JF2282: Austin Flipsters With Lincoln Edwards

Lincoln is the owner of Equity Boost Real Estate, a real estate investment group based in Austin, TX. He’s successfully completed multiple flips and started a popular Youtube Channel called Austin Flipsters with his friend, Lauren, where they show how they flip houses for a profit: The before, after, and all the drama in between. 

Lincoln Edwards  Real Estate Background:

  • Owner of Equity Boost Real Estate and founder of a popular youtube channel Austin Flipsters
  • Bought his first investment in 2007
  • His company flips 12-20 luxury properties per year and wholesales another 50 
  • Based in Austin, TX
  • Say hi to him at: www.austinflipsters.com 
  • Best Ever Book: How to Win Friends and Influence People 

 

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Best Ever Tweet:

“Creating our Youtube channel has helped us in many ways to meet investors, create new deals, and grow our marketing” – Lincoln Edwards


TRANSCRIPTION

Theo Hicks: Hello, Best Ever listeners, and welcome to the Best Real Estate Investing Advice Ever Show. I’m Theo Hicks and today, we’ll be speaking with Lincoln Edwards.

Lincoln, how’re you doing today?

Lincoln Edwards: Hey, doing good. Thanks for having me.

Theo Hicks: Absolutely. Thanks for joining us. A little bit about Lincoln’s background—He is the owner of Equity Boost Real Estate and founder of a popular YouTube channel called Austin Flipsters. He bought his first investment in 2007 and his company now flips 12 to 20 luxury properties per year, in addition to wholesaling another 50 deals. He is based in Austin, Texas, and his website is https://www.austinflipsters.com/.

So, Lincoln, do you mind telling us more about your background and what you’re focused on today?

Lincoln Edwards: Sure. Well, like I said, thanks for having me on. I’ve been investing in real estate, like you said, since 2007. That was kind of my first deal, was really just house hacking, renting out to my buddies. I got started seriously investing full-time in 2011 first in commercial real estate, and then in residential redevelopment stuff. And we launched a grand experiment, this YouTube channel Austin Flipsters in 2018, and then kind of have been growing it. And there we take people along for the journey on our fix and flip projects here in Austin, Texas, along with my partner, Lauren. We’re kind of HGTV meets Youtube, and it’s been kind of a fun wild ride getting out there and interacting a lot and building an audience.

Theo Hicks: Nice. So is your main focus on that YouTube channel now, or is the main focus the flipping business and then the YouTube channel is kind of a secondary thing?

Lincoln Edwards: Well, really, our primary business has been our own fix and flips, and in the wholesaling company that you mentioned, Equity Boost Real Estate, was really the original offshoot of that. We’re spending a lot of time just sourcing deals, and there’s just so much that goes into that; once you turn on that marketing machine of generating deal flow, you don’t want to turn it off. So since to build our equity boost and wholesale—once we had all our capital tied up in projects, we work with other investors here in the greater Austin area so that we keep that marketing machine going and we don’t miss out on these opportunities.

And then the YouTube channel, Austin Flipsters, has been kind of another offshoot. I look at that as sort of our marketing for our business, both wholesale as well as the fix and flip. So we’ve looked to find a direction. At first, it was just sort of like figuring out, “Okay, how do we make the most out of social media and see where this thing can go?” And really, it was like filling a void. I started realizing and reading about people that were building real brands and businesses on the back of social media, but YouTube in particular… It sort of blew my mind when I read about a 6 year old kid who was bringing in 100 million dollars a year talking children’s toys… And it kind of blew my mind.

So I’m digging a little bit deeper, and I thought, “Man, I wonder who’s doing this. I wonder who’s the fixer-uppers of YouTube,” and there was nobody doing it. It was a real void. And so we thought, “Well, why not? It could be an experiment.”

And it’s been a great experience, just sort of learning on that platform as we go and, just the amount of connections that it’s opened. Like I said, it’s really been amazing, and it’s basically free marketing. We’re not paying to advertise, we’re getting distributed on these platforms, and a lot of opportunities have come our way just by getting out there. We’ve bought and sold properties from our audience base, we’ve got a lot of wholesale clients… We’re both licensed realtors as well, so we’ve gotten regular traditional clients that way. It’s just been kind of crazy. So it’s Wild West out there.

Theo Hicks: Yeah, so I’m looking at your channel now and you’ve got 90,000 subscribers, and then some of your videos have — a video with 536,000 views… And these are the very, very heavily edited. So do you mind walking us through how you were able to grow such a large following on YouTube?

Lincoln Edwards: Yeah, yeah.

Theo Hicks: Everyone listening, I’m sure they would love to have 90,000 followers and 100,000+ views on their videos.

Lincoln Edwards: Yeah, that was a real learning experience. You know, there are people on YouTube talking about real estate obviously, but it’s really heavily focused on people that want to invest directly, that are kind of more hardcore. And it’s in the weeds…. It’s about the numbers, and refinancing, and that sort of thing. And when we first started out, we thought we would do a little bit of that, and we would make each project sort of drawn out into long episodes, and had a lot of struggles getting started, getting anybody to watch it… And we kind of realized, “Look, there’s not a lot of payoff to come watch us do one small aspect of the house.” So we really doubled down and said, “Well, look, let’s put all our eggs in one basket, let’s do a full HGTV style, highly edited, high-quality video that takes you all the way from purchasing a property to renovating it, and shows you the big payoff at the end.” And that was the secret sauce for getting engagement.

But when you’re starting on YouTube, it doesn’t matter how high quality your video is, at first, nobody is going to watch it. And there’s a million tips and tricks on how to get it out there. None of them seem to work. And then one day I said, “Why don’t we just run our first episode? Why don’t we just run that as an advertisement.” So you can go on YouTube and you can click on a regular ad, and we just had an entire video; it wasn’t selling anything. It wasn’t pitching to subscribe to our channel, it was literally just, “Hey, this is an episode.” We invested a few hundred bucks in just getting it out there, and that got our first few hundred subscribers. And from there, it just took off organically. We never had to really advertise it again, because it’s all based on this algorithm. Once they kind of figure out that, oh, okay, this is getting organic engagement from real people, real viewers, then it actually starts to promote you. But up until that, it doesn’t have really that feedback loop to say like, “Oh, this is a channel people will engage with.” So that was the spark that ignited it, and making the videos as high quality as we possibly can… And it’s just engaging and entertaining. I think that’s been the secret to it taking off.

Theo Hicks: Who’s editing these? Is it you, or are you hiring someone else to do all the editing? I’m assuming you’re hiring someone else, so maybe walk us through your mindset for creating one of these videos. Do you just have hundreds of hours of recordings that you send to an editor, or do you know ahead of time specifically what you want to record? I’m looking at a video here and — is this your wife in the videos?

Lincoln Edwards: No, my friend and partner, Lauren.

Theo Hicks: Okay. So I see pictures of you guys like in a restaurant, I see you guys in the field… I was just going to ask you what the format is for creating these episodes.

Lincoln Edwards: They’re all centered around a house that we’re renovating, obviously… And we’re really just trying to focus on, “Okay, what is going to make this specific house stand out, or a little bit unique?” And it’s been an adaptation, because whereas before we were kind of copying and pasting designs from house to house because nobody would notice the difference, nobody was seeing our channel… And now it’s like, you really have to put out something fresh.

So we basically take, “What do we want to focus on this episode? What do we want to highlight?” And then we kind of batch our filming around check-ins, because it’s a real challenge… You mentioned a full-time videographer and editor, Joey, who is awesome, and is really the star of the show in terms of like getting it produced and getting it high quality… But then we work as a team on the direction, the edit, the storyline, the whole thing. So we batched the shooting; we dedicate one day a week to getting everybody to the projects, filming, and highlighting what we want to highlight, and then we spend the rest of the week actually running our business. And that’s the way to do it. Because at first we didn’t really know what we’re doing. We’re just like, “Okay, let’s literally film everything and anything,” and there’s just way too much footage and it makes the edit near impossible.

Theo Hicks: And then if you don’t mind, how expensive is it to make a video?

Lincoln Edwards: A real expense is our videographer. So he is on a salary; he’d probably don’t want me putting his salary out there, but a market rate salary for somebody like that… And then beyond that, it’s our time and just camera equipment, editing equipment. So you’re talking a few thousand dollars per video.

Theo Hicks: And then, do you do 12-20 flips per year, so those would be 12 to 20 videos per year?

Lincoln Edwards: Yeah, exactly. We’re trying to make at least one video. And we slowed down during the pandemic; we kind of took a step back. We’re gearing back up now, so we’ve got several more episodes that are kind of in the pipeline that we’re working on at the moment.

Theo Hicks: I see you released one six days ago from when we’re recording, and it already has 260,000 views. So that’s awesome. And then you mentioned before that you’ve gotten a lot out of these videos – relationships, things like that. So are you getting deals from these videos? Are you getting investors from these videos? How are these videos, besides the advertising dollars you make on them – how is that helping your fix and flip business?

Lincoln Edwards: So like I said, the episode before last, the one you just mentioned, that came out a few days ago – the one previous to that we bought from a subscriber who reached out to us, sold us that deal, and it was a house that we flipped as well as five vacant lots that we ended up working with another developer on those. And then yeah, we’ve gotten several clients and sold several wholesale deals for our wholesale business.

We’ve got an episode in the works where we’re going to actually highlight a project that we worked with some first-time investors on. We sold them the property wholesale and we’re going to kind of document the progress of that flip in an episode. And we’re also going to showcase – I think in that same episode actually – some clients that moved down to Austin from New York, we met through the channel, helped them purchase their property; it’s not wholesale, just traditional retail, and then we’re helping them remodel part of the house.

So we’re trying to showcase on the channel in a way that’s entertaining and visually interesting the interactions we’re having with our audience, but that’s just part of the strategy with YouTube marketing and one of the ways that it pays back the time and investment in growing that social media.

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

Lincoln Edwards: Wow, superlatives. Man, you guys are all about the best. I think for me, I would advise getting out there and growing your network as much as possible. Even if you’re not doing it on social media, just actually getting involved locally with other real estate investors, wholesalers, diverse [unintelligible [00:13:43].17] and actively growing on a weekly basis.

We dedicate, like I said, one day a week towards marketing, towards getting out there, and the returns on that are sort of exponential. And in today’s environment, it’s the easiest thing in the world to turn on your camera, create an Instagram account and just talking through your journey; you’ll be amazed at the sort of connections that can come just from building a small following and interacting actively in your local market, to deal flow, to joint ventures, to growing a bigger business. At least that has been a key to success for us.

Theo Hicks: Okay, Lincoln, are you ready for the best ever lightning round?

Lincoln Edwards: I am so ready for this.

Theo Hicks: Perfect. Alright, first a quick word from our sponsors.

Break: [00:14:27] to [00:15:09]

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

Lincoln Edwards: It’s a standard, it’s a classic, but I re-read once a year How to Win Friends and Influence People by Dale Carnegie. I’ve got an audible membership. I read a lot of books, but I’ve found re-reading the best ones has an even higher return on investment than reading something new.

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

Lincoln Edwards: I would take six months and do nothing. I don’t think I would rush into anything. I would talk to a lot of folks and I would mostly relax, decompress, and then figure out where the next opportunities are.

Theo Hicks: Tell us about the best deal you’ve done; not money, but one that got the most views on YouTube, like, what the story was.

Lincoln Edwards: Our best deal has probably the least views, because it’s the least entertaining. It’s a house that we just bought — it was 130 grand under market value and we just bought it and relisted it and sold it, and it made for a not very compelling YouTube video. And the one that’s got the most views is just sort of random, and it’s a very traditional fix and flip; one that we got, I think, off of a mailer. It’s got over a million views, and to be honest, I think it’s one of our worst videos. I don’t know how the algorithm works. But I think our latest video, the one you mentioned, that came out a few days ago – it’s tearing it up. I think it’ll eventually become the most viewed video.

Theo Hicks: And what about a deal you’ve lost money on, or maybe a YouTube you thought was going to do really well, but didn’t?

Lincoln Edwards: You know, they say it’s better to be lucky than good, and I’ve been really lucky in Austin, Texas, because you can make some pretty dumb mistakes and the market just goes up and bails you out. So you never want to get that confused, but one of the deals I learned the most on was a deal I made money on. I renovated a house and then a developer bought the house from me, ended up putting a condo regime on the lot and building a second unit on the back of that house. They probably sold it and made $200,000 to $300,000… And that’s not a loss. That’s not me losing money, but that’s definitely an opportunity cost. I learned a lot just watching somebody — I thought I had added the maximum amount of value and I watched somebody come in and make money where I could have easily — you know, I owned the property and I controlled it, and I just wasn’t creative enough, I wasn’t flexible enough and I hadn’t done my homework enough to realize that that was an opportunity. So I really look at that as costing me a few hundred thousand dollars, and I’ve learned from that mistake. Now we do AB condos and we look for the absolute highest return that we can get out of these properties.

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

Lincoln Edwards: When we started the YouTube channel, it really was kind of about our wholesale business and working with brands. But we had so many people reaching out just trying to get started and asking for advice… We started out by just kind of answering those questions, one-off here and there, and it got to be overwhelming. People asked us for an intro course. So we created a House Flipping for Beginners course, and that’s been really rewarding to watch people go through that… And it is a paid course, but during the pandemic, we offered scholarships for people that have been laid off due to Corona, and that’s been really rewarding, helping other people start their journey in real estate investing.

Theo Hicks: And lastly, what’s the best ever place to reach you?

Lincoln Edwards: Well, first, you should subscribe to our YouTube channel. It’s youtube.com/austinflipsters. But if you want to get in direct contact, you can DM us on Instagram @austinflipsters or you can send us an email hello@austinflipsters.com.

Theo Hicks: Well, Lincoln, I really appreciate you joining us today and talking about your YouTube channel. I can’t stress this enough, you guys have to check out his YouTube channel; just from understanding what it takes to make content, the fact that he’s got these 20+ minute-long YouTube videos that looks like there’s an edit every three to four seconds. I’m sure it takes a long time, but it looks really, really good… And I can tell that they’re entertaining. So you guys can watch those and take some tips on how to improve your content as well.

And so Lincoln told us how he was able to grow his channel, and it really just started off with looking at other similar fix and flip channels to see what they were doing, and they identified something that was missing, which was these full HGTV type shows from the beginning to the end, as opposed to getting very detailed, in the weeds in one specific aspect of the flip. And he said that they got their first jump by running the first episode as an advertisement; so not creating a special advertisement for the channel but just advertising episode… Spent a few hundred dollars got their first few hundred subs and from there it grew organically, due to the high quality.

He says that when they’re making a video, they do one per house, and they’ll identify what would be the story or the unique thing about this flip. And then they dedicate one day per week to filming for the project. So whenever they go do the property check-in, they do their filming. And they also have a full time editor and videographer who is on salary to help with these videos.

And he mentioned that he benefits in lots of ways from this YouTube channel, that he’s actually bought homes from subscribers, clients for his program he mentioned the end, wholesaling deals to subscribers, and then being able to, for one example, create a YouTube video of that wholesale deal and how that deal was progressing.

And his best ever advice was to focus on networking, get out there and grow your network as much as possible, whether on social media or just locally, and then make sure you’re dedicating a certain time during the week to do this. So for Lincoln, his business is that one day per week doing the videos. For you, it might be something else, but making sure you’re focusing on networking.

So Lincoln again, thank you for joining us. Congratulations with the YouTube channels. I hope your most recent video surpasses that 1 million mark again. And Best Ever listeners, as always, thank you for listening, have a best ever day and we will talk to you tomorrow.

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JF2198: Mentor Boost With Bruce Petersen

Bruce Petersen is the Founder and CEO of Bluebonnet Asset Manager LLC and Bluebonnet Commercial Management. He started his real estate journey in 2011. He was a previous guest on episode JF1274, we highly encourage you to check out his first one to get an understanding of his full story. 

Bruce Petersen  Real Estate Background:

  • Founder and CEO of Bluebonnet Asset Manager LLC and Bluebonnet Commercial Management
  • Started his real estate journey in 2011, buying his first deal (48-unit) in 2012
  • Portfolio consists of 6 syndications and 1,108 total units
  • Based in Austin, TX
  • Say hi to him at: https://apt-guy.com/ 
  • Best Ever Book: Sell or Be Sold 

 

 

 

Click here for more info on PropStream

Best Ever Tweet:

“Find a coach or mentor to have a model to follow, why try and reinvent the wheel?” – Bruce Petersen


TRANSCRIPTION

Theo Hicks: Best Ever listeners, welcome to the best real estate investing advice ever show. I’m Theo Hicks and today I’m speaking with Bruce Petersen. Bruce, how are you doing today?

Bruce Petersen: I’m doing great, man. How are you?

Theo Hicks: I’m doing great as well. Thanks for asking and thanks for joining us again. So Bruce is going to be a repeat guest. He was on here a little over two years ago. If you want to check out his first episode, it was Episode 1274 – Challenges That Syndicators Face When Executing Their Business Plans. So today, we’re going to catch up, talk about what Bruce has been up to since then. As a refresher, Bruce is the founder and the CEO of Bluebonnet Asset Management and Bluebonnet Commercial Management. He started his real estate journey in 2011, buying his first deal, a 48-unit deal in 2012. His portfolio now consists of six syndications and over 1,100 units; 1,108, to be exact. He is based in Austin, Texas, and you can say hi to him at his website, which is apt-guy.com. So Bruce, do you mind telling us a little bit more about your background and what you’ve been up to since we last spoke?

Bruce Petersen: Just a quick recap of who I am and where I came from… I’m a college dropout, barely got out of high school, grew up pretty poor. I think it’s a fairly common story, so I’m not really different there. I fell into retail for about 18 to 20 years, did that until I realized, “This sucks.” I convinced myself like a lot of people in retail do – “Well, I’m a people person, so I like retail.” And then 18 years, 20 years later, I thought, “Okay, I’ve been lying to myself. I do like people, but I don’t like what I’m doing.”

So in 2008, I believe it was… 2009, somewhere in that area, I walked away. I was 43 years old, decided, “I gotta find something else to do with my life, because this is not working for me.” So I just started educating myself on real estate, found a very highly qualified mentor; that was a godsend for me. Found that person in 2011, worked with her for a while, and got my first property in 2012, and I held that for almost two and a half years. It was a syndication. Sold it for a 300% passive investor return. Now I tell everybody going forward, “Don’t expect that. We’re a totally different market than we were back in 2012.” But my first one was very successful, and I’ve just been off and running since. I met my wife through real estate. So I’ve been married now for almost six years. So that’s going very, very well. We do it together. She’s the CFO and I’m the CEO, and we’ve been doing it ever since and having a ball.

Theo Hicks: Thanks for sharing that. I believe, on that first episode from the show notes I read, that we’ve talked about that 48-units syndication deal. So let’s not focus on that. Let’s focus on a more high level of syndication advice. But one thing you didn’t mention in your little intro was your mentor. So this is coming out– this is in the future, but today, I just recorded a syndication school episode talking about mentorship based off of a blog post one of the members in our team wrote about how to hack and save decades of time by finding a mentor. So it sounds like a mentor was one of the main reasons why you were able to be as successful as you are today. Maybe walk us through how you found this person, why you picked her and why it was beneficial to you.

Bruce Petersen: Tony Robbins’ Napoleon Hill thing – find a mentor, find a coach, a model, somebody that you can follow behind, why reinvent the wheel. I’m saying things that everybody’s heard before, but a lot of people still don’t believe it strongly enough to go out and do it because they don’t want to pay somebody. Well, why would you not pay somebody to teach you how to have a multiple hundred thousand dollar business or even a million-dollar business? A lot of people will spend $50,000 to $200,000 or more on college, go for four to eight to 12 years, and that’s totally fine. Many of those people don’t get a job in the discipline that they studied. And if they do, they don’t like it very often. So I don’t know why people wouldn’t find a mentor. They can shorten your timeline to success. They can help you avoid a lot of landmines, because there are going to be a lot of landmines, I promise. No matter how good you are at this, there’s always going to be something that’s going to come up, and if you’ve never done it before, you don’t know how to deal with those landmines that you trip over.

So yeah, I was very fortunate to find a very, very good mentor. She was a multifamily broker, actually. So she was a buyer’s broker; very rare in this industry. But she had tons of experience on the management side and on the purchase side. So it was a perfect match for me. I listened to her because I knew I didn’t know what I was doing. I’m a retail guy. I’m smart, but I don’t know this industry. So I had to listen to her, trust what she was saying was true and just execute on the roadmap; and I did, and it worked so well. So I just released a book called Syndicating Is a B*tch. It’s hard. It’s very lucrative. It’s very, very rewarding. But in the book, I implore people, I’m going to teach you every step of the way how to do a syndication. You still need a mentor, because this is only a book. It can’t deal with all the things that pop up that were unforeseen, like a black swan event we’re dealing with right now. We’re dealing with COVID-19. Nobody saw this coming. If you don’t have a mentor that’s been through some ups and downs in the industry, this is gonna be really really hard for you. So yeah, man, I cannot agree with you guys’ take on it. You do need a mentor. Don’t do this alone.

Theo Hicks: I really like your analogy or metaphor or whatever; it’s comparing it to college. I think that’s a really good way to position it. People will spend tens, sometimes hundreds of thousands of dollars to go to college, and the reason why they’re doing it is because they need that degree to get a job in order to make money. So they’re willing to invest that capital into four years of their life into school in order to get a job to make money. So why wouldn’t you do the exact same thing? Why do you expect someone to mentor you for free or just to not do it at all, when you can potentially have an ROI, as you mentioned, of ten to a hundred million dollars or even more? I like the way you position that.

Bruce Petersen: I think there’s a bad stigma in the industry right now because when you hear the word mentor, you think guru. And then guru makes you think of the guy in the 80s and 90s that would pitch crap to you at 1 o’clock in the morning, and you take pictures and videos on a yacht that he rented for the day and a car that he rented for the day, and that’s what people think of. That’s not what a true mentor or a coach is. They’re not selling you a bill of crap. They’re teaching you the right way to do it. Again, find somebody that’s been successful doing it. Not everybody’s going to be a great mentor… But yeah, I agree with you guys completely on it.

Theo Hicks: So you’ve got your syndication book; I enjoy the title. So let’s talk about raising money. Everyone loves to hear about raising money, so maybe walk us through some of your tips or since you wrote the book, maybe you’ve already got a five-step process to raising money for deals, and let’s approach this from raising money for your first deal. So let us know what type of background someone needs before they can get to the point where they can raise money, and then let’s talk about what your top tips are for going out there and making sure you can raise money for your first deal.

Bruce Petersen: Alright, so it all starts with the investors. People ask me all the time that are just getting started, and I mentor people myself now… And one of the first questions is, “Bruce, okay, this is great. I’m super excited. Well, do I find the investors first or do I find the deal first?” You better find the investors first. If you find a deal with no investors, legally, you’re probably going to get yourself screwed up because you can’t raise money the way you’re probably going about it; you’re probably going to go about it backwards. So you’ve got to be careful there. And then if you can’t raise the money, you’re gonna have to drop the deal and you’re gonna start to burn your name in the industry that “Oh no. Bruce is a tire kicker. He can’t come through at the end and close. So he just ties up a property for 30 to 60 days, and then he has to bail.” Get your investors first.

Bruce Petersen: Tip number one to me would be over, over, over raise. If you think the property that you’re targeting for your first property — because you have an idea that “My first one, I want to be maybe a 20-unit or 40-unit, maybe built in the 80s. This is my rough price per door.” So you have an idea, I hope, of what it is you’re trying to find for your first deal. And let’s say that first deal is going to cost you about $500,000 in a cash raise to get it. The cash raise would be your down payment, your closing costs, your rehab that didn’t get rolled into the loan, and any operating capital that you may need. So let’s say you need $500,000 to close this deal. You better raise a $1,000,000 to $1,500,00, and that chokes people. Well, I promise not everybody’s going to come through at the end when it’s time to put money in your bank account, because something will have come up in their life. They maybe had a family emergency, they maybe just decide “I don’t want to invest with anybody anymore” or maybe just to be honest, maybe they don’t like you now that they’ve got to know you a little better. So just be prepared for– you’re probably going to have at least 50% of your list not come through. So you better over raise. So that’s tip number one.

Tip number two, for me, would be you got to get out there. You’ve got to be agreeable. You have to have a good personality. This is very personality-driven and based. If people don’t like you, they’re not going to give you their money. I had a guy come up to me after an event one day and I had presented on stage, and he came up to me after… “Bruce, man, I love your story. I’m going to be a syndicator, too. This is great. I understand spreadsheets and everything. But there’s one problem, Bruce. I’m a jerk.” I’m like, “What? Come on, man. Really?” He said, “Yeah. I’m a jerk. People don’t like me and I hate people.” I was like, “Well, you can’t do this.” And he looks shocked like he was gonna cry. I’m like, “There’s a lot of money to be made, but if you’re just not a pleasant person, nobody’s going to give you their money.” So know who you are, present yourself professionally and with dignity. Don’t be rude, don’t be aggressive, don’t be arrogant. Because a lot of the people you’re going to be talking to trying to raise some money, they’re probably a bigger deal than you are. So keep your ego in check. One of the key things that really helped me early on was I started my own meetup back in 2011, and all but two of my first investors in that 48-unit deal came from that meetup. So we got to know each other for about six to nine months. They got comfortable with me having no experience, having no job, but they got to know me very intimately,  so they agreed to invest. That was a big help for me.

Theo Hicks: So my next follow up question was going to be what’s the process that someone should go through in order to create their initial list of investors or people? It sounds like for you, for your first deal, everyone came from your meetup group. So your advice would be to start a meetup group, I’m assuming, right?

Bruce Petersen: Absolutely. And if you don’t want to do that, that’s totally fine. If it’s not your personality to lead something, there’s nothing wrong with that. As long as you do have an agreeable personality and you’re likable… Well, just go to the Joe Fairless stuff, the Jake and Gino stuff, the Michael Blanc, go to all the different events that are going on around the nation. You’ve got to get out and mix and meet with people. So I think that you don’t have to start a meetup; it definitely helps. There’s a definite way to go about doing this in the right order. I would say, dress the part. I don’t want to get stuck in the millionaire mindset thing,  the millionaire next door. Don’t dress below your means. Dress at your means or above. You have to convey confidence and success when you meet with people. Have a good quality business card, dress appropriately. Don’t dress over your head. Don’t show up in a $400,000 car if you work at McDonald’s. Don’t do stupid things like that. Act like you belong, but still, keep yourself in check. But yeah, just get out to all the things you can get out to, join some of the groups that are out there too. You can get some education from the groups like your group, you can get educated there. You’ll meet other members that are looking to get into deals or looking to raise money themselves.

So the biggest thing is be engaged. Make sure you understand who you are.  I’m naturally introverted. I can be on stage and talk to 20,000 people. I light up, I’m fine. You put me in a room with people I don’t know, and I got to go work the room and network and I freeze. I just completely freeze up, and I honestly– this is not an exaggeration… I try to find the quickest exit because I get really, really uptight. I’m very aware of that. My wife is just the opposite. She hates being on stage, but she loves working a room. She used to be a flight attendant. She’s very, very good at that – striking up small talk with people. So I smartly go, “Okay, I’m not good at that.” So I follow my wife around the room, I’m not embarrassed to admit it. I just follow her around like a puppy dog. She strikes up the conversation. I come in. I can now participate in the conversation because I didn’t have to start it. But again, I know my weakness and I work with what I have.

Theo Hicks: I think that’s super important to know. So you talked about a tactic for actually going about raising money, but what are your thoughts on the experience, the background, the track record someone needs to have before they even consider raising money? When they raise money on their first deal, their second deal, their 10th deal? Is there a certain number of transactions? Is it a certain dollar amount of deals done? What’s your thoughts on that?

Bruce Petersen: Again, so on my first deal, I had no experience, I had nothing. I had never invested in real estate my life at that point, but again, it’s personality-driven, so I didn’t let that stop me. Don’t look for excuses not to do it because you’re always going to find that excuse not to get out there and do it. You don’t have to have experience, but you have to be transparent. Let them know up front, “I have no experience.” One of them laughed at me in my face. “I’m not gonna invest with you.” I didn’t take it personally. “I totally understand. You don’t feel comfortable investing with me and that’s okay. No worries. I want to move on and keep meeting other people.” Don’t get tore up by rejection, it’s going to happen. But again, just own up to who you are and what your experience is.

What I tell people that I’m mentoring is, when you decide, “Okay, you’ve been getting educated for a while, Johnny, and it’s time to go out and let’s go do your first syndication now. Well, when you walk into a room, you have to be confident. Again, don’t be arrogant, but be confident. I have no experience, Mr. or Mrs. Prospective Investor. But I’ll tell you what, this is what I’m doing. I’m targeting a 40-unit to 60-unit property in my hometown in Austin. I’m targeting something probably built in the 80s.”

Have the elevator pitch for what you’re trying to accomplish. That will convey confidence, that will convey preparedness, and people will become more and more comfortable with you because you have an idea. If you walk into a room and say, “Yeah, I’m gonna try to be a syndicator and try to do a deal.” “Well, what are you looking for?” “I don’t really know. Probably something close to my house.” So if you go into it like that, it’s like being a jerk. It’s not going to work. You have to be prepared. Again, you don’t have to have experience. Own the fact that you have no experience, but be prepared with somewhat of an elevator pitch that’s true and genuine, and walk into a room with confidence. That’s it.

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

Bruce Petersen: I hit on it a little bit, but you’ve got to know who you are. The book that I wrote is designed to help people understand that syndication is not for everybody; it really is not. Everybody thinks it is for some reason, but it’s like any other business. If you’re not an entrepreneur by spirit, if you don’t have the personality that people are going to be drawn to, I don’t know that this is the right move for you. So I think it’s self-awareness. You have to know who you are. If you’re scared of people or if you’re a jerk and nobody likes you, be honest with yourself. We all like to lie to ourselves and make ourselves out to be bigger than we are in our own minds. I get it. I’m probably guilty of it sometimes, too. But if you lie to yourself in this, and you go out and raise $500,000, and you’re not equipped emotionally, mentally, any way to handle this, the deals not going to go well and you’re gonna have a lot of very unhappy investors on your hand, and you’ll probably never do another deal anyways, because it’s not gonna go well. So that’s my biggest thing is just be self-aware. If this isn’t for you, go find that thing that is for you. There’s lots of ways to make a lot of money in this world. You can have all the money you want. You just got to find the thing that works for you. So – self-awareness.

Theo Hicks: Perfect. Okay, are you ready for the Best Ever lightning round?

Bruce Petersen: Yep, let’s do it.

Break [00:18:57]:04] to [00:19:59]:03]

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

Bruce Petersen: The best ever book that I’ve recently read… Honestly, it was one I was very hesitant, but I was looking for the next book. I read Sell or Be Sold by Grant Cardone. I don’t like that flashy sales guy with the shirt halfway unbuttoned and gold medallion hanging around his hairy chest. Don’t like that image, but I read it and it’s fantastic. I gave it to my staff to read. It’s an incredible book.

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

Bruce Petersen: Well, I firmly believe I know how to make money. Now that I got out of the 9 to 5 – or really for me, 9 to 9 – working for somebody else, I’ve learned how to make money. So if I couldn’t do this– I’ll be honest, I’ve got some money saved up now, so I’ll be fine for a little while, but I would probably just devote most of my time to teaching. I absolutely love everything about teaching. That’s why I love being on stage. I’ll be on stage for free or I’ll pay people to let me on their stage because I just want to help people. So if I couldn’t do this, I would just find a way to teach.

Theo Hicks: So you’ve got six syndication deals. Tell us about the best deals, not your first deal. You already talked about that 300% return. Tell us about your second best deal as you’ve done so far, specifically in the apartment syndication arena.

Bruce Petersen: So I’ll talk about one of the most recent ones, actually. We bought it in 2017, roughly a 200-unit property in North Austin, and we’re getting just hammered with yearly tax increases, yearly insurance increases that are just higher than anybody’s ever seen, but we’re so profitable there. We bought a fully stabilized asset. We expected to maybe have a little bit of upside when we sell five to seven years later, but this deal has been so strong. We keep pushing rents, we keep doing unit upgrades, we keep instituting new revenue streams that weren’t there before, and everything we’ve tried there has worked.

We communicate very well with the residents. We make sure they understand we’re in this together with them. We’ve created a fantastic feeling of community there. And this fully stabilized asset, well, we just added executed a 50% cash out– well, not a cash out, refinance. It’s the same concept, but it’s a supplemental loan. So we were able to take out more loan dollars because we drove our value tremendously higher. So again, I think it was letting the residents know that we’re on their side. They’re willing to pay for some extra stuff, because they don’t want to leave us because they know they’ve got a good thing where they are. It was built in 1973, nothing special in a C class neighborhood. But again, everything we do here has worked and we started rolling out a lot of these ideas to other properties in our portfolio.

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

Bruce Petersen: Well, one of the most interesting things that we’ve done, the most rewarding things, we had a 120-unit property that we own, again, in Austin, and we realized that it was very working class, they have a hard time making ends meet, putting food on the table even sometimes. So we thought, “It’s time for school.” Most families in this neighborhood can’t even afford the $20 to $30 it’s going to cost to buy all the school supplies that kid needs for the upcoming school year. So we reached out to all the local schools, found out what all the different grades needed. We bought all the school supplies for every student on our entire property. We fed them pizza in a vacant unit one day.

So they came in and got pizza at the front door in the kitchen with my daughter – she was handing out pizza – then they walked over to a table with my wife and the property manager, and they got to pick their own backpack. Then they went into the bedroom with my autistic adult daughter and she had said, “What grade are you in?” So she was able to hand them their grade-specific pack, and these kids walked out with the biggest smile on their faces because they’re prepared this year; they don’t have to worry about it. That’s the coolest thing we’ve ever done, but we also hope to open a 24-unit to 36-unit affordability-based nonprofit apartment complex for adults with intellectual disabilities in the next five or ten years. So that’s our next big thing.

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

Bruce Petersen: The best way to find me is just apt-guy.com, like you said; it’s the website. You can see a little bit more about what’s inside the book, decide if you think it’s a worthy purchase. If you’re thinking about syndication, I firmly believe it is, because I’m just going to tell you the truth. This is what it is and if you want to do it great, it’s a great way to do it, go about making money, but this is what it’s really about. You can follow me on LinkedIn, Apartment Guy, or you can go to Instagram, @apt.guy.

Theo Hicks: Perfect. Okay, Bruce, I really appreciate you coming on the show and talking to us today; solid information. I like the way that you break everything down by here’s tip one, here’s tip two, here’s tip three. So I really appreciate that makes it better and easier to digest for our audience. So just to quickly summarize what we talked about. We first talked about mentorship. I said this earlier that I really liked your analogy, comparing it to people spending all their money on college, then they can’t find a job afterwards a lot of the time. Whereas people are super hesitant to spend money on a mentorship on, a coach, and you mentioned why that is, that people have a negative connotation with a mentor, but you talked about how it’s helped you on. On our blog, we’ve got plenty of articles talking about how mentorship has helped Joe, mentorship has helped every single person who’s successful. So I really appreciate you reinforcing that.

