JF2442_ From Baghdad to Boston_ Combining Dentistry and Real Estate With Dr. Bender

JF2442: From Baghdad to Boston: Combining Dentistry and Real Estate With Dr. Bender

Coming from a family of medical professionals, Dr. Bender studied to be a dentist. Originally located in Baghdad, Iraq, his family had to move to Dubai, and that’s where he got introduced to the world of real estate.

After the 2008 market crash, Dr. Bender had to go back to dentistry to support his family. They moved to Canada, and then to Boston. In 2019, Dr. Bender got back into real estate by purchasing a 45-unit multifamily house in North Carolina. He’s now in the process of acquiring a 200-unit together with two other investors.

Dr. Bender  Real Estate Background:

  • CEO of American Dental Group with 5 dental offices, real es
  • Real Estate investor, e-commerce, and day trading
  • 3 years investing in Abu Dhabi and 2 years in the USA Portfolio consisting of 45 units, in process of selling to buy a 200 unit asset before the end of 2020
  • Based in Boston, MA
  • Say hi to him on www.benderscapital.com 
  • Best Ever Book: Best Ever Syndication book

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Best Ever Tweet:

“Even if you do not have the money, you probably have friends who believe in you” – Dr. Bender.


TRANSCRIPTION

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

How are you doing today?

Dr. Bender: Good. How are you doing, Theo?

Theo Hicks:  I am doing well. Thanks for asking and thanks for joining us today. A little bit about his background—he’s the CEO of American Dental Group, with five dental offices. He’s also a real estate investor, as well as into e-commerce and day trading. He has three years of experience investing in Abu Dhabi and then two years of investing in the US. His current portfolio is 45 units, but he’s in the process of selling those in order to buy a 20-unit asset by the end of 2020. He is based in Boston—

Dr. Bender: 200.

Theo Hicks: I’m sorry, a 200-unit.

Dr. Bender: Yes.

Theo Hicks: I was getting ahead of myself with the 2020.

Dr. Bender: It’s no big deal. It’s not a big deal.

Theo Hicks: I was getting ahead of myself with the 2020. He’s based in Boston, Massachusetts, and his website is https://www.benderscapital.com/.

So Dr. Bender, do you mind telling us some more about your background and what you’re focused on today?

Dr. Bender: Sure. So first, thank you for having me. And basically, I started dental school – as you see Dr. Bender, but I have a love of real estate; that’s what we’re here for, talking about real estate. But I’m born and raised in Baghdad, Iraq, and moved after; I went to dental school there. I’m from a medical family, my dad is a dentist, my mom is a gynecologist. And after the war in 2003, we had to move to Dubai, and then I found a job in real estate actually in Abu Dhabi. And then I started to sell real estate in order just to stay in the country safe, basically. And we started to invest actually, at that time; I was in my mid-20s. And then I saw something really interesting and fascinating – you buy real estate, you sell real estate, you have to have a great reputation, you work hard and you do a really great job with people, so people will trust you and do business with you… And it was really nice to do that.

And then we started to invest more and more. But then the financial crisis came in, and we saw in 2008 everybody’s starting to lose money. But then I went back to the dental field in 2010, started to go back to school. So I went to Canada, I lived a couple of years there, studied a little bit. And then I went to Boston University here in Boston. I’m still in Boston, I love Boston. But I went to dental school, and I didn’t go back to Canada with my family, because everybody moved there. So I stayed here and wanted to do some work in terms of dental work.

So I started working seven days a week after graduation, then we opened the first office in 2015 after I graduated here in 2014. And then opened another one and another one,,. It became like a kind of nice habit, adding more. And basically, we see good people everywhere, so we could find the ones that have energy, that would love to be joining the team, and we’re adding. Actually today, this morning, I was actually talking about adding office number six. And we created a plan to add 10 more locations in 2021, 10 dental offices; we could end up by 2021 with 15 locations.

And at the same time, we invested in real estate. So in 2019, we purchased that asset in Durham, North Carolina, because I wanted to go back to real estate, which I love, and apparently, a multifamily Class C product or maybe B is the sweet spot for me. That’s how I kept analyzing for the three years, just to study real estate and see, because I don’t want to jump into something without knowing, because knowledge is the most important thing in this game. But in general, we bought this one for 3.95, and now, we increase the NOI—I know that we’re going to get into details, but now, we’re selling it [unintelligible [00:04:01].17] It’s kind of like addictive process. Because in dental business for us, money is not the most important thing; the patient satisfaction and the treatment is the most important thing. So we don’t care about money.  But in real estate, if you want to talk about money, it’s totally fine; that you could invest for your investors, and also to improve the quality of your tenants. So it’s kind of like a different game. But in dentistry, we do it for more — it’s rewarding helping people. This way, using money to help people in real estate. So that’s what we’re doing right now, jumping to a 200-plus-unit, hopefully soon.

Theo Hicks: So the 45 units is one property right?

Dr. Bender: Yes, one address.

Theo Hicks: Okay. When did you buy that?

Dr. Bender: The closing was June 28, 2019.

Theo Hicks: 2019, okay. And then you said you bought it for $3.9 million, and then you’re selling it now. How much are you selling it for?

Dr. Bender: Between 5.8 to 6.1. So probably 6.1 is going to be the listing price, because the NOI went from 250 to 330 now, in one and a half years. And I didn’t know that we could do a great job with this, and apparently, we did a fantastic job.

Theo Hicks: So my next question… You owned at that point, about five dental offices, and you bought a 45-unit apartment, and you obviously are managing it… So how were you able to balance those two things? How did you make the time to acquire, to do all the upfront work and then the continuous work with that building?

Dr. Bender: What we do is basically — we always say “we”, because nothing can be achieved by one person. But in real estate, I have two investors with me, and they’re my friends. They believed in the project, and in me, of course, first. And that’s what we wanted to do together. But in terms of organizing the timing, it is really important that we give enough time for each subject. Let’s say, dental management. I used to do also dentistry with my hands, but this year, I stopped doing this because I didn’t have enough time. So I couldn’t serve patients, I had to hire more doctors. But now I have certain time in the day that I do the dental, some time of the day I do real estate, and some time of the day I do other things. So that’s how I would look at my time.

Theo Hicks: So you get three batches of time. How does that look on a week-to-week basis? Is it Mondays is dentals, Tuesdays is real estate, Wednesdays other things? Or is it each day is broken into three different categories? Or is it just you wake up and then you just figure it out?

Dr. Bender: A very good question. It depends on the phase of what I’m doing. So there’s some phases – the growing phase, and then some phase that’s the plateau… And then as business you grow and then plateau, hopefully there’s no down. But then you plateau, and you go up again.

So if I’m growing — let’s say, now I’m in the process of acquiring two dental offices now, hopefully the second one. But this one is not sure; we’re sure about one only, but even when we’re acquiring multiple ones and let’s say we’re doing the real estate… So this way I have to do everything during the day. So I do an interview probably with you, and then i do dental, and then after that, I’m going to talk to a real estate agent.

So during the day, I will do everything. But when we plateauing, just to maintain, I do let’s say Monday and Thursday is dental; Tuesday and Friday, real estate, and other things. It depends on the day. And we still have time to work out, so that’s good.

Theo Hicks: Perfect. There you go. That makes sense.

Break: [00:07:05] to [00:09:06]

Theo Hicks: So you mentioned that you’ve got your two investors who are your partners. So is this for the unit, is it a syndication, or is it a joint venture? Are all three of you actively involved?

Dr. Bender: Basically, it’s a GP-LP. Basically, I’m the general partner and they are the limited partners. But I do take their opinions; like, we have to give full attention to the asset and we discuss sometimes what we should do. But in general, I would say 90% of things – management company, talking to the lender and other things to manage the asset is done by me.

Theo Hicks: How were you able to grow the NOI by 100k, in I guess about a year and a half?

Dr. Bender: I would say [unintelligible [00:09:43].01] growth, but in general, the main focus is the gentrification[unintelligible [00:09:48].14] I know there are a lot of people that are moving to these areas. Like, in Durham, North Carolina, it was chosen the best city to recover from Coronavirus hit, as financials. But there’s a lot of people coming in. So people are moving to these areas – Texas, Florida, North Carolina, and a lot of inflow and the young professionals who can actually keep their jobs, surprisingly—keeping their job, and just to pay less rent. And that’s why when you see a lot of young professionals coming in. If we provide the quality of living that’s acceptable by the new tenants, I think the vacancy could be something good for you to use.

