JF1456: How To Interview Big Name Investors & Entrepreneurs with Carole Ellis

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Carole is editor-in-chief at Think Realty Magazine, and has a ton of interviewing experience. Since she’s interviewed some big investors and entrepreneurs, Joe spent some time asking her about those interviews. He asks Carole what she’s learned from the interviews, how she prepares, questions she asks, and how she was able to get ahold of these people in the beginning. If you enjoyed today’s episode remember to subscribe in iTunes and leave us a review!

 

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TRANSCRIPTION

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

With us today, Carole Ellis. How are you doing, Carole?

Carole Ellis: I’m doing well, thanks for having me.

Joe Fairless: Well, I’m glad to hear it, and it’s my pleasure. A little bit about Carole – she is the editor-in-chief of Think Realty Magazine. She’s the co-founder of Self-Directed Investor Society, she has been investing, writing, reporting and educating in the real estate space since 2006. Based on Hotlanta. With that being said, Carole, do you wanna give the Best Ever listeners a little bit more about your background and your current focus?

Carole Ellis: Absolutely. I got started in real estate because I bought a house with a no money down loan, and I was the person that all of your Best Ever listeners hate; I was the person who’s at the closing table and randomly decided I need to read every word in a document… And I swore I’d never be in that position again, so I got my real estate license, and then the market crashed.

At around that time, I was actually working at a magazine, and I was also creating a lot of real estate educational content. So if you bought a home study course in the early or mid-2000’s, there’s quite a decent chance I either wrote it or helped write it.

When the market crashed, my husband Brian and I started working on education and teaching people, honestly, overseas, where their money was strong against the dollar, to invest in the United States. So we did a lot of coaching, a lot of teaching throughout that entire period; we were sort of doing various things of our own too, and eventually, after quite some time, I ended up at Think Realty Magazine, which is my dream job; I am editor-in-chief at that magazine, and that’s where I am today.

Joe Fairless: How were you reaching international investors when talking to them about investing in the U.S.?

Carole Ellis: Well, you have to remember we’re going back about 10-12 years, so the concept of virtual real estate or virtual investing was much newer, and it was kind of the Wild West in terms of — today I would just go on Craigslist or somewhere like that and say “Hey, I need a website”, and I’d probably get 50 people offering to make me one, and probably ten of them would be really good. At that time, it was a much more alien concept.

We did a lot of webinars… Goodness, I think maybe when he started he was still giving teleconferences, but that was before me… So we’ve had a series of websites, and we learned how to find motivated sellers; those people needed to be walked through contracts, and things like that, because it’s a different system. We had a huge, physical manual that I wrote… All sorts of stuff that today people would be like “Yeah, that’s great…”, but at the time incredibly useful, and a wonderful resource.

A lot of people ended up using them for their own businesses; sometimes they didn’t even have anything to do with real estate by the time they were done customizing them. It was amazing.

Joe Fairless: Now you’re the editor-in-chief at Think Realty Magazine… What are your responsibilities?

Carole Ellis: My responsibilities are wonderful. Every week I speak with dozens of real estate investors about the strategies they’re using, the markets they’re working in, I get to interview economists… Anybody related to the real estate industry we’re talking to, in order to pull in as much actionable, insightful information into one place – our magazine – so that when you pick it up and read it, you can really get a very good handle not just on how the national or a specific regional economy is working, but also what real people are doing right now and why it is, or in some cases it’s not working.

Joe Fairless: What’s an interview that stands out?

Carole Ellis: Well, honestly, I would say all of our cover interviews really stand out to me, because especially this year – and this is a real honor – we got to interview Samuel Freshman, from Standard Management Company, I got to interview Svenja Gudell from Zillow, Rick Sharga – I have long admired him, so I was thrilled to interview him in June. [unintelligible [00:07:07].08] all of these people are people who took time to talk to our readers and say “Real estate investing matters, and you as an individual investor matter”, and here’s some steps that they know that maybe you wouldn’t know just on an individual level… So it was just really amazing.

Joe Fairless: Do you have a process for preparing for an interview?

Carole Ellis: Yes. To be interviewed, or to interview?

Joe Fairless: To interview someone.

Carole Ellis: Yes. I have eight ice-breaker questions, and I always use them all. They are incredibly generic, and I use those because when you’re talking to someone to learn something from them, I feel like it’s really important to let them tell their own story, or their own strategy, or whatever it is. So I do a lot of research in terms of I Google-stalk them and I read everything I can about them, but I don’t ever say “I know you wrote this in the Wall Street Journal”, for example; I always start with a really generic question, like “What’s your favorite strategy/favorite market/favorite deal/proudest moment? If you weren’t in real estate, what would you be doing instead? If your life was a headline…?” – things like that, that are wide open… Because I can always ask about the Wall Street Journal article or whatever it is later, but I don’t know necessarily if that’s really the thing that is the best thing for us to pull out of that. So I always do a lot of reading, and then keep everything very generic, and I always warn them ahead of time, because I don’t want them to think I don’t care.

Joe Fairless: Yup. And with your approach, it sounds like you want it to be open-ended… At the beginning allow them to take the lead, and then you play off of what they say after that…?

Carole Ellis: Absolutely. So one of the interviews that we did this year – and I hope that he forgives me if I don’t say his name perfectly… He’s the CTO at Auction.com, his name is Amit Aggarwal… And there were so many interesting things about what he did before he got to Auction, in terms of being involved in some banking and finance software, some of his own views on education, and how that affects real estate, and how you should be strategizing, that we never would have ever gotten if I had started out saying “You’re the CTO over at Auction.com” and going from there, because it wouldn’t have come out.

Joe Fairless: How do you apply that approach to other interviews?

Carole Ellis: I think it holds true in everything. If you’re gonna go talk to a motivated seller – and I’m sure your listeners have heard this ten thousand times, but you know, if you go in and you talk to a motivated seller, and you go in telling them how they feel, you automatically sort of put yourself at a disadvantage; you knew how they actually feel, and then figure out how to solve the problem. That’s not ground-breaking information… But it’s really the same thing for everybody. Investors are incredibly innovative, they’re incredibly creative, and a lot of times they’re not as proud as they should be, or as aware of how amazing they are in terms of finding flexible and new solutions to things, as I think they should be.

So I really wanna go in, and if I interview someone, I wanna make sure that I’m getting everything I can out of them, but I also really want them to come away from that feeling like they’ve done a service, because they have… Not just for me, but to every single person who’s reading the magazine, or going to the website, or anything… And I really want them to feel that, because it’s an honor.

Joe Fairless: What are some lessons — you mentioned the investors that you speak to, they’re incredibly innovative and creative… What are some lessons that you’ve learned through the interviewing that are real estate specific?

Carole Ellis: Well, I think that you have to be very careful in real estate not to get into a box. Most of the people honestly that we interview – it turns out they’re not in a box… But in terms of looking at an investment – again, not groundbreaking information; you need to have an exit strategy, you probably need more than one, you need to look at the worst-case scenario… All of those things are so standard, I think a lot of people – including me, from time to time, sort of forget about them, and then it’s like “Well, what am I gonna do with this? It’s not working the way I wanted it to work.” Well, when you interview pretty much any investor, every single person, you would get a different answer as to how to solve that problem, whether it’s “Oh well, I used to wholesale, but I got stuck with a couple deals that I couldn’t move, and I didn’t wanna not buy them, so now they’re Airbnbs”, or really flexible things like that…

Lots of things in terms of financing… Anybody who is involved with self-directed investing usually has about 1,000 different legal creative ways to accomplish whatever it is that they want in their specific retirement account. The strategy is boundless.

Joe Fairless: When you said “Don’t get into a box” – will you elaborate on what you meant by that?

Carole Ellis: Sure… Like, there’s a box; if I say “My name is Carole and I flip houses.” That sort of puts a box around me. I flip houses, that means theoretically I buy at a certain price, I improve to a certain extent, I sell at a certain other price… But if you say “My name is Carole and I’m a real estate investor”, all of a sudden you get all these other opportunities, and if any of those points along the way don’t work, or the gear gets stuck, or something like that, all of a sudden, if you’re not a flipper, you’re a real estate investor, it just changes the mindset. Does that make sense?

Joe Fairless: Yeah, it does. It’s more of an evolution. When you’re in an interview and you are looking for something beneath the surface – perhaps you’re getting canned answers – how do you get beneath the surface with someone?

Carole Ellis: See, now you’re making me nervous… [laughs] I’m afraid I’m being canned.

Joe Fairless: Oh, no, I wasn’t talking about you… [laughs]

Carole Ellis: No, I was kidding. So that does happen; I think pretty much everyone that answers questions regularly ends up with a set of things that they really like to say… At that point, that’s when you kind of like dig out the Google stalking results, because that shows that you did care and you did have questions… I ask them about something more specific, and I guess if even that doesn’t work, then you just tell them. I have an advantage, because my interviews aren’t live.

Joe Fairless: Oh, got it…

Carole Ellis: So I can say “I really wanted to talk about this, and you’re not talking about it… Would you please start?” I don’t know if people would appreciate that if I did that in a live setting. I probably wouldn’t.

Joe Fairless: So as editor-in-chief, what are some additional things that if you were to speak at a conference that you would speak about, as it relates to your experience?

Carole Ellis: Man, I would love to speak at a conference… [laughs] Usually, when I speak – and I don’t do a lot, because Think Realty has ambassadors and other people who do that… But usually, I am fortunate to get to do one of two things, both of which I really like. One, I already mentioned – anytime you put me in a room with a group of real estate investors and give me a microphone, I really want to just convey what an honor it is to be able to write about them, to report on them… And not in a bragging way, but everybody who is active in real estate should be incredibly proud of themselves; it’s just such a diverse, innovative group. I can’t get over that, and I just really want every Best Ever listener and every real estate investor our there to really take in and to appreciate what they’ve accomplished by being a real estate investor.

So that’s one thing, and every once in a while I get to say that, and I think it’s important… I love it, I love to say it. The other thing I get to do that I really enjoy is every now and again I get invited to do market analysis, which is we’ll either pick apart a market in terms of what it’s been doing recently, what it did long-term, what does the community masterplan look like, what are trends, what’s local policy, and I really try to dig into indicators of what might happen in the future, what’s happening now, what to be aware of, things like that.

Joe Fairless: With the market analysis, how do you gather the information that you just said, which is what it’s done recently, what it’s done long-term, community masterplan, trends in local policy?

Carole Ellis: Well, thanks to Think Realty, I have an incredible advantage because we get to work with ATTOM Data Solutions. That is a wonderful starting point for anything like that, because they’ve got (goodness, I don’t even know…) data on data on data on data… It used to be RealtyTrac and it was all about foreclosures, now it’s so much more.

So you can kind of say “Okay, well here’s some things that I think would guide me towards…” For example, we’ve recently  created a list of notable turnkey markets. “Here’s some things I think would be interesting to start with in terms of turnkey markets”, and of course, ATTOM’s data happens to have a lot of very specific turnkey data, so we just use that.

But then from there, once you’ve got your list of very hard data and some markets that you’ve decided are interesting for whatever your purposes are, then you go and you read everything you can on the Chamber of Commerce. I would never cite Wikipedia, but it is a good place to start, n terms of  — I don’t feel like you can believe it in terms of being research, but it’s a great place to look to find trends in the economy, or if you want a little history or whatever it is that you’re trying to do, that’s a good place to start, and then you kind of go and google that stuff out, to make sure it’s actually true.

A community masterplan should be available online to the public, you just have to google around until you find it…

Joe Fairless: What is a community masterplan?

Carole Ellis: Oh, they’re so cool. It sort of depends, because they’re kind of a [unintelligible [00:17:12].11] thing that communities use to get grants, if they’re using them right a lot of the time… But it basically says “Here’s our community now, here’s what we want it to be, and here’s how we think we’re gonna get there and here’s what we need, whether it’s money, or population, or a different industry…” Sometimes they’re just that. If that’s all they’ve got, then I would say it’s maybe not all that much of a masterplan… But a really good one will say “Here are the 20 grants from state and federal sources that we could qualify for if we did this to our main street”, or maybe if you go and you match up a masterplan with Public Department of Transportation information; you can say “Okay, well they said they needed to get more people working in this area”, and you can see that there are bus routes in this area now, or planned for 12 months from now, or whenever. All of that is technically public information. Not everybody has a community masterplan, so if it’s not, then they may just not have one… But basically, it’s just a chart of where they wanna go, and then you try to sort of match it up with where they are now, and also with what kind of progress they’re making… But if they hadn’t made any, then it’s great to have a plan, but they may not really be doing anything.

Joe Fairless: That’s right, yeah. It’s nice to verify the progress, that’s for sure. Based on your experience interviewing successful real estate investors, as well as your own experience investing, what is your best real estate investing advice ever?

Carole Ellis: I think probably to be articulate… Not in terms of being persuasive or making a sale, but in terms of just being really careful to say what it is you want out of your investment, or the person sitting across the table from you, or the guy on the other end of the phone. Be very clear, not in a rude way, but just “This is who I am, this is what I do, this is why I’m doing it”, but not to get too overboard in terms of being articulate until they’ve told you those things.

Joe Fairless: Do you have a personal example of this?

Carole Ellis: [laughs] So I like to talk, and I have lots of things that I think are really interesting to say. However, it is basically — you just made my day by letting me do this, because normally, my job is not to talk… And it is so hard, because when you’re interviewing somebody and they’re saying all this great stuff, and you wanna tell them what you think about it – you have to remember they didn’t tell you you could interview them so they could have a conversation with you and get your insights; it’s not what you’re gonna get out of it. What you’re getting is their insight, and sure, if you have a rapport and you end up being friends, that’s wonderful, but… That’s really the thing, and fortunately, I learned it a long time before I ever even got into real estate at another magazine that I was working at, so I didn’t ruin any interviews recently, but I definitely blew a few early on.

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

Carole Ellis: I’ll try.

Joe Fairless: Alright, then we’ll do it together. First though, a quick word from our Best Ever partners.

Break: [[00:20:07].03] to [[00:20:58].09]

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

Carole Ellis: Principles of Real Estate Syndication by Samuel Freshman.

Joe Fairless: Best ever deal you’ve done?

Carole Ellis: Honestly, I think it was writing an article for Think Realty Magazine a couple years ago, when I first started… Because otherwise, I’d never be here right now.

Joe Fairless: What’s a mistake you’ve made on a transaction in real estate, or just in business?

Carole Ellis: Talking too much.

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

Carole Ellis: I wasn’t really sure what I was supposed to say for this one… Obviously, I really do feel like Think Realty gives away a lot of really amazing information, including the magazine digitally, which is free on the website… But I also have a — it’s not mine, but I support a charity called No Hungry Children; there’s basically like no administrative intervention in terms of money. If you give them a dollar will feed a kid for like a week… And they’re amazing. They do a lot of work in Africa, with a lot of kids who just have no food and no school or anything, if they didn’t have the support of that charity. I really like that charity.

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

Carole Ellis: Actually – and everybody laughs at me for this, but really the easiest way to do this is to e-mail me. My e-mail is cellis@thinkrealty.com. Everybody laughs, because they’re like “Don’t give out your e-mail”, but it’s in the front of every magazine, so… That’s what I do. [laughs]

Joe Fairless: Fair enough. Well, Carole, thank you so much for being on the show, talking about the process you used to open up conversations with people who you’re interviewing… You have eight different ice-breaker questions that are more open-ended, that way you get them talking, and then you evolve the conversation from there. Then the lessons that you’ve learned from those interviews as well, in terms of the real estate lessons that you’ve talked about, to things that you also focus on, which is the market analysis and things to look for there, and how to do that if we don’t have access to a database, and what to look for… So thanks again for being on the show. I hope you have a best ever day, and we’ll talk to you soon.

Carole Ellis: Thank you so much.

 

JF1329: Creating A Big Portfolio In One Zip Code & Selling To Large Investment Funds with Theo Jones

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Theo got his start in real estate at the age of 22. Now, about 8 years later he has his main strategy in place and has executed on that strategy so far. Theo likes to build a larger portfolio in one zip code, and then sell to an investment fund. He’s already done this in Atlanta, with plans of doing it again and again. He also has some buy and holds and other strategies, as well as tips about what can go wrong with your partnerships and how to be proactive in keeping everyone in a partnership happy. If you enjoyed today’s episode remember to subscribe in iTunes and leave us a review!

 

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TRANSCRIPTION

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

With us today, Theo Jones. How are you doing, my friend?

Theo Jones: I’m great, thanks for having me, Joe.

Joe Fairless: My pleasure, nice to have you on the show. A little bit about Theo – he is doing fix and flips; he’s also developing a vacation rental in the U.S. Virgin Islands. He bought his first investment property eight years ago at the ripe age of 22 years old, and he’s got a construction business where he helps real estate investors in the construction field. He’s based in Atlanta, Georgia, but he does his fix and flips in Louisiana, and he’s got his construction business in Atlanta, and he is developing, as I said, in the U.S. Virgin Islands… So we’re gonna talk to him about all this stuff. With that being said, Theo, do you wanna give the Best Ever listeners a little bit more about your background and your current focus?

Theo Jones: Yes, sir. Thanks, Joe. I’m originally from Northern California, a place called Oakland, California, and I moved to Atlanta at the age of 20, and upon moving here, like most people — everyone’s trying to get new opportunity when they move, so… I’m riding down the interstate and I keep hearing the real estate commercials – “Come on down, come on down, it’s free. Come to the course.” I went. Rich Dad education. Then from there, it just opened up my mind. Then all I did from that course in 2007 to 2009 when I bought my first rental property is just focus on putting my money away. That’s all I did. And focus on studying my market and what I wanted to do, so that’s how I got in. Then from there it just started to grow.

Like you know, Joe, that time of the market, it was just — yes, it was at a downward spiral, it was at a slump, but if you could see the opportunity and you had cash to buy, you could do a lot, and that’s basically where I was at. So it took me a couple of years, but I was able to raise money to grow the portfolio. Basically, we were just investing in single-family homes, buying them, fixing them and renting them out. That’s what I got into. I had already known about construction growing up, and then that just gave me more in-depth experience about residential constructions and specializing in the rehabs. That was basically my beginning in getting into real estate and how I got started, and how it kind of came to fruition.

Joe Fairless: So your first deal was at 22, after attending the Rich Dad, Poor Dad seminar. You put the information into action.

Theo Jones: That’s it.

Joe Fairless: And then what did you buy next?

Theo Jones: My first house was a duplex, and then from there it was a single-family, about a 900 square foot house. All the properties I bought, Joe — I created a portfolio over about six years’ time, and all those properties are all in the same zip code. On average, they were about 800 to about 1,200 square feet, 2-bedroom, 3-bedroom; they might also only have one bath… And they were just 1940’s, 1950’s, cinder block foundation… The majority of them brick houses, just the old-school Atlanta type houses.

Joe Fairless: Do you still have those properties?

Theo Jones: I just finished selling all those just a couple months ago. I sold them all. My goal was to create a whole portfolio within that zip code and then sell it to some of these big funds, like Invitation Homes and all these big companies now, but… Their interest I think has gone elsewhere, so it took me a long time to sell them all, but I sold most of them individually, and some of them as packages… But yeah, they’re all sold and I made a great profit holding them for three or four years, with a cashflow.

Joe Fairless: How many at the peak did you have in total?

Theo Jones: Oh, man… I really went by the residents, because I was managing this… I think it was about 26 residents, and we had a couple multifamily; the six-unit is what we’ve just sold. We’ve made a killing on that. We bought that for 140k, sold that for 380k three years later. So most of them were duplexes, single-family, and then we had that one multifamily, but about 26 tenants in Atlanta alone that we were managing.

Joe Fairless: Okay. Let’s go with that six-unit. You bought it for 140k – that’s incredible, the 380k… How much did you put into it?

Theo Jones: About 100k.

Joe Fairless: You’ve put about 100k.

Theo Jones: It was about 10k/door, and then termites had eaten through the wood, a lot of that had to get replaced in the cross-space, a lot of exteriors, all new windows, gutters [unintelligible [00:05:10].16] Everything you could think of. That was about 20k, 30k, 40k we put into it, and that raised it, got it up, and we just sold that one in November.

Joe Fairless: Congratulations on that. With that property, the acquisition cash, the 140k – is that your out of pocket cash, or did you partner with other people?

Theo Jones: That was cash. I started by myself; a couple years later my father came out from California and started investing with me too, saw the opportunity. Then we got another investor from New York, and just merged everything together he wanted to invest, so we just created one LLC and put everything under one entity, and it was all cash, we didn’t do any financing.

Joe Fairless: Okay, so it’s you, your dad and a New York guy who bought the six-unit… And you paid cash for it, the 140k, so no debt on it, and then you put an additional 100k out of pocket into the property.

Theo Jones: Correct. That was over (I would say) 30 months time. We put about 100k into it. After every resident moved out, we rehabbed every single unit the exact same way.

Joe Fairless: And with the returns on it, why not maybe put a loan on it now that it’s stabilized, and get the majority of that cash out and keep the property?

Theo Jones: Yes, you are 100% correct, Joe. The only problem is that the partnership was not the best. That was the problem. We almost financed the whole entire portfolio. We were in contact with Blackstone Lending, we almost financed everything, took out a blanket loan… But it just wasn’t right. But I agree with you, yes; in the best situation – yes, you refinance that and just keep it rollin’. And that’s the thing – I think we should talk about it a little bit too, Joe, you’ve gotta make sure your partnerships are tight, because things can go… I don’t wanna say bad; it’s not like we’re in a bad situation, but people have different ideas of growth and management and how things should be operated, and that can hinder growth; that’s kind of what we do. I had a sale just based off that… And it wasn’t any hard blows, but it’s just what had to be done. We just couldn’t see totally eye to eye, you see what I’m saying?

Joe Fairless: Yeah, and I appreciate that. That’s gonna be helpful for a lot of people. What were some of the sticking points that couldn’t be resolved?

Theo Jones: I think for me, growth. We were probably about 1,5 million total at the peak. My goal was to be at the minimum 3 million mark, and get a refinance then… But everybody has a different risk, everybody has a different tolerance, everybody just looks at things different, and I think his risk level and his tolerance was very different from mine.

Joe Fairless: And I assume you’re talking about New York, not dad. Would it have been possible to buy out New York partner during that refinance stage, so that if you did put a loan on the property and you did the cash-out refinance, and then just buy that person out with whatever cash you would have received if you had sold it?

Theo Jones: You’re 100% correct, and the only reason I didn’t do that either is because unfortunately what happened right around that time when we were getting ready to divest a six-unit, is that Hurricane Maria hit my house in St. Croix… Still right now we’re just at a point where I just had to kind of liquidate fast.

Joe Fairless: Got it.

Theo Jones: I didn’t wanna go through the paperwork unfortunately to do it, and I didn’t wanna create more paperwork for me… Not create, but it would have been another speed bump. I think that was the ideal situation, but I’d been kind of banged up indirectly over the last year, especially with the hurricane; it really threw us off, so I just said  “What is the quickest thing to liquidate, the smoothest thing?” …so I can transition this money and put it into unfortunately this almost emergency situation. That’s kind of what happened, because we liquidated two months after the hurricane.

Joe Fairless: That makes sense, and my thoughts are with you. Fortunately, you’re safe. Was that a rental property?

Theo Jones: Yeah, so that property we started building in 2015 from the ground up, about 3,800 square foot, two-level vacation rental in St. Croix on the West side of the island… And we actually started renting it; we had the roof on the top, but the top unit, the personal unit where my mother was living – she was managing that property – the top unit where she would live at was not complete, but we were cash-flowing and everything on the bottom unit, and then the hurricane came and kind of did its thing… So we’re just in the mode of reconstructing and rebuilding, and it’s a learning lesson.

We found a lot of flaws in the construction, so it’s actually a good thing… I hate to say it. Some people look at it as a bad thing, but I hate to say, I think it’s almost a blessing in disguise. And I don’t mean a lot of flaws, but we’ve had engineers out to look at the property, and they’re saying “Hey, this thing could be done to prevent this in the future”, because unfortunately, as you know, Joe, we’re dealing with this more, so… It’s definitely [unintelligible [00:10:18].20]

Joe Fairless: Was that covered under insurance?

Theo Jones: No, it wasn’t. But we got FEMA money, and we actually raised a lot of money and gave a lot of money back to the community. This actually was a great thing. But no, they didn’t cover it just due to the type of insurance we had, because we were under construction, so it was a lot of little unique… You know…

Joe Fairless: Sure. Okay. You live in Atlanta…

Theo Jones: Correct.

Joe Fairless: You’ve just told us about a property in St. Croix…

Theo Jones: Correct.

Joe Fairless: And you are building a property in the U.S. Virgin Islands right now, and you are doing fix and flips in Louisiana…

Theo Jones: Correct.

Joe Fairless: I don’t even know the question to ask, but I guess the question is why all these different areas? There’s the question.

Theo Jones: Okay, that’s a great question. UDI Group, my company – we like to go in under-resourced environments (that’s the term we use), and we like to go in and figure out how to strategically move in those markets. We understand the markets that we’re in – I understand Atlanta; I’ve been here for 10 years now. Louisiana – I have family members there and people managing the assets there, so we understand that market well… And my family is originally from the U.S. Virgin Islands, so we understand the opportunities, the market we’re traveling, and… We just understand the markets, because we kind of were in the markets, you see what I’m saying? So that is just kind of how we operate. We wanna be inside the market that we live in, so we can live and breathe and understand it, to give it what it needs so we can get the best return back.

Joe Fairless: You’ve got family in each of those markets. It makes sense.

Theo Jones: Family, friends, managers… Someone that’s there on the ground that can give you information that you could not see otherwise.

Joe Fairless: Where in Louisiana?

Theo Jones: We’re in New Orleans right now.

Joe Fairless: New Orleans. How many fix and flips are you doing right now there?

