. So asset management for your property manager, but also for all of these vendors that you’re bringing in to complete the rehab. I have a feeling that at first you’re going to be on-site more than once a week. What is that going to look like from an intensity perspective, frequency of how often you’re there, how many people are you keeping track of, that kind of thing?

Kyle Mitchell: The good news is that we have a full-time asset manager as well. A lot of his time is going to be focused on this property when we close on it in a couple of weeks. I will also be involved, since I’m boots on the ground. But when we’re first getting started, I’m probably going to be there two to three times a week to start for the first month or two, until we feel really comfortable with what’s going on.

There are some city permits and requirements, so we’ve got to go through some of those items, so we’re not going to start for four to six months. So we do have it staggered in a way that it’s not going to be too extreme. But yes, when we’re doing 70 grand a unit heavy value-add on a deal, we’re going to be very hands-on and be out there as much as possible.

Slocomb Reed: Blowing out the first floor – are you going to have tenants living there in the meantime?

Kyle Mitchell: The first floor right now, which is actually good, mainly consists of open storage and commercial space. We’ll do it in sections. So yes, there’s no living spaces in the bottom section, so we’re going to be able to do it while the residents are still living there.

Slocomb Reed: Gotcha. Kyle, let’s talk about asset management from a hypothetical perspective. I’m taking the perspective of a property manager, for myself, and thinking that I’m being brought on to manage a value-add asset, probably closer to the lighter value-add, that we may have some major mechanicals that need to be replaced. We’re doing some cosmetic updates in the apartments. We have a reasonable time frame, so it’s not like we’re emptying out the buildings to get everything done quickly. Thinking from the perspective of your property manager, how often should I expect to hear from you, and what level of decision making can I make on my own? And what do I need to get approval from you for?

Kyle Mitchell: Great question. We hired our asset manager about three months ago, and we were just talking about this yesterday… Because there are a lot of things that go on in a business plan, and a business plan doesn’t end the way it started; it just never happens that way. It would be great if everything stayed on timeline and stayed on budget. But essentially, what we do is we’ll have a meeting with our property management company and our asset manager is involved. They’re there for due diligence; we talk through the business plan together, they know what our budget is. So they have our budget, they have our business plan, and so does the property management company. So that person has full rights to make sure that everything stays on the timeline, within the budget. And if anything goes outside of the budget or changes, is when we get an email or a request for our input on the deal.

So we want to make sure there’s some flexibility and freedom for the asset manager; otherwise, they’re essentially just an assistant. It’s important to make sure you have the right person though. For the first couple months, we’re going to make sure that that person has good decision-making ability, asks the right questions, asks good questions. When we feel that he or she’s ready to take on the project a little bit more, then we’ll give them a little bit more rope. But as long as it’s staying within the budget and the timeline, we’re not going to get as involved as something that’s going over budget or an unforeseen item.

Slocomb Reed: Last question before we move on to the next segment of this interview, Kyle… What are the key metrics that you’re looking at for the performance of your properties?

Kyle Mitchell: We look at a ton of different metrics. One that I’m really interested in right now is lease trade-outs. The reason for that is lease trade-outs on renovated units, but also least trade-outs on existing, just classic units. Our market, in and of itself, has gone up 15% to 20% on rents over the last 12 months, so what we’re actually seeing is that we can get a lot of that rent increase without renovating a unit. So we want to make sure it still makes sense to renovate the units at the full level to make sure we’re getting our ROI on it. So looking at the lease trade-outs between what classic rents are and what renovated rents are one thing that we really focus on right now.

Slocomb Reed: Focusing on making sure that you’re getting the right return on your rehab dollars, as opposed to the return that you’d be making if you didn’t spend as much of course. Gotcha. Kyle, are you ready for our Best Ever lightning round?

Kyle Mitchell: Let’s do it.

Slocomb Reed: It’s been a few years. You’ve been through this before. You came on the show right after getting your first syndication deal, right?

Kyle Mitchell: Exactly.

Slocomb Reed: For anyone who wants to find him, that is Episode 1784. Kyle, what’s the Best Ever book you’ve recently read?

Kyle Mitchell: Who, Not How, by Dan Sullivan. It changed my perspective and view on things over the last 12 months.

Slocomb Reed: What is your Best Ever way to give back?

Kyle Mitchell: Our Vertical Street Ventures company is starting a nonprofit arm that my wife and other partners are working on. We’re really excited to give back in that way. We also have an academy where we teach other people how to get started in the Arizona markets. It’s a tough market to break into right now, so we are helping people get their first deals out here in Arizona.

Slocomb Reed: What is a Best Ever skill you develop since your first deal?

Kyle Mitchell: Best Ever skill. Great question. I would say just honing in my skills on asset management. I come from the management side of things, but just changing industries is — it’s not a perfect transition… So just honing my skills on the asset management side. I’ve learned quite a bit on how to do that, and managing people.

Slocomb Reed: Awesome. What is your Best Ever advice?

Kyle Mitchell: I think last time I said it was consistency, and I still stick to that. If you’re consistent in this business, you’re going to be able to beat out 95% of your competition. It’s one of the toughest things to do, is be consistent for a long period of time. If you do that, you’re going to be successful in this business. Things don’t happen overnight, but over two, three, four years, it’s amazing how much you can accomplish if you’re consistent.

Slocomb Reed: Absolutely. Kyle, where can people get in touch with you?

Kyle Mitchell: Yeah, verticalstreetventures.com is a great place to go; it talks about our team, our portfolio, and even the academy that we offer.

Slocomb Reed: Or the phone number and email address in your background for those who are watching on YouTube. Best Ever listeners, thanks for tuning in. If you’ve gotten value from this episode, please subscribe to our show, leave us a five-star review, and please share this episode with your friends, so that we can add value to them too. Thank you and have a Best Ever day.

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JF2709: 5 Tips for Multifamily and Self-Storage Development ft. Dallon Schultz

Multifamily and self-storage development can be stressful to navigate. For Dallon Schultz, it became even more complicated when he had to juggle both his real estate business and his full-time job in the medical field. In this episode, Dallon shares his success habits for ground-up development and best practices for scaling your business.

Dallon Schultz | Real Estate Background

  • Founder/Owner of REV Equity Group LLC which focuses on investing in apartments and self-storage assets.
  • Portfolio: GP of $6.5M multifamily development in Arizona and a 140 space RV and Self Storage development.
  • Hosts a multi-state monthly meetup to bring those looking to scale their existing portfolio or those interested in learning how to become actively involved.
  • Based in: Phoenix, AZ
  • Say hi to him at: http://investwithrev.com | FB: REV Multifamily Meetup | IG: @revmultifamily | dallon@revequitygroup.com
  • Best Ever Book: Best Ever Apartment Syndication Book by Joe Fairless

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Ash Patel: Hello Best Ever listeners. Welcome to The Best Real Estate Investing Advice Ever Show. I’m Ash Patel and I’m with today’s guest, Dallon Schultz. Dallon is joining us from Phoenix, Arizona. He is the founder of Rev Equity Group, which focuses on apartments and self-storage assets. Dallon’s portfolio consists of $6.5 million, and he’s also the host of a multi-state meetup. Dallon, thank you for joining us, and how are you today?

Dallon Schultz: Ash, I’m excited to be on this call. I’m doing great. Thanks for having me.

Ash Patel: It’s our pleasure. Dallon, before we get started, can you give the Best Ever listeners a little bit more about your background and what you’re focused on now?

Dallon Schultz: Yeah. I guess a little bit about my background – I didn’t start in real estate; I don’t think a lot of us have. If you talk to most people that are actively involved, they transition from something. In my case, it was the medical field. I actually have a bachelor’s in nursing, and I worked two years full-time in an emergency room and in a cardiac unit. Long story short, I didn’t find that safe and secure job that I thought I would find in the medical field through some personal things that I went through, and I realized I had to change my path. I wanted something different that could provide me the stability and the ability to really grow. That’s kind of what sparked my desire for real estate.

I listened to podcasts, read that purple book, we’ve all read it, Rich Dad Poor Dad, and two weeks later, we bought our first fourplex without any of our own money. A few months later, we bought our second one, and then it just kind of snowballed from there. About a little over two years ago, I left the medical field completely, and I’ve been doing real estate full time.

Ash Patel: Your very first real estate purchase was a fourplex, with no money out of pocket.

Dallon Schultz: Correct.

Ash Patel: So you took all of that knowledge to the extreme and applied it. How’d you do that? You had no experience, how do you convince somebody to give you money when you have no track record?

Dallon Schultz: In this case, I didn’t have any experience or knowledge, like I’m telling you. I listened to some podcasts, read the book, knew what I wanted, and figured out a way to make it happen. I learned as I went. In this case, we started with friends and family; that’s usually one of the easiest places to start when you’re looking for investor capital, because they know you. Fortunately for me, one of our family members had been involved in real estate for a long time, so he became what I would consider my first mentor. That was my grandfather. At his busiest time, he owned about 300 units, and my father actually managed them. So I grew up around real estate, but I was just doing all the dirty work. I was doing all the maintenance, the roofing, summers in New York, cleaning toilets, sink drains… That was my vision of real estate, and I’m like, “No, this is not for me.” That’s why I transitioned to the medical field.

But coming full circle, when we did gain that interest, I reached out to my grandfather and said, “Hey, there’s this property we’ve found. The seller wants to do a carryback.” We were able to pick it up at 50,000 door, so 200k for the property; the seller only wanted 25,000 down, and then he was going to carry the remaining 175k. That 25,000 down is what we presented to my grandfather at the time.

We worked out a short-term five-year loan that we would pay monthly off onto the side. Looking back, it was kind of scary, because we were 100% leveraged on this deal, and I didn’t know what I was doing. If I knew what I knew now, I don’t know that I would have done it. But you don’t know what you don’t know. I wanted to get into the game, so we made it happen. That deal ended up working out great for us.

Ash Patel: Was your dad and grandfather unhappy when you went into the medical field because they lost their go-to labor guy?

Dallon Schultz: No. It was summer work for me throughout high school. But no, my parents and immediate family have always been supportive of whatever it was I wanted to do. I had these grand visions of specializing in the medical field and becoming a nurse in Ephesus, making a few hundred thousand a year, and then I would start my real estate career. That was my mindset, if you will. After reading Rich Dad Poor Dad, I realized I don’t need to wait; I can start now, and there are creative ways and opportunities, you just need to go out and find him. That first deal, I called up a previous landlord that owned a fourplex. My wife and I when we were first married actually lived in one of the units. I called her up and I said “Hey, are you looking to sell?” She’s like, “I’m not. But the guy next to me is.” She gave me his number, I called him, and a week later we were under contract.

Ash Patel: How did you progress beyond that?

Dallon Schultz: A couple of months later, we bought a second one. We told a local agent there, “Hey, we’re in the game. We’re looking to buy” and purchased it, in a very similar way as the first one. Then we attended a large multifamily conference out in Texas. That was a few months after our first deal. I’d never been to a conference in my life and I attended that. That’s when I was introduced the idea of syndication, buying these larger properties, and coming together as a team. That resonated with me. I remember heading home after that conference, almost in depression. Because at this time I was six to nine months into my nursing career, I spent years and thousands of dollars getting that degree, and I wanted to be done, I wanted to be done with it. So we attended that, and then we pushed pause on purchasing properties, just because at that time I realized I really had to get into the education and build a strong foundation. So it took about a year attending conferences, networking, joining mentorship groups, and I’m so glad I did. The most value I got out of any of that was probably the relationships that I built along the way. That led us into some of our current deals that we’re actively working on, which is some ground-up development of some multifamily and some self-storage assets.

Ash Patel: What area is this in? This is in Phoenix?

Dallon Schultz: Yeah. Just south of Phoenix. It’s about halfway between Tucson and Phoenix, actually.

Ash Patel: How many units are you developing?

Dallon Schultz: It’s a 30 unit, there’s eight existing on the property, and then we have a 140-unit RV and self-storage that sits on about two and a half acres that we’re developing right next door to that. The opportunity just kind of came as a package deal, and we decided to go for it. It is our first development deal, so we didn’t want to take on something too large that we don’t feel like we can handle.

Break: [00:06:55][00:08:33]

Ash Patel: Here, let me play devil’s advocate. So you just bought a couple of fourplexes, you educated yourself for a year, you learned about syndication and now you’re developing. What makes you confident that you’re going to be able to pull this off?

Dallon Schultz: Our team, 100%. Like I said, over that last year – yes, we were reading books, podcasts, attending conferences, but it’s really the relationships that are key and critical. I think anyone can speak to that. Finding the right relationships, people with more experience than you, and then coming together. In this situation, I’ve been doing all the heavy lifting, all the leg work, I’ve been going to the town meetings, planning and zoning, meeting with the City Council, reaching out to the contractors, reaching out to the engineers, architects. That’s kind of been my role. Then some of our partners who are involved in this deal, one of them already owns an RV storage facility, the other one has developed some multifamily. So that’s how we came together.

Ash Patel: How did you build this team? How did you identify your partners?

Dallon Schultz: I guess it started with common interests. Like through our networking, we found out experiences, what each of us was good at, what we were willing to do, what we needed to make it happen, and just kind of presented the idea, and we kind of pieced it together.

Ash Patel: And somebody has development experience on this team…

Dallon Schultz: Correct.

Ash Patel: Awesome. Are you raising money for this deal as well, Dallon?

Dallon Schultz: This one we may not have to, actually. There’s someone we connected with. We were going to go the traditional financing route, but through our network and connecting with people, we have someone that’s open to potentially funding the entire project, which is about a six and a half million-dollar project. We’ll see.

Ash Patel: Would that be a joint venture, or would that be more of a syndication?

Dallon Schultz: Correct. That’d be a JV model.

Ash Patel: Okay. Awesome. What else is on your plate?

Dallon Schultz: Development is great. I don’t know if the listeners will see our video or not, but I don’t have much hair… I did 12 months ago before we started this; I kind of looked like you, Ash. So development – it’s challenging, but there’s a lot to learn from it as well. And it’s a much longer process. There are a lot of things that are out of our control. For example, we were ready to submit one of our major site plans for one of the projects a few months ago, it’s a smaller town. The supervisor that made sure all these things got through the city, quit; he left. They were just being overwhelmed, he was asking for help, they don’t want to give it, so he left.

So the planning and zoning meetings for the next three months were just canceled. We had everything ready to go but it was completely out of our control. Things like that happen, it comes up in development. If you talk to anyone that’s gone through it, they’ll often say, “Yeah, whatever you think it’s going to take you, double it.”

As we’ve been going through this for the last year, it’s been an awesome learning experience. But we need to cover our overhead, we need to generate operating capital, so we decided to pivot and focus more on the value-add play. So we’re currently looking at 100 units plus, Phoenix, New Mexico, we have a couple of LOIs out, and we’re just actively offering on those deals, just to get something moving a little bit quicker. Then the development will work out when it works out.

Ash Patel: RV sales have gone through the roof over the last year or two. You’re in Phoenix, so you’re in a hot weather state. What is it that people are looking for? Just covered RV parking, or do they want indoors?

Dallon Schultz: At this point, they’re looking for anything. There’s not enough out there. The storage development that we’re working on, due to setbacks in the area, we can only do part of it covered. All we’re doing is a large metal canopy. You will find complete enclosed garage storage units here, you’ll find everything in Phoenix. But here, and I’m sure in a lot of places with a lot of subdivisions and cities, the HOAs don’t want you parking campers in your front yard and the backyard. They don’t want that. So RV storage, boat storage, and contractor for park trailers – there’s a huge demand for it just because we all live in these cookie-cutter neighborhood suburb-type homes. Yeah, there’s definitely a demand for it.

Ash Patel: HOAs don’t want RVs in your driveway, but municipalities don’t want RV parks as well, right? How do you get by with that?

Dallon Schultz: So this isn’t an RV park, it’s just storage. There are no hookups, it’s not a campground, it’s nothing like that. This is just, “Hey, we need somewhere to park our RV before we take it out on the weekend.”

Ash Patel: Is that a challenge for zoning, getting that approved?

Dallon Schultz: No. It’s very common. In this particular case, it was already zoned for what we needed, so we don’t have to go through a rezoning process or anything.

Ash Patel: Your ground-up development that you’re doing – what’s your goal when you go to these planning and zoning meetings? What advice would you give the Best Ever listeners? If they’re doing development, how do they efficiently navigate through the zoning process?

Dallon Schultz: One of the best things we did early on is we contacted the city, we contacted the supervisor. In larger cities, you’ll actually do a pre-application, pre-authorization, and you basically present to the city like “Hey, this is what we’re looking to build, this what we’re wanting to do.” They’ll say, “Yeah, that should fit given this information. Let’s move forward with it.” In this case, with a smaller town, they don’t do that. But we went to the planning and zoning meetings a few months prior to us submitting our plans. Because we wanted to get to know the board members, we want to get to know some of the city council, some of the supervisors. So we went there and just shook hands, spoke to them face to face, introduce who we were and what we were looking to do. We were able to build that relationship. Because of that, prior to our meeting, our initial plan, they actually counseled us and helped us be able to maximize the land and actually get more units, which is going to generate more revenue than what we’ve initially projected. I’d say if there’s anything you can do, connect with the city prior to that first meeting; shake hands with the people, and get to know them.

Ash Patel: Great advice. In terms of raising capital, what are some of your best-kept secrets?

Dallon Schultz: That’s a good question, my best-kept secrets. I don’t have any, Ash. I’d say be yourself and be genuine. People want to invest with you because they know, like, and trust you. A quote that I remind myself of quite frequently is “Be yourself, because everyone else is already taken.” There are certain attributes or certain personality traits that you have that are going to enable you to connect with certain people. You have to be okay knowing that not everyone is going to say yes. In fact, most people are probably going to say no. But have confidence in yourself, your personality, your traits, the strengths that you can bring to a team, and get to know people. Be genuine, be yourself, and you’re going to connect with the right people, and you’ll start attracting those types of people that want to do deals with you. Those are the ones that you typically decide to work with.

Ash Patel: Since you left the medical field, what’s the hardest lesson you’ve learned?

Dallon Schultz: Being my own boss. Especially being a registered nurse, you show up to work, you’re assigned the patients that you have for that shift. You have a list of “Here they are, here are their medications, this is when they’re due, here’s your assessment”, and you got to chart all of it. I’m not sitting here saying that you don’t have to critically think, because we absolutely do in the medical field, especially when conditions and people can change so quickly. But all I had to do was show up to work and it was basically spelled out for me. Once I left that, nobody was telling me what I had to do. So learning to prioritize, effectively manage my time, determine what is the best use of my time today or in this hour, and what’s actually going to move the needle – that’s one thing that completely blindsided me when I transitioned into this space. But I have grown to really, really enjoy it, appreciate it and, the challenges, and always trying to fine-tune what it is that I need to do to get to that next level.

Break: [00:16:45][00:19:41]

Ash Patel: What are some of those things that helped you? Because a lot of people are in your shoes where they transition from a career to full-time in real estate. And it’s hard, you have this entire day in front of you, you’ve got a bunch of work to do, but then you also have squirrel syndrome. So how do you stay on track? How do you stay focused? What’s helped you?

Dallon Schultz: That’s hard and we’ll often find ourselves keeping really busy. But then a month goes by and we’re like, “What the hell did we just accomplish over the last month?” That’s what you need to try to avoid. One of the best tools that I’ve implemented, it’s actually the time management matrix from Stephen R. Covey’s book, The Seven Habits of Highly Effective People. I won’t go into depth with it, I’ll introduce it. You basically create these quadrants of things that are important, not important, urgent, non-urgent, and you prioritize your tasks and what you need to do. That’s really helped me focus on “Okay, these are the tasks that are actually going to move the needle. This is the stuff that’s most important.” Quite often, it’s the stuff that we don’t want to do, and that’s why we avoid it, so we do other little tasks because it makes us feel good and we feel productive, but it doesn’t move the needle. So that’s helped a lot. That’s probably one of the biggest things, is just having that time management matrix and just prioritizing your time. If I don’t schedule it, it’s not going to happen. If it’s not in my calendar, it’s not going to happen.

Ash Patel: Another thing that helped me was having that pyramid, where in the top is dark green, then it’s light green, yellow, orange, red. It’s basically a money pyramid; what tasks are going to make you the most money. I shouldn’t be implementing that. In theory, it’s great, but I just need to be a little bit more diligent about it.

Dallon Schultz: I host the largest monthly meetup in Arizona, and we talked about this at our meetup last night, about tools. We have this time management matrix, this pyramid that you’re referring to. There are tons of different apps out there; we have these tools all around us that can help us remain focused and be productive, but they’re only as good as whether you use them or not, and if you use them the right way. So there are a lot of useful things out there but ultimately, it comes down to us taking that action. Things might point us in the right direction, but we’re the ones that have to take the steps forward.

Ash Patel: Yeah. Dallon, what is your best real estate investing advice ever?

Dallon Schultz: Best Ever real estate investing advice? I feel like this is the moment where I should have a really powerful quote prepared or something.

Ash Patel: Just be you remember.

Dallon Schultz: Yeah. You definitely want to be yourself. But I think naturally, I know for me, I am my own worst critic. I’ve realized that typically the only person that we’re in competition with is ourselves. If you can continually work on improving yourself, personally, professionally, mentally, spiritually, physically, the real estate investing, the business aspect, it’s going to follow suit. If you don’t have your personal life on track, if you don’t have yourself together, you’re not going to make it professionally. In this case and on the show, it’s those of us wanting to do real estate investing. So get yourself in check first, I’d say.

Ash Patel: Good advice. Dallon, are you ready for the Best Ever lightning round?

Dallon Schultz: Let’s do it.

Ash Patel: Let’s do it. Dallon, what’s the Best Ever book you recently read?

Dallon Schultz: Hands down, Best Ever Syndication Book. That’s actually what inspired me to start our meetup here. Now we’re taking that meetup to multiple states. I talked about establishing that leadership platform and I know Joe Fairless did the podcast. For me, I don’t feel like I have a radio show host but I love hosting events and having that in-person interaction.

Ash Patel: Dallon, what’s the Best Ever way you like to give back?

Dallon Schultz: Education and inspiring people. I transitioned, I left my W2 transitioning into a kind of an unknown area. Any way I can share my experiences and challenges and help people experience that mindset change, I go after it.

Ash Patel: Dallon, how can the Best Ever listeners reach out to you?

Dallon Schultz: The best way is email. They can reach me at dallon@revequitygroup.com. They can also follow us on Instagram at Rev Multifamily, that’s where we put out some additional content. We have information about our events and it’s just a great place to connect with other like-minded people.

Ash Patel: Awesome. Dallon, thank you so much for taking time out of your day and sharing your story with us. Coming from a family of real estate entrepreneurs, going into the medical field, then coming back into real estate, and being very successful doing it. Thank you for sharing your story with us.

Dallon Schultz: Yeah. I appreciate being on. Thanks for having me.

Ash Patel: Best Ever listeners. Thank you so much for joining us. If you enjoyed this episode, please leave us a five-star review and share this podcast with anyone who you think can benefit from it. Please also follow us, subscribe, and have a Best Ever day.

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JF2693: The Secret Strategy for Turning Motels into Profitable Long-Term Housing with Andrew LeBaron

Andrew LeBaron decided he needed to niche down his real estate strategy. That’s when he had the idea to convert motels into long-term stays. Varying slightly from an apartment, Andrew’s motel conversion strategy allows him to cut certain costs and hurdles that typically accompany multifamily properties. In this episode, Andrew walks through the benefits of long-term stays over apartments, the budget differences between motels and multifamily, and how he’s created his conversion strategy.

Andrew LeBaron | Real Estate Background

  • Syndicator, Apartment Motel Owner. His business model is reviewing small to midsize motel/hotel assets, underwriting the deal, purchasing, converting, and refinancing.
  • Portfolio: GP on motel assets: 42-unit, 13-unit, 22-unit, and an 18-unit.
  • Upcoming deal for a 129-unit Motel that he will convert to apartments.
  • Based in: Phoenix, AZ
  • Say hi to him at: buymoretime.com | Facebook and Twitter: @andrewinvestor
  • Best Ever Book: Raising Capital for Real Estate by Hunter Thompson

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Slocomb Reed: Best Ever listeners, welcome to The Best Real Estate Investing Advice Ever Show. I’m Slocomb Reed. This is the world’s longest-running daily real estate investing podcast. Today we have Andrew LeBaron with us. Andrew, how are you doing?

Andrew LeBaron: Excellent, man. How are you?

Slocomb Reed: Doing great. Good to be here. I’m excited about this interview. Andrew is a syndicator and apartment, motel owner. His business model is reviewing small to mid-sized motel and hotel assets, underwriting the deal, purchasing, converting, and refinancing. In his current portfolio, he’s the GP on 42, 13, 22, and 18-unit motel assets. He’s got an upcoming deal for a 129-unit motel that he will convert into apartments. He’s based in Phoenix, Arizona, doing a lot of work in Show Low, Arizona. What got you into real estate Andrew?

Andrew LeBaron: A long time ago I used to work for Chase Bank. I was in the mortgage department, customer service, making a whopping 40,000 bucks a year… And I took a call from a gentleman who said he needed the payoff quote for 10 of his Santa Monica or SoCal real estate properties. I noticed that his name was not on the loan. Now, he had 10 properties he owned on the deed, but his name was not on the loan. So I thought something fishy was going on. I said, “What’s going on?” He said, “Well, I took over payments on these 10 properties.” And I realized that he only owed a third of the value of the Santa Monica, SoCal properties. So he instantly made 6 million bucks, just about seven years ago, by taking over payments on these properties that were struggling, and then sold them to another investor. And I thought I’m in the wrong niche, I’m in the wrong business; I need to stop doing what I’m doing and learn real estate. That’s when I just started…

Slocomb Reed: Or at least you’re in the wrong seat at that table.

Andrew LeBaron: That’s exactly right.

Slocomb Reed: Gotcha. Now, your niche is motels?

Andrew LeBaron: Yes.

Slocomb Reed: Cool. You convert them… Am I correct in assuming that means that you’re buying properties that are currently operating as motels and then converting them into long-term apartments?

Andrew LeBaron: That’s correct. I source C class, B class motels that could be long-term or apartment assets, and they need to be in areas where housing is needed. It’s an interesting niche, actually. It actually works really well, because there is a huge need for housing. After COVID, a lot of these motel owners took a huge hit. COVID really stymied their business, their operations; they had to shut down — if they had a pool at their motel, they shut that down; if they had continental breakfast, they shut that down. So it really messed up their operations as far as just running it as a motel short term. So I found that opportunity as “Hey, why don’t we pick these up? Why don’t we add some basic needs like kitchenettes, add a stove range top, add a microwave, add a refrigerator? Why don’t we turn these into longer-term stays?” It’s been working really, really well. The price that you pay for a motel and the cap rate that it turns into when you put long-term people in there is wild. Motels are significantly cheaper than apartments.

Slocomb Reed: What is the difference in cap rate there?

Andrew LeBaron: It doesn’t make any sense, honestly… So here’s a good example. If I have a 20-unit in Phoenix or a 20-unit in Arizona, investors are going to purchase these properties at 130,000 to 140,000 bucks a door, which might bring you around a six to 8% cap rate. A 6% to 8% cap rate is a pretty decent target for multifamily. For these motels, what we’re paying for 20 units might be… I paid $690,000 for 22 units, and each unit brings in 1,250 a month. So just outlandish cap rates when it’s all said and done.

Now, cap rate also includes [unintelligible [00:05:02].08] your vacancy rate and capital expenditures or operating expenses, right? We don’t really put much into these buildings. I think it’s just because the market is so hot, we don’t need to, and everybody needs a place to live that’s affordable. We’re hedging alongside inflation, so people don’t even care if there’s a kitchenette; they’ll live there, they’ll live there long-term now. We need to be good stewards of our guests and residents, so we’ll add what we need to add there for people to be comfortable… But I guess that’s the big difference between motels and apartments as far as cap rates.

Slocomb Reed: Andrew, what I think I just heard you say is that you can buy motels in your area for between 30k and 40k a door. If they were traditional apartment buildings, they’d be worth 130k to 140k a door, and you’re not putting all of that much money into converting them. It sounds like a dream come true, right? So what other issues, other hang-ups do you come up against? Do you have any trouble dealing with local government authorities getting certificates of occupancy? Do you have to do that for this kind of conversion?

Andrew LeBaron: You don’t have to do that. Now, we could go down the route of rezoning. In fact, on one we’re about to put under contract – it’s a 129-unit – and that will be converted into 82 units when we’re done, but getting a zoning attorney to zone it multifamily high-density would be wise. In Arizona, we don’t worry about that. As far as we’re concerned, as far as our attorneys are concerned, there’s no issue with having a long-term stay option at a motel acquisition. We don’t have long-term leases; we don’t write leases, these are not lease agreements. We still treat this as a motel, but we allow them to stay on a month-to-month basis. Now, my attorneys have said, if you do introduce a lease agreement, then you are subject to the landlord-tenant act, and you are subject to formal eviction protocols. Right now, we’re not. If you don’t behave, if you don’t pay, you’re out; you’re trespassing. So it avoids eviction orders as well.

Slocomb Reed: Got you.

Break: [00:07:02][00:08:41]

Slocomb Reed: Andrew, I’m hopefully putting myself in the perspective of our Best Ever listeners… Mentally, I’m trying to figure out where are the problems, what issues do you face with this kind of strategy… Because it sounds amazing. I wonder if it’ll work in Cincinnati where I am, because if so, I’m going to go find some motels. But it’s pretty close to a BRRRR model of investing, it sounds like, where you’ve got a cash-out refinance on the back end to get your money out to go buy the next one. Do you come across any issues with the refi? Are appraisers and lenders treating this as an apartment building when you’re done, or are they treating it like a motel that just gets a lower cap rate?

Andrew LeBaron: Yeah, that’s the tricky part. You’re going to get a much better cash-out refi option, even up to 80% LTV, or LTC rather, loan to cost, which is completely different than LTV, as you, I’m sure, are aware, if you do rezone multifamily. If you rezone multifamily, your lenders are going to be happy. They’ll be much happier than if you say “Hey, I’ve got a motel.” You kind of lose them after that.

Where this comes in is you leverage private capital, you leverage fund capital, and you’re able to paint the picture. If you don’t rezone, your exit should still be able to allow you to cash flow, and/or sell, 1031 exchange, liquidate, refinance. Now the refinance, if you don’t rezone, from as far as what I’ve seen, unless there’s a lender out there that wants to help me out, I could use that; the refinance [unintelligible [00:10:15].00] And it’s a commercial loan, it’s around 6%, no cash out option, unless it’s below 50% of appraised value for this specific lender. They’re very conservative, they’re very safe, they’re very cautious. But yeah, hopefully in the future, we find another lender for our partners and it might work out.

Slocomb Reed: I’m trying to wrap my head around the basic numbers of a deal like this. Do you normally acquire between 30k and 40k a door?

Andrew LeBaron: No, it varies. Our best deal is 19,000 bucks a door. The yields per door are not as high, though. Of course, they’re still really decent, it’s still 900 to 950 bucks a month per door on a $19,000 a door, but they fluctuate. The reason why I’m attacking these motels is because — there’s gotta be some room. Now, you said, “Hey, it sounds too good to be true. What’s your problem? What’s the problem child?” Well, I’ll let you know. These aren’t subdivided units, so your utilities are still going to be combined. That’s problematic; some people don’t like that. I don’t mind it, as long as the name of the game has cash flow and equity. If I’m locking in equity and it has a really decent yield, then I’m not too worried about it. Of course, it helps me out too, because most investors that are in the multifamily – they want that subdivision big time. They want those utilities to be divided, electric, sewer, water, trash, and everything else. I don’t care; there’s less competition that way. I just wrap it all inside of one fee when they pay month to month.

