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

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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.

JF1028: He Quit His Corporate Job After Replacing His Income With Rentals!

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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:
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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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JF1021: How He Develops Commercial RE Nationwide While Living in One Place

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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!

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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/

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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

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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

Click here for a summary of Mark’s Best Ever advice Part 2: http://bit.ly/2ngs4Dw

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JF915: How to Buy Raw Land at $.20 to $.30 on the Dollar! #SkillsetSunday

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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.

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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/

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JF876: 22 Mortgages in 2 Years and How to Break the Fannie Mae Barrier

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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!

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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

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JF861: From 9 to 5 Call Center to Multimillion Entrepreneur and Why You MUST Think This Way

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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!

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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

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JF819: Don’t Struggle to Fund Your Deals, Here’s How You Can Find the BEST Lender

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A platform that has a select group of hundreds of the best lenders in the business will find your next lender ASAP. Hear how our guests have completed millions in loan originations through this unique platform and what they’re doing today to grow. More importantly, see what’s in it for you!

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David Luke and Selene Nelson Real Estate Background:

– David is VP for Business Development at CommLoan
– A technology platform that matches borrowers and lenders
– Selene is Senior Vice President of National Business Development
– Loan Purposes: Purchase, Refinance, Construction, Rehab.
– Selene-20 years experience in the financial industry; David – 12 years
– Matching process is based on 30 unique variables
– Based in Scottsdale, Arizona
– Say hi to them at http://www.commloan.com
– Best Ever Book: Zero to One by Peter Thiel

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Door Devil – visit http://www.doordevil.com and enter “bestever” to get an exclusive 20% discount on your purchase.

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JF790: Why You Would Buy an $86 MM Note Portfolio and the 5-3-2 Method

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Buying notes can be scary if you don’t know what you’re looking for, especially when you know you are buying a package with some mobile homes in it without land. You’re about to hear from our guest who purchased an $86 million note portfolio for pennies on the dollar and made a great return, you also hear about his 5-3-2 method of selling.

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Troy Fullwood Real Estate Background:

– Owner of Pinnacle Investments, A note buying company for over 20 years
– Author of 25 articles on real estate investing, covering issues on note buying
– Has been involved in over 13,000 secondary mortgage transactions
– Real estate investor in 1996
– Based in Chandler, Arizona
– Say hi to him at www.pinnacle-investments.com
– Best Ever Book: The Alchemist by Paulo Coelho

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JF775: How to MASTER Virtual Wholesaling #SkillsetSunday

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Risk can destroy your business, and that’s why many real estate entrepreneurs preferred to Wholesale properties rather than fix and flip only. Today you will hear from Jared, someone who has wholesaled many properties virtually outside of his state and how he does it. This is one of the episodes you need to listen to multiple times with the pad and pen, enjoy!

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Jared Vidales Real Estate Background:

– Co-owns a streamlined virtual wholesale operation, HQ
– He virtually fix/flips properties nationwide; and does 15 virtual deals a month
– Based in Scottsdale, Arizona
– Say hi to him at www.highestcashoffer.com
– Here’s his Best Ever book he’s read Trump Strategies for Real Estate: Billionaire Lessons for the Small Investor

Listen to his Best Advice Here:
https://joefairless.com/blog/podcast/jf490-266000-profit-for-an-az-newbie-flipper

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JF765: Why You SHOULDN’T Buy a Single Family Residence on Your First Purchase

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Today’s guest is a lender who has been around the block over 20 years and he is about to tell you the best way to jump into real estate. Tune in!

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Alex Joiner Real Estate Background:

– Senior Loan Originator at Mountain West Financial
– Over 20 years experience in mortgage and financial business
– Business degree from Alta Tech
– Based in Phoenix, Arizona
– Say hi to him at: 4802701062
– Best Ever Book: The Holy Bible

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JF723: Cash Flow Principals and REI Fundamentals with The Real Estate Guys Radio Show Co-host Russ Gray

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Hear one the industry’s top voice, Russ Gray of The Real Estate Guys Radio share his Best Ever advice and true philosophy in real estate investing. He shares his core beliefs in REI, opportunities he runs into, and his purpose. Save this episode!

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Russ Gray Real Estate Background:

– Co-host of The Real Estate Guys Radio
– One of the top real estate podcasts in the world
– Pushing 6,000,000 downloads with only once a week
– Based in Las Vegas, Nevada and Phoenix, Arizona
– Say hi at https://realestateguysradio.com
– Best Ever Book Equity Happens

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JF668: How a Mobile Home Park was Flipped to a Church

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Our guest is from the hot hot valley of Arizona, and he is cranking deals! He is a one stop shop real estate investments boutique with the tool for every transaction. He shares many stories including one of purchasing a mobile home park and finding a buyer across the street!

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Stuart Gethner Real Estate Background:

    – Founder of Phelps Capital Consulting
– Invested over $10,000,000 in AZ
– Based in Scottsdale, Arizona
– Say hi to him at http://www.phelpscc.com

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JF623: How Probates, Default, and Other Motivated Leads are Gathered from Public Sources

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Today’s guest has mastered lead gathering through free public sources and shares with us the types of leads that convert! He also shares with the soft skills in sales and a book that he and his team refer to often, tune in!

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Paul Romero real estate background:

  • Began wholesaling four years ago coming from a construction background and has done 90 wholesale deals
  • After taking some lumps, he now has a team of 15 people
  • Based in Phoenix, Arizona
  • Say hi to him at sell-a-house-arizona.com
  • Best Ever book: Laws of Success in 16 Lessons by Napoleon Hill

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Danny Johnson has a solution for you, go to leadpropeller.com set up your website for success and get more leads!

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JF610: What This Dynamic Duo Does to Own Over 8 Properties in TWO YEARS

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Owning a Home Vestors franchise, today’s couple brings different
skill-sets to the table. The husband is a general contractor and
the wife runs the marketing and sales. Hear how they hustled these
past two years to cash flow big today!

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Bethany and Bob Willis real estate background:

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