We talked about your top tips for raising money for your first deal. You said the first thing you need to realize is that the investors comes before the deal. You gave an explanation of why that is. And then your top three tips for raising money is number one, make sure you’re always over raising. So if you need to raise $500,000 for a deal, then you should be raising $1,000,000 to $1,500,000. We talked about number two, which is a get out there. The fact that this is very personality-based. So you can start your own meetup, you can go to meetups, go to different events across the nation to just get your face out there. And then you talked about what type of personality you need when you are out there. And then you also, number three, was to dress the part. So don’t dress below your means. Dress at or slightly above, but don’t go too intense. I think the example you gave was rolling up in a $500,000 car when you work in McDonald’s; don’t do that. You talked about if you need experience to raise money, and your answer was no; don’t use that as an excuse to not raise money. But you need to be transparent. You need to let them know that you don’t have experience, but still have an elevator pitch to show that you do know what you’re talking about, at the very least, and that will portray confidence, it’ll show that you’re prepared, that you have an idea.

Something else that you said too that I think is very important is that people are gonna say no. People are gonna say no, whether you’ve got a bunch of experience or no experience. Not every single person you talk to is going to give you their money. So don’t take it personally,  move on and keep meeting other people. And then your best ever advice was, know who you are, have that self-awareness to know what you aren’t good at, and [inaudible] maybe apartment syndications is not for you, and if it’s not for you, there’s still plenty of other ways to make money out there.

The next example you gave before you gave that advice was how you’re really good at speaking in front of large groups of people, like on stage, but you have difficulties and gets a lot of anxiety working a room, whereas your wife’s the exact opposite. So you have the self-awareness to know that about yourself, and rather than forcing yourself to be the person who’s in charge, walking around the room, you just let your wife do it. You follow her around and then accomplish the same thing without the anxiety. So I appreciate you sharing all that advice, Bruce. Best Ever listeners, as always, thank you for listening. Have a best ever day and we’ll talk to you tomorrow.

Oral Disclaimer

The views and opinions expressed in this podcast are provided for informational purposes only, and should not be construed as an offer to buy or sell any securities or to make or consider any investment or course of action. For more information, go to www.bestevershow.com.

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JF2184: 21 And Syndicating With Kyle Marcotte

Kyle is a 21-year-old syndicator, finished 119-unit syndication at 20 years old. Dropped out of UC Davis to pursue full-time apartment syndication. He explains how difficult it was at first when he was pursuing syndication as a young man and how he was able to overcome some of the hurdles most would fear. 

Kyle Marcotte  Real Estate Background:

  • 21-year-old syndicator
  • Syndicated 119-units at 20 years old
  • Left UC Davis to pursue apartment syndications
  • Located in Austin, Texas
  • Say hi to him at :https://kylemarcotte.com

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Best Ever Tweet:

“There was a tremendous amount of pushback when I was looking to leave school and go full-time syndicator” – Kyle Marcotte


TRANSCRIPTION

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

Kyle Marcotte: Good. Thank you for having me on.

Theo Hicks: Absolutely. Thank you for joining us. A little bit more about Kyle – he is a 21-year-old syndicator, he syndicated his first 119 units between two different deals at 20 years old, and he actually left UC Davis to pursue apartment syndications, currently located in Austin, Texas. You can say hi to him at kylemarcotte.com. So Kyle, could you tell us a little more about your background and what you’re focused on today?

Kyle Marcotte: So a little bit about my background. I was a pre-med student at UC Davis and playing division one soccer out there, and was just giving a lot of my time to other people and pursuing things that I wasn’t fully passionate about, and I just started to realize that in order to put the time in that’s necessary to be really successful at something, you have to really enjoy doing it as well. So I just knew that I was doing the wrong thing and I didn’t know really where I was going to find this passion or this thing that I could start pursuing, but ended up finding real estate through Rich Dad Poor Dad. I know, very cliche, but that is what happened. I was in my apartment in college, my sophomore year early on, and I just read the book and it put words to the feelings that I was having, which was I didn’t want to trade my time for money all the time especially as a doctor; you go to school for God knows how long and you’re in quite a bit of debt and you trade quite a bit of your time… And it’s a noble profession and I love the service aspect of it, but I just couldn’t see that being something that was going to light me up inside. So I found real estate and quickly jumped into it and then found multifamily through Jake & Gino and realized that that was going to be the best way to scale out of my business so that I could run a 107-unit deal one hour of the week is really all it takes, because you have a full-time property management because of the scale, and that just made a lot of sense. And by my mid sophomore year, I did a 107-unit deal in Louisville and then I ended up actually dropping out of school and pursuing this full time.

Theo Hicks: Alright, thanks for sharing that. So before we get into specifics of some of the deals, I just had to ask a follow-up question. Most people that are doing this are older, and for them, it’s about leaving a job. For you, it was about leaving college. Most people, they’re leaving, and then you talked about this in Rich Dad Poor Dad, what you’re “supposed to do”, that you get a lot of pushback from people. So what was the hardest part about deciding to quit, in this case, college, not necessarily a W-2 job, in order to pursue apartment syndications?

Kyle Marcotte: So there was a tremendous amount of pushback, as you said. My parents, for one, were not the biggest fans. I don’t think that parents are super excited to hear that their kids dropping out of school their sophomore year, especially when it’s an out of state school… And I’ve been pursuing soccer my whole life too, so telling my soccer coach that “Hey, thanks for recruiting me all the way from Austin to the Sacramento area and spending money on me, but I’m no longer going to finish out the year with the team, and everything like that.” So that was probably the hardest conversation for sure, just because soccer had been a part of my life since I was very little. It was the one thing that I had poured my heart and soul into, and to have to move on from that was definitely difficult, but there’s a great quote that says, “Be willing to sacrifice who you are for who you want to be at any time,” and you have to be able to see that change is inevitable and change is often a good thing, so you just have to embrace it and step into it if it’s what your heart’s telling you to do.

So even though literally nobody believed in me for a six month period where I hadn’t really done any deals and I was not going to school anymore, and getting the parents behind everything was difficult, and even my roommates were judgmental because from their point of view, it was me saying that I was smarter than them and I didn’t need school and that they did… And that’s not actually what it was; it was just that I was pursuing something I was passionate about. Yeah, it was definitely one of the hardest six months of my life, having pretty much no one really believing me and even myself not believing my own self at times. So it definitely taught me a lot about life and a lot about sticking to your guns and believing in yourself, but it was definitely not an easy road for sure.

Theo Hicks: Did you leave college after you had done the 107-unit deal or, or was that six months the period in between the first deal and the second deal?

Kyle Marcotte: Well, I hadn’t officially unenrolled from college in that six month period, but I had stopped going to classes, because you didn’t have the time necessarily… Because I was going and speaking at meetups at night and researching all day, reaching out to brokers all day, going to meetings all day, and I’d fully committed myself to this, but I hadn’t officially enrolled because it was mid-quarter, and on UC system, it’s the quarters. So we have three little sections of school, and then summer, but I was in the middle of, I guess, the spring quarter, and I just decided to stop going, and that was definitely difficult. And then we had that 107-unit I got under contract, and I unenrolled or whatever, but I hadn’t closed it, because escrow takes a little bit of time; raising money and all the hiccups that can come there.

So it was definitely a risky decision, but it was just one of those things where I was just listening to my heart and everything felt right and I just decided that if I’m not going to do it now, then I’m never going to do it. People always say that they’re just waiting for the perfect time to do things, but there really is never a perfect time. The only time you can really do it is now. The longer you wait, the less likely it is that you’re going to actually take the jump.

Theo Hicks: Exactly. So you already mentioned that you were networking brokers to find these deals. So I’m assuming you found this deal through networking with brokers, correct?

Kyle Marcotte: Yes, that’s correct.

Theo Hicks: Okay. So what was that like, talking to brokers as a, at the time, 20-years-old?

Kyle Marcotte: It’s insanely difficult, and it’s also not only the brokers. I’d say the hardest part was the raising capital part. The brokers is over email correspondence, so they don’t necessarily ask your age off the bat, and if you’re providing really good underwriting back to all their deals, following up on a bi-weekly basis and putting them in a system to where you know that you’re going to be following up on them, you have a good CRM, so you know their daughter’s name and that they play soccer or that they are a Girl Scout, and you can follow up in a personal basis and make sure that you’re developing a relationship, they probably thought I was 30, 40 years old on the email, because it just didn’t come up in conversation until I had built a decent relationship with them, and then they were like, “Okay, I really don’t care how old you are. This correspondence has been very professional and official.”

But looking at someone in the face and asking them to invest in you and them seeing that you are, obviously, 20 years old, that is the hardest part for sure, and they’re like, “Have you ever done this before?” Obviously, you can’t say yes, because you’re 20. What — were you doing this at 16?” It’s not possible. So telling people that I’ve never done this before, but I was going to work extremely hard and put everything I had into this and then I was putting so much on the table, I think that people just decided to take a leap of faith with me, but overall they’re just super blessed that they decided to do that.

Theo Hicks: So that process for good underwriting, following up on a bi-weekly basis with personal notes… Is that something you read in the book, you learned naturally, did you get that through Jake & Gino? How did you come up with that process?

Kyle Marcotte: I think I read it in some book. I think it might have been maybe the [unintelligible [00:09:11].04] book and then the real estate agent guy from New York, I think it might have been that book. But I read just so many books that first year. Honestly, I probably read at least a book a week, including the Best Ever Syndication Book, and just a lot of different books that talk all about business relationships and how to do especially real estate, but also business in general, because I’ve found that it’s important to know business, not just real estate, and the relationship side of things and the systematic side of things as well is super important, and that’s from books like E-Myth teaching me not to be auto emailing those people, but try to set up some system. Yeah, I was really just reading a bunch of books and just copying what other people had already been successful with.

Theo Hicks: Let’s focus on the raising capital part. So you mentioned that you were putting a lot on the table. Can you be more specific about what you meant by that?

Kyle Marcotte: Yeah, putting a lot on the table means to me is I’m giving up my dream of playing soccer, I’m dropping out of a really good school, one of the best public schools in the country, and taking a complete risk on my future to pursue this thing. So I’m against the wall. It’s like, if this doesn’t succeed, then my life goes down the hill. So when people are in that position, we often show up and rise to the occasion. It’s just human nature. There’s no real option other than to succeed. So people can see that in your eyes and hear that in your voice when you’re talking to them too, because at that point, I was at a level of commitment that was pretty noticeable to other people when they were talking to me, and I think that that made up for the lack of experience; it was just that they were like, “Wow, this kid’s really going for it. Let’s give him a chance.” These people really do want to help other people out and I definitely knew what I was talking about as well. I was speaking the lingo and showing people models and showing people my detailed underwriting and also them coming to the table and saying how committed I was, it made up for the obvious age.

Theo Hicks: So how much money did you raise for this 107-unit deal?

Kyle Marcotte: I had partners on the deal, but I raised over half a million dollars, somewhere around $600,000.

Theo Hicks: Okay, how many investors was it?

Kyle Marcotte: It was about four investors.

Theo Hicks: Four investors. Do you mind telling us who those four investors were and how you found them?

Kyle Marcotte: Yeah, so the main investor was a guy named Lalo, who I met at a local meetup. I had slowly become an expert in the area just by positioning myself at a meetup. So I would go in and at first, I would just say, “I like this meetup. I found it this way,” and tell them a little bit about the marketing, and then I would go and I’d bring a friend and say that I’ve been telling people about it and that it’s a good meetup, and then they were like, “Okay, cool. This kid’s bringing me some value, bringing people to my meetup,” and then I’d come back again and I’d ask, “Hey, can I start checking people in and maybe scheduling some speakers for you in the future?” Just doing little odd jobs, helping clean up after the meetup, and the guy was like, “Yeah.” I did that for about six meetups, seven meetups, and then I’d just ask, “Hey, can I start speaking on stage maybe, 10, 15 minutes, just about multifamily?”, and then he says yes to that, and you start to get on stage and you’re holding a mic, and people take you more seriously, and that’s actually how I met Lalo, and then he introduced me to a couple of his friends from work, and then that snowballed, and that’s how I raised almost all the capital – from him and then through his connections, and they also ended up liking me as well.

Theo Hicks: That meetup strategy is very solid. I think that’s very practical advice for people who want to raise capital and don’t have a lot of experience. So thank you for sharing that. So before we get to the money question, can you give us the numbers and some of the details on that 107-unit deal? So you’ve already talked about how you found it – maybe go through that again, what the purchase price was, what the business plan is, and then how it’s doing today, and when you bought it and things like that?

Kyle Marcotte: Yeah, of course. So the purchase price was four and a half million, $4.55 million, to be exact. It’s about 42k per door, and the business plan was really that we had actually bought it thinking it was 106-units, but we found a down unit fully plumbed, just had a bunch of storage in it. We quickly moved the storage out and converted the unit back to being operational and that adds $12,000 NOI on an annual basis, and then on a five cap, that’s quite a bit of value on the back end. So that was a home run day one, and then another big business plan – the main thing, the reason we bought it was because the payroll expense was almost double the market because the manager on site was actually the owner’s relative. So it was somewhat of a charity case and he was getting paid a decent salary to be an onsite manager, double the market rate, and we were like, “Okay, we can cut payroll day one,” which is amazing for adding quite a bit of value there, and then the down unit was just icing on top. But right now, it’s doing pretty well. We’re thinking about either doing a refinance or just holding it through the five-year term, but it’s pretty much stabilized at this point and we’ve been providing the preferred rate of return to our investors and things have been going pretty smoothly.

Theo Hicks: What was the compensation structure you offered to those four investors?

Kyle Marcotte: So there was more than those four, because my partner Eli also helped raise a little bit of money as well, but the structure was 70-30 split with an 8% preferred rate of return, with 70 in favor of the LP.

Theo Hicks: Do you mind just quickly telling us about your business partner, how you found him, and then maybe how you two split the general partner duties?

Kyle Marcotte: So me and Eli actually met at a Jake & Gino event in Jacksonville, and there’s a longer story behind how I actually afforded that plane ticket to Jacksonville, but long story short is that I actually applied for jobs in my college town. The only person hiring was an elderly living facility and I had the 6 am shift to noon shift, where you’re waking up the tenants who live there and getting them ready for the day and that means showering and everything like that. So it was definitely a rough job, but it was the only one who would hire and I had to make the money to make this plane ticket in a one and a half month period, and I ended up getting a red-eye. I think it stopped in Dallas, Charlotte, and then Jacksonville finally three hours before the event that morning, and I ended up meeting Eli there. We got to know each other a little bit better, and then about a month later, he was like, “Hey, I got this deal in Louisville. I think it’s gonna be huge. Could you raise any capital for it?”, and I just said yes before I knew that I could, and committed, and then figured it out, and the rest is history.

Theo Hicks: Last question before the money question, I promise. What’s your structure with Eli? How does the compensation break down? Because it sounds like you’re specifically raising capital and he is doing everything else?

Kyle Marcotte: He didn’t do everything else, but he definitely did the majority of the underwriting and some of the financing, things like that. This is actually where I learned the majority of the process-based tasks as far as building your team around it and securing financing and things like that. But we split the GP up where capital raise typically gets about 30% of the GP and then the asset manager partner gets around 50%, and then you have some leftover percentage for the KP, which is people who are going to sign on the loan and also put up risk capital; I think that’s something that you guys are doing. The GP is not putting up risk capital. Risk capital, meaning money you’re not going to get back if the deal does not close. So that’s inspection costs, lawyer fees and some other things like that. So we actually had an LP come and put that in. So we gave him extra GP share, I think it was about 10% of the GP just for signing on the loan and putting up some risk capital.

Theo Hicks: Okay, thanks for sharing that. Alright Kyle, what is your best real estate investing advice ever? Let’s answer it for people who want to get started in apartment syndication so they’re more specifically raising money with really no experience doing it.

Kyle Marcotte: I think the best advice I have is either that meetup strategy or just getting on social media and posting as much as you possibly can. I personally post almost ten times a day on LinkedIn, Instagram and Facebook. I think it’s just really important to establish yourself as an expert in the industry. So in real life, the meetup strategy, I laid it out earlier in the episode, but it’s first you come to the meetup, you’ve got nothing to give other than telling that guy how you found this meetup, because that gives him really valuable feedback on his marketing, and where he can start spending more money and less money. Then you bring a friend the second time, which shows him that you’re talking positively about his meetup in public, you’re bringing people to it, you’re liaisoning people to his meetup that makes him feel like you’re adding value again, and then the third time is just picking up all the odd jobs that I’m sure this guy does not what to do, which is scheduling people, sending out the weekly emails, putting people’s name tags on and just basic things like that, check-in… And then once you start establishing that relationship with the guy, you’re adding value over time, you can start to build up the goodwill to ask the big question, which is, “Hey, can I speak for just 10 to 15 minutes?” Don’t say, “Hey, I want the whole meetup. Give me the whole stage for an hour.” No, just ask for 10, 15 minutes, establish yourself as an expert, and if you can’t do that, because you live in a place where meetups don’t exist, either start your own or focus on social media, which would be LinkedIn, for sure, is huge right now… And you’ve got to post more than once a day. I know it’s really difficult, but if you do it for three weeks, it’ll become supernatural, and you’ll stop questioning if you’re capable of posting. You’ll just start doing it automatically, and then over time, people start to take notice and immediately just associate you as an expert in the space.

Theo Hicks: Yeah, that meetup strategy is essentially how I got my job working for Joe about four and a half years ago. So it definitely works. If you want to accomplish at a meetup group, they’re great places to find jobs, find partners, find deals, things like that. Alright Kyle, you ready for the Best Ever lightning round?

Kyle Marcotte: Yeah, let’s do it.

Break [00:17:18]:04] to [00:18:31]:03]

Theo Hicks: What is the best ever book you’ve recently read?

Kyle Marcotte: The best book I’ve read right now would probably be DotCom Secrets. It’s a book about sales funnel and marketing copy and things like that. It’s been huge for me and my business for sure.

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

Kyle Marcotte: I would probably just go out and try to get another deal and make it happen again. If it was to collapse due to pricing, I would assume that the rest of the market would be rather cheap, and I would try to galvanize people to invest in a new deal and try to offset any of the loss that we got from the 107, because I would be assuming that that would mean the market would go down and our price point would no longer make sense, and we wouldn’t be able to meet our debt coverage. Honestly, the best thing to do would be counterintuitive, but it would be to buy more, and I think I would try to go and find another deal, and hopefully make some asymmetric returns on that and make people whole again.

Theo Hicks: So this question’s besides your first deal and your last deal, what is your best ever deal? But you’ve done two, so you can’t do your first or your last… So just tell us a little bit about that 12-unit deal.

Kyle Marcotte: So the 12-unit deal was a group deal with some students in the Jake & Gino community, and we did a 12-unit in Austell, Georgia, which is outside of Atlanta. It was another home run, easy deal. The only thing we’ve had problems with is the management, but we’ve recently remedied that problem, and we’re deciding to maybe demolish the single-family home that’s actually on the property as well and maybe selling that land or doing something with that as well.

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

Kyle Marcotte: Me personally, I go to Bible study on Friday mornings and just giving back to that group of guys and everybody just coming together and talking about our faith and grounding ourselves in real reality in real truth, which is that we’re not as big as we think we are and that maybe we should take our lives a little bit less seriously. So on Friday mornings, I like to come back to that group of guys and just to feel grounded with them.

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

Kyle Marcotte: Probably kylemarcotte.com, because you have all my resources there and some links to my social media. But yeah, kylemarcotte.com is definitely the best place to reach me.

Theo Hicks: Well Kyle, thanks again for joining us today; a very inspirational conversation. It’s always great to hear about younger people getting into real estate. I got into real estate when I was about 23, I think; so similar to you. So props to you for getting into real estate. You talked about the hardest part about quitting and leaving school was getting a lot of pushback from your parents, even some of your roommates were pushing back, having to tell your soccer coach that “Hey, you brought me out here, but I’m leaving to go on and do things.” So everyone listening who’s quit their job can definitely relate with going through that… But you came out the other side and did the 107-unit deal.

We talked about how you were able to network with brokers, which was easier than raising capital because networking with brokers was more virtual, and when you actually met them in person, you’ve done their legwork where they were going to take you serious, regardless of how old you were. So specifically, you provided a good underwriting feedback on their deals, you had a good system that you followed up on a biweekly basis, with personal information about them, about their lives or family, and then all the processes that you used. You read a book per week and just tried to copy what other people are doing.

We talked about how you were able to raise capital, and it really came down to you putting a lot on the table and burning all bridges behind you and needing to succeed, and the people took the leap of faith and invested with you, and it’s working out for them and as well as for you.

You said that you found the main investor at one of the meetup group, and you walked us through your meetup strategy, which is step one, to show up; step two, to bring a person to the meetup to add value that way; and then thirdly, to do some of the smaller tasks that they probably don’t wanna do themselves – check people in, schedule speakers, clean up afterwards, and then eventually you took it a step further, which was to asked to speak on stage for 10 to 15 minutes about multifamily.

We talked about your 107-unit deal, $4.5 million deal. The two biggest value add plays was finding an extra unit that was down, and then you converted it to an actual unit and added about $12,000 to the net operating income, and then the payroll expense was abnormally high because of a relative situation. And then you met your partner Eli at Jake & Gino event. You talked about how you paid for your ticket by working at an assisted living facility for about a few months, getting up super early and doing some tasks I’m sure you didn’t want to do, but you grinded it out, got that ticket, met your partner. He found a deal, asked you to raise capital for it. The split was 30% to you, 50% to him, and then you had some allocation left over for the KP and the person who paid for the upfront costs.

Lastly, your best ever advice besides the meetup strategy already mentioned was to get on social media and post as much as you can. You post ten times a day to LinkedIn, Facebook and I think you said Instagram, and your advice on how to get that as a routine is you do it for three weeks and it’ll become second nature, it’ll become easy. So post as much as you can on social media to get to position yourself as an expert, and then follow that meetup strategy as well. So thanks again, Kyle, for joining us today. Best Ever listeners, as always, thank you for listening. Have a best ever day and we will talk to you tomorrow.

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JF2183: The Texas Property Manager With Danny Webbers

Danny is a real estate broker, and owner of The Texas Property Manager and The Texas Builder. Danny shares his expertise in purchasing notes and how he plans to continue to grow his personal business. 

 

Danny Webber Real Estate Background:

  • Real estate broker, owner of The Texas Property Manager, and The Texas Builder
  • 15 years of real estate experience
  • Flipped approximately 150 flips, wholesale 40+ , 30+notes
  • Based in Austin, TX
  • Say hi to him at: www.myhomesimple.com  
  • Best Ever Book: Minimalism

 

Click here for more info on PropStream

Best Ever Tweet:

“Find a mentor, and pay him if needed. You need someone you can call anytime you have a question” – Danny Webber


TRANSCRIPTION

Theo Hicks: Hello, Best Ever listeners and welcome to the best real estate investing advice ever show. My name is Theo Hicks and today, I’ll be speaking with Danny Webber. Danny, how are you doing today?

Danny Webber: I’m doing great.

Theo Hicks: Great. Thanks for joining us; looking forward to our conversation. A little bit about Danny – he is a real estate broker, the owner of The Texas Property Manager and The Texas Builder, he has 15 years of real estate experience and he’s done approximately 150 flips, over 40 wholesales and over 30 notes. He’s based in Austin, Texas, and you can say hi to him at myhomesimple.com. So Danny, do you mind telling us a little bit more about your background and what you’re focused on today?

Danny Webber: Sure. Background going way back in military and law enforcement. I’ve got an MBA in Business Management and Finance, lots of hands-on experience. I believe in getting dirty on job sites, learning how to do all the trades, which is one of the reasons I started the construction company. My focus today primarily though, is I’ve been liquidating a lot of rentals and getting cash-heavy, just with all the craziness going on in the world. I really have a lot of dry powder on the side, ready to deploy as deals become available. So focus for me right now is macro and micro economics and trying to take the big macro picture and drill down to how it specifically is going to manifest itself in Austin’s market because we’re a little bit of a strange market comparatively speaking to most other places in the US.

Theo Hicks: Let’s talk about that a little bit. So you said you have a lot of money and you’re in the researching, educational phase right now.

Danny Webber: Mm-hm.

Theo Hicks: Okay, perfect. So what are some of the things you discovered particularly about your market?

Danny Webber: Well, there’s a lot of dynamics going on, and obviously with what we’re going through with the pandemic and everything, and so what I’m doing right now is I’m following the macroeconomic picture, meaning the Fed money printing the financial stimulus and incentives from the government, and then how that’s affecting current mortgage market and real estate market, both nationally and locally. So for instance, in normal times, in a nondistorted macroeconomic market, when the Fed prints trillions and trillions of dollars, and then they’re deployed to the folks on the ground, typically you would see some type of inflation, or typically you would see some type of devaluing our currency, but we’re not seeing that because there’s such a shortage of dollars in the world, which is counterintuitive to a normal macro investor or even a real estate guy… Because as a real estate guy, when our currency devalues and you’re in fixed long term debt, that’s good for you. When a loaf of bread goes to $10 and the house that you paid $100,000 for five years ago, now costs a lot more just because of the devaluation of our dollar – it’s good for you, especially if you’ve got long term low-interest rate debt. So throw that in the mix with the deferments of the evictions, the foreclosures, and then add on top of that the fact that a lot of the lenders that did that are going to want three months plus one when the deferments are over.

The increased delinquency rates on both autos and home loans– I can go over 100 other macro and micro indicators, but you take all that information and you’re like, “How is that going to affect Austin?” because Austin’s one of the strongest real estate markets in the country. It’s been that way for probably a decade, and there’s no signs of that slowing. So some of the problems that we face in Austin, for instance, is our rental prices have not kept up with our purchase prices and sales prices. In addition to Austin not having state income taxes, we’ve got a high property tax rate. So if you looked on the MLS right now in Austin and specifically looked at single-family residents, and you were looking, “Hey, I want to buy a rental, I’ve got the traditional 25% down, going conventional. Let’s just say, four, four and a quarter percent interest rate”, you’re not going to find probably more than five properties in the entire MLS that would cash flow with their traditional 25% down investor purchase, which is a big problem for us. So we end up having to go further and further out in the concentric ring theory until we’re outside of Travis County proper, we’re outside of Williamson County. Although you can still get some deals in farfetched Travis, farfetched Williamson, but you need to go into two or three counties away to get deals that make sense for monthly cash flow.

Now, the flip side of that is that the appreciation often is pretty substantial compared to a lot of other places in the country. So some of the strategies the investors’ using this area is they’re okay breaking even every month or not making any money or even being upside every month because the appreciation rates are so high. I don’t necessarily agree with that, but that’s what a lot of folks are doing. The other thing we’re doing a lot down here, and we have been for years, but we’re really, really trying to acquire properties through non-qualified loan assumption strategies, and then doing mortgage drafts on them so that we’re carrying notes and not rentals. Does that make sense?

Theo Hicks: Yeah. Do you mind expanding on that? So you said, instead of buying the property, you’re buying the notes on those properties?

Danny Webber: Typically what we’re doing – I’ll give you generic numbers here – if we find a distressed home seller or even a non-distressed home seller, and they’ve got a $100,000 property, which is nonexistent in Austin, but we’ll just use that for simple math, and you do the research on the tax database and you find out that their payoff is approximately $87,000. So they’ve got $13,000 equity minus closing costs, commissions and everything. You would go to that person and say, “Hey, I want to take over your note, non-qualified loan assumption for five years. I’m going to give you $10,000 at closing and I’ll have the note paid off or refinanced in five years.” So what that allows you to do is it allows, number one, a quick closing, assuming title work and the property checks out. It allows a quick closing, no banks are involved, no approvals are involved, and you can put that property in whatever entity you want it to be in, so you can avoid the debt to income ratio hit on your normal credit. You’ve still gotta do the tax thing at the end of the year; there’s no tax implications, but you can at least avoid the debt to income ratio hit on your credit. So from there, say I have acquired a property in Company A, non-qualified loan assumption; I could then put it on the MLS the following week and sell it to Buyer B at $110,000, $115,000 because people are going to pay a premium for owner financed properties. I’m going to hold the note to the end buyer and I may have an underlying lien from the person I bought it from at for 4%, 4.5%. I’m telling it to the end buyer at 7%, 8%, 9%, 10%, 12%, whatever the negotiated interest rate’s going to be, and I’m pocketing the interest rate spread from the underlying lien to the rep note to Buyer B every month, and I’m avoiding the maintenance, late rent and all this other crazy stuff that I have to deal with. And if the person never stops paying, then I just foreclose on the property versus evict him.

Theo Hicks: Let me just say this back to make sure I’m grasping this properly. So you find out someone who owns a home and when you say they’re stressed, that means they’re delinquent on their taxes, they’re delinquent on their mortgage payments…

Danny Webber: It could be any and all the above. It could be notes, taxes, they got HOA liens, or the other thing we’re going to do a lot down here is people just want to sell the property quick. They don’t want people in their house checking it out, kicking the tires, nickel and dime; they don’t want negotiations. So they’ll just say, “If you bought my house today, how much would you give me and can I live with that?”

Theo Hicks: Okay. So you need to determine how much debt they have in the property. So in your example, you said a $100,000 house with $87,000 debt, and so you’ll go to them and you’ll say you’ll take over their note, you’ll give them some down payment, and then you’ll pay that note off in five years. So I guess one thing I have a question on is, are you just paying them, and then they’re paying their mortgage? Or are you actually paying the bank directly?

Danny Webber: No, I make it sound simple, but there’s a few moving parts. So when we sign the agreement and we’re at closing, we get obviously some really tight POAs and borrow authorizations to communicate with their bank. We typically want the login for their bank system, and then we change the address for all correspondences with the underlying lien and bank; and then from there, typically, what we’re doing in my operation is we’ll just set up the payments going out auto-draft every month so we don’t have to worry about them. But if we can’t set up auto-draft, then we’re just gonna hit a local branch every month. We’ve got a few that we do that with. We don’t like [unintelligible [00:10:46].04] reality. And we make the payments directly every month, and then the person that we sell it to, they pay us. So the selling point for the underlying lien holder borrower is that we’re going to help your credit. We’re going to have 100% on-time payments for the next 16 months.

Theo Hicks: Perfect. So you have some agreement with them paying you something on top of the mortgage payments? So the mortgages plus 4.5%, you said?

Danny Webber: Yeah, it’s gonna be a negotiated rate. Back in the day when QM came out, Dodd Frank and all that other stuff, there was a max overage for lending rate; I think was 3.5 APOR, which is the average rate of the day, and so you were locked into that. And then as Dodd Frank lost his teeth in the QM standards, they didn’t go away, but they’re just not enforced right now at all. So the last three to five years – not a specific time, but there’s a lot of national lenders that have non QM products, non Dodd Frank compliant products, and so everybody just went in that direction now, where if you ask somebody about Dodd Frank, QM compliant, it’s really not an issue, whereas before when it first came out, the world was ending, the sky was falling, and you couldn’t do owner-financed deals, you couldn’t do adjustable rate mortgages, you couldn’t do this over five years… So there was a lot of issues, people were scared, but that’s gone away now. I’m actually a mortgage broker in our [unintelligible [00:12:04].00], so I do a lot of the compliance side. If I get an industry that says, “Hey Danny, I know I don’t need to do this, but I want to make sure that this is as close to QM, Dodd Frank compliant as I can get,” and what we focus a lot on is focusing on the end buyers’ ability to repay the loan and making sure that if at some point you’re saying, “Hey, we didn’t take advantage of this,” but it wasn’t like the old days in California where they had the option arms and you could put out $300,000 yearly salary working at Walmart. So we actually dig deep, we verify income, verify assets, pull credit and look at atleast one or two years tax returns, and that gets the ball as close to Dodd Frank QM compliant as you can get, even if you are charging over the 3.5 APOR on an interest rate. I’ve got some investors I know that have done 12% interest with an underlying lien of 4%. So they’re pocketing 3%, 4%, 5%, up to 8% in interest per month in a note, versus $150 to $300 per month in rental income, minus vacancies, minus maintenance. So it’s a much stronger strategy to use. It’s a lot more hands-off, and to date – I’ve been doing this for about a decade – to date, I’ve had to take back probably three properties, and all three of them have gone the route of cash for keys. So here’s a couple thousand dollars, here’s a deed to sign the property back over to me.

I think the biggest part of the strategy that’s the most exciting for investors is you don’t stay out of pocket. On that same scenario, the $100,000 current value,  $87,000, let’s say that I give the underlying — so the $10,000 and then I’ve got another $3,500 in closing costs. So I’m out of pocket $13,000, let’s just say $14,000 for easy math. Typically, when I’m reselling that property on the MLS or [unintelligible [00:13:52].20] there’s a bunch of agents that do nothing but owner finance deals and so they’ve got buyers lined up… I will get back about 80% to 90%, sometimes 100%+ of my cash out of pocket on the deal.

So if I’m doing a $20,000 down payment – follow me on this – to the Buyer B, I’ve got to pay a commission out of that. So I’m a few thousand dollars out on a commission. I’m a broker, so I don’t have to pay sellers; they get commissions. But long story short – it’s about you pay a commission, I get all the money back that I put into the deal, meaning the first $14,000, I paid a $3,000 commission, and then I’ve got $1,500 in closing and I’m up to $18,000, $19,000 at the second closing. Well theoretically, I’m completely whole out of any dollars out of pocket, plus I’m a $1,000 above. I’ve made $1,000 plus, and I’m getting monthly cash flow in the form of a note versus rental income. So that happens less than 50% of the time, but it still happens where you’re made completely whole at the end of the transaction, the second sale, and the other time that it’s not [unintelligible [00:14:48].00] you’re out of pocket $3,000, $5,000, $7,000, $10,000, but the benefit is if I bought this property traditionally, I’d be out of pocket 25 grand upfront, just for the 25% down, plus closing costs.

Theo Hicks: I was gonna ask you, how do I find these types of properties to buy the notes off of?

Danny Webber: It’s the same process that you use to find properties in distress – delinquency lists, foreclosure lists, tax delinquent lists, and also what I consider a pretty advanced investor market compared to other areas that I have talked to folks in, is they’re still doing the door knocking and they’re still sending mass letters to areas, and one of the tricks is just to get on the MLS, and then there’s statistics out there that say people sell their homes an average of five to seven years after buying them, in most instances; some large number over, 50%. So if you just do a search on the MLS, the very neighborhood specific properties and areas that you want to be in, that property and just not the blanket, the whole city. Pick out a few areas, few neighborhoods, few zip codes, and just focus on those and just be the king of that area. So that’s what I’ve done.

I’ve got a few neighborhoods around where I live, really within walking distance of where I live, that I focus on, because it’s easy to reproduce success if it’s close. So you can just send out mailers, you can go bang on the door. As a traditional real estate agent, one of the big things I see in the industry is most people are just lazy. So if I walk to my neighborhood and just bang on every door on my street, just my street alone and said, “Hey, I’m Danny Webber. I’m a broker, I live down the street. I want to be the guy you call if you sell your house or you’re looking to buy another one. And oh, by the way, do you know what your house is worth?” 90% of people are never going to turn down an offer just to get a house value, because they’re gonna go to bed at night feeling better. “Oh, I guess that I’ve got $20,000 in equity or $30,000 in equity.”

Long story short is you’re just starting conversations, you’re building relationships. But at that point, once they say, “Wow, I would sell if I had $50,000 in equity,” and then you’re like, “Okay, let me run the numbers and see if you can walk away,” and long story short is you can’t walk away with $50,000 if we go traditional sales, because you’re paying 6% commissions, you’re paying closing costs, you’re paying that which is going to decrease– you’re gonna be 12%, 14%, 15% out of pocket at closing. But if you go on to finance, do a non-qualified loan assumption, I can give you $45,000, which is a net to you of $7,000, $8,000, $9,000 that you wouldn’t have in a traditional sales cycle. Does that make sense?