Some people, they complain about vacancy. I look at it differently. I think it’s an opportunity; if we can turn over this unit into a nicer unit with the new touch-ups and making some improvements in terms of appliances and floorings and paint and all of that, then more tenants will be attracted. Plus, you change your marketing aspect from the “old school,” I would call it. So I do the marketing for example for the whole dental group. So that’s why I changed how the potential tenant is going to look at the property. And when they come in, they have to see what we actually promised them online, and that’s going to create trust right away. So people will act, and then you can increase the rent; they don’t mind paying extra 50 or 100 bucks if you give them something worth paying more for.

Theo Hicks: Sure. So did you know this going into the investment that it was an area where young professionals were moving into? And this business plan you explained, was that the plan beforehand? Did you research beforehand to figure all this out, or did you just buy and then on the fly figure it out? And if it’s the first one, what research did you do? Where did you look? What data did you gather?

Dr. Bender: This book is my favorite book, by the way, I just want to let you know… But this book, I read it—

Theo Hicks:  For people who are just listening to this, what book are you referring to?

Dr. Bender: Well, [unintelligible [00:11:37].20] Yeah, actually, I told Joe on Instagram that I listened to the audio, but then I bought it so I can write my notes, you can see here. I listen to it and I read, and I just put my notes were the areas that I probably should come back at, at some point in the process. But I didn’t read this book when I—back to your question, I didn’t read this book when I wanted to buy, so it took me probably longer time to pull the trigger. But I studied the markets; I live in a beautiful city and I love it, but apparently, it’s not as good as to be investing in it for a multifamily Class C product, what I look for. So apparently, we found certain locations… North Carolina was one of them, and Texas, Florida. But because we have one of the partners lives there, like 10-15 minutes from the property, we said, “Well, we know the area better.”

Plus, the exit strategy was discussed from day one, before even purchasing it; what are we going to do the whole period and how we can exit. So yes, we did study everything before we purchased the property.

Theo Hicks: Great. Okay, Dr. Bender, what is your best real estate investing advice ever?

Dr. Bender: The best advice I would say, you have to start early. Because the sooner you start, the better you are. So I spoke with many investors in Abu Dhabi and I pretty much told everybody in town. So these guys, all of them, they started early; even if you think that you don’t have the money, but you probably have nice friends who believe in you. So the sooner you start – even if it’s small, it’s okay; the sooner the better, because it’s a time game. The longer you have it, the better it appreciates… And also depreciates, which is a deeper subject. But my point here is you have to start early and don’t keep waiting.

Theo Hicks: Sure. Alright, Dr. Bender, are you ready for the Best Ever Lightning Round?

Dr. Bender: Sure.

Theo Hicks: Alright. First, a quick word from our sponsor.

Break: [00:12:28] to [00:14:05]

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

Dr. Bender: Well, talking about real estate, I truly think this is the best book, The Best Ever Apartment Syndication book by Joe Fairless and Theo Hicks.

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

Dr. Bender: I would just go ahead and do two things. Number one – go back, treat patients, work seven days a week. Number two – go to my people and think about how we can go and invest in real estate again.

Theo Hicks: So usually, I ask “what’s the best ever deal you’ve done?” So if you can answer that, great; maybe you can apply it to those dental offices. Which one of those is the best deal you’ve done?

Dr. Bender: Obviously, the one we’re doing right now it’s really cool, because we’ve got offers over $5 million. So basically, it’s a 45-unit apartment complex, a 1965 Class C product, great location by the 85, right by the Interstate, and we purchased it for 3.95; we put $1 million down. And now, it’s going to go to the market at least above 5.5. So we’re probably going to double the down payment, which is $1 million, and everybody’s happy, including the tenants, because they have now a much better quality of living.

Theo Hicks: So this next question is usually “What’s the deal you lost money on?” I’m going to change that just a little bit and ask you what’s one of the biggest challenges that either you have faced or you continue to face?

Dr. Bender: I can answer actually that question, because we did lose in Abu Dhabi.

Theo Hicks: Well, perfect. Yes. Let’s talk about that then.

Dr. Bender: Yes. Basically, in Abu Dhabi, when the financial crisis hit in 2008 – our project there is different than the multifamily. But the reason I’m going to multifamily here is that I want security; so I have a cushion. If we basically have vacancy or something happens, we have the debt coverage ratio high, and that can actually secure the loan for a longer time, especially if we secure long-term debt. But there we used to buy something under construction or not even constructed yet; they didn’t start yet. And on the reservation, the paperwork or the contract to the ownership, you sell the property again. That was scary, because there was no rules specifically for this type. And when the financial crisis hit, the developers stopped the project, but they didn’t return the money according to the contract.

So a lot of people lost money, and I was one of them, but nobody from my clients did actually get angry at me, because I lost with them… But just an advice that, don’t ever buy a project pre-construction; buy multifamily, something that’s cash-flowing day one.

Theo Hicks: Yes, that’s sound advice. And skin in the game, too…

Dr. Bender: Totally.

Theo Hicks: …so your investors don’t get mad if the money’s lost. Okay, what is the best ever way you like to give back?

Dr. Bender: There are multiple ways. I used to do Meals on Wheels; I go and give food to people that they can be approached, and also feed them, and make sure they’re doing okay.  Second thing, I’m with the American Red Cross, I’m working for free, and a community leader in Boston areas. We’re in disaster management also, we want to be involved in that. So a lot of things. And also in dental business, for example, Boston Marathon; every year, whoever it is from the audience or anybody from participants, they get any toothache, we will take them for free; we will take care of them for free.

Theo Hicks: Nice.

Dr. Bender: And also for multifamily, we always try to help by understanding the tenants that are struggling with their payments, so we can give credit or understand the more people you service, the more opportunity you could actually get. What I enjoy the most is when I give things for free, whether it’s volunteering myself or just donations like what we’re going to do for the business, for the Christmas… And from the business that we have, the dental business, any employee that donates for the company, we will match it from the business, so it goes to Gifts For Kids.

Theo Hicks: That’s awesome. Last question is what is the best ever place to reach you?

Dr. Bender: Well, social media is really important. So I would go with Instagram, Doctor Bender, and my website is https://www.benderscapital.com/.

Theo Hicks: Perfect. Well, thanks, Dr. Bender, for joining us today and sharing your best ever advice. We went through a lot of detail on that first deal you did, the 45-unit deal. We went through the numbers, we went through the business plan, why you selected the market, we talked about how you were able to fund the deal, and then we also talked about your strategy for managing your time between real estate and your dental business, and then the other things that you need to do in life. Unfortunately, we didn’t get to talk about the 200-unit, but maybe we can bring you back for a separate time—

Dr. Bender: Yes.

Theo Hicks: —once that’s actually purchased. And then lastly was your best ever advice, which was to start early; the earlier, the better, the more time you have. And if you are not starting early because you don’t have the money personally, that’s okay. You can either invest your time, kind of like what you did when you were selling real estate in Abu Dhabi, or you could also use your friends’ money, or people that already know you and like you and trust you and use their capital partner up with, which is something you did in your first deal. I’m sure you’re continuing and going to do it with the 200-unit deal.

So Dr. Bender, thank you so much for joining us today. Best Ever listeners, as always, thank you for listening; have a best ever day and we’ll talk to you tomorrow.

Dr. Bender: Thank you.

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JF2441_ Stace Caseria_ Real estate Investing with Stace Caseria #SkillsetSunday

JF2441: Real Estate Investing with Stace Caseria #SkillsetSunday

Stace is the owner of Trust Deep, a branding agency and evergreen North properties. Stace has 20 years of investing experience and currently has four properties: a small apartment building and syndication. Stace was involved in real estate for 20 years at the same time building a career in branding in advertising. Stace got interested in the real estate business when his mother started buying single-family homes and renting them, Stace saw the profit potential and got interested in investing in the business as well. In today’s episode, Stace will share how he started in the real estate business and how he faced challenges along the way. 

Stace Caseria Real Estate Background:

  • Owner of Trust Deep, a branding agency and Evergreen North Properties
  • 20 years of investing experience
  • Currently has 4 properties, a small apartment building, & a syndication
  • Based in Boston, MA
  • Say hi to him at: www.trustdeepagency.com  

 

Click here to know more about our sponsors

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thinkmultifamily.com/coaching 

Best Ever Tweet:

“Mindset matters. Change your mindset. Don’t pursue solely transactional relationships.” – Stace Caseria


TRANSCRIPTION

Ash Patel: Hello, Best Ever listeners. Welcome to the Best Real Estate Investing Advice Ever Show. I’m Ash Patel and I’m here today with our guest, Stace Caseria. Stace is joining us from Boston, Massachusetts.