Theo Jones: One on the market; it just actually got relisted this morning (on the East side, in Gentilly) right now. And we’re looking for other opportunities, but unfortunately we’re trying to do a little bigger, so we’re trying to figure out how we can go in and execute and do something big as far as just the individual one-offs… So that’s what we’re strategically looking to do more over this summer.

Joe Fairless: So the one that is on the market that got relisted – educate me on what “relisted” means.

Theo Jones: Oh, okay. Basically, we have a property we just tore down, rebuilt it in Gentilly, East side of Louisiana. The price – it was listed at 459k, which I thought was a little high, but I’m not in the market; the individual that gave me the information said “This is the price.” We didn’t get the offers we wanted, we didn’t get the feedback we wanted, we didn’t get the viewings we wanted, so we took it off the market in order for it to seem fresh on the listing. Instead of just dropping the price down, we wanted to take it off the market for a day, then relist it, put it back on fresh with a lower, new price, to try to get a little more attention and try to get it locked up and under contract.

Joe Fairless: Okay. It was listed at 459k. What’s it listed for now?

Theo Jones: 429k. So we did a big drop, because we want a bidding war. We don’t want one offer to where it’s just one offer; we want multiple. So that’s kind of our technique right now, and I know I’m kind of still new to New Orleans a little bit (me personally), but I know we’re just getting onto Mardi Gras and all that, so I think right now we relisted that and we should be on a roll coming up this next week.

Joe Fairless: Let’s assume it sells for 429k – how much did you buy it for and how much did you put into it?

Theo Jones: It was a Katrina house, auctioned off by the city. The land was 21k, the construction was about 175k as it stands. So what’s that, about…

Joe Fairless: A little under 200k.

Theo Jones: About 200k, yeah. There’ll be a couple of fees and stuff on top of that, so yeah. A little more than 200k.

Joe Fairless: Cool. And just curious, the couple other fees, what are they?

Theo Jones: Agent, just have an insurance… You know, all that. The closing costs, staging it, the power, the gas bill – all those little things that seem to pop up and add up at the end of the numbers that we’ve gotta take for granted.

Joe Fairless: What’s been your most profitable project?

Theo Jones: I would have to say probably this one coming up will be profitable, but work was obviously involved… So for me, the most profitable one also probably was the six-unit, but there was a lot of work involved there, so if you ask me personally – I bought another six-unit burnt, but it was four blocks from the Georgia Dome, and as you know, they’ve just torn down and rebuilt the new Falcon stadium… So this was about two or three years ago, I bought a six-unit burnt, 35k cash; I think six months later I sold it for 80k. I did nothing to it.

Joe Fairless: You just sat on it.

Theo Jones: I just sat on it. Of course, as soon as we got the 80k locked up, we got offers for 150k.

Joe Fairless: Of course, but… You know, hindsight is 20/20, you know?

Theo Jones: Yeah, yeah. And you know, it’s all good. It worked out. But for me to do that in four months, without doing anything – to me that was probably the best for me, in hindsight. Even though it was a small deal, it still was pretty decent money.

Joe Fairless: Oh, absolutely. And when you say burnt, you’re talking about the whole thing was burnt to the ground, or was it something else?

Theo Jones: That’s a great question. The funny thing is, Joe, it was an older gentleman who owned four apartment complexes. We were trying to buy them all, but I got so frustrated with him because he kept going back and forth; all the other units were rented, and he wouldn’t come up with the leases, so I’m like “Well, let me just buy the one.” And by the time we bought it – yes, unfortunately, these are very rough neighborhoods in Atlanta… Unfortunately, somebody burnt up the top unit, but they didn’t totally get burnt to the ground. It was fixable, it was repairable, but I think the ideal thing there was to tear down and rebuild, because that was already zoned for redevelopment, it already had all the TADs… Everything you could ever want is right there in that area; anything you could get from the city, grants, all that. So I think that was a great selling point, and he did not know how to market the property with those things, so that’s what we were able to do… But yeah, it was a little distressed with the burnt part.

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

Theo Jones: For me, it’s narrowing it down; staying focused… Because there’s a lot of different investing out there, there’s a lot of different avenues, lanes you can go in. I think you just have to really figure out what works for you. I understand distressed environments; a lot of the properties we did rentals was with the Housing Authority, also known as Section 8, so… I understand that. That’s what I understand. And I think that me going into high-end rentals – I don’t not understand it, but I don’t totally understand it… But I think people go into other lanes because they see money on the outside. But if you don’t know how to operate something… You can have a Ferrari, but if you don’t know how to drive a stick or a paddle shifter, it’s not really gonna work out for you.

So at the end of the day to me management is my number one thing, and that’s my best advice. If you cannot manage it – and I actually worked for big management companies for a while back in 2014 and 2015 – I just think it’s pointless. Or having someone that can manage it, and focusing, narrowing it down and sticking in your lane and perfecting your lane and what you do, and do it the best.

Joe Fairless: When you worked for the big management company for those two years, what’s something that you learned that you now apply to your business?

Theo Jones: Oh my goodness, that’s a whole other story. It was actually a Inc. 500 company. We were managing, in that office alone in Atlanta, at our peak, probably about 3,000 doors. For anybody that knows the big funds, we were managing Tricon American Homes, [unintelligible [00:18:31].09] all those big funds. That’s really who I study and that’s who I modeled in what I’ve done after. But Joe, the best thing – and this is what I call it – the landlord/tenant psychology to it. It’s [unintelligible [00:18:47].16] at times like “Are you really dealing with a problem, or is there not really a problem?” So it’s really getting down to what is the core issue – are you just not happy, or is your toilet really broke? You know what I mean? People might not be happy, and they’re calling and they’re going on and on and on, and they’ve got this laundry list of repairs, but it’s like “Is that something that’s really broke, or is there something else you’re upset about?”

So for me, it’s really getting down to the core issue, because I really want to help people, but I know there’s some things I cannot help them with, and we provide – for a lack of better word, when we were in our heyday, when we had all our Section 8 rental properties, the inspectors, as soon as they walked in, they knew… They knew, because the quality was just impeccable to anything else.

So for me it’s providing the top notch quality and providing service, and I learned a lot in management on how to do that better, how to do it more effectively and how to deal with people, how to talk with people, how to get things done in a timely manner.

Joe Fairless: If I am one of your tenants and I call you up and I say “Theo, my toilet’s broken”, what do you say?

Theo Jones: Well, first of all, it’s gonna be all online, so if you put it in, we’re gonna come out there. But if your toilet’s broken, your blind needs to be fixed, this, that – this long barrage of things, we’re gonna come look at it all of course, but is it really broke? We’re just trying to make sure… You know what I mean, Joe? Is the toilet really broke? Yeah, we’re gonna fix it. But I have one tenant – I just wanna try to keep this short… One tenant – I learned a lot from him. He would turn off the breakers and say that the heater was broke. [laughter]

Joe Fairless: He just wanted some attention. He liked you guys so much, he just wanted a friend to hang out with.

Theo Jones: You’re right. And we provided him great service, don’t get me wrong, but we had to draw the line, like “Hey bro, you’re creating issues.” We’re gonna provide you a great service, a timely service, and I think you’re right, Joe, that people are so surprised when we pop up the same day, or next morning, instead of that three-day gap to get the call back. People do appreciate it to a certain extent, and some people will take advantage of it. I think that’s kind of what happened in that situation, but we want to provide the best service. When the inspectors came to look at our house the next day, our policy is have the house finished.

We just want things done swiftly, we want people serviced swiftly, because I think that  reduces the problems in the long-term. The faster you can react to your residents, I think the less problems you’ll have moving forward. That’s probably also some of my best advice.

Joe Fairless: Absolutely. That is a fact for not only residences, but investors, and customers, and anyone who works with you in life. Relationships – wives, husbands… Everything. Alright, we’re gonna do a lightning round. Are you ready for the Best Ever Lightning Round?

Theo Jones: I’m ready, sir. Let’s do it!

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

Break: [[00:21:46].03] to [[00:22:28].11]

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

Theo Jones: 80/20 Principle, Richard Koch.

Joe Fairless: Nice! Perry Marshall’s got a book 80/20 on marketing and sales. That’s a really good one, too. You’ll probably like that.

Theo Jones: I’ll check that out.

Joe Fairless: Best ever deal you’ve done that we haven’t talked about already?

Theo Jones: Best ever deal I’ve done – on one block in Atlanta I bought four properties, none of them on the market, two of them I bought from private real estate funds with no agent, then sold them all together as a package deal to another investor about three years later after, making some great cashflow. I think that was one of my best deals because the people on the block really appreciated what we did. It really means a lot.

I still drive down the block and people still get out and give me hugs and stuff, so that really means the most out of all of them.

Joe Fairless: Yeah, it brings things to life for what you’re doing, versus the P&L statements. It’s pretty cool. What’s a mistake you’ve made on a transaction?

Theo Jones: Man… I think it’s just not looking through things close enough, rushing. My mother always tells me “Slow down, slow down, slow down…” So I think rushing. It’s really no specific deal, but it’s just not looking at things. It’s several deals that I just — like, I bought five properties at one time, and the whole time in one of the properties I was looking at the wrong property, and I didn’t realize until like the day of closing, “Oh my god, I was looking at the wrong property the whole time.” [laughter]

I had to tell that to my investor, too. We were moving too fast, but it still worked out, don’t get me wrong. The deal was still so good, it could have not even came with that house, but… Just moving too fast and not checking everything. Joe, as you know, checking the contracts – hiring attorneys, hiring accountants… Don’t overlook those little things. You’re trying to save money, but you’re not saving money. So just don’t think you can do stuff fast in this game.

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

Theo Jones: I like to go into schools and talk. I like to talk about exactly what we talked about here, I like to talk about the kids, how I took my $5,000, bought my first rental property, and collected over $75,000 in rent and then sold that property for 150k. For me, it shows them it’s possible. Because I can always ask them, “You guys can save up $5,000, right?” They all say yes.

So that’s one of my best things. I just enjoy that. I love going into schools and just trying to put it in perspective that there’s other things that you can do besides what we’ve been taught in school.

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

Theo Jones: The best way, by email. It’s info@theloniouscjones.com, and pretty much all my social media is TheloniousCJones. Check me out there. YouTube, Instagram, Facebook, the whole barrage, and I get back. Hit me up though on email; I get with the emails the fastest, so if you really wanna get with me, hit me there, and I look forward to hearing from anybody.

Joe Fairless: Thank you so much for spending some time with us and talking about your business, your approach, the partnership advice where having alignment of interest, especially with growth and how things are managed, different risk tolerances, how you approach — you gave us a lot of different case studies for deals, from the New Orleans one that you just relisted, to the six-unit that was four blocks away from the Georgia Dome, and then the landlord/tenant psychology, too.

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

Theo Jones: Thanks so much, Joe.

Best Real Estate Investing Advice Ever Show Podcast

JF1188: Taking A More Human Approach To Sales #SkillSetSunday with Michael Maher

Listen to the Episode Below (29:21)
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Michael has a different way for us to be able to attract sales leads. He never asks for referrals, but he generates over 500 referrals per year. Michael attracts his referrals through love, generosity, and appreciation. He actually wrote the outline for his bestselling book and system in intensive care directly after he flat-lined for 37 seconds. If you enjoyed today’s episode remember to subscribe in iTunes and leave us a review!

 

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Michael Maher Background:

  • Leader of The Maher Team with Keller Williams
  • the story of The Generosity Generation
  • December 18, 2007, he flatlined for 37 seconds due to blood clots, he survived to tell his story, The Generosity Generation
  • Based in Atlanta, Georgia
  • Say hi to him at: http://referco.com/

 


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TRANSCRIPTION

Joe Fairless: Best Ever listeners, welcome to the best real estate investing advice ever show. I’m Joe Fairless, and this is the world’s longest-running daily real estate investing podcast. 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, first and foremost, and happy Sunday. Because it’s Sunday, we’ve got a special segment for you called Skillset Sunday; you know what this is – this is an episode where we dive deep into a particular skillset so that we as real estate investors and entrepreneurs can get better at what we’re doing.

With us today, we have a guest who is going to talk about the generosity generation, which is the human approach to sales. How are you doing, Michael Maher?

Michael Maher: Joe, I’m doing fantastic. I appreciate you having me on, and kudos on the success of your show. This is fantastic.

Joe Fairless: My pleasure, and thanks a lot for the props. A little bit about Michael… On 18th December 2007 he flatlined for 37 seconds due to blood clots and survived to tell a story. Now he has come up with the Generosity Generation – it’s a human approach, as he mentioned, to sales. It’s not about asking for referrals or doing the tactical things that we might think about, but rather it’s using certain things and attracting the sales lead. I’ll let him talk more about that…

With that being said, Michael, do you wanna give the Best Ever listeners a little bit more about your background and your current focus?

Michael Maher: Yeah, thank you. What a lot of people don’t know about me and my background is that I got into real estate and very quickly had success. I went from 7.1 million in sales, to 19.1, to 40.1 million in sales with 186 transactions, in Kansas City, as a real estate agent and broker. The years following that, I was doing between 180 and 255 transactions, and I was doing it all through referrals. The typical real estate agent gets between five and six referrals a year, and we generated – or I personally generated – over 500 a year and over 600 a couple of years, netting over a million dollars in six of those years, and over two million… Netting – not gross, but netting – over two million in two of those years.

So what happened is everybody started contacting me about “Holy cow, what are you doing? What’s your system?” and then they were finding out that I never asked for a referral; what I did was I just attracted referrals and earned referrals through the law of generosity and appreciation.

So I flatlined, as you said earlier, for 37 seconds, I came too and just really realized that my system about died with me… So at night, in intensive care, I wrote the outline for the book that became The Seven Levels Of Communication, with the subtitle of Go From Relationships To Referrals. That became an instant best-seller and has now been a number one best seller in the real estate sales category for almost seven years… And of course, that’s blossomed into speaking, coaching, training, and helping others live a lifestyle that this type of sales allows you to live.

Joe Fairless: So let’s talk about this… Obviously, we need to – what is wrong with the traditional sales approach that people take, and then how is yours different?

Michael Maher: Have you ever been chased by a stranger?

Joe Fairless: Yeah.

Michael Maher: So what are your two reactions when you’re chased?

Joe Fairless: I’m annoyed… When you say chased, is someone literally running after me?

Michael Maher: Literally, yeah.

Joe Fairless: No, I don’t think a stranger has run after me, unless we’re playing a sport.

Michael Maher: So what’s your favorite football team, or baseball team? Major league, or I don’t know.

Joe Fairless: We’ll go with Detroit Lions.

Michael Maher: Okay… So great example, by the way. You’re at a Detroit Lions game, and Barry Sanders comes out of retirement, and you win your first play-off game. You guys are all excited and you decide to stay out afterwards and have drinks there at the stadium. This is the Pontiac Silverdome, is that correct? Is that still the…?

Joe Fairless: I think that now is the shell of a wildlife preserve or something, unintentionally, but yes, you can keep going with your point.

Michael Maher: [laughs] Yeah, so after the game, your friends kind of go one way, you go the other way to find your car in the parking lot – which, it happens to be easy to find, because it’s the only car left in the parking lot… But the lights are out in the parking lot and you start walking towards your car, and out of the corner of your eye, behind you, you see a shadowing figure coming out of the darkness and coming directly towards you. What are your two basic instinct reactions to that?

Joe Fairless: Oh, protect and figure out what’s going on…

Michael Maher: That’s right. So isn’t it interesting that we don’t instantly think “Woohoo, another Detroit Lions fan! Let’s go give him a high five!”, right? So instinctively we have the fight or flight response… We’re either gonna turn, face him and take it on, or we’re going to flee, we’re going to run. Well, it’s just like in the sales world. So much of what is taught out there is to approach strangers, chase strangers. So when we go at them, they instantly have these reactions – they’re either gonna fight or flight, and this is what happens… [unintelligible [00:06:22].22] and that does happen. Sometimes we’re calling, or we’re going through the doors, we’re meeting people, and all of a sudden they say “Yeah, I’ll work with you”, and there’s this little voice in your head that goes “Oh no, that was too easy”, or “What’s gonna happen here?” And of course, what happens is you didn’t even know you were getting in a fight; that person was looking for a fight, and now you’re in a battle.

This has happened probably with some of your investors with fires that have come along and said “Yeah, I’ll do it”, and you’re like “Oh, crap! That’s too easy” or different people during the transaction… But bottom line is some people are just looking for a fight; luckily, it’s less than 3% of the population. But when two people are fighting, we call it a battle. Well, how do both parties feel at the end of a battle?

Joe Fairless: Exhausted, probably…

Michael Maher: Yeah, exhausted, frustrated, and just not very happy. And the thing is, how likely is an exhausted client to refer you? The truth is they’re not going to refer you, and quite honestly, we don’t want the Fight Club community as clients. So we’re not gonna worry about that side.

And then there’s the other part – we’re taught to follow up, and likely this is 97%+ of the population. We call them, or we door knock them, or we chase them, and what do they do? They flee. Then we finally get them on the phone again and we talk to them, but the problem is most salespeople overpromise. They say “Well, no, we can sell this in three days. Our return will be 25%”, or whatever it may be, but they say “No”, and they flee some more. What are we taught to do? We’re taught to “follow through/follow up/nurture/chase”, essentially. Then what happens is we’re finally getting cornered. We overcome all their objections, we promise the moon, and they finally submit and just say “Okay, I guess I’ll do the deal” or “Okay, I’ll become your client.” But the problem is they’re passive-aggressive.

So the bottom line is the entire time we’re trying to work with them, they’re looking to get out, and the truth is we gave them the way out by our over-promising. The only way for us to deliver is to under-deliver, because we over-promised to get them as a client. So we under-deliver, and here’s the thing – a client that we under-deliver to, how do they feel? When we don’t do what we say we’re gonna do, how do they typically feel?

Joe Fairless: Right, I’m with you. Of course, they feel let down.

Michael Maher: Frustrated, let down, disappointed, whatever it may be, and the bottom line is how likely is that disappointed client going to refer you? The answer is they’re not going to refer you, so what do you have to do? You have to continue chasing. Now you are on this wonderful cycle I call the cycle of discontent, which is this chase, fight, battle, exhausted, no referrals, so you have to chase some more, chase some more; they flee, you chase some more, you finally get them, you under-deliver because you’ve over-promised, they’re frustrated, they don’t refer you, so you have to chase some more.

So there’s that whole chase cycle, or the cycle of discontent, which is, by the way, taught in all the sales training out there. So that’s a downward cycle of sales, and that’s why 99% of all salespeople and entrepreneurs don’t make it, because they’re taught that they have to chase. They have to go through these things, and they’re told to watch movies like Boiler Room and The Wolf Of Wall Street and Glengarry Glenn Ross to get primed for what it’s like to be a salesperson, but what’s interesting about those three movies is at the end of them they all either die, or go to prison. That’s our model for top salespeople? I think we can do better.

So if there’s a downward cycle, there must be an upward cycle, and I believe that the positive cycle is the referral cycle, which is somebody refers you, and when they referred — you’ve been referred deals or referred clients, maybe even referred buyers to buy your fix and flip or buy a rental property, or even referred renters. What have you noticed about those referred deals?

Joe Fairless: It’s smooth sailing.

Michael Maher: Yeah, it’s easy. They buy. There’s no selling that takes place. So what you can do, which is so beautiful, is you can tell them the truth. In fact, you can tell them the worst case scenario; you can tell them the nuclear truth, and here’s what happens when you tell the truth  – no matter how the transaction goes, it wasn’t the worst case scenario. It wasn’t you in preparing them for the worst case scenario — it wasn’t the worst case scenario, because there’s only one worst case scenario, you only have one of those.
So anything you do is a positive. You are actually over-delivering, and an over-delivery is a wow. A wow-ed client, they’re like “Oh my gosh, I actually got 17% return instead of the 12% that they thought we would get”, because you just told them the truth upfront. Well, if they are wow-ed, what do wow-ed clients do? They refer you more.

That referrals come in, you tell them the truth, you wow them just simply by doing your job or doing whatever you would normally be doing anyway to get those returns or to provide that customer service, they’re wow-ed, and they refer you more clients. So that’s the referral cycle.

Joe Fairless: Is the key just to get the referrals in?

Michael Maher: Yeah, so how do we get more people on the referral cycle? That becomes the question. And the way to look at this is like bicycle… Bicycle – two cycles, right? The referral cycle is the front wheel of the bike. The front wheel of the bicycle is to guide you and to kind of keep your eyes on the prize, which is keep your eyes on referrals and keep your eyes on the clients, and the customer service, and so on and so forth.

Well, there’s a back wheel of a bicycle. And the back wheel – how do we get more people on the referral cycle? The back wheel is what I call the generosity cycle. The generosity cycle is what starts or gets us to the point of referrals, and when we lead with generosity, we give massive value first to someone else, what do they a lot of times [unintelligible [00:12:37].03] I’m sure there’s people – either guests or people you’ve helped with your show or with your real estate investing, that they feel this urge to do what?

Joe Fairless: Continue to give back more, continue to keep the cycle going.

Michael Maher: That’s right, they wanna reciprocate, they wanna give back to you. You’ve given a ton of value to them, they wanna give back. But here’s what’s interesting as salespeople and entrepreneurs – the problem is people wanna help us, they wanna give back, they simply just don’t know how… And what I teach is listen, let’s train everybody who wants to reciprocate or everybody who wants to give back to us that the way to give back, the number one and only way to reciprocate is through referrals; so let’s train them through referrals.

Generosity leads to reciprocity, reciprocity leads to referrals, and once again, there we are, we’re on the referral cycle. But here’s where this gets even better… So generosity leads to reciprocity, they wanna give back; the reciprocity – we train them that the best way to do that is through referrals. Over time they understand that message and start to give us referrals. Then referrals, as you and I both know, is the most profitable type of business, so we’re gonna make the most amount of money, because they’re referred; we don’t have to spend any money on marketing and advertising.

Well, here’s the deal – that profitability, your business making money… There’s something more important than making money, and those things are freedom, choice, relationships, family, love… Of course, wealth, having time. All of those words, if you mix them and put them all together, they lead to prosperity. And prosperity leads to more generosity.

So the back wheel of our bicycle is the generosity cycle, which is generosity leading to reciprocity, reciprocity leading to referrals, referrals lead to profitability, which of course, leads to prosperity, which leads to more and better and higher generosity.

So the interesting thing about the back wheel or back-cycle of a bicycle is that’s where we put our energies. We should be putting our energies into generosity, giving massive value first to others; everywhere we go, give massive value to others, and they will wanna reciprocate, which we teach them that “Hey, listen, don’t buy me dinner, don’t give me a gift certificate, don’t send me cards… The number one way is through referrals.” Referrals is not a question, referrals is the answer.

Joe Fairless: Two questions… I’ll ask you them one at a time, because I hate it when people ask me two questions at once. The first question is you said when we lead with generosity, we add value first… What are some specific ways that you’ve seen that have been really effective?

Michael Maher: Well, it comes from genuine curiosity and asking great questions, which you’re a great model of. The first thing is – alright, let me ask you… With this show, the real estate investing show, what is your goal for this show in general? What do you want it to do, or do you have a stated, specific goal on what you want it to do?

Joe Fairless: The primary is to help my listeners get to know me better faster, so that we could potentially do business together in the future through my multifamily syndicating deals.

Michael Maher: Okay, very good. So they will either invest with you or partner with you, or find you multifamily deals, right?

Joe Fairless: Yeah.

Michael Maher: Okay. Here’s another question that I have – it might be interesting how many people knew that before this interview? Because you’re such a giver, you’re always asking these questions and it never comes up with maybe that stated goal.

Joe Fairless: Right.

Michael Maher: So that’s a great goal, and hopefully you’ll get an investor or two from this. Okay, and then when it comes to this show or your real estate investing business specifically, what is your biggest challenge right now?

Joe Fairless: Finding opportunities, which deals to purchase.

Michael Maher: Yeah, so if your listeners of this could find you deals and just refer them to you, it’d be fantastic, right?

Joe Fairless: That’s correct.

Michael Maher: Okay. So what have you tried so far to find opportunities? What have you seen in the past that has lead you to opportunities?

Joe Fairless: Broker relationships and…

Michael Maher: Real estate agent relationships?

Joe Fairless: Yeah, real estate agent relationships in markets that we’re focused on.

Michael Maher: Yeah, because they know what the deals are. They stumble upon them, and a lot of times the owner doesn’t wanna do the fix-up or the repair, or the [unintelligible [00:17:14].06] person is retiring, or whatever it may be, right?

Joe Fairless: Yup.

Michael Maher: What are you gonna do next when it comes to conquering this challenge of finding opportunities?

Joe Fairless: I’m gonna crack the whip even harder to the team members of mine who are on the ground, searching for opportunities… [laughs]

Michael Maher: Okay, so you’ve got this grassroots ground group of people who are looking for you already, so maybe growing that would make some sense, and maybe growing it with unpaid individuals, people who just wanna do it to help you, yes?

Joe Fairless: Perhaps, yes.

Michael Maher: Okay. So by when? What would that look like to crack the whip, and by when will you put that into play?

Joe Fairless: I don’t know, I haven’t thought about that… I already have brokers and team members doing direct mail, I have brokers looking for opportunities… So I’ve already got something in place.

Michael Maher: Okay, great. So maybe just honing that and educating the people who are doing that for you. Would it help to maybe add 50,000 unpaid salespeople to that group of people looking for deals for you?

Joe Fairless: If I don’t have to manage them…

Michael Maher: Yeah, you would not have to manage them at all… Just educate them over time on what the perfect deal looks for you. Would you be open to that?

Joe Fairless: Yes.

Michael Maher: Okay, so I have a group of 50,000+ people, a very active group, and I’d love to welcome you into that group, and have you come in. You would be the only real estate investor that would be in this group at this time.

Now, I am a real estate investor, but the bottom line is you would be looking for some unique product, right? So we could talk about that stuff, or at least get the message out that I am a real estate investor and we could figure out how we can help this group. And by the way, it’s 99% real estate agents. Would that help?