Theo Hicks: 100%. So it sounds like they don’t actually have to be distressed, either.

Danny Webber: They don’t.

Theo Hicks: So even without them being distressed, you just have to figure out how much cash they want to walk away with, and then see if it makes more sense for them to do–

Danny Webber: If you can make the deal work, yeah.

Theo Hicks: Yeah, exactly. This is very interesting, because I like the whole note idea. It sounds very, very complicated, and I think it actually is, but it sounds like once you do it a few times and you understand the process, you definitely talked about why it’s a lot more beneficial than going the traditional rental route.

Danny Webber: Yeah… And two things on that. So once you get used to doing these – number one, there’s additional disclosures, there’s additional paperwork. You have to go to a very specific title company that’s used to do these transactions, because most of your corporate title companies, if you brought them, they’ll say, “Hey dude, you’re crazy; you can’t do that,” and the reality is you can. You violate the due on sale clause, but there’s some disclosures that you sign from the seller that says, “Hey, we’re violating your due on sale clause because the property is changing hands,” and it’s really a who cares type thing, because at this point, it could change in the future. But at this point, banks are not calling notes due that are performing. They’ve got a performing Wells Fargo note that they’re paying on time every month at 4%. You’re not going to spend the $10,000, $12,000, $15,000 to foreclose on that property because you’re getting your money every month and there’s no delinquencies. So should that ever occur, there’s a couple of workarounds, because at that point there’s a defect on title, and the defect on title can be cured just by transferring the property back into the original seller’s names and Wells Fargo to approve, and then they go away, and then you can put it right back into your name. Again, I’m getting a little bit deep into this, but there’s a whole strategy and process behind it. It’s simple once you do it a few times and you see it laid out, but to wrap your head around it, the first time, you’re gonna have a million questions on how this actually works.

I’ve been doing it for a long time. I’ve got attorneys down here that do the transactions and they manage the transactions, they have their title companies, and it’s all pretty flawless. Mistakes are still made, but as long as you’ve got a good relationship with the seller, anything you need to get defined later or get done later, you’re not gonna have a problem.

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

Danny Webber: Best advice is to not think you are Superman because you went through a two-day or one-week course. One of the biggest problems I’ve seen – and it’s been that way for a long time – is somebody getting some business cards made that say, “I’m an investor”, they take a weekend course, they could take a one-week course that costs them $50,000, and then they fail. Being a real estate investors – it’s not equivalent to putting a band-aid on your kid’s finger because he’s got a cut and you’re a doctor. That’s not the way it works; it’s in-depth. So I think people fail to do proper planning, proper homework and proper preparation before they become an investor. They think it’s easy and it’s really not. Statistically, I think 60% or 70% of investors lose money the first year or two because they just don’t know what they’re doing and they just don’t have the right team of people around them.

I absolutely believe in mentorship. I think it’s the best money you can spend, I believe in finding a local mentor that’s in your market, that is doing the same strategies that you want to do, meaning if you’ve got a real estate investor that doesn’t do a lot of non-qualified loan assumptions, mortgage wraps, but they do a lot of flips and you want to do flips, well stick with the guy. But if you’re a long term investor and you want more cash flow, more notes, payments coming in, and you’ve got a ten year game versus a one year “I need cash” game, then you need to find that specific mentor and pay him. Mentors do not come free. If you want him to pay attention to what you got going on, then you’re going to have to pay him something whether it’s $100 bucks or $10,000, who knows? But you need a paid mentor that’ll answer your phone and answer your questions when you have them.

Theo Hicks: Okay, are you ready for the Best Ever lightning round?

Danny Webber: Let’s go.

Break [00:20:41]:04] to [00:21:53]:03]

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

Danny Webber: I don’t have a best ever book, because I get a little bit of greatness from all the books that I have. I’d say a topic that I’ve been reading a lot about lately around last year is minimalism and how to filter out all the non-productive, the non-value added tasks and things from your day so that you can work less, but be a lot more effective and efficient while you’re working. So that’s a big body of knowledge that I’m really into right now and it’s already paid off, in my opinion.

Theo Hicks: What is the best ever deal you’ve done?

Danny Webber: Well, in dollars, it’s probably going to a flip. I made a couple of times $100,000+ on flips, but what I think is a cool transaction, I did three wholesale assignments in one day at one time, and I made $20,000 per assignment. So this was back in the day when in Texas you could do an A to B, B to C, but the C buyer was paying off to A’s lien, a double closing. The title company just got away from those in Texas, but I made $60,000 sitting at a table with the title company, same title company, in probably about an hour and a half. That’s as long as it took me to buy three properties and sell three properties at the same table. I made 60 grand, without thought. It’s just a neat thing.

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

Danny Webber: Probably my email. The danny.webber@gmail.com is probably going to be the most efficient place, because I’m on that every day. danny.weber@gmail.com.

Theo Hicks: Perfect. Well, thanks for sharing your email address and also sharing your in-depth explanation of how to do note buying. I’m not gonna try to explain it again. I’m probably gonna have to listen to it again, just to make sure I fully understand it, because it’s one strategy that I personally haven’t talked to people about a lot. So I think this is gonna be a very valuable episode for Best Ever listeners, especially as you mentioned during these strange times. So Danny, I really appreciate you coming on the show and speaking with us today. Best Ever listeners, as always, thank you for listening. Have a best ever day and we’ll talk to you tomorrow.

Danny Webber: Yes, sir. Thank you.

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JF2039: Experience Shouldn’t Stop You From Starting With David Toupin

David started investing when he was 19 during his junior year because he didn’t want to go the corp route. Broke, no money, no ability to get a loan, and put a 12-unit under contract. He had about 120-units syndicated before he graduated college. This is a must listen to episode If you want to learn how to overcome the objection “You have no experience.” 

David Toupin Real Estate Background:

  • Real estate investor and entrepreneur, Co-Founder of Obsidian Capital, a real estate investment firm
  • By the age of 24 he has acquired nearly 600 apartments valued at over $50M, and has a $10M new development projects working on now 
  • Based in Austin, TX
  • Say hi to him at https://www.obsidiancapitalco.com/

 

Best Ever Tweet:

“The answer to the question “You don’t have any experience, why should I invest with you?” The answer to this question was the numbers. Showing them proof that it is a good project” – David Toupin


TRANSCRIPTION

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

David Toupin: I am doing fantastic, man. How are you?

Joe Fairless: I’m glad to hear that, I’m doing fantastic as well. A little bit about David – he’s a  real estate investor and entrepreneur, co-founder of Obsidian Capital, which is a real estate investment firm. By the age of 24 he has acquired nearly 600 apartments, valued at over 50 million dollars, and has ten million dollars’ worth of new development projects that they’re working on right now. Based in Austin, Texas. With that being said, do you wanna give the Best Ever listeners a  little bit more about your background and your current focus?

David Toupin: Absolutely. Thanks for having me, man. I started investing – to give you the short version – when I was about 19, turning 20, in college. It was my junior year. [unintelligible [00:01:38].27] internships, didn’t wanna go the corporate route, so I started looking at buying multifamily properties. I was broke, had no money, had no ability to get a loan, and I put a 12-unit under contract in Michigan, near where I grew up… And that was like “Oh, crap. How do I buy this now?”

Joe Fairless: Where in Michigan?

David Toupin: It was in Metro Detroit, a city called Garden City, so a C area. Nothing sexy about this property at all, but it was something I ran some numbers on and it worked. I made an offer, and at that point syndication wasn’t really — I don’t know, were you doing your podcast in 2016?

Joe Fairless: Yes.

David Toupin: Okay. There weren’t as many podcasts and sources out there at that time as there are now for syndication… So I just kind of stumbled across a little bit of stuff and figured out I could put a PPM together, raise some money. Long story short, I raised a couple hundred thousand dollars, found somebody to sign on the loan, I bought that… Then I did it a couple more times. I had about 120 units syndicated before I graduated college.

Joe Fairless: How many units?

David Toupin: 120.

Joe Fairless: Wow. Before you graduated college… [laughs]

David Toupin: Before I graduated college.

Joe Fairless: Where were you going to college?

David Toupin: University of Detroit Mercy, studying finance. I didn’t really go all that often. I skipped most of my classes. My conversations with every teacher in the beginning of the semester went mostly with me telling them that I work a lot, and that real estate is my focus, so I’ll come when I can. [laughs]

Joe Fairless: Did you get a degree?

David Toupin: I did, yeah. I got a finance degree.

Joe Fairless: Nice.

David Toupin: And I just kind of kept doing that. I partnered up with a guy out of Texas after I bought about a little over 200 units. He had owned about 4,500 apartments throughout Texas, sold most of them; he was twice my age, extremely smart guy, very humble. We saw eye to eye morally and ethically, and had some bad experiences in the past, so we thought that it would be a good idea to partner up… So we did that. We bought a deal together in Houston, it went fantastic. 160 units. So we started Obsidian Capital together a little over a year ago, and we’re approaching the 600 unit mark together. We own some land and are doing some new development now.

Joe Fairless: Boy… We have a lot to talk about. Okay, let’s just go from a chronological standpoint… You were in college, you got the 12-unit under contract, you didn’t have any money,  you raised a couple hundred thousand dollars and you got a co-signer. Was the co-signer also someone who brought in some money?

David Toupin: Yeah, I think maybe 25k.

Joe Fairless: How did you meet the co-signer?

David Toupin: Just through networking. It was another local fix and flipper. I started doing some wholesaling and flipping, so that was someone I’d met and we partnered on that deal.

Joe Fairless: So you were doing wholesaling, and through the wholesaling business you met this fix and flipper, and then this fix and flipper co-signed. What was the liquidity and net worth required that you needed help with at the time?

David Toupin: So the purchase price was 560k; 45k/unit was the purchase price. So probably half a million in net worth, and a couple hundred in liquidity.

Joe Fairless: Okay. And the couple hundred thousand that you raised – who participated in that deal? Not names obviously, but just how you met them.

David Toupin: Yeah, we would call from friends and family category. Not really family, just more friends and people I had networked with. I think we had 6-7 people in at anywhere from 20k to 50k. The total amount was about 200k.

The majority of those were other local entrepreneurs, somebody who has owned an insurance agency, somebody who flipped houses… So just a couple of people who wanted to invest in something passively, and we were able to get them in on that.

Joe Fairless: What’s the answer to the question, when it was asked to you, “You don’t have experience. You haven’t done this yet. Why should I invest with you?”

David Toupin: The answer to that question was the numbers… And  I think that was a big thing for me, as I’m a big analytical/numbers person. The easiest way to overcome that objection was showing people proof that it was a good project. Showing them the price compared to other comparable sales, showing them the rents compared to where properties on that street were getting, so that I can increase them, and showing them the proforma… It really helped me to overcome the “Hey, you’re only 20 years old and you’ve never done a deal before” objection. I got that a lot, although [unintelligible [00:06:09].05] I don’t get it as much now, but through my third deal, where I had to raise 1.7 million on a 96-unit – and that was extremely difficult, overcoming the age and track record.

Joe Fairless: Say it’s a cynical investor and the numbers and the market data speaks for itself, and then they say “That’s great, David. The numbers do look favorable, but you’ve never executed on the business plan. Anyone can be a spreadsheet millionaire. Why should I believe you can execute the business plan?” What was your response to that?

David Toupin: My response is I’ve toured all of the comparable properties in the market, I’ve met with management companies, discussed the business plan, and the fact that it’s only a 12-unit project doesn’t leave a ton of room on the table for failure when it’s a high-occupancy market. And the property is already fully occupied. From there, it’s really me walking them step-by-step what the plan was gonna be. Getting tenants out one by one, as their lease is renewed, and offering them to stay at the new renovated rent mark. If they didn’t wanna stay, their lease would end, they would move out, and we would renovate it and bring in somebody else at that higher rent mark.

So just kind of walking them through that process made them more comfortable… But to  your point, there were a lot of people that heart that and said “No, I’ll pass”, and they weren’t comfortable with it. So it really came down to having a lot of people look at the project, to say “I’m interested. Yes, I’ll invest with you. I’ll take a chance.”

Joe Fairless: And how did you get to that number of people for your first deal? What were your avenues?

David Toupin: A lot of them were people through meetups, local groups… I would ask for referrals. The guy that signed on the loan – he brought in his network… So I think the key is networking.

Joe Fairless: That’s helpful, when you have a relationship with an influencer who’s signing on the loan… So in this case he believes in the project, clearly, otherwise he wouldn’t be signing on it. And then he’s already got connections with others. So what percentage of investors came through that investor’s connections?

David Toupin: I would say half and half.

Joe Fairless: Cool. That’s a great way of doing it. How did you structure it with that investor, in terms of general partnership fees and ownership?

David Toupin: We split it all evenly. So we did an 8% preferred return to investor, with 80/20 split over that. Then 3% acquisition fee on the purchase price, and then myself and him split all that down the middle.

Joe Fairless: Cool. Do you still have it?

David Toupin: We do not, no. It sold out a little over a year, and actually another 12-unit we bought just down the street from that – same thing, same structure, same partnership, and we sold that one as well.

Joe Fairless: Okay. That was deal number one. And then deal number two was — what did you say, a 20-unit?

David Toupin: Deal number two was another 12-unit, on the same street.

Joe Fairless: Oh, that one. Okay. We’ll skip that one. How about your third deal that you mentioned? I think you said it was a 1.6 million raise?

David Toupin: Yeah, so it was a 1.7 million raise…

Joe Fairless: Okay, 1.7…

David Toupin: And it was 96 units. We got it from a mailer… It’s a really interesting story. The guy owns over a billion dollars in real estate. He’s a local Michigan, old-school (71-72 years old now) investor, and he’s really heavily invested into senior living developments, and hotels, and stuff like that; class A apartments. This was a ’79 build, 96-unit, in a B minus area, that he had built 40 years prior, and owned free and clear, so he held it the whole time

We got a call from him, and he was open to selling, from a mailer. That was just a really simple “Hey, I see you on this property. Interested in making you an offer? Give us a call if you’d like to sell.” Timing worked out. We ended up building a good relationship with the guy, negotiated a good price, and we bought that one off-market for 43k/unit; we renovated it, we’re all-in for about 50k/door, and about six months ago sold it for 70k-71k a unit.

Joe Fairless: Bravo.

David Toupin: That one did very well. Thank you.

Joe Fairless: This was your third deal at the time; you’ve bought two 12-units up to this point. You’re sending out mailers, and the owner who owns over a  billion dollars of real estate calls you up. Were you a little nervous?

David Toupin: I had no clue, to be honest with you. My first conversation with the guy, I had no clue. He said he owned a lot of real estate. He was like “I own a couple thousand units free and clear, and I own this and that”, and I was like “Alright, maybe… Is this guy the real deal?”

Joe Fairless: That could go one of two extreme directions.

David Toupin: Exactly.

Joe Fairless: “Hold your wallet and hide your kids” or “Okay, this could be a long-term partnership thing.”

David Toupin: Exactly. And it was super-interesting. I ended up building a good relationship with the guy. And coming from those first two 12-units, I ended up partnering with the same game on this one as I did the first two 12-units. He sponsored the loan again, and we raised equity together… So I actually built a really good relationship with the seller, and I think that’s what really helped to get the deal done.

And Joe, I ended up living in this deal, and kind of house-hacked it. It was one of my greatest learning experiences. I was 21. We bought it in 2017, and I got in, oversaw about a half a million dollar renovation, which I had never done before… Self-managed the deal. Freddie Mac small balance loan. I’m not sure why they let us self-manage it, but they did… And I had an on-site manager and maintenance person. I took a two-bedroom, I kind of tricked it out, I lived in it, and it went really well.

Joe Fairless: What do you mean, you  tricked it out?

David Toupin: I renovated it, did kind of a cool renovation on it, and then I also paid the highest rent on the property.

Joe Fairless: [laughs] Got it. So you ended up buying this property and living there… What were some challenges overseeing that type of renovation project, having never had done that before?

David Toupin: I don’t even know where to start. It is a big process, managing that kind of a renovation. I will say, I got it done under budget, but it took probably six months longer than it should have.

Joe Fairless: Okay.

David Toupin: The biggest thing is — if I were to do it all over again, I would have vetted three general contractors to oversee the unit renovations, and I would have tried to put one group in place that could tackle all of the unit renovations from start to finish. When a unit moves out… They’d do 2-3 units a month, and when somebody moves out, they’d go in there and knock it out.

We tried out three different small-time contractors. One was a group of 3-4 brothers… We call them van contractors, that work out of a van. A couple guys. So it was just a hodge-podge of renovations. We ended up hitting the rents, but the unit turns took longer than they should have, it wasn’t the same quality level across the board… And if I were to do it all over again, I would have just hired one group to tackle all the unit renovations, to keep it consistent and to keep it easy.

Joe Fairless: You said you had bad experiences in the past, you and your new partner. So what was your bad experience?

David Toupin: The business partner I’ve had on some of these deals did not see eye to eye in a lot of areas… I’m very by the book, I would say, and reputation is important to me, and making ethical decisions is also really important to me. That’s kind of how I was raised, and I think that’s how you should act in business… And I didn’t see that from this partner, so I just decided “Let’s sell everything off, we’re gonna do well, and let’s part ways on a good note.”

Joe Fairless: Yup.

David Toupin: That’s kind of what happened… And it led me to find my current business partner, who sees eye to eye with me exactly, and it’s a really good situation. So no regrets. You have to go through that kind of stuff, to learn and figure out what works, what doesn’t work. And I guess if I have any advice or suggestions on that to other people – I know a lot of people getting into this business, syndicating or partnering, and starting groups and stuff… Just try it out. Do a deal separately, before you go and start a business with somebody; just test run it, and see how you operate together before going down that road.

Joe Fairless: Yeah. And you ended on a high note, and everyone made money, and then they brought you to the current partnership. What are some examples of the ethical dilemmas that you came across?

David Toupin: Situations where — let’s say, for example, we were to have the ability in an operating agreement… So this is the structure of that deal; the goal was to go in, renovate it, bring the value up within a couple years, refinance, get all the capital back to investors… Our equity would then go up to 50/50. Then we were gonna hold long-term, that’s what we told them.

So what was brought up was “Hey, why don’t we refinance, our equity goes up to 50/50, and then we sell the property?” I was like “Well, that doesn’t make a lot of sense and that doesn’t look too good on us. I don’t think that’s something that we should do.” It was pretty obvious that the goal was to refinance, our equity goes up, and then we sell it and WE make a lot more money. But that was not ethical in my mind. That wasn’t the plan we discussed. And if we’re gonna sell the property now or in the short-term, we should just sell it and give them the profits that they should get.

Joe Fairless: That would burn some bridges… [laughs]

David Toupin: It was a pretty clear [unintelligible [00:15:42].20] So things like that…

Joe Fairless: It was tactically sound, but come on… If you wanna do another deal, and just wanna look yourself in the mirror…

David Toupin: Yeah, good luck doing another deal with those investors.

Joe Fairless: Right. And there is a ripple effect with that too, word of mouth.

David Toupin: Absolutely, there is. It’s a small world, and you’ve gotta be really careful who you’re working with. Not to get  too deep into all that, but it’s something where — that kind of stuff is really important to me, to act in our investors’ best interest and by the book.

Joe Fairless: What was the challenge that your current business partner had in the past?

David Toupin: He had a business partner that — they owned about 300 million dollars in real estate together, and after a couple years he wasn’t really pulling his weight, and stopped showing up to the office a lot… And once they started making a lot of money, he was–

Joe Fairless: Jetsky-ing, and gallivanting around…

David Toupin: Exactly. He was going out and buying Ferraris instead of being in the office, putting together deals. So for him it just wasn’t working out anymore, and… Glenn’s a lot like me, he’s a very ethical guy, and there were just things that he was seeing that he didn’t like anymore… So they decided to do the same thing, “Let’s sell everything off.” So because Glenn and I went through a similar experience, we told our stories and we’re like “Man, we might as well try partnering, because we really went through the same thing and see the same way, and see eye to eye, so let’s try this out.”

Joe Fairless: Alright. You went to development – why are you doing development?

David Toupin: So I moved to Austin, Texas in the past year, so  I’m down here now where he lives… And we’ve found a piece of land, it had a good price, it was already entitled, ready to build… We’ve been wanting to get into development for a while. It’s a really, really good market down here for development. Absorption is great, solid rental rates here in Austin, and it’s just growing like crazy. Right in the path of progress where this project is, and it made a lot of sense.

To do this size, sub-100 units, to us was a great way to start getting into development. We didn’t wanna start doing a 200-unit project. The 50 to 100-unit range is a great starting place for that, because you can still do a HUD loan, and it’s easier to get in without having prior development experience.

Joe Fairless: How was it easier — I think that it’s just more units, but it’s the same process.

David Toupin: I just noticed after talking to a lot of lenders and other people who have developed before, they just suggested starting at that level is gonna be a lot easier to get into, and to qualify for a loan, and just to really cut your teeth on, as opposed to going into that 100-200 range to start.

Joe Fairless: On the project level, what are the projected returns for this development deal?

David Toupin: We’re in the high teen IRRs on a five-year. This is kind of our projection. But we plan to hold this long-term.

Joe Fairless: And that’s on a project level ?

David Toupin: No, investor level.

Joe Fairless: Oh, okay. Yeah, on a project level.

David Toupin: At project level it’s gonna be low to  mid twenties – 22, 23 internal rate of return.

Joe Fairless: And I’m assuming based on how resourceful you were in college and leading up to this point you’ve also been looking at other opportunities, existing product. First off, is that a correct assumption?

David Toupin: Yes, that’s mainly what we do, is existing.

Joe Fairless: So I imagine that you could find existing product with a value-add business plan that would be a similar project-level IRR projections… And if that is the case, then why go through the risk of ground-up development?

David Toupin: A couple of reasons. One is we have several investors that are really interested in new development, so that sparks our interest right off the bat, because we know that we have the equity behind us.

Second of all, it’s something that we’ve been really interested in, and we want to have as kind of a branch for our company going forward, the new development side of things. And then lastly, it’s not something that we’ll do anywhere; it really depends on the location. And for what  we’re doing and what we’re building, in Austin, for example, a B class product, if you’re buying an ’80s or ’90s product, it’s selling for anywhere from 120k to 150k per unit right now.

We’re building this for 108k a door, and it’s gonna be brand new. And with land, we’re closed to 130k. So we’re all-in in that mid-range of where a ’90s product is selling. So to us, that just clicked. It just makes sense. Why would we buy in Austin an ’80s product for 130k a door, when we can go and build brand new, higher-quality for around the same price?

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

David Toupin: Oh, man… My best advice ever in real estate is know the numbers. If you know the numbers, you will make smart decisions, as long as you’re conservative, and you will really be able to talk to anyone about it, from investors, to lenders, bankers, partners… Knowing the numbers is your greatest tool.

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

David Toupin: Let’s do it, man.

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

Break: [00:20:55].09] to [00:21:39].10]

Joe Fairless: Best ever resource you use to stay up to date with what you need to stay up to date with, business-wise?

David Toupin: CoStar News.

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

David Toupin: A mistake I made on a transaction… Not going to the right lender from the start.

Joe Fairless: And what do you do now, what questions do you ask to determine what the right lender is, or which one is not the right one?

David Toupin: Well, I’ve learned which — project-specific… In the beginning I didn’t know about agency loans, so I went with regional bank loans, when we should have done agency, just because we didn’t know about it. So I guess that was a mistake that would have been solved by knowing the right lender to work with.

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

David Toupin: Educating other young people that are in their twenties, and in college, and that want to get into real estate.

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

David Toupin: You can follow me at Instagram @realestatejedi, Facebook – look me up, David Toupin, or website ObsidianCapitalCo.com.

Joe Fairless: Well, thank you so much for being on the show and talking to us about the early deals, the 120 units you had syndicated before you graduated college; fist bump to you, I’m raising my fist right now to you… And congratulations on what projects you have upcoming, as well as finding a business partner that aligns with the way you think and the way you wanna approach business.

I enjoyed our conversation, I learned, and most importantly, Best Ever listeners, I hope it was valuable to you. Thanks so much for being on the show; I hope you have a best ever day, and we’ll talk to you again soon.

David Toupin: Thanks. I appreciate it.

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JF1957: Save Time & Make Money By (Smartly) Putting Your Money To Work with Dan Kryzanowski

Dan and his team help individuals invest their hard earned money in the real estate industry. They are not custodians, they take their service to another level than a typical SDIRA custodian. We’ll hear exactly what they do, how they help clients, how they make money (one time fee + 15$ per month), and how they ultimately help their clients use their time how they choose. If you enjoyed today’s episode remember to subscribe in iTunes and leave us a review!

 

Best Ever Tweet:

“We provide a simple paragraph to let people know they can use their retirement” – Dan Kryzanowski

 

Dan Kryzanowski Real Estate Background:

  • Active real estate investor and fund raiser, Executive Vice President at Rocket Dollar
  • Invests in self storage, multi family, and hard money residential property loans
  • Hard money lender on 10+ SFR’s, has debt and equity on commuter property in WA, equity in 5+ self storage deals, equity investor in 5+ bars/restaurants, has empowered dozens of fellow sponsors to raise 6 figures in 6 minutes via SDIRA/ Solo 401(k) accounts
  • Based in Austin, TX
  • Say hi to him at https://www.rocketdollar.com/ use code Fairless19 for a discount on his services OR DanATrocketdollar.com
  • Best Ever Book: Rich Dad Poor Dad

 


The Best Ever Conference is approaching quickly and you could earn your ticket for free.

Simply visit https://www.bec20.com/affiliates/ and sign up to be an affiliate to start earning 15% of every ticket you sell.

Our fourth annual conference will be taking place February 20-22 in Keystone, CO. We’ll be covering the higher level topics that our audience has requested to hear.


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, Dan Kryzanowski. How are you doing, Dan?

Dan Kryzanowski: Great, Joe. Thanks for having me.

Joe Fairless: Well, my pleasure, and looking forward to our conversation. A little bit about Dan – he’s an active real estate investor and fundraiser. He’s the executive vice-president at Rocket Dollar. He invests in self-storage, multifamily and hard money residential loans. He’s based in Austin, Texas. With that being said, do you wanna give the Best Ever listeners a little bit more about your background and your current focus?

Dan Kryzanowski: Absolutely. Quick background – I’m originally just a guy from Cold Country, North-East [unintelligible [00:01:57].16] probably as a lot of folks out here… Did the good school, the corporate thing with Merrill-Lynch and GE for a few years, and about a decade or so ago I realized working and going 9-to-5 for 40 years was not the way for success or happiness. So a few long stories short, I ended up learning about the self-directed space, tapping into the 401-K dollars that I’m sure a lot of folks do have from a past career life, and really making (I’d say) a very broad life for myself and my family here in Austin, Texas… Everything from real estate, to fintech, real estate tech, and kind of in the broad community building also.

Joe Fairless: So your website is Rocket Capital, but you’re the vice-president of Rocket Dollar. Same thing?

Dan Kryzanowski: There’s probably a typo in there…

Joe Fairless: Okay, Rocket Capital?

Dan Kryzanowski: It’s actually Rocket Dollar…

Joe Fairless: Okay, got it.

Dan Kryzanowski: …and what we do is we empower individuals – anybody here on this show – to tap into their retirement dollars to invest in private assets such as real estate. Another thing these accounts also do is – for folks that are self-employed, so for any of the realtors, the 1099 folks – you  can actually defer up to $62,000 a year, times that by two if you’re married, to have a portfolio of real estate backed by your retirement dollars.

We do it all at a very simple, flat $15/month, a la Netflix.

Joe Fairless: Cool. So you’re a self-directed IRA custodian.

Dan Kryzanowski: Not exactly. It’s different. Listen, we personally have had these accounts, and I’ve raised X millions of dollars for some of the asset classes you touched on before… Where we differ, on the Rocket Dollar side, is in two main arenas. The first is that we’re not a custodian. We have partners, but what we’ve found is that, probably for a lot of the listeners out here, time and money are your two most valuable assets… So our products are checkbook control SD IRAs. What this means is that, say on the next deal if you’re taking friends and family money, you just wanna receive a check. You know these people, they know you, they like what you invest in. It really doesn’t make sense for you or them to be on the phone with some random third-party, just filling out their paperwork, for them just to give you their money. So we’ve completely eliminated the friction within our SD IRA product.

And then secondly, where I think the custodial world really doesn’t play into is on the solo 401-K side, also  known as the individual 401-K. This is for anybody that is self-employed, where – as I referenced before – the much higher contributions. So what we wanted to do, being that less than 1% of (I’d even say) white-collar America, or folks with six-figure annual income out there – they’re still completely unaware that this self-directed world exists… So outside of folks getting bogged down in the technicalities – as we call it, the weird – we really want to promote the wonderful; just these quick, easy-to-use checkbook controlled self-directed accounts that could go towards either direct properties or syndicates.

Joe Fairless: So if you could put yourself in the shoes of a founder of a custodian company, what would they say the disadvantages are of a checkbook IRA?

Dan Kryzanowski: This is  a great question. I sat on many panels where this was a fair question that collectively we wanted to discuss… And I think there’s multiple types of personas, but when it comes to investing, you can target two of them. I’d say one is folks like you or I, that are gonna do our diligence, we’re gonna make our decision and go forward. So we just wanna write that check and move on to what’s next.

If my mother was in this space, she probably would not mind being on the phone for an hour, asking what self-dealing is ten times over, and kind of going through the process of filling out that form, kind of a la 20th century, going into the bank, having that super-comfort that “Okay, now I’m moving stuff from A to B…” Which is fine; for some folks that’s the level of security they want… Or not as much security, but it’s just how they want to operate.

But what we’re finding out, for a lot of folks the best analogy I can give you is for people familiar with the health savings account, the government says “Great, you need surgery? Wonderful.” If you go for manicure/pedicure, you’re below board. [laughs] Same deal here, in the big self-directed world – as long as you don’t self-serve, basically, for yourself or your linear family. Everything else is in play.

Joe Fairless: Okay. Will you elaborate more on your business model? I’m kind of clear on it, but still a little fuzzy on how you make money and what it is that Rocker Dollar does.

Dan Kryzanowski: Sure. Well, there’s a few sets of folks listening today… So first, just for us as individuals, and some that may be familiar with the SD IRA space before… What we’ve done – I call it the Netflix model; what we’ve done, which is very different than signing up and having two pages of fees, and everything else, ours is very simple – it’s a one-time upfront $360, and this takes care of the administrative costs to set up… And then it’s a flat $15. This is regardless of asset size or number of transactions.

So in very good faith, whether you have a million, 100k, or even 10k, I feel if this is the account that you feel is good for you, for your diversification, then it’s something that you should engage in. And what we’ve seen – I’ve had some pilots retiring with a million dollars and they wanna buy five places in the Caymans. Our average account generally is in the 100k range, meaning the first tranche that comes over. This is the perfect amount, as you know, for a multifamily syndicate.

And then finally, folks that are just really dipping their feet in the water, maybe through crowdfunding or otherwise, that put in 10k or 25k. Either way, it’s still a flat $15/month, and there’s also no asset under management (fee). With a lot of the traditional custodian fees, and what folks are used to in the hedge fund land [unintelligible [00:07:31].29] mutual fund asset under management. We’ve completely eliminated that.

Now, the other side of the coin is for folks raising money it doesn’t cost you anything. And in addition to that, our engagement is going to be in your natural marketing. So what do I mean by that? Let’s say somebody out here, one of the folks that we may have met at a Michael Blank show, or maybe your show in February – first-time syndicator, raising a few hundred thousand… He/she is probably naturally gonna send an email blast to their hundred closest colleagues and say “Hey, I have a great deal. Are you interested?” All we provide is a very simple paragraph to copy-paste to say “Hey folks, in addition, you can use your retirement.”

So as we term it, “six figures in six minutes”, if you have 100 people that are gonna read your email, you’re probably gonna have a few folks that are gonna sign up and invest, and then from there, much like you, we host a podcast, “Rocket Your Dollar”, webinars, I speak at a lot of shows etc. So we incorporate you, meaning collectively the syndicator, the deal raiser, into our national marketing platform. And although we do not directly advise, we do (I think) share what we feel is the world of 21st century diversification.

Joe Fairless: I believe self-directed IRA custodians can’t push a particular investment. Are you able to push a particular investment?

Dan Kryzanowski: No, we cannot and we do not. Because what we do, especially now, as you get into the fourth quarter, with the Solo 401-K little-known technicalities that took benefit from this deferring 56k off your 1099 earnings, you need to open the Solo 401-K in the same calendar year. We get very busy in the fourth quarter every year, where your consultants who are self-employed, your realtors, folks that have a side gig are opening these accounts.

Now, with that, as I said, we’re just pushing for the simplicity to move to the checkbook control ASAP. With that, a lot of them ask “Wow, Dan, this is great. I wanna lower my tax burden. What do I invest in, or how do I approach this theme of 21st century diversification?” So what we do is we would list a broad offering – some of our friends like Matt Faircloth, others, we probably have well close to 300-500 partners at this point in real estate alone… So we give a sampling of the types of offerings that are out there, but no more than just a brief one-line introduction to the company. We do not get to the deal level, nor are we taking coins, nor do we claim that we’re match-making.

Joe Fairless: Cool. And by you partnering up — I don’t know if partnering up is the right word, but… By you being associated with those particular real estate investor, it benefits you and your business because then you can bring more people into the checkbook control self-directed IRAs that your company offers.

Dan Kryzanowski: Yes, that’s right. And part of this is — much like you, with the success you’ve had, in a certain stage of your life it’s part of a mission. I would say myself and the founding team – we’ve had tremendous success having these accounts personally for the past decade, and also raising millions for our endeavors. So we realize folks come from different walks of life, different assets, but at the very least we just wanna make folks aware, both as individuals, and then folks that are raising money.

Because when you take a step back, just on the IRA side alone, there’s ten trillion dollars out there, and it’s a comically huge number. It’s the only number I know that can go in the ring with our national debt… But only 100 billion are in these SD IRA accounts.

Joe Fairless: Ten trillion, compared to a hundred billion?

Dan Kryzanowski: Yeah, you’re looking at 1%… And these have been around since the ’70s, so… Who has these? Well, I’d say a few — this is a pretty astute crowd here, so some of our colleagues probably have these accounts. The PayPal mafia – they actually did them for Roth, so their dollar in is probably 10,000x on the back-end. The most famous example is Mitt Romney, when he was running for president. They were like “Hey, Mitt, I thought I can put 4k at the time into my Roth. I heard you have a million.” Mitt shrugs, and then of course the journalist gives the real number. It was actually 102 million. [laughter] You know, Mitt’s not paying on the back-end, so politics [unintelligible [00:11:28].14] but I’d say at least — if you have a hunch on something, be like Mitt and pay on that little seed, not the forest.

Joe Fairless: Ten trillion in retirement accounts and one billion in self-directed accounts?

Dan Kryzanowski: It’s ten trillion in the IRA. Think of it in laymen’s terms – this is your old 401-K, so the first/second job you worked at… And then in SD IRAs it’s the hundred billion. And then separate from this, I’d say two things – where most folks are working at currently, you cannot touch that money till you’re 59.5, or let’s round up – 60 years old. Some estimates say when you look at all the accounts that can’t yet be rolled over without penalty or fee, but our out there – and this range is also for military, TSPs etc. it can be as high as 30 trillion. And then separately, you also have X million in – depending on how you wanna source this – 20 to 50 million self-employed individuals that have the option to invest in a Solo 401-K.