Stace, how are you today?

Stace Caseria: I’m doing great, Ash. How are you?

Ash Patel: Wonderful. Thank you for joining us. Best Ever listeners, today is Skill Set Sunday, where we talk about a specific skill set that our guest has. Stace is the owner of Trust Deep, a branding agency, and Evergreen North Properties. Stace has 20 years of investing experience, he currently has four properties, a small apartment building, and a syndication. Stace before we get into your skill set, can you tell us a little bit more about your background and what you’re focused on now?

Stace Caseria: Sure. So I’ve been investing, like you said, for about 20 years. I’ve also been involved in advertising for about 20 years. So the same time that I was building my career in branding, advertising and marketing, I was also building my portfolio of properties. And my focus is right now on my business, but I’m hoping to shift that to real estate in the future, so that I’m handing off some of the duties of my job to the folks who work with me and going out looking for new investment opportunities, and hopefully being able to take a little bit more time to do that and less time behind the desk.

Ash Patel: That’s interesting. A lot of people almost do it the other way – they hand off their real estate tasks and focus on their career, but you’re looking to transition into real estate.

Stace Caseria: Absolutely. And there are things I’m trying to bring over to my real estate practice from my marketing practice. What lessons have I learned helping people build brands, retain customers, build loyalty? How can I translate that to my tenants and how I deal with them? And hopefully, instead of having small buildings in the future, someday I have large buildings, that I can look back on and say, “Yes, I’ve built this business the same way I would have helped the client build any other business.”

Ash Patel: Let’s get into that. But I would love to find out how you got into real estate.

Stace Caseria: So I had graduated college… My mother owned a restaurant at the time, and restaurant – it’s a grueling, grueling occupation, so she was trying to get out of that long hours; health was an issue. So she said, “I’m going to start buying some single-family homes and renting them.” And I saw her doing this and I saw the profit potential, and she showed me, she said, “Hey, this are what my mortgage and expenses are, this is the rent every month; you can do the math, it’s very simple, it works. And it’s not a 9-5 job. It’s not something that needs my attention all week long.”

I saw that and I said, “You know, I’d like to give this a try.” It took me a while to get fully invested in the idea… Like, your parents tell you things, like – of course, in one ear, out the other. It takes you a while to say, “This thing really could work.” So I’ve had properties for the past 20 years, but it’s only recently that I’ve been much more passionate about becoming more active in it.

Ash Patel: So a background in branding and marketing – what attributes do you take to your real estate investing?

Stace Caseria: A business doesn’t really exist unless it has customers… And I’m trying to bring the belief that our tenants are our customers and we have to treat them like we would treat any of our customers. So if I owned a shoe store or a car dealership or a restaurant even, too often I see landlords and investors treat their tenants as a necessary evil, not focusing on them as customers, not saying, “How can I provide better value for them?” When we talk about value-add, we talk about, “Oh, we’re going to put in new sinks or countertops” or, “We’re going to paint the place.” We don’t talk about necessarily adding value to somebody’s life or how to make them enjoy that property more.

So I’m trying to bring over the idea that apply customer relationship and customer service tools and processes, apply that to your investing and treat every tenant like they’re a customer. They are a paying customer, they just happen to live in a building rather than buy a product or service from you.

Ash Patel: I have to ask you, I do mostly non-residential commercial investing, but I still have some residential, and I have the same outlook as you with my commercial tenants. I treat them as partners. My residential tenants – I’m very skeptical of interacting with them, because it almost seems like every time I do, I open up a can of worms. So help me be more at ease with that. Is there a fine line where you can’t get too deep into their issues and fall victim to them pulling one over on you?

Stace Caseria: Sure. And I completely understand where you’re coming from. But let’s pretend instead of owning a building, you owned a car repair service center. You wouldn’t necessarily have to get involved into your customer’s life in order to serve them, but what you have to do is understand their need and you have to make sure that you’ve done everything you can to fix their car and get them on their way. The difference with owning real estate is that it’s somehow more personal to that person, and they’ve taken some ownership of your building because they literally live there. But you have to think of them as customers, and you have to think of them as having real needs that you can meet, without overexposing yourself or without being taken advantage of, and there is a line.

I was having a conversation with a syndicator once, and he asked me a similar question. And I tend to think of my tenants as my aunt or uncle who I would want to do well for, I want to help them. But if they asked me for the shirt off my back or something that’s going to hinder my ability to run my business properly, that’s the line. So I will be as helpful as I can, but I’m not going to give product away. I’m not going to give service away. I’m not going to let someone escape from their responsibilities. I’m going to hold them accountable. But understanding that we are partners in this, the same way any business looks at its customers and says, “We don’t exist without those customers.”

Break: [00:06:40] to [00:08:41]

Ash Patel: What are some things that you’ve implemented, where you see a lot of other real estate investors have failed at, in terms of customer service?

Stace Caseria: A couple of things. In my business, we try to get our clients to survey their customers and there’s a couple of reasons why we do that. First of all, you get excellent intelligence, understanding where you’re doing well and where you’re doing poorly. But it shows people that you care about improving your process. So even if somebody has negative feedback, the fact that you asked for it is helpful. It will change their perception in some small way; it might change it in a large way.

So I’ve begun asking tenants, how are we doing? What things can we improve? And I don’t think that’s novel. I don’t think that’s new. I don’t think I invented that. But actually listening to people and stopping by—so I have a building here outside of Boston that I self-manage… And I try to head out there at least once a month. And I will knock on every door and see if people are home and just ask them how’s everything going? I’m hoping that they say, “Everything is awesome, thank you very much; here’s the rent.” But it doesn’t always work that way. Somebody might say, “Hey, while you’re here, can you come and take a look at something,” or, “This happened,” or, “That happened,” or, “This guy’s parking in my spot,” or whatever it might be. And I don’t necessarily want to hear those things, but I do want to fix those problems if they exist. If I don’t ask that question, the problem still exists; it’s just not going to get resolved. So this works the same – even if you have property management in place, you want your property managers to work the way that you want them to work.

So if you want your tenants treated in a certain way with a certain level of respect, or if you want hold a hard line to them – that’s the thing, you have to get your property managers to work on your behalf. So the same way, when I go in and I’ve got my agenda, the things I need to get from people – you’ve got to get your property managers doing the same thing.

Ash Patel: How do you get them to be as attentive as you are?

Stace Caseria: That’s a fantastic question. This is what we do at our agency. So a trustee—we’re a branding agency, and we help brands identify what their mission is, what their purpose is… But then the important part is translating that to employees.

Recently, we did a branding project for a restaurant outside of Boston, and their issue isn’t so much that the marketing people don’t understand the brand or the mission… It’s difficult translating that down to the kitchen staff or the wait staff. So the same way we created a manual for their employees, I would say to you if you have property management in place, you have to figure out what is important to you, the way you want things run, and not just mentioned things casually to people. You have to codify it, document it, put it on paper, give it to them, make sure they read it, quiz them on it; get them to understand that this is real, it’s not a suggestion.

And this is what I mean about translating processes or procedures over from marketing or running a business, or even working in the corporate world, translating that over to your real estate… In corporate America, we would have a procedure manual, like, standard operating procedures of how we do things. There’s nothing wrong with having that for your property manager. So they probably have a ton of landlords who they work for. And they run the gamut, from people who really care, people who don’t care, people who want this, people who want that. You have to let them know, crystal clear, “This is what I expect from you.” And putting it on paper is the way to do it, checking in with them, the progress every quarter or something like that, holding them to those things… And it’s not just the guy who owns the property management company. It has to filter down if he has people working for him. People who are knocking on doors looking for rent – it has to filter down to those people.

Ash Patel: That is great advice, because there’s so many people who complain about their property management company… But had they implemented some of these systems and quiz them and follow up, the experience could be a lot different.

Stace Caseria: Oh, yes. We can’t expect people to know what our intentions are or our expectations, unless we put those out on paper. I mean, they’re basic things like “I expect rent to be collected on the first. If there’s a problem with the plumbing, they call me.” Those are basic things. But you have to go beyond that and say, “How would another business run?” Whether this was a bakery, or a bowling alley, anything like that – how would they run? They would have a set of procedures on how to get the best work out of their employees.