Joe Fairless: Yes, it would.

Michael Maher: There’s no cost.

Joe Fairless: I get it, yeah. And now we’ll pause in this scenario, and I see what you did… I was writing down the questions, so that it’s not just applying to me… I see what you did, and it makes a lot of sense. So that is, instead of answering the question “What’s an example?”, you just rolled right into it, and I love that.

Michael Maher: Yeah. The other thing I would do… So the three facets or areas I wanna go into – I wanna go down to finding out what your goals are, and I don’t mean just your business goals… And I’m gonna help you achieve that as a surprise. I’m gonna help you achieve that.

Same thing with your biggest challenge – what is your biggest challenge right now? And I’m gonna help you conquer your biggest challenge; not just a little weenie challenge, but truly the winning challenge, the big challenge.

And then the other avenue would be, okay, what do you do when you’re not doing work? And you would tell me an interest of yours, and that would be a third realm of me being able to help you. If you said “golf”, I would say “Alright, well what are you looking to do with your golf game?” It’s like “Well, I wanna go [unintelligible [00:19:56].10]” and I’m like, “Okay, which part of your game do you need work on?” “Short game? Great.”, and then I would either send you a book from Amazon on your short game approach, or I would go to someone I knew who knew the short game and connect the two of you; I would send you videos from YouTube, or I’d google it, or I’d set you up with a [unintelligible [00:20:14].22] tour instructor in your area to have some lessons, depending on how many referrals you’ve sent me in the past.

So give massive value first, and please note that most of those will cost me less than $10 to $0, but you can get massive value first [unintelligible [00:20:30].22]

Joe Fairless: Except for the PGA one.

Michael Maher: Absolutely, but here’s the thing – I have some connections with PGA people who would be happy to do a one-hour free lesson to possibly get you on as a client for the long-term.

Joe Fairless: Right. I love that. We can replicate that very easily, that approach. That’s a great one.

Michael Maher: Anybody can do it. And the other part of that too is we all can help others. Thank god for Google, thank god for YouTube. There’s literally no challenge we can’t conquer in today’s world… Even the mindset challenge, we can conquer that. With enough videos, with enough psychotherapy, you can get somebody through the mindset issue of fear. But it’s one of those where we can all help, and we can all help in a big way, and we can all give massive value first to others.

Joe Fairless: The second question I have is you mentioned multiple times that you let your clients know the best way to reciprocate is to give referrals… Is there a way that you do that other than just saying that to them?

Michael Maher: Yeah, I really don’t typically just say it to them; it’s not a point blank. But remember, I said also that referrals is not a question, referrals is the answer. When I say “referrals is the answer”, I mean that 100% of the time. So let’s say I get you in this group and all of a sudden you’re making connections for deals… In a follow-up conversation I’ll go “Well, how’s it going in the group?” and you’re like “Wow, it’s been great. We’ve already made some connections, and I can even get a couple partners maybe.” And then what might you ask me?

Joe Fairless: I don’t know, “What can I do to help you out?”

Michael Maher: That’s right, “What can I do for you?” and “How can I help you?” My answer is “Referrals.” So if you said “Michael, it’s been great. How can I help you?” “Referrals”, that’s the answer. And then your follow-up question might be “Well, who are you looking to get connected to?” and that for me could change over time. “I’m really looking for sellers right now. I’m really looking for people — increased inventory we have, because we’re low on that, we’re selling the heck out of properties very quickly.” Or buyers, or in some cases, if I know you know someone really influential, then I would say “You know what? You are connected to the CEO over at John Davidson Motors. Would you be willing to connect me to him?” and all I would be doing is looking to meet with him to find out why he’s so successful… I would literally kind of almost interview him and ask about how he became so successful; it would not be a sales call at all, but “Would you mind just connecting the two of us and letting me do that interview, where I’m just looking to grow?”

Joe Fairless: What if they don’t ask “How can I help you out?” You know that they would be willing to, and they would be interested in it, but they don’t explicitly ask that.

Michael Maher: So somebody talks about themselves a lot. So I keep asking, and they keep talking, and so on and so forth. I’ll be like “You know what? Let’s stop right here. You probably feel like this was a game of 20 questions, and honestly, I’m genuinely curious, Joe, about your goals, your challenges – everything about you, and I think I’m just scratching the surface on how awesome you are, but here’s the thing… Let me just stop right here; instead of having this be 20 questions and me just bombard you with questions, let me ask you this – do you have any questions for me?” or I’ll say “What question do you have for me?”

I want you to know there’s something called question reciprocity. Question reciprocity is that when you stop in this line of questioning, the last question that you asked them is most likely to be the question that they ask you back. So you get to that point, it’s like “Alright, what are your challenges?” or “What’s your goal?” and they tell me what their goal is and stuff like that. I go “Wow, that’s awesome… You know what, I’ve got some ideas on that I’d love to share with you. But before we even go on, what questions do you have for me?” They’ll say “What goals do you have?” “Well, my weekly referral goal is to give 10 referrals and receive 5 referrals. So out of all the people you know, who can I help?”

Joe Fairless: Is that still your goal?

Michael Maher: My weekly referral goal is to give 10 referrals and receive 5 referrals, yes.

Joe Fairless: To give 10 referrals and receive 5?

Michael Maher: That’s right.

Joe Fairless: Interesting. This is fascinating stuff… I loved that last part – the last question you ask them is likely the same question they ask you… That’s great.

Michael Maher: Yeah, it is. I do podcasts, they don’t even know it’s coming. So I’ll do the podcast and I’ll go “Alright, let’s just roleplay it…” Literally, we’re in the middle of a roleplay and they kind of forget we’re in a roleplay; we’re just having our conversation, and literally, I’m asking about the goals and the challenges and what their ideal client is and how is the best way to refer them… And I’ll either get to the goals question or whatever, and I’ll go “Alright, let’s reverse this… What’s the question that you have for me?”, and [unintelligible [00:25:11].15] every single time they ask me the last question that I just asked them.

Joe Fairless: That’s fascinating, I love that.

Michael Maher: It’s not manipulation or magic, it just is. They could ask me some other question, like “Are you still single, or are you married?” or some other crazy, annoying, weird out of the box question, but do you know what they ask me? They ask me the last question.

Joe Fairless: That’s great. Well, Michael, where can the best ever listeners get in touch with you?

Michael Maher: Thank you for the referral mention, right? I think the best thing is referco.com, but they can also go to Facebook; they’re already there, probably most of them, right now. Facebook.com/referralguru, and in my photos, there is a photo that has been liked 738,000 times. It will say on there 738k…

Joe Fairless: Is it you with your shirt off, flexing?

Michael Maher: It is not me flexing; that one has just 612k likes… But it has 738k likes and it has 216k shares. And if they could like it and share — it’s a picture of a tombstone, so that will help them find that. It’s a very, very cool tombstone.
So bottom line is that they can go to Facebook.com/referralguru. No, that’s not my title; that was chosen by a PR person a long time ago… But 83k members there, and we’d love to have your listeners become members there, and share and post their photos and videos and posts that I post that are positive, inspirational and typically lead us down a path of generating referrals and great relationship with people.

Joe Fairless: Outstanding. This is a very practical, hands-on conversation. I’m grateful for it, I know the best ever listeners are as well… Some takeaways – we need to first lead with generosity and add value first. You went through a role-playing scenario where you asked questions; fortunately, we have a transcription of every episode, so Best Ever listeners, you can just go to BestEverShow.com and check out the transcription of this when the show airs… So you can read those questions.

Then the best way to give back or reciprocate to you is to give referrals. It makes so much sense… I have a background in advertising and I can tell you the number one influencer of purchase intent is word of mouth, referrals. So when we have word of mouth referrals, then that’s going to influence purchase intent more so than anything else on the face of the earth.

It doesn’t matter what type of ad or how creative you get with PR, it’s word of mouth referrals that’s the number one influencer of purchase intent, therefore, referrals should be at front and center of our business, and you have given us a step by step process for how to practically do it in our own business.

Thanks for being on the show, Michael. I hope you have a best ever day. Best Ever listeners, you can go to his website, which is in the show notes link… And talk to you soon!

Best Real Estate Investing Advice Ever Show Podcast

JF1147: This Is How To CORRECTLY Brand Yourself with Chris Craft

Listen to the Episode Below (21:38)
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Chris says that the best thing you can do for proper branding is have good content. He’ll give you details in this episode of what kind of content to create, and how to leverage your personality and knowledge. The voice behind the content is one of the most important parts to master. If you enjoyed today’s episode remember to subscribe in iTunes and leave us a review!

 

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Chris Craft Background:

  • Founder of content creation agency Nao Media
  • Author of The Foundation: Branding for Successful Real Estate Professionals
  • Helps real estate professionals brand themselves through written content
  • Real estate marketing and content expert
  • Based in Atlanta, Georgia
  • Say hi to him at http://www.naomedia.co/
  • Best Ever Book: The Content Code

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TRANSCRIPTION

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

With us today, Chris Craft. How are you doing, my friend?

Chris Craft: I am doing well, Joe. Nice to be with you today.

Joe Fairless: Nice to have you on the show. A little bit about Chris – he is the founder of content creation agency Nao Media. He is the author of The Foundation: Branding For Successful Real Estate Professionals. He helps real estate professionals brand themselves through written content. He is a real estate marketing and content expert, based in hot Atlanta, Georgia. With that being said, Chris, do you wanna give the Best Ever listeners a little bit more about your background and your focus?

Chris Craft: Yes, definitely. First and foremost, I’m a follower of Jesus Christ; everyone knows that about me, and now your listeners know. I’ve been in content marketing since 2010 with the launch of Nao Media. The interesting thing about Nao Media – it’s the first three letters of our oldest daughter’s name, Naomi. When she was two, I asked her if I could borrow the first three letters of her name to start a company and she said yes, and history has been made ever since.

Joe Fairless: Did she negotiate an equity agreement with you?

Chris Craft: [laughs] I think she’s in good position for that.

Joe Fairless: Okay, there you go.

Chris Craft: I’m two-times published in terms of being an author. The first book that I wrote was published in 2013 and it’s called “OPEN Routine: Four Components To Personal Branding Excellence.” Now I’ve taken that personal branding niche and hyper-focused it on real estate with the second book, that you mentioned, The Foundation.

Joe Fairless: Got it. Okay, so let’s talk about branding ourselves as real estate professionals. Before we get into the specifics, why should we care about this as real estate professionals?

Chris Craft: Because anytime you leave your home or the four walls of your office, you’re presenting your brand to the world, with you wanting to do so or not. Anytime you present yourself, whether it’s to the teller at a checkout line or to a prospect that you’re trying to help sell a home to them, your brand is on display. It’s one of those ingrained things, it’s your God-given identity put on display and you can’t avoid it; that’s why I harp on it so much, because every single one of us have a brand, whether we like it or not.

Joe Fairless: That is very true, we do have a brand whether we like it or not… It’s just, are we thoughtful about it and our approach to make sure that we are really presenting what is truly authentic to ourselves and putting ourselves and the brand in the best light… So how do we do that?

Chris Craft: You hit the nail on the head, Joe. The way you do that, in human terms, is being comfortable with yourself and being truly authentic. You hit the nail on the head with that word ” authentic”. People who are transparent – and I’m not saying transparent to a fault, but people who put themselves on display in a way that people can know more about you, more than the person who’s trying to do business with you, the more comfortable they are with you.

I like to focus on web presence, so the first way to start that is with your web presence, right? And not giving people a canned representation of you. Taking the time to write a really good bio for your static About Me page, taking the time to really bring yourself through social media by letting people know more about you than just your listings, and then also taking the next step and putting out helpful content to people, that lets people know that you have domain knowledge and you’re an authority on a specific niche within the real estate industry.

Joe Fairless: How do we go about writing the content? What are some tips that you have?

Chris Craft: Can I be transparent right here, first and foremost?

Joe Fairless: I hope you’re transparent all the time, baby.

Chris Craft: [laughs] 95% of agents don’t have time to write their own content; I’m just upfront, and that’s why my agency does so well. One of my best and most trafficked blog posts is “Stop Blogging. Let Me Do It!” That’s not to be overly salesy, it’s just the reality. If you’re not out there trying to create deals, then your business won’t go, and I think many of us can agree with that. But if you are in that 5% of the people who are able to do their own content, start by doing the brain dump, seeing who you are… I would say concentrate 20% of your content on letting people know who you are and how unique you are and your value prop, and then do the remaining 80% on being helpful with people who are looking to buy or sell within your specific neighborhoods that you cover.

I’d say the first place to start is to do a topic dump. That’s always where I start after I engage a client. I get specific keywords from them, I get a sense of their voice, and that’s a whole “patented process” that we have, to nail the voice of our client. After all that is done, we literally do a topic dump and we take these topics back to the client to have them pre-approved. So if you’re writing for yourself, sit down, block out a good 30 minutes to an hour and write down, even if it’s in bullet points, the type of topics that you would want to cover with that 80/20 split that I gave you just a second ago.

Joe Fairless: How do you nail the voice? That’s a tough one. And I’m not asking to learn the proprietary process you work with your clients, I’m asking for the 5% of Best Ever listeners or investors who want to create their own content – they have a personality and then they write, and it’s just “Bleah!”, just normal stuff; they’re not capturing their voice. How can they do that?

Chris Craft: [unintelligible [00:06:50].26] in popular media that AP style writing is still very important – you want to spell things correctly, you want your grammar to be somewhat good, but you can mix in a “y’all” every once in a while; you can mix in an “ain’t”. So for the people who have trouble writing, I really recommend recording yourself, especially if you’re a audible learner. Record yourself. You don’t necessarily need to have one of the dictation softwares, because those things are kind of hookey, but if you listen to yourself and then if you take the audio of that and repurpose it into written content, that’s a really good hack for people. In fact, a lot of the podcasts that I appear on, I have them transcribed, and even your best transcription service, sometimes they try to turn the transcription into AP style writing, and it just doesn’t feel human, it doesn’t read human… So just let your personality flow through your writing by writing how you speak.

Joe Fairless: I like that. That’s a very practical tip that we can implement if we’re looking to create content for the first time; we’re not sure how to write, what type of angle to take… Just talk, record yourself and then use that as the fodder for your first article.

Chris Craft: Exactly. And our agency doesn’t focus on video, but that’s the appeal of video, and that’s why people really like it. It’s unfiltered. The best video is unscripted… If you have a general outline of the points you wanna cover… But it also appeals to more than one sense. But you couldn’t kind of replicate that through written content by just writing how you speak.

Joe Fairless: What are some other content tips that you can share with us?

Chris Craft: Content is like a product – you can’t just put it on the shelf and expect people to come. You have to ignite your content – that’s a term that I borrowed from my good friend Mark Schaefer, a really awesome content marketer. You have to ignite your content by sharing it through social, especially if you have evergreen content, and that’s content that stays relevant for a long period of time.

Honestly, a lot of my most popular posts that I’ve written are 2-3 years aged, and they’re still relevant. So how do you do that? With things like IFTTT, which is “If This, Then That” (IFTTT.com), you can basically take one blog post and share it to several social media platforms that you have a presence on on a consistent frequency. That gets it out there, it gets more people to see your content, and it’s the hub and spoke model; it drives people back to your hub through those social channels afforded to you, and your hub being your website.

So that’s the main tip I would say for — after the content is written and published, make sure you ignite it, because you can’t depend on Google to index your blog post for you and for you to be instantly number one with that specific piece of content… So you have to force the action.

Joe Fairless: So you sign up for a website like IFTTT.com, it links to all of your social media accounts, and it sends out the content… That is a tactic that we can implement, and then it is working for us, on our behalf. What are some other ways to share or ignite the content?

Chris Craft: I’m a big fan of repurposing. Everyone loves the idea of having an e-mail list, but they don’t send information out to their e-mail list unless they think that there’s something absolutely new that they need to share. Well, the reality is every single piece of content that you write, in some way, shape or form needs to go out to your list, so repurpose it.

I do it one of two ways, I kind of mix up the strategy. I either send a quick update to my e-mail list and linking back to the content, or sometimes, my specific members on my list love long-form content directly in the e-mail, and I will repurpose the entire copy inside the body of an e-mail. I’ll still at the end and within the body of the e-mail offer key calls to actions to drive them to specific pages that I’m trying to send traffic to for inbound marketing purposes… But that’s the other thing – do not sit on the content with it just being on your blog or your website; get it our through your e-mail list as well. That will be my number two tactic that agents can use, and investors as well.

Joe Fairless: And as far as your e-mail list, any suggestions for which e-mail platform to use?

Chris Craft: Yes, I am a big fan of ConvertKit.com. The reason why is because you’re able to organize your lists into subgroups under each list, and then also they have these really cool links that you can put into your e-mails and it tracks the people who click those links, and it will drive people who click into another more targeted group for really specific marketing… Because you don’t want to be that marketer that sends every single e-mail to every single person on your e-mail list. You wanna have your list segmented so that you can contact specific people with the type of content that you know that they will like. And it’s really fairly priced too, and it scales with the size of your e-mail list.

Joe Fairless: I have MailChimp and it’s the same pricing model – it’s free at first, and then as you get more and more subscribers it just costs you a little bit more every month, but it’s very reasonable.

Chris Craft: MailChimp is here in Atlanta, they’re excellent as well. I will say those two, ConvertKit and MailChimp are really awesome.

Joe Fairless: What is your best advice ever for real estate investors who want to brand themselves through content?

Chris Craft: The number one thing is make the decision “Can I do in on my own or do I need to outsource it?” That’s number one. Because if you’re motivated to get started with writing on your own and then you find yourself not publishing any content for a three-month gap, you’re gonna lose any and all momentum that you have.

Now, if you’re the type of person that blogs in concert with other strategies, like podcasting or video, then hey, that’s your strategy. So I will say number one, make that decision.

Number two would be to write content that’s able to be ranked, and gone are the days that you can write a 200-word piece and Google gives you a good amount of juice behind that. You have to write things with a little bit of meat to them. If you’re gonna write, try to commit to at least 500 words of rich content that has a fair amount of keyword density. What that means is know beforehand which keyword you wanna rank for, and put that keyword inside your content tastefully throughout the content.

Those would be my top two things… One, make the decision on if you really can do it, and then two, write meaty content that people feel will be worthwhile to actually read.

Joe Fairless: As far as knowing the keywords that we wanna be ranked for, how do we determine that?

Chris Craft: A lot of it, especially in real estate — it’s really set up well for real estate… A lot of keywords that you wanna rank for in real estate, they’re geo-targeted. They’re more specific than just “Austin, Los Angeles, Houston” and “real estate investor”. Get down to the specific neighborhoods, get down to subdivisions, get down to — not really zip codes; no one searches Google by zip codes… But that’s really your starter. Try to carve up the cities or towns that you are going after into specific neighborhoods and use those as the foundation of your longtail keywords.

When I say “longtail keywords”, I’m talking about keywords that are 3-5 words long, and not just 1-2 words long.

Joe Fairless: And if we are choosing to — regardless of if we have a partner like you and your company, or if we’re choosing to do it on our own, should we identify those keywords and then attempt to incorporate in all of the articles that make sense?

Chris Craft: That’s exactly right. That’s actually step number one. So if you’re working with an agency like me, the voice is important. We actually take 2-3 weeks to nail the voice, and we turn content in too to treat the client like the editor in chief. We send 2-3 weeks’ worth of content just for heavy redlining, just to nail the voice. If you’re that 5% and you’re writing on your own, you should be able to come upon your voice a lot quicker than that.

After voice, those keywords must be (I will say) 80%-85% of your content you will want to have a keyword in the background being the motivation or what you’re trying to drive traffic through when people search. The remaining 15% could just be personality-driven, it could be something about your kids if you’re a parent, it could be something that just adds color and context to you as a person.

Joe Fairless: Okay, good to know. Are you ready for the Best Ever Lightning Round?

Chris Craft: Oh, I love it. I can’t wait!

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

Break: [[00:16:23].19] to [[00:17:24].28]

Joe Fairless: Best ever book you’ve read?

Chris Craft: Oh wow, that’s a good one. I will have to say the Bible. It’s my center, it’s the light that’s in my life and it’s the truth, so that’s my best ever book. Now, if we wanna go to best ever marketing book, I’ll have to go with one of Mark Schaefer’s books, The Content Code.

Joe Fairless: What’s the best ever case study that you’ve done?

Chris Craft: The best ever case study that I’ve done… Definitely at the end of the year I do a survey to all the people on my list, and I also go outside and do research on what’s the upcoming digital marketing trends for the upcoming year. I did it at the end of 2015 and I did it at the end of 2016, and I turned those findings into a one-pager PDF and people just love it, they eat it up every time I come out with it at the end of each year, and it’s for the following year. In fact, you can grab my 2017 one at CraftWrites.com/marketing.

Joe Fairless: What’s a mistake you’ve made in business?

Chris Craft: Oh, this is an easy one. I’m an awareness content creator now. My team, we write content for people to express their domain knowledge and for them to write content that allows people to learn from them. The biggest mistake I used to make would be to make promises on page rank based on the content that we would write for people. Not that our content is not SEO-centered or SEO-driven – that’s definitely a part of our process – but there’s no way that you can predict, especially with the changing of search algorithms… So that’s the biggest mistake I used to make – putting too much weight into SEO in the services that we would sell; we’ve since pivoted from that, and our business has definitely benefitted ever since then.

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

Chris Craft: Definitely with my time, and serving in the community, and then also with the money that the Lord has blessed me with I definitely give back to faith-based causes and also community causes. With every single dollar that I earn as an individual and every single dollar that Nao Media earns, the first fruits are going to the community efforts that help people who are in need.

Joe Fairless: How can the best ever listeners get in touch with you or your company?

Chris Craft: Shoot me an e-mail at Chris@NaoMedia.co. I love to engage on Twitter, and you can find me on Twitter @CraftWrites. And then also, if you just wanna read some of my writing, you could go to CraftWrites.com. If you just wanna learn more about the agency, you could go to NaoMedia.co.

Joe Fairless: Outstanding. Chris, thank you for being on the show, thanks for sharing the content marketing tips that you’ve walked us through, from igniting your content using some platforms or some services like the IFTTT.com (If This, Then That), to being consistent and identifying — it really is a very important question… Are you gonna do it? Are you gonna have someone else do it? Either way, make sure that it’s consistent, because that’s the key to ranking over a long period of time and being in this business for the long run, it’s being consistent. So set up yourself for success, take whatever path works for you so that you will be consistent.

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

Chris Craft: Thank you, Joe. God bless.

Best Real Estate Investing Advice Ever Show Podcast

JF1110: Doing Your Due Diligence on Your Lender #SituationSaturday with Abhi Golhar

Listen to the Episode Below (19:39)
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It was his first new development deal and he used a new lender for the deal. With permits taking waaay longer than they should, the new lender started getting nervous and threatened to call the loan. Hear how Abhi dealt with this sticky situation. If you enjoyed today’s episode remember to subscribe in iTunes and leave us a review!

Best Ever Tweet: Numbers are everything

Abhi Golhar Real Estate Background:
-Managing Partner of Summit & Crowne, a real estate investment firm in Atlanta.
-Host of Real Estate Deal Talk an independent source of original podcasts, videos, & articles
-Full-time investor in real estate & contribute to Forbes & Inc.
-Uses a “value-added” approach to identify single family flip, buy-hold, and multi-family opportunities.
-Based in Atlanta, Georgia
-Say hi to him athttp://realestatedealtalk.com or https://www.abhigolhar.com


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TRANSCRIPTION

Joe Fairless: Best Ever listeners, how are you doing? Welcome to the best real estate investing advice ever show. I’m Joe Fairless, and this is the world’s longest-running daily real estate investing podcast. 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 a special segment called Situation Saturday. You know what this is, right? You’re a loyal Best Ever listeners. But in case you forgot, this is about putting our guest in a challenging situation or having them relive a challenging situation and how they got out of it and the lessons learned along the way.
We have a phenomenal returning guest with us. In fact, episode 476, titled “For five years he failed, until he…” – you can go listen to that if you didn’t already… But don’t do that yet. Listen to this conversation first, with Abhi Golhar. How are you doing?

Abhi Golhar: Good, Joe. Thanks for having me back. My name should just be Abhi 476, I think that’s what we should do. [laughter]

Joe Fairless: You can get it. I can see the tattoo already. We can put it behind the Best Ever logo and everything. A little bit more… You are the managing director of Summit & Crowne, which is a real estate investing firm in Atlanta; also the host of The Real Estate Deal Talk, and a full-time real estate investor and contributor in Forbes and Inc. Magazine. Based in Atlanta, Georgia. With that being said, do you wanna give the Best Ever listeners a little bit more about your background and then just roll right into the challenging situation?

Abhi Golhar: Yeah. A little bit about my background, Joe [unintelligible [00:02:31].02] engineering at the University of Michigan Go Blue, and I started investing right then. It’s been now about 15 years. In 2002-2003 I started investing in inner city Detroit. I didn’t start with a whole lot of capital, not a silver spooner… Quite frankly, my parents didn’t even know that I was investing in inner city Detroit. I initially started with wholesaling real estate, then worked my way up, built some cash up, got into a couple projects, failed in Detroit – and I think that’s where you should go listen to episode 476, but listen to this one first. And that’s how my education started. I could have just said “I’m not going to do real estate or invest in real estate anymore” because I was super scared, but I didn’t… I pulled myself back up and I just went at it, and I was absolutely fearless. It’s been a wonderful, wonderful journey ever since, making mistakes and successes along the way.

The challenging situation that I had was a couple years ago my partner and I purchased 646 East Avenue in Atlanta, Georgia. That’s a home that was an existing single-family home in a little neighborhood called Old Fourth Ward, before Old Fourth Ward got super hot (like Hotlanta). We purchased it for about 235k-240k, and our plans were to build on it. It was gonna be a beautiful 2,200 square foot home, about a 4-bedroom, three and a half bathroom modern home; I’ll send you all the plans, link to the PDF in the show notes for sure.