So I think in terms of just awareness alone, it’s the tip of the iceberg. So where we’re excited at Rocket Dollar – and to your earlier  question, where we differ – we’re a fintech company, we’re a real estate company. This was verified; we were at Money 2020, probably the top fintech show in the world last year, and out of 800 early-stage companies we came in second. We were actually in first place, and Shaquille O’Neal swatted us down to second, but I would say the VC’s and other folks in this space still deem that this was a good model. The main reason is that — you’ve gotta think, if you learned of maybe an old, stodgy sort of model many years ago, you may have opened one of these accounts for your personal purposes… But it’s not something that you’re gonna share with your buddies and brag about it on the golf course… Whereas my guess is here, even on this call, there’s probably two or three folks that have signed up literally within five minutes and are in the process of checking the box to e-sign a few things to start moving their money over.

So this is relatively revolutionary versus how the back-office, the process has gone before. Somebody on this call might be excited and maybe they’re turning around and investing with you or one of our other colleagues in the space. They’re much more likely then to refer this out, or maybe even talk about it on social media. I know a lot of folks [unintelligible [00:13:37].08] are promoting their new strategy. So we’re very happy to share the wealth in terms of folks taking credit of learning of this new opportunity.

Joe Fairless: Let’s talk about your investments… So you’re a hard money lender on over ten single-family rentals, and you’ve got debt and equity on a commuter property in Washington. What is a commuter property in Washington?

Dan Kryzanowski: It’s funny, I was in Seattle last week [unintelligible [00:14:01].13] which hopefully I’m pronouncing it correctly for my friends in the North-West, but… What it is, it’s your typical multifamily, but based on — obviously, Amazon is tremendously huge, and folks from all walks of life are commuting in there daily… But as the trend is going to smaller, cleaner, better, or folks are becoming widowed… You name it. there’s a group I’ve been investing with for a while out West, and they consistently have paid an A share of 10%. And their view is “Well, folks are gonna commute in, folks are gonna down-size. People want to be close to a commuting corridor.” There’s a lot of public transportation. And  for folks that are really bullish on the investment, there’s a B share where you’re looking at probably a 16% to 22% IRR.

So  for me, just kind of looking at the demographics, and obviously knowing that Amazon is probably not going anywhere tomorrow, this was for me a very easy and comfortable investment.

Joe Fairless: When you lend as a hard money lender, what are the terms that you seek?

Dan Kryzanowski: Like anything, especially here, it’s the person. Probably everybody had the school of hard knocks, real-world MBA, and have a loss; hopefully it was earlier in the career, for a small dollar, as mine was… It’s a lot. Like anything – the person, the track record. That said, if stuff really hit the fan, I would much rather have a sub-200k property outside of the triangle, in Raleigh, North Carolina, or close to a university, than maybe something where [unintelligible [00:15:19].10] Scranton, PA, that folks may be moving from.

So my criteria is obviously the heavy diligence… And I recognize the days of double-digit money – although there are some folks that are still offering, especially on the residential flip side, I still think 8% is very fair. I have a gentleman and he hasn’t missed a payment in 15 years, a world-class guy, actually 15 years now.

So I’m happy going full-circle. Why I like using my retirement dollars and having the checkbook control is he might say “Hey Dan, can you put another 10k or 15k in this deal, or another tranche on a current property?”, for me it’s a no-brainer. I cut a check or wire money, and both he and I are not stuck filling out some paperwork for an hour. So for me it’s been nice to set up that little piece of your portfolio that’s sitting in cash, to keep my money in use in this 8% plus range.

Joe Fairless: And do you do any points at closing?

Dan Kryzanowski: No, I keep this real simple, just for the ease and convenience. I do value time… This  is what he’s had, and it’s pretty linear; as the market changes, and if it becomes more fruitful for everybody, he’ll go as high as 15%… As I said, at this stage in life I’m not gonna worry about something under 100 bps, particularly if it’s gonna be heavy negotiation with somebody I haven’t met before. And frankly, I still like multifamily, because I still you’re getting, in good faith, you are gonna get the double-digit return just on the debt side alone, not to include the equity… So if I have a piece of cash, I’d rather put it in multifamily than residential.

Joe Fairless: You’re also an equity investor in five bars/restaurants. Tell us about that.

Dan Kryzanowski: Yeah, well this is probably not as much for the returns…

Joe Fairless: It’s cool to talk about though.

Dan Kryzanowski: And I do mention this [unintelligible [00:17:00].12] to some of the younger folks out there, or folks with an interest, I would say in bars, restaurants or anything – this is especially before crowdfunding, and I’ll touch on why I think  crowdfunding is okay, but… What is the in-kind benefit  you’re getting out of it? Any folks, I’d say any of our single friends like you and I, that probably don’t have little kids at home…

Joe Fairless: I’ve got a kid.

Dan Kryzanowski: Likewise, so… Although he’s born on St. Patrick’s Day, I don’t have as many days in the bar as I used to… But half-price drinks, for folks especially that are entertaining and stuff, for half-price meals, especially if you can put in as little — think like of a syndicate or a crowdfund of $500, $1,000 etc. you can almost make that back really quickly, and even with heavier plays.

I know here in the Austin space, even in the bloody hot August, it’s at a premium. And maybe you save that $500 or $1,000 booking fee to get access to a room, and the staff, and everything else. We of course did it for fun, and we saw — we were in a bar on [unintelligible [00:17:52].26] on day one, we bought some dirt below a place in East Austin before. We have a restaurant that was highlighted in United Magazine three months after they launched… So I think we’re doing stuff. That said, from a margine perspective, it’s such a tight — so I’d say keep it on the budget. But if you are looking for return, there’s more than a fair number of crowdfunding sites out there that pay off of top-line revenue.

I think of the Steven Spielberg — I think the old E.T. analogy was that I think he got a dollar off every top-line ticket that came in before everybody else got their cut. So I’d say look for crowdfunding deals that do pay off of a super-pref initial top-line, and within the first year or two.

Joe Fairless: What’s the deal you’ve lost the most money on?

Dan Kryzanowski: Residential.

Joe Fairless: Which one?

Dan Kryzanowski: It was actually in Austin. It was on a hard money loan. I got creamed. I was paper-rich for a little bit. It was probably my ego more than anything else. “Well, look at all these fees, and everything…” I get asked a lot, what’s the one thing, and it’s “Never, ever pretend to play lawyer.” Maybe if you’re from the state, you’ve done multiple deals and everything else… Texas is such a pro business-friendly state to the N-th degree, and growing up in the North-East, I think there’s a little bit different of a mindset of how things operate.

Here folks are nice. I love it in Texas, I love it in Austin, but there’s still that pretty strict separation of church and state, or whatever you wanna call it, on the business side. I got crushed on something on paper that, for all intents and purposes, if it was on autopilot, it probably just should have sold and got my return. But as I said, school of hard knocks, so… I’m happy that this happened relatively early in my investing career.

Joe Fairless: How much did you lose?

Dan Kryzanowski: I ended up getting back, after some headaches, 70 cents on the dollar, but it was a five-figure loss.

Joe Fairless: Got it. And how did you get back some of the money?

Dan Kryzanowski: I lawyered up, like anything. You have to shift from talking personally to not. For those managers of a day job, the first time you probably have to put somebody on a PIP, or fire, or something. It’s the same sort of logic, you really have to do that. And as I said, I think some very — I think direct negotiation, reaching out to the other lien holders on this, which was some mixed results… So ultimately, I think it was the best, but as I said, I learned — I’d just say, for any of the Texas folks out here, and this may differ by state, but it’s not chronological. Common sense and I think other states’ laws say “Hey, as the money or the dates that things come in, this is gonna be the natural lien”, outside of the first-lien bank in Texas it is a Wild West, and there’s other really crazy laws on like what the 20th day means, versus 21st, even though it might be the same date… There’s just so much out there that the second something sniffs bad, you’d better file, and there’s different ways to do it.

It was well worth the lawyer cost, I’ll put it that way. I had somebody in the space, and without him I would have been toast.

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

Dan Kryzanowski: I call it A&B. Obviously [unintelligible [00:20:34].23] diligence, get some yield on something now. Don’t really wait for the development cycle if you can’t, and then have an added bonus on the back-end. The best dollar and cents, I could say, for every self-storage deal I invest in, we’re instantly cash-flowing; I’m instantly getting paid dividends. And I know – let’s just say a vanilla property is 500 units – that without diluting equity or asking for more money, they can build 200 units in the back, or maybe put [unintelligible [00:21:00].06] that’s gonna raise or probably double the value of the property.

So I would say if you can split your money  from debt today, and equity tomorrow, on the same property, do it.

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

Dan Kryzanowski: Let’s party!

Joe Fairless: Alright, let’s do it. Let’s party, even better. I like that. You’re the first person that said that. I’m with you on that, let’s party. First, a quick word from our Best Ever partners.

Break: [00:21:26].29] to [00:22:10].26]

Joe Fairless: Alright, best ever party you’ve been to?

Dan Kryzanowski: The Phish Concert in 1998, Limestone, Maine.

Joe Fairless: Oh, awesome. What’s the best ever book you’ve read?

Dan Kryzanowski: Rich Dad, Poor Dad in Spanish, with my three-year-old bilingual son.

Joe Fairless: Best ever deal you’ve done?

Dan Kryzanowski: Storage, baby. Head to toe. And we’re still waiting to cash out.

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

Dan Kryzanowski: [unintelligible [00:22:29].20] it’s a leadership seminar for high school sophomores. I’ve been involved for almost the past 25 years, and I feel hopefully impacted the lives directly of thousands of high school sophomores, to empower them to enhance their leadership qualities.

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

Dan Kryzanowski: Sure. Reach out to me directly. I won’t share my last name; we’d be on for ten minutes, trying to spell it, but… Just Dan@RocketDollar.com. And then as a courtesy to everybody, folks that may choose to sign up as individuals, enter “fairless19” for $100 off a Rocket Dollar account.

Joe Fairless: Cool. And I have RocketDollar.com, I will get on to Grant for putting that incorrectly at the beginning of this show. I’ll get on to him for you. [laughs]

Well, Dan, thank you for being on the show, talking about your business, talking about your personal investments and your philosophy. I really appreciate it. I hope you have a best ever day, and we’ll talk to you again soon.

Dan Kryzanowski: Thanks, Joe. Take care.

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JF1757: Money Isn’t Everything (Or Is It?) Millionaire Coach Explains How To Live Wealthy & Happy with Krisstina Wise

She was very sick, and had to spend $250,000 to save her own life, at that time, money was everything because it was needed just to continue living. Krisstina had money saved fortunately, and was able to bounce back from being sick. Now she helps people earn more money, or learn how to manage and live with money in a better way, leading to happier lives and thriving businesses. If you enjoyed today’s episode remember to subscribe in iTunes and leave us a review!

 

Best Ever Tweet:

“It’s more about learning and growing than it is about making more money” – Krisstina Wise

 

Krisstina Wise Real Estate Background:

  • Real estate investor, Millionaire coach, and creator of several multi-million dollar businesses
  • Author of the Amazon Best-Seller Falling for Money
  • Based in Austin, TX
  • Say hi to her at https://wealthywellthy.life/
  • Best Ever Book: Dollars and Sense

 


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

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


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, Krisstina Wise. How are you doing, Kristina?

Krisstina Wise: I’m doing great, thank you.

Joe Fairless: I’m glad to hear that, and looking forward to our conversation. A little bit about Krisstina – she is a real estate investor, a millionaire coach and creator of several multi-million-dollar businesses. She’s the author of Falling For Money, and she’s based in Austin, Texas. You can go check out her website, there’s a link to it in the show notes page. With that being said, do you wanna give the Best Ever listeners a little bit more about your background and your current focus?

Krisstina Wise: My background was in real estate, so that’s my claim to fame. I had a leading real estate brokerage, nationally known as the real estate destructor, innovator. I played that game for a long time. I got really sick in 2013, fell off the grid because I needed to go into life-saving mode. Coming out of that, I had this really a-ha moment on my proverbial and literal deathbed. Number one, money matters more than anything, because in my case, money saved my life. And not earning income that most people talk about business income, earning income, how to make more money, how to grow your business, how to scale your business, how to 10x your business, whatever the case is – it’s that I was able, because I had a great business going, that was leveraged and could work without me, 1) I had some income coming in, but 2) because I had liquid cash and other (maybe not so liquid) assets, I was able to save my life, have the money and have access to what ultimately saved my life. It cost me a quarter million dollars to save my life unconventionally.

At the same time, I also realized that life isn’t just all about the money either, because I was so money and investment and passive income focused, and business focused, and success focused, and achievement focused, I was missing my life. Then all of a sudden I realized “Holy cow, I’ve been so focused on achievement, I’ve not really even enjoyed my life. In fact, I don’t even know what enjoying my life means, other than to make more money.”

So I really went on this search after that to figure out “Okay, what am I good at outside of real estate? What do I wanna do for the rest of my life if I get another chance?” and it just kind of came to me that I love teaching people about money – the importance of it, how to earn it, how to save it, how to invest it, and the meaning behind that. And just kind of get out of this grind and out of this game of more, and just getting content with “How much is enough? What are we after? How do we get there? How do we enjoy our life while we’re creating and producing and building and growing our balance sheet?”

Joe Fairless: At what point did you write that book, “Falling for Money”?

Krisstina Wise: I wrote that right after I came out of being sick… And funny enough, in 2012, before I got sick, if anybody had said “Christina, you’re gonna be a financial author, you’re gonna teach money, money mastery, money investing… This is what you’re gonna do”, I’d have been like “You’re crazy. I’m in real estate sales, brokerage, technology, advisory, that type of thing. This is my world.” So I would have said, “No, there’s no way.”

After I came out of being sick, I actually just sat down to write a blog article for the few people that – after I fell off the face of Earth – still were wondering who I am… Which, by the way, is very humbling, because we think we’re really important, and then once we’re out of the game for a few months, people go on to the next person that’s important. So it’s really humbling… “Wow, I’m not as important, or great, or amazing as I thought I was. The real estate world went on just fine without me.” But the few people that were still maybe hanging on and wondering, I thought “I’ll sit down and write a blog article, say how I’ve been really sick, I’ve been out of the game, but I’ve come back.” Just a little bit of an update; I wasn’t giving the full story, but giving an update.

And just the most amazing thing happened. Also, if somebody would have said “You’re gonna be an author and write a book”, I’d be like “I can’t write. I’ll never be an author. That’s not on my goal sheet.” And I sat down, and a book came out of me. The muse took over, a book came out of me, and it was all about money and this journey and how important it is. That was my message, that says “Alright, Krisstina, this is your next phase of your life, is to help people get really good at money, and investing, and to work towards financial freedom, for real.”

Joe Fairless: In your book, it talks about establishing a healthy love affair with money. Will you define that a little bit, to talk about what that means?

Krisstina Wise: Yeah, the way I think about money – it’s really looking to have an intimate relationship with it. We tend to be so screwed up when it comes to money. One, people either have a mindset that they’re not worthy, or that they can’t do it… So we either have under-achievers when it  comes to money, meaning they just can’t quite earn enough, no matter what, and then we have over-achievers with money, meaning they bury themselves through just earning more money, and they get caught up in that, and really with this dialogue that “I’ll just go make more money.” But one way or another they’re just in a grind, and there’s no real meaning to it, other than just love of having more. So our egos get attached to having more money, and then what money can buy, and being on that achievement track, and just that external validation track.

So really where I wanted to take the reader was how could we reverse-engineer it, and just get really good — like, what is our definition of  a good life, and what is meaningful, and how much is enough to live that good life, meaning how much is enough to live the lifestyle that we’re good, and content, and we have space, and time, and we’re just not overwhelmed, and stressed, and after the More game. And then with that, just really learning to love the money and what it can do, and having really positive emotions about it, that are healthy, and we’re connected to a really healthy narrative and healthy goals… And our body, our number one asset as well. A big part of our investing isn’t just in real estate, isn’t just in some type of assets to build our net worth and our balance sheet. But if our body is our number one asset — one of the reasons that I got so sick is that I just lived a life that was unsustainable. I was just on the go all the time, and I didn’t even slow down, because I was in the race for more.

So if our body is our number one asset, it’s like “Okay, how do we even organize our thoughts and feelings and real dollars around investing in us, investing in our well-being, investing in our health, mental, physical, emotional health, investing in what’s important to us, experiential… And again, getting closer and connected to a narrative we build of “What truly is a good life outside of this concept of More?”

And then with that, we can be very grateful for the money that we have and that we earn, and make it a life journey to grow. We never wanna stop growing, we never wanna stop learning, but it’s more about growth and learning and experience than it is about money. But then at the same time, make no mistake, it’s getting really good with the money for the right reasons, because we have a really positive relationship with it, and we’re after money for the good it can do, for ourselves, our families, our legacies.

Joe Fairless: So what are some practical tips, if the listeners are nodding their heads like “Yes, that sounds great. I want to be more about growth and experience, and when I think about money, I want to have positive associations with it, so that it empowers me and propels me into things that are better for me health-wise, and I’m able to do more good, versus just chasing after a dollar for the sake of increasing my ego, either consciously or subconsciously?” So assuming they’re nodding their heads “Yes”, what are now some practical tips that we can do to act on that?

Krisstina Wise: Well said, and that’s just it. I think step one or tip one is recognizing whether or not we’re in the chase, and what I call “In the grind.” I have a lot of people, for example, that work with me, and they’re earning a million dollars a year take-home from their business, or usually that high income from business… But they still are after the chase, meaning it’s just “Where do I go from here? Well, I guess I’ll make two million dollars, and live that lifestyle.” So it’s just start from A and going to Z, and then figuring out “Where do we get to the place of enough?” and the answer is there’s never enough with that model, because wherever we are, there’s someone else to compare to that’s doing better, or has more. So all we can do is never be satisfied, never reach a place of enough.

So my tip is to start backwards. Again, it’s really sitting down and looking at “What does my life look like to have a good life, that isn’t stressed out, that isn’t overwhelmed, isn’t building a bigger business, with more employees and more problems? Where is my happy spot? What do I see myself doing, for real?” And it takes a while; it’s not necessarily easy to do, because it takes space and time to even sit down and conceptualize this. So it’s looking at that and then it’s quantifying it. Then it’s like “Okay, how much money does it cost to live that life?” And I like to say, take out the mortgage payment; if you don’t have a mortgage, you don’t have any car payments or credit card payments… We’re kind of taking out the debt. So if we don’t have debt payments, how much would it cost on a monthly or annual basis to live the life that I want, that includes some travel, it includes whatever your good life looks like? Quantify that.

My philosophy is we don’t need car payments, we don’t need all these other payments. We should be debt-free anyway… Like consumer debt; business debt is fine. Maybe we have a mortgage we can add on that, but then it’s just very easy to quantify, how much does it cost to live my good life? And that’s the goal number. Maybe we’ll surpass it. We probably will, when we look at this, but number one, the number is probably a lot smaller than we think it will be when we do that exercise and do that work.

So then we can look at “Okay, that’s my net worth number that I’m after.” Then we can work backwards and we create a plan as far as “How much money do I need to invest, over what time period?”, to hit that “good life” number as quickly as possible, whatever timeframe that is. Then from reverse-engineering, now we’re looking at “What’s my investment strategy? What type of investments am I looking at? Is it a short game or a long game? Do I need to do this over the next ten years, or do I have 20 years to play with?” We can work this backwards, and that’s all getting to what I call that “good life” number, that financial freedom number… Because the money game, when we know how much money is enough that we’re kind of after, hopefully we can blow it out… But that number alone can take some of the stress out, and then we’re living and working and building towards hitting a number that has real meaning, that’s attached to a real future narrative that we really want. It doesn’t have to be exotic, and luxurious, and [unintelligible [00:10:56].21] and yachts and caviar… I mean, it can be, but I think for most people that’s not what they would want anyway. It can be much simpler and much more meaningful for some.

Once we know that, then that’s what we’re working towards, since sometimes when we’re looking at the earning game, we don’t have to build a 30-million-dollar business to hit that number. Maybe we can get  to a 5 or 6 million dollar business and not have the stress or the headaches, because maybe I don’t want the trade-off of having 50 employees or 100 employees, or that type of thing. I want space and freedom and time and I want to be able to have as few obligations as possible.

So for me, when I’ve done that number, and what I value  most is my time and flexibility and freedom to do when I want, what  I want and how I want, with whom I want, then that means for me my business numbers are smaller than maybe somebody else’s, my business goals.

So once we work back, again, it just gives us more meaning, it gives us more direction, it gives us real numbers, so we know what we’re working for, and it keeps us mostly out of the More game, it helps us not overspend and not live lifestyles that ultimately will probably get us in trouble and steer us away, and send us on a different trajectory than the one that we’re after.

Joe Fairless: What if after we create the plan to hit the “good life” number, as you call it, it’s clear that we are going to need to, based on our current approach, have a company that has 30-40 employees, but we don’t want that, but in order to hit our number we have to build that up? What would you say?

Krisstina Wise: Well, our business is one way to get there. It’s ultimately however you’re going to generate enough income to produce, to have enough money to invest, so that you can start to build your asset value, build your net worth… Because ultimately, the money game, if we’re after financial freedom, the only real financial freedom means the cashflow or the income from our assets replaces our working income. So when non-working income replaces working income, then we have our freedom. That means I don’t have to go to work today if I don’t want to. I can close my business tomorrow if I want to, because all my assets are generating enough money to be able to pay for my cost of living. So that’s where I am, and that was my goal – I just wanted to get to the place where I earned enough, invested enough and had my plan to get me to a place of financial freedom as quickly as possible. And I got there quicker because my lifestyle expense isn’t as high as maybe a lot of people in my income bracket.

So my current lifestyle – it’s a great lifestyle; I’m by no means done, I’m still in the earning game and I’m still growing, and I got divorced last year and lost half my net worth, so I have to be back in the earning game anyway… But the idea is that all my assets, all my real estate passive income and my other asset income, and everything that I’m doing – that amount of money from those assets pays for the cost of my life. So now I get to choose what I’m gonna work on, and how much time I’m gonna spend in that type of thing. And if I wanna increase the cost of my lifestyle, I wanna add more to it, that means now I need to go earn a lot more, to invest a lot more, so that my assets are gonna grow to match my upscaled lifestyle.

It’s an ongoing game, but ultimately it’s all about how much income do we need to earn, and what are the methods for earning that income, that we have enough surplus to invest to build our balance sheet, assuming that our business isn’t our exit strategy, which is really risky, and/or we don’t have a trust fund that somebody else put all that money away for us to live off of.

Joe Fairless: Which we would just lose it later anyway…

Krisstina Wise: Exactly. [laughs]

Joe Fairless: So what are some successful investments or approaches that you’ve taken that have turned out well for you?

Krisstina Wise: Well, I’m always looking at my overall portfolio, and we’ve all heard the word “diversification”, and that type of thing… But why I love your show, and conversations like this, is to really try to help people break out of conventional wisdom and conventional planning and just conventional advising, meaning “Put money in the stock market, do some index funds”, that type of diversification, with bonds etc. And just whatever that more traditional retirement type old-school mentality is – that’s not the way we build wealth and get rich.

These conversations – it’s in the alternative investing world. When I’m looking at diversifying my portfolio, 1) I like to talk about – our balance sheet is a living organism, meaning the old school finance, set-it-and-forget-it, put the money in those “retirement accounts”, let these money managers take their fees and manage it, and hopefully you’ll have enough at this thing called retirement… That’s very risky, it doesn’t work anymore, and there’s a lot of other options. There used to not be other options, but now there are.

So when we’re looking at an alternative, this is a living, breathing balance sheet – that’s how I like to talk about it and look at it; it’s always changing, you’re always in it and working it, and saving and investing for the next day, and looking at different options in this alternative realm of investing, that is way outside of convention.

So obviously, real estate is an alternative investing. We love real estate, for many different reasons. But I don’t wanna be over-leveraged in real estate, because anything that is not diversified is a little risky. So I’m looking at my living thing like any type of investment; I’m always saving to have enough money to make that next installment in some type of investment. Usually in $50,000 chunks is what I’m looking at. So I might put 150k in, or 250k, or 350k. [unintelligible [00:16:10].25] I like to think in 50k chunks of savings.

So then I’m looking at — alright, well if I’m looking at my portfolio and think of it as a pie chart, and I’m looking at my overall let’s say 60% real estate… I am heavy in real estate, because I’m in real estate, I love real estate, and I get it, and it’s my passion, and maybe a buy/hold type cashflow… But I’m always gonna have a percentage that’s a little riskier that I might into other businesses, business ventures where I might have some influence and maybe can do some advising, and that meet my criteria for more private equity… And not traditional private equity, but private equity meaning investing in companies or people that I know that are starting businesses or going — I usually don’t like seed capital, but looking for growth and need some capital for scale and some growth.

I’m looking at some alternative stuff like life settlements or things that tend to be a little bit more on the growth side. I’m always looking at maybe putting in some funds — I have money in a big real estate fund, a women’s entrepreneurs’ fund, and things where I’m investing a percentage in the fund and let the fund managers try to go for an exit, kind of a VC-type model.

There’s just so many different options that are available today that are really exciting, and it’s fun to learn about these things, and have money in different places. Some of these, like a real estate fund that I just exited out of – it was a seven-year play; it was a great investment, by the way, because it was when the market was really down, and  invested in Phoenix and Florida when everybody said “Stay away from those markets.” They had great investments, and then those developments, that fund just sold out, and it was a beautiful check that landed in my bank account.

So those are looking at “Okay, this is probably a 5 to 7 year play.” I may collect a little bit of cashflow or dividends, but I’m really for the growth and the ROI on that, as opposed to cashflow… So I’m just looking at balancing out how much cashflow, how much growth, how much private equity, how much is pretty risky, how much is pretty safe… I’m a big believer in whole life insurance as a cash savings vehicle… And again, I’m just always building [unintelligible [00:18:11].11]

I’ve just put in — in fact, I’m right in the middle of it… I was just online right before we were talking in fact, and I’m ready to put in a $250,000 investment installments; one in an oil and gas opportunity, and another one in a life settlement opportunity, and looking at those. That’s taken out of cash, and I’ll save some more and build those up, and look for the next investment.

Again, it becomes very normal and fun, and you learn a lot when you have great options and advisors and people around you. You make some mistakes, but you learn with time.

I guess I’ll complete by saying that I just really encourage people to love their money, to be very intimate with it, know where every dollar goes, get really great at saving, so that you start learning to invest… There’s many options, like you guys, out there. Just work on growing your balance sheet to get closer to that good life number, that freedom number, and live the life you want, don’t live somebody else’s.

Joe Fairless: And then taking a step back and just thinking about it from your overall experience as an investor and as an entrepreneur, what is your best real estate investing advice ever?

Krisstina Wise: Just get started, just invest. Find great people. The biggest thing is that people don’t invest. They’ll talk about it, they’ll do research, they’ll read the blog, they’ll listen to your podcast and they just won’t take action. My advice is invest, just take action; get your feet wet and learn as you go.

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

Krisstina Wise: Let’s do it, let’s see what you’ve got.

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

Break: [00:19:42].18] to [00:20:27].23]

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

Krisstina Wise: Dollars and Sense, by Jeff Kreisler. Great book on how people misthink their money. That’s one of my latest reads, and what I recommend.

Joe Fairless: Best ever deal you’ve done?

Krisstina Wise: Best ever deal I’ve done… My best deals have been buying real estate in Austin, Texas.

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

Krisstina Wise: Oh gosh, I’ve made so many mistakes… My biggest mistakes are not reading the fine print.

Joe Fairless: Any particular fine print that you can think of that got you?

Krisstina Wise: My piece of advice to this would be hire experts, hire real attorneys and spend money to read the fine print. [laughs] I try to save the money and think “Oh, I don’t need those attorneys”, and they’re worth their weight in gold, so… Hire the experts.

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

Krisstina Wise: I love teaching money. I just really love to help people learn, and how to apply financial concepts that can get them out of the rat race.

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

Krisstina Wise: Probably the best way – my book is called Falling For Money, so just go to fallingformoney.com and get a free download for your audience. My name is Krisstina, so Krisstina.com. You can read my blogs, or find my podcast… Plenty of info out there if anybody wants to see what I’m up to.

Joe Fairless: You have Krisstina.com?

Krisstina Wise: I do, with a k and two s’s.

Joe Fairless: Yes, unconventional spelling, but still, it’s impressive to have just your first name .com. Nice. Well, Krisstina, than you so much for being on the show and sharing the approach that you take from a mindset standpoint with finances, and how you think about it. We talked about this in depth already, but I love the practical tips too that you gave. You really laid out the step-by-step process, which I have not read your book, but I have read a summary of your book, just whatever is on Amazon, and I know you have that laid out in detail in your book… So Best Ever listeners, if you want that more in detail, then go grab her book.

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

Krisstina Wise: Thank you.

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JF1722: First Deal Was In Russia, Now Provides Investor Funds For Over $300 Million In Real Estate with Mike Krieg

Mike’s real estate career started off a little unusual compared to most, as his first deal was in Russia. After that deal, Mike started buying duplexes and small multi’s in Texas. He wanted to get out of the landlord life, so he sold half of his portfolio. Now Mike is raising capital for deals, and has helped investors acquire over 3,800 multifamily and self storage units. If you enjoyed today’s episode remember to subscribe in iTunes and leave us a review!

 

Best Ever Tweet:

“Real estate investing is a relationship business” – Mike Krieg

 

Mike Krieg Real Estate Background:

  • Co-founder of Steeple Rock Partners, LLC
  • Has been investing in real estate for 14 years
  • Has helped provide investor funds to purchase 3,800 apartment and self storage units worth $300M
  • Based in Austin, Texas
  • Say hi to him at https://www.steeplerockpartners.com/
  • Best Ever Book: Think and Grow Rich

 


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

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


TRANSCRIPTION

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

Mike Krieg: Doing well, thanks Joe.

Joe Fairless: Well, I’m glad to hear it, and you’re welcome. A little bit about Mike – he is the co-founder of Steeple Rock Partners. He’s been investing in real estate for 14 years. He’s helped provide investor funds to purchase 3,800 apartment units and self-storage units worth over 300 million dollars. Based in Austin, Texas. With that being said, do you wanna give the Best Ever listeners a little bit more about your background and your current focus?

Mike Krieg: Yeah, I am in Austin, married, three kids. In addition to real estate, I am also an executive director of a non-profit (and the founder) called Storyline. With that we train and mentor young leaders from more than 25 countries around the world, so it’s a big passion of mine.

Primarily, with Steeple Rock Partners on the real estate side we raise capital for deals that we like, that our partners are personally investing in, so we invest alongside of our investors… And we primarily operate with multifamily apartments, self-storage and mobile home parks.

Joe Fairless: You’ve been investing for 14 years… What did you start out doing?

Mike Krieg: My very first purchase was actually in Russia. I had never bought anything before that. I was out of college, probably three years out of college, and bought a place in Russia, and 2,5 years later I sold it and we did really well. That’s a whole story I could tell you; we probably don’t have time for that.

Joe Fairless: Give us the cliff notes version. Anything worth saying can be said in a couple minutes, so what’s the cliff notes?

Mike Krieg: We were gonna be there for five years. My wife and I moved over there and we were mentoring college kids in one of the major cities over there, and we decided “You know what, the rents over here are going up $100/month, from $700 to $800…”, it was crazy the inflation… But all these things were selling for about 50k, 60k, 70k, and there were no taxes, so we just thought “What if we could buy one of these, and even if the market crashed and we lost 50% of our value, we would still come out ahead relative to renting?”

So we did all the research, and interviewed a bunch of folks… We had a bunch of American business folks that said “Hey, do not do this. The mafia is here. They take businesses. They’ll come in with AK47’s and force you to sign over your business”, or whatever… But what we realized was a lot of the Americans had never done it. There was a French business guy who had done it, so we followed his lead.

We raised some capital. We couldn’t borrow anything from the Russian bank; the rates were about 20% plus. So we raised capital in the U.S, wired it in and bought our flat. It was incredible. So that was my first purchase ever, and I had no idea how to do it in the U.S, so I came back here, and with all the costs associated with it — I was pretty bummed, because I literally paid $500 to an attorney in Russia to close it, and that was all of my closing costs.  So yeah, you can imagine the disappointment when I came back here and bought my first house in Austin.

Joe Fairless: You sold it and made a profit?

Mike Krieg: I did. We bought it during those years when oil was going up quite  a bit. They introduced the mortgage market for real estate during the time that we were owners, so it went up about 2.3x. It was a nice profit. Plus some of the loans I got were very low-interest loans. We had a few friends who gave us 0% interest loans. I think the effective right on the total loan amount was like 2.2%. So we paid off that loan pretty quickly.

Joe Fairless: That was the deal in Russia, and then you got back… Then what were some of your next purchases?

Mike Krieg: We came back to Austin and I bought my home here, and eventually we ended up turning that home into a rental property. I think that was probably the more difficult step, and really kind of when we shifted into becoming real estate investors, having a property, managing a tenant, going over there trying to figure out “Hey, do I fix that fan, or do I hire someone to do it? What kinds of things can I fix myself?”

We moved really about ten minutes away from the property, so there were quite a few things that we could do ourselves… But it was a pretty expensive property, it was a nice property. Then after that we refinanced it a couple of times and we bought other properties, primarily in San Antonio, Austin. Even back 7-8 years ago it wasn’t exactly a great cashflow market, so we went down in San Antonio [unintelligible [00:05:21].23] started buying duplexes, and houses, and things like that.

I kind of focused more on the nicer properties, so my portfolio wasn’t huge, but I really wanted to get nicer tenants, nicer properties. I was a landlord, and over time what happens, obviously – that becomes a part-time job. Some weeks it feels like a full-time job, and while it’s great building equity and it’s a great way to build a financial foundation, you realize that it doesn’t scale well. I know you’ve heard this and everybody talks about this, and a lot of our investors mention this as well – at some point you begin to think about commercial.

That’s when I began to think about “Hey, how do I invest in multifamily apartments?” I sold that portfolio and been investing alongside of our investors in bigger deals.

Joe Fairless: How much did you make when selling half the portfolio?

Mike Krieg: How much equity have I pulled out?

Joe Fairless: Yeah.

Mike Krieg: About a quarter million.

Joe Fairless: And when you say “pull out”, those are refinances, or did you actually sell them?

Mike Krieg: We sold… I had a property that I bought that was giving me a lot of trouble…

Joe Fairless: Which one?

Mike Krieg: It was a triplex in San Antonio. I didn’t like that experience; it was a mistake that I had made. Not a great market. That’s one of the lessons that I learned – when you buy something, you really wanna pay attention to the market. It was an earlier purchase, and I had a lot of issues with tenants, so I sold that one. Then I sold our very first one, which is our single-family house.

Joe Fairless: How much did you buy the triplex for and how much did you sell it for?

Mike Krieg: I bought the triplex literally off Craigslist.

Joe Fairless: Oh, wow…!

Mike Krieg: Yeah… And this is, again, where you’ve gotta be careful. Just because the numbers make sense does not mean you should be in that deal. The numbers were amazing, but the market was tough. I bought it for 130k, and it was an interesting deal because it was a seller finance, and the seller thought he could take the note and go into the secondary market and sell that, and get pretty much dollar for dollar with it. Once he realized he couldn’t do that, he came back to me and he shaved 10k off the price. So really I got it for 115k, and I ended up selling it for about 160k.