The same way with a property manager or running a business – you have to say, “How do we optimize what they’re doing?” And it’s not like, “Hey, guys, please do a good job for me”, because everybody wants to do a good job. But what does that mean? You’ve got to be specific about what that means.

Ash Patel: Have there been instances where this customer service mentality has backfired on you?

Stace Caseria: Why do you ask?

Ash Patel: Because I’m still thinking of a lot of my colleagues that are residential heavy investors… And hearing this, I’m sure in their minds are thinking, “No way. I want to interact with my tenants as little as possible.” So I want to hear about how this backfired, and what advice would you give to those people that have just had so many bad experiences interacting with residential tenants? Maybe it’s a class C apartment, where there’s professional tenants that know how to game the system. I’d love to hear your thoughts on that.

Stace Caseria: Sure. So I do have a set of tenants who fit the bill here. And I have to keep reminding myself that for me, this is an investment, and at the end of the day, I leave and come home to my family, but they live in that building. So they’ve lived there far longer than I’ve owned it. So they’ve been there 20 years, maybe 18 years. And they have a feeling of entitlement or ownership to the building. And I will do most things that they request, as long as it still sits within my objective. So they’ve asked for a few things and I’m like, “Okay, fine; we need to make some improvements, renovations, that’s fine.” But when the tenants start to ask for something that makes me deviate from my plan, whether that’s the profitability or time commitment or a nuisance to other tenants, for instance, that’s where I draw the line.

And I’ve had to do that recently and say, “Listen, you’re starting to sound like a homeowner here, which is a good mentality to have, but not here, because I’m the homeowner here.” And so I said, “If you want to own a home, that’s fantastic, but this isn’t it.”

So we had to have a clear understanding. You have to do that dispassionately. I couldn’t get upset with the guy, because he’s going to take it much more personally. But like I said, at the end of the day, I leave and come home. He lives there. He thinks that’s his home. It’s not his house, he doesn’t own the buildings. I do. But he believes it’s his home, and he should feel that way. I do like when people feel ownership of the property; they will take better care of things. But when they cross a line, you have to redraw that line and say, “This is where it is, this is how it is. At the end of the day, I own this place. I’m going to try and make you as happy as possible.”

It’s like the same thing — it’s like you walked into the car dealership and said, “I want this car for free.” Nope, no level of customer service is going to allow somebody to break their rules of good business. So that’s the same thing I would say to people. It’s not about being a pushover or it’s not about letting your tenants walk all over you. It’s about recognizing them as human beings, as people who have hopes and dreams and stuff like that, just like I do. But there’s a line and I’m going to do everything I can to help them until we get to that line.

Ash Patel: Stace, in your opinion, has this mentality helped you retain tenants?

Stace Caseria: Yes, not just retaining tenants… So every year, there’s an annual rent increase. So something I’ve started doing is I use Rentometer to get data on rents in the area. I also do a search of https://www.apartments.com/. So whenever somebody’s lease is coming up and I want to increase the rent, I put a package together and I show it to them and say, “Hey, I’d love for you to stay if you can, but I have to raise the rent. And if you can’t stay, here’s a dozen other places in the area.” Of course, I’m not being selective. I’m showing them a range of places. And my property looks pretty good compared to these other places, given the amount of rent. So I find that to be very useful. The last time I did this with a tenant, his reaction was—he looked at the rent increase and said, “That’s not bad. That’s what I want.”

So this is the same thing other businesses would do. They would tell you, “We have to raise the prices,” but they would tell you what you’re getting for that, they will tell you why they’re raising it. Rather than somebody just saying “Hey, I’m raising the rent because it’s January.” It’s very arbitrary to a tenant. I mean, giving them a reason why and giving them a way out, and saying, “You know what, if you don’t want to live here, that’s cool, too.” Nobody has left since I started doing that process.

Ash Patel: And you go there in person and deliver a rent increase?

Stace Caseria: Generally, I mail them. It happens that I was on the property for something else and I handed it to this guy, and he opened it and read it right there. But typically, I would just throw them in the mail. As much as I’m saying I want to be this great guy, I do want to limit my time out there, because I have other things to do. I have a business to run, I’ve got a family. But if there are times when I need to be there just to make sure that people know who I am and recognize me, and they have a personal relationship with me, I will take those opportunities [unintelligible [00:17:11].06] to knock on doors. If I’ve driven all the way out there – because its outside of Boston; if I’ve driven out there, I’m going to spend the time and knock on doors and talk to people and do what I have to do.

Ash Patel: So with your personality, I feel like your rent increase letter is not the norm. What does your rent increase letter say?

Stace Caseria: It generally will talk about the conditions. So right now, the past year, it mentioned COVID. And I said, “I understand that things are tough for everybody, and if you need help with rent assistance, let me know; I can put you in touch with people .” And that happened with one person that said, “Hey, I could use help paying my rent.” It’s better that — [unintelligible [00:17:44].02] pay his rent, then he doesn’t pay me. So it’ll talk about the economy, it’ll talk about things that are going on in the neighborhood…

I think once there was a new building that was being constructed, saying, “I know that there are other options, there’s this new building being constructed.” Spoiler alert, it was much more expensive to live there than in my place, but I just want to be transparent about what’s going on.

I might also say, “In the past year, I’ve also done these renovations to your apartment, whether I painted or put it in a new carpet or something like that. But Just so we’re on the same page, I’m not doing this arbitrarily in giving you a new carpet because I’m an awesome guy. This is a business for me.” So I want to be human, but I also want to be professional about it.

Break: [00:18:20] to [00:19:00]

Ash Patel: I love that approach. I wonder how few people actually do that. I would envision a lot of people just say, “Hey, by the way, your rent is going up January 1st. Here’s the new amount period.”

Stace Caseria: The problem with that is, if somebody questions it, you need to have a rationale for it. The same way if your cable bill is going up, you want some sort of rationale or this is going to bother you, right? If they said, “Hey, we’ve added 16 new channels and now it’s in HD and you’ve got this DVR thing and—.” They go, “Okay, I’m getting value for this extra increase.” If they just said, “Hey, your cost has gone up. Take it or leave it” you’ll be like, “Why? I need to understand why things are happening.” And if you explain things to people, for the most part, I think people get it. They understand that you’re there; not as a humanitarian, but as a business person.

Ash Patel: That is a great philosophy. How have you used your branding and marketing background to attract tenants for vacant units?

Stace Caseria: I have to say, I’m jealous of people who own new construction, because I don’t have a building like that. But I look at new construction and I say “So what elements are here other than the box that is an apartment? What other things?” So I’m like, “Okay, so there’s branding on the building,” or, “There is signage inside the building,” or they might provide a welcome package to tenants. So I try to do little things like that where I can, to maybe get closer to what the experience might be in a much nicer building; because I’m in the C Class building. But I would love to have a much nicer building, bigger building, newer building. So I’m trying to—

Ash Patel: Bigger mortgage?

Stace Caseria:  Bigger morgage, right. But there are things I cannot provide. It’s an old building, low ceilings… I can’t provide big open concept. There’s no dog park, there’s no swimming pool; I can’t provide those things. They’re never happening; covered parking, never going to happen. But I look for other things that I can do. And I tried to index a little higher in those small things that might have some effect, rather than just throwing up my hands and saying, “There’s no way that I’m going to be able to compete with those other buildings.” But there are things I’ve learned also from the Joe Fairless book about how to add amenities… And it’s not necessarily always adding things like swimming pool or covered parking and things like that; it’s just like small touches that people might appreciate. It sounds so minor when I talk about it, but outlets — the USB outlets [unintelligible [00:21:07].06] I put those in an apartment that I renovated and people were so happy. It’s just a $5 outlet. But looking for small things that will make a little bit of an improvement. Those are things that that I look for.

Ash Patel: Stace, what advice would you give to somebody – let’s say they have 30-40 Classy C units, they’re kind of inundated, they’ve had their fill of tenants stories… How do you get them to reposition their mindset? And what are some practices that they can start doing to get to where you’re at, and build this allure or build an environment where the customers, the tenants all know “Stace is my landlord, great guy.” How do you get somebody who’s been jaded, inundated, to adopt this philosophy? And what specific tasks could they implement?