It was an interesting deal; we had a lot of back and forth with the city, and the biggest challenge that we had was the lender was just not up to par. It was so obnoxious working with this lender, it was so bad, and we just didn’t do our due diligence enough.

Joe Fairless: Real quick – you bought the land for 235k or was it a knockdown and you were gonna build, or you were gonna renovate…?

Abhi Golhar: Yeah, great question. It was an existing single-family we were going to knock down and build new.

Joe Fairless: Okay, existing single-family, you’re gonna knock down, build new… Did you buy with cash (the 235k) or did you use this lender to close the transaction initially?

Abhi Golhar: We purchased with the lender, so we raised our own equity – we put our own cash in the deal – and we took out a loan for the acquisition and the new build. Total cost of that was right around 520k-525.

Joe Fairless: Okay. You raised money to have the equity for the down payment and miscellaneous things on the loan, and then you got a loan with the lender for the purchase and the build.

Abhi Golhar: Yes, you got it.

Joe Fairless: Okay. Then what happened? Tell us.

Abhi Golhar: Well, this is where doing your due diligence not only on the deal helps – we had that down, I’ll walk through that in a second – but it’s also doing your due diligence and your homework on the lender. The biggest challenge that we had with this lender is this was this lender’s first time investing in a single-family, a new construction project out of state. The lender was actually in New York, in New Jersey, and they were looking at doing new construction deals or lending on them in the South-East. They had heard about us from a couple of other local lenders that we knew. We said, “You know what? Let’s give it a shot” We got on the phone with them, they sounded like great folks, and we said “Great, let’s go ahead and make it happen.”

What’s interesting though is, as you know, Joe, with new construction projects, it takes time. You have to get permits, you have to get variances sometimes, you have to go back and forth with the city on red lines, which are corrections to the original plans, in order to get your permits.

At the time, the [unintelligible [00:06:15].27] was just running a little bit behind. This was as the market was reheating up, and they started running a little bit behind. They were getting delayed on a couple of things, so it took our permits instead of generally a good run rate of about 4-6 weeks to get, it took five and a half to six months to get.

Joe Fairless: Oh… Any lender would have a hard time with that.

Abhi Golhar: Yes. And so what we did was we started communicating all the time. We got on conference calls, we shot out e-mails saying “Hey, this is what’s going on with the city.” The city of Atlanta has what’s called a BB number; that is essentially a tracking number associated with that particular project, kind of like a FedEx tracking number or a [unintelligible [00:06:59].08] tracking number for your mail delivery. So they were checking that out and I said “Hey, you know what? It’s taking a little bit longer, the city is backed up, we’re getting red lines back, we’re addressing them as soon as possible”, but they weren’t really happy about that. And considering that it was the lender’s first go-around, they got really jittery, and they said “Hey, you know what? We might just call the loan due if this activity continues, because you’re not making progress.” Oh my gosh…

Joe Fairless: How much was the loan for?

Abhi Golhar: We brought 20% down on 525k, so let’s say roughly 410k-415k probably.

Joe Fairless: Got it, okay.

Abhi Golhar: Yeah, and the terms were okay–

Joe Fairless: When they initially mentioned that to you as far as “we might call the loan due” – was that over the phone, in e-mail or in person? I imagine it wasn’t in person, since they’re not where you are.

Abhi Golhar: Yeah, it was over the phone.

Joe Fairless: I’m the lender, you’re you; I just told you we might call the loan due if you don’t start showing some progress… What did you say? Did you stammer like that? [laughter]

Abhi Golhar: Yeah, exactly! “Uh, I mean, come on! I get, believe me, I understand.” If I was a borrower, I would put myself in their shoes. I’m like “Listen, let me put myself in your shoes for a second. This thing is taking far too long, I understand. Is the borrower communicating with me?” That’s like the first two things that I’m looking at: 1) is your position secure? Yeah, you’re in the first position on the property, no big deal. But is it taking longer than it should? Yes. Is the borrower communicating with me as much as possible, letting me know what’s going on every step of the way? Yes. Okay, then that should give me some level of comfort, but it doesn’t take me all the way when I get that.

But we were also not being confrontational about it and saying “Oh, whatever… You’re a terrible lender; we’re not gonna pay the note anymore.” We weren’t doing that. We were like “Hey, we will continue paying this note, we believe in the project; let’s do an extension. We’ll pay the extra points…” – I think it was like half a point or a point to extend… No problem, we’ll take care of that too, but give us the opportunity to extend and see the project through to completion. They didn’t wanna do that, and I said “Okay. You want to call the loan due. How much time do we have?” and they said (over the phone) “You have about 45 days to off-load it”, and I said “Alright. We can fly up to you… What do I need to do?” [unintelligible [00:09:35].05] was on the phone with me too, he’s my business partner and he’s my right-hand man in Atlanta; we were both dumbfounded… We were like “Are you kidding me? Because this has never happened to us before. We’re usually on top of stuff”, and I will take that responsibility on my shoulders to 1) I didn’t do enough due diligence on the lender, and 2) We should have been probably more aggressive with the city, and I get that… There’s only so much we could have done, but it’s still my responsibility to make sure that this thing is expedited. We even had an expediter at the city as well, that was on these conference calls letting the lender know what was going on.

So the lender dropped that bomb and said “You know what? 45 days out.” Alright, that’s what we’ve gotta do. So we scrambled, we put the package together. At the time we would have made $200,000 on this deal, because even our all-in cost was roughly around 565k-575k on a worst-case. We had comps between 750k-770k, in that neighborhood, with day on market less than 15. So I knew that the deal was good, I knew it, because we’re not gonna buy stuff that’s crappy; that’s never, ever the case.

You invest in multifamilies, you understand numbers are everything, the team is everything, the lender is everything. So we packed the deal, we finally got permits, and we went back to the lender and we said “We have permits. Let us build! Let us do this!” and they’re like “Nope, sorry. We don’t want anything to do with you or the project.” Okay…

Joe Fairless: Wow… How did they say it? Obviously, that was basically what they said, but again, is this over phone calls, or e-mails? Just so we get an idea of what it’s like to be corresponding during this time.

Abhi Golhar: It was phone calls followed by e-mail. What we did was we took the notes from the phone call and said “This is what’s going on”, just so we had everything documented for our records. Then we said “Hey, is this what was agreed or what was discussed on the phone call?” and they responded and said “Yes, please advise how you’d like to move forward.” Because it was either we sell it, or they were gonna foreclose… Because they didn’t want to have anything to do with it even after we got the demolition permits and build permits, and at that point in time we were probably month seven and a half. So we would definitely have to get an extension, and they weren’t gonna have any of it.

I said, “Okay, no problem. We have two options.” First option is let’s find another lender to do it. Second option is “Let’s just wholesale it off. Whichever one hits first, that’s what we’ll do”, and we wholesaled it off.

What’s crazy is we followed back up with the deal. They bought it for payoff plus about 15k, so we made a little bit of money, not a whole lot. Then we had the cost of permits, and things like that, so we made maybe $100 or $200 on it. They ended up selling it for 910k. You have no idea how frustrating that is for me to tell. I’m about to fly to Cincinnati, grab a beer and just keep drinking with you, because that’s how frustrating — I still talk about that deal even today, and it’s just like, man… And like I said, I’m still willing to take the responsibility, but Jim Rohn said it best; he said “All you can do is all you can do”, and if you are doing exactly that, then you have nothing to worry about. But I felt like I had everything to worry about in the entire world, but you know what? Sometimes all you can do is all you can do, and you have so many external factors: the city of Atlanta, the permitting process that’s just taking forever… All you can do is all you can do. [unintelligible [00:13:01].01] to the best of your ability.

Joe Fairless: What was it like communicating with your investors during those 5-6 months that you were waiting to get permits?

Abhi Golhar: They understood because they had invested with us before and they had full confidence in our ability to perform, which we did on the permits, but then we didn’t on the build… And then once we wholesaled it off, we said “You know what? We don’t need any profit on it. We’d like to, but we’re gonna make sure our investors get paid off first”, and they did.

Joe Fairless: Knowing what you know now, if a similar situation presented itself, how would you approach finding or screening the lender.

Abhi Golhar: There are two things that I’d do. One, I would have a conversation about the neighborhoods and I would pay very close attention to what they know and what they don’t know about the city.

Joe Fairless: Like what?

Abhi Golhar: I would say “Hey, Joe. What do you think about Kirkwood, Atlanta right now? And you would give me a response. I’d ask you a couple of additional questions about the city of Atlanta, what your thoughts were, why Atlanta, how many deals have you done here before? Are you doing any deals currently? Are you looking at any opportunities currently? Can I drive by that? Can I meet some of the borrowers that you have in Atlanta, shake their hands? I would have done that a little bit more (more up front work), and quite frankly, I’d probably just go after a local lender… We had two local lenders lined up, but we wanted to try these folks… So that’s what I’d do a little differently next time.

Joe Fairless: Were their terms a little bit better than the local lender? There had to be something that pushed you over to them initially, compared to local people.

Abhi Golhar: The local lenders – they were really tied down with some of the deals that they had currently going, and they had pretty much all capital allocated for deals already, and we got better terms from these folks (I’ll just call them North-Eastern lenders; that’s not the name of the company, but just to identify them). So the North-Eastern lenders had better rates and more available cash; local lenders just didn’t at the time, because they were tied down, so I’m like “You know what, it makes sense. We’ve gotta move on this property because we know we can make money on it.”

I suppose in hindsight moving that fast isn’t also a good thing, because it didn’t give us the time to ask the questions of the lender that we needed to.

Joe Fairless: What condition was the property in when you wholesaled it?

Abhi Golhar: We had started demo on that property, and we finished demo and we sold it as a demo-ed lot, and that was it. There were no footings, there was nothing there. It was just a plain old lot.

Joe Fairless: What do you think it cost based on what you’ve seen the finished product looking like with the final thing – what do you think it cost them to build, all-in costs, just to get an idea of their profit?

Abhi Golhar: Oh, my gosh… We wholesaled it off to a really good builder, so I know that they cost was roughly around $92-$95 a square foot for 2,200 square feet… And ever worst case, if they spent $100-$105 dollars just to make it a little nice, are you kidding me?

Joe Fairless: Yes, that’s $220,000, if it’s a dollar a square foot, and then you’ve got the acquisition cost, which was — how much was that?

Abhi Golhar: The acquisition was roughly about 250k, new build at 220k… Yeah, they totally doubled up.

Joe Fairless: Anything else as it relates to this particular story that you think is relevant for the Best Ever listeners?

Abhi Golhar: I would say go in with your eyes wide open, trust but verify, and hold your team really close to your chest and make sure that everybody’s willing to dig through the trenches with you. That’s when you really know at the end of the day that you have a team… That one person, two people, three people that are willing to make it happen for you, even if it’s at 2 o’clock in the morning, because I cannot tell you how many times Walton and I talked and it was after hours, one-thirty, two, two-thirty, three o’clock in the morning… Just having that reassurance and being able to sleep at night knowing that everything’s going to be okay means the world to me.

Joe Fairless: I noticed that when you said types of questions you’d ask the lender one of the things you didn’t mention – and I don’t know if this was intentional or not – is asking them “Hey, if the project is supposed to take 4-6 weeks to get permit approvals, but it takes 5-6 months, how are you gonna react?”

Abhi Golhar: Yeah, that’s a really good question for next time, too. That’s without a shadow of a doubt something that we ask all lenders moving forward, especially from that experience. That was a great call; I just didn’t bring that up, I don’t know why.

Joe Fairless: Got it, it makes sense. Well, I loved our conversations. Thank you for being on the show. How can the Best Ever listeners get in touch with you?

Abhi Golhar: You’re very welcome, Joe. Thanks for having me. The best way to get in touch is go to realestatedealtalk.com.

Joe Fairless: Easy enough, super simple – go listen to Real Estate Deal Talk Podcast as well. Thank you for being on the show, thanks for talking about lessons learned from 646 East Avenue in Atlanta, Georgia, in the old — what is that submarket called?

Abhi Golhar: Old Fourth Ward.

Joe Fairless: Fourth Ward, there you go.

Abhi Golhar: You got it.

Joe Fairless: So the lessons are many – some of them I wrote down… Do the due diligence on the lender, have a conversation about the neighborhoods, make sure they’re comfortable with it; perhaps leans towards a local lender on these types of deals, and have a point blank question about “Hey, if I’m running behind for permitting reason, because the city is running behind, how are you gonna react to it?” As you said, trust but verify, and hold your team close to your chest and make sure that you’re all a tight-knit group.

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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JF1049: Save TONS of Money by Listening to This Guy – with Shane Moncrief

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Shane is here to help you with your property taxes.  Now more than ever, deals are falling through because of property taxes.  Learn why that is, and why you SHOULD underwrite taxes before taking ownership of an asset. If you enjoyed today’s episode remember to subscribe in iTunes and leave us a review!

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Shane Moncrief Real Estate Background:
-Principal and Practice Leader, Property Tax Commercial at Ryan, LLC
-Specializes in commercial property tax, and currently leads the Commercial Property Tax consulting practice
-Formerly a Senior Consultant for commercial real estate company
-Given over two dozen presentations to professional associations in the real estate and property tax industry.
-Based in Atlanta, Georgia
-Say hi to him at www.ryan.com

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Shane Moncreif on The Best Ever Show

 

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, Shane Moncrief. How are you doing, my friend?

Shane Moncrief: I’m good, Joe.

Joe Fairless: Nice to have you on the show. Shane is gonna take a different approach from a guest that we usually have. He specializes in commercial property tax and currently leads the Commercial Property Tax consulting practice. He’s a Principal and he is  a Practice Leader at Property Tax Commercial at Ryan LLC. He’s formerly a senior consultant for a commercial real estate company and he is based in Atlanta, Georgia. He’s given tons of presentations to professionals on real estate and the property tax industry.
With that being said, Shane, do you wanna give the Best Ever listeners a little bit more about your background and your current focus?

Shane Moncrief: Yeah, I’d be happy to do that, Joe. My current focus is I lead our national practice, which is about 370 people operating across the country at 29 different markets; we cover property taxes from start to finish in terms of an asset’s lifecycle. Our clients are owners and users of real estate. [unintelligible [00:03:35].19] most of our clients are owners of real estate, from developers to real estate investment trusts, pension funds, and they include clients that have 2-3 assets and those that have hundreds.

On the user side, we also supply services to tenants who are typically triple-net tenants, where they really control the property tax decision and they’re ultimately on the hook for the tax bill itself. That’s what we do, so my focus is just leading and growing our practice, making sure we deliver quality service and low taxes.

I tell people all the time, Joe, what we do every day is to fight for truth, justice, and lower property tax.

Joe Fairless: [laughs] Well, how do you do that? Explain the process, will you? And you might have to use a specific example, because that might be too broad of a question.

Shane Moncrief: I’ll take you through sort of a typical tax appeal… And I would say for property taxes for most owners really even should start – and this is maybe a piece of advice – before you even buy the asset. I have practices about 28 years in property tax and [unintelligible [00:04:47].29] tax appeals in a lot of different states, but for the first 10 years of my career, we very rarely had purchasers call us to help underwrite taxes on the very front end of a deal. And then call it 15-16 years ago property tax took on a much more important role in underwriting, and I’ll tell you, I’ve seen it more in the last 3-4 years where property taxes actually are killing deals on both development and acquisition. Assessors are more aggressive and property taxes are an ever bigger piece of the operating expense line. It winds up really being important for owners to underwrite those taxes appropriately.

I tell people – that process of property tax begins before you own it. Once you own it, that cycle is generally the same across the country. Some people will use different names and processes, deadlines vary greatly, but it all begins with an assessment notice. The local assessor sends you a notice of value, and it’s at that point an owner has to decide whether that value seems fair to them on sometimes two fronts. One is “Does that assessment notice represent market value of the property or less?” because typically in the property tax world your assessment should be equal to or less than its real market value.

Then in some states it’s important to actually not understand just what the value of your property is, but also to understand the value of your property in the context of its competitive set. Frequently you see this in Texas, in Georgia and in some other states, where the uniformity of the assessment is actually a big piece of the equation. You might have a property that’s worth ten million, and you get an assessment for eight million, and your initial reaction is “Oh, this looks fine. I don’t need to file a tax appeal”, but in fact if the competitive set – your direct competitors, properties that are similar to yours – is assessed at six million, well then you’ve got a basis for tax appeal in some states.

Once you get the assessment notice, you have to make a decision as to whether that value seems fair and equitable to you based on market and based on comparables. If it doesn’t, then that’s when the appeal process starts, and it varies widely across the country. Most states start with an administrative appeal, and often times even a bit of a negotiation in advance of the formal administrative process.

So it’s a function of meeting with the local tax assessor, discussing your property, its uniqueness, its rent roll, its financial statements, its value vis-a-vis your competitive set, and then convincing him that a change needs to be made, the assessment needs to be lowered, which then in turn saves you money on your tax bill.
If you can’t come to an agreement through that informal process with the appraiser or the assessor, then it moves on to a more formal process where you make that presentation of your case to an administrative panel, in most places. It varies widely, and that’s one of the most difficult things about property tax – it’s different in all 50 states: different terminology, different process… But then even within the states, because property tax is a local business, it varies a fair amount, even from one county or assessor to another.

Joe Fairless: What state or county is most like the Wild, Wild West?

Shane Moncrief: Wow… There’s probably a couple of ways to do that. Certainly, in Texas the process moves along very quickly. I hate to call it the Wild West, but it moves along quickly and there’s a lot of negotiations that occur; the process is over from start to finish most of the time inside of about 90 days. But you see, a lot of other places – and I’ll tell you, there are states that your listeners ought to be very wary of, and those are states where you have to use…

Joe Fairless: California. New York.

Shane Moncrief: Well, California and New York, but I’ll tell you, it’s Ohio, Pennsylvania… It’s places that seem a little more subtle than those… And because your battle may not be with the local tax assessor, it may actually be with the school board. This has been pretty common practice in Ohio for a while. Recently, we’re seeing it Pennsylvania, some even in New Jersey, where the local school boards have been given what sort of legally is called “standing”, they’ve been given the right to file tax appeals directly against the taxpayer. So your enemy in that battle, so to speak, is not the local tax assessor, it’s actually the school board. We’re seeing more and more of this, particularly after an acquisition.

Picture this – you bought a property, it’s in Ohio, they’re on a three-year reevaluation cycle; you think you’re good for another two or three years and you underwrite your taxes flat, or maybe growing a couple percentage points to deal with the [unintelligible [00:10:26].08] You buy that property for 15 million dollars and the current assessment is ten. You think everything’s fine for a couple years, and then you get this little nasty notice in the mail that the school board has filed an appeal against you to have your property’s value raised up to its fair market value of 15 million.

You can imagine the local tax assessor simply throws up his hands; he’s got no interest in fighting against the school board… What’s the tax assessor gonna say, “No, no, no, don’t raise the value!”? That’s not gonna happen. So the school boards frequently win those cases, and that turns out to be a nasty little surprise for taxpayers. It’s the reason I say, Joe, that property tax considerations for a property start before you even buy it… Because if you don’t underwrite it appropriately on the entry, you can get some ugly surprises with reassessments in even your first year or within the early, early years of your ownership of that asset.

Joe Fairless: Yeah, I know that in Cincinnati the school system has people who are full-time employees and their primary responsibility is to do what you’ve just described. And clearly, their salaries are being paid in some form or fashion from somewhere, and that is actually from the work that they’re doing… And they have full-time employees who are focused on getting the taxes increased on properties.

Shane Moncrief: That’s exactly right.

Joe Fairless: I interrupted you from what you were talking about from the process, and I was just curious, but I do wanna talk about the process. So if no agreement, then you go through a formal process, and usually it’s to an admin panel, and then what happens?

Shane Moncrief: From that point, you and the assessor are each presenting cases in front of that administrative panel, and they’ll make a decision. I’ll tell you, across the country, the sophistication of that panel, as well-meaning as its members might be, the sophistication of that panel varies greatly from one state to another, from one country or township to another… And not all of them – very few of them, in fact – are commercial real estate people. Occasionally, you’ll get lucky enough to have a residential person participate as part of the panel. But you’ve made your presentation, and then you wait on their decision. Then every state has a judicial forum in which to contest if you’re not happy with the administrative panel’s decision. And again, that varies greatly in terms of that process.

For instance, in New Jersey there is no administrative process. The very first step in your tax appeal is into New Jersey’s tax court. You take sort of the opposite end of the spectrum in California, where you have an administrative level, but by and large you don’t see a lot of valuation issues go beyond that because their court level appeal is only dealing with matters of law, not matters of value.

Again, every state is different. It ends up being one of the things that you really have to watch all the pitfalls from one state to the next.

Joe Fairless: The admin panel – you’ve given that disclaimer very well… So it depends on the county, the area of who that comprises of, but just generally, what incentive do they have to rule in the owner’s favor? Because I would think they’d have all the incentive in the world to say “Nope, sorry. We wanna hike up the property tax [unintelligible [00:14:09].09]”

Shane Moncrief: That’s a good question, but it’s probably not necessary to be quite so cynical, although I can see it, it’s easy to head in that direction. These panels are in general supposed to be independent, appointed by generally the local county or the local town, and their job is to be somewhat independent. I would tell you, Joe, just like you said, most of them are assessor-leaning, but they take their job pretty seriously most of the time. They’re trying to get the right thing for the taxpayer and for the town.

By the way, not every administrative panel you’ll be in front of is actually independent. There are a few states – Mississippi for me comes to mind – where your presentation is actually to what in Mississippi they call the Board of Supervisors, which is a county commission. So they absolutely are looking at this from a tax and revenue position, not a valuation position. Most of them are trying to do a pretty good job.

We’re actually very successful when properties are overvalued, either in terms of just pure market, or in terms of uniformity. We’re really pretty successful when those situations arise. The boards are generally trying to do the right thing. They hear our evidence, they hear the evidence of the assessor and then they’re making a decision.
Like you would expect, you see a lot of “split the difference; meet you somewhere in the middle”, those sort of things, but I will tell you, we are successful many more times than not when there is a real issue that has to be addressed by the local board.

Joe Fairless: Is the local board compensated?

Shane Moncrief: They are. In some states they’re paid like a jury member, so a fairly nominal amount, like a juror would be paid for jury duty service.

Joe Fairless: When you do that appeal in front of the local board, how much of it is the numbers and how much of it is the owner can’t afford to pay this amount, and you’d be hurting him or her, they might go into bankruptcy, that would hurt the area…? How much of the story is that angle, if at all?

Shane Moncrief: Well, that’s a really good question. I will tell you, Joe, I describe it to my clients like this – it’s just like a baseball game. In a baseball game you’ve got two people that are calling the game, right? You’ve got the play-by-play, and he’s telling you balls and strikes, and he’s giving you that view of the game, what the batting averages are. That’s the numbers, in this case – it’s the rent roll, it’s what my rents are, my expenses, what’s an appropriate cap rate to apply to get a value? That’s the play-by-play.

But in every case, you get the other side of the broadcast – that’s the color commentary. What you describe then is the color commentary. “This is going to [unintelligible [00:17:09].24] This is going to be bad for a neighborhood. This is gonna force the property into bankruptcy…” That color commentary looks like any number of things, but I would tell you it varies property to property… But it’s 85% numbers, 15%-20% color commentary.

Joe Fairless: You already answered the question that I was about to ask… I was about to ask you the percent of which to which. Okay, cool. So once the judicial forum to contest if you’re not happy with the admin panel decision – is there anything else after that judicial forum, or is that pretty much the end of the line?

Shane Moncrief: That’s the end of the road, Joe. You see, very few property taxes – and frankly, I’m not aware of any real commercial property tax appeals that wind up going beyond the judicial level. Now, you will find — maybe I should correct myself… Even within the judicial framework, just like a normal court case, you have the local court – call it a circuit court, a superior court (those titles vary quite a bit) and then you have an appellate court. Very few commercial cases make it to the appellate court, a state Supreme Court, and then you rarely see a federal case, particularly on the commercial real estate side.

Most of the federal cases as it relates to property tax have been sort of interstate commerce type of claims, railroad… Those sort of cases.

Joe Fairless: What stage in the process do you see the most success in with your clients?

Shane Moncrief: Well, it varies again – I hate to keep saying it again, Joe, but it varies a lot by state.

Joe Fairless: No, I get it.

Shane Moncrief: But I would say a fair amount of success in some states at the administrative level. We find that our work Texas you see a lot of that that’s done on the informal basis, because the local assessor – the Appraisal District is what they call them – really need to make their way through the tax appeals pretty expeditiously. I would say it’s 20%-30% resolution there, and then the bulk of it is done at the administrative level. Then a percentage that goes on to court, and very few – this is worth saying… Even if you file an appeal to the judicial level, very few of those cases actually go to a trial. Most of them are settled outside of the court room.

Joe Fairless: If it goes all the way to the end with your team, how are you charging? Because I’m wondering if they’re gonna make money at the end of it?

Shane Moncrief: At every step in the process it really is a cost/benefit analysis. Most of our property tax appeal work is done on a percentage of savings, it’s a performance fee. That process has got obviously an automatic payback through the administrative level, because you don’t pay a fee unless there’s tax savings to go along with it.

When you get to the judicial level you have to be smart, because at that point you’re gonna need an attorney, you need to select the right attorney, and you need to have that attorney being very accountable – accountable to ownership – and we work with our owners in that process to make sure that the attorneys are actually focused in the right direction, to help control the cost of the attorney as well.

So you’ve got an attorney, you may or may not have an appraiser, but at every point in the process you’re evaluating cost/benefit. Even from the initial filing of the case, there are benchmarks through that process where in conjunction with the owner we’re giving advice to the owner, “Okay, we think this is worth taking two more steps in the process. Let’s go to mediation, let’s do an arbitration. Let’s have a sit-down right before we go through the interrogatory, the discovery process.” Again, trying to make sure that our clients wind up with a return on their cost, a return on their investment in this process.