Slocomb Reed: Did you ballpark how much you’re paying in rehab to put in these kitchenettes, to do the things you need to do to attract long-term — well, I guess we’re not calling them tenants, are we? Because they’re not on a lease. Long-term, month-to-month guests. Generally speaking, what does that renovation cost per door?

Andrew LeBaron: $8,000 to $14,000, depending on what the bid is. Honestly, we’re just leveraging the back bathroom wall. If you close your eyes and visualize this right now, you walk into a motel room, you see a bed, you see a TV, and you go to the far back – and hopefully, if these are larger motel rooms, you’ve got a bathroom; there’s a back wall that you tap into, and you got your drain, you’ve got your water supply. So you’re going to put in your bottom cabinets, you’re going to put in a small slim-line RV style dishwasher, you’re going to put a small 20-inch range stove… If you’re going to add a range stove, you need to add 220 electrical, which isn’t a huge issue. We could do it for pretty cheap, now we’ve done this for a little bit… You don’t have to do that either. You could say, “Look, there are no ovens in here, but there’s a flat top.”

We don’t need venting for a flat top. If you need venting for a flat top in a specific area, you just use a microwave hood. You put the microwave above the flat top, and they have those installed vent hood microwave combos, you just vent it up through the attic, to the roof. But that’s pretty much it, that’s all you’re doing, you’re creating studios.

Now you can combine rooms and you kind of have to evaluate, “Okay, if I combine two rooms to make an official one bed, one bath, or I can combine three rooms together and make it a two bed, two bath. Am I really going to get the bang for my buck? Is my IRR going to turn out better if I combine them or if I leave them as is? I think a healthy mix is wise, to have a healthy mix of all of them. Plus, it gives you a better resale value when you want to liquidate.

Slocomb Reed: It gives you a better resale value to have some of those one and two beds, as well as studios?

Andrew LeBaron: Correct.

Slocomb Reed: I assume that three studios would gross higher rents than one two-bedroom apartment. Am I wrong?

Andrew LeBaron: No, you’re correct. The only reason why we would do a combination is just diversification. You have different types of demographics of tenants and residents. Some of my partners really like the fact that you have a small family in a two bed two bath, then you have a bunch of single people in all the other studios. We actually separate them, we make sure that the families are maybe in one area, and the studios are in a different area. It’s an ecosystem. When you have an apartment complex or you have a multifamily, it’s an ecosystem. You’ve got to really think about that planning, and how you want people to interact with each other.

Slocomb Reed: Speaking of an ecosystem, there are very few investors operating at a high level like you, Andrew, who can say that they’re creating affordable housing. And there’s definitely a high demand for affordable housing right now, because that’s not what gets built ground-up. So finding opportunities like this, buying motels, converting them into what can be affordable long-term housing, there’s a definite need there, and I can see where it would be profitable. Coming back to me wrapping my head around the general numbers and bringing our listeners along with me… Your acquisition, let’s say it averages around 30k to 40k a door, and let’s say your renovation averages another 10k to 15k, you’re at 45k to 55k a door, an acquisition. And then assuming — let’s just talk about the studios, we’re not talking about combining units. The average rents that you’re seeing on these studios that you’re all in for 55k or less?

Andrew LeBaron: Yeah, it’s around $1250 a month.

Slocomb Reed: $1250 a month. And are you raising capital to buy these?

Andrew LeBaron: Yes. It’s funny, I’m in a very interesting transition. I recently spoke to Joe about this, too. I am in the transition of building a fund rather than just syndicating each deal one by one. That’s a very funny place to be. I’m re-pitching the same deals over and over again. I do give up equity in a lot of these deals, but the private investors that jump in get really excited when they see the price per door and the yield per property.

Now, you have to remember that I said $1250 a month on the studio, but that includes sewer, water, trash, and electric; it also includes gas. And what’s great, Slocomb, is I don’t compete with other apartments. There is no competing; I’m cheaper than them, and you don’t have to qualify for utilities, because I provide that. It even includes internet and cable. So it’s an all-inclusive price. Most people don’t like the hassle of calling up their cable company, or the internet company, and the utility company; it just takes time.

I also don’t charge deposits. So if it’s $1250 a month, it’s $1250 right off the bat. If you have a pet, there is a pet deposit and there is a pet fee. But I don’t charge one month’s deposit. If I need you out, I call the police and you’re out. I haven’t had to do that yet, but I think people behave much better inside of this type of setup, because they know the ramifications if they don’t comply.

Slocomb Reed: How long have you been doing these motel conversions?

Andrew LeBaron: A little over a year, not even that long.

Slocomb Reed: A little over a year. Okay. This may be a tricky question then, but what is your average length of stay? What’s your average vacancy? How long is it?

Andrew LeBaron: Yeah, that is a weird question, only because each asset is so different, they’re so unique. If I were to put them all together and give an average, I would say it’s under 10% vacancy. And the length of stay, I’d say four months.

Break: [00:17:33][00:20:30]

Slocomb Reed: Your average length of stay is four months. So when someone moves out, how long until you have somebody else in there?

Andrew LeBaron: It’s a line. We pre-sell spots all the time. We say, “We’ll hold it for you. Come on in, take a look.” “Oh, can I come now?” “No, we’re cleaning up. No.” Our management team make sure that there’s a healthy five to 10 people deep of people that want that backup broom when someone’s vacated it.

Slocomb Reed: I get that. One of my apartment buildings is in an area where there just aren’t that many apartments, so we just leave our marketing active year-round to attract people… And just because there’s much greater demand than supply in that area, we can get things filled up pretty quickly. So I’m sure the way that you’re running things, that’s not hardly an issue. Andrew, what is your Best Ever advice?

Andrew LeBaron: Make excellent relationships with sellers, with private money partners, and you’ll be just fine.

Slocomb Reed: Awesome. Well, Andrew, I know you’ve been a guest on this podcast before. Are you ready to go back through the lightning round?

Andrew LeBaron: Yes, let’s do it, man.

Slocomb Reed: Awesome. Let’s do it. Andrew, what is your Best Ever way to give back to the community?

Andrew LeBaron: I like to pick up the phone and just help people out. When they have a question, when they need help, when they say “Hey, I’m struggling to raise private capital, or I’m struggling to find a deal, or I kind of feel like I’m pushing too hard to make this deal work.” I give them my honest opinion and I tell them exactly what I would do. I’m not charging fees for it. Honestly, nothing against people that do that, nothing against people that charge coaching fees, nothing against that, but I’m just trying to help others because I know it’s going to come back. It’s just the law of reciprocity.

Slocomb Reed: Totally. What’s the best book you’ve recently read?

Andrew LeBaron: I really like Hunter Thompson’s book, Raising Private Capital for Real Estate. That’s a really good book. He talks about how the deal should come first, and then the money. That’s always a question. Should the money come first, then the deal? Well, if you have a great deal, great money follows. It doesn’t mean you could put the deal together, it doesn’t mean you really qualified the deal, because there’s talent in there, there really is connectivity and relationships that need to be built… But look and source great deals.

Slocomb Reed: What’s the most money you’ve lost on a deal?

Andrew LeBaron: I bought 45 houses in a portfolio, I paid $5.3 million dollars, and the deal… Get this, this is a great story. The deal was I went to a hard money lender, I [unintelligible [00:23:03].25] all my properties, my duplexes fourplexes, and everything, just to get the hard money loan. This was years ago, about four and a half or five years ago. I liened on my properties, got pretty much a title loan for 5.3 million, bought the 45-house portfolio, and we created a waterfall structure. For Best Ever listeners, that’s if I sell a property, all the proceeds have to go back to the lender first before I get paid. And it was a strict waterfall debt structure. I kept selling all these properties. I was actually wholesaling, not really wholesaling, because I had to close on them. So I bought them, sold them quickly, and I had a balance of $1.8 million left, and 13 properties left. And I undersold so many properties that I had a whopping 1.8 million left I owed the lender before I could make a dime.

The monthly payment on it was like 18k. After four months of paying 18,000 bucks, I just couldn’t do it anymore. I went to the lender; the lender is a friend of mine. I said, “I can’t do this anymore.” He’s like, ”Well, I’ve got to foreclose.” He’s a fund manager, so he says my partners can’t just [unintelligible [00:24:13].16] high and dry. I said, “Well, why don’t we do a deed in lieu?” He’s like, “Yeah, we could do a deed in lieu. That’s totally fine.”

So we do the deed in lieu foreclosure, I give him all the 13 properties back to him, he sells them, makes a profit for him and his investors, so I’m glad and I’m happy for him… I didn’t get any of my properties back that I liened; those were absorbed. So I literally started with zero, and I probably lost three million. That was a really sad story. But in real estate, you can rebound extremely fast.

Slocomb Reed: Tell me about that. Tell me about the most money you’ve made on a deal.

Andrew LeBaron: I’ve made a lot of money on equity that I haven’t realized yet, if that makes sense. We’re all sitting on equity, so I don’t know if that counts… But I’ve made a couple hundred thousand dollars on the flip on a six-plex flip. We bought the six-plex for 60k down, the seller agreed to a 3% interest-only payment, which is five years interest only. I only paid $1,350 a month on the six-plex. Each unit makes around 1,300 bucks a month, and I sold it for 200k more. I shouldn’t have sold it, now that I think about it. It bugs me that I sold it, but I sold it for 200k more just a year later, so I made over $200,000 on a really quick and easy seller carry purchase and sell.

Slocomb Reed: Nice. You’ve had some valleys for sure, but you’ve definitely had some peaks, too. Tell me a little bit about this 129-unit you’ve got coming up.

Andrew LeBaron: So the 129-unit – we are about to lock in a contract; the same owner that sold me the other motels is selling me this one. He’s already on board, we’re good to go. I submitted it just a couple of days ago. It is a 129-unit, 1976 roadway inn, an Econo Lodge. If you’re familiar with Econo Lodge, these are just motels that you see across the US; these are awesome boxes. This one’s in Phoenix, it’s two miles away from a 750-million-dollar development that investors are going to build. So I’m going to undercut their rates. Typically, when I source a deal, I look for activity in the area, and where I can kind of slide in, and be very competitive if this is a great deal. So we’re going to condense the 129 units to 82 units, we’re going to have 18 two-bedroom, two baths, 15 one bed, one bath, and 45 studios. We’re going to take the office, we’re going to blow it out, we’re going to make the office two-story, with a business lounge and amenity center. It’s going to have a hot tub and gym.

On the second floor, it’s going to have three residences with exterior stairs that get to the second floor, and then there’s going to be a rooftop lounge. We’re adding a dog park, which is crazy… One of my investors is like, “Dude, we need to add a dog park.” I’m like, “Why?” He’s like, “I’m telling you, people love their dogs. They travel with their dogs, they live with their dogs, and they need a dog park. But you won’t compete.” I’m like, “Okay. We’re going to do a dog park.”

But yeah, it’s an exciting deal. The total acquisition is five million; renovation cost and reposition all-in is close to four million, which includes a rezoning of about 100k rezoning. The rezoning should bring us to a valuation of 15 million when we complete it. So 82 apartments in Phoenix, that’s the comparable value after the appraised value. That’s a prospective appraisal, by the way; that’s not set in stone. But anywhere from conservatively 12 and a half to 15 million.

Slocomb Reed: Got you. And what does that look like? I assume that is planning for a five-year hold. What kind of return are you giving investors on that?

Andrew LeBaron: Yeah. It’s going to be 8% pref; I charge a 2% catch-up, and it’s going to be a 60/40 split on the back end. It’s an eight-year fund. But the exit on this particular one, hopefully, it’s going to be within five years. The goal is to sell and 1031 exchange into another asset.

Slocomb Reed: Well, this hasn’t been very lightning-y of a lightning round…

Andrew LeBaron: Sorry about that. [laughs]

Slocomb Reed: No, that’s fine. I’m the one who’s supposed to be in control, asking the questions. Where can people get in touch with you?

Andrew LeBaron: You can find me on Facebook. Just search Andrew LeBaron, I show up, I’m wearing a white shirt and tie. I probably should be more realistic, I don’t even wear a white shirt and tie usually. I’m on Facebook, or you can email me andrew@buymoretime.com.

Slocomb Reed: Awesome. Well, thank you for tuning in, Best Ever listeners. If you enjoyed this episode, be sure to leave us a five-star review and share this episode with someone you think could benefit from the best real estate investing advice ever. Don’t forget to follow and subscribe to our podcast so you don’t miss anything. Thank you and have a Best Ever day.

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JF2414: Bounce Back & Rebuild in Real Estate with Jason Moss

JF2414: Bounce Back & Rebuild in Real Estate with Jason Moss

Jason is a real estate broker, a home builder, a developer and an appraiser. With more than 20 years of experience he has the foundation for what properties are worth and can help you get familiar with the real estate industry. Gaining over 160 rental units and 120 flips in wholesale, he too has his career ups and downs. He has an exciting story to tell explaining how he crawled his way to success!

Jason Moss Real Estate Background

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Best Ever Tweet:

“Don’t be afraid to buy old. Just get started. Because that if I were to tell if I convinced myself years before that, you know this has all happened within the last four years.” — Jason Moss


Ash Patel: Hello, Best Ever listeners. Welcome to The Best Real Estate Investing Advice Ever Show. I’m Ash Patel and I’m here today with our guest, Jason Moss. Jason is joining us from San Tan Valley, Arizona. He’s a real estate broker, a homebuilder, a developer, and an appraiser. He’s got 20+ years of real estate investing experience. His portfolio consists of 160 rental units and 120 flips and wholesales. Jason, how are you today?

Jason Moss: I’m great. Thanks for having me on. It’s fun.

Ash Patel: Good. Before we get started, can you tell us a little bit more about your background and what you’re focused on now?

Jason Moss: Sure. I started out as a real estate appraiser in Las Vegas. I got the foundation for what things are worth and just started to get familiar with the real estate industry. I’d actually did my first house hack back then, that’s how I got started, and went from there. I just loved investing; I invested in stuff while I was doing my nine to five appraisal job. Not nine to five, it was more than that, but… I did a lot of investing, got a lot of creative financing deals going, worked my way up, got wiped out in the crash, and came back, I got back into real estate investing, and here I am now.

Ash Patel: What year did you start appraising in Vegas?

Jason Moss: This was in 2001.

Ash Patel: Okay, so you saw the rise of that crazy market out there in Vegas; it was insane. The prices just went through the roof. Is that what prompted you to get in on the other side of real estate, on the investing side, when you saw those property values rise?

Jason Moss: No, I have an uncle who lives in Utah, and he’s a developer. Ever since I was 14 I was like, “I want to be a developer.” I thought that was so cool. But it’s not as easy to become a developer as I thought. So I just always loved real estate, and as soon as I got my appraisal license, I wanted to buy a house, so I bought a house. And yeah, I saw the values going up, so that was definitely a part of it, but I was also in the Utah market, the Arizona market, and the Montana market at that time.

Ash Patel: As an appraiser or an investor?

Jason Moss: Well, not the Montana market, but I had my appraisal license in Arizona. This was a couple of years later, like 2002 or 2003. It took a couple of years to get my license. But then I immediately got my license in Arizona and Utah. I had [unintelligible [00:02:55].11] that was a great gig back then. You could have interns and they were just churning as fast as we could do the appraisals they were doing. So that was a great income boost for me.

And I would be driving 200 miles every other day, doing these loops around the valley. Ron Legrand was my first real estate training course that I took; it was like 500 bucks. I went on those high-pressure seminars, where they’re like “Come to the back and order the thing.”

So I bought those, 500 bucks, and 40 hours worth of audios, DVDs, and stuff – I just listened to those things and just consumed them. I love the idea. And I was in the industry, so I started to see these deals. At a certain point, I had the knowledge, and I just couldn’t not do it. I just had to get past that fear and finally do my first deal, and I never looked back.

Ash Patel: What year was the first deal?

Jason Moss: Well, I don’t really count my first house hackm, because I had to have somewhere to live. But I bought one in — I think it was 2002 when I bought my first wrap deal, subject-to.

Ash Patel: What’s a wrap deal?

Jason Moss: A wrap deal is where there’s a mortgage in place, and somebody needs to sell their house for whatever reason, and I come in and I’m going to take over that mortgage. This is how I did this particular deal anyway. I went over and took over this lady’s mortgage. She needed to move, for whatever reason; she still owed like $80,000 on the house. I came in and I took over her payments. I didn’t assume the responsibility for the loan, but I took over payments and she deeded me the property; so I owned the property. She went ahead and basically left, and I paid her whatever down payment she wanted. I can’t remember what it was at the time… And I took that over. So what I did is then I resold it to somebody else on seller finance.

Ash Patel: Was that essentially like buying a note?

Jason Moss: No, I wasn’t really buying the note… I was taking over the borrower’s position. The difference between selling a note or buying a note is you’re taking over the bank’s position. I was taking over the seller’s position.

Ash Patel: And how do you come across a deal like that? It seems like a win.

Jason Moss: They’re actually easier to find than just straight owner finance deals. You probably know what those are, those are pretty common. But the problem with owner finance deals is somebody has to own the house free and clear in order to do it. Otherwise, it gets tricky. And if they don’t, then you can do a wrap too. That’s the same type of scenario where if somebody owns a property free and clear and they want to sell it to you on terms [unintelligible [00:05:00].04] and pay you a thousand bucks a month for five years or whatever, and then you go out and you sell to somebody else. You bump up the price, you bump up the interest rate, you bump up the down payment… So you make a little bit on the down payment, make a little bit monthly, and make a little bit on the back end.

So it’s kind of a wrap because you have this mortgage, and then it’s wrapped in a new mortgage that you’ve created on the outside of that. So you’re ultimately responsible for the underlying mortgage, but the new buyer is paying for your mortgage. So they call it a wrap because you’re wrapping around that existing mortgage with another mortgage.

Ash Patel: Yeah, it makes sense. So you said they’re easier to find than owner financing. How do you go about finding them?

Jason Moss: So owner finance, they have to own the house free and clear. These are elderly people who’ve owned their house for 30 years, and a lot of times, they don’t have 30 years left in their life to want to do an owner finance deal. So they’re going to want two or three years. So these other type of deals – they’re called subject-to, and they’re easier to get, because you can find people that are in a motivated situation where they may not care about the credit. Maybe they’re already late on their mortgage, so you’re going to come in and you’re going to take over the mortgage. You’re actually going to fix their credit by coming in and actually making the payments on time and eventually cashing them out… But ultimately, they don’t care, because they’re going to go into a rental.

So they’re easier to find in the fact that you’re not just narrowed to older people with their house paid off, or that young person that was aggressive and is probably pretty darn savvy, and probably isn’t in a motivated situation… So it opens up the world to everybody with a mortgage to do this with. It’s not necessarily a wrap, but it’s a subject-to wrap, which is kind of what I’m specifically talking about.

Ash Patel: Got it. So you mentioned earlier that you got wiped out in 2008. We’re still back in 2001 with this story… So bring me up to the 2008 mark; tell me your deals that you’ve done and how you evolved.

Jason Moss: Yeah, so I house hacked that first house. I had my office in there and then I had my room. I thought “You know what? I’m going to do this other house,” and it worked great. I was super scared, but I did it. I made 20 to 30,000 bucks on that deal.

Then I bought this other house and I house hacked that one. Actually, I moved into the master bedroom closet. I just had a bunch of buddies and I was never there, because I was going from Arizona to Montana and all over the place. When I was there, I’d just sleep in the closet. I didn’t need a whole lot. I grew up – not necessarily poor, but I didn’t really have a whole lot, so I didn’t need a lot and slept in the closet.

Then I bought a house in Utah — I actually bought some land in Arizona and I actually flipped that for a hotel. Well, that was right after the crash, so I just jump ahead of myself… But I did some flip deals; I didn’t do any buying holds at that time, I didn’t really see the value in that.

I had amassed a million bucks by the time I was 26, and most of that was through real estate investing. I mean, I had a good wage as an appraiser; I made 150k to 200k as an appraiser, but when it came down to it, the investing is really how I was able to build my nest egg up to a million bucks. All my buddies were buying 12 houses at a time and then they would refinance them immediately, sucked out all the equity, and buy 12 more… So it was this race to see if you get too many houses.

I knew this market was going to collapse. Me and a handful of buddies knew this was going to collapse. I was keeping my mortgages at 50%. I’m like “I’ve got to be safe and smart about this, because I know this is going to collapse.” I thought 50% would be a good number, but nobody expected what happened to happen. I had a house that was 330,000 that ended up selling at an auction for 90,000. That’s how hard we were hit. And these are in the fast-growing areas. If you’re in an established area or in the Midwest, you weren’t hit that bad. But man, we got wiped out. I ended up $250,000 in the hole, negative.

Ash Patel: So when 2008 hit, was that a personal bankruptcy moment?

Jason Moss: It’s funny, because most people say 2008, but it really happened in 2005 for me. What I mean by that is in the very fringe areas, where the new developments were happening, that’s when things first stopped. That stopped in mid-2005, is when the bell curve started to wane. And 2008 is when it kind of started to go down the other side, because people held out for a couple of years thinking “Oh, the market is going to come back.” People weren’t desperate at that time. But then the longer time goes by, then they start to get desperate, then they started to foreclose on their houses. It took a couple of years for that to flush through.

This was in 2005, and by 2006 I had had that million bucks made, and I was like, “Okay…” Me and my buddy, we saw the drop coming, he dropped his house by 60 grand, and he was the last person to sell on our street.

As an appraiser, I’m in the numbers and the stats every day, so you kind of see this coming… I was selling each house, I was like “Oh man, the values are going down, down, down. I’ve got to sell this one. I’m going to go upside down if I don’t sell it.” So I would sell these properties as they were going down. Eventually, there was no more to sell. I ended up getting foreclosed on two houses. I’ll probably talk about that later, but one of them was down here in Arizona, which we ended up living in for a minute. The other one was a property in Montana that I had.

So I ended up 250,000 in the hole. My parents at the time had sucked out the equity line of credit and they were trying to help me save the empire, so they borrowed me that money. When I was 250 grand in the hole, I couldn’t just file bankruptcy. So now I’m in negative 250k at the age of 27.

Ash Patel: And then what?

Jason Moss: That was the hardest time of my life. That was really rough.

Ash Patel: So what’s the next move?

Jason Moss: I licked my wounds for a little bit. I still was an appraiser and I got my real estate license shortly after, because I was always hustling deals, I never really stopped. But I tried to start a windshield company, because that was my business in high school, I had a windshield repair company. I thought maybe I could resurrect that, because real estate was just… There were no appraisals going on, and there were no real estate sales… The only thing that was available was investor fix and flips and investor-type deals. Those were everywhere, and they were ridiculous. But I didn’t have any money and I had no credit, because I just got wiped out. So I was relegated to do these types of subject-to deals that I was talking about, where I didn’t have any money. I had several people that gave me their houses, because they were going into foreclosure, but they owed right about what it was worth… So I came in, I did my magic and I actually made money on some of those. But those were few and far between, so I was looking for other ways to make money. That’s kind of how I kind of creep and crawled back.

This is what I told you about that land I had in Arizona. I think it was 50,000 bucks and it didn’t even have an easement. It was landlocked, so I negotiated with the neighbors. It was actually really easy. I thought I was going to have to pay him some money to get an easement to this property. But I ended up just talking to him and his little boy and he said, “Oh, yeah, I’ll give you an easement. No problem. Just let me sign the paperwork.” So he gave me an easement.

So I took that piece of land that I had and I took it to a guy that really wanted to sell his hotel up in Park City, Utah. I said, “Hey, I’ll trade you this piece of land” which honestly was not worth a whole lot of that time, because the market was crashing. I was going to do a palm tree farm on this, I was going to get some water, and I was going to grow palm trees for the next 25 years. He ended up trading me the down payment on that hotel for the piece of land, and I took over his mortgage and did a subject-to on that hotel and we flipped it.

Break: [00:11:21][00:12:27]

Ash Patel: Alright, wait a minute… So if I want to buy something subject-to, how do I go about doing that?

Jason Moss: The biggest thing is to find a motivated seller. They’re everywhere, at anytime. There are motivated sellers now, there’s a forbearance wave, a forbearance with all the foreclosures and the COVID… There’s this pent-up pool of people… I don’t think it’s as big as everyone’s saying it is, or I don’t think it’ll flush out that way. But anyway, there’s this pool of people that are not in a good position right now. And if you can find those people, whether that’s knocking on doors, notice the default list, or however you find them, if you can get in front of them, 9 times out of 10, if you can get past those initial smokescreens that they throw up, they’re going to tell you “Hey, I’m in the spot. I can’t pay my mortgage.” Maybe “I’m upside down by 10 grand.” Or “I just can’t pay my mortgage or whatever, I don’t have enough to pay a realtor to get out.” Those are the ones you’re looking for. You can get in and basically give them 100 bucks or 1000 bucks and they’ll just give you the house and walk away. Because that’s what they’re doing anyway. The bank is taking it back, so if you can step in and save them…

We’ve come in with 5, 10, 15, $20,000 in back payments for people and we’ll reinstate their mortgage. They’ll be like, “Hey, we’re days away from foreclosure.” “Here’s 20 grand, let’s get this thing back rolling.” Then we work with the bank to resurrect the deal, and then we do our magic with it and then sell on the backside.

Ash Patel: And the banks don’t require you to own some part of the debt?

Jason Moss: If they knew… [laughs] Well, the thing is, in every note mortgage since 1987 there’s a due on sale clause, or an alienation clause is what it’s called… Basically, that says that if you transfer the mortgage to somebody, we can call the loan due. Some people think this is illegal, and it’s weird, but it’s not. It’s not illegal, but it’s against the terms of the original contract. So if the bank found out that this deed transferred, which they don’t, but they don’t even care when they do, because all they care about is getting paid, but… If they found out, they do have the legal action to go ahead and foreclose on a property and call everything due. In that event, I would have to scramble and figure out a way to pay that bank off so I could keep the property and protect my assets. But ultimately, we’ve had plenty of lenders find out about this, and the only couple of times where it’s been an issue –I’ve talked to title companies and they’ll back me up on this– it’s usually when there’s an equity line of credit. So it’s something that the owner can go and draw money on – that’s going to be a big red flag, because they don’t want me drawing on an equity line of credit on something, and I wouldn’t want that either. So I don’t even buy properties that have an equity line of credit. Or I make sure that the owner goes and closes that out and can’t be reopened. That, or possibly an FHA deal. I’ve done plenty of FHAs and never had a problem. But I’ve heard of it being an issue with some FHA deals.

Ash Patel: Jason, do you run a title search to make sure that you know about all the loans that are out there?

Jason Moss: Yeah, I’ve got a pretty good relationship with my title company. I’ll give them a call and be like, “Hey, is there anything crazy on this deal that I’m not seeing here? Because I’m just seeing the first mortgage. Or is this one taken over?” And I’m okay. I’ve never had any kind of weird IRS lien come in after the fact. But if there’s nothing recorded as of the date that they deed it to me, I’m not too worried about it, because I’ll be like “Hey, whoever this new lender is, they don’t own the property anymore. It’s mine, so you need to remove this lien” and they’ll do it.

Ash Patel: So 2008 hit, and you now traded a worthless piece of land for a hotel. Tell me about the hotel.

Jason Moss: I just got married four months before… We were living in Utah, doing this flip. Newly married, my wife got a full-ride scholarship to the college there, and “This is a bad idea. Don’t do this. Don’t get married and then live in a fix and flip.” But we did, and then we move from that fix and flip into this hotel. It was a 15 room hotel. But basically, it’s like doing 15 flips at the time. My wife calls it the Dark Ages in our marriage.

We couldn’t leave, because we had daily people coming in and out for the hotel; we didn’t have a manager yet, we were dealing with drug people, we were trying to get everybody out of this property, we were trying to clean it up, and we were doing 15 rehabs at the same time. So there weren’t a lot of date nights or anything like that. It was a little rough during that time… But that’s kind of what we did, we flipped that hotel and then we moved to Arizona. We’ve been here ever since, since 2007.

Ash Patel: How long did it take to flip the hotel?

Jason Moss: It wasn’t too long. I think was about a year, or a year and a half.

Ash Patel:  So that was a year and a half of you guys playing front desk, playing maid, playing rehab, doing it all?

Jason Moss: Not exactly. We bounced after about six months. [unintelligible [00:16:32].05] So we got a manager to come in and take over the day-to-day. Even though they called me up one night and they’re like, “We’re leaving.” I’m like, “Okay, well, that’s fine. We’re working it out over the next couple of weeks.” And they’re like, “No, no, we’re leaving right now. Like right now.” They were leaving, so I got in my car and I drove eight hours or 12 hours off to Utah, I had to break into my own hotel, so I could be there in the morning when people woke up and started to check out of the rooms. We had a couple of managers and we finally ended up selling it to a guy on owner finance. So it worked out in the end; it was just stressful.

Ash Patel: And what was the amount of profit on that hotel?

Jason Moss: Not a lot. Again, this one – everything was falling apart. And I was happy — I think we made about 50 grand on that hotel, which wasn’t a lot in hindsight. I thought it would have done a lot better, and I think it would have if we could have held on to it, honestly. If we had been there for a couple more years, we would have made a lot of money, because our finances would have been a lot better. But we had to get out of that situation, it just wasn’t healthy for us. And we couldn’t manage it from out of state; we were just too naive in this hotel space. If I had to do it again now, I think it’d be a whole different ballgame. But we ended up selling at that time and we were happy to be done with it.

Ash Patel: Alright. So I’m assuming you didn’t do any more hotels, and you probably don’t even want to stay in a hotel after all that.

Jason Moss: It was a motel, so it my wife’s sore spot. But we’re looking at them now just because they’re in distress. We’re looking at the possibility of converting some of those into multifamily units, and things like that, because that’s a kind of niche right now that we’re looking at.

Ash Patel: Okay. Back to the rebuilding phase… What are you doing? Are you doing fix and flips right now to get back on your feet after you left the hotel?

Jason Moss: I was trying to do appraisals in Utah and I was trying to do fix and flips, but the market was just different up there. I wasn’t doing nearly as many appraisals. Again, I guess my point was in telling you that I made about 50 grand, but I also paid $50,000 to my realtor to sell the thing. And like, he didn’t do any work; I did all the work. I basically found the guy, I even reviewed the contract… I  was like “I am paying this guy 50 grand and he spent probably a total of eight hours.” I’m like “I’m getting my real estate license.” So that was the catalyst for me getting my real estate license. Now I’m a broker and I’m an appraiser, so I’ve got a little more clout under my belt. Right after that, we moved to Arizona, so I started to build that up, and I did that for a while.

Ash Patel: Alright. The way you feel about realtors is how I feel about appraisers. When I do a commercial appraisal, I have to pay $2,000 for that.

Jason Moss: Okay, this may make you feel a little bit better – I don’t even do appraisals right now, because it’s such a headache. There is a book called the USPAP, it’s Uniform Standards of Professional Appraisal Practice. It’s this book that changes every single year. It’s basically all the hoops you have to jump through as an appraiser. All you see is the report that they send you at the end, it’s like 46 pages. It looks like they put some work into it for sure, but you don’t see all the work files and all these hoops you have to jump through as an appraiser. It’s not worth even 500 or 600 bucks for me to do an appraisal right now, it’s just a lot of work.

I was never a great appraiser; I was always very good at getting values, but I wasn’t great at filling out that work file and doing all the things that the state wants me to do. As an appraiser, there’s a lot more work that goes into it than a realtor. Because I’m both now, I can see both sides. If I list the house, it literally takes me five or six hours from start to finish to get that deal done. Whereas an appraiser would probably cost me the same amount, but I’m like — a commercial appraisal is a different story, but a residential appraisal will take me four or five hours to do that and I’m making 400 or 500 bucks, versus a realtor, the same amount of time, I’m going to get $15,000 or something like that.