Stace Caseria: I think before you get to tasks though, with anything in life, mindset matters. You have to change your mindset and you have to understand the relationship not as a transactional relationship, but one where you are providing value and they are providing you with income for the long-term. You have to see people as customers, and you have to see them as your partner.

As you said in your commercial space – you have to see people as partners. So the actual tactic is for somebody who is jaded is I would start with one or two tenants. I always try to start with the biggest problems first, and see if I can solve those. And so if you have somebody who’s a real nightmare – not to the point where you need to evict them, because if that’s the case, then hopefully, they would have evicted them. But see if you can change their behavior toward you by changing your behavior toward them. Call them out of the blue and say, “How’s everything going?” Or send them a letter saying, “I appreciate you being there.” Send them a “thank you” after they’ve paid their rent; that’s going to be odd for a lot of people to receive this thing that says, “Thank you.” And there might be negative consequences to begin with. If someone’s going to say, “Of course, I’m paying my rent, but you never fixed my faucet.” Well, that’s an opportunity to fix the faucet.

But I think once you do that and you show people that you have empathy and you’re a little bit more human, then you can work on the ones that are easier. Start with the hard ones first and get a system in place. Because if you can make a difference with that person, you can make a difference with everybody else.

Ash Patel: That is a great philosophy. That’s one thing that I don’t do, is randomly send “thank you” letters. I host dinners and happy hours for my commercial tenants, but there’s a lot more that I could be doing. What’s your hardest lesson that you’ve learned in your real estate investing experience?

Stace Caseria: This applies to a lot of things in life… It’s not hesitating to make decisions. When you have a decision and you’re pretty sure you know which way you’re going to go… In the past, I’ve waited too long to make decisions. I sold a property last year that I should have sold years before. And I just held on to it for emotional reasons, not looking at the numbers. Because as humans, we make decisions emotionally, we don’t make decisions rationally. I wish we did sometimes. But I held on to this property and I think I was barely making any money each month; it was barely cash flowing. That’s because from the time I bought it to the time I sold it, it had flood insurance, because it was a waterfront property. And flood insurance had gone up 10 times year after year after year. And I kept saying, “Maybe I’ll catch up to this”, and there was no way rent was ever going to increase at the same rate. And I just loved the property being on the water and everything, but I had to realize I should have done this years ago and then just taking that cash and putting it in something else.

Ash Patel: Lesson learned.

Stace Caseria: Hey, something else I wanted to mention before—you said you do happy hours with your commercial tenants. Something that I started doing with my residential tenants is every Thanksgiving I send them a gift card for the local supermarket, because Thanksgiving is an important time with my family. So that’s a way that I can show them some appreciation, and people were blown away the first time they got it; it wasn’t a lot of money that I was sending each person but it was certainly noticeable.

Ash Patel: That is amazing, and simple practices for people to implement.

Stace Caseria: Absolutely.

Ash Patel: Tell me more about your syndication.

Stace Caseria: I’m working with a syndicator now, so I’m invested completely passively in that deal. I would love to transition into syndicating myself, find a syndicator I can work with who might be looking for somebody who brings marketing and branding experience, and sort of have a value exchange there. But I see that as such a powerful force… I know I’m on the Joe Fairless show here… He opened my eyes to this thing called syndication. And whenever I read the book a few years ago, I was like, “This is an amazing thing.” I want to become more active in syndications, and I’m trying to invest in them passively at the moment to sort of understand how they work beyond just reading about them in books; see how they work in real life.

Hopefully, soon I will work with a syndicator and blend my skills, whether it’s how to deal with people or managing the property or helping with marketing and branding of the property itself.

Ash Patel: I think you would do very well using your skill set, your mindset and your customer service practices on a much larger scale. So Stace, thank you very much for joining us today. Your outlook, your mindset – you’ve given me a lot of things to think about, the things that I could do better, very simple things. And for our Best Ever listeners that have a lot of units that they’re inundated with, I think you’ve helped to transition some of that mindset as well. So thank you again for being on the show.

Best Ever listeners, thanks for joining us and have a best ever day.

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JF2427 Growing Trust to Build a Better Brand with Stace Caseria #SkillsetSunday

JF2427: Growing Trust to Build a Better Brand with Stace Caseria #SkillsetSunday

In this #SkillsetSunday episode, Stace Caseria talks about the importance of trust. You can increase the trustworthiness of your brand by understanding its 4 fundamental parts.

Stace describes how trust works for a real estate professional who’s looking to reach out to a new lead for the first time ever. He also talks about the ways to make a brand or a business sound authentic and how to market your services on a whole different level.

 

Stace Caseria Real Estate Background:

  • Owner of Trust Deep, a branding agency and Evergreen North Properties
  • 20 years of investing experience
  • Currently has 4 properties, a small apartment building, & a passive investor in a syndication
  • Based in Boston, MA
  • Say hi to him at: www.trustdeepagency.com 
  • Best Ever Book: The Speed of Trust 

Click here to know more about our sponsors

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Best Ever Tweet:

You can’t build trust with smoke and mirrors because eventually you’ll get caught” – Stace Caseria


TRANSCRIPTION

Joe Fairless: Best Ever listeners, how are you doing? Welcome to The Best Real Estate Investing Advice Ever Show. I’m Joe Fairless. 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 fluffy stuff. First off, I hope you’re having a Best Ever weekend. Because today is Sunday, we have a special segment for you called Skillset Sunday. Here’s the skill – this is for real estate entrepreneurs who have a company and real estate brand that you’re looking to portray the trustworthiness that you deserve as a brand. We actually have with us Stace Caseria. He is the owner of Trust Deep, which is a branding agency. He has also 20 years of investing experience. They help brands build trust through their branding with investors. So Stace, would you mind first giving the Best Ever listeners a little bit more about your background and what Trust Deep does, and then we can go from there?

Stace Caseria: Sure, absolutely. As you said, I’m a real estate investor. I’ve been investing in singles and duplexes for about 20 years. I also have a small apartment building here outside of Boston. I’m also looking to scale up and join some syndications as a passive investor, and eventually, someday, I’d like to lead a syndication. But in my day job, I own a branding agency.

We focus on helping brands, business leaders, entrepreneurs find how they can become more trustworthy. Trust is not something you can force, you can’t ask somebody to trust you. You could, but it doesn’t work, though. But there are factors that are within your control, and by understanding the four parts of trust, you can level up on the areas where you might be lacking. All of this is to help you become genuinely trustworthy. You can’t create trust with smoke and mirrors, because you’re going to get caught eventually. So what we do is help brands use different tactics to increase their credibility, their track record, empathy, and alignment of interests. Those are the four factors that go into this thing that we call the trust dynamic.

Joe Fairless: Let’s unpack that one by one. Can you walk us through each one of them?

Stace Caseria: Sure. The first one is credibility. When people talk about trust… First of all, people don’t like to talk about it, because it’s this weird thing. It’s mysterious, as though we don’t have control over it. But once you understand that it’s an emotion just like anything else, we can control it and we can put it in our favor.

So the first factor is called credibility, and credibility is nothing more than speaking or communicating with authority on a topic. Credibility can be created instantly, from the second somebody rolls into your website and they see that you know what you’re talking about. If you’re talking about commercial real estate – well, you’re going to have to understand the lingo, you’re going to have to understand the factors that go into a deal, you’re going to have to understand what’s going on in the marketplace at the moment.

Do you seem credible? Do you have knowledge on the topic? That works whether you’re talking to somebody face to face, or if somebody is looking at your website or your social media, or even if you have a mailing. Credibility comes across in many ways, and it’s something that you can create instantly with somebody, from the second you shake their hand at a real estate meetup and you start talking about a topic. If you can speak with authority on that topic, you have credibility.

Joe Fairless: Okay. Number two.

Stace Caseria: The second part is track record. A track record is the only factor that takes time to build. We tend to think of trust as needing a lot of time to be established, and there’s only one area of trust that actually takes time, and that’s a track record. So you think about, is there a high likelihood that I’m able to repeat the success I’ve had in the past? Can you trust that I’m going to take whatever I’ve learned, lessons in the past, and apply them here? Do I have a repeatable process? That goes into track record.

The track record is your reputation, and this is something that does take a while to establish. Talking with syndicators or investors who are new and they may say “I don’t have a track record in real estate”, but every adult has a track record, because you went to school, you have a job, you have friends; there are people in your life who can speak to your track record.