Joe Fairless: Based on your area of expertise, what is your best advice ever for real estate investors?

Shane Moncrief: The best advice ever… I would tell you, Joe, it’s “Run your property tax like a program.” Take a programmatic approach, from investment underwriting (which is so important) to that annual cycle. Because what I described for you earlier, that’s an annual cycle in most states. Now, there are different cycles – two-year, five-year cycles – every state being a little different, but my best advice is don’t treat this like a piece of machinery is broken and then you need to go fix it; think about this as an annual maintenance sort of contract.

My experience is that the owners who take a very programmatic approach every year – it starts with the analysis on the front; once it’s owned, every year they’re going through this process to make sure it’s fair… You will consistently see those properties are the ones that pay the lowest tax.

The worst year that an owner can do is every year get that assessment notice and then make a decision one year at a time on whether they wanna file a tax [unintelligible [00:22:48].01] test.

Joe Fairless: And last question and then we’ll go into the lightning round… Do investors work with you who only have, say, one single-family house as an investment property?

Shane Moncrief: We don’t do any of the single-family residentials for direct owners. We do have a number of clients… The private equity, as you guys I’m sure have covered in previous podcasts – the private equity firms got big in the single-family homes, and we have several of the largest consolidators of those single-family home portfolios as our clients, but we’re not doing tax appeals on individual homes for homeowners.

Joe Fairless: Are you ready for the Best Ever Lightning Round?

Shane Moncrief: I guess so, Joe.

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

Break: [[00:23:39].26] to [[00:24:30].09]

Joe Fairless: Best ever book you’ve read?

Shane Moncrief: I don’t read a lot of books… Tough one. I don’t have an answer.

Joe Fairless: Best ever movie you’ve watched?

Shane Moncrief: Oh, wow… The Quiet Man, John Wayne… Anything John Wayne is on my list.

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

Shane Moncrief: I give back financially a lot, it’s just sort of part of who I am. A lot of mission trips that I’ve been a part of, and for the different foreign countries; I enjoy doing it that way. But we do a lot of stuff in our local office as well – food bank, that sort of thing… I really enjoy that.

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

Shane Moncrief: It’s easy to find me – Shane.Moncrief@ryan.com is my e-mail address. Ryan.com is our website; you can find my e-mail address and my bio on that site. It’s the perfect way to get a hold of me.

Joe Fairless: Outstanding… Well, Shane, you made taxes fun, and that is usually an oxymoron, but you really did, you made taxes fun… Talking about how we can lower our taxes in a way that is legal, and plays within the rules.

You said it first starts before we buy the property, and then once we buy the property it’s an annual thing that we wanna take a look at – does the value seem fair to use based on the market value and also the context of the competitive set? Looking at the comps and what the comps are being assessed at. If not, then we try and do an informal negotiation with the local assessor. If that doesn’t work – in Texas, it probably will… But if that doesn’t work and you’re in Ohio and the school board’s coming after you, then you’re gonna have to probably go a little bit more and do the more formal process with the admin panel. If that doesn’t work, do the judicial panel. Again, it varies state by state, municipality to municipality, but that’s the high level of review.

I loved this conversation, so thanks so much for being on the show. I hope you have a best ever day, Shane, and we’ll talk to you soon.

Shane Moncrief: Great, thank you, Joe.

 

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Best Real Estate Investing Advice Ever Show Podcast

JF1048: Focusing on Lenders to Make MORE MONEY!! #SkillSetSunday With Steve O’Brien

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Today we focus on changing our mindset and not jumping at the first lender that says yes. In today’s marketplace there are a lot of options for lending, so why not shop around before agreeing to financing? Often times we do ourselves a disservice by not shopping around more, find out how to change that today. If you enjoyed today’s episode remember to subscribe in iTunes and leave us a review!

Best Ever Tweet:

Steve O’Brien Real Estate Background:
-Co-founder and Chief Investment Officer of Arcan Capital
-Responsible for acquisition of over 20 multifamily assets totaling close to $200 million in the last five years
-Placed nearly $100 million in financing with FMNA, FMAC, HUD, bank and insurance company sources
-Prior to Arcan, Mr. O’Brien was with CBRE
-Based in Atlanta, Georgia
-Say hi to him at www.arcancapital.com
-Best Ever Book: Outliers by Malcolm Gladwell

Click here for a summary of Steve’s Best Ever advice: Pay Attention to These Five Loan Components to Maximize Your Apartment Returns

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focusing on lenders to make money

 

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.

I hope you’re having a best ever weekend. Because it is Sunday, we’ve got a special segment for you called Skillset Sunday. You know what this is – we’re going to help you hone an existing skill or adopt a new skill that is valuable for you.

I was talking to today’s best ever guest about this before we started recording, and he said “You know, we focus so much on getting the equity, but then we go with the first loan that we get offered.” So we focus so much on getting equity for our deals, the cash for our deals to close, but then we don’t focus as much on selecting the right lender, when in reality the lending dollars are just as important. I thought that was such a good tip, and that’s what we’re gonna focus on today – the lenders, specifically for multifamily investing. How are you doing, Steve O’Brien?

Steve O’Brien: I’m doing great, thanks for having me.

Joe Fairless: Nice to have you back on the show. A little bit about Steve, just as a refresher. He is the co-founder and chief investment officer or Arcan Capital. He’s responsible for the acquisition of over 20 multifamily assets totaling close to 200 million bucks in the last five years. He’s placed nearly 100 million in financing via different sources, and prior to Arcan Capital he was with CBRE.

With that being said, Steve, do you wanna briefly mention your background and then we’ll focus our conversation on lending?

Steve O’Brien: Absolutely. My background actually plays into that pretty well because the first job I got in real estate was for the debt and equity finance team at CBRE. I came in as a young analyst and got to watch a ton of deals, do a bunch of different underwritings, build a lot of models in Excel… And I think one of the advantages of being at a broker shop like that is to see the number of deals that you get to see. I got a great exposure to those.

Then I also got to watch first-hand as the market crashed, because when I first got into real estate – I don’t wanna say “Nothing’s ever easy”, but for a while everybody was doing really well, and it felt like  pretty simple business. Then you had 2008, 2009 and 2010, so I got to learn a ton; it certainly wasn’t a fun time, but it was definitely one of the biggest learning experiences of my career.

I since have launched Arcan Capital, where we acquire multifamily in secondary and tertiary markets in the Southeast. That includes putting a bunch of loans on multifamily assets and other types of assets, as well.

Joe Fairless: Speaking of those loans, how should we approach our conversation so that we give the Best Ever listeners information that they need to get better at finding the right debt partner for their deals?

Steve O’Brien: Well, I think you have to start off by just changing the mindset a little bit from the beginning. We meet with a lot of people who are struggling to find equity and they’re looking for friends and family or whatever it may be (a partner) to help them, and ultimately you ask about their debt strategy and they say “Oh, a bank”, or “We’re gonna go the agency way.” To me a dollar is a dollar; whether you’re raising on your equity, you’ll spend a ton of time working with an equity partner to make sure it’s the right fit, but you’ll take the first dollar offered from the bank, and the main thing that I hear people complain about is interest rates. That’s like “Oh, I’m gonna get a great interest rate on this” [unintelligible [00:05:49].19] but there are a lot of different parts of a loan, and a lot of different parts of the lender that it’s worth paying attention to, but you also have to weigh that against a lender to give you money, and sometimes you’ve gotta do what you’ve gotta do to get the deal done if you believe in it, but most of the time, especially in a market like we’re in today, there are a lot of options for people, and I think it’s prudent for investors to spend as much time on their loan as they do their equity. I normally don’t see that, and that’s pretty surprising, considering, as I’ve said before to folks – when push comes to shove, the lender’s in control.

Joe Fairless: Yes.

Steve O’Brien: They make sure in any documents that you sign – if you read closely enough, there’s something that allows them to make decisions, from your property manager to the money that you spend. Now, most of the time, if things are going as planned, they won’t enforce their rights to do and make those decisions, but they are often in control, and in the multifamily business you see a lot of loans that are above 50% leverage. So not only are they typically in control, but they’re putting more money in the deal than you are. That gives them a certain level of control.

Joe Fairless: Let’s talk about the different parts of the loan and of a lender, and obviously, we’ll need to start with one or the other. Let’s do the loan first – what are the different components of a loan that we need to be paying attention to?

Steve O’Brien: I think there are probably several basic concepts at the top that all come together to form your loan. One that everybody knows and pays attention to is the interest rate, and the other is the loan-to-value of the proceeds. Those are the two most important that everyone focuses on, because it basically determines what your costs are gonna be, what is the debt service and how much money you’re gonna need from an equity standpoint based on what amount they’re willing to lend you. But particularly with banks – and I think you’ll find most banks these days, given what happened in the crash, they want recourse. What I mean when I say recourse is that they want you to guarantee some or at least a portion of the loan that you’re getting personally.

Now, what the advantage is with a lot of lenders is that they offer nonrecourse loans. I can say that on our entire portfolio that we’ve done of about 100 million in financing, we have not signed any recourse, meaning that if the deals were to go bad, the most the lender could do is come after you for the property itself, so you can only technically lose your equity in the deal.

One of the things that happened during the crash was a ton of people put up recourse and all their loans went bad, and it caused bankruptcies and other issues, because not all the lenders will do all the math on all the recourse you have… So you may have guaranteed 150% of your assets, and if everybody comes calling them at the same time, that can be a real problem. So we pay attention to little items like that.

Term is another. If you’re dealing with banks, a lot of banks will wanna do a 35-month loan, or a 36, or up to five years with extensions, but there are a lot of debt options out there that if you think you’re gonna own something forever, especially with where today’s [unintelligible [00:08:54].01] compared to historically, it may make a lot of sense for you to pay a higher interest rate, but to lock it in for 15 years, if it’s a property that you love.

So there are a lot of little items like that, recourse probably being the most important, because that’s where it can come back to sting you. With nonrecourse loans, you will have to sign something that says you’re not going to commit to fraud – they call them bad boy carve outs – but in general there are a lot of options for multifamily investing in particular that do not require a recourse, and as long as you stay at a reasonable loan-to-value. But you can get a nice, healthy 75% loan and still remain nonrecourse.

In fact, if you go low enough on the loan-to-value on some multifamily deals, you don’t have to sign any recourse at all personally, meaning that the entity is the one who guarantees the loan, or the lender will want to make the loan enough that they’ll basically say “Listen, it’s just worst-case-scenario we can’t even come after you for the bad boy carve outs”, and that’s just like any other business – it’s the competitive nature of the market right now; there’s a lot of money looking to invest, and that includes on the lending side, too. That brings us back to doing the diligence and checking all of the different options that you have available.

Joe Fairless: One thing we’ve done is we’ve kept how high the interest rate can go by purchasing that cap. Have you done anything like that?

Steve O’Brien: Yeah, the interest rate caps – they can be a really good idea, too. Some of the lenders on a bridge loan – bridge loan would be typically a three-year type loan and you may have some extensions built into it, but those are typically done on our value-add properties, which is the majority of what we do. You’ll get in and you’ll do a lot of work and you hope you increase the value, so that within the 2-3 year loan term you can refinance after you do the work to the property.

A lot of times, those bridge lenders will require you to buy a cap because of their rate floats; they don’t wanna put you in a situation where the rate goes up by 100 basis points and you don’t have any protection as an owner, so a lot of times they’ll make you buy those caps. It’s like any other investment  – there’s a secondary market for it, so there can be value in owning an interest rate cap, too.

Joe Fairless: Anything else as it relates to what we look for in loans that you wanna mention? We’re gonna switch over to lenders after this, but I just wanted to talk about loans in particular, like the terms or anything else we need to be aware of? Maybe carve outs or clauses to watch out for?

Steve O’Brien: The key thing is there will always be a section with regards to carve outs as far as almost every loan has a nonrecourse on it somewhere, and then they’ll carve out what’s included in that nonrecourse, and you just have to read it really closely. When I say “you”, I really mean your lawyer. You should have someone who is experienced in this do it for you. It is money well spent to have someone take a closer look at these documents and just make sure that there’s nothing unique about it.

Some lenders have very standardized documents and some documents will do just like anyone buying a piece of property with a contract; they’ll try and slip something in and see if they can get it, even if it’s not market. It’s great to have someone with experience review it for you.

I think one of the other things that I missed earlier is probably with regards to pre-payment flexibility. We have some properties where we’ve done I think a seven and a ten-year loan and we created an enormous amount of value, and because we created a lot of value in the property, the loan that was originally a 70% loan is now a 50% loan. Our option is to go get a supplemental, but the supplemental loan from the agency – they’ll add proceeds to your current debt, but that’s at today’s interest rate, not the previous one. So you think about selling the property, but if you sell it, you have a huge pre-payment penalty, yield maintenance or defeasance… Defeasance typically with the CMBS loans, but yield maintenance where they’re basically going to make you buy an instrument to pay them back the interest that you would have owed them over the next few years. So you’re talking, as opposed to paying them a 1% or a 2% fee, it needs to be a 10% fee to get out of your property.

Ultimately, that’s a decent problem to have, because it probably means that you’re doing well, but it just limits your flexibility. So as I mentioned before, you can always go to an equity partner and say “Hey, we’ve created a lot of value, let’s sell” and your equity partner can say “Okay, let me go get approval” or “Okay, that sounds great. Let’s do it”, but you can’t go back to your lender and say “Hey, we created a lot of value. We’re gonna go ahead and sell”, because the lender is gonna point back to the documents and say “You told me this is was a three-year loan; if you pre-pay it, there’s a penalty.”

Now, that’s an advantage of bank debt, but typically you can’t get a loan that does everything. The longer-term loans are gonna have pre-payment penalties. The shorter term loans aren’t going to have that length in term, so you get to the end of three years and you wish you could refinance it at that rate, but the rates have changed, so you’ve gotta pay a different rate. So it’s worth thinking about where you think the market is going.

For the last seven years, everyone has said interest rates are gonna go up, and almost every year they go up just a little bit, but I think everyone would agree that was all the economists and every real estate person talking in 2010 or 2011, the vast majority would agree that we all thought rates would be much higher than they are today. Now, it looks like they’re gonna go up now, but it felt like that 2-3 years ago too, so you never know.

Joe Fairless: How would you prioritize these items when you’re looking at loans?

Steve O’Brien: I think it’s on a deal-by-deal basis. A lot of our equity partners need certain things… Whether that’s a particular return or that’s a particular amount of money that they like to invest, it kind of all balances out. Some people like to have a big chunk of cash in a deal, and they understand that if you’re going to get a 60% loan on a multifamily deal, your return is going to be lower than if you have an 80% loan-to-value on the property. It’s also a lot less risky, so I think you have to work it all out and determine your preferences.

Like I said, if you know you’re gonna own a property forever and you love it, I don’t see any reason to put short-term debt on it, unless the benefits so far outweigh the risk of having to refinance in three years at much higher rates. Now, the other hard part is I know there aren’t many investors that know they wanna own something for 20 years, or even 10 years. Most people are making judgments based on a 3-5, maybe on a 7 year horizon, so locking  you in for 10 years feels like a long time… But I think you’ve gotta pay attention to your goals. Is your goal to buy and improve a property and then flip it? Well, then don’t put long-term debt on it. If your goal is to buy a property and hold it forever, well then you may wanna consider not doing a three-year bank loan with two one-year extensions and going to a longer-term lender that will do a balance sheet loan for you, like a life insurance company or an agency (Fannie Mae, Freddie Mac, something like that) in order to lock your returns in for the long-term… Because it’s a nice, warm blanket to have a low interest rate that you know doesn’t mature for 10 years, unless you wanna sell it, and then you’ve got a pre-payment penalty. So it’s all very determined based on your goals, and I think that’s what the key is – to set your strategy and your goals for the asset and try and find debt and equity that best mirrors your strategy and goals.

Joe Fairless: Let’s talk about lenders. I know this could be an hour long conversation and we have about six minutes, so let’s talk about lenders… What types of lenders are there and how should we think about that?

Steve O’Brien: I think you can silo a lot of them into different groups. You have your banks – typically your local, regional, even national banks are going to do shorter term; they’re gonna prefer floating rate debt, meaning that as interest rates change, your debt will change and your cost to borrow will change, and that’s something that in my opinion has always made me nervous. Even though you did floating rate loans previously (in the last 5-7 years) you flipped really good, because rates have stayed low.

I think banks are a little bit easier to deal with in that they have some very straightforward regulations that they need to achieve, and they can tell you “Hey, here’s what we’re gonna need – we need X and Y and Z”, and they’re similar to agencies in that regard… But there’s going to be a recourse issue with the banks.

Most banks that you talk to, they’re going to want amortization and they’re going to want recourse. They’re always gonna push you towards amortizing a loan instead of having interest-only, and they’re going to push you towards having some level of recourse, even if they just wanna get 25% recourse on the loan. But in general, it’s a little bit more of a relationship lending type environment with the bank. You can form a relationship with a lender that’s in your neighborhood, that’s at a regional bank, and you can talk to them about what you’re doing and develop a good rapport with them so that they understand the type of projects you’re working on and willing to lend.

But that’s also possible with an agency lender. Fannie Mae, Freddie Mac – they are also very standardized; it’s an advantage, like the banks… But they are so standardized that it can sometimes be difficult, because everything’s gotta fit in the box. If you just look all around for multifamily lending, I’d say Fannie Mae and Freddie Mac are the best options as far as the best terms, the most flexibility, and it’s largely because at this point — I guess you can’t even call them quasi-government agencies anymore; they are government agencies and their goal is to create liquidity in the housing markets. They are out there trying to lend money on deals. They’re looking for ways to do deals, and especially in 2010-2012 when people were a little nervous, agencies were very helpful because they got on board early, because it’s part of their directives to make those kinds of loans.

Joe Fairless: I guess the same question that I asked earlier with the loans, but now for the lenders, and you’re probably gonna give the same answer – “It depends on the deal and your source of equity” – but how do you determine which lender to go with, matching up that lender with the project?

Steve O’Brien: Well, I think there are certain deals that certain lenders prefer, and that’s why, like I said, it is deal-by-deal, it is project-by-project, but even your local — you’ll probably find differences between a life insurance company (insurance companies are another lender that I didn’t mention previously)… You will definitely find differences in preference between different life insurance companies. Some may love being in a major urban area, and some may be a little nervous because of all the construction that’s gone on in major urban areas in the last few years. They may like the secondary and tertiary markets.

So a lot of this is spending, like I said, the same amount of time looking at your lenders as you do your equity partners. Frequently, there are a lot of mortgage brokers out there that can really help if you use the mortgage broker a lot, because they know of the hundred different sources of capital out there, and they’re professionals at what they do.

Their professionals that when you give them a deal or they send a deal to the lender, they’re gonna tell you “Hey, these are the five guys that probably like this. These are the five underwriters and the five companies that this makes sense for”, but they look at deals very similarly to the way lenders do. The only difference is if we do really well on a deal, the owners can get massive IRRs, but no matter what, the best  a lender can do is get their interest rate. So they’re definitely safer, and they’re gonna check probably more boxes than you are, because their return is capped, and kind of an all-or-nothing for the lender. They’re very specific about what they like, and that’s why I think Fannie Mae, Freddie Mac and the agencies can be a great option, because they are a little bit more flexible and they do have some directive to make sure that there’s liquidity in these markets, whereas an insurance company is only gonna lend you money, and a bank is only gonna lend you money if they think they’re gonna get their interest back, period. I mean, that’s really all they’re looking at.

Now, Fannie Mac and Freddie Mac looks at it the same way, but they also have a job to do, to get money out the door.

Joe Fairless: When do you use a mortgage broker?

Steve O’Brien: We use a mortgage broker most of the time just because on the size of our deals it’s an enormous amount of work, and talking to an equity partner and talking to a lender can be very different experiences. There’s kind of a running joke amongst lenders – if you talk to enough underwriters, you just basically take the person who sent you the numbers and cut everything by 10%, because everybody’s over-aggressive. So when you’re presenting things to a lender, we like to use a mortgage broker frequently, so that they can help us look at things through the lender lens.

At our core we’re entrepreneurs; every deal that I’ve done, I’ve loved… So you wouldn’t do it, you wouldn’t put your own money and put so much work in it if you didn’t love it, but there are gonna be people who disagree with you, and if you present a really myopic view of the deal to your lender without doing the background and without doing the research, and if you could dial the numbers back a little bit and make the lender think you’re conservative and they’ll still give you every nickel that you wanted, that’s a good approach to take.

The mortgage brokers can really help you with that and just gathering all the data; I can’t tell you how many times you’ll be in a conversation or in a room with a lender, discussing a deal, and you say one more thing than you should have said, and the lender takes it the wrong way… Maybe you mentioned something about the demographics where you say “The average income in this area is this” and then you mention the median income is a little bit lower, and they dig in on “Well, why is the median so much lower than the average? What does that mean in the market?” and they were sold until you mentioned the median number.

So it’s great to have someone guiding you and helping you say the correct things and provide the correct numbers, and only what you need and nothing more, because I’ve seen lenders turn down deals for crazy reasons that don’t seem to make sense, from parking — they think it has two parking spaces too few, so they won’t do your deal. And that really hurts, when you get that far down the road and you lose it because of two parking spaces. So getting all that information together and making sure you have someone there to help check all those boxes is very helpful.

Joe Fairless: Anything else — and I know this could be a day-long conversation, but as it relates to the topic of identifying the right loan and the right lender… Anything that we haven’t discussed, within the amount of time that we could discuss, that you wanna mention before we sign off?

Steve O’Brien: No, I think we got to just about everything. I think the big key to take away for the Best Ever listeners is if they’re not viewing loans similar to equity, maybe to kind of turn that a little bit and start spending as much time looking through the loans and understanding exactly where they are with regards to their loan agreements and exactly what they’re trying to accomplish with the deal, and seeing if they can find someone that matches up perfectly with their deal. That’s a great way to look at it, because not all loans are created equal, and there’s a lot of people out there right now interested in lending, particularly to multifamily.

Joe Fairless: Phenomenal conversation. Thank you for being on the show again. Best Ever listeners, if you didn’t hear the first episode with Steve, where he gave his best ever advice, it’s episode 940. You can go listen to episode 940 and you can hear him talk a little bit more about his company and his focus and acquisitions and all that good stuff.

Thanks again, Steve, for being on the show, talking about how to identify the right loan, how do we prioritize those different components within the loan, the players within the lender space and the pros and cons or strengths and weaknesses of those. I hope you have a Best Ever weekend, my friend, and we’ll talk to you soon.

Steve O’Brien: Thank you!

 

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Best Real Estate Investing Advice Ever Show Podcast

JF1003: What the Big Box Companies Look for When They Lease Commercial Real Estate

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Curious about what Best Buy, Staples, and other big bucks brands look for when finding a commercial lease? This episode will show you all the inside numbers of what a large franchise versus a small franchise is required when leasing commercial property.

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Joel Owens Real Estate Background:

– Principal commercial real estate broker at All World Realty, developer, and investor
– Current clients 1 million to 100 million in net worth
– Hosts a video blog called “Commercial Straight Talk.”
– Specialty is in retail properties
– Based in Atlanta, Georgia

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real estate for companies

 

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 of that fluffy stuff.

With us today, Joel Owens. How are you doing, Joel?

Joel Owens: Pretty good.

Joe Fairless: Nice to have you on the show. I saw you present at a conference – J. Martin has a conference in San Francisco and I went to that, we both spoke… This was August 2016. We didn’t have a chance to meet in person, but I was really impressed with your panel and the discussion that you were leading. It was around retail properties, and that’s what we’re gonna focus on.

A little bit about Joel – he is a principle commercial real estate broker at All World Realty. He’s a developer and investor. His current clients have a net worth of 1-100 million dollars. He hosts a video blog called commercial straight talk, and his specialty is in retail properties, and that’s what we’re gonna focus on. He is based in Atlanta, Georgia, for all of our Georgia Best Ever listeners. With that being said, Joel, do you wanna give the Best Ever listeners a little bit more about your background and your current focus?

Joel Owens: Sure. I’ve been in the business for about 14 years. How I got started was a friend of mine had an old laundry that they inherited from their mom, and a commercial real estate developer approached them to buy their Laundromat that was built in the ’50s. I did the contract for him, reviewed the contract, met the developer, and usually people might catch only two or three outs in the contract, and I caught every single out in the contract, and the developer called me and wanted me to come on in and work with them on assembling the best of the parcels there. There were about 20 parcels and 25 acres, about 650,000 square feet of mixed-use retail development, [unintelligible [00:03:53].22] value of 150 million dollars, and I spent about two-and-a-half years working on assembling those land pieces.

After that, the economy went down around 2008, and it was cheaper to buy existing than it was to build, so a lot of the land development stopped. I moved to single tenant net lease property [unintelligible [00:04:13].25] it was at the bottom of the cycle. Then I actually moved more onto the retail strip centers. They vary across the spectrum from most passive to where you have to be more involved. One of the low ends you might have, where it’s for very passive, you might have T-Mobile, Starbucks [unintelligible [00:04:35].13] backed by thousands of locations, 2% annual rent increases. You have the property manager in place, you might look it at a report once a month, set it and forget it. Across the spectrum is the [unintelligible [00:04:48].29] a mixed retail center that has some mom and pop tenants, or regional, maybe one national, and then on the opposite spectrum you might have all mom and pop tenants in the center. The cap rate is higher, but you have to be more careful in your evaluation of those tenants, because so many of them go out or roll out; the actual return could be less than if you had bought the national tenant at a lower cap rate, but they’re not going out, so you don’t have to spend money on leasing commissions with a tenant rep broker, or tenant improvement costs to get another tenant into that space.

Joe Fairless: Do the mom and pop retail strip centers have the same structures of leases that you’ll find with the more — what is the term for the T-Mobiles or the Walgreens of the world?