Ash Patel: Alright, that makes me feel a lot better. Thanks for sharing that. So you saw how much money realtors are making, and in your case, for not a lot of work. So you got your realtor’s license. Take me through that journey.

Jason Moss: I actually did pretty good with that. I would do about 50 to 70 a year, which I think is pretty good for a realtor. I was doing appraisals as well at the same time. They married perfectly with each other, because I could be out in the field and I’d do a loop and [unintelligible [00:20:17].01] because it’s hard to get a constant flow of real estate deals and you’re always out hustling. Sometimes you’re just spinning your wheels trying to find that next deal, where during that time I was actually appraising. So I actually made some of my best money during that time.

Luckily, I got on a panel for Fannie Mae, which was really very eye-opening for me as an appraiser, and as a realtor, and as an investor. Because what they wanted us to do is they wanted us to this give them an as-is value. Remember, this was 2009, 2010, 2011. So Fannie Mae has this massive amount of properties and they don’t know what to do with them and they’re trying to sell as fast as they can, but they’re realizing that all these properties are nasty, and then all they can sell them to is investors… So they started to ask us appraisers and said “What would these properties be worth as-is, and then also after repairs?” Of course, as an investor, we all know this, it’s the ARV. Back at this time, no lender ever remodeled a house. It just didn’t happen. If they got a property back, [unintelligible [00:21:11].01] So we did this and they would start to see that if they put in a $3,000 granite countertop, it would bump the price by five to $10,000, and it would only cost them three. So they remodeled all their houses, and I had this queue of 10 appraisals. As fast as I could get them back to them, they would send me more. So I made hand over fist money during that time, and I was able to dig myself out of that $250,000 hole that I had dug myself in. And then I got a little seed money. I need about 40 grand to start investing more heavily again. Then I started into that again.

Ash Patel: Into the fix and flips?

Jason Moss: Right. I had also done one here or there, maybe two or three a year at that time, so it wasn’t a ton. But I was starting to get more money so I could do that more… Because that’s where I’d get my chunks of money, I’d do a flip and get 30 to 40 grand and do another one. I wish I could have bought 100 houses right then, I just didn’t have the capital.

Ash Patel: Yeah, that would have been great to go back in time and do that. So how did that evolve into your buy and holds?

Jason Moss: About 2017 I partnered up with a guy around that time, and we started doing fix and flips. We were doing like six at a time and we were churning them out. It was a great time for buying properties at the auction. Now it’s kind of got overrun with all the fix and flip shows and the auction shows, it’s kind of got overrun and it’s kind of crazy. But during that time, it was great to do fix and flips. And we started to see those margins get less and less.

We wanted to make about a minimum of $20,000 on a flip, because it was me and a partner. We’re like “It’s getting tighter and tighter. Why don’t we try and hold one of these?” We had gone to a John Burley boot camp that was about lease options, and we’re like “This is interesting, let’s give this a shot. What the heck?” We didn’t make a whole lot, we made like 50 bucks a month on the cash flow on our first deal. It was a small $80,000 house, it wasn’t a big deal. But we were like “That wasn’t that hard to do. If we had like six or seven going on at a given time, and we convert all these to lease options, what would happen?” So we did, and we haven’t flipped a house since, because we ended up making two to three times the amount we’d make on a lease option, versus what we would have made on a flip.

Ash Patel: And if you do sell those houses, it’ll be capital gains instead of ordinary income.

Jason Moss: That’s part of it. We don’t pay realtor fees, because we’re selling it to the tenant that’s owning it; we’ve got cash flow every month, we’ve got the mortgage paid down, we can sell it for a premium because it’s a lease option and there’s not enough of them, so people are willing to pay a premium on the price, and a  premium on the rent. And then the depreciation, and the capital gains. There are so many things that two to three times is probably conservative, really, for what we make on a lease option.

But the difference is, with a flip you get 20 grand right now, versus a lease option, we get it spread over three years. But if I start stacking these up, me and my partner are starting to see the vision. We’re like “If we start to stack these up, that [unintelligible [00:23:37].16]” Now we’re pushing to 200 properties now and we’re like, “This is looking pretty good.”

Ash Patel: Play the long game. Yes.

Jason Moss: And that was our worst deal, at 50 bucks. Now we try to target about 200 bucks a month cash flow on our properties.

Ash Patel: So right now your 160 rental units. Is that all single families or is there multifamily in there as well?

Jason Moss: Did you say 160?

Ash Patel: Yes.

Jason Moss: I think when I filled out the form initially, that’s what it was. We’re pushing 200 now. I think we have about 70 to 80. It’s hard to keep track, because the machine is kind of rolling forward. But I think we have about 70 to 80 single-family homes, and most of those are on lease options. We have a chunk of those that are rentals, and then we have a good chunk of multifamily properties, and then we have six mobile home parks as well.

Ash Patel: On your lease options, what are some of the mistakes that you’ve made that you wish you could have corrected?

Jason Moss: Honestly, I wish I would have done it sooner. For the longest time, all the way up to about 2016, my partner basically bent my arm into doing one. I just didn’t want to be a landlord, because I don’t want the calls on Christmas Eve having to fix the toilet. It was so many misconceptions that I had built up in my mind that just weren’t so, that once we started doing it, I was like “I could have been retired 20 years ago with cash flow.”

Me and my partner argue all the time about net worth. I think net worth is dumb, he loves net worth. I’m all about cash flow. I could care less about how much I’m worth on paper, I really want that cash flow. So I wish I would have just started this sooner, honestly. There hasn’t been a whole lot of errors that we’ve made on these. We just had three people exercise their option… Because now we’re three to four years into our lease, so people are starting to exercise these options. One guy walked into $100,000 equity.

Ash Patel: A lot of people — do you think they’ll exercise the option, or do you think they’ll end up walking away because they can’t get financed or they just don’t want the house?

Jason Moss: Well, I don’t think anyone will walk away because they don’t like the house, because the markets have gone up so much… As I said, the guy that just did walked into $100,000 equity. But historically and statistically, I think about 15% of the people exercise their lease option.

Ash Patel: So if somebody has one of your lease option houses, and they’re at the end of their lease period, but they can’t finance the property, is there something that you would do to help them out, or would you just start over again?

Jason Moss: We may reset the price, but we’ll keep them in the property. If they still want to buy it, we may just reset the price, or reset some of the terms, or… We can really do whatever we want. We’ve had people that have moved to Oregon and were like, “Hey, here’s your option fee back.” We’re okay, we’ll take the property, because the property’s gone up by 30 to 40 grand since then. It’s like, “We’d be glad to take that back.”

But yeah, to answer your question, not everyone’s going to be able to do this. A lot of you will just procrastinate. We actually try to work with these people and try and get them to buy the house, we really want them to. Now it’s kind of hard because they’ve got so much equity in them and we’re like, “We don’t really care if they exercise it or not.” But we’re not going to step in their way by any means. We’re going to still help them. If they reach out to us and they want help, we’ll help them. But we’ll see. We’ll see how many shake out. Every single one of them may buy, or they may not, and we’re okay with that, because we went in from the start knowing that — say the house is worth 200,000. We would market it for 210. We got $10,000 more than what it was worth at the time, so if we were to do a flip, we would have got way less. So we’re happy either way.

We could have structured that a little bit differently where we could have had some price increases and capitalize on some of that, but by not doing that, we’ve had great tenants. Our one office manager handles all of those 80 properties and she has a couple of calls a month. Because these are buyer mentality, not tenant mentality. It’s just a different mindset.

Ash Patel: So Jason, are these leases set up as a typical single-family rental? Or are the tenants responsible for more, such as HVC, plumbing problems, drain backups?

Jason Moss: They are. It is a typical lease, but there’s also an option agreement that sits alongside it. The option agreement says, “Hey, you can buy it for this price. Here are your responsibilities. You take care of the property. Any minor repairs under 200 bucks you take care of. Anything over that, we’ll go ahead and take care of. We’ll come in and replace an AC unit or a roof. We’re just going to add that onto your option fee.” So none of that capital expenses or reserve replacements that people have to factor in – we don’t really have to factor those into our matrix, because we’ve kind of exited ourselves out of that.

Ash Patel: That’s a great way to hedge against unexpected expenses.

Jason Moss: Yeah. Technically, as a landlord, we have to do certain things. We have to replace their AC, we have to keep that property safe and sound. So technically, we are on the hook. But contractually, they have the motivation to keep the property nice, because it is theirs.

Ash Patel: You mentioned earlier you were trying to do subject-to with hotels. Have you had any luck or have you approached any hoteliers?

Jason Moss: You mean if right now we’re looking at that as a strategy?

Ash Patel: Right.

Jason Moss: No, we’re not looking at necessarily subject-to as a strategy for that. We’re just looking at buying hotels. You said, “You probably would never touch a hotel.” I said, “Well, I may now, because that’s a good niche.” Now, I love the subject-to, but those are probably a little different. That’s a commercial mortgage; they may call that due. I’ve never wrapped or done a subject-to a commercial mortgage, but I’d be willing to try it. But no, we’re just looking at hotels in general.

It’s like some of these mom-and-pop motels we see outside of town, we’ll come in, we’ll buy them, rehab them, and make them into a little six-unit apartment complexes and then operate it that way versus a hotel.

Ash Patel: What kind of systems do you have in place to keep your machine turning and burning?

Jason Moss: We use some software. The one we’re using currently is called Buildium. So I find the property… I’m kind of the real estate aspect of our team. I’m the real estate guy, and my partner is the financial guy. He’ll go out, he’ll get all the money, get all the loans, and things like that.

So I’ll find a property or he’ll find a property and be like “Okay, what about this one?” I’ll do the value. As soon as that’s done, we basically just send an email out to everybody that’s involved – our title company, our insurance guy, my office manager, his office manager; everybody gets looped in, and then everyone knows their part, and they just go do it. That’s kind of the acquisition side.

As far as the management side, as I say, for these lease options, which is a good chunk of our portfolio, they don’t take a lot of maintenance or month-to-month management. But the mobile home parks, that’s kind of a beast unto itself and those do take a little more. That’s where the Buildium comes in, and the systems, those kinds of automatic payments, the automatic deposits, and things like that that we encourage our tenants to do, and we actually incentivize them to do, to really make things work smoothly. The lease options kind of take care of themselves, really.

Ash Patel: Yeah, we covered a lot. I think we’re going to have to do another episode and dive into the mobile home parks. Jason, what’s your Best Ever real estate investing advice?

Jason Moss: Just do your first deal. If you haven’t done a deal, do your first deal. That’s it. And don’t be scared of buy and holds. Just get started. Because if I had convinced myself years before that… This has all happened within the last four years. So 2001 — 2017 is when we started, now we’ve got over 200 properties. We both could probably retire right now and have residual income until these properties are gone. I would have rather done that when I started and four years later I could be in a totally different position now. So that’s my advice.

Ash Patel: That’s great advice. Jason, are you ready for the lightning round?

Jason Moss: Sure.

Ash Patel: First, a quick word from our partners.

Break: [00:30:36][00:31:12]

Ash Patel: Jason, what is the Best Ever book you’ve recently read?

Jason Moss: Atomic Habits was really, really cool for me. But I think Slight Edge kind of filled in the gap. So those two combined. Slight Edge and Atomic Habits kind of go hand in hand. They’re not even by the same author, but they kind of are circling around the same thing.

Ash Patel: What’s your takeaway from those books?

Jason Moss: Just a way to set up habits and to push through and to keep things moving.

Ash Patel: Awesome. Jason, what’s the Best Ever way you like to give back?

Jason Moss: Right now I’m trying my hand at YouTube, trying to share my knowledge the best I can. I’m also looking to start up a non-profit as soon as this cash flow machine ramps up all the way. We’re going to be breaking off a piece of that income and doing a non-profit with that. I’m not sure what we’re going to do yet, but it’ll be fun I’m sure.

Ash Patel: I’m sure it will be fun. Jason, what’s the Best Ever way that our Best Ever listeners can reach out to you?

Jason Moss: Probably YouTube. I watch those comments like a hawk. Real Estate Getting Started is the channel, and you might have to add my name on there, Jason Moss. Or LinkedIn. That’s probably a less effective way but you can still reach me there.

Ash Patel: Wonderful. Jason, thank you for being on the show today. You shared some great advice and you’ve taken us on your journey with you. The rise up until 2008, and then how you got back on your feet after that downfall. So great advice with the lease options. I learned a lot about the wrap around mortgages. Thank you again, have a Best Ever day.

Jason Moss: Absolutely. I appreciate you having me on. This was a blast.

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JF1728: Natural Entrepreneur Quits All Businesses For Real Estate Investing with Dustin Heiner

Dustin had a few different businesses as he was figuring out his path. Once he came across real estate investing, he found his last business. He stopped all the other businesses, which he says required more work and made less money than real estate investing. Now a successful investor, Dustin is also helping others build their own real estate investing businesses. If you enjoyed today’s episode remember to subscribe in iTunes and leave us a review!


Best Ever Tweet:

“We’re investing for the long term” – Dustin Heiner


Dustin Heiner Real Estate Background:


If you’re a passive investor wanting to learn more about questions to ask sponsors in order to qualify the opportunities, sponsors, and the markets opportunities are in, visit BestEverPassiveInvestor.com.

We created this site just for passive investors to have a free resource providing the questions to ask and things to think through. BestEverPassiveInvestor.com


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. We only talk about the best advice ever, we don’t get into any of that fluffy stuff.

With us today, Dustin Heiner. How are you doing, Dustin?

Dustin Heiner: I am great, Joe. How are you?

Joe Fairless: I am doing well, and welcome. Looking forward to our conversation. A little bit about Dustin – he is the host of the Master Passive Income Podcast. He’s an active real estate investor who quit his job at 37 thanks to his rental property investing. Based in Peoria, Arizona. With that being said, Dustin, do you wanna give the Best Ever listeners a little bit more about your background and your current focus?

Dustin Heiner: Sure. When I was 25 years old I realized that I was working an hour and getting paid for that hour, basically earning money… And I thought there has to be something better. So I read a really good book, Rich Dad, Poor Dad, which probably most people have heard of…

Joe Fairless: Never heard of that one.

Dustin Heiner: [laughs] Yeah, exactly… So I learned about passive income and I realized, “Man, I’m not a singer. I can’t play the guitar, I can’t do anything creative, so I’ve gotta figure out another way.” I started looking into other businesses, so I started a retail shop; an actual business. I sold that a couple years later. I had a skateboard manufacturing business, I had a graphic design company… I had so many other businesses, and then I started a business doing real estate rental properties. What was super-awesome was that the best thing that made me the most money and made me work the least was real estate. So I got rid of every other business and I continue with real estate. So I started buying property after property. When I was 27 years old I made a decision that when I’m 37 – so ten years from now – I’m gonna quit my job, no matter what. And I’m so excited that after 9 years of investing I finally quit my job, and when I was 37 years old I was completely successfully unemployed, and I continued to build my business.

Now I teach people how to invest in real estate and rental properties. I don’t do flipping, I don’t do wholesaling; it’s solely real estate rental properties.

Joe Fairless: Okay, that makes sense, and quite the entrepreneurial background, with the different businesses – retail shops, skateboard manufacturing, graphic design, and rental properties… How many rental properties did you have at age 37?

Dustin Heiner: I wanna say it was 29… I think 28.

Joe Fairless: Wow! Quite a portfolio. Were they all single-family homes?

Dustin Heiner: Single-family homes, and the majority of them did not have a mortgage on them. I was able to buy them and sacrifice, and not go on vacation and just buy more. My wife is really risk-averse, so I had to prove to her that the business worked. A big thing was to not get too much leverage. I used leverage, but at the same time I used savings. I started with $17,000 when I was 27 years old when I first started, and in the end I was able to pay off all the mortgages. Now I think I have 35 or 36 properties. I buy and sell… Just a little while ago I bought three single-family homes and a duplex from an investor. It  was a great deal; seller financing on top of it as well, so it worked out really well.

Joe Fairless: How did you accelerate the paydown of a lot of those 29 properties when you were 37 years old?

Dustin Heiner: The fantastic thing is passive income just keeps rolling in. I can’t stop it from coming in… It just keeps coming in. So the more properties I buy–

Joe Fairless: Have you tried to stop it?

Dustin Heiner: No… [laughs] I don’t think I ever will. My wife would not be happy if I did that. So I just had so much money come in, as I was about to quit my job… She and I were looking at our finances, and saying “Well, we have plenty of money coming in; we don’t need to pay them off… But we don’t need to buy any properties.” If we basically used half of our savings to pay off the mortgages, we can still continue to build the business, because we have plenty of cash to keep building the business, but at the same time we would have thousands of dollars savings in our pocket from not paying a mortgage. So we did that, and it’s been a little over two years now, and praise the Lord, it’s been fantastic. I’m absolutely super-excited to never work a job again.

Joe Fairless: So you’ve used savings that you had from your W-2 or other ventures to pay down the mortgages… Did I hear that right?

Dustin Heiner: I used savings from my passive income. Obviously, until I quit my job, I had a job; I was making like $75,000/year. But I also had my business where I was making tens of thousands of dollars a month, so I was saving that up, and then I sold a property, which gave me a good amount of money as well, and I was able to pay off a good amount of mortgages.

Joe Fairless: So the passive income from the properties was helping, but it sounds like the big chunk that came to pay down those property mortgages came from your side-businesses – the retail shop, the manufacturing skateboards, graphic design… Is that accurate?

Dustin Heiner: No, absolutely not. I was losing money [unintelligible [00:05:16].27]

Joe Fairless: What did you say made tens of thousands a month?

Dustin Heiner: My real estate, the rental properties.

Joe Fairless: Your rental properties, okay. So they made tens of thousands a month… So how many tens of thousands did they make a month?

Dustin Heiner: At the time it was $15,000.

Joe Fairless: They were making $15,000/month. Wow! Those are some good properties. So each property was netting over $500/month in profit?

Dustin Heiner: Yeah, and as I would buy a property, if you didn’t have a mortgage, then all that money comes in your pocket as well. So we really literally sacrificed. My one vacation a year was taking my family from California to Phoenix. I currently live in Phoenix now, but I used to live in California. We would drive all the way to Phoenix to visit my wife’s parents and then drive back. That was our one vacation a year. We wouldn’t go to Disneyland, we wouldn’t do anything, because every penny that went out, I thought “I can use that money to buy a property.” So I kept buying more and more properties, and sacrificing, so I had enough to quit my job.

Joe Fairless: Let’s talk about some of these properties. That’s some good stuff, because I own four — three single-family homes. I switched to apartments, but I originally bought three single-family homes, and those puppies don’t get anywhere close to $500/month, so… Give us some numbers on a couple deals within that 29-unit portfolio.

Dustin Heiner: Okay. So I ran the gamut from — actually, when I first started it was in 2007, and you know the prices were crazy in 2007…

Joe Fairless: Sure.

Dustin Heiner: I was in California too, and I realized that I would not be making any cashflow from a property that I bought in California. At least it’d be very hard. So I started looking all around… This was, like I said, 2007. I looked out of the state. And I didn’t know what I was doing; I didn’t have anybody showing me. I just realized “I need to buy something. I need to make a change.” So of all places, I found a place in Ohio and bought my first property. It was $17,000 cash that I bought the house for, and it rented for $550. I still own it. It rented for $550/month. From that property — I had a property manager that charged 10%, so it’s only $55/month. Property taxes, insurance — so I was pocketing about $400/month from that one property.

That $400/month from one property – I realized, “My goodness, I need more of these.” So I kept buying more inexpensive homes. Now, there’s a downside – I wrote a blog post and actually did a podcast episode on this…

Joe Fairless: Turnover.

Dustin Heiner: Yeah, it was high turnover… High expenses as well. So I figured out a way to mitigate all those things. Because I knew I was gonna quit my job, I wanted to make sure I have a steady income, and I figured out a way to make it really steady from these cheaper homes. Since then I graduated to more expensive homes. I invest in Texas as well… So as an investor, I just buy any property that is a good investment, that’s gonna be making money.

Joe Fairless: I love that example, so let’s get into some specifics. What is your solution to a high turnover and expenses for low-income properties?

Dustin Heiner: There’s a couple things that come to mind. The biggest one – you’re gonna know this, and this goes into one of your questions you normally ask… But running your business like a business. If you have one rental property, you have to treat it like a business. If you don’t pay your mortgage, your bank is gonna come after you. Same thing – if you have one rental property… It’s my grandma, or my aunt, so I don’t wanna kick them out, or anything like that  – you can do that, but you’re gonna lose money, in my opinion. So what I had to do is I had to implement systems in place that when people stop paying, you need to evict them. So not just that, but finding good tenants.

I’m pretty sure all your listeners are smart, so they do background checks… But a big one is in the rougher areas, the cheaper-priced homes, your property manager might say “Well, the people won’t pay for an application fee for the background check. So they’ll do a background check, but they don’t wanna pay for it.” Well, in my opinion that $30 for a background check is gonna save you $1,500 to $2,000 in an eviction. So pay the $30 on your own if they’re not gonna pay it.

I’ve screened out so many people from being bad tenants… One lady – her application looked fantastic, so I did a background check and it turns out she was lying on everything. She had been evicted four times in the last three years… And I said “I’m not gonna be the fifth.” So I didn’t put her in there. If I [unintelligible[00:09:11].07] she’d be in there and then out in three months I’d be evicting her. So that’s another huge one, doing a background check.

But here’s one that I would say is one of the better tools that you need to have when you’re investing in these cheaper homes – every market has a low, middle and high price of homes, but also rent and how much you can rent it for. In the places where there’s higher turnover, cheaper homes, people move as if it’s changing their shirts. They just up and move, and they’ll leave all their stuff and go move to another place. I don’t understand, it’s just how it works out. So what I’ve found is they’ll move for $25. If I’m renting it for $550 and another place down the street is $525, they’re gonna just move for that. I’m like “Wow, that’s a bummer.” The low is $500, the high is $600, middle is $550, I was renting in the middle, so I realized “Well, I’ve gotta be like $520, or $525.” Even just $25. To us, that’s a lot of money; we know $25 is a lot of money, but for them, that is living in these homes that only rent for $550, that’s a ton of money. So that’s a number of other things I would suggest that in order to do these cheaper homes, and work and have businesses in these areas, you have to implement these systems, in the mindset of your tenant, to make sure they stay there, take care of the property, and that they don’t have high turnover.

Joe Fairless: So that second point was “Be one of the cheaper options”?

Dustin Heiner: Correct. Obviously, good property. You want it to be a livable, a good property, but you wanna price it so that they don’t see a new shiny object or a new shiny house. “Oh, it’s $25 cheaper over there. Let me just move.”

Joe Fairless: So the first place was 17k… Where in Ohio was it?

Dustin Heiner: Youngstown, Ohio.

Joe Fairless: Do you still have it?

Dustin Heiner: Yes, I still do.

Joe Fairless: Alright. So that was the first place. You live in Peoria, Arizona…

Dustin Heiner: Yes, it’s basically Phoenix.

Joe Fairless: Thank you. You live in basically Phoenix. Where was your second property purchase?

Dustin Heiner: I would say 19 of my properties were in Ohio, and I branched out from Youngstown, to Akron and Cleveland. That’s where the majority of the properties are currently at.

Joe Fairless: How did you find them?

Dustin Heiner: It was actually really funny… When I first started investing, Zillow basically just came out, so I was using Zillow, and I was using some MLS… But I looked on eBay, and for some reason I found a property on eBay. It was a duplex, and at the time, in 2007, a duplex in Youngstown, they were trying to sell it for $45,000. I thought “Wow, for California that’d be a cheap place, but I don’t know if it’s good or not.” So I realized after I flew out there – and since then, with 35+ properties, I’ve literally only seen one of them before I bought it, and I’ve only seen two total; including that one. All the other ones I rely on other people, their eyes and ears, and all that sort of stuff.

But in finding that property on eBay — I flew out there and I checked out the property… It turned out that $45,000 was way too much. It should have been like $30,000. So I was like “Wow, I’m glad I figured that out.” Like I said, with 19 of my properties I started in — actually, it was probably 15 in Youngstown, then I branched out to Akron, and Cleveland, Maple Heights, and things like that.

Joe Fairless: You have 19 in Ohio… And the average purchase price was what?

Dustin Heiner: I was gobbling them up, and this is a big reason why I was able to accelerate the passive income and the properties I was buying in a few short years – as soon as the market turned, prices dropped. You’re gonna laugh, but the cheapest home that I bought — and I’ll give you a quick story on that… So it was an REO, a bank was selling it for $20,000. I put in an offer… You know, I don’t care about the bank’s feelings; I just want a good price, so I know I wanna negotiate. My goal would be about $12,000-$13,000. I really wanted them to come down… So put an offer in for $6,500. They didn’t counter, or anything like that. They just didn’t reply. And six months later, I get a call from my realtor, “Hey, is that offer for $6,500 still on the table?” I said, “Sure it is.” So I bought the house for $6,500.

So the average price in the area in 2010 and 2011 – I wanted to get into a property, having it rented, fixed up and everything for $12,000 or below. So I’d say about 15 of my properties were like that, and that was my business model. And I taught so many of my friends how to do it, and they were doing really well… But since then, the market has gone up. Now the home that I bought for $6,500 I think is worth $30,000, or something like that… So with the depressed market, I was able to gobble up a ton of properties.

Joe Fairless: What does it rent for?

Dustin Heiner: $450.

Joe Fairless: $450. It sounds like the rents were all around $400-$500, maybe $600… So how were you netting in profit $500 with these rents so low, plus not even factoring in the turnover costs?

Dustin Heiner: Sure. Each one of those properties I progressively got better, and as time went on, by the time I quit my job, they were renting for $750. Plus I had properties in Akron, Ohio as well, and Cleveland, Ohio. In Cleveland they rent for $1,100… So by the time I was six years of investing, I had 19 properties, but by the time I quit my job, I think I had 28. So I included, obviously all the properties.

Joe Fairless: Okay. And what was your job?

Dustin Heiner: I worked [unintelligible [00:14:01].27] I worked as a systems and procedures analyst for the Sheriff’s Department.

Joe Fairless: And you have clearly developed a system for your investing, too.

Dustin Heiner: Absolutely.

Joe Fairless: Okay, cool. Well, what is  your best real estate investing advice ever?

Dustin Heiner: It’s gonna be super-easy to say, and people are gonna be like “Oh, that’s common sense”, but at the same time, to actually do it… So my absolute best advice is don’t lose money. Absolutely, just like I said, it’s gonna make common sense, but don’t lose money… And when you’re buying a rental property, what I suggest to all my students, the way that you don’t lose money is you buy it right; you make your money when you buy it, you realize when you sell it. But we’re investing for the long terms. Holding on to these properties for a long time. And the way you don’t lose money by renting out long-term is by getting at least $250 or more in passive income coming in your pocket every single month. If you’re investing just to make $50 or $100, if you have a furnace go out, then that scratches your entire year of profits; or a roof, or a leak, or something like that.

You have a good chance of mitigating any loss of an entire year of profits if you shoot for $250 or more in profits. So with that, if you don’t live an area that you can do that, which I didn’t when I lived in California, I would suggest from there investing in another state. And if you invest in another state that has good price to rent ratio, you need to hire a good property manager from there, get good tenants, and then also run the business like a business. So that all goes together.

Joe Fairless: Do you have any other tips for decreasing tenant turnover? And before you answer that, just so I’m summarizing your business model… As far as I can tell, you used to buy a property that’s lower end, perhaps that’s increased now, it sounds like, and then you make sure they’re qualified with background checks and whatever else, and then you keep the rents on the cheaper end relative to the competition, so that these residents stay there longer… But I imagine even with those two things implemented, turnover costs will eat up a lot of that profit, so any additional tips you have for decreasing turnover costs with these types of rentals?

Dustin Heiner: Yeah, a couple things come to mind… Having a good property manager is really gonna help mitigate any problems, and being proactive, where your property manager is letting the tenants know – and consistently letting the tenants know – “If there’s an issue, let us know. We don’t want you to have something leaking for a month straight. If there’s a leak in the roof, or there’s something…” But basically being proactive.

The cheaper homes – there’s a number of reasons why they’re cheaper, but they’re also older homes, so there’s a lot of issues with the property. So number one, you’re keeping the property good, in good standing and good shape, if you have the tenants be proactive, letting the property manager know about issues, but then you’re also making sure that the tenants are not necessarily happy, but that the property is taken care of, that they’re appreciated. Hey, we value you as a tenant; we’re gonna take care of you. Let us know if there’s issues. We wanna make sure we get things taken care of. So that’s one of the biggest ones.

That goes hand-in-hand with taking care of your tenants, making sure that the tenants aren’t living — because I was just working with a student yesterday… She was looking in Detroit to start buying properties, and some of them look like there’s a ton of work; I mean, literally, $15,000 just to make it where you can [unintelligible [00:17:20].12] walking in there, not making it look good. So they’re asking $10,000 for it, and I said “Well, if they give me the property, then I might take it and fix it up…”

So you can just get it barely able to have somebody live in it, but a tenant is not gonna be happy. They’re not gonna be like “This is a place I want to stay.” So not making it the prettiest girl to take to the prom. You don’t want that. You want it to be where it’s in good standing with the other properties in the area. Making sure that it’s comparable to the other properties. If there’s no granite countertops in the homes, I personally wouldn’t spend that money for a granite countertop, but I would put a nice Formica or something, a granite countertop, but I wouldn’t leave one in that has holes, or chips, or stains, or burns from previous tenants. So taking care of the tenants is one of the best ways to make sure that they stay in there.

Joe Fairless: We’re gonna do a lightning round. Are you ready for the best ever lightning round?

Dustin Heiner: I sure am.

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

Break: [00:18:15].26] to [00:18:58].28]

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

Dustin Heiner: Best ever book is “Richest Man in Babylon.”

Joe Fairless: Best ever deal you’ve done?

Dustin Heiner: The one I mentioned a little bit earlier – I bought three single-family homes and a duplex from another investor who wanted to get out; he had a wine business. I bought it, I had $25,000 cash put down, the rest is seller financing, and I make $1,200 to $1,500 a month on the properties.

Joe Fairless: What’s a mistake you’ve made on a transaction?

Dustin Heiner: Losing money. Well, losing money number one, and not running it like a business. If you don’t run it like a business, then you’re just gonna lose money because tenants will take advantage of you.

Joe Fairless: What’s a deal where you lost money?

Dustin Heiner: In buying the property no. I never lost money in buying a property, because I don’t buy for appreciation, I buy for long-term. So where I lost money is when somebody sat in the property for six months as opposed to two, when they should have been kicked out.

Joe Fairless: Best ever way you like to give back?

Dustin Heiner: I love helping people. I hope it comes across… I am really passionate about real estate, because it’s changed my life so dramatically, where I literally don’t have to work a job… So I love talking to people and even coaching people. Before I even started coaching with master passive income, I was just helping friends and family, because they were saying “Hey, you’re quitting your job… How in the world did you do that?” and I said, “Hey, let me show you.” So I just love, love-love-love sharing and talking about it and helping people to do the exact same thing.

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

Dustin Heiner: I have my podcast and my website. Masterpassiveincome.com is where you can go check out the coaching or my podcast. My podcast, Master Passive Income Podcast – I talk and I interview people; it’s mostly me sharing, but everything about rental properties… Not flipping, or anything like that. We talk all about rental properties.

Joe Fairless: Dustin, thanks for being on the show, talking about your business approach and your business model for how you purchase homes, and what you look for, and finding the initial properties off eBay, and then building a system that you like, that works for you, and getting the cashflow.

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

Dustin Heiner: Thank you, Joe. I really appreciate it.