If you don’t have a track record in real estate, you can borrow elements from the other parts of your life. Also, we know you can borrow the track record of your network. Let’s say you’re raising capital for a deal, and this is your first time. Well, hopefully, you have somebody who’s more experienced on your team, who’s done this before, and so you get a little bit of their track record by partnering with them.

Break: [00:05:34][00:07:36]

Joe Fairless: Lots of different ways to partner, that is the beauty of, specifically, commercial real estate or real estate in general. You can partner up with people on one deal and you don’t necessarily have to be married to them through the course of your professional life. You can just do a couple of deals with them, if it doesn’t work out, you move on. Okay, number three.

Stace Caseria: The third one is empathy. Empathy we call the human factor. A lot of people in business will sometimes dismiss empathy as a soft skill, something that isn’t needed in the hard-nosed world of business, and I completely disagree. There is nothing that can build trust quicker than empathy. Empathy is our ability to listen to people, it’s our ability to relate to people, it’s our ability to see people as human and understand their needs, their condition, the space that they’re in. Showing empathy doesn’t necessarily mean you agree with somebody by listening to them, it just means that you understand where they’re coming from. Thinking about somebody who might be a wholesaler, house flipper, or something like that, and they’re talking to a homeowner, and the homeowner says, “I need X amount of money for this house.” The wholesaler is thinking “I can’t give you that much. But let me understand why you need that or why you think you need that, and let’s see if we can figure something out.”

Empathy is not giving in to people, it’s listening and understanding where somebody is coming from. You might find out that you don’t have the ability to make a deal, but at least you listen to that person, because you validated their concerns or their thoughts and you validate them as a person. It is incredibly powerful when we are able to give validation to other people. As humans, we all need that. We’re social creatures, we don’t live by ourselves, we have to interact with other people. Those who demonstrate stronger empathy have more success in business, and they’re able to have a tighter group of people around them who want to work with them and people who are committed to their success.

Joe Fairless: Okay. The fourth?

Stace Caseria: The fourth one is the alignment of interests. This is something I know you’ve talked about in your book, and this is sort of really well aligned with that… There’s a slight nuance to it, but this is the factor that you want the same outcome as somebody and you’re willing to do the same steps to get there. Out of a deal, you may say, “Hey, I want a 20% ROI.” I might say, “Yeah, I do too.” But the way we’re willing to get there might be different. That would mean we don’t have an alignment of interest. I might say, “There are lots of rules and regulations, and we don’t have to follow all of them.” You might say, “No, actually, I plan to follow all of them.” We both have the same outcome in mind, but we don’t have the same commitment to the ideals that will get us there. That’s an alignment of interests.

Alignment of interest is really interesting, for what it does in the scale of branding is that it helps you create deep meaning with people, beyond a product or service. So that’s ultimately what branding is – it’s this connection that we have with a product or service that goes beyond the product or service itself. That’s how we have deep loyalty with a company. It’s because we share meaning, we share a motivation or an intention; that’s at the root of alignment of interests. That is the factor that creates the deepest connection and the chance for you to have loyalty with a customer or an investor. Because ultimately, that’s the goal. It takes five to seven times more effort and money to get a new customer or investor, versus keeping an existing one. At the end of the day, we try to build trustworthiness with our clients to gain long-term loyalty with their customers.

Joe Fairless: I’m thinking about how to try and put all four of these things in an ad, just to help bring it to less philosophical and more tactical. So if I were to send out a postcard to my customer, and let’s say I want them to invest in a deal of mine… Then I’m going to give some examples and you tell me, “You are trying to do way too much in this one ad,” or you tell me “Yeah, that could work.” So if I want them to invest in a deal of mine, and the postcard –which they’ve never received a postcard from me before, we’ll say that– says “We have X amount of assets under management, and we’ve been doing business for X amount of time.” So there’s a track record. I would think track record and credibility are pretty close cousins, because of speaking about authority on a topic… Well, if you have a track record, you can –I would think– speak with authority on a topic. So I would think we’d check both of those boxes with that type of statement.

And then with empathy, something along the lines of identifying a problem that they might have and that I have come across before, and talking a little bit about that as it relates to the business that I’m in, and the call to action, the step I want them to take. So maybe it’s “Hey, I had a full-time job and I was looking for ways to make money, and have my money worked for me while getting tax benefits, etc.” Then alignment of interests mentioning “…and I invest alongside you and the rest of my investors for every deal.” What do you think of that?

Stace Caseria: It seems like you’ve done this before. It’s difficult to do copywriting on the spot, so I give you a lot of credit. That is, in a nutshell, how this formula works. The four factors overlap, and the way you speak and what you say can do double duty.

The first statement that you’re talking about, track record and credibility working together, is absolutely true. The track record is what you were talking about, and the credibility was how you were talking about it. Empathy is about the why – there’s the why in there, your purpose – and of course, the alignment of interest, that one is really easy for you to do the way you did it there. It’s so far from being philosophical; it’s so concrete. It’s like you and I are walking step by step, doing this together. If you lose money, I lose money, but we hope to both gain money together. That’s exactly how the alignment of interest works.

And the four factors don’t always have to be in the same proportions in any communication, depending on the size of the deal, who you’re talking to, who you are, the relationship that you have with people. There are things that you might leave out if that were a repeat customer; there are things that you might include if it was going to a list of people who were first-time investors, versus people who have invested not with you, but with other people multiple times, or the certain needs of that audience. So the four factors come in different levels depending, on a lot of the parameters of a situation or a deal.

Joe Fairless: Okay, that is very helpful. So we probably should have talked about this early on. I’d love to hear your thoughts on this… What makes you an expert on this and how did you come up with these four things that create trust?

Stace Caseria: So I’ve been working in advertising for about 22 years. Before that, I’ve always been interested in people. It seems strange to say, but my wife always thinks this is weird that I will make conversations with strangers, I’ll try to learn about people; I always want to understand where people are coming from. This has been an interest of mine my whole life. I look to see how people relate to each other, and it’s sort of dissecting situations when I’m with people. I take a scientific approach, although I’m not a doctor… But I look at how people relate to each other and I try to understand that.

Another factor is that I like to understand how people make decisions. In my two decades in advertising — we talk about a lot of things in advertising, we talk about engagement, we talk about awareness, we talk about trying to get in front of people… But there’s the thing that we were always missing that I felt — we talk about trust, but we don’t talk about how to build it and we didn’t break it down.

I went through the process of breaking it down, and thinking about situations, relationships I have with people, and say, “How does this relationship work? Why do I have trust in this person here? Why do I not have trust with that person there?” Sometimes you’re having a conversation with somebody and you’re like, “This guy doesn’t really care about what I have to say. He just wants me to hear what he has to say.” So from that, I’m like, “Okay, there’s this thing here where there’s got to be some reciprocity.” He has to care about me a little bit, and I have to care about him a little bit, or we’re not going to get to a point of trust. I’m like, “Okay, so that’s a line of interest merged with empathy”, so I started breaking these things out. I said, “You know what? I might have credibility and I can talk about a topic. But if I’ve never done it before – well, that’s a different thing. I don’t have 100% credibility.” I started breaking it down, like “Wait, credibility is different than track record. Track record is a little bit different.”

There are people who’ve done something over and over again, but they might not be able to communicate to me how they’ve done it or show proof of that. So they’ve got the track record, but they might not have credibility. And these are the four factors. There might be other things, but I’m trying to group these four things together, so that we can make a system to conquer one element of it at a time and build that genuine trustworthiness. There’s a whole conversation we could have about where decisions get made in our brains… Decisions are not made in the neocortex – that’s the new part of our brain, from an evolutionary standpoint.

Joe Fairless: The crocodile brain, right?

Stace Caseria: The limbic system. That’s where decisions get made. And decisions can’t be affected by language, because that part of our brain doesn’t understand anything but emotion. The limbic system controls our decisions and our emotions; it’s the emotional center of our brain. When we try to communicate to people with words – well, it has to first be translated into emotion in that person, and then it can start to register. But when we think about like, “Oh, I made a decision based on the logic of it.” No, that that doesn’t happen; it’s just not biologically possible. There has to be an emotion created before that part of your brain can react to it and make a decision, yes or no.

Joe Fairless: When you’ve spoken to someone over the history of you talking to people about this, and then they’ve taken it and run with it, what are some mistakes that you’ve seen people make trying to implement this?