Joel Owens: They’re national tenants backed by parent corporate guarantees on the leases. As far as the structure of the leases, you have what’s called typically my five-level. You can take, for instance, a Taco Bell tenant that’s owned by Yum! Brands, which also owns Pizza Hut. If you had a lease guaranteed by Yum! Brands itself over tens of thousands of locations, it’s backing that one location, so even if it makes money, loses money, they signed a ten year lease, they’re gonna keep paying the rent like [unintelligible [00:06:05].25] to protect their credit rating, their borrowing costs and things like that.

The next level down would be a subsidiary of Yum! Brands [unintelligible [00:06:13].08] ten states that have Taco Bells in them, or 500 Taco Bell stores are guaranteeing the lease.

Next level below that would be a large franchisee that maybe owns 150 Taco Bells and has been a strong operator for 15-20 years, and then below that would be a small franchisee for the guarantee on the lease that maybe only owns one or two locations.

Then below that would be not even a Taco Bell concept, it would be Joe’s Taco – it doesn’t have an operating manual, training manual, franchise support, advertising or anything… It’s just someone opening up their own small business, trying to grow an individual brand. So across the spectrum, that’s the level of lease guarantees.

Then on the center itself you generally have a triple net lease. Sometimes you’ll have a gross lease, which can be okay… If it’s a brand new center, you might actually come up better with a gross lease, because if you can control your costs more, your net rent that you would get might be higher than an absolute triple net lease. But if you have a center that’s getting older – 5, 10, 12 years – you’re gonna start having costs with the roof and the parking lot and everything else as part of your overall common area maintenance expenses that the tenants pay for above their base rent. Then you want that triple net lease in place, because if it was gross lease and they’re just paying you that rent, then you’re the landlord and you’re paying for the parking lot and roof and all these things; it can get very expensive, and it can take your overall yield down.

So when we look at mom and pop tenants, we look at them a lot more intensively than national tenants. We look for their total liquidity and net worth, we look at the financials if the lease requires them to disclose ongoing sales and financials, to look at their health ratios with the business. Different businesses have different overall health ratios.

For instance, if you take a restaurant, we usually don’t wanna see more than a 10% rent to sales ratio. If they’re paying 100k in rent, we wanna see the sales of at least a million dollars a year or higher for that particular tenant. If they’re going into the 12%, 13%, 14% in rent-to-sale ratio, then likely they’re either gonna leave the space, or they’re gonna come at you for some kind of rent reduction because they’re not making enough money after they add in their food and labor cost to sustain that business.

Joe Fairless: And that’s the rent-to-sales ratio – it’s monthly rent to monthly sales?

Joel Owens: Yes, so generally the barometer you take — because the rent goes up every year generally on these triple net leases [unintelligible [00:08:44].10] 2% or 3% a year; you look at their overall annual sales compared to what they’re paying in base rent. If their base rent was 100k/year, you would wanna see at least a million dollars in sales to be at that 10% ratio. If they’re down in the 6% or 7% ratio, then they’re generally crushing it and they’re very healthy as far as a food establishment goes. If they’re above that level, then they’re in trouble.

The other thing that you have to watch out for is sometimes when the developers build up the centers, they’ll pay a lot of up front tenant improvement costs on behalf of the tenants, so they might give them a $60,000 tenant improvement credit, and if market rent is $25/foot, they sign them on a lease of $29/foot, $4/foot above market, and then they’re hoping over than 10-year time of the primary lease term that the market rent, with increases, will catch up to become the new market rent. So what they’re paying, it will catch up with that amount. Instead of being $25 marked, it will be $30, and then they’re paying $30.

The problem is when you buy a property, that tenant doesn’t last and your market rent is $25 and they’ve got $29 or $30 on their lease, and then they go out and you have to re-lease it again in the market a year later, you’re not gonna get that $30/foot, that you paid an 8-cap for; instead, you’re really now having a 7.2-cap on that center once that goes away. So you have to measure… That tenant has a liquidity of 1 or 1.5 million dollars, even if the business isn’t making that much money or it’s kind of teetering on the edge of that health ratio, they’re gonna stay around for maybe two or three years and they’ll be able to float that business, versus if they’re way undercapitalized and they have to make a profit; then the four or five months that you spend on the tenant improvement credit, and then you could have to [unintelligible [00:10:30].02] that space right away, within a year’s period. All that eats into your returns.

Even if you find someone immediately right away for that space, they do the letter of intent for the tenant, and then it has to go to the lease execution with the commercial attorneys, and then they need tenant improvement built out, and then they have to take the certificate of occupancy that the tenant does for that space, and generally there’s maybe one or two months of free rent if they’re opening the business and getting it going, so there could be a four months time period there where you’re not getting income on that particular unit.

The way most of my deals go – we generally deal with ultra high net worth investors, so if we’re buying a four million dollar center and they’re putting a million down, typically the break-even occupancy after your 25% down is about 68%. So if you had a ten-tenant center and it was full, you had to lose three of those tenants to be almost at a breakeven point with payment mortgage each month… Versus a single-tenant net lease property or if you own an AutoZone and the AutoZone goes out, until you get another tenant in, you’re paying that mortgage every month. So you’re not bringing in anything to be able to service that at all, like you are with a multi-tenant retail center.

Joe Fairless: Or multifamily and single-family investors – we’re seeing a parallel.

Joel Owens: Well, on the single-family residential I get some clients that wanna come in and wanna make that transition from residential to commercial [unintelligible [00:12:00].02] for a while and they just don’t wanna deal with it anymore, and they wanna move into the commercial space.

The one thing is if someone bought a couple of houses and they doubled or tripled in value, or small multifamily buildings, one of the things is at 2.5 million and under range is hyper-competitive because there’s a bigger pool of buyers that would be trying to transition from residential to commercial, and typically the cap rates are more compressed, but just because of the buyer demand and the loan rates that you can get are not as good because it’s a smaller loan balance in the commercial space.

Typically, if you can be in that 3-15 million dollar range, that’s kind of the sweet spot; it’s what I do with a lot of my clients, because anything above 15 million you get the [unintelligible [00:12:45].25] insurance companies, pension funds – they wanna buy the bigger stuff and they tend to get special financing that even a group of investors going in together couldn’t get for [unintelligible [00:12:54].11] because of their track record… So generally, it’s not competitive to buy those types of properties.

And under three million is hyper-competitive, whereas if you’re buying a five or six million dollar property, with a larger loan you might get a 20-25 basis point reduction on the interest rate, and then on the cap rate, instead of buying at a 7.2 in the three million dollar range, in the five million dollar range, because there’s less buyers that can afford, you might be able to get like an 8-cap or an 8.1-cap. By getting 25 basis points reduction on the interest and getting another 60-70 basis points on the cap rate by going to a larger property, you get about 100 basis points of additional return there.

Joe Fairless: I want to ask a clarification question about annual rent to annual sales ratio. You said 10% or lower is good for (I believe you said) a food establishment. Is it only for food establishments, or can you use that ratio for any type of tenant?

Joel Owens: Actually, different tenants have different costs associated with their particular type of business, so the ratio varies. There’s a book that belongs to the International Council of Shopping Centers. For retail, that’s a specialty organization that’s been around since the 1950s. There’s over 70,000 members worldwide, and it only focuses on the retail sector. They have a book that breaks down those ratios by the of business, what ratio to look for.

Joe Fairless: Can you buy that on Amazon?

Joel Owens: I don’t know if you can buy it on Amazon… I know there’s a specific place for ICSC, and they have different offices, and I believe the one in New York or Washington has it. I can look it up in my notes and give it to you as a link for people if they’re interested in it, where they can buy that book.

Joe Fairless: Yeah, that will be helpful. Or why don’t we google? Let’s just do that. Because as much as I’d like to promise I can put that in the notes afterwards, with a daily podcast I’m not sure if I’ll be able to… So what should they google? And if they’re really curious, they can reach out to you, or something…

Joel Owens: I’m trying to remember the name of it off-hand. I think it’s a “cost in sales news report, ICSC”, so put in maybe “ICSC cost in new sales report”, or something like that.

Joe Fairless: So that’s ICSC…

Joel Owens: Yes, it’s International Council of Shopping Centers.

Joe Fairless: Cool. I think we will be resourceful and we’ll be able to figure that out through a Google search. Thank you for sharing that. The 3-15 million dollar range is a sweet spot – what knowledge should an investor have before getting into retail?

Joel Owens: Well, there’s a lot of talk lately about online sales taking away from brick and mortar and that kind of stuff, but if you’re in it every day you have a much clearer view of the overall picture. I have known, for instance, for over the last 4-5 years that big bucks retail is eventually downsizing and changing the landscape of retail for a while. So if I have a high net worth client worth 20 million, I’m not telling him to go out and buy single tenant Best Buy or Coles or something like that, because bigger spaces take longer time to fill. You could be a year or two years filling a big space like that, because if you have a 100,000 square foot space there’s not as many tenants that can fill that space, versus if you’ve got a small strip center and you’ve got a 2,000 square foot space that opens up – there’s thousands of tenants for that space.

Typically, the companies where it makes sense for them to buy something like that is like [unintelligible [00:16:41].03] they can still remain positive on their cashflow, versus an ultra high net worth investor that owns some big property and it goes dark and they have to keep paying that huge mortgage. That could hurt them a lot more, so I typically tell my clients to stay away from that.

In regards to online sales, it’s been going up at about 2% a year, but they’re only about 8%-10% right now of the overall retail sales, and of that growth, about 6% of those are existing brick and mortar businesses that are just expanding their online internet presence. It’s not like you have this huge wave of online-only companies opening up over the internet and taking away sales from brick and mortar. Most of the brick and mortar that’s suffering is OfficeMax staples, the office supply industry, the clothing industry is over-saturated right now… People will go in somewhere and they’ll try the clothing or look at it and touch it, then they’ll go on their phone and try to get it cheaper on Amazon.

Actually, online is not posed to grow as big with individual small companies because it’s like 35 states right now have legislation where they’re gonna start charging sales tax for companies that even sell one product in one state, even if they’re not based in that state. Amazon is actually excited about that, because they’re already paying sales tax in all the states, so that will take away the competitive advantage some of the smaller companies have to try to compete with Amazon where they’re not charging the consumer sales tax.

So what I focus on and what I tell my clients to focus on is destination-type tenants. When we look at a strip center – which is what a lot of my clients buy – we’re looking for restaurants, doctor’s office, veterinary office, workout gym, a nail salon, hair salon, environmentally-friendly dry cleaners’… These are places where the consumer has to go and spend cash and pay your tenants to where they can pay the landlord rent. It’s not like a clothing store, or an antique shop, or a hobby store, where they can just go look around and they can buy it cheaper online. Then your businesses suffer. So we focus on mainly the destination-type tenant.

Joe Fairless: Smart. Makes a lot of sense. What is your best real estate investing advice ever?

Joel Owens: If you’re looking at investing in a real asset class, get with someone who is an expert in that, not a dabbler; some of the mistakes that I’ve seen is people will use a [unintelligible [00:19:13].28] practice attorney for commercial real estate, or they’ll try to use a basic forum instead of paying 10k for legal costs, but it ends up costing them hundreds of thousands of dollars down the line. When you’re looking at buying these properties, you really want a specialist.

For instance, all I do every day is I look over a thousand properties a week, [unintelligible [00:19:36].13] all over the country. My database (that I built up over 14 years) has thousands and thousands of contacts for properties, from other retail brokerages to retail property management companies to developers to individual groups and owners all across the country. In some states alone I have 280 different companies (in one state). I’m able to usually source and look for the best properties.

So for someone that’s new that’s looking at retail, they might be looking at two items that they think might be a concern, whereas I’m looking at 100 different items with a property, and I’m looking for my clients with that before I actually give it to them. I only like maybe 15% of the stuff I see, for various reasons. We’re looking at traffic counts of the road, is it on the going home side or going away side, what are the [unintelligible [00:20:30].28] is it down in a hole or up on a hill where you can’t see it? Is there a median on the road where it’s hard for consumers to turn in? Is the construction [unintelligible [00:20:40].12] to be widened from two to four lanes and access to the properties could be hard for the next year, year-and-a-half? Is it gonna affect your tenants? Are all the leases coming due at the same time or are they staggered? Is the rent going up each year, or is it blocked rent? Blocked rent is where it goes up maybe 10%, but it goes up every five years. Starbucks will have a ten-year primary term lease and then it will go up 10% every five years, which is okay for Starbucks, but with the franchisees types of tenants, if it goes up 10% in year five, they go out business in year three or year four, you’ve had a flat rent for those 3 or four years. That type of  tenant you wanna get the rental increase every single year, so if they go out early, you extracted the most rent out of the property.

Then you look if there’s gross lease or if it’s triple net. In the leases I’ll look for any early termination, language clauses… There’s just a lot of things. These assets are mainly passive, but the process of buying them and getting financing for them and looking for all the potential problems with them – you’re looking at a three-month process. But once you get set and you get your management in place, it’s pretty passive after that, but leading up to it, you’re gonna have to put some work in.

Joe Fairless: Are you ready for the Best Ever Lightning Round?

Joel Owens: Sure.

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

Break: [[00:22:02].06] to [[00:22:55].01]

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

Joel Owens: The best ever book… Specifically for retail investing there’s a guy called Gary Rappaport, and it’s on retail investing and syndication partnerships.

Joe Fairless: Best ever deal you’ve done?

Joel Owens: On the brokering side, I have a client that contacted me off of Bigger Pockets a couple years ago; he’s one of my higher end clients, and he bought two [unintelligible [00:23:26].28] of properties for about 22 million dollars, and I made about 410k in commission on that one.

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

Joel Owens: I’m a moderator in Bigger Pockets, I’ve known Josh since he started the site a long time ago; we’ve got over 730,000 members now, and I’ve got about 12,000 posts on there, and I usually go on there once a there… I don’t have time to help everybody individually because I’m working with my clients and my own investments, developing deals for myself, but if I can put something on there and then it can stay on there 24 hours a day, seven days a week, and thousands and thousands of people can read it… So I’ll usually try to answer questions or put information on there that people find useful.

Joe Fairless: And what’s a mistake you’ve made on a deal, either investing or brokerage side?

Joel Owens: There was one deal one time, it was a multifamily building that I bought, it was around 20 units, and it was [unintelligible [00:24:20].08] was showing that the tenants were all paying, but the owner actually took a home equity line of credit out for their personal property, and they were putting that into the units. Only two were supposed to be vacant, 18 were supposed to be occupied, and you looked through the business bank statements and it was showing that 18 of them were paying, but found out post-closing that half that money was coming from the home equity line of credit. They were taking that and putting it in like they were collecting those rents from those tenants. That is considered fraudulent, but an attorney told me that basically I could take him to court and we could spend a year, a year-and-a-half of my life on it, and even if I win [unintelligible [00:25:06].26] I’d still have to chase him for the money. I lost about 15k on that and spent a lot of my time, effort and energy on it. But it was a good learning experience, and I just learned from that that the residential space – I hate dealing with those types of tenants every day; it’s just not my cup of tea. I just like retail, national tenants backed by thousands of stores; it’s more passive, I can be traveling, I can do whatever and I’m not worried about bigger headaches, residential landlord laws being changed more in favor of the tenants. When you get into business landlord law, it’s a lot more favorable to the landlord.

Joe Fairless: Really quick, what would you do differently if you were presented another deal like that? How would you determine that they are using a line of credit?

Joel Owens: I’ve thought about that… I’m trying to figure out if someone’s doing something fraudulent. I think I should have looked at the records more; it was many years ago, I was just getting started, and you get excited when someone’s willing to owner-finance something. I should have looked at the purchase price I was paying more, and I should have conducted more tenant interviews, and I should have looked at these files that they presented with the leases and really saw what wasn’t there that should have been there as far as [unintelligible [00:26:22].03] tenant and the income levels, and everything else… There were probably more red flags, but at that time I wasn’t as seasoned an investor, and so it goes back to it, again — if I had had someone looking at that asset for me that had that deeper level of experience, maybe I would have never gotten into that property in the first place, because they would have known to look for things that I didn’t know to look for at that time.

It’s the same principle with retail – if someone’s willing to buy something, they need to use somebody or go through someone that has that level of experience that sees a hundred things, versus the three things they might be looking at.

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

Joel Owens: My website is awcommercial.com. There’s a form on there they can fill out to get in touch with me. They can also e-mail me at JoelOwens@comcast.net. Then they can always call me at 678-779-2798. The only thing I ask of investors when they are looking at investing in retail properties, a typical process is they get in touch with me, I send them a one-page Excel form for their liquidity and net worth statement, to show they have the capability to purchase and they’re a serious purchaser, then we’ll get on the phone call, kind of like we’re on now, where I’ll go over their individual needs and the type of return they’re looking for, if they want a stabilized property or if they want value-add retail where they can increase their returns, and then we’ll kind of set a direction for what they wanna do.

I only work with clients one-on-one. That’s just what I do now, just because of the time that I have. I have to allocate only to clients, and they’re working one-on-one with me. So I just work with people one-on-one, I don’t do anything where they’re trying to work with 10-20 brokers at a time and all that kind of stuff. I don’t have time for all that.

Joe Fairless: Well, Joel, this was educational as I thought it would be – learning all about retail strip centers, the five levels of lease guarantees for retail properties, the lease guarantee by (and using) Yum! Brands as an example, backed by thousands of locations is one, the subsidiary of a Yum! Brand would be the second level, a large franchisee who has hundreds of stores would be the third, a small franchisee four, and then you affectionately called it Joe’s Taco’s, number five. Those different levels have different risks associated to them, and holy cow, a bunch of other stuff that you talked about… The annual rent to annual sales ratio – 10% or lower is good for food establishments, and you gave us some other resources on the show.

Thanks so much for being on the show. I hope you have a best ever day. I really enjoyed our conversation, and we’ll talk to you soon.

Joel Owens: Thanks a lot, I appreciate it.

 

 

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Best Real Estate Investing Advice Ever Show Podcast

JF1002: A Unique Way to Pay Investors Using a Property’s Cash Flow

Listen to the Episode Below (25:34)
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When borrowing private capital, some investors may require that after borrowing the funds, they get a preferred return, which is a return that goes to them before you get paid. Listen how these two guests pay that preferred return with a separate cash flowing property.

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Matt Wood and Mike O’Connor Real Estate Background:

– Multi-family Investment Experts who have portfolio of 140+ units in a few years
– Purchased a 100-unit building for $2.8 million with no money out of pocket
– Scaled a 16 unit complex that required a full rehab
– Began investing in real estate in their mid-20s while working full time jobs in 2013
– Based in Atlanta, Georgia
– Say hi to them at www.foundationsrealtygroup.com/
– Best Ever Book: Rich Dad, Poor Dad

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real estate advice from Matt Wood and Mike O'Conner

 

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, Matt Wood and Mike O’Connor. How are you two doing?

Mike O’Connor: Good, Joe. How are you?

Matt Wood: We’re doing well, thanks.

Joe Fairless: I’m doing well, nice to have you both on the show. A little bit about Matt and Mike – they are multifamily investors who have a portfolio of 140+ units and they’ve acquired that in a few years. They purchased a 100-unit building for 2.8 million with no money out of pocket, and began investing in real estate in their mid-twenties while working their full-time jobs. They’re based in Atlanta, Georgia. With that being said, do you two wanna give the Best Ever listeners a little bit more about your background and your current focus?

Mike O’Connor: Yeah, absolutely. You hit on some of the key points there. Matt and I have known each other since college, and we actually happened to join the same consulting firm out of college, where we both realized we had a similar interest in real estate. In about December 2013, after doing a lot of analysis and talking about the real estate market, we co-bought a small $65,000 house in a submarket called Stone Mountain here in Atlanta, Georgia. That really was the beginning of the whole snowball, if you will.

We sat on that for about a year, when we decided that we actually wanted to do a little bit of an up trade, if you will, and we can dive into some of these specifics later, but what that essentially lead to was us purchasing our first multifamily deal, which was 32 units. As you alluded to, we then jump to a 100-unit deal, and then our 16-unit deal, and now we’ve got a couple quads, a sixplex and a duplex under contract. That’s kind of the very high-level background on us and what we’ve done, and I’m sure you’ll have some questions about some specifics.

Joe Fairless: Sure do, yeah. What money did you use to buy the $65,000 house? Your own money?

Matt Wood: Yeah, we used our own money for that one, and we just did a standard 30-year mortgage on that property; I think we still had to put 25% down, but for a $65,000 house, that was reasonable with our day jobs and with our savings. We used our own money on the first multifamily property as well, the 32-unit complex. We got 80% financing from a bank for that property, but after that 32-unit, we were a little bit tapped out, and that’s why we had to get creative with the 100-unit and do some seller financing, pull in some investors… We flipped the house during that process to pay back some money for the investors and things like that. So in order to scale and really grow, we learned pretty quickly that we were gonna have to find ways to leverage other people’s money.

Joe Fairless: That’s gonna be a fun thing to talk about. You’ve just mentioned you flipped a house to pay back investors – can you elaborate?

Matt Wood: When we bought the 100-unit complex, we seller-financed 10%, the bank provided 80%, and then investors provided the remaining 10% of the purchase price, but we were giving them a preferred return and we were paying them that 10% back over a five-year period; so we have investor payments to make on a semi-annual basis. Our goal really has continued to be to have no money out of pocket on that 100-unit complex. We’re both real estate agents, we work with a lot of investors, and we found a property that had potential to flip, it had a good after-repair value, it  had good comps in the area, and we flipped it and made some profit and used that to pay the investors back.

Mike O’Connor: In account to what Matt was saying, the way we structured it is — if we knew what we know now we would have been a little more selfish, if you will, with the equity piece, but we gave up 50% of the equity to the investors for the money that they brought, but we also paid them back 5% on an annual basis. That money comes out to something in the ballpark of $35,000 around 1st July every year or so. At least once a year — flipping isn’t necessarily our main objective, but we found a flip and we were able to make a quick $30,000; we turned it around, pumped it right back into our investors and we continued this whole theme of letting the business fund itself with no money directly out of our pockets.

Joe Fairless: Interesting. So you’re using an outside investment to pay a preferred return for an investment that the investors invest in.

Mike O’Connor: That’s exactly right.

Joe Fairless: And they’re fine with that?

Mike O’Connor: Yeah, they’re absolutely okay with that. The properties themselves are cash-flowing as well. The main objective for the whole process was for us to do a full cash-out refinance, hopefully within the next year, once we have stronger numbers, with that cash-out pay back both the seller financing and the remaining debt service that we have due to our investors, and hopefully that will bring us even keeled. But they’re okay with that as long as the money is coming back to them, they’re getting their interest, and if the properties run smoothly, they give us the autonomy we need.

Joe Fairless: With the 5% preferred return – because it’s basically a preferred return – when you did the underwriting did you project that the property would be able to pay the 5% preferred return?

Matt Wood: It’s interesting… When we bought this property we knew that it had some immediate upside. All the units were [unintelligible [00:06:59].09] for water, but the owners were paying for water, so we immediately charged that back to the tenant. We made some upgrades in some units and we slowly worked on increasing rents, so there is an element of the property paying back investors over time, but as of now, since we’re only two years in on this property, we knew that we would be making those investor payments either out of pocket, or with returns from our other properties or from flips. I mean, we could make the payments out of pocket if we wanted to, but our mindset and our goal has really been to try (to Mike’s point) to make those payments and to do everything with business returns.

Mike O’Connor: Yeah, and then the big thing that we’re marching for is that we underwrote during the analysis [unintelligible [00:07:37].26] so we have a balloon on that after five years for the pure principle amount; we pay monthly interest payments only for five years on that, and that is one that we’re confident that will absolutely be paid back through the property itself. But the property – we’re also hoping to just cash out, and we’ll handle the remaining investor payments that we have for the next two years.

Joe Fairless: When you had the investor conversations, when you were talking to them about the deal, you mentioned that the 5% will be paid from outside investments in the property instead of the actual property for the first couple years, and that conversation was okay?

Matt Wood: I think we would have had to have a different conversation if we were gonna tell the investors that we were gonna pay them back using money from the property, since they also are equity owners, right? So it was cleaner even to show that we’re building up reserves in the property and we’re leaving that money there, in the property’s account, and that we’re paying them money back from our own pockets. To Mike’s point, they don’t care where the money comes from, as long as they get paid back.

Mike O’Connor: Right, and it’s nicer to have the reserve build up there, and they know that that’s all kind of shared money for the property. It keeps it cleaner.

Joe Fairless: Huh!

Mike O’Connor: You seem surprised by that…

Joe Fairless: I’ve never heard of this; I’ve never heard of paying from another property the preferred return. Usually, my deals – and every deal I’ve heard of, which as long as it’s kosher and there’s no co-mingling of funds or anything, then I assume it’s fine.

Matt Wood: Not at all. I mean, just to simplify it totally, we owe them money to pay them back on the investment, and the way that we structured the promissory note, the money comes in however it comes in.

Joe Fairless: Huh… Okay. And when you do a refinance or when you sell, are you then repaid that 5% that you’ve been paying them from outside sources?

Mike O’Connor: No, the 5% is basically what we’re giving them as kind of a “thank you for you fronting the money”, to account for that. The guys that we brought in are higher net worth individuals who have very diversified investment portfolios, so there’s a certain element of desirability in a 5% return. For me, a 5% return is not as appealing, I’d like to look for something higher, but for these guys, the fact that they could get both equity and 5% on this money made sense. So as far as that 5%, we won’t be taking that back out; that’s just going straight to the investors.

Joe Fairless: How did you two find the deal?