Joe Fairless: So you made money on that deal.

Mike Krieg: I did make money on it.

Joe Fairless: How much did you put into it? I guess I should have asked that question.

Mike Krieg: Yeah, I’ve put about 15k into it.

Joe Fairless: Okay. So you were all-in around 130k, and you sold it for about 20k-30k more than that.

Mike Krieg: Yeah. And it was cash-flowing, it was producing pretty well. But again, with the amount of time I was spending with it, I didn’t think it was worth it.

Joe Fairless: Instead of selling it, why not keep it and do a cash-out refinance, and then put a property management team in place?

Mike Krieg: Yeah, I just didn’t wanna deal with it. This is what we’ve found here – there are certain properties that property management companies just don’t wanna touch, and there’s certain areas that they don’t wanna deal with, because they see what kind of tenant is in there. So this was a difficult property even for them, and the very first year I bought it/owned it we did have property management on it, and they actually fired me. They called me at the end of the year and said “Yeah, we don’t wanna do this anymore.” [laughter] I’m like, “Oh, no… This is terrible!”

So I ended up dealing with it for another 2,5-3 years, and I just decided “You know what, this is just time to sell. We’re gonna let go of this and move on”, so that’s what we did.

Joe Fairless: That single-family house – what did you buy it for and how much did you put into it, and what did you sell it for?

Mike Krieg: Bought it for 274k, sold it for 412k. What we put into it — we lived in that house; that was our primary home for about 4,5 years, so I’m not exactly sure what we’ve put into it. It was…

Joe Fairless: Not much?

Mike Krieg: Not a whole lot.

Joe Fairless: Okay. I assume that the appreciation that you mentioned, almost 150k – is that just “Congratulations, you bought in the right market at the right time?”

Mike Krieg: Yes, that’s right.

Joe Fairless: Okay, cool.

Mike Krieg: Austin has been growing pretty significantly, pretty robustly for quite a while. At the time we bought – it was 2008 – I thought “274k? You’ve gotta be kidding me.” This thing was a 2,000 sq. ft. 3/2 house. We had two kids, and I’m thinking “This is nuts.” We needed to be buying something that’s about 50k less, but you know, it’s a  school district, it’s South-West Austin, it’s a great part of town, and now 400k was probably a good deal for that house. It’s all relative.

Joe Fairless: So you took that money and you started investing in what?

Mike Krieg: We began investing in larger deals, apartment communities, apartment complexes. We got a new opportunity in San Antonio to start. My partner and I at Steeple Rock Partners – basically, we began a private investment company and team up with several operators; obviously with you, and Dave Thomson, and other folks, and started investing… And also some self-storage deals. We like storage for a lot of reasons.

For me personally, it really began with “Hey, this is gonna make sense for me.” I can be truly passive, having underwritten several deals. Initially, we were gonna buy our own deals, and we were underwriting 20 and 30 and 40-unit deals here in Texas… And decided that space, about 100 units, is just not a space we wanna be in. It’s a little bit more difficult, the scale; you’re paying the same legal costs for something like that that you would for 200+ unit deals. So we didn’t like that space, and we just decided we didn’t wanna invest in that middle ground… So we just teamed up. Commercial real estate is a team sport, and we decided that’s the way we wanna go.

It really began with “Hey, this is something we wanna invest in”, and every deal – we look at it that way. “This is where I wanna put my capital, this is how I wanna develop passive income.” I’ve got friends and family and others who are interested in this as well, and over time that group of investors grows steadily over time. That’s how we’ve been operating.

Joe Fairless: Tell us a deal that hasn’t gone according to plan.

Mike Krieg: So far in commercial I would say we haven’t had that experience yet. We haven’t seen something go sideways at all. The deals that I’ve done, something that didn’t go to plan — I think I would probably have to go back to residential landlording days for that, and it’d probably be the triplex that we talked about. I had tenants getting pulled over by the police because there’s a drug house next door; I had sex acts being performed on the back lawn, and tenants calling me saying “Hey, what’s going on here?” Terrible things like that. Again, at the end of the day I made money on it, but that’s not the kind of business I want.

I did however get pretty involved with the community there and got pretty involved with the police department. We ended up cleaning the house out, which was quite an interesting experience, and it kind of feels good to think you’re kind of cleaning up a street. But it wasn’t exactly what I had planned to do. [laughter]

Joe Fairless: “I was gonna make some monthly cashflow…”

Mike Krieg: I don’t want them making monthly cashflow on my property like that.

Joe Fairless: [laughs]

Mike Krieg: But anyway, I had a deal, too — I had a contractor who was gonna do a wholesale deal, or something. He was working with me on this triplex and I gave him 3k, and he just completely disappeared. I never saw him again. I was like, “Okay, well, we need to be more careful about some of these guys.” That was a ways back; some of those early birds are healthy for you, and you realize “You know what – I’m never gonna do that again.” And thankfully, that was 3k here, and a couple hundred bucks over there… So yeah, I’m thankful to have learned some of those lessons early.

Joe Fairless: On that $3,000 contractor thing, not to put salt on wounds, but what gave you the confidence to give him $3,000 up front?

Mike Krieg: Well, we had done some work together. He had done several projects on time, and he was very faithful, and he did good work for me on about 3-4 different projects. He was also a friend of my brother. My brother actually introduced me to him. I found out later my brother didn’t really know him that well… He had known him, I guess, just from the restaurant that he used to own… But we had some history, and everything. I guess I just didn’t know him long enough. Sometimes I think it’s just time, when you begin to see a person’s character, and you begin to see some of the things they’re dealing with in their life.

I think part of it is he had some life challenges. He had a wife who was going through some sickness, and stuff like that. I can see where a person like that can kind of decide “Mike’s doing well, I’m not. This is gonna be fine.” I think he just sort of justified that, kind of  a thing… So I’ve forgiven him. We obviously don’t do business together anymore, and I tried to reach out to the guy and say “Hey, listen, I understand. You’re going through something difficult, and I forgive you”, but he hasn’t gotten back in contact.

Some of that stuff happens, and you learn from it, and in the future really getting basic things like a W-9 from someone — I did not do that in his case. And those are things that when you’re starting out in business you don’t think about; maybe nobody tells you this, but those are things that are very important, and you need to be getting information on the people you work with.

Joe Fairless: Yeah… It brings up such a good point. When we get a referral from someone, just simply asking them “Hey, how well do you know this person?” Because I am guilty of referring people to others, who I don’t know very well. I may or may not have done business with them, or maybe they’re just someone who I’ve heard of, and perhaps whenever I give referrals I should also qualify “Hey, here’s someone who I’ve heard about, but I personally haven’t worked with them.” And then on the flipside, if I’m given referrals, just to ask a follow-up question, “How well do you know the person again?” I think that brings up something that would be very helpful for everyone.

Mike Krieg: Oh, yeah. I had a contractor I was working with, and on Bigger Pockets somebody asked me “Hey, who’s a good contractor?” and I actually put his name in a forum post…

Joe Fairless: Oh, no…

Mike Krieg: And it’s terrible, because what happened was he did a couple of really great projects for me, and then [unintelligible [00:15:38].04] kind of flaked out. And I’ve been getting e-mails for about a year and a half… “Hey, who is this guy? Can I have his contact?” So I have to continually go in there and say “Hey listen, he flaked out. I can’t recommend this guy. I’m sorry.” So I have to continue to do this… But that post is on there for eternity. So hey, if you’re a Bigger Pockets person and you’re hearing this, don’t e-mail me about Carlos, because it’s [unintelligible [00:16:00].29]

Joe Fairless: Well, you could post on that at the very bottom and say “Hey, I no longer recommend this gentleman.”

Mike Krieg: Yeah, you’re right. I can go find that–

Joe Fairless: That way it’ll stop– or discontinue most of the messages. I had a similar experience… I worked with someone who consulted me on apartment investing when I got started, and I was complimentary of the person on Bigger Pockets at the time, but shortly thereafter I realized I should not be complimentary of the person… So then I went in and I updated it, and I didn’t bash the person, but I just simply said “I can’t recommend this person any longer”, and that has not stopped the messages about that person, but it decreased the amount of messages I get about the person.

Mike Krieg: That’s good advice. I’ll have to follow up on that. That’s great.

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

Mike Krieg: I think real estate investing is a relationship business, so I think for me if you serve other people the way you wanna be served, if you put the interest of others above your own, I think you’ll do well. Sometimes that means not doing something that is in your interest, because it’s not in the interest of somebody else’s… But I think for me that applies to a tenant, or a resident, investors that you’re bringing into a deal… That’s just age-old advice that I think goes a very long way.

Joe Fairless: Do you currently have a full-time job?

Mike Krieg: Yeah, I am working as the executive director for a non-profit, Storyline… So I’m really kind of two-timing it.

Joe Fairless: Yup. And the reason why I ask – I was wondering how the skills you use in that position have helped you in your real estate career.

Mike Krieg: I think that’s it… I really think that being in the non-profit world — it’s all about people, and our entire organization, the whole purpose of it is to build young leaders and to build people. So when we have investors, it’s not just about getting people into a deal, we really want to get to know and build a team and build a community around our people. I have a desire to have relationships with our investors and with our investor community, and get to know them, and had just wonderful visits over dinner, and lunches, and coffees, and getting to know them and their families… We’re all a team, and everybody’s accomplishing something, and real estate is really just a means to a greater purpose that we have. I don’t think it’s about a number, I don’t think it’s about some net worth amount… It’s really a means to an end – who are the people that are in your life and in your community and in your family that you’re called to serve? I think that’s really what it’s about.

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

Mike Krieg: Yeah.

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

Break: [00:18:46].28] to [00:19:53].07]

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

Mike Krieg: I like Napoleon Hill’s Think and Grow Rich. I know it’s primarily about building wealth, however I do think that there’s lots of stuff in there, whatever goal you have in life. It could be just simply being a better father, being a better husband. I think there’s a lot of stuff in there that is super-useful for anybody. I love that book.

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

Mike Krieg: Not paying attention to the market or the submarket.

Joe Fairless: And will you elaborate on that? I guess the San Antonio deal, the triplex, right?

Mike Krieg: Yeah, it just wasn’t changing fast enough. It was an area that was close to downtown, but… Assuming it’s gonna change a lot faster than it actually did.

Joe Fairless: Best ever deal you’ve done?

Mike Krieg: I would say probably my Russia deal.

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

Mike Krieg: Again, I’d say through the organization that we’ve founded, Storyline, and mentoring young leaders around the world.

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

Mike Krieg: You can contact me at mike@steeplerockpartners.com, or on my Bigger Pockets.

Joe Fairless: Mike, thank you for being on the show, talking about the Russia deal, the triplex in an area that was very challenging, and what you did as a result of that to get it to be the best situation possible. And then the single-family home, buying in a very good, appreciating market, as well as how you’ve evolved your approach to multifamily, as well as self-storage, and the contractor thing, too. It’s a good referral story, where we’ve got to make sure when we get referrals to ask them how well do they know these people. Because they might think they’re doing us a favor for giving us referrals, but in reality it might turn out to be the opposite of a favor, because they might not know the person well, and then we’re gonna get in some trouble.

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

Mike Krieg: Thanks, Joe.

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JF1698: Need Help Managing Leads? Listen To This Episode with Dan Schwartz

Leads – they can make or break your business. Not so much the leads themselves, but how you follow up with those leads. Dan is an expert in that area, and that is what he does with his business. He now helps investors get leads, and follow up with them, in exchange for a 50/50 split of deals with his trusted partner. If you enjoyed today’s episode remember to subscribe in iTunes and leave us a review!

 

Best Ever Tweet:

“Cold calling is harder, the harder it is to scale, the better it will be and less people will be doing it” – Dan Schwartz

 

Dan Schwartz Real Estate Background:

  • CEO of InvestorFuse, a lead management workspace for real estate investors
  • Has helped hundreds of investors automate part of their business
  • Based in Austin, TX
  • Say hi to him at https://www.investorfuse.com/
  • Best Ever Book: Rocket Fuel

 


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Start investing with as little as $500 at https://www.buybits.us/


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,  Dan Schwartz. How are you doing, Dan?

Dan Schwartz: I am doing really well, thanks for having me.

Joe Fairless: Yeah, my pleasure. Nice to have you on the show. A little bit about Dan – he is the CEO of InvestorFuse, which is a lead management workspace for real estate investors. It’s helped hundreds of investors automate a part of their business. He’s based in Austin, Texas, and the website is investorfuse.com, which is also in the show notes page. You can click through there.

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

Dan Schwartz: Absolutely. It’s been a while since I’ve been on the show, but I was on very early on… Things have rapidly changed since then. My background is as a wholesaler; I started flipping houses right after I graduated from university, with a marketing degree, and realized that having an infinite income is much better than a salary… So I got into wholesaling, while simultaneously playing music on the road, which essentially forced me to get really good at building systems and figuring out how to fire myself from the local tasks that I couldn’t physically do, because I was on the road all the time.

That sort of led to the creation of InvestorFuse, which is essentially a CRM to help investors automate a lot of their lead management duties that plague most investors, who really aren’t that good at follow-up, which is like the essential thing that you need to have in place in order to consistently do deals. That has spawned a really nice community of investors who are systems-minded. Our whole goal is to help investors fire themselves from their business, so they can focus on the essential tasks in their business and in life. That’s where we’re at now. Over 600 companies on the platform.

Joe Fairless: Cool. Well, congrats on the growth. How long have you had the company?

Dan Schwartz: I started it in 2015.

Joe Fairless: 2015, and we are in the early stages of 2019, so about four or so years. You’ve got how many companies, you said? 650?

Dan Schwartz: 650 on the platform. There’s a legacy version which is on Podio, which a lot of your listeners might be aware of… And the new platform is rolling out as we speak, InvestorFuse 2.0. About half are on that now.

Joe Fairless: Cool. So what have been some lessons you’ve learned over the last four or so years as a CEO of a real estate software company?

Dan Schwartz: Well, I’ve learned that real estate investors require simplicity. Complexity, basically, is the killer of real estate businesses. People have analysis paralysis when there’s too many systems and tools. Most investors just wanna put deals together and not have to worry about technology, or processes, and systems. I think it’s important just to create as many simple processes in your business as possible, and remove yourself from a lot of the tedious stuff.

Joe Fairless: What are some examples you’re referencing when you say “Real estate investors require simplicity”?

Dan Schwartz: Well, a big thing that we believe is the 80/20 principle. 80% of your results are gonna come from 20% of your activities. If you really think about your day in terms of what actions are actually bringing in revenue, those are typically the actions that you should be architecting your business around, so that you’re only doing those actions.

For instance, negotiating major deals, hiring amazing team members, designing systems to remove yourself from a lot of the activities in your business, educating yourself, taking care of your body – those are the essential things that really people should be focusing on. Those are kind of — I wouldn’t say simple things, but those are the high dollar/hour activities. And then a lot of the tedious stuff that still needs to get done, like doing your marketing, analyzing the deals, pulling the comps, writing up the offers, managing the VAs – all that stuff needs to get done, but not necessarily by you. So it’s just creating an awareness around the actions in your business that actually bring you money, and trying to remove yourself from everything else… That’s kind of the long-winded answer to that.

The simple way to do your deals is just do the things that you’re good at.

Joe Fairless: And knowing that you have that insight as a lesson learned over the last four years with your company, how have you applied that to your business?

Dan Schwartz: I realized that I am not good at the details part of things. I’m sort of a more visionary type in my business… So I’ve surrounded myself with folks that are better at the details, that are better at handling the technical side of things, and the customers, with my software company.

In my real estate company, how I did that was – again, it’s just kind of hiring folks that are gonna compensate for your weaknesses. I have a good book recommendation that kind of dives into this, if you’d like me to share…

Joe Fairless: Sure.

Dan Schwartz: There’s a really good book called Rocket Fuel, which is essentially a book that talks about the dynamic between business partners – the visionary and the integrator. I think that is an essential piece to my success – having a business partner that compensates for my weaknesses. I sort of play offense as the visionary, and he plays defense as the integrator. You see that as a pattern across a lot of the most successful companies.

Joe Fairless: How did you meet your business partner?

Dan Schwartz: We did a lot of work together. We “dated” before we got “married”. We worked together, essentially helping investors build systems and automate their CRMs using Podio. I had a lot of clients that needed my help, and he had some skills that I didn’t have to actually build out systems for people. He was doing this by himself, as a consultant. I had a bit of a following at that time as a wholesaler and systems guy, and we started working together, just helping investors out. Eventually, it just made sense that “Man, we work really well together. Let’s turn this into an actual scalable company.” I would say that’s a good strategy for folks – do some deals with some people, just as partners or consultants or JVs before you actually partner up and split equity in your organization.

Joe Fairless: Are you still wholesaling deals?

Dan Schwartz: I am doing some marketing on the side, where I generate the leads and split the deals 50/50.

Joe Fairless: Okay. So you’re still involved in the transactions, you just focus on a particular area of the transaction, and you’re doing 50/50 profit splits.

Dan Schwartz: Right.

Joe Fairless: Does that go back to the 80/20 thing, and focusing on things you enjoy?

Dan Schwartz: Exactly. I enjoy setting up the mechanism for leads to come in, and I don’t wanna be involved with the process after that. Also, just from a time standpoint, I’m pretty busy running InvestorFuse, so I don’t have time to be actively talking to sellers and doing deals, and such… So with the systems and information I know, I’m just leveraging that… Doing the most modern forms of lead generation, sending those leads to a trusted partner in Baltimore, and then splitting the deals 50/50.

Joe Fairless: And what are the most modern forms of lead generation?

Dan Schwartz: Well, right now it’s cold calling. It’s pulling a very targeted list of direct sellers, getting their phone numbers via a skiptrace service, and then one by one cold-calling them, using systems like Mojo Dialer, just to get these potential sellers on the phone, and determine if they have a house to sell or not very quickly. And if they do have a house to sell, that lead gets piped over to my partner, and he converts that into hopefully a profitable deal.

Joe Fairless: Why do you think cold-calling — I feel like it’s come back; it’s the thing. Why do you think that is?

Dan Schwartz: It’s because it’s harder. I’m noticing a trend with real estate marketing, that the harder it is to scale, the better it is gonna be, and the less people are doing it. Two years ago there hardly was anyone doing cold-calling. Everyone was doing direct mail, and then they noticed that direct mail responses were going down, so… What’s the harder thing to do? Well, it’s to reach out to these people one by one, via the phone, and figuring out the systems to use for that.

Well, two years later, now the systems are much easier for cold-calling. You can use a tool like PropStream and within five minutes get a whole list of phone numbers for vacant houses in your target market. So now it’s basically whatever the harder form of marketing is, that’s where you wanna be looking. I think if I were to make a prediction, now that everybody is cold-calling, the next thing is gonna be door-knocking, because that’s gonna be the next progression of the hardest thing to do, right?

Joe Fairless: It all comes full circle.

Dan Schwartz: Yup, cycles.

Joe Fairless: Knowing that that’s your prediction, have you done anything to get ahead of the curve?

Dan Schwartz: No, but I’m thinking about it. I’m thinking about what tools and systems we can create to make that an even easier process. I guarantee you that those types of tools — there’s already a lot of bird-dog tracking tools…

Joe Fairless: Just buy some drones, and have a mechanical hand that will knock… [laughter] And just fly them around the neighborhoods.

Dan Schwartz: It knocks and then drops off a little flier.

Joe Fairless: Exactly. What were you gonna say? I interrupted you…

Dan Schwartz: I was gonna say, you’re gonna see a lot of door-knocking gurus over the next year or so… So a good thing to get ahead of the curve is just to get a really targeted list of sellers; high equity, vacant, or even owner-occupied, which is frequently ignored… And maybe try doing some door-knocking campaigns. You’re gonna reach that person and connect with them in a way that your competitors aren’t by just sending mail or cold-calling.

Joe Fairless: And you mentioned a couple systems when you were talking about cold-calling… I wanna make sure I heard you correctly; to get a list, a service you recommend or at least mentioned was something called PropStream? Is that correct?

Dan Schwartz: Yes, PropStream.

Joe Fairless: And then to call people, I think you said Mojo Dialer.

Dan Schwartz: Correct, Mojo Dialer.

Joe Fairless: What about the skip-trace service?

Dan Schwartz: That is built into PropStream, actually.

Joe Fairless: Okay, cool. Any other vendors that you’d recommend be incorporated into this?

Dan Schwartz: Yeah, you can check out Call Porter. They can actually make your outbound calls. CallPorter.com can make your outbound calls, and there are real estate trained lead specialists.

Joe Fairless: Cool.

Dan Schwartz: Between those three tools right there you can set up a cold-calling campaign within a day, which is kind of crazy.

Joe Fairless: Yeah, that is. Leave me off the list, please… [laughs]

Dan Schwartz: Yeah, yeah.

Joe Fairless: With the three services that you’ve mentioned, which one takes the longest to acclimate to if you’re starting out and you’ve never done this before?

Dan Schwartz: Let’s say they’re all pretty basic tools, but PropStream has a lot going on inside in terms of list creation. You sort of have to know what all the terms mean – tax delinquent, absentee owners… There’s a lot of different filters, and stuff. There isn’t like a “Click this button and get a list.” You have to go in and determine what kind of list you wanna pull based on your market. Maybe you have a lot of vacant houses in your market, maybe you have a lot of tax delinquencies, but it helps to have a little bit of experience in your market, or to ask other investors what the motivated seller’s situation looks like in your market, and then using that information to create a really filtered list.

I think in this market, since everyone has access to the same leads, that the more targeted your initial data list is, the better you’re gonna be. That’s just part of it. The other way you’re gonna compete is just by having the best possible follow-up system to actually monetize those leads once they come in. That’s sort of what I’m all about.

Joe Fairless: So you’ve got a couple ways to rise above the pack. One is a targeted list, two is having a great follow-up system… So ideally you’ll do both, but if you were to look at your business, you’re more towards the follow-up system, because you’ve got InvestorFuse, is that correct?

Dan Schwartz: Yeah, exactly. And I believe that even if your marketing isn’t as good as your competitor, but you’re able to follow up and stay on top of your leads in an organized, systematic way, more than your competitor, then in the long run you’re gonna win… Just because the majority of your deals are not gonna be from that initial phone call. By definition, your deals are all gonna be follow-up, right? They’re all gonna be that post first contact negotiation…

Joe Fairless: Are you able to track that, to see how many leads are completed after a certain number of follow-ups, across your whole system?

Dan Schwartz: Yes, you can track that.

Joe Fairless: But are you able to see it from a big-picture…? I’m just looking for some data points, how many leads are converted into sales after the first, second, third, fourth, fifth etc. follow-up.

Dan Schwartz: It’s funny you mention that… There’s only one study right now, the Harvard Business Review that says you’ll have a 90% higher close rate after the sixth or seventh touch point… But that hasn’t really been checked yet. Part of my vision with InvestorFuse is to actually get more accurate data for that, for the investor community… And I think we have to scale to actually get that type of data. But the Harvard Business Review says 6 to 7 touch points gives you a 90% higher chance.

I have a bunch of more of these stats on one of our eBooks, if you don’t mind me sharing the resource…

Joe Fairless: Yeah, what is it?

Dan Schwartz: It’s called The Ten Commandments… You can download it on our main website, InvestorFuse.com. The Ten Commandments of Lead Management. It gives you the essential stats and rules that you should follow in order to maximize the most out of your marketing.

Joe Fairless: Harvard Business Review is just talking about business in general though, right? They’re not talking about real estate specific…

Dan Schwartz: Yeah, it’s sales stats, generally speaking…

Joe Fairless: Yeah. Okay, cool.

Dan Schwartz: Like, if you don’t respond to your lead within five minutes, that type of stuff. I would guess that that is actually less than five minutes now, because the study was five years ago. People’s attention spans are lower.

Joe Fairless: Right. I think it also depends on what type of lead it is too, because… I don’t do this type of business, but my target audience is accredited investors, and when they submit a form on my website to get to know us and they fill out the information, I imagine if we were to reply literally within five minutes – which we don’t do, but it’s that same day – it would be a little weird if we replied immediately… Because then it’d seem like a robot was replying to them, not an actual person.

Dan Schwartz: Yes.

Joe Fairless: But with single-family homes, and buying the properties – I totally get that. If someone’s calling with an issue, or they’re looking to sell, you’d better capture that lead immediately, otherwise they’re gonna go to someone else.

Dan Schwartz: Right. So you need to have some sort of mechanism in place to notify you as soon as those leads come in, so you can actually capitalize on that… Because they’re still in that “buying” state when they’re entering their information, and you can talk to them when they’re still in that state, thinking about selling their house.

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

Dan Schwartz: Get a team. My best real estate investing advice is you can’t do this alone. If you are overwhelmed and feel like you’re the jack of all trades right now, you’re never gonna be able to scale and truly own a business. So hiring a team not only is a forcing function for you to grow as a person and a leader, but it’s a way that you can enjoy your business more, because you’re gonna be focusing on the things that you’re good at, instead of struggling with the minutiae that you might not like.

There are people out there that are good and enjoy the minutiae that you don’t like, and it’s important to understand that. So I think hiring that first employee, or virtual assistant, or even a business partner, is the best move you could possibly make. That’ll help you scale much quicker.

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

Dan Schwartz: Let’s do it!

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

Break: [00:18:00].10] to [00:19:01].25]

Joe Fairless: Best ever deal you’ve done personally?

Dan Schwartz: I would say it’s one of the JV deals that came in. I just received a $25,000 wire and I didn’t have to do anything.

Joe Fairless: And by nothing – you did the marketing to get that.

Dan Schwartz: Yeah, and I set up the initial systems, and then that was it. The systems didn’t even require me to manage it, or anything. It was a $50,000 deal and we split it 50/50.

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

Dan Schwartz: My biggest mistake I’ve made was not getting back to the seller in time, believe it or not. When I was more actively wholesaling in Baltimore, we were just using spreadsheets to manage our leads, and I called this guy back – he said he just talked to someone right before I called him, and he put it under contract… And it was in a really hot neighborhood in Baltimore, that I could have made about a 30k-40k wholesale fee on… And he told me, “Hey, if you got to me sooner, I would have probably given it to you.” And that was the impetus I needed to take systems a little more seriously.

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

Dan Schwartz: I like to share what I’ve learned. If you got the InvestorFuse Blog, there’s a ton of epic how-to guides about how to structure deals, how to generate leads, lead management, all that stuff, just for free.

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

Dan Schwartz: You can check us out on Facebook, if you search for InvestorFuse; you’ll find me on there. I’m happy to answer people’s questions personally. If you shoot me a message on Facebook through the InvestorFuse page, or from my personal page, I’m more than happy to help people.

Joe Fairless: Well, Dan, thank you for being on the show. I enjoyed learning how your business has evolved, from when you started InvestorFuse to today. I really liked hearing about some specific vendors that you recommend using for cold-calling, and also you think door-knocking is the next thing… Because — I love the insight that you gave, and that is “the harder it is to scale, the less people doing it, so that tends to be an area of opportunity.” So if you can find a way to scale something that’s hard to scale, and refine that system, then you could have a competitive advantage… And on that competitive advantage you mentioned a couple things to rise above the pack. One is to have a highly targeted list, and two is to have a follow-up system.

I enjoyed our conversation. I hope you have a best ever day, and we’ll talk to you soon.

Dan Schwartz: Thank you!

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JF1690: What Are The Challenges You Faced Starting Your Syndication Journey? #FollowAlongFriday With Whitney Sewell & Ryan Cox

We’re throwing you a curveball today, neither of our usual hosts are on this episode. We do have two outstanding real estate investors and fellow podcast hosts (bios and podcasts below) with us to share what are the biggest challenges they’ve faced, and what they would tell their younger selves as they were starting this journey. If you enjoyed today’s episode remember to subscribe in iTunes and leave us a review!

 

Best Ever Tweet:

“Done is better than perfect” – Whitney Sewell

 

Ryan Cox Real Estate Background:

 

Whitney Sewell Real Estate Background:

 


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TRANSCRIPTION

Whitney Sewell: Hello, Best Ever listeners! How are you doing? Welcome to the best real estate investing advice ever show. I’m Whitney Sewell. This is the world’s longest-running daily real estate investing podcast, where we only talk about the best advice ever, we don’t get into any of that fluffy stuff.

This is Follow Along Friday. Theo and Joe are out today, but I am honored to be with you, and also with us is Ryan Cox. Thanks for being on the show, Ryan!

Ryan Cox: Yeah, excited to be here. Hello, Best Ever listeners.

Whitney Sewell: Ryan and I were asked to talk about some challenges that we faced getting started in the real estate syndication business, and we just wanna go through some of those challenges, because we know you are facing them or going to as well, and how we have worked through those.

A little about me – I’m also the host of the Daily Real Estate Syndication Show, and have invested in numerous deals now, and raised capital for numerous deals, and doing our own deals as well, under Life Bridge Capital. Ryan, give the listeners a little bit about you and let’s get right into some challenges we’ve faced.

Ryan Cox: Yeah, sounds great. Ryan Cox, Founders Grove Capital. Previous to investing in multifamily and working in syndication I was in enterprise software sales for about ten years, selling software and hardware to the mid-market, companies between about 1,000 and 5,000 employees.

I’ve been in the multifamily syndication business for a little over three years, and leaps and bounds from where I’ve started, but a long way to go.

Whitney Sewell: Awesome. Ryan, why don’t we just get right into a challenge that you wish you had known when you started? And I’ll do the same.

Ryan Cox: Yeah, I think two things really stand out as I think about what I would do differently, or that I wish that I had known in the beginning. Number one, I have a podcast as well called The Real Estate Innovators, where I interview founders of technology companies that are focus on innovating in commercial real estate, so I have an opportunity to talk to a lot of founders, venture capitalists – those types of folks that are really making a lot of interesting business models or technology that will impact commercial real estate.

I think that I had some hesitancy about jumping on the microphone and interviewing people, and just a little bit of nerves about that, and I just wish that I had started that much, much sooner. It has been an awesome way for me to build relationships, but it’s also been a tremendous way for me to learn from a bunch of really smart people, and help me think about not only how I’m operating my business today, but what the business is going to look like in the future. So I would have dismissed any of those fears and thoughts about creating that platform, because it’s really been so beneficial for my education, and I think it’s been a really good platform for founders to be able to tell their story about their business, and it’s been great for discovery for anybody who’s in commercial real estate and wondering about how technology is gonna change it… So that’s been awesome.

I think the other thing that I knew going in, but was a challenge for me was really getting outside of my circle of friends and family in terms of raising capital, and creating a system to be able to do that consistently.

So my two things are start some sort of thought leadership or group, TODAY. You don’t have to be an expert to do it. If you take a leadership role and start that, it’ll prove beneficial in helping you build relationships.

And then number two, getting outside of just your immediate circle; coming up with daily, weekly, monthly activities that you can measure yourself against, that’ll help you build an investor network and relationships, as well as daily, weekly, monthly goals in terms of underwriting deals, looking for deals.

Whitney Sewell: I like that a lot, and I can relate a lot. One of the things I was also going to talk about is wishing I had started a thought leadership platform earlier, the daily real estate syndication show… And obviously, that was influenced by Joe as well, and just the success that he’s had.

You said you had some hesitancy, you wish you had started sooner… What actually was it that really pushed you to get started? When you had all those thoughts about “Should I start now? When should I start?”, what really made it click for you?

Ryan Cox: I think like a lot of folks I was still in enterprise software sales when I started investing in real estate, so I was straddling two different worlds, which gave me some hesitancy about starting something. In hindsight, starting a podcast, having a group meetup, or doing anything in that respect would not have been in conflict with my day job, but it would have been a really fast jumpstart into a weekly/daily motion in terms of building a community and building relationships, and starting to get myself out there, like “Hey, this is the job that I’m working towards.”

So the thing that really just got me going was more or less hold your nose and jump into the deep end, and start figuring out how to swim, and that’s what I did. The first podcast I listened to – I hated my voice, I hated the questions… But the feedback that I got from people who listened said “Wow, it’s well-produced; those were good questions”, so I just kind of blindly kept going down the hallway a little bit further, towards the light, so to speak.

So there was some trial by error, and at the end of the day I tried not to pay attention to my voice or what others thought, but just trying to produce good content and be really curious. I think curiosity was a big driver that helped me push through any fears that I had.

Whitney Sewell: That’s awesome. I can relate to everything you’re talking about. I bet I get three calls a week, people asking about how to do a podcast, or how I’ve done it, or things like that… And I was very hesitant as well to pull the trigger, to launch the show, and to really commit, because I  was worried about the sound, I was worried about all these things, all these details… You know, about the show, about doing it the best that I can… So I was very hesitant.

I was talking to a mentor – Joe Fairless, I’ll say – and he helped remind me that done is better than perfect. Done is better than perfect. It really helped change my mindset. I also hated the way that I sounded, but I hired somebody to edit my audio just so I didn’t have to listen to it… Because I understood that if I listen to them, I’m probably not ever gonna launch. I’m just not gonna like the way that I sound, I’m gonna hear the um’s and ah’s and all these things, and I’m not going to think it’s as good as it should be… But I had to tell myself, I had to remember that the only way I’m gonna get better at this is just doing it, so I’m gonna have to get through that initial 20-30 shows before I really fall into using a mic, before I really fall into being recorded… And I still mess up all the time, but I’m getting better, and I understand that it’s gonna take many more shows; I’m getting better all the time. But if I hadn’t launched – guess what? I’d still be in fear of those first 20 shows.

Ryan Cox: Yeah, no doubt. I think the podcast is a good metaphor for any entrepreneur’s journey. Those first 20 or so times that you do it, it feels awkward, it feels uncomfortable. But committing to doing it — I publish every Thursday, so I’ve got a weekly show, and just the clock is kind of ticking; every Thursday, here are the 6-7 things that I need to do to make sure that I get a good show out the door.

And I guess I talked earlier about the daily/weekly/monthly, what are you measuring to make sure that you’re moving forward in your business. I think that thought leadership, whether it’s a monthly event that you’re hosting, or a podcast, whatever that looks like, getting committed and putting yourself out there is an excellent metaphor for the same type of discipline and work that you need to do to go out and put together a real estate deal.

Whitney Sewell: Ryan, what were some systems that you developed to help you make this happen? Initially you were hesitant and you hated the way you sounded, but you kept moving forward, you pushed through that… But obviously this added a lot more work to your day or your week, trying to make this happen, so what were some systems that you did to make it happen, and then also to measure the success or the growth?

Ryan Cox: Well, from a podcast perspective, I outsourced as much as possible. I batched that work; I record on Monday afternoon for an hour and Friday afternoon for an hour. I outsource all of the editing to Fiverr; I’ve got a guy that I work with on Fiverr. We’ve got another guy on Fiverr who does all podcast transcription or transcribing… So I try to outsource as much of that work as possible.

While I know that thought leadership is important and actually being on a production schedule is really important to me, the thing I wanted to be really conscious of is that this is not a six or seven hour/week job, that this is a two to three hour/week job. So it’s two hours a week in between my 8-to-5, and then I work on it at night. So typically on an average week it’s about three hours’ worth of work.

Whitney Sewell: Nice, nice. And how often are you publishing your show?

Ryan Cox: Every Thursday.

Whitney Sewell: Okay, awesome.

Ryan Cox: How about you?