Stace Caseria: With everything in life — and I was thinking about this before I came up. I was thinking about what we were going to talk about… You can’t force certain things; you cannot force credibility. If I don’t know enough on a topic, I might get partway through the process of a conversation… When people try to sound like they know more than they know, the person that you’re talking to – you run the risk of them actually having the answers and you looking like a fool… Rather than you saying, “I really don’t know all about this. I can find out and get back to you.” People will give you the benefit of the doubt. But if you speak with authority and try to be convincing on something and you’re clearly wrong, you will do more damage than good.

Fake empathy is another problem. We work with a lot of brands, some large brands. In the past, I’ve worked with big brands like Heineken, Delta Airlines, Bose, Panasonic, large companies. Sometimes large companies will have a really great intention to sound human, but they might play it off wrong, and it might come off as disingenuous or not their place in the world. I think as consumers, we’ve become a lot more accepting of brands feeling human, because we’re at a point where we’re much savvier to marketing. So brands have had to come around and say, “Okay, what’s another element that we could tap? Oh, let’s try to be human and understand what people need, rather than telling them what we have to sell.”

Joe Fairless: I love this conversation. This is going to be helpful for the Best Ever listeners who want to take their business to the next level, from a marketing standpoint, and generating leads. Do you have any books that you recommend from psychology or sociology that you’ve come across that you think would be helpful for the Best Ever listeners and myself?

Stace Caseria: I can think of two. The first one is called The Speed of Trust. It was written by Stephen Covey. I think his dad wrote… I think it was called the 10 Habits of Highly Successful People. But The Speed of Trust is fantastic. If this is a philosophical conversation we’re having here, if it sounds too philosophical to your listeners, read that book and you will see how trust turns into dollars and how it saves companies time. It is fascinating when you read that. Here’s a guy who runs a consulting company, and they consult with some of the largest companies in the world, and they see these massive improvements in efficiency. So The Speed of Trust – it’s like a literal title. It’s talking about speeding up decisions, speeding up our ability to work together, speeding up getting to a successful conclusion.

The other book is called Everybody Matters. The guy who wrote it, his name is Bob Chapman. He runs a global manufacturing company and he decided to start treating his employees like they were family members. He says “Everybody who works here is somebody’s precious child, and they’re entrusted to me for the eight hours a day that they’re here.” He’s seen massive growth and productivity improvements by treating people like their family. A fascinating book.

Joe Fairless: I’ll check that out. I’m more interested in the first one than the second one, but who cares about me right? I’m a focus group of one. But I just bought both of them right now — okay, I just bought them. I’ll check them both out. Thank you for those recommendations. How can the Best Ever listeners learn more about what you’re doing?

Stace Caseria: They can go to our website. Our agency is called Trust Deep. The URL is trustdeepagency.com.

Joe Fairless: Thanks for being on the show, talking to us and educating us on the four factors of trust. One is credibility, two is track record, three is empathy, four is alignment of interests… And giving specific examples of how to deliver on that. I hope you have a Best Ever weekend and talk to you again soon.

Stace Caseria: Take care, Joe.

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JF2348: A&E’s Flipping Boston With Dave Seymour

Dave Seymour was a firefighter for 16 years and is now a full-time real estate investor who also was on the A&E’s hit TV show “Flipping Boston”. Dave has done millions in real estate transactions and now manages a 100 million dollar fund investing in multi-family.

Dave Seymour Real Estate Background:

  • A  firefighter for 16 years and now is a full-time real estate investor
  • He was acclaimed as the star of A&E’s hit TV show “Flipping Boston” 
  • Has done millions in real estate transactions
  • Now manages a $100 million dollar fund investing in multi-family 
  • Based in Boston, MA
  • Say hi to him at: https://www.freedomventure.com/ 

Click here for more info on groundbreaker.co

Best Ever Tweet:

“Educate don’t speculate” – Dave Seymour


TRANSCRIPTION

Joe Fairless: Best Ever listeners, how are you doing? Welcome to the best real estate investing advice ever show. I’m Joe Fairless. 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 the fluffy stuff. With us today, Dave Seymour. How are you doing Dave?

Dave Seymour: I’m well, Joe. How are you, man?

Joe Fairless: Well, I’m glad to hear that. I am well also and looking forward to our conversation. A little bit about Dave. He’s been a firefighter for 16 years and is now a full-time real estate investor. He was on the A&E show Flipping Boston, he was the star of that show, and he’s done millions in real estate transactions. Now he manages $100 million fund investing in multi-family. And that’s what we’re going to spend a lot of our time focused on. Based in Boston, Massachusetts. So with that being said, Dave, do you want to give the Best Ever listeners a little bit more about your background and your current focus?

Dave Seymour: Yeah, absolutely. It’s kind of interesting when you hear somebody describe a 10+ year journey in two or three sentences right there… But I was a firefighter and a paramedic for many years here just North of Boston, a city called Lynn, Massachusetts. I found myself in some financially challenged positions, and transitioned into real estate. I had some construction experience, Joe. Firefighters tend to have that second and third job, and mine was in construction, and that was my first taste of investment. I got to see investors. Their clothes were cleaner, their cars were nicer, they smile more than I did while I was digging ditches. So I kind of thought to myself, what are they doing that I’m not? And I figured that out, and it was an education for me. It’s crazy, man. I attended one of those seminars that were traveling around the country back then, invested, and actually did what I was taught to do. And the results from that spoke for themselves. It got me out of some financial jackpots I was in, just through financial illiteracy.

Spending more money than you earn is probably not a great policy. But I learned through real estate what an appreciating and a depreciating asset was, and a lot of the single-family stuff that most people are familiar with – the eating popcorn on a Saturday morning, watching HGTV; it looks so easy, doesn’t it? But in the real world, real estate investing takes expertise. It takes practice. It takes some guts. But if educated, and then implemented what I learned – it took me on a pretty dramatic journey.

One day I’m sitting in a firehouse watching the show, and the next day I’m on TV creating a show. We did about five years of Flipping Boston, which was great. It was a lot of fun, it was also a lot of work; it wasn’t financially what most people think reality TV is.

Joe Fairless: What do you get paid for that?

Dave Seymour: Yeah, look at you asking me such a personal question… It’s fine. Here’s what I didn’t get paid. I didn’t get paid Kardashian money. You know, we started out at about $1,500 bucks an episode, myself and my partner. And at the height, it was probably around $30,000 an episode. But you’ve got to remember, we weren’t doing fluff and puff, we weren’t doing garbage flips. In New England where we are, our stock is pretty old. The majority of our properties that we buy, fix and flip, were turn of the century 1910, 1920, ’30, ’50, ’60s. So they had a lot of deferred maintenance. Plus you’re bringing all of that up to code. So it was a lot of work, but the national exposure was the real value in doing that TV show.

Joe Fairless: So many questions, and we’re going to focus a lot on your 100 million dollar fund, but just a little bit of context for your background. You said you were in some financially challenged positions. How bad, financially, did it get?

Dave Seymour: I was working 120 hours a week. So I would work full-time in the fire department, full-time construction on my days off, and then part-time nights and weekends. And I came from a very blue-collar background job. I was never taught what money really was, which was a tool. I was taught that saving was smart. I was taught to just trade time for money. And when you’re continually trying to keep up with the Joneses,  I crossed that threshold where I had about $60,000, $65,000 in unsecured debt, depreciating debt, cars, boats, leather coats…

Joe Fairless: Leather coats? You don’t seem like a leather coat kind of guy to me.

Dave Seymour: [laughter] You know, that’s just — I use that as a term.

Joe Fairless: So you didn’t buy any leather coats?

Dave Seymour: Well, I might have had one. I didn’t look that good in it, Joe. [laughs] But being a consumer rather than an investor. I think we trained that way, Joe. I think it’s how America is driven. And for me, I was 2006-2007, I’d refinanced my primary residence I think three times in 18 months, because they told me my house was a bank, and it was always going up in value. And then I found myself in late 2007 in a pre-foreclosure, potentially working on a short sale. That’s when I actually started in real estate. The first job I tried to do was save my own house. Very pleased to say I was able to do that.

So it was bad… It cost me a marriage, it cost me a relationship. When you’re working that much you can’t really show up and be present for the people that you love, because you know, I’m riddled with fear, doubt, and insecurity every day, like, “Oh my god, can I make ends meet?” So I never forgot that. And it’s kind of interesting, Joe, because I carry that sense, if you will, that feeling into everything that I do today in dealing with our investors. Because I know that they’re probably feeling a lot of the things that I felt, like what is five years, 10 years, 15, 20 years going to look like on their financial landscape? So I’m very cognizant of that. I think my own journey has been a huge benefit to me and to my investors, rather than a deficit, like “Oh my god, that guy nearly lost his house. Why would I invest with him?” That’s probably the best reason to invest with a guy like me, because I take every dollar seriously as if it was my own when it comes to investing.