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JF1622: How To Leave Behind A Legacy & Set Up Heirs For Success #SkillSetSunday with Aaron Chapman

Aaron has been on before, this time he’s talking about how he is setting up his children to succeed after he is gone. This is important for obvious reasons, and some less obvious reasons. Hear why Aaron is doing this, and how he is able to do it for himself, and help others do the same. If you enjoyed today’s episode remember to subscribe in iTunes and leave us a review!


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Theo Hicks: Hi, Best Ever listeners, and welcome to the best real estate investing advice ever show. I’m your host for today, Theo Hicks, as Joe is traveling to Texas right now to look at some apartment deals. Today I’m speaking with a returning guest, Aaron Chapman. Aaron, how are you doing today?

Aaron Chapman: Not too bad, Theo. What’s happening with you, brother?

Theo Hicks: I’m doing great, cannot complain… Although I’m in Florida, and today is pretty cold. I could see my breath outside; that was unexpected.

Aaron Chapman: I like it when that’s happening, especially after I brush my teeth. Then I know for a fact it’s the weather and not me.

Theo Hicks: [laughs] There you go. Today is Sunday, so it is Skillset Sunday. We’re going to talk about a specific skill that can help you with your real estate business… And I’m really looking forward to this conversation today, because we’re going to be talking about legacy. A very common thing – that I’ve heard at least – is that the father makes the business, the son maintains the business, and the grandson loses the business… And obviously, the dad set out to set a legacy for his family, but in the end, in doing so, he kind of ruined his family, because the business was lost within two generations.

So in this podcast we’re going to be talking about how to properly leave a legacy for your children and actually set them up for success. That is going to be the discussion today. Before we get into that, a little bit more about Aaron’s background. He’s a 21-year veteran of real estate investment finance; he is ranked in the top 1% of the industry, and number 12 out of tens of thousands of others nationally for transactions closed. He is based in Mesa, Arizona. As I mentioned, he’s a returning guest, so check out his first episode, which is episode 1537, “Grow a huge real estate business by helping others get what they want.” To say hi to him, you can go to aaronbchapman.com.

Before we get into the meat of the  conversation, can you tell us a little bit about what you’ve been focused on since your last interview?

Aaron Chapman: Well, of course my focus as a business structure on the day-to-day basis is helping individuals to accomplish what they want to in their real estate business. Those that are just getting into it, they’ve been reading things online, they’ve been listening to Joe’s podcasts and trying to figure out “How do I go about this? I love that education piece.” That’s what keeps me doing what I do, is having that conversation with people to help them start structuring not just their business, but their mind, get their mind wrapped around the fact that they’re the CEO of a startup real estate investment business, and that there is a way to take that mindset and turn it into a monetary value, and then understand the multi-faceted revenue generated by real estate, and it’s just about cash-on-cash returns, it’s not just about cap rates, there’s so much more there; it’s really an infinite return when they get their head wrapped around it and they realize that I want to be part of their team. I’m looking to be the virtual CFO of their business, help them to look at things from different angles to build that business properly. So that’s my biggest focus – to keep myself out there to an extent that I’m working with more and more investors, and we’re blessed to have a business that generates 700 units a year in actual closed business. That’s what puts me at rank number twelve in units closed in my entire industry, of all the people that are in it, tens of thousands of licensed loan originators.

But the one thing that’s been really getting my attention a lot lately is the fact  that I hear a lot of people getting involved in this business, who develop their real estate business because they want not only to retire themselves, they wanna create that vehicle that will help them to leave their daily job, but they wanna leave a legacy for their family, they wanna leave a legacy for their kids… And then end result that I hear people doing is kind of like we talked about earlier in the introduction – a man creates a business, brings his son up in it, because he watches his dad do all that, and then by the time the grandson gets it, it gets destroyed. We’ve seen that happen in history with kingdoms, pharaohs, kings, you name it. You can look backwards into history where somewhere within a matter of 1-2 generations what was created was actually a very solid, and a big foundation [unintelligible [00:05:43].03] got obliterated by one squandering what was available to them, because they never earned it. They grew up in it, and always had all the benefits of life, and they didn’t realize what it took to keep it, and they definitely didn’t know what it took to earn it. So with all those ideas that [unintelligible [00:06:02].03] and I find myself traveling a lot. I’m in the air at least 2-3 times a month; I got a letter from American Airlines, who I fly mostly, that says that — it’s almost like a congratulatory letter saying that I had traveled enough miles to circle the globe three times over a calendar year (2017). And it was really alarming to me I spent that much time in the air, but – and it was all within continental U.S. – I took that time to really spitball how do I do the same, leave a legacy? Because all the ideas I’d heard before of what legacy might be left very big holes in my mind.

My personal belief is that the greatest legacy is not to leave legacy and net worth, but to leave wealth and knowledge and experience. I quote a lot to people “Good judgment comes from experience, and experience comes from bad judgment.” So the experienced gained by verification of truth, through what seems like contiguous errors throughout our lives, has a way of correcting one’s path and  illuminating one’s foundational and financial principles.

What I figured was the most way I could secure and ensure these principles are known and endure is not to just tell my kids and my family, but to live them and put each member of my family in a central role in the daily execution of that whole thought process. So what I did was I developed a trust. Just a normal trust — and I’m still going through all the legals on it with my attorney to ensure we button up all the details of it, but the generalities is this… All my assets go in the trust, and then we used the infinite banking philosophy to fuel this. You guys probably have had people on the show for that, correct?

Theo Hicks: Is that with the life insurance?

Aaron Chapman: Correct. I know I’ve heard that, but then again, you listen to so many shows, you’re like “Who is which anymore…?”, because we listen to so much going on out there… But I have a very close friend who also actually introduced me to yourselves, and kind of made it possible for me to get on the first show – it’s Gary, who does this life insurance, and he does it for me and my family. So what we did is we created six policies – one for me, one for my wife, and one for each of my children. And what it dominoed into was we’re using my policy – I can pull a large sum out of it to fund my investments… And I wanted it to just not be my decision, because eventually these investments are to be taken over by the legacy, by the children. So rather than me just deciding what I should be purchasing, I had my children get involved in the last few purchases we did.

We had to look at the proformas, we had to do a Zoom call with whoever was presenting on it, whoever was making this potential option available, and they had to answer questions with my kids. And it was a really cool opportunity for both sides – one for my children to ask those questions and understand the process a little bit more, and not just get it from dad, and then two, for the person providing the potential investment to be able to refine their presentation at a level that would be understandable to somebody as young as 12 years old. My children range from 12 to 21.

Then what was also very cool was to see the lights turn on in each of their minds as they start seeing what was possible. Then the final benefit is I could tell the person who is gonna be talking to my kids to remember there’s a special place in hell for anybody who lies to kids, so we’ve got that as another protective piece. But how that evolved from that was not just their involvement in understanding the acquisition of the investments and where to put our money too, but also them coming to the knowledge that the requirement for their involvement in this trust – they’re not just gonna be handed a bunch of money or properties or wealth or my death benefit from those life insurance policies when I pass; they have to be qualified beneficiaries of our trust. How I’ve done that is their life insurance policies were purchased by me and put into the trust, and they have a certain requirement as far as the amount of money that has to be put back into them every month – or actually every year, but they have to set it aside every month. It really comes as $5,000/year per child.

Well, that $5,000 equals out to about between $416-$417 a month that they would have to save. The requirement is they have to set aside that amount, $5,000/year or 10% of their income, whichever is greater. That is what makes them a qualified beneficiary, and that has to be done for the rest of their life.

When my kids heard that, it was kind of a shock to them, because when you think about that, $416-$417/month is a lot of money for anybody, not so much kids just now starting jobs and starting life. You can look at the majority of the population; if you tell them “You’ve gotta save $417/month”, that can be difficult for many people. But they had to look at their expenses and their income and decide that it was worth it.

One of my children, my 17-year-old asked me “Why can’t I just save that for myself and just put it in my own bank account and not be involved?” Well, let’s take a look at that. We actually had Gary on a Zoom call, my insurance guy, who did this whole introduction with us; he was there to witness this conversation… And we did the numbers, and that $416 and change actually ended up being somewhere in the range of about $105,000 over a 21-year window. We used 21 years because that’s when I could potentially retire according to the way that the trust is written, at 65. So 21 years from now they will have saved $105,000 in the principal part of it. Any interest that they’d generate, of course, through any bank accounts is gonna be minimal, as we know… And then you throw in inflation.

I started talking with them about the inflation and where the dollar’s value will be 21 years from now, and every year till then, even if it maintains just the 2% that that government claims it is – which we all know it’s higher than that – they have lost money by leaving it in that bank account, because there’s no bank account outpacing inflation.

Well, then we turned it to Gary, and we said “Gary, can you take a look at them doing $5,000/year into this policy, and what that compound effect will be with that interest growing the cash value of that, and tell me what that would look like 21 years from now?” He went and he scrolled down, and it was over $600,000 per policy, just for those $5,000 policies. That was a  very big a-ha moment for the kids, when they realized it’s stretch, it will be tough to set aside $414-$417/month, but then they realized what the power is behind that – it was just a game-changer for them. If I was gonna have them, say, add that all up, it was over 2.4 million dollars that they would have in cash value between just those four children. I said “So that’s the shared policies. Now, I’m settings aside tens of thousands of dollars every year, so does your mom, so can you imagine what those cash values will be? And then we’re also looking at buying multiple different investments every year with these family meetings, as far as real estate investments is concerned, lending investments are concerned, and other types of things; possibly buying notes, or whatever else. Can you imagine what that will do?”

And then you’ve got the generation below us required to bring in $5,000/year, or 10% of their income, whichever is greater, to continue to build this up. So we as an entire family are working together for one central goal; nobody ever gets to touch the principal though. I don’t know how the legals work on all that, my attorney is still working on that, but the principal always stays intact. When the time to retire comes, they’ll only have access to interest that is created, provided they have participated in not only the monetary building of it – the 5k/year or 10%, whichever is greater – and we have to have a monthly meeting to reconcile that, and we’re already doing those, but they also have to be part of the board who votes.

Then once it gets bigger, a couple generations in they’re gonna probably have to designate somebody to vote as a proxy, as a board member, because a board can only have so many people or it’ll become just a madhouse. So there’s gonna be a heavy structure for this, and my belief is if we can start that process now, with everybody I work with – and my goal is to have this built, have it arranged, have it created with all the legal necessity; it will be a bloodline, dynasty-style trust, to keep it within the bloodline, and if I can get everybody I work with to do this, can you imagine what the world’s landscape will look like for generations to come, when right now we have nothing but fear of what the next generation will bring, because they’re not being taught anything but theory; there’s no real practical application of any subject that I’m seeing in the schools today. But if we can employ this -and I work with thousands of investors – my goal is to take it to all  of them and say “Here you go. Just talk to my attorney, let him scratch out the name, put yours in, and pay him whatever that little fee is, and let’s just move forward. Let’s change the world’s landscape financially.”

Theo Hicks: That’s a wonderful strategy, and you went into extreme detail on exactly what one needs to do to get started, with numbers and everything. A couple follow-up questions –  you mentioned family meetings; is that something that you do on a weekly basis?

Aaron Chapman: At least once a month. Now, we’ve got four kids; one’s a sixth grade, one’s a senior in high school, and two are working, one lives outside the home – it makes it tough to get everybody on the same page; you can’t always get all parties there at once, so we try and have at least once a month. It’s either a Sunday or a Monday, because that’s the days my son is off work. He works for FedEx, loading airplanes, which I’m just damn proud of him; he’s doing very, very well… And we’re able to get us all together and I’m trying to schedule calls  ahead of time with people that have investment opportunities out there, so they can interview them, as we meet about the goals coming forth for the next month, and where we sit today as our current structure – I’m also working that out as part of the package to be handed out, as “Here’s how the meeting structure will be.” We’re figuring that out right now.

Right now if we just get together, that’s a good thing. We get to talk about what we want to have happen, and then we’re gonna reconcile the income that we have, and we’re gonna reconcile the assets that we have now, what are the expenses… We’re gonna treat like a full-on business, and all my income right now is really what’s fueling that business, because I need to fuel it as much as I possibly can, because I’m the one retiring first. And I was planning on doing that anyway, I was planning on creating that for myself anyway, so by 65 I could question whether or not I wanted to really hang up my headset and not be involved in this anymore, but what I’ve found is I don’t see me quitting doing what I do. I just keep evolving this into being further and further hands-off on the nuts and bolts of my day-to-day, but more on the creation of the mindset for those who I work with. That’s what gets me excited about what I do and gets me to the office every single day, is the lives that we’re changing every time I get on the phone.

So the way I figured — I don’t know that I’m gonna retire. I figured “If I’m coming to the grave, I’m coming in hot and I’m gonna work all the way through…” But I’m gonna use the majority of my energy to keep fueling the future, so when I do decide to stop, I will have an enormous amount that will continue to create the daily living expenses to be handled and then whatever it is I wanna do, and I don’t ever look to take more than half of whatever interest is generated by the trust. That’s what I wanna be able to live off of, and very comfortably off of half… So when my children reach that same age, they can only take half of whatever is being generated at their time, so the other is left there to keep building it. They have to be able to divide that equally amongst them, so each will only get an eighth of whatever the interest is… And then of course when they pass, and when I pass, our deaths’ benefit is gonna come and fuel even more, put a big chunk in there to compensate for that half of interest that did not grow because we were living off of that.

We also don’t wanna take it out just to take it out. If I don’t the half interest, I leave it in there, keep it growing there; why take the money if I don’t need it, right?

Theo Hicks: Exactly. What age do you think people should start doing this? Not for them, but for their kids.

Aaron Chapman: I don’t think there’s a reason that they shouldn’t start now. It’s probably something you have to talk to your life insurance specialist. I always recommend Gary Pinkerton over at Paradigm Life, for people to talk to him, because he’s just a very intelligent man and he cares a lot… But he would be able to possibly help in that answer, too… But the earliest you could put life insurance on somebody… I’m thinking — if I knew about this before, I would have put $1,000 on each of them when they were born, if I could. Well, if I’d been paying on that, now that my son is 21, can you imagine what would be there right now in cash value? Because $1,000 does not require a lot of upkeep. That’s a $1,000 policy as your first purchase, and with these infinite banking type policies probably $900 would have been available to use at that time, so I never would have lost anything. You just have to pay the premiums every year, which is probably pennies compared to what I’m paying now, and it would have made all the difference in the world.

So I would say anybody who’s potentially thinking whatsoever about legacy, look at this, because the money is still available to you [unintelligible [00:18:23].20] Investigate it, understand it. I’m not a life insurance salesman, I don’t know enough about it to say what it will do. I just am going from the perspective of “This is what I’m doing” and “This is why I’m excited.” I’m literally spitting in the phone when I’m telling people about this because of how excited I get about it, and the potential for the future.

In fact, it was one of the most awesome things I had this week – I got up early one morning and I was working out, and I got a text from Gary at like [5:30] in the morning. He’s over on the East Coast. And he said something — I don’t have my phone in front of me, because I put it away when I’m on these podcasts, but he said something to the effect of “I wish we all could have somebody so young asking such intelligent questions. You should be very proud.” And as I looked up, he shot me a screenshot of his phone where we had had a family meeting the night before, and we were talking about how to manage multiple properties, and I had mentioned how Gary has quite a few, and there was another client that my daughter brought up that also has quite a few, who’s a friend of the family… And I said, “Well, you guys should reach out to them, talk to them. We’ll set up a meeting where you can talk to them and ask them about their structure and how they go about managing this, so we have a better idea, so we’re not having to reinvent the wheel, just take the best from others.” And literally, my 12-year-old Maggie texted Gary right there saying “Sorry it’s late, but I have some questions for you” and hammered out all the questions out to him.

One, I thought it was just absolutely awesome that she’d be confident enough in Gary to ask that question… A 12-year-old, for crap’s sake. And then for Gary to be gracious enough to answer her questions, and then to forward it on to me. It literally brought  a tear to my eye that my children are thinking that way even at 12 years old. And what she asked was extremely intelligent, and it tells me that there is a good solid chance my legacy will not only be secure, but it will endure.

Theo Hicks: Exactly. The key to this strategy is the people aspect, and making sure that you’re – training is not the right word, but maybe it is – your siblings and your significant other to think in the long-term… Because it definitely is a long-term strategy, which is probably why most people are hesitant of doing it, because you’re not gonna see that — as you mentioned when you were giving examples, you’re not gonna see that massive increase in value for decades… But just thinking about more than just yourself, thinking about your children, your grandchildren, their grandchildren, and setting them up for success, but also making sure they actually have to earn it, rather than just giving it away to them, which is kind of the key to this entire strategy.

Aaron Chapman: Exactly. And one of the things about it that makes it easier to endure the long haul that this is – this is definitely a marathon approach – is the monthly meetings, or bi-weekly, whatever timeframe you set that up… Is to go back and review where you’re at today. One, it’s a solid bond-builder with your kids. People talk about the time with their children, whether it’s out playing catch, or whatever – I get all that; you definitely want that. But talk about an awesome relationship is to let your kids into your financial mind is a big deal… And I open up the books. They look at all, they get to see what I make, they get to see what’s going on… And the really interesting thing about cracking open the books of what my income is, was my kids were like “Well, why do we live in this house? Why don’t we have a little mansion, or something like that?” And I started cracking up and said “Because I’m not gonna pay that kind of money so you get to break everything in that. You guys are gonna break everything here and I’ll move into the mansion later.”

So it’s just kind of interesting the dynamic that comes when you start cracking open those books, but then that also makes them conscious about the saving aspect of it, because they get to look at the future. When you have a person like Gary there to illustrate what that future looks like, and we can spitball that future together, your spending habits become better. You decide “Do we really wanna go to dinner tonight as a family, or do we wanna eat in?” and we wanna look at our portfolio and talk about that. Now, it’s not sexy, of course. You definitely wanna set aside and budget going out and spending that time together as a family, going to Disneyland, but it’s not so impulsive anymore; it changes the impulsiveness… Because humans are really subject to several things – we’re subject to impulse, because we’ll just do crazy things on a whim. We’re also subject to habit, and it was written by Og Mandino that you need to create good habits and become their slave. This is one of those good habits. It’s not only going to really secure the impulse part of you, that human nature and suppress that more because you have this kind of habit, but now you have created the habit and you do become a slave to good habits, because you’re gonna have a habit of some sort; you might as well make it a healthy habit, whether it be working out, and also good financial habits, and you create those with your children, too. That also helps you to set those goals and stretch because it’s easier to stretch on a goal when you’ve got multiple people pulling for the same goal. It dominoes into other things. “What am I reading? Why am I reading that?” and I have my children read the same thing, so we’re all speaking on the same plain and have a very similar language when it comes to these things.

So it’s multi-faceted. It’s not just about the trust, it’s not just about the future. It also helps relationships, it sets good habits, and it puts us in a bond that really is different than any other opportunity you’re ever gonna have with your children as far as bond building, because this will endure forever. It’s not gonna be “Remember those days, dad, when we used to have time to go play basketball together?” It’s not like this is gonna go away. This is gonna be an enduring meeting that we’re gonna have throughout our entire lives, monthly. With technology being what it is, we’re gonna have the meeting — if we’re on different sides of the earth we can have the meeting together, so it’s a beautiful thing.

Theo Hicks: Well, Aaron, this is an amazing Skillset Sunday. This is a great skill that literally anyone can apply to their lives, even if they really don’t have a family and they don’t plan on having a family, they can still apply this with themselves or their significant other, themselves and their friends… Also it sounds like it’s best applied to the family.

Just to kind of summarize what we went over – it was definitely a lot, so relisten to this podcast and apply these lessons. Essentially, what you’re doing is you’re setting up a trust, all of your assets go into this trust, and you are using the infinite banking life insurance to fuel this trust. You’ve got six policies, one policy for each of your family, which you use to actually fund your investments, but the key here is that your kids have to actually be qualified to earn that money, and right now that qualification is $5,000/year or 10% of their income, whichever is higher. That’s for the rest of their lives. Even when they get to the point where they can access those funds, they’re only touching the interest, while that principle remains to continue to grow that legacy.

You talked about the family meetings that occur once a month, and the multiple benefits of that. The biggest one, at least for me, was that bond you get with your family that you can’t really get any other ways… Plus I’m sure it’s nice to have super-smart kids that are asking really smart questions. Then you mentioned during these meetings — you’re updating it and changing it, but it sounds like you talk about what’s currently going on financially for everyone, and it’s an opportunity for your kids to learn and grow.

Aaron Chapman: Yeah, you’ve pretty much kept the whole thing. Now, there’s other little strategies we’re using within it, so that is the big, huge overview – the ability to take those funds and ensure you’re putting it somewhere, and ensure that you’ve got the next purchase coming up, and where to borrow it… We’re still learning all those things; we’ve found a pretty good system on that that I’d love to share with folks when we get that opportunity to have those one-on-one conversations.

The other part of it is you don’t have to think of this, you don’t have to figure this out. I’m doing it now. Because like I’ve just said before, the good judgment comes from experience, and experience comes from bad judgment. I am exercising the judgment, albeit I pray that it’s all good judgment, but I’m sure we’re gonna step on something, I’m sure we’re gonna make a mistake, and we’re gonna learn from it, and I’m gonna use that as a way to help build this out, so people have an outline, a format to start doing this for themselves. You don’t have to reinvent this wheel, let me get the wheel done. Let me get it built.

I’m paying my  attorneys and others to get this all completely done to where I can hand this off to folks when I’m working with them, and help them build their investment business and their legacy all together, because I am very concerned about the future generations coming up… And I want my children to be secure, and I want everybody else to be secure. There’s no reason why we shouldn’t be. I really think what it boils down to is the majority of people don’t have enough faith in themselves and their capability, but once we’ve built the framework, and you can literally start with baby steps and see how that future’s gonna be, I think that there can be just a little bit more faith in what their future is gonna be than what they have right now.

Theo Hicks: Exactly. Again, I appreciate you coming on the show. Very informative and also very inspiring. Make sure you check out aaronbchapman.com to learn more about this strategy. Aaron, have a best ever day, and we’ll talk to you soon.

Aaron Chapman: Much appreciated, Theo.

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JF1537: Grow A Huge Real Estate Business By Helping Others Get What They Want with Aaron Chapman

Aaron has been in the finance space for over 20 years, and has been in real estate for a long time too. One of Aaron’s goals and visions is to help as money other real estate investors grow a business that can allow them to live more comfortably, retire, take more vacations, or whatever it is they want to do. Hear how he has been helping others achieve that while also growing his own business. If you enjoyed today’s episode remember to subscribe in iTunes and leave us a review!


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Aaron Chapman Real Estate Background:

  • 21 year veteran of finance industry
  • Rated as part of the top 1% nationally and ranked #12 in 2017 by Scotsman Guide for units closed in Real Estate Finance industry wide
  • Specializes in financing for the real estate investor, aiding in the analysis and structure of multiple financed properties
  • Based in Mesa, AZ
  • Say hi to him at www.aaronbchapman.com
  • Best Ever Book: Master Key System

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Do you need debt, equity, or a loan guarantor for your deals?

Eastern Union Funding and Arbor Realty Trust are the companies to talk to, specifically Marc Belsky.

I have used him for both agency debt, help with the equity raise, and my consulting clients have successfully closed deals with Marc’s help. See how Marc can help you by calling him at 212-897-9875 or emailing him mbelsky@easterneq.com


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. We only talk about the best advice ever, we don’t get into any of that fluffy stuff. With us today, Aaron Chapman. How are you doing, Aaron?

Aaron Chapman: Not too bad. How are you doing, Joe?

Joe Fairless: I am doing well, and nice to have you on the show. A little bit about Aaron – he is a 21-year vet of the finance industry. He is rated 1% nationally and ranked number 12 in 2007 by Scotsman Guide for units closed in real estate finance. Based in Mesa, Arizona. With that being said, Aaron, do you wanna give the Best Ever listeners a little bit more about your background and your current focus?

Aaron Chapman: Definitely. So that tells you how I bread my table, as far as doing the real estate investing finance. I finance people buying turnkeys mostly, from single-family up to four units; we’ve  opened up a lot of other channels with our relationships for others types of financing for folks, but my main objective in life though is to help people get away from where they have channeled themselves into a rut and help them reach beyond what they’re doing, and try and become a little bit more than what they have become up to this point, because most of the time people hold themselves back. So that’s one of my main focuses in life, taking each person who’s considering real estate and helping them to become the CEO of their real estate finance business.

In addition to that  – of course, that business is being very successful, as you pointed out, ranked number 12 in the United States for units closed last year, and we’re doing between 600 and 700 units a year… So it offers me a lot of experience for people to be able to pull from. In addition to that, my wife and I both volunteered with the Sheriff’s Office locally, and we do several hundred hours a year in the rescue unit. I’m in charge of the technical rescue unit, [unintelligible [00:04:27].07] rescue unit, as well as the air rescue unit. So if I’m in town, if I’m not traveling, any given time during the cooler months we could be flown out into the desert or the mountains around Arizona and have to rappel into a very rough situation, and take care of somebody medically or however, and have them pulled out of one of the worst experiences of their life. I have a lot of cool war stories with that, that we’ve been able to participate over the last nine years.

I have four children that I’m also working with to become very versed in real estate investments. I have built my trust around making them responsible for what investments we go in as a family, and also making my children responsible for participating in the trust, to build it to the extent that when they turn 65, they at least have something to pull from in the form of interest. They will never touch the principal; this is built in a way to make them responsible members of society, to take care of themselves, and if they don’t participate and they don’t help build that, they don’t get any of it. I’m not just gonna leave a bunch of well-funded drudges of society.

Joe Fairless: [laughs] Well, our kids and grandkids thank you for that. A couple of things to talk about… One is – it’s gonna be a tough question to answer, but answer to the best of your ability… You closed between 600 and 700 units in 2017; if you didn’t have that larger purpose of helping people become the CEO of their own real estate finance business, how many units would you have closed?

Aaron Chapman: I really truly believe it would be between 100 and 200 units, because I have been stuck at that level for years, until I opened my mind up. I had to sit down and literally write down my vision for my future, and do it in a way that really I can emotionally and I could mentally really put myself in it. So every time I read it, I could feel it, I could smell it, I could be there.

The majority of it had to do with my ability to matter to other people to the extent that they matter to themselves. As I had developed that part of myself, I started to see things continue to grow. It went from 100-200 units to over 300 units when I started incorporating that, to over 400. Then I wrote another vision to try and reach 600 in the beginning part of 2017. Then that vision created a whole bunch of other things, and it sparked from there, it jumped up over 600 units, and this year I’m on track for 700+.

Joe Fairless: I’m glad I asked that question, and that you were at 100-200 units before you had that vision… So when you’re at 100-200 units, then there’s a vision, and then there are the results that got you to where you are now, in between the vision and the results what were some of the tactics that were implemented that led to those results?

Aaron Chapman: Well, the main tactic was standing in Chipotle, getting lunch with my one employee back in 2014… And it was back before the E.Coli thing or whatever that was that happened with Chipotle back in ’15 or ’16… But as I stood there, the line was all the way to the door, so I had to do something to entertain myself, and I was looking around the store itself (the restaurant, if you will), and I started counting the heads behind the counter. Have you ever remembered back in like 2013, 2014, 2015, walking into a very busy Chipotle, and counting how many people were working there?

Joe Fairless: There’s a lot.

Aaron Chapman: Yeah, most people will say five or six, because that’s what they see, but when you start looking beyond it, the people behind the counter, into the back, I counted 11 different heads. So what I started trying to do as I stood in that line is understand the role of each person in that particular system that they had built, and I realized and I found it interesting that they need 11 people to build a burrito successfully, yet I only had two people building an intricate financial instrument. So in that position I was in in line, I started creating for myself an 11-person assembly line for financing a piece of real estate. Now I have 11 people working for me, doing exactly that.

Then the next step was I read the book The Goal, from Eliyahu Goldratt. He talks about efficiencies; I took some of the principles from that and applied it to our process. He talks about an assembly line using CNC machines, because these machines can only go so fast; no matter how fast you turn them up, they can only go a certain speed, so that is the bottleneck. He had found in this story about this efficiency that the plant manager had noticed that there was a lot of the parts that were being cut by these machines that were thrown off to the side because they didn’t meet the quality inspection… And after further investigation, a part of that quality inspection was an X-ray of the material itself, and found that there were flaws in the raw material. So he moved the X-ray to the front of the line instead of the back.

So what I did is I took my best and most seasoned — her name is Ellen; she’s been doing this I think for 35 years… And I put her at the very front. Instead of being my best process, returning the biggest load and being able to handle 100 transactions at the time, I put her at the front as looking at every single transaction in every pre-qual before it got to a processor, and before they personally even made an offer on a property, to ensure that that X-ray was done and that the raw material was 100% usable before we went and spent anybody’s time. And that also sped up our process significantly.

And then also being open to always improving the process. We are never done improving. If you ever feel that you have the perfect process, you are right now on your first step towards failure.

Joe Fairless: The 11-person assembly line doing your deals – is it 11 because at the time when you were at Chipotle you saw 11 people back there?

Aaron Chapman: I created that process to mirror the Chipotle system I saw, and literally have 11 jobs that they do… And albeit some of it is duplicated, because you also have to have some redundancy in the system in case somebody goes on vacation, so there’s a lot of redundancy built in as well, but it just works out that I wrote down 11 in my vision and I have 11.

Joe Fairless: As best as you can, can you break down those 11 people, and what they do?

Aaron Chapman: Sure. Initially — I won’t get into the 12th, because I would make the 12th… I have the very first conversation with the potential real estate investor, and help them with their mindset to go from a consumer spending money and going into debt, to now a business owner. They are the CEO of their real estate investment firm, and I work to help them understand how they are moving from a person trying to get the best and cheapest to going after the quality to build a business. And at that time, I’m applying for their CFO position, and we walk through the experience that I have and the different methods and things that I have seen, and the people that I’ve seen make mistakes, because good judgment comes from experience, and  experience comes from bad judgment… And they don’t need to go through the process of gaining experience from making mistakes to learn where is the best path, where you can take from the people that I’ve worked with over the last 21 years.

Joe Fairless: When you say you’re applying for the CFO position, I get that’s a metaphor, but for me, when I’m thinking of a CFO, they’re gonna be overseeing the financials on a monthly basis, to make sure that the property is profitable. Do you do that, or are you securing the loan for them and then they are off and running?

Aaron Chapman: What we do there — I do of course secure the loans. The loan is how we make our capital here. But as far as their financial position, we help them review where they are financially, personally, and how they can take what they have and help them structure their finances in a way to be successful on the acquisition of that real estate, and then the expansion of that business. Then as they come around each year, we will do as the clients want. It’s not something that we just reach in and start messing with their stuff; as they wanna call a board meeting, we can schedule some time to spend a half hour or an hour on a call (or a Zoom call)  and review their finances and see how things are progressing.

After each transaction, we re-review their finances after they closed on that, update what they need for the next transaction, where they need to be financially, where they’re at at that time… So yes, we do a continuous review of things as they’re purchasing and building.

Joe Fairless: Got it. Okay. So one is you, and then what?

Aaron Chapman: The next step is they are directed to complete their online application. That’s necessary, because the government says you have to do certain acknowledgments. So they’ll prepare that application and submit that over. One of my team members will download that, review it and they will send them to the next step, which is where to upload their data and exactly what data is needed. So they’re not lost, they’re not trying to figure out where to go from there, we lead them to that additional step.

Once that all comes in and it’s reviewed and we have enough data there, it goes to Ellen, who is, again, my quality control, my X-ray, if you will. She is going to review all that and go to the pre-qual process, almost like an underwrite of their file. Then she brings me in and we review it with her, to be sure that I as the licensed loan originator have reviewed it, and then we’ll issue either a pre-qual letter to that person, or we’ll tell them, “Hey, we need other things to move forward”, or we’ll direct them otherwise. But if they’re qualified at that point, we issue that letter we send that out to them, they’ll go find a piece of real estate that fits their business needs.