Whitney Sewell: Obviously, it’s daily… So it did increase my workload tremendously; when you get that many shows done a month… But just like you, I outsource everything that I can. And I would stress to the Best Ever listeners, if you haven’t looked into hiring a virtual assistant, I’m not sure what you’re waiting on. I use UpWork. I’ve used Fiverr for different things, but I use UpWork a lot and I’ve learned some skills to be able to find people on there that work really well for me and for the tasks that I need.

Initially, I found somebody that their specialty was audio editing, or I found somebody that’s just good at show notes, somebody that’s just good at video. Then those have changed a little bit. My entire team has changed recently, but we’re improving all the time. But initially, it was such a big undertaking to get all that done that I had to outsource; there just wasn’t any way around it… And now I feel like if I hadn’t outsourced, if I was trying to do it all myself, I may have never got started, or I may have never launched, because the workload was so large. But it calls me to grow, it calls me to get out of my comfort zone, and just to make it happen.

I wanted to go back – if you’re watching this, you see behind me is a green screen. And just today we couldn’t get the green screen working the way we’re recording today, but we’re just gonna go on with it and we’re gonna make this happen; that really hindered me in the beginning, because I would have been really worried about that. I would have been really worried about that and thought “Oh, no, we can’t do it; we can’t publish this. It’s not the best that it can be.” But I understand that done is better than perfect. What about you, Ryan?

Ryan Cox: Well, just keep moving forward. I think as we talk about outsourcing and having a team help you to do the podcast, I think that, again, it serves as a metaphor for just the business and entrepreneurship in general. One of the quotes that I heard in the beginning that I have really made a part of my daily life has been when something comes up that says “How do I do this?”, I potentially would get stuck, and would put something off, or just never get around to doing it. When I switched that question around to “Who can help me do this?”, I found that one of my talents is building teams; I love collaborating with people. The more that there’s kind of a group that’s participating in something, the more energy that I get.

A lot of times, if I was stuck in doing the things that were brand new, it was “How do I do this? I don’t know.” But when I started thinking about “Who can help me do this?” and building a team around what I was trying to accomplish, I tended to have a lot more fun and got things done a lot faster, because I was putting in the action, and I’m very much a learn-by-doing individual… And I got the opportunity to see and watch and learn by others doing. So I think that that’s been a valuable tool for me, to take that question “How do I do this?”, flip it on its head, and ask “Who can help me do this?”

Whitney Sewell: I really like that a lot. I find now — as I think of stuff where I used to get my pen and paper out and I’d try and make lists so I didn’t forget things… But now I just send an e-mail to my assistant saying “I need this done” or “Can you please do this?” Now it’ll be done, instead of me having to go back and look at that list, hoping I’d get it done… Now it’s taken care of.

Ryan Cox: Yeah, I think it’s so important to build support around you, whether that’s outsourced support to help you with some of the detail work or mundane work. I think it’s important to build a real estate team around you, whether that’s others that have led and sponsored and been on the general partnership side of a deal, or have experience with property management, finding deals, doing the asset management… Any types of those roles, the more people that you can put in your world to help you learn by watching them from their experience, I think the more value and the faster that you’ll grow in the business.

Whitney Sewell: Yeah. Are there any other team members that you’ve found that you’re working with to help grow the business? Outside of thought leadership.

Ryan Cox: Outside of thought leadership, I tend to partner on the real estate side I think anywhere from two to three partners. Very simply, the job of putting together a real estate deal is 1) finding the deal, 2) operating the deal, and 3) bringing equity and debt to the deal… So it tends to be a three-person job; it can be a two-person job. That configuration is — we’ve done deals here locally, and in Dallas-Fort Worth… It tends to be a configuration of two or three individuals that are acting as a team to get a big job done.

Whitney Sewell: Nice. And any other ways that you’ve found productive or useful to measure — we’ve talked about your growth, or maybe your team, or anything like that.

Ryan Cox: How do I measure growth?

Whitney Sewell: Yeah.

Ryan Cox: There’s this book that I keep coming back to, it’s called “Measure What Matters”, by John Doerr. Have you ever heard of that book?

Whitney Sewell: I haven’t.

Ryan Cox: John Doerr is a famous venture capitalist in Silicon Valley. OKRs have been made famous by the Googles of the world, and those types of guys… It’s Objectives and Key Results. You can set those on a monthly basis, or a quarterly basis… But again, it comes back to “Hey, what are you doing on a daily basis to help you move forward in the work that you’re doing?”, whether that’s thought leadership, whether that’s finding a deal, whether that’s building your investor network.

What I’ve found especially in the beginning is a lot of ups and downs emotionally in terms of trying to build a business and get it started… But if you have written down what a good day looks like, what a good week looks like, what a good month looks like to help you get to your key results, you could always look back and say “Hey, no matter how I’m feeling, I did these five things which I know that if I show up and do them consistently, I’m gonna continue to build my business and do it in a very smart way.”

I know that if I look at the sheet and say “Man, I didn’t do any of those things” and my calendar was running me, and I wasn’t in control of my calendar, I know that I’m off track. So having that written down has really helped me measure my progress… And know that it very much is a process, and that there is no recipe for overnight success.

Whitney Sewell: I like that a lot. Could you give us a couple examples of maybe things that you’re gonna make sure are written down, making sure that you’re doing every week, or on a monthly basis, and how you’ve done that?

Ryan Cox: Yeah, my goal is to have anywhere from 15 to 20 new investor calls a month, so then I’ve got a subset of activities that helps me bring new investors, start those new relationships, start building relationships with investors. I tend to find that probably anywhere from about 90 days to potentially a year or two years that I start building a relationship and we find that we’re a fit for each other, before we bring on a new investor into the group.

So it starts with how am I making/reaching/building relationships with new investors, and then once I do establish that new relationship, how do we work through – whether that’s education about myself and about Founders Grove, and what we’re trying to accomplish, or identifying that the investor needs education on alternative investments, passive investments, find out if multifamily is even the right asset class in real estate for them… So those are the things that I really focus on – starting at the top, trying to build relationships with new investors, and then over the course of anywhere from 3 months to 12 months really have a plan that I can add value to their thought process if they’re thinking about an alternative in passive investment.

Whitney Sewell: Nice. I like that. And I like that you set that number. I wanted to ask you, is that 15 new contacts a month, or is that just following up  possibly with other contacts or particular investors that you’ve already met?

Ryan Cox: Yeah, my math is it takes me maybe 15-20 new conversations to find two or three. So maybe 10% of those conversations I find that we’re a fit for each other, that we can add mutual value to what we’re trying to accomplish, I have an investment opportunity and a thesis that makes sense to the investor… And the investor kind of checks accredited investor or some of those types of things, and we’re mutually aligned on what we’re both trying to accomplish.

So I would say for every 20 investors that I talk with, one to two are a fit. Then from that one to two that are a fit, I know that I’m in an education period over the course of 90 days to 12 months; it gives me an opportunity to build a relationship and add value to that conversation.

Sometimes it may be a lot of relationship building and we find out we’re not a fit for each other, or multifamily is not the right investment for them. I just kind of think of that as sales karma. Well, maybe they’re a better fit for somebody who’s local to them, or they have a relationship, or they wanna invest in self-storage or small retail, and it’s just “Hey, I don’t want to invest in multifamily in Austin or Dallas.”

Whitney Sewell: How are you finding them in the first place? What have you found to be the best way to connect with these potential investors?

Ryan Cox: I focus primarily on LinkedIn. As my background was enterprise software sales and hardware, I had very extensive connections through a lot of big technology companies – Microsofts, Ciscos of the world – and I started just going back through and sending notes to contacts, primarily technology, some in healthcare. I just look to connect for 15 minutes, tell them a little bit about what I’m doing. If they’re able to get on a call, then that goes back to “I need 20 calls to find one or two that are a fit.”

So I set up a 15-minute call, I learned a little bit about them, I try to understand what they’re hoping to get out of the call; typically, they wanna learn a little bit more about me and what I’m doing. From there, we say “Hey, this does make sense. Let’s set up a little bit of a longer call to talk about business strategy, what we’re trying to accomplish, and how we can work together.”

So LinkedIn is my primary resource for setting up new investor relationships… But that is a lot of empty responses, no responses, or no thank-yous. In typical sales you’re getting way more no’s than you are yes’s, but that’s been proven to be the best channel for me to get outside of my immediate circle, to develop new relationships, which I know are the lifeblood of continuing to grow the business.

Whitney Sewell: Awesome. Tell me about  how that conversation has changed, maybe from when you first started raising capital to how it is now? I do a lot of the same things, and believe it or not, a lot of my investors I’ve found at real estate conferences… And I’ll put that out, because a lot of people go to these things assuming that there’s no passive investors there, and I say you’re wrong… Because I’ve met numerous, at many events. They’re there to meet syndicators… But anyway, so how has that conversation changed, or what do you wish you had known about how to control or how to talk through that conversation back then, that you know now?

Ryan Cox: I always wanna give that conversation an out… So I tell everybody, “Hey, this might not be a fit for you, and if it’s not a fit for you and this is something that you’re not interested in, please just tell me so. I don’t wanna fill up your inbox with unwanted e-mails, newsletters, any deals that I’m working on, any kind of educational material, if it’s not a fit. If this is not a fit and this is not something that you’re interested in, it’s okay to tell me so.”

I think giving those potential cold calls, new prospects/investors just a really easy way out, and for them to say “No, this is not a fit for me”, saves both of us a lot of time. Ultimately, I’m trying to get to those one or two that are really excited to either learn more, or know that they want to invest in a multifamily deal… And that’s who I’m really trying to connect with, so I’m just saving both of us time and just having the confidence to let whoever I’m talking with on the other end go “You know what, Ryan, I appreciate you sharing about what you’re doing – it sounds like you’re doing really cool things – but this is not for me”, and that is okay.

Whitney Sewell: That’s just showing respect for them, and while they may say right now “I’m not interested”, things change. I find that investors – right now it may not be a fit, they might not like multifamily for whatever reason (something they’ve read who knows where), but then six months from now their situation has changed, or something else has changed their interest about multifamily, and then all of a sudden they hear your podcast again, and they’re like “You know what, I remember him; he’s very respectful, he wasn’t pushy. I like that about him”, and they’re gonna come back. Would you agree, Ryan?

Ryan Cox: I totally agree. I think that my mindset is try to do what’s in the best interest of all parties. I’ve had a number of opportunities where there’s just things that I don’t do, but I have relationships that could help that investor potentially get what they’re looking for… So I just try to pass those opportunities off to other investors that I know that are doing different types of projects, that could get those two people together and could add value in some way… And that might potentially not be the bottom line, or to add value to the group of investors that I work with, or to a specific deal, but if I can put others before myself and add more value than I take, I think that I’m doing a good job every day.

Whitney Sewell: You had also mentioned about educating the investor… So you’ve had that call, and now you want to educate them, you want them to understand what they’re investing in. Could you just tell us a little bit about how you’ve done that? Or maybe even how that’s changed. It’s harder to educate initially, because you’re still learning the business, but now that you’re much more experienced, how do you educate them now, so they understand what they’re investing in?

Ryan Cox: One of the things I did when I was in software sales and when I made the move to real estate – in both roles I had a sales journal. So I listen to what objections people had, what were the questions, and I just continued to write that down, so that I was either a) better prepared to overcome an objection, or b) I was better prepared to answer a question.

So I just started kind of building my own database, whether it was very deal-specific questions that I needed to be able to answer, or whether it was just generally about the business. That education phase is kind of taking people through — I think number one is “Hey, here’s what the process looks like. Here’s what you could expect when we do work through a deal together. Here’s how I’m gonna introduce the deal, here’s what an investment summary looks like, here’s our business strategy”, all the way up to funding and a private placement memorandum (PPM).

So there’s a little bit of education of “Hey, here’s what the process looks like”, understanding the timelines in that process, and helping prepare them for “Here’s how you would need to act and how you’d be able to move through that process to do a deal. Get an understanding of what their timeline looks like and how that would potentially fit.

Once we understand the process, then start kind of peeling back the layers on helping them understand the investment and what they’re trying to accomplish with the investment, and then the conversation from there takes shape on “How does this work? How does that work?” So I just kind of view that as a continuous conversation and let that unfold. I’ve developed some kind of FAQs and some stuff like that, like “Hey, here’s high-level stuff”, that can help push them along, but I always encourage “Hey, give me all the questions that you have. You can text me, call me, send me an e-mail”, and I just try to respond with timely answers to their questions.

I think I’m getting better at the process to try to manage that, but… I guess I would ask you the same question – how are you educating potential investors and current investors?

Whitney Sewell: I would say that entire thing has been a growing experience for me, from meeting the investor, to — I would say the follow-up is key; your speediness in getting back to them. Initially, it was difficult for me to track those things. Find a CRM; there’s so many to choose from. I did a lot of research trying to figure out which one I wanted to use… But at least use one, so you can track when you’re following up to people, and making sure that you’re following up, that you’re staying top of mind.

I’m answering questions quickly, or after I meet them I’m following up, I’m sending them information about the company, about who we are, about why we do what we do, and then I’m also wanting to book a call with them. If they don’t book a call, guess what – I’m gonna call them… Because they’ve shown interest; they’ve either signed up on the website, or I’ve reached out to them and they’ve shown interest in talking with me.

From there, they’re gonna get e-mails just about the business, and about what we do, different parts of the business, maybe some YouTube videos, or obviously the podcast shows… If there’s an investor who has a question about taxes, or a specific thing, or something in the syndication business that I’ve had a show where I’ve interviewed somebody on that topic, I may send it to them, and say “Hey, I thought this would be of interest to you” or “This is what you were asking me about, what we discussed, and this goes a little more in-depth”, just to show them that they’re not just another number; I actually cared about our conversation. I documented what was important to them, and I’ll try to provide value to them through that, or get them some more information if I see there’s some way.

Ask what their goals in investing are, what they are looking for, and really listen to what they tell you, listen to what’s important to them. I try to focus on that, and I try to provide value, things in the business that they don’t understand, or questions that they have. So yeah, follow up. If you don’t have that information yet, it’s important to follow up, stay in touch.

Ryan Cox: Yeah. I think about three-and-a-half years in, the thing that I would encourage everybody to have confidence to say is “I don’t know, but I’ll find out”, and deliver a timely response. I think the last thing you wanna do is get yourself in the trap of maybe getting out over your skis, and talking a little bit too much about a topic that you might not have all of the details about, or can’t speak to with authority. A critical phrase I think for everybody is “I don’t know, but I’ll find out.” When you do find out, send a timely response.

I think that in terms of developing relationships with investors or your partners or whatever that team looks like for you – that could be in all facets – having a lot of discipline around communication and follow-up is critical to building a successful business. That’s something that I took from the corporate world and I’ve put into this business, and feedback from investors of all types of sizes has been “Hey, you communicate as well as anybody that we’ve worked with.” So as you’re trying to get the edge, when you’re working with new investors and how you do that, and potentially competing with somebody else who’s doing the same job for investment dollars, one thing that everybody can do from day one, regardless of your experience, is create a system to effectively communicate in a timely manner. If you show up to do that consistently, the level of trust that you’ll be able to develop with partners in a real estate deal or investor partners will be much faster than if you communicate poorly, don’t respond at all, things like that. I can’t stress enough just how important it is to have a very good strategy to communicate effectively with potential investors, current investors, real estate partners, anybody in your network and team that is helping you build a real estate business

Whitney Sewell: Great. Ryan, unfortunately we are out of time, but I hope the Best Ever listeners have enjoyed the show today, I hope you’ve learned a lot as we’ve been talking about some challenges we’ve faced, just the hesitancy that we’ve had starting a thought leadership platform, and wish we had both started sooner… But as Ryan said, we held our nose and jumped in, and it’s been great, and I’d encourage you to do the same of some type of thought leadership platform. You’re gonna hate your voice anyway, so just get it over with. Hire that VA, hire people to help you, build your team, build your systems.

Ryan, I really liked how you talked about building a system, a way to track your growth and measure your activities and those goals, those weekly things that are gonna move you forward, and writing those down… And then even the 15 investors calls a month – I liked that; you can track that, you can see that you are moving forward, and you know 10% or so are going to invest with you or become investors and partners in your own deals… And just how you got started, the conversations, how those have changed, but then also educating, and how you kept a sales journal; I like that. You’re documenting those objections, so you know how to improve. You’re going back and looking at that thing, how you can do that better. Then educating investors on the process, the business strategy, from funding to doing the PPM.

Ryan, thank you so much, and it’s an honor to be here on the show today.

Ryan Cox: Yeah, thank you. You’ve been an excellent stand-in host. I appreciate you leading the conversation and sharing about your experience. Moving forward, I think that we really admire anybody who’s started thought leadership stuff; I know it’s tough to do. The ironic thing is how tough it is to get started, but how much fun it is once you do get started. It’s something that I really look forward to.

I would tell everybody that it doesn’t have to be a podcast. Starting a meetup on a monthly basis, or some sort of event that happens in your city, to help you build relationships and have a platform… A blog, all types of things can be considered thought leadership platforms, which is very much an action of doing and not thinking. So commit to a time you want to publish a blog post every week, or have an event each month or quarter – whatever that looks like, and whatever you feel empowered to do, you should definitely take the bull by the horns and go do it.

I would encourage you to have as much fun as you possibly can in the process, because at the end of the day, the more fun you have, the more energy that you put into it, and the more the others are gonna gravitate towards that event, the podcast, what have you.

Thank you, Whitney, for being such a great host. I enjoyed being on the show. And thank you, Best Ever listeners, I appreciate the time. I look forward to speak with you guys again soon.

Whitney Sewell: What’s your website? How can people get in touch with you, Ryan?

Ryan Cox: Sure, you can find me at FoundersGroveCapital.com, or therealestateinnovators.com. Founders Grove is the real estate firm, Real Estate Innovators is my podcast. Feel free to hit me up on LinkedIn, send me an e-mail; I’d love to chat.

Whitney Sewell: Awesome. Again, I’m Whitney Sewell. You can reach me at LifeBridgeCapital.com, or whitney@lifebridgecapital.com is my e-mail. I’m happy to talk to you or schedule a call with anyone. Ryan, thanks again. Best Ever listeners, I hope you have a best ever day. Joe will talk to you tomorrow.

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Joe Fairless and James Kandasamy podcast episode JF1629

JF1629: Passive Investing In Commercial Real Estate #SkillSetSunday with James Kandasamy

Today we’re welcoming back James to share some passive investing knowledge with us. He recently wrote a book on the subject, and has spent a lot of his real estate investing career dealing with passive investors himself. If you are a passive investor, you’ll want to tune in and hear how to vet sponsors, deals, and other aspects to evaluate before handing over your hard earned cash. If you enjoyed today’s episode remember to subscribe in iTunes and leave us a review!

 

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James Kandasamy Real Estate Background:

 


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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.

Well, I hope you’re having a best ever weekend, first and foremost… And because today is Sunday, we’ve got a special segment for you called Skillset Sunday. The purpose of Skillset Sunday is to help you hone or acquire a skill that you might not have had before, or to the degree that you will have honed it after this conversation.

Here’s the skill – our Best Ever guest today has recently published a book on passive investing in commercial real estate. In fact, it’s called “Passive investing in commercial real estate: Insider secrets to financial independence.” So here’s looking at you, passive investor; we’ve got some information for you that will likely help you make better decisions – or even better decisions, I should say – on what you choose to invest in.

With us today to talk about that, James Kandasamy. How are you doing, James?

James Kandasamy: Hey, I’m doing very well, Joe. Thanks for having me back on the show.

Joe Fairless: Yeah, my pleasure. Nice to have you. You mentioned “have you back on the show” – Best Ever listeners, episode 1273 James was interviewed and he gave his Best Ever advice; that’s 1273, titled “Deep value-add apartment syndications”, and James was gracious enough to talk about how he is getting off-market deals and closing on off-market deals, and his whole approach. He went through that approach in detail. If you are an active investor, I highly recommend listening to that episode, 1273.

James is the owner of Achieve Investment Group, he’s a multifamily sponsor owning approximately 1,000 units in central Texas, focused on value-add deals, and as I mentioned, he recently published the book “Passive investing in commercial real estate: Insider secrets to financial independence.”

With that being said, James, since you already went over your background in the previous episode, we won’t touch on that as much… How about let’s just dive right into it – how did you structure your book? And then we’ll take it from there.

James Kandasamy: The way I structured my book – it’s a very good read in terms of it’s exactly like you’re having a conversation with me. The reason I wanna do that is because I’m an engineer, [unintelligible [00:04:35].14] very well, but I chose not to do that, because a lot of passive investors are not engineers, they’re not gonna be going into bullet by bullet, right? So the way I structured it – there’s seven chapters in this book, with all the key information that a passive investor needs to know to get started and to be a smarter passive investor. It’s a very conversational book, and we [unintelligible [00:04:57].29] right now, and we’re getting very good reviews from the seasoned passive investors.

Joe Fairless: So it’s giving tips for secrets to — as you said, you have insider secrets for financial independence… What are some insider secrets that you can share with us?

James Kandasamy: Yeah, absolutely. Some of it is like “How do we get started?” There’s a lot of ways to get started. Some people get started in commercial real estate, especially where we focus – multifamily syndication – just because they were introduced to a group, but that is not the only way to get started. There’s a lot of other things where you can get started. You can get started in online forums, like Bigger Pockets, or Facebook, or just going to a meetup, and how do you introduce yourself in a meetup; what are the questions to ask in an online forum, or how do you introduce yourself in an online meetup, or the meetup itself.

There are things that a lot of people didn’t know because they hear one advertisement on the radio, or through Facebook, or somewhere – they heard about real estate, and they went for the two-day weekend, and they thought that’s the holy grail of multifamily syndication… But if we look at it, there’s a lot of other ways to get started. So that’s one thing.

The other thing is the two big chapters in this book is basically how do you [unintelligible [00:06:08].10] a deal? Passive investors sometimes are so green in their approach to real estate investing; sometimes they like the deal just based on numbers, or based on the group… Sometimes they put too much hope on the group, that some group is gonna save all their money and is gonna take care of their money, but they forget that all the syndications are basically private LLCs, who is responsible [unintelligible [00:06:29].19] by the deal sponsor.

And also, how do they look at a deal sponsor, how do they choose different types of deal sponsors, and what do they look for in that deal sponsor, how do they match that deal sponsor’s skillset with the deal itself? Because not all the deals are the same – there’s deep value-add, there’s value-add, there’s also [unintelligible [00:06:47].18] which is basically focusing on the cashflow.

And what’s the investment cycle? For example, someone who is just starting out, who has a W-2 job, in their 30’s, what kind of deal should they be looking for, versus someone who is in their 60’s and is almost retiring, or they retired, really hoping on that  cashflow to come in to sustain their life – what kind of deals should they be looking for, what kind of sponsor do they need to align?

So a lot of reflection back into the passive investor itself, and get them to choose the right deal for themselves, rather than just looking at the deal, going through a webinar, or being part of a group and thinking that that’s all it is, and “I can invest in any deals.”

These are the two big chapters that I have, and there’s a lot of other chapters too, like with the process itself, and how the whole process works… Because a lot of people starting out as a passive investor – they do not know how do they communicate with the deal sponsor, and where [unintelligible [00:07:39].01] Some capital source may not be the best source for that deal, or may not be the best source for them – which one have taxes, which one doesn’t have tax, and how do you avoid all this tax? There’s a lot of secrets that people like us know that not every passive investor knows.

I’m surprised — and I have a lot of passive investors investing with me, and a lot of them need to know all this information.

Joe Fairless: What are some of the things that you mention (maybe pick out one or two) that when you shared those things with your passive investors, it was eye-opening to them? Because I’m sure that could be eye-opening for others too, during our conversation.

James Kandasamy: Sure. [unintelligible [00:08:17].03] like for example as passive investors I know right now multifamily is hard, but multifamily goes in cycles, and I did put in a lot of data that I researched myself, 15 years of data, in terms of different asset  classes. We take a market, like for example I took Austin in this case, and I did analyze, looking at different cycles of commercial real estate, and I can bet you nobody has that data in any other book or anywhere else, because I did the research myself – 15 years of data, different asset classes, put into a cycle, converting to a chart, and I show them in chart to say what each asset class does, especially in Austin, Texas. Same thing you can do for any market, but I took Austin, Texas, and I just showed them sometimes what you think is the best investment or what the gurus are telling you may not be the best investment advice.

For example, for passive investors – they can invest in any asset class, because they’re passive. And what should they look for, specifically look for good operators in that asset class. So that’s one thing, on top of many other things.

Joe Fairless: How do you define “good operator”?

James Kandasamy: I would say a good operator depends on what kind of deals they’re doing. If they’re doing deep value-add, there’s a lot of skills that they need to have for deep value add: strong property management, strong project management, strong budget management, and also the capabilities of finding that kind of deals and turning around. That’s a skill that a good operator needs to have in a deep value-add deal… Whereas on [unintelligible [00:09:42].17] deal it’s a different skillset. Some of the skills may not be strong, and they need to be able to manage the property management to a lesser degree. They need to be able to identify which market has that cashflow potential and able to go on for longer-term.

A good operator depends on what type of deals they’re doing, and [unintelligible [00:09:59].23] operators can’t really do deep value-add. I think you can always go from deep value-add to [unintelligible [00:10:06].25] because the complexity becomes much less, but you can’t go the other way around.

And also the other skills that good operators have – do they have good leadership skills? Operators are strong leaders, and need to be able to fire a property management company if they are not doing very well; they need to be able to go and identify different aspects of the deal, like what marketing is working, what marketing is not working. So you need strong leadership skills, strong business experience – what business have they done in the past? Not everybody from W-2 can do this job, because in W-2 you are not a business person, you are more of an intrapreneur. When you’re an entrepreneur and you are running a business on your own, the whole show is on yourself… So you need to be able to make that quick decision when you’re doing the syndication on multifamily or any commercial real estate, because you are the captain of the ship, and not everybody can be a captain of the ship… Sorry to say, guys, but it is what it is.

So a strong business experience, strong leadership experience and an ability to identify timings of the market, because different asset classes have different timing requirements, and identifying different locations, where is the demand, how they’re able to analyze submarket demand is key as well.

These are some of the things that a strong operator needs to have. I did lay it out very in detail, in tabulated form, in my book, to say which type of deal needs what type of operator, and what are some of the skills that a strong operator needs to have.

Joe Fairless: In terms of if a deal is right for the passive investor, there are so many different types of deals, so many different types of asset classes, and so many different types of structures that a deal can have – preferred return, no preferred return, equity investor, debt investor… What are some questions that the passive investor should ask himself/herself to then determine the type of deals that they should be investing in?

James Kandasamy: That’s an awesome question. I’ve covered in depth in my book – at a high level, on a  syndicated commercial real estate, there’s two types of compensation. One is called more of a profit split, or carried interest, or equity split – that’s one thing; the other one is more of a waterfall, pref return type of deal. Both have pros and cons, and neither is better than the other… But a lot of people are just exposed to one and they think that is the superior compensation model, and that’s the best way to do deals. So it depends – there’s pros and cons on both sides of the deal type in terms of structure.

And for investors, they really need to look at — for example, for a pref return deal, the good thing is the investors do have a base return coming back to them, but the part is that’s also… Say they’re getting an 8% return, including the operation, and let’s say there’s a potential of doing 10% cash-on-cash doing the operation, the 2% — let’s say you do a 70/30 split, out of 2% of 70/30 is only 30% of 0.6% going to the sponsor, so I think it’s less motivating for the sponsor to really push on the cashflow… It’s more heavy on the fee side of it; it’s a small — beneficial for the sponsor to be at the starting point and at the end point, rather than on the operation side of it. Whereas on the equity split it’s a lot more focused on the operation, because if you make a lot more profit, then the sponsor makes more money, so the sponsor will be more motivated to make more money throughout the whole operation.

But the bad part about equity split is if the deal is not doing very well, the investors are not gonna get anything; they’ll probably get like 2%-3%. The base return is not there. So there’s pros and cons with both, and it depends on the deal, whether it’s a value-add deal, whether it’s a cashflowing deal. It really depends. I hope I made sense.

Joe Fairless: Yeah, and as an equity investor – every investor should know prior to being an equity investor the pros and cons of that. And I know the preferred return mitigates some of that, because they’re getting first in line on the returns.

James Kandasamy: Correct, correct. And you’d be surprised about how many people don’t know the difference when they talk “Oh, this person’s taking a 70/30 split and the other person is taking 80/20, and the other person is taking 90/10.” Nobody really understands “What are you talking about here?” I did a lot of analysis on both structures, and I realized it’s both the same, but it does motivate the sponsor and protect the passive investors at different points of time in the whole deal. I outline that in the book.

Also some structures are more debt, rather than equity; some people don’t understand that, too. So rather than being an equity partner, they become a debt partner, but they do not know… So I did outline that a bit more.

Joe Fairless: Anything else that you think we should talk about that we haven’t discussed, before we wrap up?

James Kandasamy: I would say there’s a lot of things in the book, and it’s a bit hard to go through in the podcast. Some of the things I covered from the capital standpoint, like do you take IRA, do you do QRP, or do you do cash, which one is the best way. Because IRAs do happen on UBIT and UDFI taxes, which not many people know… And how do you get away with that tax, using QRP. And in Texas there’s another way to take out your 401K while working, so I did outline that as well; it’s crazy, not many people know that, but I think as a passive investor it’s good to know that that’s an option, to take out your 401K while working, as long as you’re married.

Joe Fairless: James, how can the Best Ever listeners get your book and learn more about what you’ve got going on?

James Kandasamy: My book is on Amazon right now. I have Kindle, Audiobook and paperback all released. We are a best-seller right now; in fact, we were a best-seller for the past two days.

Joe Fairless: Congratulations on that.

James Kandasamy: Thank you. Usually, people go to a best-seller for a blip, and then they often disappear, and people take a screenshot, but we’ve been a best-seller for two days, so… [laughter]

Joe Fairless: You can take a video.

James Kandasamy: We can take a video, exactly. [laughter] And you can reach me at AchieveInvestmentGroup.com. My e-mail address is James@AchieveInvestmentGroup.com.

Joe Fairless: Well, James, thank you for sharing with us some thoughts as a general partner that the passive investors should think through whenever they’re investing in deals – what to consider prior to investing, how to think about the deal sponsor, what questions to ask the deal sponsor, and what deal is right for the investor… Because ultimately, there’s all sorts of different opportunities out there, and there’s all sorts of different personalities, and risk profiles, and appetites for risk… So there’s not necessarily a deal that is structured incorrectly, but it might be structured incorrectly for what you want as an investor, at the point in time that you’re investing, and what you’re looking for. Thanks for talking through that, James.

I hope you have a best ever weekend, and we’ll talk to you again soon.

James Kandasamy: Thank you, Joe.

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Joe Fairless and Diego Corzo podcast episode JF1616

JF1616: Software Developer Gets Into House Hacking & Continues To Grow His Investing Business with Diego Corzo

Diego came to the United States as an immigrant with his parent when he was nine years old. He is a DACA recipient and is successfully working full time while building his real estate business. From his first house hack, to strictly investment properties, and even some AirBnb’s, Diego has a vast range of real estate knowledge to share with us today. If you enjoyed today’s episode remember to subscribe in iTunes and leave us a review!

 

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Diego Corzo Real Estate Background:

  • 28 year old DACA recipient
  • Bought first house at 23, started house hacking, now owns 18 doors
  • Based in Austin, TX
  • Say hi to him at http://diegocorzo.com/
  • Best Ever Book: Dot Com Secrets

 


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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, Diego Corzo. How are you doing, Diego?

Diego Corzo: Very happy to be here. I am doing well.

Joe Fairless: I’m glad to hear that, and looking forward to our conversation. Diego bought his first house at the age of 23, and started house-hacking, and he now owns 18 doors. He’s based in Austin, Texas. With that being said, Diego, will you give the Best Ever listeners a little bit more about your background and your current focus?

Diego Corzo: Yes, for sure. Right now I am a realtor in Austin, Texas. I am 28 years old. As you mentioned, I do own 18 doors, but I started young, I didn’t know what I was doing; I read the book Rich Dad, Poor Dad when I was 21 years old, and that definitely changed my mindset of how I wanted to build wealth here in this country. I am originally from Lima, Peru, and I came to the United States when I was nine. My parents overstayed their visas, so now fast-forward years later, I am a DACA recipient; I am one of those Dreamers that people read on the news right now, and I wasn’t able to work or drive legally until the age of 22, but I was able to still make it happen and be able that by 23 I bought a property, and then 28 I have all those other ones, and I do have passive income that pays for most, if not all my living expenses.

Joe Fairless: Since you have been 23, you bought your first house, so that was five years ago, and you started with house-hacking and now you’ve got 18 doors over a five-year period of time… How did you buy your first house?

Diego Corzo: The first home that I bought in Austin, one of them was a four-bedroom home. This was while I was working as a software developer at GM. I bought a four-bedroom home, I lived in the master bedroom, rented out the other three rooms, and the rent from my roommates paid for my mortgage.

I was able to buy that home by putting down 5% with a conventional loan, and ever since then I haven’t had to have a mortgage payment from my pocket, and that’s what has helped me continuing buying properties more and more. The good thing is that by house-hacking, by living for free, it gave me the opportunity to save money and repeat the process, because I was able to qualify for another owner-occupant loan a year later, and that’s how I’ve been able to grow my portfolio.

Joe Fairless: So what lenders are you working with?

Diego Corzo: At first it was really hard to get a loan, but now I’ve been able to work with some that are local here in Austin, with CMG Financial. Then I’ve got in a couple with Quicken Loans. They are able to do loans for the Dreamers with DACA, so I’ve been able to use them… And because of my situation, I’ve also had to partner up with people, so I was able to buy some homes cash with my dad, or with another friend, and then we either do a cash-out refinance, or we just invest cash.

Joe Fairless: So you’ve got 18 doors – are they all in Austin?

Diego Corzo: No. Right now I own two single-family homes that I’m renting out by the rooms here in Austin. I own a few other properties in Florida, and they are mostly in the C areas; they cost me between 30k to 50k. The ones in Austin, of course, cost me a lot more. My first one was 170k, and another one that I bought was 280k.

Joe Fairless: Wow.

Diego Corzo: And then I’m also doing some Airbnbs in Tennessee. I just started doing the Airbnb thing, and so far we’re remodeling some of the properties, and next year we should be going all out with those units and cabins and condos over there in Tennessee.

Joe Fairless: Wow, so you live in Austin, you’ve got two homes in Austin… How many doors do you have in Florida?

Diego Corzo: In Florida I would say around ten doors.

Joe Fairless: Okay, ten doors. How many properties is that?

Diego Corzo: That is four single-family homes, a duplex, and a quadplex.

Joe Fairless: Okay. What city are those in?

Diego Corzo: The two single-family homes, the duplex and quadplex are in Jacksonville, Florida, and then I own two other ones in the Sarasota area.

Joe Fairless: Okay. And then what about in Tennessee, how many units and where in Tennessee?

Diego Corzo: In Tennessee I own four doors, two are condos. The two condos – those are studio units, and then I just recently bought two cabins, so that adds another two doors. The two cabins – each one was 90k.

Joe Fairless: Okay. Where are the cabins?

Diego Corzo: They are in the Gatlinburg area, in the Smoky Mountains. I was just there for the first time a couple of weeks ago and it was beautiful.

Joe Fairless: It is beautiful, yeah. That’s a great place to go vacation for a family. You were just there a couple weeks ago – was that the first time you were there?

Diego Corzo: That was the first time I was there as an investor, yeah. I went there years ago as a kid, with my family, but this time it was nice.

Joe Fairless: So did you purchase the properties prior to visiting them?