Mike O’Connor: The same guy who brought us the 32-unit deal actually stumbled across this. There’s a couple of [unintelligible [00:10:06].10] in the submarket that we’re in – it’s Albany, Georgia – who picked this property up a few years back for real cheap, and they’re actually builders, so they were looking for some capital to go into a few new building projects. The guy’s name is Erik, he brought it over to our group and said “Hey, I’ve come across a deal… It’s 100 units for 2.8 million dollars. a) Are you guys interested in getting in on this? b) do you know how we’d be able to figure out the financing component?” So aside from that, we have two other day-to-day partners, [unintelligible [00:10:33].26] and we’re really sort of underwriting the deals, seeing if it made sense, looking at the numbers, looking for potential areas for value-add, and it made sense.

Once we identified it, to closing it really was a quick time, probably about a month and a half that it took. But it was Erik, we’ll give him credit for that. He has this wide network of investors and owners throughout the Atlanta and surrounding areas.

Joe Fairless: That was my follow-up question, perfect segue… How many investors do you have in the 100-unit deal and what’s the total equity that they brought?

Mike O’Connor: The investor group – I think they’re like a five-person group; I’ll kind of break down the numbers. 80% of the loan came from the bank, 10% of the loan is seller-financed, and then 10% of the loan came from the investors themselves. Now, again, knowing what we know now, we probably would have diluted ourselves less just because we’re operating the property on a day-to-day basis, it’s a good deal… We really were giving them a good opportunity. When it all shakes out, the investors get 50% and then we on our end get 50%, which comes down to 10% each, which again, in the grand scheme of things isn’t a ton, but the fact that we’re each getting 10 units for an apartment complex for absolutely no money out of pocket… Essentially, if you look at opportunity costs with what we’re doing with our flips, that money could have gone to better use elsewhere etc. but as long as we’re getting in there, getting those 10 units for no costs instead of our own pocket, we’re satisfied with that. So there is some dilution there, but it was the way that it made sense at the time.

Joe Fairless: What have you done differently on the 100-unit that you didn’t do on the 32-unit?

Matt Wood: Good question. The deals were totally different. The 32-unit required some rehab up front, and it required a lot more stabilization because about 12 of the units were vacant when we purchased the property, and we were able to get it leased out pretty quickly. The 100-unit was about 80% leased when we bought it, but we went in and immediately made some upgrades on the flooring of the units, or [unintelligible [00:12:30].23] or things like that, just to improve the quality of the property.

Then we had some additional decisions to make as far as the property management aspect, because the 100-unit complex has a full-time leasing agent and a full-time maintenance technician at the property… So that was a little bit of a different beast than the 32-unit in terms of the operations.

Joe Fairless: What’s a lesson learned or a mistake that you made on the 32-unit that you didn’t make on the 100-unit?

Mike O’Connor: The 32-unit was a great first deal in the sense that the numbers were great from day one; it really was a strong deal. That’s really what catapulted us into quickly over the next six months closing on another 116 units. A big takeaway that I always harp on is the quality of the tenants. When you’ve got a lot of vacancy or you’re working on stabilizing a property, there’s this element of wanting to increase the cashflow as quickly as possible, so you start to loosen your restrictions or your requirements for the tenants that you’re placing.

We were doing 2.5 times income – your income has to be 2.5 times the current prices, and we brought those best practices (or not best practices) over to the 100-unit, but then we started to realize that this is leading to more evictions, it’s leading to a lower class of tenants, so we quickly cut that off when we bought the 100-unit deal. We really just realized we’d rather wait an extra two or three weeks and place a good, quality tenant, than to jump the gun and put in a lower quality tenant off the bat. I think that saved us a lot of money across the road with leasing fees, paying someone to go and show the unit, turn costs, eviction costs, costs of non-payment, things like that.

Joe Fairless: On the 100-unit, what’s been the most challenging aspect of doing the asset management?

Matt Wood: Good question. There are a couple aspects to that – we actually recently transitioned property management companies after just realizing for a number of different reasons that the original company that we were working with wasn’t a good fit. The current company we have has been great… I would say one of the challenges though is that the property is about three hours outside of Atlanta, so we don’t get to that property in person as often. We’re allowing our on-site leasing agent to be the eyes and ears on the ground, but I think there are some elements that we would have been able to manage quicker and more easily if the property were in our backyard.

We’re still happy with the deal, and we would invest the same distance away from Atlanta if the numbers made sense, but that has been a challenge.

Mike O’Connor: That’s an interesting question, and I’m gonna break that out a bit as well. A benefit of having 100 units is you do have the need for an on-site manager and on-site maintenance tech, and I think that’s been great. Shifting that question a bit and looking at the 32-unit or the 16-unit one, the hardest thing about those (especially at the 32-unit), you’re getting to the point where you need some type of on-site presence; maybe not full-time, but part-time. Figuring out how that model looks, how you pay someone to be there, what they’re doing while they’re there – it’s kind of challenging; it’s that awkward in-between phase where it’s not a single-family home where it obviously doesn’t require on-site staff, and it’s not 100 units where you definitely need someone; it’s definitely in-between. We’ve gone back and forth on models with that, and that’s been a big challenge.

Joe Fairless: How did you find the original property management company and what were the red flags that made you ditch them and pick someone else?

Matt Wood: The 32-unit complex was being managed by that property management company, and since we were scaling from a single-family house to the 32-unit complex, we wanted to try to keep everything as consistent as possible. There was already a lot of change going on in our investing lives, so it made sense to keep them. And they’re nice people, they still do good work, but it just wasn’t a fit for us.

Some of the lessons learned that we have on our end is that we’re all four guys with day jobs who are very type A and we like to know all the details, and we micro-managed them. Granted, you still have to manage the management company, but we probably went overboard on that. It just wasn’t a personality fit, in some ways.

The current company that we have also invests and has their own properties and understands a lot more of the elements that we’re looking for, and we like the personnel and it’s been a great fit.

Joe Fairless: As far as the personality – I imagine the operations or the numbers were suffering, because if that wasn’t the case, the I suspect (maybe I’m wrong) that you wouldn’t have made the change. From an operations standpoint, what specifically does the new property management company do that perhaps the other one was not as efficient or effective at.

Mike O’Connor: They’ve got a lot better oversight on the property. The two models are very different. The new company – and this alludes to my earlier point about on-site versus off-site – is much more remote. We’ve got more senior level people overlooking our property operations, but from a remote perspective; handling the financials, really looking to work orders, making sure that they’re valid work orders, running the accounting, vetting tenants…

The previous company was very big on on-site presence, so we had an on-site manager that we were paying an hourly wage too that was working on a couple of our properties for about three days a week. This individual, for a lack of better terms, was not a more senior person, so a bit more junior, green behind the ears, and they were essentially in charge of running the property, handling the accounting, handling the finances, the tenant placement… So the decisions that they were making just weren’t great. We were placing bad tenants, rent collection was lower, things slipped through the cracks; every work order that came through the door got fixed and it came out of our pockets… There was just a variety of different ways where we weren’t either capitalizing on opportunities or we were bleeding from an expense perspective. That was one of the big drivers of the actual change.

Now things are much more tightened up, we have less oversight and overhead as far as on-site presence, and the properties are performing much better than they were before.

Matt Wood: The only thing that I’d add is we could tell pretty quickly with the new property management company that they took things up a level in terms of their accounting, their reporting, their software portals… You could tell pretty quickly that it was a professionally-run operation and we had some qualifications, some references on the company. That’s a lesson learned – we would ask any new property management company for client references that we could speak to to learn a little bit more about them.

Joe Fairless: Lots of good lessons learned, thank you for sharing that.

Matt Wood: Yeah, absolutely.

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

Mike O’Connor: Matt and I would probably go different ways on this, but I would say don’t hesitate to jump in. You need to understand your markets, you need to understand the numbers on what you’re doing, but you could sit there and you could analyze deals – and this is more for a newer investor – absolutely all day. There’s plenty of deals to run numbers on; actually taking the leap and getting in the game is absolutely critically important. I think the other thing for someone that’s obviously more experienced – really understand and manage your finances and your accounting very well, especially pertinent now that we’re in tax season, it’s never fun trying to go through and figure out what’s going on through all your collections, your expenses, but really at the end of the day we’re doing this to make money, and if you don’t have your finances figured out, then there’s really no point in doing this.

Joe Fairless: Are you two ready for the Best Ever Lightning Round?

Mike O’Connor: Ready!

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

Break: [[00:19:39].07] to [[00:20:31].12]

Joe Fairless: Best ever book you’ve read?

Mike O’Connor: Best ever book I’ve read is the Robert Kiyosaki book, and I’m drawing a blank on–

Joe Fairless: Rich Dad, Poor Dad?

Mike O’Connor: Rich Dad, Poor Dad, yeah. A lot of people give that book, but it honestly got me into real estate investing.

Joe Fairless: Best ever deal you two have done?

Mike O’Connor: Probably our 32-unit deal. We picked it up for $640,000 and it just got appraised for 1.35 million. It brings in roughly $18,000/month.

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

Matt Wood: We’re pretty involved in our church and we like to get involved with the service aspects there. We do different habitat type builds and stuff like that, so it’s just getting your hands dirty and getting involved.

Joe Fairless: Thinking back on your deals, what’s a mistake on a deal that comes to mind?

Mike O’Connor: A mistake on a deal… I would say on 16-unit deal which we didn’t do much discussing here, we basically rehabbed all 16 units; some of them were floor-to-ceiling molds, a good majority of them were. We — I’m not gonna say we cut corners, but we rushed the job in some areas, both with our repairs and with our tenant placement to get the thing up and running quicker than we needed to, and I would say that that probably cost us about six months of being at full stabilization, just because tenants were having to be evicted, repairs that we made weren’t holding up… So really going back and actually doing that right the first time would have saved us a lot of time and a lot of money.

Joe Fairless: You read my mind when you said we haven’t talked about it a whole lot… I do want to touch on it briefly real quick. With that 16-unit what are the numbers?

Mike O’Connor: We actually found that one on the FMLS, which is interesting…

Matt Wood: Aziz found that one…

Mike O’Connor: Yeah, Aziz found that. We picked that one for 471k, we probably put it about 100k, so we’re all-in (our base is) about 570k. It did just get appraised for 1.05 million, so all the work that we did really paid off, but that’s 16 units, it’s 8 duplexes, and each one rents out for about $850/month.

Matt Wood: One other thing we like about that property is that the whole area itself is really improving and we’re getting tenants like teachers and nurses… It’s been a good quality group that we’re getting in as far as that property goes.

Joe Fairless: Did you do a refinance to return your original equity?

Mike O’Connor: We cashed out $100,000 of it. Not all of it, but a portion of it.

Joe Fairless: How did you decide how much to cash out?

Mike O’Connor: Especially with interest rates being so low, leverage is great, it’s allowed us to scale the way that we have, but we’re cautious, too. We’re very conservative in our investments, so we thought $100,000 was a good amount to pay ourselves back, but at the same time not keeping the leverage too far… We love pay these things off, own them outright, and then our view is let’s get lines of credit against the property so we have our assets working for us, but we only pull it out if we need to.

Matt Wood: That’s a good question; that wasn’t an arbitrary number, we did spend a lot of time talking about “Should we take any money back? Should we take more than 100k?” because we did have the equity to make that decision. But we do ultimately wanna have these properties paid down for a better passive income, so it was certainly a discussion.

Joe Fairless: The line of credit that you took – that’s in addition to the 100k you got back out, right?

Mike O’Connor: Correct, so we’ve got a $200,000 line of credit that we have and we pulled out $100,000. The $200,000 is against the 32-unit, the $100,000 is against the 16-unit.

Joe Fairless: What’s the interest rate on that line of credit?

Matt Wood: It has a floor of 4% and then it’s prime plus 2%, so right now it’s probably in the 6% range, if I’m not mistaken. Better than getting hard money for something. Honestly,  we started [unintelligible [00:23:57].02] it for just the reserves and to have that kind of money available, but we’re looking at some deals potentially where we could leverage some of that money (it’s a good interest rate), something that we could get into and get out of quickly.

Joe Fairless: And where did you get that line of credit from?

Matt Wood: Wells Fargo. Wells Fargo actually has a good program that we were able to get into for the refinances. It’s a 15-year term and 15-year amortization on the loan on the property, and then a separate line of credit because we have good equity in the property.

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

Matt Wood: If you go to Foundations Realty, our website – we’ll have those in the show notes as well; you can find us on sites like Bigger Pockets, LinkedIn, places like that.

Joe Fairless: Awesome. Well, this was a fun conversation, because I loved hearing how your company has progressed and evolved from a $65,000 house to the 100-unit, and the full rehab and how you structured it with investors, the lessons learned along the way… I loved how you two got into the specifics of everything. Thank you so much for being on the show. I hope you have a best ever day, and we’ll talk to you soon!

Mike O’Connor: Thank you.

Matt Wood: Thanks, Joe.

 

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JF940: Why VALUE-ADD Multifamily Properties ROCK!

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He likes C class and B class value add Multi family deals, and he surely knows how to sniff them out! Here why large multi family properties make sense and what metrics he uses to validate a proper internal rate of return. If you’re looking to level up in real estate, this episode is for you!

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Steve O’Brien Real Estate Background:
– Co-founder and Chief Investment Officer of Arcan Capital
– Responsible for acquisition of over 20 multifamily assets totaling close to $200 million in the last five years
– Placed nearly $100 million in financing with FMNA, FMAC, HUD, bank and insurance company sources
– Prior to Arcan, Mr. O’Brien was with CBRE
– Based in Atlanta, Georgia
– Say hi to him at http://www.arcancapital.com
– Best Ever Book: Outliers by Malcolm Gladwell

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Steve O'Brian on multifamily properties

 

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 podcast. We only talk about the best advice ever, we don’t get into any fluffy stuff.
With us today, Steve O’Brien. How are you doing, Steve?

Steve O’Brien: I’m doing great. How are you?

Joe Fairless: I’m doing well, and I am looking forward to our conversation, because you are a multi-family investor on a large scale, and I’m looking forward to learning as much as I can from you, and I’m sure the Best Ever listeners are, as well. Steve is the co-founder and chief investment officer at Arcan Capital. He is responsible for the acquisition of over 20 multi-family assets totaling close to 200 million dollars in the last five years. He’s placed nearly 100 million in financing through various loan programs and sources, and prior to co-founding this company he was with CBRE. He’s in Atlanta, Georgia.

With that being said, Steve, do you wanna give the Best Ever listeners a little bit more about your background and your focus?

Steve O’Brien: Sure, absolutely. Thanks for having me, Joe, I appreciate it. I got into real estate at CBRE as an analyst. My background goes back to the numbers and the analytics; I started in the debt and equity finance group, so I got introduced to real estate on that side, and got an opportunity to do a ton of underwriting and see a lot of deals with CBRE.

I also got to see that market crash from up close in 2008, which was a great opportunity to learn about what was done right and what was done wrong. After that, my business partner and I got together and started Arcan Capital to invest in multi-family assets in the South-Eastern U.S., and we have a focus on value-add investing.

Joe Fairless: Based on your experience in underwriting through CBRE and your own practical experience, what are some ways that your underwriting has evolved, from when you started to where you are now?

Steve O’Brien: I actually think it’s a constantly evolving process. We do have our own model that’s an Excel model, and I think just about everyone has something that they rely on from a modeling perspective. I think I learned something new on every deal.

One of the interesting things about real estate is that it doesn’t happen overnight. Getting a deal done soup to nuts can take years; it can take a year to close a deal sometimes. I think if you aren’t constantly evolving and changing with the market, you’re gonna end up stale and missing some things. I’d say our model is a living document that we change based on every deal, but we just try and stay true to our foundations.

You can make a model say almost anything you want it to say; it’s about the data you put in it, and making sure your assumptions and results are correct.

Joe Fairless: What are some of the foundations that are always constant?

Steve O’Brien: I’d say the way that we make the calculations, we try to focus on keeping the math consistent and trying to stay away from some of the tricks in the underwriting that you can do, since income’s supposed to always be higher than expenses. If you grow your income and your expenses at the same rate, you’re gonna create a positive wedge. So just recognizing things like that and being aware of where your model can overestimate and underestimate things based on the numbers you put in it… That’s where we try and be the most consistent. Never let yourself get too far out of your fair way and out of your comfort zone from the underwriting.

Joe Fairless: As far as some things we might overestimate or underestimate, specifically based on your experience, what are the things in the past that you have specifically either overestimated or underestimated and you’ve tweaked since then?

Steve O’Brien: I think you always start with the rent growth. In general, when somebody is presenting you with data on a property, a Trailing Twelve, or even if it’s just a Trailing Six, you should be able to come to your conclusion about what the income has been pretty easily, so it’s all about projecting. Especially in the market that we’re in right now, you’ve seen really high rent growth figures in markets throughout the South-East and throughout the country, but I think you can get caught up in really juicing those figures and assuming that five and six percent annual rent growth is going to continue to occur.

The reality is it’s always gonna come back to the mean, so we try and be very careful — if we can’t justify a rent increase or we can’t verify exactly what the current market rent is, we’ll go back to the data and say “Where did they sign a lease last month? Where are they getting rents today and what are the comps getting?” From our value-add perspective, we’re always trying to go into a property and improve something, so that we’re not simply relying on market timing.

When we get into the property, if I replace all the appliances, if I replace this, if I replace the light fixtures, how much rent is really on the table? Because if it’s only $50 and I assume it’s $100, then that can really ruin your deal. So it all starts with rent growth and rent assumptions.

Joe Fairless: How do you gather that data and information to accurately project the rent as much as you can, knowing that you don’t have a crystal ball?

Steve O’Brien: Well, I think you do your best with analysis. There are a lot of companies out there like REIS or CoStar that provide you with that sort of data. At the same time, we think real estate is really a local business, so we’ll focus heavily on the comps. You get to know the area and determine who your real comps are and determine where they’re going.

Just because rents are going up in Atlanta or in Charlotte doesn’t mean that in your particular market you’re going to get that same rental increase. You may have several brand new properties being built right down the street, or you may have a property that’s really old that got torn down that’s going to increase your demand. So we try to focus on the micro-market and make sure that we get as much data as we can on the comps and the specific properties that are competing, and how they relate to our property.

Joe Fairless: How do you determine who are the real comps? Because I’m sure brokers present comps to you and then you look at that, but then I’m positive that you also do your own assessment of who the comps are. So what do you look for to make sure that the property that you’re underwriting is being compared against the real comps?

Steve O’Brien: Actually, that’s a great question, and I love what you said with the real comps… As you mentioned, and having been at CBRE and starting there, I can tell you the way the brokers look at comps is they’re looking for things that support their analysis, and I think that’s what everybody’s doing, but as an investor you need to have more of an open mind, and I think you need to be willing to look for things that don’t support your hypothesis, so that you’re willing to walk away from something that’s not a good fit.

The nice part about multi-family is it’s pretty open from a data perspective, and if you call a property, you’d be surprised at how much data they’re willing to give you. We will tour properties, we will call and say we’re doing a market survey, and in general, multi-families are a fairly tight-knit community. You’ll find some properties that may not be a hundred percent honest with you about occupancy and rental rates, but in general, if you drive around the properties and you get a feel for what type of property your property is, you can compare it not dissimilar from how an appraiser might – age and quality…

Then you can call them and say, “Hey, what are you getting for a two-bedroom? What are you getting for a one-bedroom?” and it’ll become pretty clear to your whether the numbers that you were given, whether it’s by a broker or even by an appraiser are realistic.

That’s one of the great parts about multi-families – in general, there is an incentive for everyone to share this information… So you can get it, you just have to ask for it.

Joe Fairless: As far as what you’ve just said, age and quality – can you elaborate on that? The reason I’m asking is let’s pretend a multi-family investor just got a deal sent over to her, and she is looking at the deal and she’s like “Okay, now I need to know where are the rent comps.” It’s an off-market deal, but she has access to databases as well as her car, so she can drive around. How does she initially qualify the rent comps? What are the specific factors?

Let’s say this property was built in 1980 and it’s in a B class area. How does she go about actually finding the rent comps?

Steve O’Brien: I think that there’s a big, broad process that you can go through, but we have some very specific categories that you probably wanna focus on. Number one is distance. The reality is something that’s ten miles away probably isn’t one of your real comps. Now, in some of your very small markets, maybe one of the advantages you see is that there are only two comps within ten miles. But in general, I’d say proximity is a very important factor, and age is a very important factor.

Constructions, just like almost anything else, as the time goes on, things change. As we’ve all seen, if you go look at deals that are built in the ’60s and ’70s, they can be very different from deals that are built in the ’80s and ’90s. One of the things that we try and focus on from a value-add perspective is identifying similar age, similar construction quality, whether it’s two-storeys versus one storey.

One of the new buzzwords in multi-family is ceiling height. Nine-foot ceilings is a big deal right now for newer products, because a lot of the older products have eight-foot ceilings. It’s up to you to determine whether something can be a comp if it’s a nine-foot [unintelligible [00:11:58].00]. I think you can, and you can make adjustments up and down, because that’s what your clients are gonna do. Residents are gonna go back and forth and they’re gonna put a value on specific things.

A 2000-built property can be a comp with a 1980 property, it just depends on the other things that they offer. What are the amenities? Pool, fitness, tennis courts, fitness center… So it’s basically creating a list of property information and comparing that side-by-side, no different than when you’re going online and you’re trying to compare different software programs, and you’ve got the checks by all the different things this software program does versus the other. We do it in a very similar way.

Then, of course, you can get as detailed as possible. You can compare the size of pools, you can compare the number of parking spaces, and covered parking vs. garage. So you can really take it down to a very micro-level, but when you’re looking for your comps, I think you need to stay a little bit more broad as far as age and construction quality and location.

Joe Fairless: Generally, what have you found is the right distance to look for from the subject property?

Steve O’Brien: Everybody’s different. I think that if you were just gonna pick a number, I would say that it’s within a couple of miles. The problem becomes — it depends on your density, and every market is different. I think the answer to that question is based on where you are. It can be a great benefit that you draw a radius outside from your property location, and in that two-mile radius you only have one comp – that could be a great thing. It could also be a bad thing. It can be a sign that there’s not a lot of demand in your area.

I think it’s more about understanding your area, but we try to look in denser areas within a mile radius. In larger areas, we would typically draw the line around a five-mile radius, because in general if someone is looking to live in an area, it’s our opinion that five miles is about as far as they’re going to live once they’ve made a decision of “Hey, this is the spot. This is where I wanna be.” You probably aren’t gonna go too much further than five miles, but you may have to expand that to get enough comps… And who knows what enough is? Is it 4-5, or is it 10? I think everybody has to determine that on their own.

Joe Fairless: I’d love to hear you elaborate a little bit more about your example that you said where a 2000-built property can be a comp with a 1980 property, depending on the amenities. Can you elaborate on that?

Steve O’Brien: Absolutely. I think in general there are certainly some construction changes between a mid-1980s product and the 2000s. Materials get better, but I think you also hear people say that they don’t build them like they used to. So I can have a 1980s pool (that was built in the 1980s), but some of the new pools, they call them resort-style pools – it’s a little bit bigger, a little more deck space, maybe you’ve got grills out there… So it’s about taking that single item — the tennis courts… What conditions are the tennis courts in? I can take a tennis court, and for a relatively small amount of money, I can make it look and feel almost brand new. But if I have a 2000 deal and no one’s touched that tennis court for 16 years, my 1980s tennis court could be better than the 2000.

So I think it’s about identifying what those specific amenities are, and comparing them side-by-side. I think fitness centers are one of the big ones, because in the 1980s fitness centers weren’t really a thing; that was at properties. Now it’s a major component of a lot of the new deals that you’ll see. Large fitness centers that you don’t even need a gym membership anymore. If you go back and look at a 1980s deal and you have a little thousand-square-foot room that they’ve put some equipment in and they call it their fitness center, then that’s not really fair to compare to some of these big 5000-square-foot with free weights, ellipticals and all the different machines. Just because they both have a fitness center doesn’t mean that it’s fair to compare them apples to apples.

I think that’s what I mean by amenities – it’s something other than simply the living quarters and the units themselves. Dogwash stations, dog parks, car wash stations… We’ve seen some of the new deals – particularly student housing, which is a little outside of the multi-family logs, but some of the new student housing deals are a maze of full-club houses with flat screen TVs and video game systems and pool tables…

Not everything is created equal, so it’s not just as easy as saying, “Yes, we both have a pool.” I think you have to take a closer look at that pool and you have to take a closer look at those tennis courts, instead of just assuming that the 2000 deal was better. That’s probably a safe guess, but that’s why you gotta go put your eyes on it.

Joe Fairless: What year properties do you wanna buy now?

Steve O’Brien: I’d say right now we really like somewhere between 1980 and 2005. The reason we like that is because we like to add value to things, and it’s hard to add value to something that was built six years ago. You can, and there are some markets where it certainly happened, where the growth has been so much that you’re going from Formica countertop and black appliances to granite countertops and stainless appliances, because you can get substantially more rent for those upgrades. But in general, we like to focus on deals where we can make [unintelligible [00:17:19].20] transformations.

We like to take before pictures and after pictures, and have a real wow factor, and you need some age in order to do that. It’s hard to create a wow factor for properties that are much newer than 2000-2004. But you can go into some properties that age, in 1984, and it feels like a generation ago, and it was. I’m sure you’ve seen them too, the old cabinets that you’ll see in some of those 1980s deals, when everybody liked the original wood grain look. Now everybody likes  the bright-starred white kitchen.

Things change, and I’m sure in 15 years they’ll go back and look at deals and say, “Oh man, that was built in the 2000 teens”, because of this style and that style. So we like to create that transformation, and you need a little age in order to do that.

Joe Fairless: And then real quick, clearly you can have some wow factor if you buy a 1960 property and you do the renovation, so why 1980 versus 1960 or 1970?

Steve O’Brien: I think we see a lot of similarities between the construction – not all of it, but you can sometimes find a 1985 deal, garden style apartment that’s built very similarly to how they would build it today. That’s what you’re looking for to really create that transformation and to increase the age of the asset, or the perceived age of the asset… It’s “Can I make this look new?” A lot of the ’60s and ’70s deals (especially the ’70s) you get some of that modern architecture, and it’s hard to bring that property out of the ’70s, to make it look like it’s no longer a ’70s feel.