That contract comes to us and it goes to a specific team. I have two people that will review that contract. One or the other will review it. As they review it, they look for certain elements. Those elements are confirmed with the seller and the buyer to ensure accuracy, because many times there might have been further negotiation in the form of an additional addendum or something to that effect that gets missed in the original sent to us, or somebody mistyped something… So we confirm those elements that would cause any sort of delay in the process. Once those confirmations are complete, the file is set up, all the disclosures are sent out by the next individual, and then assigned to their processor, who is their main point of contact going forward, and we do the introduction to that processor. That processor then will reach out to the client, introduce herself, explain the timeframe that she’s gonna need to review and submit that for approval. She’ll get that in for an initial approval. Once the approval comes back, she reaches back out to the client and updates whatever is necessary, orders an appraisal, takes it to closing.

Once that loan is completely approved and ready to close, another person steps in and takes that person through closing – sets up their signing, ensures they have the documents they need, and once that signing is done, they review it, ensure that it closes and funds, and then they will then follow  back up with them, go over their pre-qual again, make sure they’re qualified for the next purchase, what their finances need to look like for that next purchase, and then give them all the information they need to have available for them for their taxes for the next year on that property, as well as what they need to make their first payment, where that gets made to, and then gives them all the information they need to communicate with us should they run into any issues.

Joe Fairless: What’s been two enhancements you’ve had to that process since you’ve began it?

Aaron Chapman: One was putting Ellen into that role, because before she was carrying a lot of the other weight. That was probably the biggest enhancement. The next was the follow-up after closing, creating a whole new pre-qual for them, re-evaluating their file after it’s closed, and making it a live operating file for them, and then giving them basically a calculator that will show them what they need to close on the next transaction, where their finances are today as far as their assets, and whether they’re lacking and they need to save a little bit more, or whether or not they have plenty to do that. Now, if they have enough, we’ll show them “You can do four, five, six, seven transactions”, and show them what their capability is, and kind of coach them where they need to go from there.

Joe Fairless: What type of ongoing communication do you have – or system set up where you communicate with your clients on a regular basis. Really it’s just built into a system that gives its — I’ll call it like a database management system. They’ll reach out to each client on a regular basis, whether it be milestones in their life, milestones within their business… Also when I have speaking engagements – we were just in what was called The Cashflow Wealth Summit, where we had filmed a presentation and then people could watch it virtually (it was about 45 minutes), and we’ll get that out to our database as well… So anytime there’s something that’s happening in our world that we think people would benefit from, we make sure that goes out to them.

Joe Fairless: From a business standpoint with what you’ve learned in 21 years in the industry, what are some mistakes that you were making at the beginning that you’ve since corrected?

Aaron Chapman: Treating people like a consumer. When I got into the industry, I crawled out of the mines in New Mexico. They were shutting down the mines and I had lost that job. Before that, I ran heavy equipment, drove truck, worked in the oil fields of Wyoming, I was on a [unintelligible [00:16:51].17] crew, I grew up on a cattle ranch, so I had a lot of experience in manual labor in different specific types of labor, and I was trying to find a job in those fields and I couldn’t. And there’s even a deeper story here, but ultimately a friend of mine introduced me to this and I started as a telemarketer. But when I started doing the actual lending piece of it, the broker I worked for had the capability to advertise on billboards actual interest rates, the first person in the state of Arizona’s history. But he would advertise a rate that was not really achievable at the time, but it got the phone to ring.

It was really irritating a lot of people when they’d call in off of what they saw on the sign, but then what we were giving them was different. I went to him and said “Dude, you really need to take that billboard down.” He goes, “No. My job is to get the phone to ring, and your job is to sell it.” I said, “Okay, well they want this rate.” He goes, “Well, give them what they want.” I said, “But they get frustrated when I show them the cost.” He goes, “They don’t need to know the cost till the end.” That right there, that lesson learned — because I tried to follow his lead for just a couple of deals and literally, come the closing day, I’d have to have my back in the corner and hold it back, because people were angry with us. And I learned you can’t treat people that way.

This whole thing of treating them like a consumer, trying to get butts into seats, like a really good movie trailer for a really sucky movie, is wrong. We need to paint a better picture. So I started evolving in that respect, and I found that it actually in some cases can be detrimental to paint a real picture up front [unintelligible [00:18:14].04] sometimes a little bit worse picture than reality… I tend to paint a worse picture than reality. I like to go worst-case-scenario with folks, and then tell them “Trust me, we’re gonna make it better for you.”

But my contemporaries like to come in as low as they possibly can legally just to get their butts in the seats, and then they end up showing the real deal at the end, and it’s very similar to where I would be. There’s no real difference out there. There’s very few that have lower fees and lower costs; we’re all fairly the same. But it’s the expectation set up front.

So I learned about setting expectations properly, because I respect those who I work with enough to not lie to them about that in the very beginning.

Joe Fairless: What’s your best real estate investing advice ever?

Aaron Chapman: Find the right team. If you do not have confidence in the people you’re working with, 100% confidence that they have your best interest in mind and that these people are not out for themselves, then you’re putting yourself at risk. Each person investing in real estate, whether it be commercial, whether it be fix and flips, whether it be residential, long-term holds, and doing the turnkeys, which is where we spend a lot of our time – no matter who it is, you’re gonna have to have a team, no matter what process you’re doing. And if you are not interested in that person’s success and they’re interested in your success, then you’re stepping towards a very extreme failure. Getting the right people onboard and making sure they’re the right type of people makes all the difference in the world.

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

Aaron Chapman: Let’s give it a shot. You may end up hearing just crickets on the other end.

Joe Fairless: [laughs] I doubt that, but we’ll give it a shot. First though, a quick word from our Best Ever partners.

Break: [00:19:53].27] to [00:20:36].16]

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

Aaron Chapman: That would be The Master Key System by Charles Haanel.

Joe Fairless: What was that book earlier you mentioned, the Goal book?

Aaron Chapman: The Goal, by Eliyahu Goldratt.

Joe Fairless: Best ever deal you’ve worked on, for whatever reason?

Aaron Chapman: It would have to be really just every turnkey; when a person successfully closes, the excitement that they get from being able to get involved in the real estate investment world, in a place where they never thought they could be… Honestly, all very similar; they’re great opportunities for folks.

Joe Fairless: What’s a mistake you’ve made on a transaction that we haven’t talked about?

Aaron Chapman: That’s a solid question, because there’s a lot of them. Really, it was underestimating my team. This was the worst mistake I’ve ever made. Thinking that I was the individual that needed to be involved in everything. When I realized that I didn’t need to do it all, that I need to get very good people that I could trust to handle those things and then let them do that, that was the best move I ever made. The worst thing was discounting their capabilities, because what ended up happening was I was stealing opportunities from them. When I realized when I did those things I stole somebody else’s job from them… And then another person, because it took time away from me to be able to build my business, instead of working on the business and then providing more jobs, I was stealing one job, therefore stealing a second one, because my time was sucked up.

Joe Fairless: Best ever way you like to give back?

Aaron Chapman: Taking the time to encourage another person that their positive thoughts will have a positive reaction, and feeding them to the places I’ve come to those conclusions myself. Sometimes it will take an hour/an hour and a half of my time to have those conversations, but when you hear the light bulb go on in the other individual, there is nothing better.

Joe Fairless: And how can the Best Ever listeners get in touch with you and learn more about what you’ve got going on?

Aaron Chapman: The absolute best place is aaronbchapman.com. It should always be that. And then they can also check me out on the NMLS, so they can see that I’m licensed, in what states I am. For that, they can go to the NMLS consumer access page, and my NMLS ID is 267844.

Joe Fairless: Well, thank you so much for being on the show, talking about the larger purpose that you have, and the vision that you have, and how having that vision has resulted in increased business, as well as just a more enjoyable experience along the way.

One tactic from that vision in order to accomplish those results was creating your 11-person assembly line in real estate, just like you had that epiphany whenever you were in Chipotle and you started counting those workers. I loved how you walked us through each person and the responsibility, as well as how you’ve enhanced that along the way, putting one of your all-stars instead of at the end, putting her at the beginning of the process.

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

Aaron Chapman: Thank you, Joe. I appreciate  you, man.

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Joe Fairless and Phil Treadwell podcast episode JF1469

JF1469: How Loan Originators Qualify Potential Borrowers with Phil Treadwell

Phil has extensive lending knowledge and experience, thankfully he’s here to share some of that knowledge with us today. He spends most of his time opening branches and coaching originators. Needless to say, he knows a lot about what originators are looking for when they are qualifying you. If you enjoyed today’s episode remember to subscribe in iTunes and leave us a review!


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Phil Treadwell Real Estate Background:

  • 15 year mortgage industry veteran, regional VP for Highlands Residential Mortgage
  • Has been the top producing originator in a multi-state region
  • Host of the Mortgage Marketing Expert Podcast
  • Based in  Bentonville, AR
  • Say hi to him at https://philtreadwell.com/
  • Best Ever Book: Principles by Ray Dalio

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Best Ever Listeners:

Do you need debt, equity, or a loan guarantor for your deals?

Eastern Union Funding and Arbor Realty Trust are the companies to talk to, specifically Marc Belsky.

I have used him for both agency debt, help with the equity raise, and my consulting clients have successfully closed deals with Marc’s help.

See how Marc can help you by calling him at 212-897-9875 or emailing him mbelsky@easterneq.com


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. We only talk about the best advice ever, we don’t get into any of that fluffy stuff.

With us today, Phil Treadwell. How are you doing, Phil?

Phil Treadwell: Doing great, Joe. How are you?

Joe Fairless: I’m doing great, nice to have you on the show. A little bit about Phil – he is a 15-year mortgage industry veteran. He’s a regional vice-president for Highlands Residential Mortgage. He’s been a top-producing originator in a multi-state region. He is also the host of Mortgage Marketing Expert Podcast. Based in Bentonville, Arkansas. With that being said, do you wanna give the Best Ever listeners a little bit more about your background and your current focus?

Phil Treadwell: Yeah, Joe, and I appreciate you having me on, and the introduction there. My background for the last 15 years has been in mortgage, mainly on the origination side. I got the real estate bug fairly early on. My dad was a builder growing up, still owns a company to this day; as I grew up seeing real estate, and seeing the ups and downs of it, I knew that I wanted to be in some type of role within the mortgage industry, and had a love of numbers and finance, and ended up in the mortgage business. I owned a small broker shop years ago, prior to the bust, as the bubble was about to burst in the late 2000’s. I ended up selling my company to Wells Fargo Home Mortagage; I went to work for them, and became a top-producer in about a six-state region (the center part of the country).

About five years ago I came to work for Highlands, where I’m at right now, where I build branches, coach originators, build teams in a 3-4 state region right here in the center part of the country.

Joe Fairless: When you coach originators, what are the high-level points you talk about? And then I’d love to get a little bit deeper in each of those.

Phil Treadwell: Sure. The main things right now, especially in the climate that we’re in within the industry, is the old adage of comparing rates and fees, or having competitive rates and fees, and closing on time. That’s now the new par – closing a loan fast, getting a property done, and just providing on-par rates and whatnot isn’t enough to differentiate yourself.

So the things that we really coach on and that I really coach my teams on is to provide value with your referral partners to make sure that you’re branding yourself in a way that differentiates from the competition and the other vultures out there, if you will, that are going after the same clientele. If you can do those two things successfully, that’s a great start.

Joe Fairless: How do you provide value with your referral partners?

Phil Treadwell: So instead of just simply doing the things that is expected of an originator, come up with ways to help them build their business… As opposed to doing a homebuying seminar with a referral partner, maybe teach them how to create leads online, to have homebuyer seminars themselves. Come up with ways to help them build their business, and in turn they’ll refer business back to you.

Joe Fairless: Do you have an example of something you’ve done to illustrate that point?

Phil Treadwell: Absolutely… A couple different examples that come to mind. One is provide them with information that they can provide to either their homebuyers, or to potential prospects, like information about the market that they’re in, whether that is an analysis of the appreciation or the median home prices and the median incomes to kind of show an affordability… There’s some great software out there that can provide those things. One of them is MBS Highway with Barry Habib, who’s a great friend and partner with our company, and several others.

Another thing is to do a cost of waiting analysis. If you can see the appreciation in a certain market, if you can look at the way the interest rates are increasing little by little, as they have over the past year or so, and put into numbers what it’s actually costing a buyer who is on the fence to wait three months or six months or whatever – that really helps them convert those leads into buyers, and in turn there’s a possibility for you to get that buyer’s referral.

Joe Fairless: Yeah, that’s great. I love the cost of waiting analysis; I hadn’t heard of that type of analysis. Is that something that you came across, or is that something you all came up with?

Phil Treadwell: That’s something that MBS Highway has provided us as a company. Our entire company subscribes to it, and each individual loan officer has those tools… And there’s a lot of things within that platform that a lot of times are better information for real estate professionals than they even are mortgage professionals… But they’re designed in a way that you can provide those, as we talked about, to add value with those realtors, with the real estate professionals, so that, again, they can create more business and create that relationship. That’s just one of the ways that you can add value to their business.

Joe Fairless: What’s a skillset that wouldn’t be as honed as it is if you didn’t have a dad who was a builder and had his company still today?

Phil Treadwell: One of the skills that I have that’s not honed?

Joe Fairless: No, one of the skills that you have now that would not be as honed if you didn’t have your dad in the business?

Phil Treadwell: I think just an overall perspective of the industry. I think a lot of times the building market – you have kind of two different sides of it, as I’ve seen personally. One is the builders who build custom homes and build for the individual, and the builders who are more developing a subdivision… And they might let you customize a few features, but it’s essentially the same couple of floor plans and exteriors, and just duplicated across a subdivision or a piece of land.

I think the differences in the quality of the home can vary at times, the difference in the qualities of the builder… Just understanding those types of things have been a huge benefit in partnering with real estate professionals and builders on the mortgage side, because my background is heavily in the marketing and sales side. So any time that you can identify a competitive advantage or a selling point or a feature on a property or a subdivision, those go a long way to getting the attention of the consumer and the end homebuyer, and I’ve really subscribed to both.

Something we talk about a lot on our podcast and something we talk about a lot with our teams is a balance of trust and attention. That’s really what marketing is all about. I use the example that I could light myself on fire and put it on social media and get a lot of attention, but that doesn’t mean that anyone has any trust that I can provide what they need in a business sense… But someone can be the most trusted business professional out there, but if no one knows about them, then again, they’re not gonna do any business.

So when it comes to identifying characteristics of properties to help that builder or to help the real estate professional who’s selling properties, I think that something that I was able to learn early on is that all homes aren’t necessarily created equal.

Joe Fairless: I love that — you said “definition of marketing”, balance of trust and attention?

Phil Treadwell: Yeah, we think that marketing and effective marketing is really that balance of trust and attention.

Joe Fairless: Oh, that’s beautiful. It’s so true. I love your example, too. So you talked about providing value to referral partners, doing the leads etc. That was one component. Then you said the second thing was branding yourself and making yourself differentiated. What are some tactical things that you do to do that?

Phil Treadwell: The first is to identify what you wanna be known for, and I’ll use the example of a mortgage originator, but it can be a real estate agent, it can be really any sales professional… When wanting to build a brand, it’s what is it that you wanna be known for? Some mortgage originators want to be known for the loan officer who can get the loan closed really fast, some may be one that focuses on first-time homebuyers, or veterans, or maybe it’s that they’re extremely experienced and they can really take time and answer a lot of questions. You have to identify what it is you wanna be known for.

Then the second piece of that is to figure out what market and niche that you’re trying to market to, and make sure that they pair up. An example of that is if someone’s wanting to say “I wanna close loans really fast”, but they wanna focus on renovation loans. Well, those probably aren’t gonna match up very well, because renovations generally take some time. So you wanna make sure that those two things match up and you have an ability to do that long-term. You don’t wanna spend a lot of time and effort branding yourself or marketing yourself in a way, maybe on a specific program or a specific niche in the business that’s gonna go away relatively quickly.

Once you do that, it’s just a matter of finding a — there’s not really an elevator statement anymore, but finding a short statement when people ask what you do and how you do it, that’s short and to the point, and can really relay what your value is in your profession, and what kind of differentiates you between you and the other originators or loan officers that are out there… And then really just owning yourself online – owning your domain name, trying to put on that online resume on a website that has maybe a video of who you are, some things of what you’ve done, being able to put some things out there on social media. All of those things go into building a brand, so when someone can build a brand and get that attention and pay close [unintelligible [00:12:36].22] of the things that they do, that’s also going to create that trust… And you go back to that balance, and you’re effectively marketing yourself.

Joe Fairless: Switching gears to the underwriting and working with your customers – and I get that now you’re really focused on coaching originators, so you might not be on the front line, but in the past you were… What’s a challenging loan that you came across and you either were or weren’t able to help that person, for whatever reason?

Phil Treadwell: I think the biggest ones that come to mind are the ones who have either an income issue or a credit issue that’s preventing them from getting a loan. Obviously, a down payment, what does your credit and pay history look like, what your income, your ability to repay, and then whatever assets or reserves you have – those are the main components of what an underwriter looks like.

A lot of times you’ll have a self-employed borrower (it’s a great example) who has a great income, but it’s not necessarily verifiable when it comes to their tax returns. Most good self-employed people are gonna write off a lot of expenses in their business, and they may not show on the bottom line as far as taxable income what they actually are able to use to pay down debt or to pay expenses. So those are the biggest ones that come to mind.

I had one instance – it’s been years ago, whenever some of the large auto companies were having difficulties, if you will… [unintelligible [00:14:13].11] They owned a company who hauled auto parts for some of these big auto manufacturers, and they had kind of a lull in their income, and that caused them to have to leverage themselves with debt in a big way.

What we were able to do, in short, is partner with an SBA lender to do some small business loans, as well as do some financing and refinance some of the debt that they had on the real estate properties, and get them qualified for the purchase that they were trying to make… But I think that’s something for people to be mindful of – whenever you’re going out wanting to borrow money, whether it’s an investment property where you’re gonna have a tenant, where you need to look at cashflow, or whether it’s your personal income – those things really have to be verifiable… And I think a lot of folks think in their mind “Because I have a good credit score, I’m paying my bills, I’m obviously getting the money from somewhere” – but that doesn’t always necessarily translate down into being able to qualify for a home loan.

Joe Fairless: You mentioned earlier you got the overall perspective in the industry from your dad and his company… Why didn’t you go into building and developing?

Phil Treadwell: That’s actually a funny story… I grew up during summers and after school working on properties that he was doing, and a lot of building aspects… And early in my adult life, if you will, I went to work for him full-time, and started my own little crew, doing some finish work, and told him that I really had a lot of interest in taking over his company, and going into building, and that type of thing. He looked at me and said “Nothing would make me happier if you decided to do that, but before you do, I really want you to think long and hard before choosing the building industry for the next 30 or 40 years… Because while the last 20 years has been good, you don’t remember the times through the ’70s and ’80s that things were really difficult, and just like anything else, industries are cyclical. So before you do, I really want you to look out there and see of some other things that you may be interested in.”

I reached out to a company that was looking for someone that had both sales and management experience, which I had on my resume at the time… And it was a mortgage company. 15 years later, I’m still in the business.

Joe Fairless: Any regrets?

Phil Treadwell: Not at all. There’s been a lot of highs and lows in the mortgage industry, but I’ve met some amazing people, I’ve had some great mentors, I have been able to help a lot of people with home ownership, and no regrets at all.

Joe Fairless: It takes a very tough mindset for a person to get into building and to stay in building, and props to your dad for doing that. I don’t have the stomach for doing development; I’ve mentioned that multiple times on the show. The psychology, and the ups and downs, as you said… But you did just mention something that I hadn’t thought of – when you were in the mortgage industry, you had ups and downs, too.

You said you owned a small broker shop, and you sold it before the bust. Did you just have ESP, or did you just luck out? What happened here?

Phil Treadwell: It was a little bit of both… I don’t think it was ESP. Wells Fargo had approached me multiple times to essentially sell my company, or work out a deal where I would close my company, they would take care of what I wanted out of that financially, to come to work for them as an originator and absorb it in. And there was one or two other small mortgage companies in the market that I was in that had also done that, and you could feel the tightening on programs, you could see the difficulties the industry was having, large companies are there one second and gone the next… And the dominoes had started to fall, so I just decided that I wasn’t established enough in my career and didn’t have the financial resources to try to weather what it could potentially be, and I knew I hadn’t been in the business long enough to really have experience with the cycles, and decided to go ahead and not weather that storm alone.

Joe Fairless: What is your best real estate investing advice ever?

Phil Treadwell: It is to have a good team of people, especially when you’re talking about people who are wanting to build a portfolio of real estate. Make sure that the team of folks, whether they’re appraisers or home inspectors or realtors or lenders – make sure it’s not just a good team of people, but they’re also doing more for you than just their specific job.

Like I talked about earlier, from a lending perspective, we don’t just want to provide good financing options for homebuyers or for investors, we also want to take it a step further and help build their business in other ways, which could be as simple as making a connection with another good title company, or another good appraiser, or someone else that seems suited to the type of business that they’re doing.

Joe Fairless: Yeah… Great advice, that’s for sure. For any of our customers, we should do more than just what they’re hiring us to do; that will make us stand out. In your industry, certainly, it’s not just about speed and reliability. You have to do more to differentiate yourself, and same with most industries right now.

Phil Treadwell: Absolutely. It’s a matter of just under-promising and over-delivering, and we talk about that a lot. If you under-promise and over-deliver, that’s from a position of strength, where if you over-promise and under-deliver, most of the time that’s because people are insecure and self-conscious about their actual abilities, where they feel like they need to over-promise to get the deal.

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

Phil Treadwell: I’m ready.

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

Break: [00:19:51].25] to [00:20:37].25]

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

Phil Treadwell: Recently… Principles, by Ray Dalio.

Joe Fairless: What did you take away from it?

Phil Treadwell: That you can set up a system for just about anything in your life, whether that’s personal or professional.

Joe Fairless: Best ever deal you’ve done?

Phil Treadwell: It was the first deal that I did, which was for a friend of mine from high school, brand newly married; I was able to get them into a home with almost nothing, and they still live in that home to this day.

Joe Fairless: What’s a mistake you’ve made on a transaction?

Phil Treadwell: On a transaction… It’s a great question. I will say probably waiting too long, if it was a personal transaction, for real estate. I waited too long; I was too hesitant. I should have pulled the trigger a little quicker.

Joe Fairless: Will you elaborate on the transaction? I would love to learn more.

Phil Treadwell: Yeah, it was a potential investment property for myself personally. My wife and I were looking at purchasing it, we were going to either buy it, rehab it and keep it for rental, or potentially flip it… And we waited, we weren’t sure if our numbers were accurate, and they were probably even too more conservative, and somebody came along and scooped it up.

It was a lesson I learned very quickly, to trust your gut, trust your instinct; if your math works and you’re got a good feeling about it, you can’t wait… You’ve gotta pull the trigger.

Joe Fairless: Best ever way you like to give back?

Phil Treadwell: My wife and I work really hard at our profession, so that we can give financially. There’s a lot of good causes that people sow their time into, and we do, as well… But we have specifically a guy that has worked for me for years; he and his wife are missionaries in Romania, humanitarian missions, that dig wells and do a lot of religious causes as well, so we like to give back in that way.

Joe Fairless: How can the Best Ever listeners learn more about what you’ve got going on and get in touch with you?

Phil Treadwell: My website is PhilTreadwell.com. Pretty much all my social media handles are @PhilTreadwell, and I would love for them to check out our podcast, which is Mortgage Marketing Experts. You can find it on iTunes, Google Play, Spotify… All of the main podcast outlets, as well as the website, mortgagemarketingexpert.com.

Joe Fairless: Getting customers and keeping them and growing them within your business is a balance of trust and attention. You said that not exactly like that, but I elaborated on it a little bit, because that’s so profound, what you said; it can be applied to just customer acquisition and retention too, not just marketing. I love that… And how you do that is you provide value that goes above and beyond what you’re specifically hired to do.

One tactical way is to provide an analysis to your customer, so they can provide it to their buyers; the cost of waiting analysis that you mentioned… There’s many different was we could do that.

Another is to brand yourself so you’re differentiating from the competition, and you talked through the questions to ask yourself, and then how to approach that. I’m really grateful you were on the show… Thanks again for being a guest. I hope you have a best ever day, and we’ll talk to you soon.

Phil Treadwell: Joe, thanks so much for having me on, and you as well.

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#BestEverShow #SituationSaturday banner with Gene Guarino

JF1383: Picking The Best Location, & Dealing With Zoning For Residential Assisted Living Investing #SituationSaturday with Gene Guarino

Gene has been on the show in the past. Today he’s back for a Situation Saturday and tell us how he is able find great locations, and deal with zoning so you can change a single family home into an assisted living house. The benefit here is obvious, make a lot more money, but in order to do so you may have to jump through some hoops first, but Gene can help! If you enjoyed today’s episode remember to subscribe in iTunes and leave us a review!


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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. We only talk about the best advice ever, we don’t get into any of that fluffy stuff.

I hope you’re having a best ever weekend. Because it is Saturday, we’re doing Situation Saturday, where if you come across a situation like the one we’re going to be discussing, then you’ll know how to approach it. If you already know how to approach it, then perhaps you’ll pick up some tips that will help you enhance your approach.

With us today to talk about residential assisted living, Gene Guarino. How are you doing, Gene?

Gene Guarino: Doing great, Joe. Good to hear you.

Joe Fairless: Well, nice to have you back on the show. Gene was actually on this show’s episode #678, titled “Earn twice the fair market rent from an assisted living single-family rental.” So we won’t get into his best ever advice; if you wanna hear that, go listen to #678. But we’re going to be talking about a specific situation as it relates to zoning and location – and doing “it” meaning residential assisted living – in your area.

Gene, first, will you give a refresher for the Best Ever listeners, just a little bit about your background and your focus, that way we have some context?

Gene Guarino: My background – I started when I was 18 years old, which is a long time ago, with my first piece of real estate. I was a musician in a recording studio, music school, renting a property, and that was as a teenager. So when I was 18, it was either shut down the business, or buy your own place. We bought our own place, no money down, and that’s where I started, years ago. I did my first commercial at 25, and I’ve been doing real estate ever since.

Right now I do one thing, and that’s called residential assisted living. We take single-family homes in great locations and convert them into the assisted living for seniors.

Joe Fairless: Okay. Single-family homes, great locations, and convert them into living situations for seniors – why do you do that?

Gene Guarino: Well, there’s lots of reasons. One, it is very lucrative, let’s not deny it… I  mean, when you can make 10k/month from a single-family home, it’s a beautiful thing. But it’s also helping other people; there’s a lot of people that age that need help, and they can’t live alone. They don’t need a nursing home, they need something in between, so we provide a solution and we profit handsomely from it.

Joe Fairless: Making 10k from a single-family house – and that’s profit, not income?

Gene Guarino: That’s all net, yeah. That’s kind of the average home. Some of our students are doing that times two, and from a single-family home, that’s a really cool income to get.

Joe Fairless: Yup. I make $250 from my homes every month, so that would be pretty significant. So again, Best Ever listeners, you can listen to the other episode if you want to hear more about the specifics of the business model… Today, we’re gonna be talking about one laser-focused aspect of the business model, and that is location and zoning, and doing it in your area.

For example, I have three homes that I own in Texas. How do I convert my $250/month profit to 10k?

Gene Guarino: Well, do you wanna get right into the zoning part of it? Or show me how to do it and I’ll be happy to do either one.

Joe Fairless: Well, talk about how I could do that with one of them, and then we’ll focus more time on the zoning.

Gene Guarino: Good, so I’m gonna give you the short version, but like you said, listen to the show #678 so you’ve got it. In that home itself – it depends on the area and the home, so there’s a lot of detail that goes with it; I can teach you all about it. But that home itself, if you’re renting it to somebody and netting that $250/month, which is pretty good, Joe… A lot of other people aren’t making that much; good for you. But if that single-family home could be rented to somebody else that is not a family with two kids and a dog, but it’s somebody who’s operating a residential assisted living home (in Texas they call it something different), where they’re gonna be operating that group home for the elderly like I do, they’re the ones who are going to be doing the business, but you may be able to lease that same home to them for, let’s say, twice the market rent you’re getting now.

So if you’re renting it for $2,000 and making $250, if you rented it to them for $4,000, you’re making $2,250. So the obvious question is “Why would they do that?” and the answer is because they’re gonna be making 10k or 15k net per month even after paying you twice the rent. That’s one way to do it on that side.

On the other side, if you wanna own the real estate and own the business, now you operate that business, and that business simply put in a 30-second overview – the average person is paying $3,750/month; in Texas, as you mentioned, you can have up to 16 people in a single-family home… They call that a small facility in Texas; everything’s bigger in Texas. It depends on the size of the home and so on, but let’s just say you had 10 people – $37,500/month is the gross income. Your expenses for operating the business, renting the home or owning the home, insurance, taxes, food, everything… You’re still gonna net about $10,000/month from that one single-family home operating that residential assisted living.

Joe Fairless: So one of the questions is how do we make sure that our house is able to have that type of zoning? How do we approach this conversation?

Gene Guarino: Got it. So let’s go right into this, because it’s one of the questions I get all the time, Joe – “Can I do it in this home, in this area?” and so on. Number one, every state [unintelligible [00:06:40].12] has certain rules of what you can and can’t do. Texas – we’ll just go there because that’s what you mentioned – they have rules that say in the state of Texas you can have up to 16 people (unrelated at all; some of you are wondering about that) seniors in a small facility, in a single-family residence… Not multifamily, not a commercial location, just a house in Texas.

Now, the rules and regulations they require is you need to have a certain amount of space per person, but frankly, you could have 16 people in a 2,000-2,200 square foot house. Don’t do that. That’s not what I’m suggesting, everybody who’s listening. I’m gonna give you a rule of thumb that we use – 300 square feet per person in the home. Very comfortable. So maybe that’s a 5,000 square foot house.

Now, I’m gonna pause before I go into zoning. That’s a different house than most people have for a rental property. They stay away from that big house because they can’t cash-flow it. In this case we can, by leasing it to an operator and doubling the rent, cash-flow it and make more money. But if you operate the business, if the average person is paying (in your area) probably 4k-5k – let’s just go to 4k/month… That 4k/month – very lucrative, but… Zoning – can I do it in my neighborhood? That’s the point I wanna make with the start of this conversation – it’s all about local.

The state allows something, but what is it locally allowed? I’m gonna get specific – let’s assume you’re in Dallas, and let’s say you’re in the city limits of Dallas. In the city limits of Dallas, they allow you to have 8 people in a single-family home for this purpose. Now, frankly, I could fight and now win, based on the Fair Housing Act; that’s discriminatory, you can’t limit the number of people, type of people, race, age, creed, color – you can’t do that. But let’s just go with the rules. I always say “Pick your location, find out the rules for the game, and go. Decide if you wanna play, and go for it.”

So in the city of Dallas they say 8. If you’re only allowed to have 8 people in the city of Dallas in that home, we don’t need as big of a home, we don’t need as big of a staff. Well, what do we have to do for the zoning?

Every place is a little bit different, but it’s still single-family, so you’re probably gonna have to apply, which means fill in paperwork, and it may be going from a zoning of R3 to R4; still single-family residential, but it allows you to have this group home. Now, in some locations your listeners are in, it’s literally just filling a piece of paper, $50, you get it. Stamped, approved. Other states may require that you make an application, you let your neighbors know what you’re doing, but they’re still gonna approve it.

Other locations will require you to get input from neighbors and say “We like it or don’t like it.” So we need to know what the rules of the game are, and then we need to know what those rules are, and then just follow the process right through it.