Diego Corzo: I did. What happened was I’m a realtor here in Austin, and I was helping one of my investors; he bought two properties here in Austin, and then he began wanting to buy out of state. He bought a couple of cabins in Tennessee and then he ran out of cash, so that’s when he reached out to me, and we’ve been buying some doors over there.

Joe Fairless: So you’ve got property in Tennessee, in Florida and in Texas. How did you end up in Florida?

Diego Corzo: In Florida – that’s where I’m originally from. I moved to Florida when I was nine years old. I lived there for about 14 years, went to college there, went to school there, and my brother is a wholesaler in Jacksonville. I helped him get started in real estate over there, so he runs a wholesaling team, and then he sells homes to his investors, and I happen to be one of his investors… So that’s how I was able to get started over there in Jacksonville.

He introduced me to a property management company… Basically, we buy the homes that are 30k to 50k, and then they are renting out for $650-$700.

Joe Fairless: When you think about your business plan, what’s been most profitable for you – renting out the rooms in Austin, or renting out the duplexes, or the quadplex, or perhaps now the vacation rentals that you’ve just purchased in Gatlinburg?

Diego Corzo: Right now, from all the properties that I’ve been able to do, the most profitable has been renting out by the rooms here in Austin… Because for example my mortgage is around $1,500 on one of them, but I’m able to rent out each room for about $600 or $650. One home, as an example, brings in around $2,400, so it gives me a nice cashflow of $700-$800 after some expenses. But I was able to buy that property, for example, with less than 10k, so the cash-on-cash return I feel has been great, and fortunately here in Austin because of the way that there are so many companies that are moving here, a lot of the roommates work for either General Motors, or Samsung, Intel, Applied Materials, so they have great income; I also do background checks, I find them on Craigslist… So I ask them the right questions, and then fortunately I haven’t had many issues with the roommates so far, and I’ve been doing it for years.

Joe Fairless: What has been a challenge that you’ve come across on one of your properties?

Diego Corzo: On the roommates side, there was a lady – she lived in the master, and then there was another guy living in one of the other rooms… And that guy had his girl over, and I guess they were being very loud at night, so one of the other roommates was complaining to me, and then the guy was saying that she got jealous, and all this other stuff.

They were arguing and I had to get involved, but it just happened that one of their leases was ending soon, so then one of them just left, and after that everything went well with the home… But it’s definitely something to consider if I would be having different types of roommates at the house.

Joe Fairless: What’s a deal that has disappointed you the most so far? It doesn’t mean it’s a disappointment, but it just disappointed you the most relative to your portfolio.

Diego Corzo: Yeah, I would say there was one house that we bought with my dad. It was 27k, and at that point we didn’t put insurance on it, and there was a hurricane that happened in Florida, so we had to pay 4k or 5k to take care of some stuff on the roof, remove a tree, and just make a couple of repairs that needed to happen. For example, that was something that wasn’t expected, so it just happened… I wouldn’t say it’s bad timing, but it just happened, because we didn’t put insurance on the property.

Joe Fairless: And when you take a look at your portfolio, what direction do you wanna take it? Because you’ve got vacation rentals you’re renting out, single-family homes, and you’ve also got the traditional duplex or triplex approach…

Diego Corzo: Right now, because of everything that’s going on on the immigration side of things, I’m still working on long-term investments. My goal right now is to get to $10,000/month passively. If I can do that, I will be extremely happy. I plan on probably buying — so if I continue to invest in Austin, I’m only gonna be doing the renting by the rooms, just because it’s a lot more profitable. The market here in Austin has skyrocketed, which means that there’s very little cashflow (if at all) if people are gonna be investing here, on the residential side if you get a home from the MLS or anything like that. So I see myself continuing investing and using the house-hacking strategies, or continuing doing Airbnbs with other partners.

Joe Fairless: About how much does 18 doors bring in a month passive, since 10k is your goal?

Diego Corzo: Right now I would say I have about 5k-6k coming in a month.

Joe Fairless: It’s 18 doors, so that’s about $305/door; I think I did $5,500. So essentially doubling the amount of units then is what you’re looking to do.

Diego Corzo: Yeah, that would be ideal.

Joe Fairless: In terms of renting rooms versus the actual home itself – let’s just use one of your Austin homes for example… What do you make on one of the homes, and then what would you make if you just rented it to a family?

Diego Corzo: In my Austin home – I’ll use the first one that I bought… I bought it for 170k. Right now I’m getting around $2,400/month, so I’m making a spread (subtracting the mortgage) around $1,000, or $900. If I were to just put a family there, put it on the MLS, I’m guessing that it would rent out for $1,650, so it would not be cash-flowing much in that sense, once you allot for either expenses or property management. The ones that I have in Austin, I manage them myself, so I’m able to get something that the normal investor would cash-flow $100/month in that sense, and I’m house-hacking it in a way that I’m able to make around $900.

Now, the idea is to do that multiple times, so that for somebody that has a full-time job and wants to get started in real estate, I would say buying a home, living with roommates, and then continuing doing that, because people are able to buy it putting 3,5% with an FHA loan, or 5% on a conventional loan… So the barrier of entry is pretty low for somebody that wants to reduce their expenses and be able to live with roommates, or that they can either have extra cash to travel, or have money to start their own startup, or get the car that they really want.

Joe Fairless: What type of management process or update should be considered when determining if we should rent out rooms, versus rent it out to one family?

Diego Corzo: I would say that renting out by the rooms there is definitely more involvement, I would say… Because I’m the one that buys the furniture for the common areas, for example… So I buy the sofas, the furniture, and stuff like that, and then the roommates will bring their own furniture for their rooms.

As far as having the roommates, each of them have their own lease, and they end at different times. From my experience, there are some roommates that wanna stay for like a year, others are okay with three months or six months, so there’s definitely more involvement. So if you’re able to [unintelligible [00:15:42].20] There’s a property management company here that does it for 11% or 12% of the gross rent, and there’s other companies that would do just the house, put a family in there for 6% or 10%. So it will cost you a little bit more if you were to hire a property management company to do it, but I would say if you wanna manage it yourself, there’s just a little bit more involvement.

There are different ways to make it – for example, I put the ads on Craigslist, I get a lead that wants to live in the property, I schedule a call, I ask him a couple of questions, and then I send them a YouTube video of the house of me doing a walkthrough, so that if it’s really the house that they wanna live in, then I schedule a time for me to show it to them… Because I don’t wanna waste my time, drive to the house, and then they walk in and they’re like “Actually, I don’t wanna live here.”

Then another thing that I do is if I have three or four people that want to see a room, for example, I schedule them all within an hour, so that as they’re coming in, I’m only there one hour, I talk to four, and then I create urgency. Then I send them a link to apply, and it becomes first come, first served, at that point.

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

Diego Corzo: My best real estate investing advice is invest for cashflow, don’t hope on appreciation… And try to just get to first base, rather than hitting a home run on your first deal. Because a lot of people trying to hit a home run in their first deal get them afraid of not even getting started; then they just wait, and wait, and wait… And while I’ve had friends or clients that wait, I already bought multiple properties.

Joe Fairless: Yeah, and your first comment about cashflow, not appreciation is so true… Because if and when a market correction takes place, that’s gonna be an important part of a real estate portfolio – a cash-flowing property, versus just hoping that appreciation is continuing.

Diego Corzo: Yeah, that’s for sure.

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

Diego Corzo: Let’s do it!

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

Break: [00:18:05].22] to [00:18:55].27]

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

Diego Corzo: Best ever book I’ve recently read… I would say DotCom Secrets, by Russell Brunson. I’ve just read that one.

Joe Fairless: What’s the best ever deal you’ve done that we haven’t talked about in detail already?

Diego Corzo: I would say the quadplex. The quadplex cost me around 100k, and I bought it cash with a friend of mine, and it grosses around $2,100. We did a cash-out refinance recently and we got around $70,000 back. For me, I have very little money in the deal, and it’s cash-flowing great.

Joe Fairless: How do you structure that with your friend, on that 100k cash purchase?

Diego Corzo: This is an interesting situation, because at that point I had 70k and he had 30k, but I knew that in the future I allowed him to buy another property with his own money, and just add it to our portfolio. For example, I put in a lot of the money on the quadplex, and then we bought a duplex for 30k, we put in 20k, and right now we’re gonna be putting it on the market, but he put in all that 50k. So now we’re sort of 50/50, and I was able to add another two properties in my portfolio, while I’m the owner of 70%. I make 70% of the money, but now that we are gonna be adding more properties in our portfolio, that’s when we structure the earnings to be 50/50.

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

Diego Corzo: A mistake I have made… I would say recently it was me not asking — because I invested out of state, there was this one property that had a detached garage, and I forgot to ask the inspector if he actually was able to get into that. I forgot to ask him, and when we got the crew to go out there to give us a bid, it added another (I believe) 3k. They had some stuff to do in the garage, so… I just had to cut the losses there.

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

Diego Corzo: Best ever way I like to give back… I would say by sharing my story, because I came from not being able to work or drive until I was 22, to not the properties that I have, to give them a sort of inspiration, and to teach millennials that it’s definitely possible to house-hack, to get started in real estate at an early age, so that they don’t have to just be focused on their retirement account once they’re 65, they can actually achieve financial freedom in their 20s or 30s.

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

Diego Corzo: They can actually go to my website, HouseHackingClub.com. That’s where they can check out a little bit more videos of all of my projects, and just get more detail on how to get started with house-hacking.

Joe Fairless: Diego, thank you so much for sharing your story and the types of investing that you’re doing, from renting out the rooms in single-family homes in Austin, to purchasing vacation cabins in Gatlinburg, Tennessee, and doing the more traditional thing in Florida, in Jacksonville and in Sarasota, as well as talking about your thought process for why you approach certain things the way you do, and how you structure deals creatively with business partners too, and getting into the specifics there.

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

Diego Corzo: Thank you very much, Joe. Have a good day.

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Joe Fairless and Will Deane

JF1418: Using Digital Marketing to Increase Your Real Estate Investing ROI with Will Deane

Will became an expert in his field by happenstance. In his words, becoming a digital marketing expert “just kind of happened”. We’ll get tactical advice from Will of what we can do to expand our business and/or brand. If you enjoyed today’s episode remember to subscribe in iTunes and leave us a review!

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Will Deane Background:

  • Successful entrepreneur as a digital marketing and eCommerce Expert
  • Has built and scaled several multi-million dollar businesses
  • Say hi to him at https://www.unstoppable.co/
  • Based in Austin, Texas

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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.

First off, I hope you’re having a best ever weekend. Because today is Saturday, we’ve got a special segment, like we normally do, Situation Saturday. Here’s the situation – you need to do a better job at digital marketing.

We today have a guest who is an expert in digital marketing. He has built and scaled several multi-million dollar businesses. He’s a successful entrepreneur as a digital marketer and e-commerce expert. How are you doing, Will Deane?

Will Deane: I am doing great, Joe. I really appreciate you having me on your show.

Joe Fairless: Yeah, looking forward to our conversation. So I guess it would be good to start if you could just let the Best Ever listeners know a little bit more about your background, and then we’ll get into using digital marketing to increase our real estate investing business ROI.

Will Deane: Absolutely. So I’ve always been an entrepreneur, and I never woke up once like “Oh, I wanna be a digital marketer.” It kind of happened by chance. I’ve built an e-commerce company in 2011 that I ended up selling after a couple years, and throughout that process — which was in the building industry… But throughout that process I was always hiring different contractors and marketers and people to kind of help us scale, and I realized that the only person that can really be in charge of their destiny, of their company, or growing, is myself.

So I’ve decided to take that role on, on learning everything I could back in the day about buying traffic, social media marketing, to get clients and customers. Then once we ended up selling the business, I would get a  lot of colleagues and friends asking me “Hey, how did you do that? Could you help me with ours?” and really what it turned into was I had to hire to help other businesses, and then it kind of turned into an agency on itself.

So that’s the short story of how I got to where I am today and how I fell into the marketing scene.

Joe Fairless: What’s your area of expertise as it relates to digital marketing?

Will Deane: I would say it’s pretty vast. When we first started, it was more so on the performance side. Really a lot of e-commerce brands came to us because they wanted tangible ROI… And after we were able to prove ourselves, like “Hey, we’re gonna be your best salesmen online”, we got heavy into the brand side of things… Because brand establishes trust, and ultimately trust is one of those things that makes people want to buy from you or want to work with you.

So we do brand, we do e-commerce, we do local business, we do pretty much everything you can think of if it involves online and scaling online… But a lot of people think digital marketing really is traffic, and it’s way more than that. It has to do with building relationships online, so there’s a lot of different pieces that go into it.

Joe Fairless: Yes, I love that approach. So what are some tactical things that we can do to build relationships online, based on your expertise?

Will Deane: I think that putting a personal touch on things is probably the most important. A lot of the brands you see out there, whether infomercial late-night, or you’re getting targeted online – they’re using a character or some type of avatar to establish trust. There’s a spokesperson per se, and that spokesperson is somebody that’s supposed to relate to the customer, or at least establish a personal connection between the business and the consumer or the other business that’s ultimately gonna buy or work or use their service.

So I always tell people, don’t try to go out there and sell… Go out there and try to add value, and then establish a personal connection. And I know that’s easy to say and harder to do. I would say try to not think too far ahead when getting online and doing any type of marketing. Try to just work in the Facebook groups or work with your e-mail list or work with your connections or Instagram or locally, and actually get to know them and start a conversation… Because that’s where it really goes – it’s all in the conversation that’s gonna help you grow anything online.

Joe Fairless: How do you start a conversation with an e-mail group?

Will Deane: I wouldn’t say e-mail group, but like your e-mail list. Let’s say that over time you’ve been able to collect an e-mail list because they’ve been interested in your service… You know, one of the best ways to do it, even though you’re a business or a contractor or somebody offering a service, is to not go and reach out to your e-mail list with that service first. Go reach out to them with something that might help them.

If you’re in real estate, for example, and you had a listing – or whatever it is – as opposed to just telling people about the listing or telling people about a new construction that you have going on, tell them about something in the area that’s interesting, that might pique their interest about how the rates are lower.

Give some value to people to get them to pay attention… Otherwise, you just are approaching them so much so with “Hey, listen to me, buy from me, work with me” versus “Hey, I’ve got really good insight on this stuff. I’m gonna help you out. Even if you don’t work with me, I’m still here to help”, and that ultimately is gonna create a deeper relationship and then clients.

Joe Fairless: Do you have a case study or example about it, that illustrates that point?

Will Deane: Yeah, sure. On the building side I wouldn’t say as much so, but I can definitely correlate that to an e-commerce site, and I’ll even go as far as to clients that we have. Almost every single client that we have is a personal referral. It’s somebody that’s been told by their friend, “Hey, you’ve gotta work with these guys. They’re really honest, really straightforward.”

So whenever I go out and I prospect or I decide to go look for more clients or more business, usually what happens is I find that I’m approaching somebody after I’ve seen their marketing. So I see somebody online that I’ve been targeted by, or maybe there’s something not right about it and I’ll reach out and say “Hey look, I love what you’re doing, I love your brand, I love everything about it. I’m not here to tell you how to run your marketing or any of that stuff, but I have some extra time and I’d love to point you in the wrong direction, because I think you could be doing this a little bit better.

If you ever need somebody to lean on to help you kind of gauge that stuff, I’ve been in your shoes  before and I’ve built a business, so I would be more than happy to help you on your way. Don’t think I’m soliciting my services to you, because I’m not trying to charge for this… I’m just literally coming to you and trying to point you in the right direction because I think you could be doing something better.”

Obviously, it’d be great if they worked with me, but I’m genuinely coming from a point of “I wanna help these guys out”, and what ends up happening is that comes back to me. Almost every single client I’ve got has been able to lean on me for questions and ultimately they wanna work with us, because we’re very transparent and we do provide that value-first approach, if that makes sense.

Joe Fairless: How scalable is that approach?

Will Deane: I think that on a corporate level it’s not as scalable. It depends on what the product is. I think that it does kind of tie back to — so I’m giving you a use case that’s like me personally getting clients… So at a corporate level, at very large scale, if we had a 100-person team, maybe not… But from a business perspective, I think that a lot of businesses are so focused on just selling the offer, when they could be providing really deep content to their community, and because of the content that they provide, they become a trusted source in the community. Becoming a trusted source ultimately allows people to trust you.

Mine was super specific, but this kind of idea about not just trying to sell people, but actually helping them and providing value – which I wouldn’t say lowers the trust threshold, but really people are more attuned to opening the e-mail, because they’re not just getting a sales e-mail. They’re more attuned to paying attention, because they might actually learn something from it, as opposed to being sold at.

So as a business, a corporate business or whoever you are, trying to help or provide value actually seems to work really well, and I do believe is kind of the turning point in the next few years of how businesses are going to be able to scale.

Joe Fairless: I love the approach. Let’s say that a Best Ever listener is listening and they’re like “Yes, I’m on board, Will. I agree, the brand establishes trust, I wanna build the relationships, and I am confident that over time that will result in the business.” So let’s go one level deeper and more specific… What are some tactical things that we can do to implement that advice?

Will Deane: Some tactical things are get to know your niche and your customer better. I think that depending on what real estate niche you’re in – is it just investing, is it building, is it all the above? …really understanding the customer, the area, what you invest in, and then trying to come up with — I guess trying to be a resource for the people that you’re working with. Don’t just try to sell them.

Obviously, if you have a great offer, that’s gonna sell itself, but try to find things that are gonna help the people you could potentially work with, and that will kind of help you grow. I know I’m being a little vague when I say that, just because there’s so many different niches within the real estate investing side of things, but trying to go deeper… If I put myself in somebody’s shoes that I guess was looking for investing in housing communities per se, I would try to find who are the people that are buying these properties, and I would try to be a resource of information to help them make those decisions… And ultimately, because we’re a trusted source, helping those people, they’re coming back and they’re taking a harder look at our company and what we provide and what we offer, if that makes sense.

Joe Fairless: What are some ways that we can get to know our customer better, that you’ve implemented?

Will Deane: Aside from the value-first approach, I think that a big thing that I’ve seen – and I’ve worked with a lot of people – is personal branding. So you have a company, but people are ultimately working with a human, so getting your face out in front of your business is really important. Otherwise, people are just reading a piece of paper or a web page, and I think that a lot of realtors, a lot of investors that I’ve talked to and I’ve worked with – they close more deals when they are sitting down in person with their clients. That’s a personal touch.

One of the ways that that kind of relates back to marketing and some of the guys I’ve worked with before is you keep advertising your company, which is great, you should, but when is it time for you to put your face out there as well? I think that doing that really adds that personal touch and people are more attuned to that and they’ll give you their information, their phone number they’ll fill out a lead form, or they’ll come to you and ask you questions. Being able to connect with people on the other end is gonna get you those deals.

Joe Fairless: Anything else that we should talk about as it relates to increasing the ROI of our business through branding and digital marketing that we haven’t discussed?

Will Deane: We could talk about specific platforms. I think a lot of people — I don’t know how skilled everybody is at digital marketing, but Facebook is a really great platform for people to start finding different projects or buyers or lenders in the real estate side.

I used to work with a very highly talented hard money guy in Los Angeles, and his main source of clients and transactions and deals off the MLS really came through digital stuff we did on Facebook. So if you’re just starting out or you don’t really use digital marketing or online resources, I would say look into Facebook, look into your local community, join a bunch of different Facebook groups. There’s tons of information in different real estate Facebook communities and groups that can help you kind of get a leg up… And then find some professionals or somebody you trust or a personal resource or referral that could help you guide you on how you might be able to use the Facebook platform to increase your leads or deals.

Joe Fairless: How can the Best Ever listeners get in touch with you and learn more about your company?

Will Deane: Absolutely. Unstoppable.co. Follow me  on Instagram, @willdeane, or just google me. I show up pretty quick. I’d be happy to help and point you guys in the right direction if I can help in any way.

Joe Fairless: Will, thank you for being on the show, talking to us about how we market ourselves online and how by focusing on building relationships, taking a long-term approach, we’re gonna get more business. And the tactical one-two punch for how to do that is first we’ve got to get to know our niche and customer better, and then once we do that, it’s simple – we’ve gotta be a resource for people that we’re working with… Help them get whatever they’re looking for, whether they work with us or not… We’ve got their back. When we approach it that way, things are gonna work out.

I’m really grateful that you were on the show and talked to us about that… So thanks again for being on the show. I hope you have a best ever day, and we’ll talk to you soon.

Will Deane: Absolutely, Joe. Thank you for having me. I really appreciate it.

 

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Scott Smith and protecting your investments

JF1275: How To Protect Your Investments & Hide Ownership Of Assets with Scott Smith

Scott and his colleagues realized that there is a massive amount of bad information on the internet when it comes to asset protection. He set out to find and teach others a better way. Today Scott is here to tell us about setting up a series LLC to protect your assets, hide ownership, and not cause you a headache with your taxes. If you enjoyed today’s episode remember to subscribe in iTunes and leave us a review!

 

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Scott Smith Background:

-Owner of Royal Legal Solutions, provides business, tax, and legal solutions exclusively for real estate investors

Spent 8-years deconstructing real estate investing, developed strategies to protect your assets from devastating lawsuits, maximize tax savings, and more

-Prior to RLS he was an aggressive litigator who brought suit against major insurance companies

-Say hi to him at https://royallegalsolutions.com

-Based in Austin, Texas

-Best Ever Book: Four Hour Work Week by Tim Ferris

 


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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, Scott Smith. How are you doing, Scott?

Scott Smith: I’m doing great today, Joe. Great to be with you.

Joe Fairless: Well, nice to have you on the show, my friend. A little bit about Scott – he is the owner of Royal Legal Solutions. They provide business, tax and legal solutions exclusively for real estate investors; estate planning, asset protection – all that good stuff. Based in Austin, Texas. You can say hi to him and his company at their website, which is in the show notes. With that being said, Scott, do you wanna give the Best Ever listeners a little bit more about your background and your current focus?

Scott Smith: I’m a real estate investor myself, and 100% of my clients are real estate investors. And what we started doing was we realized that there’s a lot of really bad information all over the web, that really conflicts on different types of legal strategies and what not, so my company was founded to really just help people that are real estate investors, because there’s just enough there to tackle, instead of going super broad.

So the one niche thing that we really reined into is how do you protect your assets using company structures, and hide your ownership of the assets and of the company, and do that in a way where it’s not gonna cause you a headache with your tax preparation, accounting and what not.

The idea is to say that as investors we make the most amount of money finding really good deals, so let’s have a system for our taxes and our company structure that we can do almost like a set it and forget it type piece. Because you don’t make any money by being really good at law as an investor, right?

Joe Fairless: So how do we protect our investments, hide the ownership and not cause headaches with taxes?

Scott Smith: The number one way to do that is gonna be using a series LLC, which you can establish in a couple of different states. I like to establish them through Texas, not just because I live here, but because Texas is the cheapest and has the best protections. A great thing that a lot of people don’t know is that you can establish a company structure in one state and use it in any state.

I commonly hear “Well, I can’t use an LLC in my state, because I live in Alaska”, but the truth is what you can do is establish something here in Texas, and use it anywhere. That’s really gonna buy the best protection for you, because a series LLC is really awesome in that it allows you to scale infinitely with the best protections at no additional cost. How awesome is that?

Joe Fairless: No additional cost meaning you don’t have to create new LLCs…?

Scott Smith: That’s right. And it doesn’t complicate your taxes at all, because everything streams up through one tax ID number. So if you have 15 properties, you’re not having to look at 15 different EIN numbers and bank accounts and whatnot, that you would if you had individual LLCs.

Joe Fairless: And then I’m sure the common question you get is “That doesn’t trigger a domino effect if one property gets foreclosed on, or someone sues it…? Is it not a domino effect for the others?”

Scott Smith: That’s really the biggest benefit of the series LLC, is that each individual child series that it creates is treated like an individual LLC. So every property is compartmentalized. A lawsuit against one property doesn’t affect any of the others.

Joe Fairless: What are some of the other advantages of it?

Scott Smith: The biggest advantage is the scalability and the cost savings and the ease of being able to scale with it. When you combine that with the anonymity trust… And that works on two levels. There’s two levels of anonymity that every investor should be using. There’s a really expensive way to do this, and there’s a cheap way to do it.

The really expensive way to do it is to have the company owned ultimately by a Nevada or Wyoming LLC, because they don’t have public disclosures on who the ultimate owner is, which is the client’s name we’re trying to protect… But that means you’re gonna have to start paying for all these additional LLCs and yearly costs associated with each one of them.

The cheap way to do it that’s just as effective is using a trust. You can have the trust that will own the LLC, and that allows you to be able to accomplish all of the anonymity with none of the ongoing costs associated otherwise.

The second important piece of the ownership for the assets is gonna be what happens at the property level. So each individual property would also need its own anonymous land trust associated with it. What that does is that prevents anybody from being able to search the property records and find out that that property is connected to you, or to your company… Which is really the first piece of stopping litigation. Because if people can’t find out that you own stuff, they don’t think to sue you.

Joe Fairless: If there was someone who was on this call, and they weren’t a fan of a series LLC, what would they be saying?

Scott Smith: The number one critique is that the series LLC is “untested” inside of courts. There’s not a lot of court cases that treat it, and people erroneously think that because there isn’t a lot of court cases that we don’t know whether they’re a good and viable entity. This information is flat wrong, and it’s what everybody is saying.

The reality is the law is what the legislator passed, and we call those statutes. And the statues are very, very clear on exactly what they mean. You can pull them up online, read it yourself. Any layperson can even understand what the legislator is writing in terms of the series LLC statute. The reason that you don’t have court cases is because courts can only interpret the law. If the law is very clear, then it’s not worth the $50,000 or $60,000 it’s gonna take to take a case up through appeal, to argue it… So you’re not gonna find court cases there.

So it’s actually the reverse – people say “We don’t know whether it will be held up because we don’t have court cases”, I say “The law is very clear.” What you should really be focusing on in effect is nobody has even tried to challenge it, because the law is so clear. It bolsters the strength, it doesn’t weaken it.

Joe Fairless: How much does it cost to put together a series LLC?

Scott Smith: The typical points that we’ve looked towards for asset protection – they say you should never be spending more than 3% for an asset protection structure to protect how much equity you have. So if you have $100,000 in equity, don’t spend more than 3k to set up everything that you’re gonna need there. When we look to say “What does every individual need?”, it’s really particular… I would say you could go as low as $1,000 to $1,500, depending on your state, to upwards – more of the series LLC with all the anonymity structures, you might be looking at more to the $4,000 to $5,000 range in the marketplace of attorneys that are like me.

Joe Fairless: So you’re an attorney…

Scott Smith: That’s right, I’m an attorney and this is what we do as part of an offering that we do.

Joe Fairless: From an estate planning standpoint – so we talked about asset protection, and a bit about estate planning… What other suggestions do you have from an estate planning standpoint?

Scott Smith: So estate planning – a lot of people do it where it actually requires a lot of maintenance every year, Joe… Because what they’re doing, Joe, is that they take all of their assets and they’re gonna deed them directly into the name of their living trust. Because every estate plan, you’re typically using a living trust, and a second piece called a pour-over will. The living trust is the piece that actually controls all of the assets. So people will deed all the properties to the living trust, but throughout your life, you’re changing around what assets go where, what’s the bank account numbers, buying and selling properties etc. So this is actually a really poor strategy to just have the living trust in place, because it’s a constantly changing scope of what assets are actually being held by the trust, versus being held in your personal name… And there’s no protection associated with the living trust itself for your estate plan.

The better solution is to establish an LLC or a series LLC to be your asset holding company, then all of the assets are going in and out of your asset holding company during your life, just like you’re normally gonna do to run your business and manage your affairs while you’re alive, and then what you use is your estate planning piece of the living trust to say “My son is gonna get 25% of everything that’s part of my living trust. My daughter is gonna get 50%, because I love her just a little bit more.” That way, you never have to modify anything more than you would have to do anyway during your life, because you’re gonna be managing the assets of your asset holding perfectly, so you don’t ever have to think about “Oh, I need to update these estate planning documents every six months because we’ve done all these changes.”

Joe Fairless: Got it. You might update the ownership of the series LLC, but you won’t have to update the items within it.

Scott Smith: Yeah, so the estate plan piece, the living trust – you don’t have to update anything with that, because that’s kind of like a set it and forget it, unless all of a sudden your son decides that he wants to marry that floozy that you never liked and you wanna disinherit them, then that’s where you would nail him on that one.

Joe, let’s say you had ten properties that were going in and out of your LLC that you used to hold all of your assets. You would be managing the buying and selling of those properties out of your LLC anyway during your life, because that’s how you’re gonna conduct your business. Your estate plan is just gonna say that your son gets the 25% of that LLC, and your daughter is gonna get 50% of the LLC, so there’s no change of ownership documents that are happening. All of this extra work that would have to be done on updating documents doesn’t happen because everything is accomplished on moving the properties in and out of an LLC, they’re not done by changing ownership of the LLC itself.

Joe Fairless: Got it. You’re staying higher-level on what you’re updating, and that’s only in circumstances where you give someone more or less equity or you bring someone else in…?

Scott Smith: Yeah, that’s right.

Joe Fairless: Okay. You mentioned in the beginning – and you probably talked about some of these items, but I’m wondering if there’s anything else that we haven’t talked about that is relevant… That there’s a lot of bad information out there. What are some other bad information that’s out there?

Scott Smith: Another common piece I hear about is that people seem to think that insurance coverage is enough, and you’ll hear this from CPAs and a lot of keyboard warriors; they’re very famous. They’re saying, “Oh, you just run your business right and insurance will take care of you and you’re fine.” There’s a fundamental disconnect here, because these people that are saying this actually don’t even understand the nature of the risks that they’re engaging in.

The insurance protects you against different kinds of risk than a company structure does. Insurance protects you from accidents, like somebody slips and falls on your property – that’s a great one to have insurance take care of. I always have great insurance because of that reason. Insurance is designed for that.

Insurance doesn’t cover you for catastrophic events that could happen. So anything that would happen in the buying and the selling of a property – not covered by your insurance. Grandma falls through the staircase and has permanently disabled – definitely not gonna be covered by insurance. You know why? Guess what business the insurance companies are in the business of? They’re in the business of collecting premiums and denying coverage when it gets expensive. So when you have catastrophic events that are happening, the insurance companies will find a reason to deny you coverage.

So the insurance is important because on all of the small things that might happen, they’re gonna take care of that piece of our life and we don’t wanna have to deal with those low-level nuisance issues. But the company structure protects you when something really catastrophic happens, and the company structure provides a stop gap to say “I know the extent of my loss is gonna be limited to exactly this, no matter what.” That’s what you want. Because one lawsuit is enough to wipe out millions of dollars, and all it takes is one to get through for that to happen, and I’ve seen it happen, unfortunately.

Joe Fairless: You said you’re a real estate investor, so with how you have things set up – you’ve got a series LLC and you’ve got the… I think you call them “child LLCs” – did you call them that?

Scott Smith: That’s right, yeah. What you refer to is that you think about the series LLC as a parent/child structure. It has this parent LLC that’s filed with the state, and then this parent LLC can have as many children as it wants, and each child we call a child series. It’s a plural name, but it’s an individual thing. So you’ll have series A, series B, series C – that’s all inherently part of this series LLC, and each child, just like human children, are free to create.

Joe Fairless: And what’s the ongoing fee to maintain that? Is it just what a normal LLC would be?

Scott Smith: No, there’s no fee. No matter how many individual child series you get, there’s no additional fees; no matter how big you scale. The only fee that’s associated with it is the same fee you would associate with any other LLC, because the parent itself has to have a registered agent and file franchise taxes… But that’s the same as our traditional LLC, the normal one that you would think of.

Joe Fairless: And I imagine that’s how you have your stuff set up.

Scott Smith: Of course, yeah. I have all of my stuff set up with a series LLC and anonymity. You’re not gonna be able to find my name attached to anything, and that’s how I like it, except for I have operating companies that I use to shield any liability let’s say that a contractor wanted to sue me, or a tenant wanted to sue me… All of those business dealings are always done through a shell LLC, and that’s just a normal, traditional LLC that we have set up to be able handle those types of liability. Because what I want is people to only be able to sue the entity that has nothing. So if I’m not a member of the contract but my LLC is, if something goes wrong, they can only sue the LLC, they can’t sue me.

Joe Fairless: Based on your experience – we’ll stay on the legal front, versus you as an investor, but certainly that helps with the conversation… Based on your experience with asset protection and estate planning, what is your best advice ever for real estate investors?

Scott Smith: The best advice I can give you is to work off of one platform that you can understand, implement once and then use for forever. What I see people that end up in trouble is they try to set up systems where they don’t fully understand them at the front end; they never quite fully understand them, and they will end up doing things that are wrong, that have adverse tax consequences.

So really what you want is a really flexible system that allows you to be able to change what it is that you’re higher operating, without having a bunch of costs associated with it.

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

Scott Smith: I’m ready.

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

Break: [00:16:59].17] to [00:17:51].25]

Joe Fairless: Best ever book you’ve read?

Scott Smith: The 4-Hour Workweek by Tim Ferriss.

Joe Fairless: Best ever deal you’ve done as an investor?

Scott Smith: I made $150,000 just by being able to coordinate two people to buy, as a broker. Basically, I wholesaled a deal inside of ten minutes.

Joe Fairless: How did you find that deal?

Scott Smith: I had a contact. I had a good network, they knew that it would take somebody like me to be able to negotiate with one of the parties, because they were an exceptionally difficult person to deal with… But that’s one of my talents – being able to talk to people.

Joe Fairless: Best ever negotiating tip?

Scott Smith: Always make them make the first offer. You never know what people are gonna be willing to accept.

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

Scott Smith: I didn’t verify all of the fundamental paperwork. It was a bank, and that person was saying that they were gonna be able to get financing on a particular deal to close on it, and I didn’t verify it with the bank, to be able to make sure that all of the terms were correct… So I got defrauded.

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

Scott Smith: I run groups to be able to help entrepreneurs, to be able to hone their businesses that are giving back to the local community. People don’t know this, but every non-profit, at some level, is actually a business, and I find that the more that I can help those people, the more good that they can reach out and do.

Joe Fairless: And how can the Best Ever listeners get in touch with you and learn more about your company?

Scott Smith: We have the website, RoyalLegalSolutions.com. You can also reach out to me personally at Scott@RoyalLegalSolutions.com, or we have a hotline set up for you to call. It’s 512-757-3994. We help people all over the United States, no matter where you live or what type of real estate endeavor you’re going into. We can either help you or point you in the direction of people that can.

Joe Fairless: Well, Scott, thank you for educating myself, and perhaps some Best Ever listeners, on the pros and cons – primarily pros – of the series LLC and how you use it in your own investing endeavors, and how it can be applied to ourselves, as we go about wanting to limit our liability and make sure our asset protection is not only as protected as we can be, but also as maintenance free as possible, in a simple way to understand things.

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

Scott Smith: Great, Joe. Thank you.

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Bruce Petersen and Joe Fairless

JF1274: Challenges That Syndicators Face When Executing Their Business Plans with Bruce Petersen

Bruce started his career as a stock broker. Around 1991 the market changed some and he was not able to make a lot of money in his career anymore. After an 18 year stint in the retail industry, Bruce started educating himself in real estate. His very first deal was a 48 unit syndication in Austin, Texas. Now he only looks at 200+ units and shares his experiences on podcasts for people to learn from. If you enjoyed today’s episode remember to subscribe in iTunes and leave us a review!