The same is true for some of the ’60s properties as well, where there are just changes that you can’t make. Meanwhile, in the ’80s, with vinyl siding, or T1-11 wood, or cedar siding, it’s pretty easy in the scheme of things to rip that off and put on the new hardie siding or cement board siding and give it a fresh, new look and make it look like it was built in the last 10 or 15 years.

That’s why we try to stay away from a little bit older products. There are also a ton of other issues you can run into with aluminum wiring, asbestos, all sorts of environmental potential concerns that frankly people didn’t know about in the ’60s and ’70s. Now that you know that, it can be a real pain to deal with those issues if you can avoid them.

Joe Fairless: Let me pose a hypothetical scenario to you. You just got a lead from one of your friends in the business, and he said “Hey, I’ve got this portfolio of 1960s properties, 300 units. They’re in a B+ area that’s trending towards an A.” What do you do in that scenario?

Steve O’Brien: Well, I think rule number one for us you have to go see the real estate. That’s rule number one, because there are a ton of deals that if you don’t go put your eyes on them, you don’t get the real assessment for what they are. I would go to those properties and then I would start asking some of those bigger picture questions – are there any environmental concerns? Copper wiring, polybutylene plumbing, asbestos – those different materials from the past, that can cause problems.
But some of the coolest deals around now are currently [unintelligible [00:20:50].29] deals that were formerly old warehouse and mill space, and they’ve been completely remediated and they’ve been completely remediated and they’re beautiful deals, with no environmental concerns.

I think rule number one is if something sounds interesting to me and it’s a good area, I’m gonna go see the property. Then I’m gonna start asking the big miss questions, the things that can really hurt a deal, and try and check off those big problems off my list, so that I can focus on the little problems.

Joe Fairless: You mentioned some of those questions – environmental concerns, the wiring… Just off the top of your head, what are some other questions that you would ask that would the big ones that might kill the deal?

Steve O’Brien: It’s all the major systems, especially for the older deals. Does it have central air or is it a wall unit? Because that’s something that is really hard to get around, not having central air, and you just need to know that; it doesn’t necessarily make the deal a bad deal, you just need to understand that part of it.

I would say roofs, the age of the siding, wiring, plumbing and electrical systems in general. If the wiring is just old and needs to be replaced, that’s a very expensive problem. Same thing for plumbing. It’s really hard to get into the walls of a property. To the extent that you can verify that those things either have been remediated or are in very good shape, you can really avoid a big miss.

Missing on one unit that turns out to be down is a relatively small miss on a reasonably sized property, but if it turns out that you have to rewire your whole property, or you need to put new roofs on your entire property, that’s gonna cost you something substantial, and that’s gonna really change your return.

Joe Fairless: Steve, what’s your best real estate investing advice ever?

Steve O’Brien: My best real estate investing advice ever is to use debt to your advantage. I think there’s a reason they call it leverage, and a lot of people jump into loans… It’s a great idea to structure those the right way, and it can save you a lot of time and pain in the long run.

Joe Fairless: I’d like to do a follow-up conversation with you about debt and leverage if you’re open to that. Would you be open to that?

Steve O’Brien: Sure.

Joe Fairless: Cool. We’ll have you on the show one more time so you can talk about that specifically. Are you ready for the best ever lightning round?

Steve O’Brien: Absolutely.

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

Break: [[00:23:07].09] to [[00:23:49].23]

Joe Fairless: Best ever book you’ve read?

Steve O’Brien: Outliers by Malcolm Gladwell.

Joe Fairless: Yes, that’s a good one. One of my favorites. Best ever personal growth experience and what did you learn from it?

Steve O’Brien: I would say it was the market crash in 2008. I’m sure you get that a lot. While you’re going through it it’s really painful, and I think though you learn more in the down markets than you do the up markets. That was a great opportunity to experience a lot of pain, but almost everything that I do in my underwriting comes from the failures I saw during that time. I learned a lot of what to avoid during that time.

Joe Fairless: And what specifically do you do now in your underwriting that you weren’t doing before?

Steve O’Brien: I think it’s some of the stuff that we talked about earlier – the rent growth figures, and just the understanding… I mean, it’s amazing to go back and think that during that time no one ever thought values would go down. Just remember that that’s possible. I think justifying all of your numbers, as opposed to just penciling in a figure – “Oh, rent will go up this much” or “Sure, I can get that figure”… It’s really actually finding some data to back it up.

Joe Fairless: What’s your favorite data source?

Steve O’Brien: We use CoStar, but there’s so much news available on the internet, that whether it’s the local business journal or Bureau of Labor Statistics… There’s a ton of data out there. In fact, there’s probably too much data, so that’s why we like to focus on CoStar and one particular source, so that we’re at least consistent. Because it doesn’t feel right to just pick and choose “Today I’m gonna use this, and tomorrow I’m gonna use that” just to prove your point.

We like to pick one and stick with it, and that choice for us has been CoStar, but there are a lot of great companies out there like REIS and other analysis sources that people use and trust.

Joe Fairless: Best ever deal you’ve done?

Steve O’Brien: Definitely the deal we did in suburban Atlanta. It was actually a duplex community, and the property was being run more like a single-family neighborhood than a multi-family property. It was in big distress, so we came in and purchased the property all cash, because it was a mess, so it wasn’t financeable. To give an example, it was in such bad condition after the foreclosure that there were residents who instead of reporting a termite infestation would just put posters up over the holes in the wall, and wouldn’t even report it because they didn’t think anybody would fix anything. So we really had to sell the vision on that one of what we could turn it into, the transformation we could make.

We were able to do it four years later; it’s worth about three times what we paid for it, and we were able to finance out all of our capital, and it’s been a great deal. We basically turned it from a single-family neighborhood into a multi-family property.

Joe Fairless: What’s the biggest mistake you’ve made on a deal?

Steve O’Brien: It’s actually on my own personal house. I bought a house at the absolute worst time in 2006. I always laugh about it, because I’m a real estate person and I still bought a house in 2006, at the absolute worst time. Just going back and thinking about it, it’s funny… I think we all ignored a lot of the signs that some of this stuff didn’t make sense and we all paid the price, but hopefully we came on the other side better for it.

Joe Fairless: What’s the best place the Best Ever listeners can get in touch with you?

Steve O’Brien: The best place is our website, www.arcancapital.com.

Joe Fairless: Sweet. Steve, very informative and educational conversation – I know for myself, as well as some Best Ever listeners. Thank you for being on the show, spending some time with us talking about how your underwriting process is constantly evolving, and how to find the real rent comps when we’re looking at opportunities, and the three ways to find those rent comps: distance, age and construction quality, while taking a close look at the amenities, because as you said, a 2000 property could be a rent comp for a 1980s property. We really have to look into some of the specifics.

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

Steve O’Brien: Great, thanks so much for having me.

 

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Joe Fairless's real estate podcast

JF929: A MILLENNIAL’S Guide to Buying Your First Home #SkillSetSunday

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Maybe you or someone younger is ready to dive in and make the first home purchase, this interview is for you! Our guest purchases her first home and makes many costly mistakes, her opportunity now is to share with you what not to do. She’s a blogger, so you can catch her website in the notes and follow her.

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Lauren Bowling Real Estate Background:

– Award-winning blogger and editor behind personal finance site Financial Best Life and author of The Millennial Homeowner: A Guide to Successfully Navigating Your First Home Purchase
– Work has been featured on leading online financial news sites including Forbes, The Huffington Post, CNNMoney
– Currently educating millennials on buying homes as their first real estate investment via her recently published book
– Based in Atlanta, Georgia
– Say hi to her at http://financialbestlife.com/

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real estate pro advice

JF870: How to Go from $3,000 to 80 Deals in a SHORT Period

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She made a $3000 check and game over! She partnered up with a friend and chased the deals! Hear about the mentality she had when chasing the deals and how you need to think.

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LaShannon White Real Estate Background:

– Full time wholesaling real estate investor & Founder of Wholesaling Real Estate Coaching Program
– Began in real estate in 2004 with no prior experience, leaving her full time job
– Closed over 80 deals
– Heavily involved with the Georgia Real Estate Investors Association
– 1997-2004 was the Owner/Operator of Sunshine Staffing Services
– Based in Atlanta, Georgia
– Say hi to her at dreambiggerwealthbuilder@gmail.com
– Best Ever Book: Think and Grow Rich by Napolean Hill

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JF827: Stop Thinking One Investment Strategy and Start Being Creative!

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Wholesaling is cool, but it’s only one exit strategy. Today you will hear from our guest who is skilled in most transaction types on the residential level. He advises against doing one thing over and over, but expand your knowledge and surround yourself by pros who are doing what you want to do.

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Stephen Watson Real Estate Background:

– Real estate investor at RGI Companies
– Completed over 200 real estate transactions ranging from Wholesaling, Lease Options, Creative Real Estate
– Seeking to expand into buy and hold multi-family real estate market in Atlanta
– Based in Atlanta, Georgia
– Say hi to him at www.rgicompanies.com
– Best Ever Book: Think and Grow Rich by Napoleon Hill

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Best Ever Show Real Estate Advice from experts

JF797: Why You Need to Buy C-Class Buildings and How to Evaluate the Market for a Multiunit Investment

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Don’t underestimate the value of purchasing a value add property in a roaring market. In a place where rents are climbing, it would be a good idea to invest in a cheap C class multi family and improve it for higher rents or disposition to sell, and that’s what you are going to hear today! Pull out a pen and paper and plan your next multi family purchase!

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Adam Whitmire Real Estate Background:

– Director of Acquisitions at The Whitmire Group, LLC
– Over 15 year’s real estate experience in owning single and multifamily portfolios
– Strong focus on investment portfolio management and real estate market development.
– They have 3 residential development projects in Georgia right now
– They have a single family fund buying 30-40 homes
– Teacher of over 500 classes and speaker at 36 industry events across the country
– Based in Atlanta, Georgia
– Say hi to him at www.thewhitmiregroup.com
– Best Ever Book: Rich Dad, Poor Dad by Robert Kiyosaki

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JF638: Why this Lender LOVES Newbie Investors

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Atlanta, Georgia is one of the hottest markets in the nation! Today’s guest is a lender that specializes in hard money loans for fix and flip projects, and he loves newcomers! This lender has a heart and will give you the time of day, unlike most lenders. Tune in and hear how you could potentially turn a profit in Atlanta with this guy!

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Dean Tilman Real Estate Background:

– Hard money lending expert
– President of Paces Funding
– Investor since 2004
– Based in Atlanta, Georgia
– You can reach him at dean@pacesfunding.com

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JF602: Not Your Typical Crowd Funding Platform and Why They are Different

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Today’s guest claims that his crowd funding source is the one and only accredited and non accredited investor backed lending source. He’s also one of the fastest approvers of a loan you need. Tune in and hear today’s opportunity to be a borrower or an investor!

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Brian Dally real estate background:

  • Co-founder and CEO of GROUNDFLOOR
  • Started a wireless company called Republic Wireless and built
    it as a division of Bandwidth
  • Has a JD from Harvard Law School, an MBA from Harvard Business
    School and a BA with Highest Distinction from University of
    Virginia
  • Based in Atlanta, Georgia
  • Say hi to him at: https://www.groundfloor.us/about

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Need financing?

Are you a buy-and-hold investor or doing fix and flips?

I recommend talking to Lima One Capital. A Best Ever Guest told me about them after I asked how he financed 10 properties in one year. They are an asset-based lender with unique programs for long-term hold and fix and flippers.

Click to learn more or, better yet, reach out to Cortney Newmans at Lima One Capital. His cell is 404.824.6121.

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JF550: Why You Shouldn’t Be Your Own Contractor #situationsaturday

How much does it cost to use a general contractor? Does it matter? Sure, but what you could have finished in two months took six. MONEY LOST! Be the investor that not only leverages the money well, but also the work! Hear it and take notes!

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Jason Myles real estate background:

 

–          Been in the real estate industry for 15 years

–          Done hundreds of deals from single family, multifamily, new construction and raised almost $20,000,000 for his deals since 2008

–          He is based in Atlanta, Georgia

–          Author of The Home Finders Guide, First Edition

–          Say hi to him at: http://www.jasonomylesrenetwork.com

 

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Are you committed to transforming your life through Real Estate this year? If so, then go to http://www.CoachWithTrevor.Com and claim your FREE Coaching Session.  Trevor is my personal real estate coach and I’ve been working with him for years. Spots are limited, so be sure to do it now before all the spots are gone.

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JF538: How Playing a Board Game Built His Credibility and Network

Our Best Ever guest has vision. He even helps others learn how equity and passive income works by playing Cash Flow, a board game inspired by Robert Kiyosaki. Hear his story of building capital and relationships through fundamental skills of service and networking.

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Jason Myles real estate background:

–          Been in the real estate industry for 15 years

–          Done hundreds of deals from single family, multifamily, new construction and raised almost $20,000,000 for his deals since 2008

–          He is based in Atlanta, Georgia

–          Author of The Home Finders Guide, First Edition

–          Say hi to him at: http://www.jasonomylesrenetwork.com

 

Please Take 4 Min and Rate and Review the Best Ever Show in iTunes. 

Listen to all episodes and get a FREE crash course on real estate investing at:http://www.joefairless.com

Are you committed to transforming your life through Real Estate this year? If so, then go to http://www.CoachWithTrevor.Com and claim your FREE Coaching Session.  Trevor is my personal real estate coach and I’ve been working with him for years. Spots are limited, so be sure to do it now before all the spots are gone.

Have you tried REFM’s Valuate software yet? It makes investment analyses a breeze, and makes you look like you spent all week on them. Go to app.getrefm.com to sign up today.

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JF527: She Purchased a 4-Plex for $13,000 with a $2,100 Monthly Income!

Today’s guest has extensive experience in mortgages, retail, fix and flips, rehab, and buy-and-hold properties. Her advice will leave you wondering how she did it, and at the end of the interview she gives you her phone number. She believes in great relationships and an exchange of services. Hear how she built her capital to invest!

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Tamairo Moutry real estate background:

  • Owner and broker in Georgia’s Best Real Estate Services and Milwaukee’s Best Real Estate Services
  • Landlord, rehabber, property manager, investor and licensed notary for the state of Wisconsin
  • Works with the top agents in the nation
  • Splits her time between Atlanta and Milwaukee
  • Say hi to her at: georgiasbestrealestate.georgiamls.com
  • Her Best Ever book: REO Boom by Aram Shah

Please Take 4 Min and Rate and Review the Best Ever Show in iTunes. 

Listen to all episodes and get a FREE crash course on real estate investing at:http://www.joefairless.com

Are you committed to transforming your life through Real Estate this year? If so, then go to http://www.CoachWithTrevor.Com and claim your FREE Coaching Session.  Trevor is my personal real estate coach and I’ve been working with him for years. Spots are limited, so be sure to do it now before all the spots are gone.

Have you tried REFM’s Valuate software yet? It makes investment analyses a breeze, and makes you look like you spent all week on them. Go to app.getrefm.com to sign up today.

Subscribe to Joe’s YouTube Channel here to learn multifamily and raising money tips:
https://www.youtube.com/channel/UCwTzctSEMu4L0tKN2b_esfg

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JF526: Proof That YOU are Working Too Hard and How to Leverage People

Virtual assistants are becoming popular, and for today’s Best Ever guests, they are a big part of their multiple businesses. Our couple left the corporate world becoming a property management, fix and flip, buy and hold, and VA training company—they do it all! Hear why they choose virtual assistants and their impact.

Best Ever Tweet:

Mark and Anne Lackey background:

  • Real estate investors, authors and speakers based in Atlanta, Georgia
  • #1 Amazon Best Seller in Multiply Yourself Increase Your Productivity and Profits Using Virtual Assistants
  • Fix-and-flip and buy-and-hold investors and been investing since 2000
  • Say hi to them at: hiresmartvas.com
  • Their Best Ever book: Think and Grow Rich by Napoleon Hill

Please Take 4 Min and Rate and Review the Best Ever Show in iTunes. 

Listen to all episodes and get a FREE crash course on real estate investing at:http://www.joefairless.com

Are you committed to transforming your life through Real Estate this year? If so, then go to http://www.CoachWithTrevor.Com and claim your FREE Coaching Session.  Trevor is my personal real estate coach and I’ve been working with him for years. Spots are limited, so be sure to do it now before all the spots are gone.

Have you tried REFM’s Valuate software yet? It makes investment analyses a breeze, and makes you look like you spent all week on them. Go to app.getrefm.com to sign up today.

Subscribe to Joe’s YouTube Channel here to learn multifamily and raising money tips:
https://www.youtube.com/channel/UCwTzctSEMu4L0tKN2b_esfg

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JF476: For 5 Years He FAILED Until He…

Our Best Ever guest wasn’t able to cut it in the real estate investing game for five years…but he didn’t give up! He did what EVERY new investor should do—found a mentor! He began wholesaling but eventually found his niche in development and new construction. He feels that the saturation of real estate activity has raised prices and seller expectations. Hear his strategy and see if it’s for you!

Best Ever Tweet:

Abhi Golhar’s real estate background:

  • Managing Partner at Summit & Crowne Partners, an Atlanta-based real estate investment firm
  • Uses value-add approach to acquire, renovate, and(or) develop real estate
  • Host of #realestatedealtalk on YouTube
  • Currently he has 35 new construction deals in Atlanta and Charlotte and is expanding in other markets
  • Here’s a map he referenced in our conversation
  • Say hi to him at http://www.abhigolhar.com/
  • Listen to all episodes and get a FREE crash course on real estate investing at: http://www.joefairless.com

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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. Learn more at http://www.fundthatflip.com/bestever.

What’s the Best Ever health plan for YOU?

Go to http://www.stridehealth.com/bestever and find a better health plan in 10 minutes or less. On average you’ll save $418 on coverage and care.

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JF315: The Benchmarks YOU Need to Follow to Determine the Importance of an Investment

Today’s Best Ever guest shares with us some incredible value as to how to get in with the high rollers, how to determine what investments you need to keep to yourself, and why it may be worth your time to go out and pursue a higher degree in real estate.

Best Ever Tweet:

Ken Corsini’s real estate background:

–          Founder of Georgia Residential Partners and has over 10 years of real estate investing experience

–          Master’s Degree in Residential Development from Georgia Tech University

–          He buys and sells an average of 100 deals per year in the Atlanta, Georgia market

–          Host of popular podcast, Deal Farm

–          Has twin four year olds

–         Listen to his podcast at http://www.dealfarm.net

Subscribe in iTunes  and  Stitcher  so you don’t miss an episode!

Made Possible Because of Our Best Ever Sponsor:

Patch of LandWant to learn more about crowdfunding? Let the leading expert in the crowdfunding space, Patch of Land, give you all the info you need to get started. Grab your FREE copy of Top Ten Answers to the Top Ten Crowdfunding Questions athttp://www.PatchOfLand.com/bestever

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JF281: How to Build Relationships With Private Lenders to Get More Funds

Today’s Best Ever guest made a massive mistake with hiring a contractor, but now shares with you what to look for in one. We also discuss how he funds his deals, and how to successfully build relationships with private lenders.

Best Ever Tweet:

Darrell Shepherd’s real estate background:

–          Founder of Lone Palm Lending

–          Fulltime investor since 2000 based in Atlanta, Georgia

–          Say hi to him at http://www.lonepalmlending.com/

–          Has a rehab business, a lending business and working on a turnkey rehab real estate brokerage

–          Used to run 3 crews full time and own 50 – 60 units of rental property now focused on doing about 10 rehabs a year

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Made Possible Because of Our Best Ever Sponsor:

Patch of Land – Want to learn more about crowdfunding? Let the leading expert in the crowdfunding space, Patch of Land, give you all the info you need to get started. Grab your FREE copy of Top Ten Answers to the Top Ten Crowdfunding Questions athttp://www.PatchOfLand.com/bestever

1,000 Houses  – Are you tired of being a landlord? Are you tired of headaches? Thousands of investors have felt the same way you do, and have found their solution! Go to http://www.1000houses.com/mitch to find out more.

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JF254: Wanna Quit Your Job to be a FULL TIME Investor? Well, You Better Think Twice…

Are you just about ready to march into your boss’s office to tell him off and quit? Well, you better think twice about that. Today’s Best Ever guest lays out for us why it may not be wise to quit your job right away and some different lending solutions YOU may not have thought of.

Best Ever Tweet:

 Tom Hutchens’s real estate background:

–          Today’s Best Ever guest shares with us Senior vice president of Angel Oak Mortgage Solutions based in Altanta

–          He joined in 2014 and is responsible for sales and marketing for the company

–          Wholesale lender currently licensed in 24 states

–          Been in the industry for nearly 20 years

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Made Possible Because of Our Best Ever Sponsors:

Norada Real Estate Investments – Having a hard time finding great investment properties?  Unfortunately, the best deals are rarely found locally. Norada Real Estate’s simple proven system provides you with the best deals across the U.S. to create wealth and cash-flow.  Get your FREE copy of The Ultimate Guide to Out-of-State Real Estate Investing

Patch of Land – Want to learn more about crowdfunding? Let the leading expert in the crowdfunding space, Patch of Land, give you all the info you need to get started. Grab your FREE copy of Top Ten Answers to the Top Ten Crowdfunding Questions athttp://www.PatchOfLand.com/bestever

The Art of Commercial Real Estate Leasing– You’ve heard him here before, and now he’s back with a book you must read. Buy Craig Coppola’s book, The Art of Commercial Real Estate Leasing and learn the 19 things to look for in a lease.

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JF238: Do These Simple Things to Achieve COMPLETE Freedom

Are you chained down to a desk job you hate? Do you want to travel the world for years at a time? Today’s Best Ever guest shines some light on how important it is to keep your eyes open to markets you NEVER thought you would invest in and the ONE rule you need to follow for rental properties. Say adios to your desk job, because real estate will give you the financial and emotional freedom to do anything!

Best Ever Tweet:

Paula Pant’s real estate background:

–          Founder of Afford Anything based in Atlanta, Georgia

–          Has seven rental property units and has traveled to 32 countries since quitting her 9-to-5 job

–          Afford Anything is a real estate and lifestyle website that rebels against chaining yourself to a desk for 40 years

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Made Possible Because of Our Best Ever Sponsors:

Norada Real Estate Investments – Having a hard time finding great investment properties?  Unfortunately, the best deals are rarely found locally. Norada Real Estate’s simple proven system provides you with the best deals across the U.S. to create wealth and cash-flow.  Get your FREE copy of The Ultimate Guide to Out-of-State Real Estate Investing

Patch of LandWant to learn more about crowdfunding? Let the leading expert in the crowdfunding space, Patch of Land, give you all the info you need to get started. Grab your FREE copy of Top Ten Answers to the Top Ten Crowdfunding Questions athttp://www.PatchOfLand.com/bestever

Mascia Development – Do you need an equity partner or know about a great deal and want to get paid for finding it? Mascia Development can help you make that retail or medical office deal happen. Email them at jv@masciadev.com

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JF207: The THREE Keys to Profitable Note Buying

Note buying, baby. Today’s Best Ever guest shares with you the THREE keys to successful note buying. PLUS, he gives tons of great tips for marketing your real estate biz.

Best Ever Tweet:

Bryan Ellis’s real estate background:

–        Has over 10 years of experience as a real estate and mortgage investor based in Atlanta, Georgia

–        Host of Self-Directed Investor Radio and publisher of Bryan Ellis Investing Letter which has over 700,000 subscribers

–        Listen to his show at http://sdiradio.com/

–        Loves hanging out in Las Vegas more than anything even though he isn’t a gambler

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Sponsored by Patch of Land – Could you do more deals if you had more money? Let the crowdfunding platform, Patch of Land, find investors for you and fund your next deal…and your next deal…and your next deal…and…well, just go find out more at http://www.PatchOfLand.com

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JF193: Pros and Cons of REIT Investing

Want to learn more about REITs and how to diversify your portfolio? Today’s Best Ever guest is about to tell you how!

Best Ever Tweet:

Matt Reiner’s real estate background:

–        Co-founder and managing partner of a digital finance advisory firm, Wela

–        Been in the business about 8 years

–        Certified Financial Planner based in Atlanta, Georgia

–        Say hi to him at www.yourwela.com  

Subscribe in iTunes  and  Stitcher  so you don’t miss an episode!

Sponsored by Patch of Land – Could you do more deals if you had more money? Let the crowdfunding platform, Patch of Land, find investors for you and fund your next deal…and your next deal…and your next deal…and…well, just go find out more at http://www.PatchOfLand.com

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JF151: 3 Lessons Learned from Devastating Biz Losses AND How to Come Back Stronger

Today’s Best Ever guest talks about how she entered into a world of credit card processing – an industry that hadn’t evolved much at the time – and flipped that industry upside down by taking a different approach. Then, she applied those learnings to her other investments – one of which is real estate.

She has 3 lessons she learned along the way and shares them with you in our conversation – let’s go!

Best Ever Tweet:

Darrah Brustein’s real estate background:

–        Author and Founder of Finance Whiz Kids and is based in Atlanta, Georgia

–        Passive real estate investor via hard money lending

–        Founder of Atlanta’s largest monthly social and professional networking org called Network Under 40 and then Network Over 40 in 2014

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JF128: Crash Course on Financial Modeling for Real Estate Investing

Today’s Best Ever guest shares with you why financial models are important and how to use them. Plus, he tells you why it’s important to learn the story behind the property.

Tweetable quote:

Bruce Kirsch’s real estate background:

–        President of Real Estate Financial Modeling, a financial modeling provider for Excel spreadsheets, training and consulting based in Atlanta

–        Assisting principals in capital raises and has helped clients raise multiple of billions of dollars debt and equity on their projects

–        Has served as an Adjunct Faculty member in real estate finance at Georgetown University

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Sponsored by Cozy – Simple, free online rent payments, tenant screening and credit checks. Get Cozy for free at cozy.co

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