Joe Fairless: What’s an example of a location that made it so difficult to do this process, that you said “Let’s not do it here”?

Gene Guarino: One of my students in Alabama picked a beautiful house, beautiful location… And by the way, when I say location, it’s not “It’s a big forest, it’s on the mountains, it’s on the ocean…” It’s all about the demographics. That’s what our location is chosen on. The people that live nearby, because they are the residents for the house – that is what we’re choosing it on. So beautiful house, beautiful location – everything was perfect.

When he went to fill in the paperwork – it’s Alabama, keep in mind… He filled in the paperwork, and there was an uproar in the community. Now, the uproar in the community is the good old boy network of every community; not everyone, but networks… When somebody’s saying “Well, I don’t want something like this in my backyard.” So filling in the paperwork is one piece, now dealing with the humans involved is another.

Now, to be blunt, he would have won the battle if he just fought it, but it would have taken a lot of time, effort and money to do it. We just decided “Hey, let’s just pick another location where the rules are the same, but the attitude of people around you is different.”

I wanted to bring that up, Joe, because we can get through it, but that was one where that neighborhood, specifically – too difficult, let’s just move on to something else.

Joe Fairless: It’s the neighborhood, it’s the state or it’s the city? Which one in that case?

Gene Guarino: That was the neighborhood.

Joe Fairless: Neighborhood. So then the city – what city was it?

Gene Guarino: Boy, I can’t even tell you what city… It’s Alabama someplace…

Joe Fairless: That’s alright. So have you or someone you know tried to get that approved in the city, but in a different neighborhood?

Gene Guarino: Yeah, exactly. That’s exactly it, because here’s the thing… And let me come back to my neck of the woods, because I can tell you some exact examples. I’m in Arizona. In Phoenix, Arizona there’s a rule that says actually in some cases you can’t have more than four unrelated adults, but for residential assisted living, you can have up to ten. So the rule is in Arizona – Phoenix, specifically – you can have up to 10 unrelated adults if it’s senior assisted living. They have paperwork, you fill in the paperwork.

Now, they also say you can’t be within a quarter mile of another 10-bed facility. So another home that’s being used for this can’t be within 1,320 feet (a quarter of a mile). How did they choose that? Totally arbitrary. PFA – pulled from air.

So it was January of 2016, the city itself realized – I talked to the city council myself and they realize this is totally unenforceable; we’ve got a rule on the books that we’re saying you can’t do something, but it’s totally wrong, you can. It’s against the Fair Housing Act, federal ruling.

In January of 2016 they even put a moratorium on their own regulation, saying “We can’t enforce this, so we’re not gonna.” So they allowed people to do it in a house next to another house, or within a quarter of a mile. So in certain locations they have rules on the books, but if there’s an unreasonableness to it, you can battle it and you’ll win. The question is “Do you wanna take the time and effort?”

In Phoenix we have a student who has a home, and when that rule was relaxed, he bought literally the lot next door. So it should be a quarter mile away, but he bought the lot next door and got the application in to put the next home right next door… Which is awesome for a lot of reasons for the business, but when you think about that, the state had nothing to say, they approved it, and so now he’s got that second location right next door to his other location. And now a year and a half later they took the moratorium off and said “We’re gonna enforce our rule that’s totally unenforceable”, but he got in under the wire; that was a good thing to do… It was paperwork that had to be filled out. He did not need to ask for permission from neighbors, and so on.

Joe Fairless: We’ll use one of my homes as an example – it’s in Duncanville, Texas, South of Dallas. It’s a 4-bedroom, 2-bath, around 2,000 square feet. In that case we’ll say six? Will you do six people, just using your rule of thumb?

Gene Guarino: Well, if you’ve got four bedrooms, you could do two people in each bedroom, so you could have eight people. And more than likely, just like the city of Dallas, most places – if it’s not a city-by-city basis – eight is kind of the number… So you probably could have eight people in there.

Joe Fairless: Even though you need 2,400 square foot with your rule — I was going with your rule of thumb, 300 square feet per person; that’s why I came up with six.

Gene Guarino: I gotcha. That makes it for a very comfortable home. The state minimum would be half that.

Joe Fairless: Okay. So 6 to 8 people. I see the opportunity, so I decide “Okay, I want to do this.” So then I need to know the state, the city… So the state of Texas, the city of Duncanville, and then the neighborhood, which – I couldn’t name the neighborhood that it’s in… And I would then go to where to apply for it to be the group home?

Gene Guarino: Good. So you gave me three steps, and I’m gonna suggest that state first – we need to know what the rules are, and that’s a key point, I’ll come back to it. Two, it’s the local zoning; let’s say they say we can do eight people… And then I’m gonna say forget about the neighborhood. You just go forward. You know what the rules are for the state, you know what the rules are for the city. You go right to zoning and say “Here’s the house. Can I do it in this location?” They say “Yes, you can. Here’s what you do. Here’s the paperwork, here’s the process, here’s what you do” and then do it. Don’t hesitate, don’t sit around, don’t wait, take action, go.

By the time you’re up and running, the neighbors won’t even know what’s happening. The neighbors have no clout, they have no say, but if you give them voice, they’ll just make noise and so on. So don’t worry about the neighborhood. It’s “What are the rules of the state?”,  go right to the local, what are the rules there, and then go.

Joe Fairless: And what’s the question I ask the local city contacts? What city office do I go to to ask those questions?

Gene Guarino: The city office would be the zoning… So the zoning and building department are usually all in one, or they’re separate and nearby. So I would go to zoning, and zoning is gonna tell you what you can and can’t do and what the rules of the game are.

A key point, Joe, and for everybody else who’s listening, is it’s important that you know what the words are. Words are important. So you mentioned Texas a number of times; in Texas there are certain rules. There’s small facilities, there’s large facilities. There’s type A, type B, type D… You need to know that in your case it’s going to be a type B, small facility, and that’s how you would say it in Texas. A little different. In Arizona it’s called an assisted living home.

And this is why it’s important, Joe. If you were to go to the zoning board and say “I wanna open up an assisted living facility in Duncan, right here in the middle of the neighborhood”, they’re gonna say “You can’t.” That’s like saying “I wanna open a gas station in the middle of the neighborhood. But if you say it with the right words, “I wanna open up a small assisted living facility, type B.” “That you can do, here’s the paperwork for it.”

Joe Fairless: Okay. Yeah, that’s really helpful. That makes sense. You’ve gotta use the terminology. Even though it’s semantics, it’s not to them.

Gene Guarino: [unintelligible [00:16:41].03] follow every rule; you’ve gotta know exactly what it is, so you can say it to them properly… Or take the other route, Joe – go in there saying “Look, I don’t know what this is called. Can you tell me? I don’t know how this is done, will you tell me?” Even if you know, if you go in there playing dumb and let them be helpful, they’ll give you the right information. But I always like to know the answer to the question before I ask it if I can.

Joe Fairless: Anything that we haven’t discussed as it relates to zoning that you think we should discuss during this conversation?

Gene Guarino: Two points. One is that the Fair Housing Act, for most of us that are in real estate investing and rental properties and so on – that’s kind of like a thorn in our side. Fair Housing Act… We have to let this tenant in… This is actually a good thing for us in senior assisted living, because the Fair Housing Act does not allow others to discriminate against us. So know what the Fair Housing Act is and how it applies.

The second thing is that if you get pushback from anybody on anything, there’s always exceptions to rules. I always look at things like not “You can’t”, but “How can we make this work?” That question itself is very valuable; always asking yourself “How can I make it work?” From a legal term, if I’m gonna go to a zoning board and ask for an exception, it’s called a “reasonable accommodation.”

Reasonable accommodation. The city of whatever – they say they’re limited to eight. Well, I’m looking for reasonable accommodation for this one house in this one case to have ten. “Well, what is your reason for it?” “Here’s why… In this community, they need this; we have a big house, we need to do more, we wanna pay the caregivers more in order to do that. We need more residents.” But that concept, from a legal standpoint, or reasonable accommodation, is the key.

So whether you represent yourself or have somebody else, that’s the argument. Understanding what the fair housing act says you can and cannot do… Because no city wants to open themselves up to $200,000 worth of legal fighting, knowing in the end they’ll lose. So if you can show them in advance why you will lose this argument – city council, or whoever it may be… “All I’m asking for is reasonable accommodation.” They don’t have to change the rules for everybody else, just for me.

Joe Fairless: How can the Best Ever listeners get in touch with you?

Gene Guarino: Two things: RALAcademy.com is our website, and we have a free training if they’d like it at RAL101.com.

Joe Fairless: I loved how you went deep into one of the areas that we were planning on, and that is zoning, and knowing the zoning laws, as well as the types of questions to ask. One, state, then also city, and how to approach that with the individuals at the zoning and building department. Ideally, you know what those laws are, but if you don’t and you wanna just get going as quick as possible, then just go in and say “I’m not sure what it’s called, but here’s what I’m doing. What paperwork do I need to fill out?” and having them help you along the way… That’s another approach.

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

Gene Guarino: Thank you.

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Best Show Ever flyer with Alex Goldstein

JF1380: Providing The Service He Wishes He Had As An Investor with Alex Goldstein

Alex was a real estate investor who “took his lumps in 2008”. He realized that he was not getting the level of service he wished he had been getting from his realtor partners. Now, as an agent, Alex is able to provide a high level of service for his clients, which are mostly high net-worth individuals or families. Hear the strategies he uses to be a top producing agent. If you enjoyed today’s episode remember to subscribe in iTunes and leave us a review!


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Alex Goldstein Real Estate Background:

  • Top-producing real estate agent
  • Has acted as investor, developer, and principal in over $50 million of land, commercial, and residential real estate transactions
  • Author of three real estate books
  • Based in Scottsdale, AZ
  • Say hi to him at http://www.luxeaz.com/
  • Best Ever Book: Man’s Search for Meaning

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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. We only talk about the best advice ever, we don’t get into any of that fluffy stuff. With us today, Alex Goldstein. How are you doing, Alex?

 Alex Goldstein: I am doing fantastic. Thank you so much for having me on the show, Joe.

Joe Fairless: My pleasure. Nice to have you on the show. A little bit about Alex – he is a top producing real estate agent. He’s based in Scottsdale, Arizona. He has also been an investor, a developer and a principal in over 50 million dollars worth of land, commercial and residential real estate transactions. He’s written three books. With that being said, Alex, do you wanna give the Best Ever listeners a little bit more about your background and your current focus?

 Alex Goldstein: Sure, Joe; it would be my pleasure. My background – I started in investment and development, and built a pretty significant business in a lot of different property types. As a lot of people did, I took my lumps in the downturn, and one of the things that I recognized was that the level of service I was receiving from the agents who represented me was not really up to snuff… So I got into the agency business and started representing other people on their deals, so that they could receive the kind of service that I wish that I had.

Today, my primary focus is on helping high net worth families with their real estate needs, and I’m unusual because of my background, having experience in so many deal types… I work on both residential and commercial, so I have people with their primary residence, their business office location and income property.

My typical client is more concerned with protecting their wealth and sleeping well at night than on getting really aggressive with their investments.

Joe Fairless: As a real estate investor versus an agent, I imagine – but maybe this is an incorrect assumption – that you can make more money investing versus being an agent. If that’s the case, then why choose to be an agent versus an active investor? And perhaps that’s not correct, I don’t know.

 Alex Goldstein: Yeah, I suppose in the grand scheme of things you can’t become a billionaire by becoming an agent… With a few exceptions – somebody like Gary Keller – but that’s really more about building a business than being [unintelligible [00:03:13].26] per se.

Generally speaking, there is a cap, but you can certainly make an excellent living as a real estate agent, and it really comes down to what aspect of the business do you most enjoy. I really do like working with people, and I like helping people with their transactions, and helping them to get the best results and to not make big mistakes… So I really enjoy the position that I’m in.

Joe Fairless: Cool. So you mentioned that your focus is on helping high net worth families with real estate needs. How do you meet high net worth families?

 Alex Goldstein: Well, I do get referrals from past clients. I’m fortunate to have a good base of clients who have been very happy with the work that we’ve done together, and then I also do online advertising to continually find new clients.

Joe Fairless: How do you advertise? What do you do?

 Alex Goldstein: I use Google AdWords and Facebook ads.

Joe Fairless: And what has been some lessons learned on Google AdWords and Facebook ads?

 Alex Goldstein: Well, I think the main thing is that they’re always changing the rules, but the fundamentals seem to apply. I think that the hardest thing for people to do when they’re advertising online is to distinguish themselves from the herd, and it seems to me a lot of folks who are advertising online are sort of just doing the same things that other people do, and it’s a bit of a race to the bottom.

I think you have to be constantly reinventing your advertising, and really paying attention to getting their attention and delivering results.

Joe Fairless: So how do you not do what other people do and focus on getting their attention?

 Alex Goldstein: Well, I try to put myself in the shoes of that individual and think “What would I want if I were in their situation?” That’s how I got into this industry, thinking okay, when I was making investments, what were the things that were the most frustrating to me when I purchased and sold residences, what were the things that I wanted but I wasn’t getting… And that’s the position that I take – basically, treating the client the way that I would wanna be treated. That’s obviously gonna be very different, depending on that client and their needs, so different methods of advertising are gonna speak to those different needs.

Joe Fairless: What would an ad be? Can you give an example, just to illustrate that a little bit?

 Alex Goldstein: Well, you’re limited in terms of how much you can really do with an AdWords ad, so it’s very micro-level; it’s not like there’s some magic sauce… We’re always testing to see what resonates the best. I think that the key is also not just that first ad experience, but what happens after they click the ad. Are they getting onto a site that gives them the information they want, that loads quickly, and are you giving them something that’s gonna help distinguish your service from everyone else?

I think part of what’s been helpful for me is the fact that I have written several books on real estate and people tend to gravitate towards that, or at least the types of clients that I like to work with are people who find that valuable.

Joe Fairless: So does the ad mention that you’re an author, or does it say “Need help protecting your wealth?” What’s an example, just to kind of illustrate this a little bit.

 Alex Goldstein: Well, again, there’s a lot of different types of campaigns. Some are gonna be local, some are targeted to people coming from other places… But the idea is really to maintain a consistency. If I’m advertising to somebody in Texas for property in Arizona, then I’m going to reiterate that when they get to my website. Okay, I know something about people in Texas, or I have something to do with Texas, so it’s not just like I’m grabbing your attention and sending you something irrelevant.

I think that for a lot of advertising, the effectiveness goes down because people aren’t really pretending to be a customer and go through their own experience. I think that’s really it – just be empathetic, imagine what it’s like to be on the other side, and take it step by step. Then you just do whatever you can to improve that process on each step.

Joe Fairless: You mentioned that we’re always testing to see what works best – who’s “we”?

 Alex Goldstein: Well, I guess that’s the royal we. [laughs] I have hired companies in the past to do advertising for me, but I’ve found that actually I’ve been performing better doing it myself.

Joe Fairless: Wow.

 Alex Goldstein: So I really am the chief marketing officer of the business now, because I didn’t get the kinds of results I wanted with those agencies. Not to say that I wouldn’t hire again, but that’s where I am right now.

Joe Fairless: How did you measure the agency’s success versus what you can do? What quantifiably did you look at?

 Alex Goldstein: Well, you’ve got a lot of basic metrics in terms of cost per click and things like that, so there’s some of that… But ultimately, what I care about is how much money am I putting in before I get a client, basically, or a reasonable prospect to work with. So I just found that doing it myself, I tend to get better results than I was getting. And obviously, you’re paying them a significant amount of money to manage, so they’re kind of behind the 8-ball in that they have to do considerably better just to get their own feedback.

Obviously, they’re providing a service in terms of saving time, and I get that, but for whatever reason I’ve just found that my own ads that I run myself have given me really satisfactory performance. And the other thing about working with agencies is I feel like the communication and the transparency was a problem with a lot of different agencies. When I launch a campaign now, I can monitor it through the whole process and know exactly how it’s going, and I don’t have delays because I’m there, I can see it all.

That was a frustration I had with a few different agencies, where it was sort of like just a black box, and you’d find out a month later if it was working… And I didn’t like that.

Joe Fairless: I wouldn’t, either. I hear you on that. What is the investment range that you would have with an agency on a monthly basis?

 Alex Goldstein: You mean like how much were they charging?

Joe Fairless: How much they cost. I think of it as an investment, because there’s an ROI associated, but I’ll speak more plainly – how much did it cost?

 Alex Goldstein: Most of the agencies were between $500 and $1,000/month. I think maybe I hired four different agencies in the last few years. Some of them I got okay results, but it was either the communication or just the ROI wasn’t quite what I was looking for.

Joe Fairless: And that’s probably just the retainer, not including the actual ads, right?

 Alex Goldstein: Yeah, that’s just their fee, and then there’s my spend on top of that.

Joe Fairless: Got it. And how do you think of your spend? What type of ratio do you look for when you say “Okay, I’m gonna invest X amount, and I know that my lifetime value of an acquired customer is X amount” – what does that look like?

 Alex Goldstein: Well, it’s not very scientific in my industry… At least in terms of the niche that I serve, because a lot of my best prospects will take a really long time to actually result in a transaction. For me, I think the way it works is I really just have to use some assumptions about what percentage of leads will ultimately result in transactions.

For any given campaign, they could still be resulting in deal flow years later, and it’s really hard to track… So I guess it’s a little bit of [unintelligible [00:10:49].07] and a little bit of just making sure that the numbers are so far skewed in my favor that it would be hard to lose.

Joe Fairless: Now let’s move on to service, because you mentioned you got into this aspect of real estate because the level of service you got from other agents wasn’t good enough… So what specifically do you do that is above and beyond the typical level of service?

 Alex Goldstein: Well, I think I’m a lot more patient than most agents are. I think a lot of agents take a sort of scarcity-minded perspective about working with a client, like that they have to do a deal soon, or they’re gonna lose the opportunity. And suppose that there is always that risk, but I’d rather build my reputation on advising people thoroughly. So if someone needs to move quickly, we’ll move quickly, but I also don’t want people to be rushed into making transactions, particularly when there may be millions of dollars on the line. Being methodical and patient I think differentiates my service a lot.

Also, we talked a little bit more about advertising that I would have anticipated, but the truth is that that’s also a great value-add for my clients, because if I’m gonna be selling their property, I have an ability to draw a tremendous amount of attention for that property online, and I think because I have hands-on to the advertising and I know about the property, I can really connect the dots and get a lot of attention pretty quickly… I think that’s a value-add for the people that I’m selling for.

Joe Fairless: Absolutely. You’re the CMO. [laughs] I didn’t think we’d be talking so much about advertising either, but I just rolled with it, because it sounds like that is one of the two ways that you get high net worth families… And high net worth families, whether a Best Ever listener is a fix and flipper, or a syndicator, or a real estate agent, high net worth families tend to be a pretty good target audience for them, so I figured we’d get into how you acquire them.

You mentioned the other way is through referrals… Anything in particular that you do to facilitate referrals?

 Alex Goldstein: Probably not as much as I should do. I try to keep in touch with people and just find out what’s going on in their lives… But I don’t have anything really formal in terms of that. I think the best thing that I can do is just do a good job for people, and make sure that they remember me, that I’m somewhat top of mind. So I try to keep in touch with my past clients, but that’s about it.

Joe Fairless: You’ve written three books. If you had to write a fourth, what would the fourth one be about?

 Alex Goldstein: Well, I do love to write, so I think that my next book is probably not gonna be on real estate. I feel like I’ve said a lot about real estate, so I’m actually working on a book about wine… So that might not be the answer you want, but…

Joe Fairless: [laughs] Hey, that’s the truth though…

 Alex Goldstein: Yeah.

Joe Fairless: You’ve gotta go with it. Have you worked with families who are not high net worth when you were first getting started as an agent?

 Alex Goldstein: Yeah, when I first started working as an agent – at the time the market was really depressed, and there were tons of REO deals, so there were a lot of people that were out searching for a hundred thousand dollar properties. It’s not to say that today I won’t work with people who aren’t high net worth, it’s just that’s not the focus of the business and the advertising.

We do have a broad spectrum of clients, but that’s really the focus. I’ve done everything from 100k deals to seven million dollar deals in Arizona, and everything in between.

Joe Fairless: What’s the difference in questions that you’re asked with high net worth families, where you know you have to be prepared to answer?

 Alex Goldstein: I think that the high net worth families that I work with for the most part – it takes a while to sort of melt the ice, so to speak. There can be people who are not just gonna hand over their business or hand over their trust. I think it takes some time, and that process is really driven by individual personalities, experience and needs. I don’t think that there’s a blanket statement that I can make… But again, the families that are gonna work best with me are people who are willing to go through the process and be methodical, and who treat it seriously.

One of the things that I’ve been sort of cheerleading for for years is for people to recognize that their home is a very significant part of their financial plan, even though it’s not treated as such. I don’t think you should treat your house like an investment; I think that you should enjoy it, make enjoying it and the best lifestyle the number one priority. However, I also think it’s important to not make a huge mistake with it, because you don’t want to lose a million dollars or more when you go to sell your property. That’s some of the stuff that I put out there and try to get on people’s radar.

Joe Fairless: You just did an ad campaign. Congratulations, you just got a lead come through. First off, what information do they provide you whenever they fill out a form online?

 Alex Goldstein: Typically, it’s just an e-mail address. Sometimes people will provide their phone number as well. If we have a phone number, we’ll do our best to connect with them and then start sending them what I think are some pretty valuable information via e-mail, so they can start getting a handle on what’s going on in the marketplace.

Joe Fairless: And that was my question… So once they submit their information, what’s the follow-up process, so that you can melt the ice with them?

 Alex Goldstein: Well, we’ll basically let them know the services that are available to them, and then I also write a weekly newsletter that covers luxury properties in the Phoenix Metro Area. We’re now over 400 additions into it, so it’s got a pretty deep base of readers, and I think that people find that incredibly valuable to getting a handle on our market.

Joe Fairless: And do you have a planned process for jumping on a call with them whenever they submit their information, or is it just the e-mails and newsletters, and then they’ll reach out to you when they’re ready?

 Alex Goldstein: I think that calling people cold, so to speak, is harder and harder to do. People are just less likely to pick up the phone, so I think sometimes it may even at start be a text. My attitude is that I want people to know that I’m here for them, but I also don’t wanna be a pest. I make myself available, and… Again, with a lot of these types of decisions, they are large decisions, so I think my ideal client is more likely to be in this sort of gathering information phase, figuring out who they wanna work with phase, and that’s where I try to demonstrate my value, rather than just hammering them with phone calls, or stuff like that.

Joe Fairless: Fair enough. With the weekly newsletter that you do – anything in particular that’s in there that has been especially attractive or resonated really well with your audience?

 Alex Goldstein: I don’t think there’s a magic bullet, other than the consistency of it. Most of the newsletters that I see coming from people in the industry, they’re either “Here’s my listings” and they’re just kind of hammering people with “Buy my stuff”, or they tend to go in the opposite direction and get really cutesy, and it’s like “Here’s my chocolate chip muffin recipe”, “Here’s a picture of my cat”, and stuff like that.

What I do is I just provide my take on what’s going on in our real estate market and then the economy more broadly, because it can obviously have an impact… And I think that the consistency of that allows people to get to know me and to understand what it would be like to work with me.

There’s no “Do this and suddenly money is gonna fall out of the sky”, it’s just showing up each week and providing value, and then at some point you get the call.

Joe Fairless: That’s pretty incredible, 7+ years you’ve been doing that.

 Alex Goldstein: Yeah, it’s been a long time, and it’s evolved tremendously from when I first started.

Joe Fairless: What was the content like when you first started, compared to now?

 Alex Goldstein: Well, when I first started I think it was really just the listings, and kind of like “Here’s what’s going on.” Very factual, but not a lot of personality. Then over time I started giving myself more permission to interject my thoughts into things, and to really actually writing content that was (at least to me) useful and interesting.

Joe Fairless: What’s an example that was in one of the recent newsletters, where you wrote editorial or content about something that was useful or interesting?

 Alex Goldstein: I’m trying to think here… It’s a good question. I’ve got an archive of all this stuff. For instance, in the last edition I let people know about the fact that Maricopa County is the fastest-growing county in the country, which I think is an important thing to know.

Joe Fairless: Wow. In the country?

 Alex Goldstein: Yeah.

Joe Fairless: Dang!

 Alex Goldstein: So we had 202 people/day move here in 2017, which is more than any other county in the United States. So that’s an important fact for people to know… Then I sort of segue from that into some commentary about the luxury home price surge that’s being seen around the country, and just talk about what’s happening in some other markets and what might happen locally. So just my thoughts, and I have my crystal ball – it’s not better than anyone else’s, but hopefully people see what I see or can relate to it and will want to find out more.

Joe Fairless: Based on your experience as a real estate investor, and now primarily focused as being an agent, what is your best real estate investing advice ever?

 Alex Goldstein: My best advice ever is to pay attention to time, just as much or more than money. I think a lot of people are focused on the surface level numbers, and when they’re selling a property they may have ego, or they wanna get a certain number, or when they’re buying they’re maybe stuck on a certain price… I think it’s important to look at time throughout the whole process – how much time do you have to make your decision, how much time are you gonna be in this property? And when it comes to negotiation, which side (the buyer or seller), who has the greater need to act? Who has more time and flexibility and who’s under more pressure?

That’s the best advice that I can give people, because I feel like it’s overlooked and it’s really important.

Joe Fairless: That is an important leverage point, that’s for sure – who’s in greater need of the time in that transaction, if someone’s needing to sell or if someone is needing to buy.

 Alex Goldstein: Absolutely.

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

 Alex Goldstein: Sure.

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

Break: [00:21:28].03] to [00:22:16].13]

Joe Fairless: What’s the best ever book you’ve read?

 Alex Goldstein: The best ever book is Man’s Search For Meaning, by Viktor Frankl.

Joe Fairless: I have not read the book, but I’ve heard Tony Robbins talk about his story many times… Actually, I was listening to it today, one of Tony’s audios…

 Alex Goldstein: It’s an easy read… Not very long, but it’s potent.

Joe Fairless: Best ever deal you’ve done?

 Alex Goldstein: I think that sometimes the best deals are the deals that you don’t do. A mistake can be so costly that it wipes out the gains that you may have made over a long time. Not too long ago I had a client who was very hot to purchase a property; he was gonna put millions of dollars into it, and I talked him out of it. It would have been an easy six-figure commission, but I was very proud of the fact that they didn’t do it, because I think that they were making  a surface-level analysis, and they would have probably lost a seven-figure sum on that deal.

Joe Fairless: Wow… Do they recognize the salad that you gave them?

 Alex Goldstein: Oh yeah, they were very grateful. After the dust was settled, they were like “Whoa… We almost made a BIG mistake.” [laughter]

Joe Fairless: What was it about the transaction that you saw something?

 Alex Goldstein: Well, the views were beautiful from this lot, but when I walked the lot, I felt like there were some irregularities in the way that it was shaped and how they’d be able to use it, and that ultimately the magnitude of the type of property that they wanted to create wouldn’t have been supported. Despite the fact that the lot was in a place with tremendous views, and surrounded by really high-end properties, I think it ultimately would have been the kind of odd duck, so to speak, of the block. I think if they had built the property there that they had intended to build, it really could have been something where ultimately took a two million dollar loss, or something in the end.

Joe Fairless: Wow, that’s some vision. That comes from experience right there. You can’t read about that in the book, that’s for sure.

 Alex Goldstein: Yeah.

Joe Fairless: When you took some lumps in the downturn, in 2008, what was the reason why your portfolio took the lumps? If you were to look at it very emotionlessly, what would you say the reason why was?

 Alex Goldstein: I think you just found the subject of my fourth book, Joe. [laughter]

Joe Fairless: Well, you can combine that with the wine one, and that will be better for you.

 Alex Goldstein: I think that the short version of it is that I underestimated how much time it would take to unwind some of these deals. The biggest issue that we had was that things were taking longer than anyone expected because it was such a boom. So if you were building, your deal was gonna take a lot longer to complete, and if you were doing entitlements, it was gonna take longer to go through… So it was kind of like — I saw that the crash was coming, but it was almost like you were just being stuck, where you just could not unwind things fast enough or get things completed.

Even though I think I was aware probably 18-24 months before the market, it wasn’t enough to remedy the situation. That was really the lesson for me, recognizing that, again, time is a big factor – we can under-estimate time – and that was one way where I under-estimated it, and I wouldn’t make that mistake again.

Joe Fairless: And those properties weren’t cash-flowing, so you had to sell them, and they weren’t able to sell quickly?

 Alex Goldstein: Yeah… There was a lot of different types of deals that were in the works at that point, but the long and the short of it is that the winners were just not enough to carry the losers in a way that was able to unwind in an orderly fashion… And by the time the properties were completed or zoning was done, the values were just down so much. We got a lot of deals that were just kind of flat, and some of them were way down.

Joe Fairless: Best ever way you like to give back?

 Alex Goldstein: Well, I give back in three ways. I think there’s money, time and knowledge. For me, the money is the easy one, and just writing checks. With time, I’ve been volunteering for the International Wine and Food Society, serving on the board here for about ten years, and I love that; it’s a great passion of mine. And with knowledge, it’s just writing books and hoping that people can learn from my experiences.

Joe Fairless: Best ever way the Best Ever listeners can get in touch with you?

 Alex Goldstein: You can check out the website for my latest book, it’s NoNonsenseBook.com. The book is called No Nonsense Real Estate. There’s a Contact form if anybody wants to reach out to me.

Joe Fairless: And what’s your real estate agent website?

 Alex Goldstein: It’s LuxeAZ.com.

Joe Fairless: Alex, thank you so much for being on the show, talking to us about a wide range of topics, from 2008 lessons learned, to what you’re doing now to partner up and work with high net worth families on real estate transactions as an agent, how you attract them through referrals, the differentiating features or value propositions you have, the patience advertising, and then also your real estate expertise. I love that story that you mentioned… As well as getting into the marketing and the online advertising.

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

 Alex Goldstein: Thank you so much.

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#BestEverShow Fix & Flip episode banner with Marty Boardman

JF1322: How To Build A Fix & Flip Business vs. A Fix & Flip Hobby with Marty Boardman

Marty has been investing in real estate since 2002, mostly fixing and flipping. His company used to have other focuses, but with experience they found that if they focused on flipping, they could make more money. Hear why it’s beneficial to narrow down your strategy and focus and make that business ultra-efficient. If you enjoyed today’s episode remember to subscribe in iTunes and leave us a review!


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Marty Boardman Real Estate Background:

Real estate investor and instructor since 2002

– He fixes and flips houses in Arizona and Wisconsin with his business partner, Manny Romero

– Published author and past contributor to BiggerPockets.com

– Based in Gilbert, Arizona

– Say hi to him at www.fixandfliphub.com

– Best Ever Book: Rich Dad, Poor Dad

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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. We only talk about the best advice ever, we don’t get into any of that fluffy stuff. With us today, Marty Boardman. How are you doing, Marty?

Marty Boardman: Doing great. How about you today?

Joe Fairless: I’m doing great, and nice to have you on the show. A little bit about Marty – he is a real estate investor and he has been one since 2002. He fixes and flips homes in Arizona and Wisconsin with his business partner, and he is a published author and contributor to Bigger Pockets. He is based in Gilbert, Arizona. With that being said, Marty, do you wanna give the Best Ever listeners a little bit more about your background and your current focus?