 

Best Ever Tweet:

 

Bruce Petersen Real Estate Background:

– Owner of Bluebonnet Asset Manager  

– Serial syndicator of large multi-family properties ranging in size from 120-292 units.

Awarded the Austin Apartment Association Independent Rental Owner of the Year for 2016

-Awarded the National Apartment Association’s Independent Rental of the Year for 2017

-Say hi to him at www.apt-guy.com

-Based in Austin, Texas

-Best Ever Book: Rich Dad, Poor Dad

 


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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, Bruce Petersen. How are you doing, Bruce?

Bruce Petersen: Good, man. How are you?

Joe Fairless: I’m doing well, and nice to have you on the show. A little bit about Bruce – he is the owner of Bluebonnet Asset Manager. He is a serial syndicator of large multifamily properties ranging in size of 122-292 units. He was awarded the Austin Apartment Association Independent Rental Owner of the Year in 2016, and the National Apartment Association’s Independent Rental Owner of the Year. Congrats on those two awards! You can say hi to him at his website, which is in the show notes page. Based in Austin, Texas… With that being said, Bruce, do you wanna give the Best Ever listeners a little bit more about your background and your current focus?

Bruce Petersen: Sure. My background – I’ve started my work career as a stockbroker, believe it or not, in the early ’90s. I was the guy that went to college because he was supposed to go to college; he should have not gone to college. I was going for a finance degree, and I wasn’t the best student in the world. I applied for a job, and I got a job as a stockbroker, so I’ve decided to quit school and never went back.

That lasted for a little while, until the market kind of changed on me in ’91. I wasn’t saving any money, so I was going hungry as a full-commission stockbroker. I did that for a little while, and I had to get out of that because I was not eating. I fell into retail, actually, which was not exactly fun, but I did it for 18 years, finally hit a wall in the end of 2007… I decided I couldn’t keep doing the 90 to 110-hour weeks, I walked away from that, and started doing —

Joe Fairless: What retail were you doing?

Bruce Petersen: It was big box store retail. I ran stores from Best Buy, Bed, Bath & Beyond, [unintelligible [00:03:53].17] I did that for a long time. Like I said, I basically drilled myself into the ground. I guess you’d call me somewhat retired at 43. I was a Dave Ramsey guy that lived way below my means and invested my money wisely, so at 43 I was able to walk away from the retail gig and started educating myself on real estate… Because you always hear about real estate, but I didn’t know anything about it.

So I educated myself, got rolling in 2012, bought my first property as a syndicator, a 48-unit property in North Austin, sold it two years and four months later for about a 300% profit, and it’s just been the best thing I’ve ever done. We’re up to — currently, we own 860 units spread over four properties as syndicators, and we are a partner in a 250-unit here in Texas also.

Joe Fairless: The 43-unit, the first one that you did in 2012, why did you syndicate it versus doing a joint venture partnership?

Bruce Petersen: Because as a syndicator, the way I structure my deals, the people that invested with me, they still had a life; they had a family, they had a job to go to… They didn’t want any part of operations, they didn’t want any role in the company at all, so they were willing to be silent investors or basically limited partners. It just made for an easier deal for them, an easier deal for me… I was the sole operating partner, so I could move quickly and do the things that I needed to do without having to consult with anybody else.

Joe Fairless: What is the threshold for when you do a syndication versus a partnership or neither, because it wouldn’t be worth your time?

Bruce Petersen: The only thing I ever do is syndication, so I can’t really speak to the other stuff. Now, the one thing that I would do is just be an independent owner without a syndication behind me, but [unintelligible [00:05:42].27] on joint ventures because typically joint ventures are partnerships; there’s equal say at the table, it’s hard to make moves a lot of times, you get things locked up… I’ve seen friends around me do it, and it can work and it can work very well, but it also has the tendency to get kind of bogged down because you can’t come to a consensus. So the syndication is all we will ever do, unless we go out and start buying our own stuff at some point.

Joe Fairless: Let me rephrase the question – what is the lowest threshold, whether it’s unit size or price point or whatever, that you would do a syndication, versus you wouldn’t do the deal?

Bruce Petersen: I gotcha. Really, I would syndicate anything. Where we are now though, we’re not looking to do anything below 200 units. But again, my first deal was a 48-unit. I’ve got friends that get started in the business with a 12 to an 18-unit property and they’ll syndicate that just to get a ball rolling, because once they get some experience, they can start getting into a little bigger and better loans, some non-recourse debt… So a lot of people will actually syndicate their very first deal on very small stuff, but again, for myself, we’re only looking at 200 units and above now.

Joe Fairless: I’m surprised on the 12-unit, because there’s legal costs involved in putting together a private placement memorandum and all of that, so I would think unless it’s a high price point per unit, I would think that the cost would  be prohibitive to do a syndication on a 12-unit, but clearly they’re finding a solution for that. Do you know how they’re able to find a solution for that?

Bruce Petersen: First of all, the guy that I use – and it’s the person that I’ve turned them on to for attorneys – we can get a PPM, a full offering placket together for about $8,000, which is still not cheap when you’re talking about a 10-15 unit property. What they typically find is that’s just their starter property, just like mine. It’s not gonna come close to paying their bills, but as long as that legal fee and all the structural costs don’t hurt the deal so much to where they can’t return an 8% to 10% cash-on-cash to their investors – again it’s a stepping stone.

It’s a good way too to build a loyal following. You bring people in on a 12-unit, you prove yourself to them on that 12-unit, they’re more likely to start following you into the 50, and the 100, and the 150-unit properties. So again, it’s a small step toward that snowball.

Joe Fairless: What has been a challenge since 2012 to today with a particular property, and how did you overcome it?

Bruce Petersen: A challenge… We did have a property that we own – a 250+ unit property in San Antonio. We bought it last August, so right now we’ve had it for about 15-16 months… But we’ve bought it in August of ’16, so what happened in August, September, October and November of ’16 was a very, very ugly presidential race. Everybody I talked to, usually election cycle years things get a little squirrely; people start moving around or stop moving around, sales aren’t as often and as plentiful, you don’t have as many people looking for apartments, because everybody’s trying to figure out what’s happening in the political environment. Then with the people we had running this past cycle, on both sides, it tended to freak a lot of people out.

We saw a drop in occupancy throughout the state of Texas. Austin was fairly well spared, but San Antonio, Houston, Corpus Christi – a lot of the Texas markets saw a really marked drop in occupancy… So it kind of threw us all for a little bit of a loop.

Joe Fairless: Where were they going?

Bruce Petersen: That’s the thing, I can’t find anybody that could tell me where they all — I mean, how did they all just stop going anywhere? Because in my neighborhood, for this property, we were the highest occupied property in the neighborhood, and we were still barely cranking 90%. Most of our submarket was well into the 80%. So I don’t know what happened… I’ve talked to all the brilliant people that I can find around me, nobody really can kind of figure out what exactly caused it, other than the election cycle. But again, it’s not like they all left the country.

Since that, we just kept our nose to the grindstone, we doubled down on our marketing efforts, which to me is key. Don’t freak out in the face of adversity. You have to push through that adversity. I think the natural thought for people would be “Oh, we’re not as occupied as we were. Our cashflow is not what it was, our income is not what it was, so we’ve gotta pull back on marketing.” No! That’s exactly opposite! So we started throwing more and more parties at the property, we were hitting up social media like crazy, using the internet listing services like TheApartmentGuide.com, all that… So we doubled and tripled down and we made it through. Right now, in the fourth quarter of this year, we’re comfortably above 97% and doing really well.

Joe Fairless: When you are in the middle of that challenging time — I guess first off, for some context, are you self-managing? Do you have your own management company, or do you have a third-party?

Bruce Petersen: We self-manage.

Joe Fairless: Okay, you self-manage… What is your approach with the staff? Do you just simply say “Hey, double down on each of these things”, or is there a different conversation that takes place with the staff on site?

Bruce Petersen: With the staff I actually wear the hat of regional manager in our company. We haven’t brought in a regional yet, we probably will on the next property or two… Basically, I’m the one data mining; I’m the one looking at all of my lead sources, where I’m getting traction, and we start doubling down on that up in our marketing spend with the channels that are working properly. And just making sure the staff completely understand their role, how to sell the product. Because what I tell every one of them from the day we take over a new project, ‘My job as your boss, as your regional is to give you a great asset to sell, but now I need you as trained as you are to go out and sell that asset.”

Basically, again, I’m just data-mining P&L, looking at leads, where we’re getting traffic, and just exploring those, working on some move-in gifts… A lot of my neighborhood, they were giving away first month’s free and a 50-inch TV. Like, what?! We never did that. We’ve got a big enough social media presence, really high reviews. We really cultivate that stuff, so we fortunately did not have to do any of that crazy stuff.

Joe Fairless: What are some ways that you cultivate your social media presence so you get the traction and the gold, which is the reviews?

Bruce Petersen: Right. The main thing we use is Facebook. We don’t do a lot of Snapchat or Instagram… I’m a 50-year-old guy, I really don’t understand those two; I need to bring somebody into my ecosystem that does. But we use Facebook a lot, and what we’ll do is we will say — well, first of all, basic stuff. We do a toy drive every December for our properties. We do a food drive every November for every one of our properties. And what we’ll typically do is say “Look, if you will bring in an item, we will enter you into a drawing… If you bring in the item and you like our page.” Or we’ve also done — this is a goofy thing, but it really works… We bought a little garden gnome, we gave the garden gnome a name, and we told the residents “Go find the little garden gnome. If you find the little garden gnome tomorrow, take a selfie with it in the picture, post it to your timeline and mention us or like us or tag us, and we’ll enter you into a drawing.”

So we do all kinds of fun stuff like that. It gets them engaged, they’re having fun, they’re getting some gifts cards (sometimes it will be a turkey dinner for Thanksgiving), and it helps spread the word and that helps us with our social media stuff. I believe right now our Facebook review is either a 4.8 or a 4.9, so it really works well.

Joe Fairless: Yeah, that does work well. Very creative, and it gets that organic word of mouth going. When you applied for the Apartment Association award and then you ultimately won it, what were some of the bullet points that you think put you over the top that differentiated you from the other applicants?

Bruce Petersen: What we do on everything we do, it’s all based on community. This is not just a business; we are providing people’s homes for them. Our goal is to provide community; create a place that they want to live, they know their neighbors, they like their neighbors, so we’re always looking for ways to give back… And what really was the tipping point on this year – one of our properties in North Austin, a 120-unit property – very working class neighborhood; we have an elementary school on both sides of us in this property… What we did is we reached out to all the local elementaries and middle schools and said “By grade, I want a list of your school supplies data for this year.”

So we went to Walmart, we went to Amazon, we went to Target, we bought all the school supplies for every child – 83 of them on our property. We bought backpacks for them, we had an event day where we set up in a vacant unit and we ordered pizzas for the residents that came through. So they would stand at the door, they’d be let in one or two at a time; first up, they’d go get a piece of pizza from my daughter; my daughter is in the kitchen, passing up pizza. They go over to a table with my wife and the manager of the property, and they stop there, they get their little backpack, they get to choose boy or girl, choose which one they want, then they leave that spot and they go into one of the bedrooms where my autistic 21-year-old daughter is in that room, and she’s asking what grade they’re in and she hands them their packet. They get to put it in their backpack, and they run out with a pizza in their hand, with the biggest smile you’ve ever seen on their face, because now they don’t have to go to school and be embarrassed or be behind because they don’t have what they needed, because their parents couldn’t afford $20 to provide that. We were told directly that was probably the biggest part that got us that award.

Joe Fairless: That’s incredible. How does that idea come about?

Bruce Petersen: We believe firmly in work ON, not IN our business, so we’re above the [unintelligible [00:16:10].14] We’re able to sit there and brainstorm these great ideas. We have quarterly manager meetings and we’re always looking for ideas. I don’t have the best ideas in the world, my wife doesn’t either, so we’re always tasking our staff to help us plan the next big event, the next big outreach thing that we’re going to do.
Now, that one was actually the brainchild of mine and my wife. We just decided “What can we do to help them?” because the better life we help create for our residents, the less likely they are to move, and of course, the less likely they are to move, the more profitable we get. So it was just a brainstorming session one day.

Joe Fairless: Is that gonna be an annual thing now, or you —

Bruce Petersen: Absolutely. Yeah, we did it in 2016, we also did it in 2017 now, so we will do it going forward. Now, not every property lends itself to that; this is very working class, and it was a very big need, and the residents asked the second year “Are you gonna do it again? Are you gonna do it again?”

On some of our B, B+ assets, a little higher end properties, we don’t do that kind of stuff. We just figure out better ways to have big parties with DJs, and food trucks… So each property is its own individual animal, and we treat them that way.

Joe Fairless: What is a challenge that you came across whenever you’re executing a plan like that?

Bruce Petersen: The biggest challenge is logistics… Trying to figure how to get enough supplies for each place that we have to hit; we have to go to three, four, five different Walmarts and just rip everything up that they have off the shelf. That’s logistically tough. But other than that, for the most part we empower our on-site staff to help with a lot of it, and we get the kids involved. Our kids love being involved; they’re invested in the deals, but our 18-year-old daughter actually works for our management company, and she helps accommodate a lot of that stuff; she helps us with the books… So it’s a group effort.

Joe Fairless: From the in-house property management company’s standpoint, what are some things you recommend to a multifamily owner who’s scaling his/her business and they do want to have their in-house property management company? What are some things you’d recommend to them?

Bruce Petersen: Well, the biggest thing — I’ve heard a lot of people say “Well, you can’t really do a management company. It doesn’t make financial sense until you get up to 300-400 units, so I really can’t get there to get the management company–” Look, grow it organically. If you wanna do this, you have to be willing to wear a lot of hats yourself. I didn’t start a management company with a regional in place, with an accountant in place, with an ops director in place… We didn’t have all that. We were all of those roles until we did finally get to scale; now we have an ops director, now we have a bookkeeper, now we have a personal assistant. We have all these people to help take a lot of the load off of our shoulders, but until we got to the scale where it supported that payroll, I was the regional. My wife is a CPA, so granted, we’re a little luckier there than most, but she was the bookkeeper, she was the accountant, she did the tax returns — well, she did it on the first one, then we pulled it away from her and gave it to an outside company… But I would say get in there, do the job yourself until you can afford to hire. Because we’ve been profitable with our property management company from the very first day, because we were doing all the roles.

Joe Fairless: Why apartments and not storage units, mobile homes, retail etc?

Bruce Petersen: Well, I looked around and I was trying to figure out what did I really wanna learn? So I first started thinking about single-family homes, and I realized “No, that’s way too much work. I’ve got the money, I’ve got the time… Let me go after some apartment complexes instead.” And the reason that instead of a trailer park and a storage unit or a strip center, I saw this, especially for somebody never having done this before – everybody needs a place to live. If I go out and buy a strip center and we have another market correction, we have another hiccup in the economy, some of the smaller tenants in a strip center – I imagine; I’ve never been in that space, but this was my thought process – they might go out of business. If they go out of business, now I’ve got a lot of vacancies I’ve gotta deal with.

The last thing somebody’s going to give up before they’re living under a bridge is the place they live, so to me it was just the safest, most rational thing I could find to put my money into… And so far, it has been by far the best thing I’ve ever done.

Joe Fairless: From a building your business standpoint, what’s been a challenge? We’ve talked about a challenge earlier on a particular deal, but just from building your business, what’s been a challenge?

Bruce Petersen: The biggest challenge really is just trying to juggle it all, because I’m not gonna lie, it’s not easy, especially when we wear all the hats. My wife, like I said, is the accountant, the controller; I’m the regional manager, I’m the acquisitions guy, I am the rehab guy… So I do every step of everything in-house. Most people I think in this industry, it seems, they will have like a 3-5 person general partner (GP) group that goes out, and everybody has their specialization and it works fantastically well. We go about it a little different. We raise all of our own money, we do all of our own marketing, I’m the face of the company… So everything’s in-house; it makes us more profitable.

Now, I might not be able to grow as fast as some of these other people, but you know what, we’ve still got four properties and 860 units in two years, so it’s working really well for us. But the biggest thing is trying to juggle everything at once; you’re trying to close on a property while still running a rehab on this property… Well, that property over there lost two staff members for whatever reason; well, now I’ve gotta go over there and help them interview and let’s get some people restaffed. So it’s just keeping all the plates in the air. It’s very doable, but it’s a challenge.

Joe Fairless: What type of system do you have that makes it doable, versus all the plates coming crashing down?

Bruce Petersen: [laughs] Well, again, the biggest thing I can point to is just I’m really good at delegation, putting smarter people than me around me… By that, I mean at the beginning when it was just us, I’ve gotta make the right hire on the property. A lot of people have heard this, but it’s so true; hire slow, fire fast. That sounds cruel (fire), but if somebody’s not working out, you’ve gotta understand quickly, and you have to move.

My job would have been miserable and just about impossible if I had really sub-par staff. We take a long time to make sure the right person is in that position, then we give them everything they need to do that job… But for whatever reason, some people are just not a good fit, and we have to separate quickly and then start looking for that next person.

Joe Fairless: You said earlier that when you speak to your staff, you tell them that your job – you meaning you – is to get a great asset for them to sell, and then their job is to then go sell it. What are some effective ways that you either tell them about how to sell it to potential residents, or that they’ve come up with for how to sell it to potential residents?

Bruce Petersen: Everybody’s got basically the same process. You have your little tour, you walk them by the gym if you have one, you walk them by the clubhouse, and the model, and all that stuff… But it’s about the mentality. Sales is all about belief, it’s about a mentality and it’s positivity. You have to know that what you have is the best thing in this market, and that’s my job – to try my best to position this as the best asset in the entire market. So now they have to go about this with confidence. I talk to them all the time about this, because in this industry – like every industry – costs go up, so prices have to go up. Rents have to go up every year, they have to, because my taxes go up every year, so I have to work with them to know that “Look, this year we’re gonna be bumping rents on average, say, 3%, 4%.” That might be a $30-$50 rent bump, and instinctively they go “Oh, ugh… I don’t wanna have that conversation…” Look, you have to understand that this is the best product in the neighborhood; you have to understand also that you absolutely are the best staff in this neighborhood, and they get you when they move in here. You have to sell that, but don’t go “You know, the rent – it’s $1,100 for this two-bedroom…” – no. Say, “You know what? You get all this stuff, and it’s only $1,100.” It’s all a mentality.

Joe Fairless: I appreciate you talking about that. That’s helpful. What is your best real estate investing advice ever?

Bruce Petersen: That I give or that somebody gave me?

Joe Fairless: Either one.

Bruce Petersen: That somebody gave me was “Don’t go into single-family.” It’s not that it’s a waste of time. You can make money in single-family. You can have a decent life in single-family, but thank goodness, at the beginning of my educational journey, I listened to somebody that said “Look, don’t tie yourself up with single-family.” Three and a half years ago I married into a duplex that my wife had when she came into the marriage. That duplex took more of my freakin’ time to run than my 120-unit property in the same city. So that was the best thing that I got – to have somebody tell me not to go the single-family route if I didn’t have to. It’s a good route if that’s the way you need to go, but it wasn’t for me.

And then the best advice that I give is basically you’ve gotta get out of your own head, get out of your own way, but you have to be self-aware as well. A lot of people that I come into contact with, they wanna do what I do. I have a lot of fun doing what I’m doing; it’s pretty lucrative, I’m not gonna lie, and it’s very rewarding… So they tell me, “Man, I wanna do what you do.” Okay, that’s fine. It’s a blast, but it’s a lot of work. You’d better make sure that you have the stomach and the intestinal fortitude to get bloodied in the mouth, take a punch in the mouth and keep going, because it’s gonna happen no matter how good you are, how perfect you think you are, your systems, your processes – something’s gonna happen. You’re gonna have a death on your property, you’re gonna have a fire, you’re gonna have a Hurricane Harvey hit you. Can you deal with that? Can you mentally be okay with that, pick yourself up and keep going? If you can’t, you probably just need to find somebody to invest with.

Joe Fairless: What’s an example of where you metaphorically got bloodied in the mouth on something?

Bruce Petersen: I’ve got two big ones that I like to talk to people about. It was probably about 3-6 months ago now; I was sitting in the office and I get a text from one of my lead maintenance guys on one of my properties here in Austin, and he thought he was doing me a favor by sharing this picture with me… Well, it’s not a picture I cared to see, and honest to goodness, it kind of screwed me up for a couple of days emotionally… But I had to keep going. He sent me this picture of what he found when he went to work that day. He went to clean the pool and there was a gentleman on the bottom of the pool…

Joe Fairless: Oh, my…

Bruce Petersen: …straight up, with his eyes open. He jumped the fence at four o’clock in the morning – we have him on camera, on video – and he was stumbling about, you could tell he was impaired… And he decided to go swimming. Well, he never made it back out. So that’s rough. I’m dealing with my own emotional stuff when this happens, right? I’m a caring human being, and it sucks that somebody lost their life on my property. We didn’t do anything to contribute to it, we did everything we can to make sure it’s a safe environment; we had the pool locked, he climbed the fence… But I have to go up to the property now and just sit with him for a good day and just make sure I’m there for them to listen to my staff, to be there for them to lean on, and to see if they — you know, “Hey, seriously guys, do you need some professional help?” There’s no shame in that. This is very traumatic.
Then we needed to reach out to the family that still lived on the property and kind of work with them through it… That was pretty dramatic.

Joe Fairless: Legally, is there anything that you also cover off on, or from an insurance standpoint that you do?

Bruce Petersen: Well, we’re protected… We have liability insurance, we have an umbrella insurance policy to cover everything over top of everything, so we’re really well insured, but we have all the proper signage up to make sure that they understand there’s no lifeguard on duty, no diving, no kids… That kind of thing. It’s closed down after ten, we had locked the pool… So we did everything that we could to mitigate the risk of somebody getting injured, but unfortunately the guy did lose his life, but we didn’t do anything wrong. We sent pictures, the police came out, they notated everything, we sent everything off to our insurance company, and we were just trying to be human for the family that was still there on the property. We’ve done everything we can to mitigate the risk, but things are still gonna happen.

Joe Fairless: Okay. And then the other incident?

Bruce Petersen: The other thing is just as syndicator, the stuff that happens. We were closing on a 250-unit property in San Antonio. Go to the bank at 9 o’clock in the morning, execute my wire transfer of 5.2 million bucks. Drive down to San Antonio from Austin to hang out waiting for the go-ahead on site, to say “Okay, it’s funded. You now own the property, now you can go to the property.” Well, we were waiting around and we noticed that the previous management company had gone in the night before, they took all the computers, all the phones, so the staff is just standing there looking at each other, and they can’t do anything – they can’t get any phone calls, they can’t do a thing.
So I finally thought, “Look, it’s gonna fund anytime now, so let’s just go and get everything set up. This is our newly-inherited staff, they need to be able to do their freakin’ job.” Well, I get a phone call at 11 o’clock in the morning now (two hours later), they still don’t have my wire. Like, what?! Well, it will be there soon.

They call me another hour later, they still don’t have the wire, so now I call the bank and I’m like “What’s going on?” They said, “No, I see at [9:30] it was sent to the Federal Reserve, so it’s out of our system.” Okay, so then I call my attorney back and say “Look, tell them that it should be there any minute.” So another two hours go by and still nothing.

I get a phone call from my attorney, “Get out.” “What do you mean, get out?” “You don’t own that property.” Like, “Oh, you’re right… I don’t own the property.” So we had to break everything back down, load up all of our computers and phones and pull out.

Well, what had happened – nobody knows where this money went. 5.2 million dollars is gone, and I don’t have a property. So this is where it gets tough. Be self-aware – can you handle now having to go back and tell all of your investors “Yeah, I know I told you we would own this property today. Well, guess what? We don’t own the property. And double guess what? I don’t know where your money is.” That 5.2 million bucks is not my money. Part of my money is in there, but I’ve got 40-50 investors and I don’t know where their money is. Luckily, the president of the title company finally figured it out that there is a division of (I think it’s) Homeland Security called OFAC… When you send a wire off, it goes to the Federal Reserve before it gets to its end user. The Federal Reserve looks at it, then so does OFAC; they come in and they look for it. What OFAC is checking – they’re checking the name of the sender and the receiver against a database of known bad actors. The name of this property was the same name as a known terrorist in Columbia. Uh-oh… So they see that and they kind of freak out, so they took my 5.2 million bucks; they don’t tell me they’ve taken it… We just have to kind of start poking around ourselves and we finally found it, and it finally did fund, but for a few hours that day we had no property, we had no money, and we were just stuck.

Joe Fairless: So it funded later that day?

Bruce Petersen: No, it never funded that day. It was Friday, and we left — they finally figured it out at [5:30], but by this time everybody’s gone, so it funded first thing Monday morning.

Joe Fairless: Oh, that’s fun… You had to wait over the weekend…

Bruce Petersen: No, that was not fun at all.

Joe Fairless: Got it. So what does your e-mail say to the investors? Or was it phone calls?

Bruce Petersen: There was a lot of them, so I just sent out a bulk e-mail to say “Look, guys, I know today was the day, but unfortunately we don’t own the property.” By that time, I did have some information that Homeland Security had it, OFAC had it… But they could legally hold it for up to two weeks while they researched this is what I was told, so I was like “Look, we know where it is, we hope to get it resolved really quickly, but as of right now we don’t own the property, and it might take two weeks to get all this stuff cleared up.”

Joe Fairless: How did you know where it was, versus you seeing that and being like “Oh, well maybe the Federal Reserve has it?”

Bruce Petersen: Well, none of us had ever seen this happen; my attorney had never seen this happen, their attorney had never seen it – nobody had ever seen this happen, so nobody even thought to think about that… But the president of the title company that was handling this for us was like “You know what, I do think I remember something like this happened 5-6 years ago”, so he started making some phone calls and he finally figured out that “Oh, OFAC grabbed it, and they’re sitting on it while they do their research”, but again, they don’t have this warm and fuzzy little customer service department to say “Dear Mr. Petersen, I took your money and this is why, [unintelligible [00:32:51].01] is gone”, but we finally found it.

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

Bruce Petersen: Sure.

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

Break: [00:33:01].09] to [00:33:53].14]

Joe Fairless: Best ever book you’ve read?

Bruce Petersen: Best ever book I’ve read now… I’m just gonna go business, and it’s gotta be Rich Dad, Poor Dad, right? It’s [unintelligible [00:34:00].16] that got most of us started, so easily that book.

Joe Fairless: Best ever deal you’ve done, not your first, not your last?

Bruce Petersen: Best ever deal, not my first, not my last… It would be the one in San Antonio. We had the big, big hiccup, but we’ve got the best staff in the world at that place, reviews through the roof (great reviews, that is), highest rent in the neighborhood, highest occupancy in the neighborhood, so by far that one.

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

Bruce Petersen: I lost a lot of money. I went into a deal and it was a 132-unit property I was gonna buy, and we had to renegotiate the deal because toward the end we found something massive that was really gonna screw up the deal; it just didn’t work. So I pushed back, said “Look, I need to come down from 9 million to 8.65 million” and we just got hung up. The guy finally at the last minute decided “Oh, I don’t wanna sell it anymore.” I was like, “Oh, okay… That sucked.” So we lost $30,000 on that deal. We got all of our earnest money back and all that… We got our $90,000 back – so we got that back, but what we lost were all the due diligence sunk costs, all the inspections, the PPM… Now, we could recharacterize the PPM for another property, so that wasn’t a big deal, but there were sunk costs of about 30k that we ate.

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

Bruce Petersen: That whole thing with the kids – anything we can do to help kids… It’s just such a rewarding thing to see their little faces. And secondly, something we’re working toward – my 22-year-old stepdaughter is an adult with autism, so what we’re going to be working on over the next five years is creating an autism home for adults with autism and Aspergers, because I know you know this, but believe it or not, even adults bully people… And when you’re different, which you are if you have autism, you tend to get bullied even by adults, so it’s hard for them to live in the general population, so we’re looking to start about a 24-36 unit apartment complex that we will have three shifts of caregivers that are with them at all times to help them cook, drive them to the store, to the library, all that stuff, and give them a safe place to not feel bullied. We’re gonna do it on an affordability scale – if you can’t afford anything, you get to be there for free. If you can afford market rent, we’ll charge you market rent. That’s what we’re looking to do in the future to give back.

Joe Fairless: Best ever way the Best Ever listeners can get in touch with you and learn more about your company?

Bruce Petersen: The website, it’s apt-guy.com. Or you can e-mail me at info@apt-guy.com. You’ve gotta get the dash in there or I won’t get it.

Joe Fairless: Bruce, thank you for being on the show, giving us some advice and really some case studies that we could replicate to generate positive reviews and build a positive and large and engaged social media following relatively speaking within a community, and some cautionary tales on some things that have been challenging with your properties, as well as the approach to take with the on-site staff from a mindset standpoint.

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

Bruce Petersen: Alright, my friend, thank you so much.

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James Kandasamy and Joe Fairless

JF1273: Deep Value Add Apartment Syndications with James Kandasamy

James has recently bought two apartment communities, rehabbed the units and refinanced all of the capital out of them. What’s more impressive is that he acquired these properties by texting the owners! A lot of great tips for all investors in this episode, especially for syndicators or want-to-be syndicators. If you enjoyed today’s episode remember to subscribe in iTunes and leave us a review!

 

Best Ever Tweet:

 

James Kandasamy Real Estate Background:

-Owner of Achieve Investment Group

-Multifamily Sponsor owning 340 units in Central Texas Area with a focus on value add deals

-Syndicate large Multifamily Apartment properties by raising money from accredited private investors

-Say hi to him at http://achieveinvestmentgroup.com/

-Based in Austin, Texas

-Best Ever Book: Think and Grow Rich

 


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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, James Kandasamy. How are you doing, James?

James Kandasamy: I’m doing very well, thanks for having me here.

Joe Fairless: My pleasure, and I’m glad you’re doing well… And of course I’d love to have you here, because you are closing on large deals, and you’re doing apartments, and well, selfishly, I wanna learn more about what you’re doing, and I’m sure a lot of the Best Ever listeners do as well.

A little bit about James – he is the owner of Achieve Investment Group, which is a multifamily sponsor owning 340 units in central Texas, with a focus on value-add deals. You can say hi to him and learn more about his company at his company’s website, which is in the show notes; you just click that. He’s based in Austin, Texas. With that being said, James, do you wanna give the Best Ever listeners a little bit more about your background and your current focus?

James Kandasamy: Absolutely. So we started – “we” means we and my wife – with single-family houses; we bought 13 houses, starting from 2013. We bought 13 houses within two years, built up almost 400 equity, which resulted in more than 30% cash-on-cash return and more than 500% equity capture… Then before moving on to multifamily in 2015; almost to the end of 2015.

So we’re focusing a lot on class B and C value-add. We’re basically syndicators, which means we raise money from private investors, and our focused market area right now is in San Antonio, and that’s where all our deals are. Up to now, we have bought like 45 units in South San Antonio, 174 and 115 units, which was recently closed, maybe like 2-3 months from now.

The 45 units, when we bought it, the value at which we bought was 35k/door, and then it went up to 58k/door, within 12 months of operation. We were able to refinance almost 110% into a long-term Freddie Mac loan. That deal, just because of the refinancing, very quickly, within one year, and then we still expect it to continue paying double-digit returns to our investors. The IRR is expected to be above, more than 40% for a five-year investment cycle.

The second deal we bought is 174 units. This is in San Antonio, as well. We bought it at 39k/door, it was appraised more than one million on day one of closing… And we’re putting rehab of almost 9k/door for this property. It’s a deep value-add. The property looks really good, the bones are really good, and the current valuation, after 11 months of operations — keep in mind, we bought it at 39k/door, and right now after 11 months it’s almost 72k/door.

Joe Fairless: Wow, and you’re all-in about a little under 50k.

James Kandasamy: Correct. What do you mean 50?

Joe Fairless: 50k/door. You said 39k a door you bought, and put 9k into it a door, so you’re roughly almost 50k a door into it, and it’s worth 72k/door.

James Kandasamy: Exactly. And right now we are looking at refinancing that property, it’s coming soon. The other interesting fact in this deal was once we bought it, the occupancy dropped from 89% to 77%; that happens a lot in the deep value-add space… And within six months, we brought it up from 77% to 90%. It was a lot of hard work going in – a lot of rehab, a lot of turning around the properties.

Joe Fairless: You said 77% to 90% occupancy?

James Kandasamy: Yes.

Joe Fairless: And that’s the 174-unit?

James Kandasamy: The 174-unit. That’s the physical occupancy.

Joe Fairless: Physical occupancy, okay. You said it was a deep value-add; you stressed the “deep” part. What does that mean exactly?

James Kandasamy: Well, with value-add – there’s two types of value-add. One is you buy a cash-flowing property and then as the tenants turn around, you basically go and rehab the interiors and you bring up the rent… Whereas in deep value-add, you buy almost a distressed property, and then you start changing the interior units very quickly, you’re doing exterior rehab very quickly, and you’re also changing the demographic of the tenants. Usually, on the normal value-add we probably put in like 3k/door, maybe 5k/door, but when it goes to deep, it can go up to more than 5k, to 20k/door. So in this case we’ve spent like 9k/door, which is quite significant for that property.

Joe Fairless: Where are you at from a timeline standpoint with the 174k units?

James Kandasamy: We’re 11 months into the operation.

Joe Fairless: Okay, 11 months into it. You bought at 39k/door, it’s in San Antonio, you’re rehabbing about 9k a door… How did you find the property?

James Kandasamy: Both of my first two properties were bought directly from the seller. We use our own strategy to get in touch with the sellers and work directly with them. That’s the primary point on why we were able to get it at a good price/door.

Joe Fairless: Oh, wow. So how do you do that?

James Kandasamy: The way we do it is basically we look at the rent roll of all the property owners, from websites, like the BCad, which is the county tax website, and also there’s another website called [unintelligible [00:07:30].05] where you can basically go and download all the property information, and then you have to do a skip-tracing to find the owners. And once you do a skip-tracing, you basically try to contact them using mailing, using cold-calling, using texting, and it’s a lot of work… But the amount of work gives you some of the best deals.

I think in this hot market it’s just so hard to hope on brokers to bring you deals, because brokers do have fiduciary responsibility to make sure that they get the highest price for the sellers as well. And there’s a lot of sellers out there who have other problems that they don’t wanna bring it to market. These two deals – the sellers didn’t wanna go to brokers, and they were able to trust me because I built a relationship with them. Once you do enough marketing, you build relationships with them and they’re able to trust you and they’re able to allow you to buy it at a good price.

Joe Fairless: As far as the owner goes in this situation, you walked us through the process for how you track them down, but then do you remember if there was a phone call or a text? It was a text?

James Kandasamy: Yes, correct.

Joe Fairless: And what did your text say?

James Kandasamy: The text said basically “Hi, I’m an apartment investor in this region (Central Texas) and I saw your property at XYZ, and I’m interested in buying it. You can sell it directly to me, without any broker’s commission. Would you like to talk further?” That’s a very expensive text, because you get really good deals with that text.

Joe Fairless: [laughs] What did they text back?

James Kandasamy: They would say “Why not you talk to this guy?” So you would have sent maybe 500 texts and you might get less than 1% response, but within that 1%, you might have a 0.1% acceptance ratio, and you’re able to basically work on that deal from that point on. But apart from an immediate response, you also build relationships with these people. Sometimes they do come and ask you some more details about you, and they may say they are not selling right now… The