Marty Boardman: Sure, yeah. Before I got into real estate investing I was a TV news cameraman, and I could barely screw in a light bulb, which — I actually can still barely screw in a light bulb. I don’t do any work at our fix and flip projects, I never have… But I quit my job in TV news as a cameraman back in 2002. I guess I always like to tell people that, because I think a lot of people believe because you see the house flipping reality shows, and you see the stars of the show doing all the work. They’re busting out the sledgehammers and doing [unintelligible [00:02:04].12] they’re laying tile, they’re rolling paint… Honestly, I think that’s the wrong way to run a fix and flip business; you shouldn’t be working in your business, you should be working on it.
My business partner (Manny Romero) and I – we don’t do any of the work at our fix and flips here in Arizona or in Wisconsin. We don’t know how. You just need to know how to do it and who to call to get to do it, and how much it really should cost and how long it should take, that’s it.

Anyway, I got into real estate full-time in 2002, left my job as a TV news cameraman, and I’ve done wholesaling, I’ve done lease options, I’ve done buy and holds, fix and flips… I own a number of rental properties with my business partner in Wisconsin, but we’ve done just about every exit strategy there is. We rode the housing market wave in Phoenix in 2008, then we lost our ass…ets. We got wiped out when the market crashed here in 2008, both of us. We weren’t partners then; we started working together after the real estate market started to come back a little bit here in Phoenix in 2009, and since that time we’ve fix and flipped about 150, 160 houses… Like I said, between here and Phoenix, Greater Phoenix market, and Milwaukee.

Joe Fairless: What is the difference in your approach prior to 2008 crash and now?

Marty Boardman: I’ll be honest, I don’t really have that much different approach than I did back then. We were buying houses — I always felt like we were very responsible the way we were buying real estate in 2004-2007. We were looking for steep discounts; usually on a distressed property you could typically get it for 60, 70 cents on the dollar here in Phoenix. We were buying pre-foreclosures, we were doing a lot of that type of thing back then… So we were getting great deals, even though the market here was red hot. But when the market corrects itself by as much as 55%-60%, or it goes backwards, a house that was worth 250k at the peak only becomes worth 110k-120k. There’s very little you can do to insulate yourself from that type of collapse. I think looking back on it now, one of the biggest mistakes I made — and it’s hard; you wanna use leverage in real estate, whether you’re fixing and flipping or buying rentals. I think the biggest mistake we made was probably being a little over-leveraged.

Of course, we were doing a lot of subject to deals, with our pre-foreclosures, and a lot of these mortgages – what people were getting were adjustable rate mortgages, so of course when interest rates started to go up and the banks started calling these notes, those rates got out of control and it just became very difficult to maintain. And of course, when the values of the properties drop in half in less than a year and you’re fixing and flipping, it’s tough to get out from under that wave… It’ll crush you. So I would say that was an anomaly.

One of the things I look for now in both Phoenix and Milwaukee is just being wary of another correction like that, although I think the Feds have put in some legislation in place and I think lenders are more cautious now, so… There’s no more liar loans. And if you really wanna get a sense for what happened in 2006 and 2007, you can watch The Big Short, either on Netflix, or read the book, or you can watch Inside Job, which was narrated by Matt Damon… It’ll give you some great insight.

But when you have all that corruption and all the fraud going on, boy, it’s tough to know when you’re not on the inside what’s really happening. So I’d just say the best thing to do is just to buy right. If you buy right and you get in and out quick, you’re gonna insulate yourself from a lot of damage… Something like a correction could cause you.

Joe Fairless: Yeah. You said you’re buying similarly now compared to before, but it sounds like there is a leverage piece that is more conservative, or is it about the same type of leverage that you did prior to 2008?

Marty Boardman: Well, back in 2007-2008, like I said, we were doing a lot of subject to deals. So we’d get the seller of the property – because they were in foreclosure, typically (it was a pre-foreclosure) – we’d get the deed to the property, and just bring their loan current. But those interest rates varied, they were all over the place. You know all the adjustable-rate (ARMs) and all that stuff really kind of made it difficult to forecast.

Now we’re just using straight up private money to fund our deals, with private money lenders. Obviously, those types of lenders are more savvy to what’s going on in the real estate market. Their rates may be higher, but of course, if something like a major market correction was gonna happen, we could typically work with them, because they’re private lenders.

The other thing is we’re not leveraging as much of the purchase. You remember back in 2006-2008 some of these lenders would let these borrowers leverage 100%, 105% of the purchase price to the house… And the other big thing is we’re getting in and out of these a lot quicker.

I don’t know that there are too many people who made money after the real estate market crashed, besides the short sellers on Wall Street. Anybody in real estate would have got wiped out, even if you were buying at 30 cents on the dollar… You’d have barely gotten out breaking even.

Joe Fairless: Yeah. On fix and flipping for sure… In 2008 if someone was doing buy and holds and they were cash-flowing on a property, and they had adequate reserves and they had a loan that didn’t become due, then if they bought in 2006 and they would sell in 2008, they’d still have the property and then they could exit. But on the fix and flip, that’s where it gets really tough, because the name of the game is turning properties over, and when you try and turn a property over during a bad time, that’s where it gets dicey, right?

Marty Boardman: Yeah, and to compound that, Joe, it was so difficult to get new financing, right? After the mortgage market collapsed, to get a conventional home loan, even if you had sterling credit and a great job and cash reserves, it was really difficult to get a conventional loan because a lot of lenders were just afraid to lend on properties that they felt like were going down in value. It’s the saying “Beware of catching the falling knife”, right?

Just a personal example – the house I live in now we bought in 2010, so we were about a year and a half removed from the crash, and we bought it as a short sale for $299,000. The homeowner we bought it from (it was a short sale) they owned $459,000. Today this house that I’m living in now is barely worth $450,000. So we’re ten years removed from that cash and we’re just now getting back to where values were at the peak in 2008… So yeah.

Joe Fairless: From a leverage standpoint, what percent do you leverage now? You said “Before people were” — you didn’t say you, but you said “People were getting 105% leverage.” What were you getting leverage at and what are you getting it now at?

Marty Boardman: Even back then we weren’t really borrowing. Like I said, we were doing a lot of subject to deals. But we would look at the after repair value and usually we’d never pay more than 70% of that. And I hate to use that 70% rule, because I’ve bought properties for 33 cents on the dollar. I bought a house at 33% of its after repair value and lost money, because the house needed major repairs. I didn’t know that until I bought it. And I bought houses for 86% of after repair value and made money.

So you hear this 70% rule out here… Well, how much should you borrow against? How much should you pay for a house based on repairs? To me it’s all about the margins. If you know  a house can sell for $300,000 and if you can buy it for 250k and it only costs you 5k to rehab it, you can walk away making 20k-25k and do the deal, and who cares what the percentage spread is? But on a general basis, typically, most private money lenders aren’t gonna lend you more than 70% of after repair value. Maybe 75%.

If you have a good relationship with them, then who knows – they may lend you all the money you need for the rehab, and maybe you put in the money for the repairs… It really just depends on the relationship you have with the private money lender or the hard money lender. But I can tell you this – as we’re talking here today, there’s never been more cash out there in the world to invest in real estate investment projects, whether they be fix and flips, buy and holds… Cash has not been a problem for us. There’s no shortage of capital out there, or equity partners or investors. People are dying to get into real estate investment deals. The hard part right now in the market we’re in in Phoenix and in Milwaukee is finding good deals, that have enough margin. That’s the real challenge right now.

We’re seeing that in our own business, and we also have a coaching program, and most of the students in our program are all having that same challenge – finding good, profitable deals with solid margins.

Joe Fairless: Let’s take a step back and let’s talk about your company. You mentioned earlier that you don’t swing the hammer at the projects, and neither does your business partner; you work on the business, not in the business… So what roles are there in a fix and flip company, and then how do you divide and conquer with your business partner, meaning who’s responsible for what?

Marty Boardman: Gotcha, it’s a great question. So any fix and flip business, whether you are going to fix and flip one house in a year, or 100 houses, or 1,000 in a year, every fix and flip business has four divisions, and Manny and I call them our four boxes. You’ve got your first box, which is your acquisition box. You have to have somebody in your company – you or somebody else – that’s responsible for finding the deal. That could be through your own guerilla marketing campaigns like direct mail and bandit signs and Facebook advertising, SEO, or just finding deals on the MLS, through local wholesalers, whatever it is. Somebody has to find the deal for you to fix and flip, so that’s your acquisition box (box one).

Box two is your rehab box. Once you have acquired the property and you own it, you or your partner or somebody has to be responsible for the rehab. So that’s your rehab box.

Box three is your sales box, and that’s the division of the company that gets the house sold, gets it listed on the market, gets photos taken, gets it marketed and sold. So you’ve gotta have somebody in your company to run that sales division.

Then you’ve gotta have capital at all times, working capital. We call that our Raising Capital box. Somebody has to be in charge of the money – finding money to do deals, making sure that the people who have lent you money or gave you money are getting their questions answered and they’re getting paid on time.

Those are your four boxes, and Manny and I kind of split those four boxes up equally. I work primarily in the acquisition box, finding the deals here in Phoenix and in Milwaukee, and then negotiating the purchase of those properties. Then Manny takes the baton for me and he runs the whole rehab division of our company. Then he kind of hands it back to me when they’re ready to list, and I work with our team or realtors, either here in Phoenix or in Milwaukee, to get those houses on the market and get them sold. Then we kind of tag team the capital box, just depending upon his contacts or mine – we raise capital that way, and it’s mostly, like I said, through private money lenders. So if you’re working all by yourself and you’re doing one fix and flip – guess what? You’re gonna be working in all four boxes simultaneously.

As you grow, and if you scale your business up like we have – I work on the acquisitions, but we have a full-time project manager that works in the rehab box for us in Milwaukee… Because we live in Arizona and it would be impossible to manage. We have I think six or seven rehabs going on in Milwaukee right now as we speak, so our project manager runs those projects and Manny keeps tabs on him remotely from here in Arizona.

Then of course we have, like you said, realtors on our team that we use and hire to work on the sales of our properties in Phoenix and Wisconsin.

Joe Fairless: How do you look at it, since you’re a part of the acquisitions and you tag-team the capital raising – how do you look at it from a deal flow standpoint? Is it number of deals, or is it just high-end deals and fewer of them? How do you think about it?

Marty Boardman: We like to build systems whenever possible, to be as efficient as possible. So we really have a specific type of property that we’re looking for here in Phoenix and in Milwaukee, that we know that our team of contractors, our project manager, our realtors are all familiar with. We systematize everything. If you walk into one of our houses, you know it’s one of ours. They all kind of look and feel the same.

We’re not reality TV stars, we’re not trying to create unique little touches in each one of our properties. Manny and I aren’t running down at the cabinet factory, custom-ordering cabinets or [unintelligible [00:14:21].29] in little nooks of the house. We standardize almost everything that we do, so we have a specific type of property and area of each market that we like to buy in, so we can systematize as much as possible.

Joe, we used to just buy anything. If we felt like “Hey, there’s a good margin here”, we’d buy it and do it, and that’s just very inefficient. That’s more for the hobbyist fix and flip investor who’s just kind of looking for a fun project that they can take on, make a few extra bucks, and like I said, create all the unique touches and neat little things that you see on reality TV. That’s not what we do.

We’re looking for houses that we know we can quickly get in and out of. A lot of it has to do with the year the house was built, the neighborhood the house was in, and price point, location, that type of thing.

Joe Fairless: As far as finding those deals – you said that’s the biggest challenge that you have, and fortunately, we’re talking to the right guy, because that’s your area of focus within this business… How are you finding the deals?

Marty Boardman: We don’t do any guerilla marketing, Manny and I. We don’t do direct mail campaigns, we don’t door knock, we don’t call for sale by owner listings, we don’t do any of the things the gurus teach you how to do, kind of the deal finding 101 type of courses. I believe that in order to be a wholesaler or a bird dog, that requires a certain skill set that I just don’t have, and it requires me to do things I’m not good at and I’m not passionate about, which is being a good salesperson. You’ve gotta not be afraid of rejection, you’ve gotta be persistent, you’ve gotta be patient, you’ve gotta really do a lot of lead nurturing, and I’m not very good at that and neither is Manny (my business partner), so we’ve just decided quite a long time ago that we would rather just focus on fixing and flipping houses, and creating profit and efficiency on our fix and flip business, not try to be two things at once – try to be a wholesaler/bird dog/distressed property deal finder, and on top of that try to be a prolific fix and flip investor. It’s really hard to do both.

So what we did is we just decided we’re gonna build business relationships with wholesalers, bird dogs, realtors in each one of these markets that we’re working in, and it’s proven to be very effective.

You’d be surprised – we get a lot of off-market deals sent to us from realtors and from wholesalers who will hold these deals for us and not blast them out to their whole e-mail list, and work exclusively with us because we’re professionals.

Typically, when a property is presented to us, we look at it immediately, within 12 hours, and we usually tell them within that same timeframe that we’re gonna buy it, and we always close when we say we’re gonna buy it. We had a lot of wholesalers tell us “Hey listen, we love bringing our deals to you, because we know that when you say you’re gonna buy it, you buy it. You sign the contract and you show up at the closing table and we always get our money. And we know we may be able to sell it for a little bit more to somebody else, but there’s a chance they may flake out on us at the last minute and we can’t afford that. So at least we know with you guys you beat us up a little on price, but we know you guys are gonna get the deal done.” That’s kind of set us apart in Phoenix and in Milwaukee as well.

Joe Fairless: If you were to expand to another market, how would you go about building those business relationships with wholesalers, bird dogs and real estate agents?

Marty Boardman: It’s all about face to face meetings, in my opinion. So much of the world we live in is electronic; everybody wants to text and e-mail one another, and send out deals via e-mail blasts. I found that sitting down face to face with a realtor, with a wholesaler, with anybody who can bring you distressed property deals, is gonna go a long way.

And then for you to have a very clear idea of what you’re looking for as far as a property is concerned, and price point and location. It saves everyone a lot of time.

The wholesalers that we work with – and the realtors, I should say – in Phoenix and Milwaukee, they know exactly what we want, the type of property we’re looking for, the location, the conditions of the home… So it makes it very simple. They know when they send me a deal there’s a 99% chance I’m gonna be interested in it to begin with, and as long as I can make the numbers work, then they know I’m gonna buy it.

And the other thing too, Joe, is being very honest and up-front about what your needs are as far as a price point is concerned. I have conversations all the time with realtors and wholesalers and I say “Listen, you’re asking 250k for this property, and it’s worth 425k, but I’m gonna tell you right now, this house is a mess. Based on our numbers, it’s gonna cost 125k to rehab it, so the margins just aren’t there for us. We just can’t make any money.” If they were to lower the price — and you’re not gonna beat them up. I’m not beating them up.

I could say “If the price were this, I could probably do it, but I know that you probably have other buyers interested that you could get this asking price for, but unfortunately I can’t pay it.” And almost every single time that wholesaler or that realtor comes back to me and says “Okay, I see where you’re coming from here. I appreciate you letting me know I can’t sell it for that, but I’ll be sure to think of your the next time”, so it doesn’t feel like I’m just beating them up and being a jerk… And it gives them some insight into how much it really costs to fix it. So I’m educating them, and they’re helping me. But I always get a call the next time from them, and a lot of times they’ll say “You know what, I think I can do it for that. I can lower it. I can give you the house for 400k”, or whatever it is. So you can a lot of times make it work.

But so many people are afraid to do that with a wholesaler. First of all, they think wholesalers and realtors with distressed deals won’t negotiate price, and they always will – everything’s negotiable – especially if you frame the conversation the right way, and if you explain to them where you’re coming from and you’re just not a jerk about it, you’re gonna have a lot more deals fall into your lap.

Joe Fairless: The properties that you’ve purchased – you’ve built the relationships with wholesalers, bird dogs and real estate agents… What about after you meet them initially, how do you stay in touch with them? Because it’s one thing to “Okay, I’m gonna meet them. Alright, good, check the box.” But then they don’t have a deal or you’re not ready to buy it quite yet – maybe you’ve got other projects – but seven months from now you want them to still think of you, so how do you do that?

Marty Boardman: That’s a great question. I keep in touch with them. Our goal in 2018 is to fix and flip between 36 and 40 houses in Phoenix and Milwaukee. My job is to acquire these properties, that’s my job. If we don’t have houses in the pipeline to fix and flip, then my business partner Manny doesn’t have houses to rehab, our project manager doesn’t have houses to rehab, the realtors on our team don’t have houses to list and sell, our investors – we don’t have money from them, we’re not paying them their interest… So it all starts with me, the acquisition.

So I make it my full-time job to maintain that communication and those contacts. I reach out to them, I text them. I’ve got three wholesalers I work with in Milwaukee, I’ll text each one of them every other week and say “Hey, what’s going on? Just want to let you know were’ still here, we’re still interested if you’ve got anything that meets our criteria.” So I’m always kind of at the top of their mind and I check in with our realtors there, too.

As a matter of fact, we’ve got (I think) seven MLS deals we’re gonna go look at on Wednesday. I’m a licensed realtor in Wisconsin and in Arizona. Obviously, I can’t go out myself, looking at fix and flip deals in Milwaukee. I don’t live there, and I especially don’t like going there when it’s cold… So I’ve got a realtor on my team there and I just tell her, I’m like “Hey, you don’t even need to find them, I’ll find them. Then I’ll send you the addresses and you take my project manager around and go look at them. But I always tell her, I’m like “Hey, keep an eye out for deals.”

She brought us a deal just recently; it was another agent in her office. It was a duplex, and we love duplexes in the Milwaukee markets. She had an agent in her office who was just kind of venting to her, saying “Yeah, I’ve got this client, he’s really difficult. He doesn’t wanna list the house on the MLS. I really need to find a special kind of buyer that’s gonna be patient and isn’t gonna ask a lot of questions and it’s just gonna be really easy to work with.” She’s like, “Well, I’ve got a great buyer for you. We put the deal together. It was in a red hot part of Milwaukee, up and coming area of the city, just North of downtown, where stuff’s just flying off the MLS. I can’t find deals in this zip code at all, and she brought me this off-market MLS deal just because she knows I’m always there, and I’m always reaching out to her and trying to figure out “Hey, what have you got for me?” People respond to that.

Joe Fairless: What is your best real estate investing advice ever?

Marty Boardman: My best real estate investing advice ever. I would just say — I actually learned this a long time ago, and actually I’ve written a couple different blog posts about it. I actually called it “The Best Real Estate Investing Advice Ever.” I had a real estate attorney here in Phoenix – this was when I was first starting out – and he said… I was flying around all over the country, going to these seminars and these workshops on learning how to invest in real estate, and foreclosures and all this different stuff, and he just told me “You know, you need to stop wasting your time and money and flying all over the country, learning from these gurus. You need to find an actual real estate investor, somebody who’s actually in the business of fixing and flipping houses, who’s doing deals, and learn from them. Somebody who’s actually a practitioners.”

I attended a class a couple months later after this real estate attorney gave me this advice, and I met a guy here in Phoenix who was doing pre-foreclosures and he was buying houses at the auction, and he agreed to let me come on-board with him, and I learned everything there is to know about how to buy a house in foreclosure, how to buy them at auction… I learned the basic stuff – what a title company does, how to write a contract… All of those things he taught me first-hand, and it was the best education I ever got, and it was almost free.

So I would say if you wanna get into real estate investing, you wanna learn how to do it… The gurus – they all have things you can learn from them, that’s for sure; it may not be free, you may have to pay them something, but at least find somebody that’s actually doing it, and learn from them.

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

Marty Boardman: Let’s do it.

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

Break: [00:24:23].01] to [00:25:25].10]

Joe Fairless: Best ever book you’ve read?

Marty Boardman: Rich Dad, Poor Dad. It’s the book that got me into owning my own business and real estate investing.

Joe Fairless: Best ever deal you’ve done that we haven’t talked about?

Marty Boardman: This was pre-crash, but in 2004 I bought a house for $285,000 and I sold it for $550,000. I didn’t do a single thing to it. I think I made about a quarter of a million dollars.

Joe Fairless: Yowsers! How did you find that deal?

Marty Boardman: It was a pre-foreclosure. That was back when I was doing pre-foreclosures, and the guy was in foreclosure, he was desperate, he had to sell, and so I think it was a few hours before the auction, and I took the deal subject to, and I brought his loan current for about $25,000. He moved out, and I sold it about a month later for 550k. The guy that bought it from me did a major reno on it and he sold it for 800k, so he still did really, really well.

Joe Fairless: What’s a mistake you’ve made on a transaction?

Marty Boardman: The biggest mistake I’ve made – and unfortunately, I did this and it compounded itself, because I trusted one general contractor to do 4-5 houses for me at one time, after he’d already done about half a dozen. He got in over his head, and I gave him draws up-front… And of course, this was in Wisconsin, and I was living here, and I trusted him… And I got screwed. He ran off with about a quarter of a million bucks on about six different projects.

So I would say don’t trust anyone, and make sure when you hire somebody you’re giving them very small draws and you’re checking up on them constantly and make sure that the work is getting done.

Joe Fairless: Trust, but verify, right?

Marty Boardman: Yeah.

Joe Fairless: Best ever way you like to give back?

Marty Boardman: I am a photographer, and as I mentioned, I used to be a news cameraman… So I do a lot of video and photography, and I love volunteering my time to do that – shooting photos and professional quality video for schools and churches and that kind of thing.

Joe Fairless: How can the Best Ever listeners get in touch with you?

Marty Boardman: You can reach me at Marty@FixAndFlipHub.com, and our website FixAndFlipHub.com. We’ve got all kinds of goodies on there if you there. We have a free house flipping guide, and lots of blog posts and how-to videos, all kinds of great stuff.

Joe Fairless: Well, Marty, thank you so much for being on the show. You gave a lesson on how to prepare a fix and flip business for a recession, and three things that you’ve mentioned that you’re doing now, compared to before is  you’re using private money lenders and investors; they’re gonna be more flexible, most likely, than a bank or some institution. Two is not leveraging as much as before, and specifics – the Best Ever listeners will have to go back and listen to that; I didn’t write that down. And then three – the speed; get in and out of properties as quick as possible.

Then from a finding deals standpoint, how you’re finding deals is building relationships with wholesalers, bird dogs and real estate agents, meeting them face to face, traveling there, having a conversation with them, and then staying in touch on an ongoing basis. When you have those conversations with them, knowing your buying parameters, knowing the price points, knowing the metrics, and talking through a very logical thought process for why you aren’t interested in deals if they present something to you. They’ll respect you for it, and they’ll learn more about what you’re looking for, and perhaps you might find that deal come back your way.

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

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Best Real Estate Investing Advice Ever Show Podcast

JF1028: He Quit His Corporate Job After Replacing His Income With Rentals!

Fernando had a great job designing computer chips.  One day he realized he would never be truly wealthy working for someone else.  Like so many other investors, he read and followed the advice of Rich Dad Poor Dad, and began his investing career to escape the rat race.

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Fernando Aires Real Estate Background:
– Co-Founder & CEO at RealEstateTools.com
– Achieved financial independence through real estate income investing after retiring from Apple
– Entrepreneur in the areas of real estate and software applications for real estate investors
– Designed computer chips in the tech industry for over 25 years
– Based in Chandler, Arizona
– Say hi to him at http://realestatetools.com  and www.fernandoaires.com
– Best Ever Book: The Bulletproof Diet

Click here for a summary of Fernando’s Best Ever advice: The 3 Principles to Achieving Financial Independence Through Real Estate Investing

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Fernando Aires and income from rentals


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. We only talk about the best advice ever, we don’t get into any fluffy stuff. With us today – Fernando Aires. How are you doing, Fernando?

Fernando Aires: I’m doing great, Joe. How are you?

Joe Fairless: I’m doing great as well, and nice to have you on the show. A little bit about Fernando – he is the co-founder and CEO at Real Estate Tools. He achieved financial independence through real estate income, investing after retiring from Apple. He has been an entrepreneur in the areas of real estate and software applications for real estate investors, and he designed computer chips in the tech industry for over 25 years. He’s now based in Chandler, Arizona. With that being said, Fernando, do you wanna give the Best Ever listeners a little bit more about your background and your current focus?

Fernando Aires: Sure. As you mentioned, I worked for Apple. Most of my career has been for designing computer chips, but I realized that I wasn’t gonna become financially independent by working for someone else. Taking advice from Robert Kiyosaki in Rich Dad, Poor Dad and many other books, I decided that I should put my money into real estate income property and achieve financial independence. It certainly worked out well for me. I’ve retired from corporate America in 2014, and I’d been growing my portfolio even before then, to a point where I make enough from the rental properties to replace my corporate income, and I have all the freedom to travel and really control my properties from anywhere in the world as long as I have an internet connection. In a nutshell, that’s what’s been happening over the last few years.

Joe Fairless: I want to and I will dig into that, and we’ll probably spend most of the time there, but just for anyone who’s curious about what RealEstateTools.com is, where you’re the CEO and co-founder – what is it?

Fernando Aires: Real Estate Tools is really the premier set of tools that allow investors to evaluate properties very quickly, to track their income and expenses after they purchase the properties… We have an online tool called Property Tracker that people can subscribe to, and it allows them to do what I’ve just described… It also allows them to create their [unintelligible [00:04:36].14] once they input their property information and income and expenses, create the [unintelligible [00:04:41].15] to give to their accountant, which is a very useful feature.

We also have a set of apps in the apps in the App Store – these are all for iOS, Apple devices. One is called Property Evaluator, which is just a mobile platform for the evaluation piece of looking at properties. You input a little bit of information about a property and it can tell you based on the rents and some of the expenses and assumptions what your financial indicators are.

A similar app called Property Fixer is for people that are flipping properties and rehabbing them, seeing if it makes sense to hold the properties for an X amount of time, how much the cost will be, and gives them a quick way to analyze that portion of it.
Both apps are also available on the Mac for Apple users, with similar functionality. If you go to RealEstateTools.com, you’ll see the deeper description of these apps. Within these apps there are ways to purchase premium and pro versions of the apps once you download the apps; the initial versions are free.

Joe Fairless: Very cool. I think you’ll have a lot of Best Ever listeners going to check out those three. I’m on your website now… Property Evaluator, Property Fixer and Construction Costs Estimator apps… That’s interesting, and that makes sense given your background as a professional in the corporate world. Now let’s talk about what I imagine a lot of the Best Ever listeners are wondering about “Holy cow! He retired and his income has been replaced through real estate investing.” I’m gonna ask you a question that probably won’t be as typical as you might be asked – what is the one property that’s generating the most cash flow right now?

Fernando Aires: Well, to be fair, it’s really the combination of properties. Most of my properties are financed. I try to get as much long-term fixed rate financing as possible, so by itself the property doesn’t generate lots of cash flow. My typical cash flow for financed properties is about $250/month, so you can imagine you need to have a lot of these properties in order to generate enough money to replace — you know, I was making a quarter of a million dollars at Apple; it’s quite a big salary to replace. But what really helps when listeners can do the calculations is to remember that with income property, due to depreciation, which is the best tax write-off that you can imagine, you end up paying very little in taxes when you take that into account, which means that — when I was working for Apple in California, I was roughly paying 50% of my income to the government, which means that I only need to make about half growth that I was making in corporate America in order to be at the same point, due to the tax situation.

So the key for me has been to buy enough properties, mostly with long-term fixed rate financing and some with cash, in order to achieve this parity with my corporate income.

Of course, with the income property there are many aspects that are related to it, and appreciation is certainly something that comes into play, and not something that I counted on specifically for my achieving this financial independence. But over time, the properties have appreciated and some of them I’ve been able to do 1031 exchanges, buy instead of one property, maybe exchange for two properties due to the things that I’ve made, and you can also do an equity strip from the properties and you don’t pay any taxes when you borrow money against the properties

There’s just a lot of angles that you can play that are related to the properties. For me, it’s been really more of a numbers game. What is it that I need to do — I get the model right for a single-family home… How many do I need to have in order for me to achieve the amount of money that I’m looking for in a particular month? Does that make sense, Joe? It’s not just one that has made a lot, it’s just a combination – that’s the simple answer.

Joe Fairless: And that’s beneficial for you from a diversification of income stream standpoint – you don’t want one golden goose that’s laying an egg, and then something happens to the golden goose…

You mentioned the depreciation on the property, so that your number one expense – and my number on expense, and every Best Ever listener’s number one expense is taxes… And it gets overlooked by almost everyone; we get so caught up in lowering and trying to fix up the property or increasing the income of the property, when in reality our first focus should be on “How do we minimize the amount of taxes in a legal way, so that we’re playing by the rules, but also taking advantage of what the system allows?”

Fernando Aires: That is beautifully said. I present a chart when I’m at events that shows — I’ve tracked my portfolio from 2011, and the latest date is 2015. 2016 is rolling in fairly quickly, but… I show this beautiful chart that plots the real estate income from 2011 to 2015 compared to income taxes as a percent of income. What happens with the chart is the real estate income goes up steadily over the years as I build my portfolio, but the taxes go the exact opposite way.

The end result at this point is mostly due to depreciation, there’s very little being paid in taxes, but my income is up. This is exactly what I was shooting for when I decided to go down this road.

You’ve mentioned earlier — I really have a beef with financial analysts that talk about investment as only being in stocks and bonds, and basically the stock market, and they tout these returns from corporations or mutual funds, but they completely disregard the fact that you can leverage your own money with real estate, and because of depreciation you pay very little taxes. This completely puts real estate in your favor.

A quick example for most of my properties – for listeners to appreciate – is if you put 20% down on a property with a long-term financing fixed rate in place, which is what I recommend, you’re essentially leveraging your money 5 to 1. Five times 20% is 100% of the property. What that means is if the property goes up by let’s say 5% a year – basically tracking inflation numbers that we’re given – you’re actually making 25%, because it’s five times your leveraged money.

So if you add that 25% with a relatively low cash-on-cash return of 8%-10%, your already at 30%-35% for a property that is leveraged. Try to beat that with buying any stock. As a matter of fact, I’ve compared – since I’ve worked to Apple – Apple stock’s annualized return from 2012 to 2015 with my real estate portfolio, and my real estate portfolio beat the Apple stock. Just appreciate the significance of this – Apple has had an amazing run from 2012 to 2015; it became the world’s most valuable company, it just blew away all of the competition, it came up with all of the iPhone-related products… So this is like comparing the best that the stock market has to offer with my little portfolio, and it beat it.

My numbers were 14.8% averaged over the period, and Apple stock was 12.1%… So it’s just no comparison.

Joe Fairless: You should have your own podcast, by the way. You talk about kind of complex things in a very simple fashion, so that people like me can understand, so thank you for that.

It sounds like you haven’t been swinging for the fences with your investments, but instead have been content with getting singles and doubles with these properties. Can you talk about the most perceived highest risk investment that you’ve done?

Fernando Aires: Well, the highest risk investment was a multiplex… A 6-unit that I purchased in St. Louis before it was rehabbed. It turns out that the partner that I was with underestimated the costs of rehabbing that apartment complex. Six units – a small building, relatively… And it turns out that it didn’t work out at all; only part of it was done, and long story short, I had to foreclose on the property and then sell it after doing the foreclosure.

The collateral on that property didn’t quite cover the amount of money that I had put in, so there’s gonna be a loss that is obviously gonna offset my gains in the next year or so. But I went on a limb mostly because I wasn’t educated enough on the complexities of a larger building.

I am very familiar with single-family homes, which are simpler, and they also have the element of being able to have them sold to retail, to a homeowner via MLS. It’s relatively simple.

I underestimated that portion of it. That was a learning experience for me… It was probably the biggest learning experience that I’ve had.

Joe Fairless: What would you do differently, if presented that same situation?

Fernando Aires: Well, I would educate myself more.

Joe Fairless: On what in particular?

Fernando Aires: Well, I think I was naive in understanding the sequence of how collateral works when you are rehabbing. In other words, if you’re starting out with a building that is in pretty bad shape and you have to take over that building, it’s not gonna be worth much, or not nearly as much as you think it would, because in my mind I was picturing that building as being already rehabbed and some of the major expenses being taken care of by the time I would have to foreclose on it, and that wasn’t the case.

So just having very solid collateral when you’re putting money — especially if you’re putting lots of cash, not necessarily financed money upfront, make sure that there si enough collateral there. The bigger the project, the more careful you have to be.

Education comes from really starting a little slow, a little smaller, and working your way towards a bigger purchase. That’s really what I would do differently.

Joe Fairless: With your other investments, the single-family homes, was the model basically you make money from your full-time job at Apple and then you invest it in real estate with a 20% down long-term financing fixed rate for the most part, and then you have a third-party property management company manage it and then that’s it, you just forget about it?

Fernando Aires: Pretty much. There were some adjustments along the way, but that was the main [unintelligible [00:15:46].22] of it.

Joe Fairless: What were some of the adjustments?

Fernando Aires: Well, I ended up self-managing some of the properties as I grew my portfolio. What I found with self-managing was pretty interesting… Over the last 5-10 years the number of companies that have come up to solve the property management task has been incredible. You can get rent collection done online very economically; you can have repairs done through companies that are online, and some of them are nationwide; you can have evictions done, you can have collections done, and you don’t necessarily need one location or one property manager to do all of these pieces. You can have accounts online with different companies that handle these pieces and then you can do the self-management.

I found that that worked really well, especially for the higher-class tenants, what I call the class A tenants… They tend to be less problematic; they have less requests and they tend to stay longer and they tend to work on the property themselves many times.

That was an adjustment that worked out really well. As I built my portfolio, I hired an assistant that essentially did a lot of these self-management tasks for me, and I concentrated on the higher strategic vision on the portfolio, such as “Should I change insurance companies for this geographical area because I might be able to get a better rate? How do I go about doing the research for this?” That is a lot of savings that could be happening, as opposed to doing the management of details on a single property.

Joe Fairless: What type of software did you use when you were doing – and are you still doing – self-management?

Fernando Aires: My company, Real Estate Tools – we offer PropertyTracker.com. If you just go to PropertyTracker.com, as I mentioned in the beginning of the show, it allows you to evaluate a property, it allows you to make a decision whether to buy or not to buy a property, it gives you a projection (one-year, ten-year projections etc.) and it’s very easy to use… But then it tracks that investment – the income and expenses, all of the leases, the documents… You can upload all of that information.

So I’ve been using that software even prior to acquiring the company Real Estate Tools… I’ve been using that software for many years. That’s been the primary hub where I keep all of that information, and every year I analyze the entire portfolio, I break it down into different geographical areas and see what items I’m spending the majority of my expenses on, what I should be concentrating on, what’s the low-hanging fruit, property taxes and so on. It really gives me an overall tool and a way to fine tune the portfolio as I go forward.

The property management — I do some self-management as I mentioned earlier. My property managers, they have their own tools as well, and then I have also property managers for some of my properties. They use various tools such as Appfolio or Buildium, and they send me the owner statements monthly, which I do review.

Joe Fairless: What is your best real estate investing advice ever?

Fernando Aires: If you want real wealth, stick with income property, with rentals. If you want spending money, then become a flipper. [laughs] I have watched my portfolio build, wealth creation build over time. The combination of what I call the growth equity income, the return on equity, which really takes into account the appreciation, the leverage that I showed, long-term principle reduction — remember, I advocate fixed rate long-term loans on these properties, which means that every year you’re reducing that principle, and that principle in real dollars becomes less and less of your income due to inflation.

The beauty of the income property play is that on the one hand you are using inflation to your advantage, because you’re leveraging your properties… You’re doing a  5:1 or 4:1 leverage), which allows you great returns from appreciation against inflation.

On the other hand, you have a fixed principle that you pay every month that does not change over time, even though inflation keeps going at its pace. So you’re setting your expenses on that side, so it’s helping you both ways.

And then on top of it, you have cash flow, which is the money left over after your expenses, as long as you buy properties that cashflow, which is obviously what I recommend. This is how you create wealth. It doesn’t require the expertise or the economies of scale if you’re trying to flip properties. A lot of gurus out there will tell you that that’s the way to make money… I disagree 100%. It’s a lot harder. It’s a business, and having rental properties is not completely passive, but it’s a much easier long-term wealth creation tool.

Joe Fairless: Yeah, flipping properties you get chunks of cash, but you have to actually invest it into long-term income producing properties in order for you to not be a hamster on a wheel.

Fernando Aires: Exactly. The velocity of money is something you have to watch out for. You always have to keep the ball rolling. Again, it’s a business… I started out with income property as a corporate engineer, senior manager at Apple; I didn’t have any time to go and try to find a crew that could do rehabs at a reasonable price. If you’re only doing one or two, guess what? You’re not gonna get a good price. [laughs] Economies of scale play a big role.

Now, of course people have created very lucrative businesses that specialize in providing properties to investors like myself, and that’s just fine. But that’s what they do for a living. The ones that are good at it make good money… But I don’t for a second think that that’s better from an investor perspective, or easier. I just don’t see it…

Joe Fairless: Are you ready for the Best Ever Lightning Round?

Fernando Aires: Sure.

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

Break: [00:22:07].20] to [00:23:04].06]

Joe Fairless: What’s the best ever book you’ve read?

Fernando Aires: The Bulletproof Diet by Dave Asprey.

Joe Fairless: Best ever deal you’ve done?

Fernando Aires: Two houses I purchased (income properties) in Naples, Florida. They both have appreciated 100% almost in four years, and the rents have gone up just as much. I’m not selling these for 1031 exchanges.

Joe Fairless: You’re in Arizona, you were in California… You’ve told me about two deals – one in St. Louis, and the other in Naples, Florida. How are you finding these deals and how are you able to qualify them, even though you’re not in these markets?

Fernando Aires: I am a partner with Jason Hartman. If you go to JasonHartman.com, you’ll see that Jason’s company essentially educates investors and also has referral fees for referring investors to various markets that are recommended. I started buying my properties from Jason and became a partner with him. As a matter of fact, we’re co-founders of RealEstateTools.com… But the important part of this is that investors do not need to live in the area where they invest. As a matter of fact, that’s probably the wrong thing to do for many investors that are in California or the Northeast, which are just too expensive; the rents, the yield is just not there.

Now it’s so much easier to control properties…  I have over 70 units and I’ve never met a single tenant; many of the houses that I bought I’ve never seen. I don’t need to visit. I just control everything via the internet.

Joe Fairless: What’s a mistake that you’ve made on a particular deal that you haven’t talked about?

Fernando Aires: I purchase properties in Dallas, Texas and I was not having good luck with the property manager there… And I insisted on keeping that property manager for too long and it cost me a ton of money. I should have fired the property manager much earlier. Had I done that, I would have come out on top with that particular property. I’ve learned that lesson and I know would do that with much more certainty.

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

Fernando Aires: You know, when I look at what has happened with my life over the four years, an interesting aspect of doing investments for income properties is at the end of the day we’re taking homes that — many of them are in pretty bad shape, and completely rehabbing them… Paint, carpet, new [unintelligible [00:25:43].07] landscaping… Making it a beautiful place and allowing the family or renters in many areas to live in a very nice place. I feel very proud to be able to offer this and spend money on the local economy. To me, that’s the best that I can give back… Making the money move – as energy moves; money is energy in many ways – by investing and making sure that everyone is succeeding in their piece of what they’re getting, either from a renter perspective, a contractor perspective or an investor perspective. A deal is a good deal if all parties are benefitting from it.

Joe Fairless: Where can the Best Ever listeners get in touch with you, Fernando?

Fernando Aires: You can go to my website, FernandoAires.com. There are links there for setting up appointments with me and other things that I do. You can always go to RealEstateTools.com –  as we’ve mentioned, that’s my company for the software for real estate investors. You can also go to JasonHartman.com. I’m a partner and I’m a counselor with Jason Hartman. They can also find properties there.

Joe Fairless: Outstanding. Fernando, thank you for being on the show, talking about how you’ve managed to replace the amount of money that was coming into your pocket from your full-time job to now real estate investing. I phrased it that way because of the point you made earlier, where you mentioned that because of depreciation on your properties, you actually need to make about half of what you’re making in your full-time job, due to the tax advantages and how the system is set up.

Then your overall approach, which is a pretty cookie-cutter approach, and that’s what I love about it. You can replicate the model that you’ve talked about. It’s not some crazy, esoteric thing. It’s something that is pretty darn straightforward. You make money, you invest it in income-producing properties, you get fixed rate long-term financing, and you rinse and repeat along the way. And also talking about the high-risk investment that you did… It didn’t work out; the lesson learned is make sure that you know what type of collateral is in place, and if it’s solid enough, so that if you have to take it back, then you’re gonna either come out ahead or at least get your money back.

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

Fernando Aires: Thank you, Joe. You too!


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Best Real Estate Investing Advice Ever Show Podcast

JF1021: How He Develops Commercial RE Nationwide While Living in One Place

He’s able to stay in one place and partner with multiple companies in multiple markets around the United States. He has perfected the craft of networking, and referral-based business is all he will accept. Hear how you can make ties with other individuals in other parts of the world!

Best Ever Tweet:

Joshua Simon Real Estate Background:
– Founder and CEO of SimonCRE
– Seasoned real estate professional with over 12 years of experience in leasing, development, and finance
– In 6 years has developed over 1.6 million Square Feet; has over $90 million in construction planned in 2017
– Founded a hosted VoIP company, which specialized in business communications called One Stop Voice
– Based in Scottsdale, Arizona
– Say hi to him at http://simoncre.com/

Click here for a summary of Josh’s Best Ever advice: How to Screen and Hire the Best General Contractor

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developing commercial real estate nationwide



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. We only talk about the best advice ever, we don’t get into any fluff.
With us today, Josh Simon. How are you doing, Josh?

Josh Simon: I’m doing great, how are you?

Joe Fairless: I’m doing well and I’m excited to talk to you. We’ve got a seasoned real estate professional with over 12 years of experience in leasing, development and finance. In six years he’s developed over 1.6 million square feet and has over 90 million dollars in construction planned in 2017. He’s the founder and CEO of Simon CRE and he is based in Scottsdale, Arizona.

With that being said, Josh, do you wanna give the Best Ever listeners a little bit more about your background and your current focus?

Josh Simon: Yeah, sure. I’ve been, like you said, developing for 12 years, focusing on retail. This year we’ll do about 40 [unintelligible [00:03:16].05] projects in about nine states, mostly for O’Reilly Auto Parts, Dollar General, PetSmart, Starbucks, several national users. I think what gives us a unique experience is that we do stuff all over the country.

Joe Fairless: Yeah, that is unique. How are you able to have exceptional teams across the country, while being based in Arizona?

Josh Simon: Well, that’s a good question. It’s probably one of the hardest things we deal with. What we find is that you have to locate the good people in every market. We have 12 years experience; we find these guys over and over again and we start using them.

Joe Fairless: How do you find them?

Josh Simon: Referrals. Everything we do is networking – finding people, getting good referrals.

Joe Fairless: So  you get a referral… How do you qualify that team member? And just to bring it to life a little bit for some listeners who might not be as familiar with the process – who are the team members that you’re interviewing?

Josh Simon: Anywhere from architects to contractors; anyone that has to do with building a ground-up project. Attorneys, if you have an issue, civil engineers, surveyors…

Joe Fairless: Let’s just pick one of them… You can pick whichever one you want that you just mentioned; even though you got referred to them, I’m sure you still qualify them through your own process in some fashion. What is that qualification process look like or even sound like when you’re asking the questions?

Josh Simon: Well, it’s tough, because you don’t meet a lot of the people when you’re doing stuff all over the country; you don’t get to sit down face to face always, so a lot of it has to do with gut.

I’ll give you a good example – contractors. That’s probably the biggest struggle. Have you ever remodeled your house?

Joe Fairless: I haven’t, but I’ve heard contractors are the biggest challenge out of any project.

Josh Simon: I think the hardest thing [unintelligible [00:05:11].07] your listeners are gonna say, “Oh, I’ve remodeled a house; I got swindled a few bucks” or “I dealt with a bad sub that didn’t do the right job.” Contractors are probably the hardest thing that we deal with.

If I look at my list of problems I have to deal with today, like after this show, it’s probably around some kind of contractor issues. And when you do that many projects, it’s just a natural that you’re gonna run into issues… Not so much [unintelligible [00:05:35].04], but it could be sub-contractors that didn’t pay their supplier… So I think if I have any kind of advice in dealing with subs and contractors and vendors in general, call the referrals, do your homework, look at their financials and then look at the projects that they’ve done.

When you go do anything – let’s say you get three price in anything in life, just like when you have a handyman at your house or if you’re doing a remodel on a rental – don’t always go with the low guy, because you’re either missing something or he’s gonna change order you to death and you’ll end up paying way more.

So kind of the way we looked at it is we try not to always go with the low guy, we try to go with the guy that’s the best fit for the job. And kind of going back to what you said with the vendors – yeah, we look at everything for referrals, but we’re also looking at everything to see if they’re the right fit. If you need foot surgery, you don’t call a heart doctor… I think the same thing with architect and contractors – have they built that product type before? We’re not gonna use a single-storey retail contractor to go build a two-storey office building; it just doesn’t make sense.

Joe Fairless: I get that. I just want to back up a little bit… When you said “Call the referral, look at their financials and look at the projects they have done” – as far as looking at the financials, can you elaborate on that?

Josh Simon: We’re coming out of the great recession, so now contractors’ financials have improved. Back in 2010-2013, looking at a three-year financial statement, the tax return and profit & loss and the balance sheet – they didn’t always look too good. What we really wanna see is how much revenue are they doing? Are they making money? Do they have cash? Meaning, if you’re gonna do any size project – let’s say they’ve got a million dollar job, for example. If they have 50k in cash, well what happens if one of those subcontractors needs money to show up at the job the next day?

We’re processing a draw for the contractor, which is how you pay the contractors – you pay them through a draw process. And if that sub needs money and he’s only got $50,000 in the bank, is your job gonna proceed as fast as you want? Is he gonna stay on schedule? So I think it’s a relationship — just like a bank looks at a borrower’s financials, you wanna look to the contractor’s financials, because when you’re building anything, especially what we do, our construction cost is probably 80% of the total project budget, so that’s one of your biggest decisions you need to make. If it’s not done right, you can end up with legal issues, with a delayed project, with loss of rent from the project being delayed.

Joe Fairless: So that is a typical request to ask a contractor, in your case with these developments, to provide their financials?

Josh Simon: Yeah. Most of them will; some of them will ask to provide them directly to the bank, and then your lender is gonna review them, and your lender is gonna tell you if they approve them or not. I’d say 9 times out of 10 they happily provide you financials, because it is a big decision… Just like if you’re hiring an employee, sometimes you do a background check. You wanna make sure that this contractor is who they say they are. One other thing I’ll add, when you’re doing your due diligence it’s one simple step – going to the registrar of contractors website for every state that they’re licensed in… Do they have any outstanding complaints? Do they have task complaints? What does their history show online?

Joe Fairless: What is that…? You said it’s specific to every state, but what is the website you go to?

Josh Simon: The registrar of contractors for every state has one… As a contractor, in every state you have to be licensed. And every state (I have not run into one that doesn’t) has an online database where you can look up that contractor. For example, in Arizona they have a great website. You can pull up the contractor’s name, find their license, when does it expire, do they have all their stuff current (their [unintelligible [00:09:24].23], their insurance)? And then also, are there any complaints that have been filed against the contractor? You can actually pull up that information.

Joe Fairless: Great stuff… What a useful tip. Let’s take it back a little bit from a macro level. I’m on your website, I’m on projects, and I see you all have done projects in California, Alice, Texas (I have no clue where Alice, Texas is), Loretto and then Clifton, Arizona, another California, Kansas… How are you getting the business in these remote towns?

Josh Simon: Our business all derives from the retailers themselves or the tenants themselves. So all [unintelligible [00:10:12].13] are publicly traded. So all of our deals come from relationships. Like in anything in life, relationships are everything. So our ability to build those relationships with different tenants at different companies is what has gotten us here, and I think that’s one of the most important things. Obviously, you have to execute, but I think just getting yourself out there and making sure you’re networking and telling the story of who you are is very important.

Joe Fairless: If you can trace it back to a specific project or maybe a year or groups of projects, when was a tipping point for your company where you started getting a lot more business than you had previously, you hit a different level?

Josh Simon: That’s a great question. I think as millennials we tend to want everything today or in the next five minutes. When I started the company seven years ago it was not as fast as I thought. I started, I didn’t have two nickels to rub together; I just wanted to do my own thing, I figured I’d have nothing to lose. Our first three years in business we might have done 12 developments. It took a year to get my first two done – almost a year, exactly. Then after three years you start establishing a name in the market.

Twelve deals is not a lot, but all of a sudden people see that you’re real, lenders start seeing that, you pay back loans, tenants see that you can complete a project and you’re able to show them that you’re not an overnight deal and you’re gonna be gone.

I think one of the other things though is outside of real estate, when I started my own company I also bought a tech company; we did hosted VoIP, which is a business phone system. After three years side-by-side of both companies, I decided to sell the tech company to a publicly-traded company and get out of it. The reason why? Focus, focus, focus. I think looking back, the biggest thing – and I don’t think it was a mistake, because I learned so much – is to have focus. Know what  you’re doing and just do that.

Once we were able to get rid of the tech company, sell that and [unintelligible [00:12:27].15] time suck that that created, we’ve now done 78 projects in three and a half more years… So that was the tipping point – spending my full energy, my full effort into just my real estate business, and then saying no to everything else that did not have that laser focus.

Joe Fairless: Is there a retail development project that you would say no to?

Josh Simon: Oh yeah, a lot of them. Stuff that isn’t directly in our purview… Buying a mall. I would say doing a power center, which is where you have like a Target, a Kohl’s and 20 other retailers – that would be kind of outside of our laser-like focus. But I also star that with you can’t just do your whole focus, because you’ll get blinded; you won’t’ see anything else coming.

We’ve started to experiment, but [unintelligible [00:13:28].11] we are doing our first medical project. We’re [unintelligible [00:13:31].03] for a small primary care facility that has multiple locations in Arizona. So we will try something new, but it will be very targeted, very specific, because just like grandma’s cookies, you always kind of tweak the recipe sometimes to add a little more flavor. So you just have to be careful, be focused, but you have to know that in ten years, especially the way technology and our economy is evolving, you have to be able to be ready to try some new things, because what you’re doing today is not what you can be doing in ten years.

Joe Fairless: The first three years you had 12 development projects, and then next four – 78. In the first three years, those 12 – was any one of those 12 the one company or the retailer that then helped you expand to the 78 in four years?

Josh Simon: Yeah, we had just started working with Dollar General. For those of you that don’t know Dollar General, it’s not a dollar store, like a Walgreen without a type of a pharmacy… We  were able to get in with those guys as they were starting a big expansion.

Joe Fairless: How did you get that relationship?

Josh Simon: That one was through networking. A contractor that we worked with knew one of their construction managers and gave us an introduction. I made a few phone calls… Obviously, it took some persistence on my part; I got introduced to the local/regional real estate manager. We hit it off, and he gave me an opportunity, and I went out and [unintelligible [00:15:06].10] got it under contract to buy, got the deal approved by the tenants and built it in record time because I put every ounce of energy into that project knowing that there could be a huge relationship down the road.

Joe Fairless: How many Dollar Generals have you built since then?

Josh Simon: We’ve probably done over 30 I would guess, at this point. I don’t have an exact figure.

Joe Fairless: Are they in terms of volume the highest?

Josh Simon: Yeah, I would say they are one of our biggest customers for sure.

Joe Fairless: What type of differences do you have to account for when you build for a Dollar General versus maybe an EZPAWN? Because conceptually I envision them being pretty similar… But is there anything that you wanna point out that “Well, there’s something that’s different there”?

Josh Simon: From site selection side, development or [unintelligible [00:16:02].11]?

Joe Fairless: Let’s do all three, why not?

Josh Simon: From site selection, every retailer or every tenant has their own perfect site mix. For like a pawn store, it has to be the right zoning, there has to be the right demographics; zoning is a huge deal to be able to put a pawn store and be able to get the proper licensing.

On the Dollar General side, it’s important for them to be convenient to their customer base. I think 70% of Dollar Generals are in towns of less than 20,000 people. Do they have good access? Are they well visible from the road? Where is their competition? How is their competition doing? Is that another strong store? Can we outposition their competition by going a half mile to the East where more traffic is?

On the development side, things are way different. Most of the pawn [unintelligible [00:16:52].12] that we did were existing building redevelopments, which is very complicated because you start pulling off the drywall, you have a [unintelligible [00:17:02].04] back there. Is there a column you might not have accounted for in the plan? So there’s a lot of things… Versus a new construction, which often takes longer, because you have to get entitlements and site plan approvals, whereas if when you’re using an existing building and maybe remodeling it or expanding it, it’s a lot easier to get through the permitting process. So we’re a huge proponent of redevelopment because typically they don’t have to go through as much of the public purview, whereas new constructions – there’s notices sent out, there’s a lot more involvement of the public.

Then on the construction side – I think I talked a little bit about it… When you’re doing ground-up, your biggest challenge for ground-up — once you pour the slab for the building, you pretty much are gonna be smooth sailing for the rest of the building. The biggest challenge you run into for the ground-up is before the slab: off-site utilities, dirt conditions… You start digging…

We were building a project in downtown St. Louis and we came across three underground storage tanks. Those were not expected, right? And that runs up the costs. So those are things that you take as risks when you’re developing that you have to think about. But once we pour the slab, most of those things have been accounted for.

Then on the redevelopment side, like I spoke about – you start pulling drywall off, and you’re like “Oh, there’s a column there.” Or the trusses aren’t properly supporting the roof, but you couldn’t see it because there was this hard lid ceiling that you couldn’t tear down because the tenant is still operating in that building when you’re doing the redevelopment.

Joe Fairless: Will you elaborate on the underground storage tanks, why that’s a problem, what did you do to remedy it and how much does it cost, typically?

Josh Simon: Underground you have utilities, connecting to the sewer, connecting to water, connecting electric… I’ll give you a perfect example – we’re finishing a project right now where we are potholing. So you look for the sewer connection by potholing into the ground to kind of find — the contractor looks for the sewer line. Well, the city didn’t know exactly where the sewer line is located against the property. Well, the contractor can’t find it, so now we have to go get an easement from our neighbor, so now there’s cost and timing issues involved with that, which can probably cost us an extra $15,000-$20,000 because of that.
Another thing with power – power companies a lot of times won’t have the design done when you start construction of how you’re gonna hook up to their system, and then now all of sudden they’ll give you their fees down the road of what that costs will entail. And a lot of times they come back asking for extra work. Undergrounding power lines is a big new thing. If you look at a lot of new developments, there’s no more overhead power, it’s all underground. So those are costs that you can’t really account for.

Then dirt conditions – I think we’ve talked about finding tanks underground, but also just the quality of the soil under the building. So when you build a building on top of soil, I think — I don’t know if you’ve read the news, but San Francisco, they’ve got that Millenium Tower that’s sinking, and all the residents are sueing… Well, that’s because the soil condition underneath – they didn’t properly build the foundation. That’s an extreme example, but this stuff does happen.

We built a building in the Midwest last year, and we had to build about a 40-foot  retaining wall to support a part of the parking lot. Well, there was a ton of rain and there was a bunch of settlement of the soil. We had backfilled this 40-foot retaining wall with a lot of soil, and then all of a sudden the parking lot – not just a small section of it – started to crack. The contractor had to go out, tear out a part of the parking lot, recompact the soil and repave. Luckily, because we were not liable for that, but that was still a time and we still had to put effort into fixing that.

Joe Fairless: And why weren’t you liable for that?

Josh Simon: [unintelligible [00:21:13].13] lots of technicalities. The geotechnical report didn’t properly account for the settlements, and then the contractor also didn’t get a compaction test. Every time you do any kind of compactions, you have a third-party group that comes out; usually the cities require it,or the governmental approving agency of the city/county. But a lot of times we always require it. So every time they put down more dirt and compact it, a third-party company comes out and tests that compaction to make sure it’s per spec.

Well, they missed a couple tests on their (what we call) lift. So every 10 feet, going up to 40 feet.

Joe Fairless: I don’t think you do based on the group of clients that you have, but I wanna ask you the question anyway… Do you retain any sort of equity ownership in any of these developments?

Josh Simon: On the real estate itself?

Joe Fairless: Yeah.

Josh Simon: Yes, we do; a lot of them we do. We buy the dirt, we build the building, and the tenant leases it back from us on a long-term lease.

Joe Fairless: Oh, okay. Cool. That’s great.

Josh Simon: Yeah. And then a lot of times what we do — they’re almost like commodities now… We sell a lot of them as a triple-net investment where people looking to have cash flow, especially in their retirement years, and a lot of these are under single tenants, like the Dollar Generals, for example… There’s really no maintenance for the landlord, so what we call that is “mailbox money.” A lot of these baby boomers, they own triplexes or duplexes in Southern California, they [unintelligible [00:22:50].22] light bulbs, so they’ll sell their duplex and do a 1031 exchange and go buy something that has way less maintenance.

Joe Fairless: What percentage do you sell and what percentage do you keep in your company’s portfolio?

Josh Simon: It really depends… This year we’re definitely a net seller, versus a net holder, just because of the market and just because of how fast we’ve grown. We’ve gotta kind of feed the machine, so we sell a lot of stuff. Right now it’s still a very good time to be a seller. 10-year Treasury is still very low, there’s still overall a good feeling about the economy, and the retailers we developer for are still very much in high demand.

Joe Fairless: That’s a fascinating business model. Josh, what’s your best real estate investing advice ever?

Josh Simon: Don’t be greedy, and no one ever went broke making a profit.

Joe Fairless: [laughs] How do you apply that in your current business.

Josh Simon: If you get an offer to buy something, or you get an offer to lease, or maybe there’s one sticking point in the deal that you’re like “I’m not gonna do that”, I always like to say “Don’t be greedy, with anything.” Is it really worth leaving the deal over? And then no one ever went broke making a profit – if you get an offer to sell something and there are $10,000 under your strike price, let’s say… Well, are you gonna make money? is it something you’d like to move forward with? Just sell it then, if that’s really what you want.

Joe Fairless: Are you ready for the Best Ever Lightning Round?

Josh Simon: Yes.

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

Break: [00:24:29].06] to [00:25:24].08]

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

Josh Simon: I would say I just read “Talent is Overrated”, but my other favorite is Team of Teams, by General McChrystal.

Joe Fairless: Best ever deal you’ve done?

Josh Simon: I bought a shopping center in Michigan – there was a Target, a theater, a Ruby Tuesday and shops – from a lender. We reworked all the leases and we were able to split off all the parcels for the best return I’ve ever done.

Joe Fairless: Best ever way you like to give back?

Josh Simon: I educate our future generations. We have a huge internship program. Right now we’ve got five students that are in college to teach them about real estate, and they work 20-30 hours every week.

Joe Fairless: What’s a mistake you’ve made on a deal that you can think of?

Josh Simon: I think it goes back to when we talked about using not the right contractor or vendor for a project. I’ve spent millions of dollars that I shouldn’t have.

Joe Fairless: And where can the Best Ever listeners get in touch with you, Josh?

Josh Simon: E-mail, or through our website you can contact us… Joshua@SimonCRE.com.

Joe Fairless: I encourage the Best Ever listeners to go check out your website, SimonCRE.com. It’s got all the project that your team’s worked on. It’s a fun website, too… It’s really well organized. It’s a nice and polished website. It just looks really good.

Josh, I knew this was gonna be an educational interview and a lot of fun. I loved talking about things that aren’t typically discussed on the show, and retail development certainly is one of them… How you talked about the differences between a pawn shop development and a Dollar General development, from site selection, from development and from the construction site, and how you compared and contrasted that… As well as the tipping point for your business, the first three years with 12 developments, the next four years with 78 developments, and getting that track record and also the relationship that you got through a contractor who worked with you and knew the construction manager and so on and so forth, and you ended up getting the relationship with Dollar General, one of your largest clients. Also, the mantra of “Don’t be greedy”, and “Nobody ever went broke making a profit.”
Thanks for being on the show. I hope you have a best ever day, and we’ll talk to you soon.

Josh Simon: Thanks, Joe.


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JF922: How to Buy CHEAP Raw Land Part 2 #SkillsetSunday

We’re BACK! Raw land investing and insights part 2! Take notes and start shopping for your cheap parcels surrounding your area today!

Best Ever Tweet:

Mark Podolsky Real Estate Background:

– Owner of Lank Geek Enterprises
– Investing in raw land for over 14 years and completed over 5,000 transactions
– His company is Frontier Equity Properties (http://www.frontierpropertiesusa.com/welcome)
– Popular podcast called The Land Geek (http://www.thelandgeek.com/)
– Based in Scottsdale, Arizona
Listen to his Best Ever Advice Here
Listen to part one of this 2 part series here

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JF915: How to Buy Raw Land at $.20 to $.30 on the Dollar! #SkillsetSunday

Seems cheap, well it is! And buying raw land in the path of growth can be one of your greatest investments of all time! Hear how Mark the Land Geek ? does it and how you can apply the same principles to start your raw land investments.

Best Ever Tweet:

Mark Podolsky Real Estate Background:

– Owner of Lank Geek Enterprises
– Investing in raw land for over 14 years and completed over 5,000 transactions
– His company is Frontier Equity Properties (http://www.frontierpropertiesusa.com/welcome)
– Popular podcast called The Land Geek (http://www.thelandgeek.com/)
– Based in Scottsdale, Arizona
– Listen to his Best Ever Advice Here: https://joefairless.com/podcast/jf77-buying-raw-land-2-0/

Click here for a summary of Mark’s Best Ever advice: http://bit.ly/2mxn24t

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JF876: 22 Mortgages in 2 Years and How to Break the Fannie Mae Barrier

There’s an existing limit to the amount of mortgages you could have, but there are ways around it! Today you hear how to speak to your lender, what type of mortgage you should structure, and what existing financing needs to be in place. This is one episode you can’t miss!

Best Ever Tweet:

George Seeley Real Estate Background:

– Sr. Mortgage Representative at Priority Lending, LLC, a mortgage loan provider
– Internet’s leading website for home loans, mortgages, electronic lending, and loans
– Priority Lending will be celebrating it 20th year in business this year
– Based in Tucson, Arizona
– Say hi to him at http://prioritylending.net
– Best Ever Book: The Automatic Millionaire by David Bach

Made Possible Because of Our Best Ever Sponsors:

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JF861: From 9 to 5 Call Center to Multimillion Entrepreneur and Why You MUST Think This Way

Are you working a full-time job right now? Do you hate what you do? So did our guest, and now he is consulting multimillion dollar companies on the daily! If you are about to quit and give up living your dreams, turn this episode on full blast. All of this applies to real estate as well!

Best Ever Tweet:

Kolby Kay Real Estate Background:

– Entrepreneur and Owner of The Healthy Primate
– Built, sold and advised over 20 startups that have generated over 50 million dollars in revenue
– Spent 15 years running sales and marketing for companies such as IBM, Hewlett Packard, Microsoft,
– In 2015, he joined UK2 Group where he is Head of Global Sales
– Author of Why Your Life is Killing You
– My Journey to Reducing Stress and Living to Tell About It
– Based in Phoenix, Arizona
– Say hi to him at www.simplemoneymethods.com or www.facebook.com/imkolbykay
– Best Ever Book: The Alchemist by Pablo

Click here for a summary of Kolby’s best ever advice: http://bit.ly/2jESeOh

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You find the deals. We’ll fund them. Yes, it’s that simple. Fund That Flip is an online lender that provides fast and affordable capital to real estate investors. We make funding your projects easy so you can focus on what you do best…rehabilitating homes.

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