Joe Fairless: How did you get on the show?

Dave Seymour: I was a seminar student. I was a product of a three-day class and then some mentorship. It was amazing…

Joe Fairless: Was that Rich Dad, Poor Dad, or what?

Dave Seymour: Well, it was a different company. It was actually the Russ Whitney group. And Rich Dad, Poor Dad actually bought them out. So it’s the same kind of organization. It’s crazy, man; that world is a different animal in and of itself, buy… It really is, Joe. And I got to be on the other side of that curtain because they asked me to start teaching because I was doing so well, and I’m like, “What, are you crazy? I’m just coming out of a pre-foreclosure scenario. Now I’m going to get on the stage and teach?” They said, “No, just share that it works. Don’t lie. Don’t say you’re a billionaire. Just tell the truth.” And I found that people resonated with that.

So because I was recognized as a teacher and a trainer, somebody in that world suggested that I put in an application for a TV show. It was a company out in New York, it was a vanilla application that you could download… And I just did it for [unintelligible [00:09:17].07] and giggles, Joe, to be very honest with you. I loaded the application with profanity, so that I knew somebody would at least pay attention to it… And yeah. They picked up the phone, they kind of laughed at me. They said, “You’re either a genius or you’re crazy putting all these incredibly unpleasant words in your application.” And I’m like, “Look, dude, they got you to get on the phone, didn’t it?” And I said, “Why don’t you come up to Boston? I’m a firefighter. We do this real estate stuff the same way I fight fires – when everybody else is running out, we go running in.” I said, “I’ve got a great crew, we can have some fun. And if we don’t, okay, I’m still going to do houses.” And it was like that posturing I think was important as well. They came out, shot a little sizzle reel (they call it), sent it to the guys at A&E. And it’s funny, the guys at A&E their comment was, “That big English guy looks like he could get pretty angry. We want to see more of that.” And that was it, man. That was it. So the game’s began.

Joe Fairless: Now let’s fast forward, let’s jump ahead to a hundred million dollar fund. Have you raised all the hundred million dollars?

Dave Seymour: Oh, I wish. No. I could spend 100 million tomorrow, if somebody wants to write us a check. We’re about 80% of where we want to be right now, but we are in acquisition mode.

Joe Fairless: 80% of where you want to be. So you’ve raised 80 million dollars?

Dave Seymour: We’re 80% of where we want to be. There is not 80 million in the bank either right now. A lot of the money — I’m not trying to avoid anything, Joe. But a lot of the…

Joe Fairless: No. Fair enough. Yeah.

Dave Seymour: …a lot of the capital is coming through what’s called qualified funds. So I could say 80 million, but because it’s qualified funds, I might only land 50 million of it. But we’re consistently in a capital raise mode, because of the amount of apartment complexes. They’ve gone through our underwriting funnel job. They’re primed and ready to go. But the reason we transitioned into this world from where I was, is because the landscape demanded it. COVID has created an unprecedented opportunity. And that word unprecedented is used pretty much in every conversation today. Unprecedented that our kids don’t go to school, unprecedented that the restaurants are shut down, unprecedented medical front; it applies everywhere. So if you’re doing the same thing now that you were doing late 2019, then you’re probably not doing the right thing.

And we looked at it and we said pre-foreclosures will hit, the forbearances will be lifted, and people will be hurt. Unemployment is still three and a half times what it was pre-COVID. The moratorium on tenancy is going to be lifted, people will be evicted and they will need to be reassigned to new housing. We need to be ready for that. And it’s a case of he or she who controls the capital in this chaos is going to win the race. And the amount of dry powder – and we refer to dry powder as the capital dollars on the sideline – has grown exponentially as I’m sure you’re aware. So we have a responsibility to be in that position to put that capital to work. Double-digit returns, which is what we target out.

Joe Fairless: And when you say qualified funds, are you talking about retirement accounts?

Dave Seymour: Yeah, correct. So that’s your self-directed IRAs, your solo 401K’s. That money funnel, if you will, has got a lot of checks and balances along the way. I work solely with one company, Horizon Trust, so I have a great line of communication, and our systems integrate, so we can take maybe a couple of weeks off of the general timeline that it takes to get that capital into the fund. Because as soon as it’s in the fund, my goal is to get it out the door and on the street into a property as soon as possible. So yeah, that’s what we mean by qualified funds.

Joe Fairless: Why is a lot of the money through qualified funds?

Dave Seymour: That’s a great question.

Joe Fairless: Firefighter connections is my guess.

Dave Seymour: Yeah, it’s partly that. It’s an interesting world. Fearless real estate is kind of like our topic here, but at the end of the day, I’m now in finance more than I am in real estate. So these kinds of funds, what’s called a regulation D 506(c) fund – because I’ve gone through the SEC compliance process, I’m allowed to market to the general public for my fund. Well, there are really two kinds of investors; there’s what we call the retail investor and the institutional investor. The institutional investor are the smaller hedge funds, pension plans, things of that nature. They are very comfortable with 10, 20, 30 million dollar commitments into a fund, but they shy away when it’s a new fund or a first fund.

So the qualified funds for us are coming through the retail investor pool. I’m 54 years old, so I have a lot of commonality, for want of a better term, with my investor pool… Because we’re in their late 40s or early 60s age group where we’re starting to think significantly about “Will the retirement capital honestly get to the finish line for us?” The number one fear is having the money die before you do. It’s interesting, medicine has extended our life and yet our financial fortitude doesn’t meet life expectancy anymore. People are still just plunking money into 401Ks, are not paying attention to their expense ratios inside of there, and they talk about compound returns, but they never refer to compounding costs.

So that’s why we attract that kind of capital, I think. We have various marketing funnels, Joe, that are out there. And it’s a wide net that we cast. But it’s the retail investor that puts their hand up, because I think they just identify with the message. If you’re sitting on three and a half million, four million dollars right now, is that really enough? And most economists say it’s not enough money to get there. So I’m not necessarily interacting every day with the pension funds and the smaller hedge funds, although I do have a lot of conversations with those guys.

You know, it’s funny, man – you get to a point where you show them your PPM, your private placement memorandum, which is a legal document that explains the business model for the fund. Why we invest, where we invest, what’s that criteria, returns, etc, etc. And these funds are looking at it and saying, “I love what you’re doing. It all makes sense. You know what though? You’re only 100 million, you’re way too small for us. Please call us when you’ve got fund two up and running, with half a billion, and then we can write you a check for 75, 80, 90 million dollars.” So the business model isn’t what’s being overly scrutinized, it’s actually the size of the fund, which is pretty interesting.

So that’s why I think it’s commonality, it’s people resonating with the message that we put out there as to why wouldn’t you let somebody else do all the work, Freedom Venture Investments, and you the investor participate passively in those double-digit returns that we target on the fund when we execute and bring the assets in? Does that make sense?

Joe Fairless: It does. You mentioned marketing tactics, you’ve got a bunch of them. What’s been the least successful and the most successful at bringing in the accredited investor?

Dave Seymour: Yeah – the least successful is thinking that just because you have the TV guy status, that people are going to write you a check. [laughs] I think that’s kind of interesting. We brought in Kevin Harrington to be head of business development for us. Kevin Harrington was one of the original sharks on Shark Tank. And Kevin is a fantastic asset to the company. But you look at it and you think, why is this so much work? And you can’t just have a fund and think the money is going to come. So what we did was we stepped back after a couple of weeks and said, “What more that we need to be doing?” And for us, the most successful funnel, if you will, that we have, is actually building out an online education piece that brings the investors awareness and competencies up the gradient enough so that when we have the offer in front of them, it makes a lot more sense to them. And we do that through various online social media type platforms, and things of that nature. That’s been the number one spot.

And then the second spot is where we’re at right now, which is actually doing in-person presentations for our accredited investors. We do one down in Tampa, which is where the majority of our assets are, in the Gulf Coast region in Florida. We just go to a really nice steakhouse, we do an hour and 20-minute presentation, gauge the interest in the audience, and then start to work with them and bring them up the gradient, so that they can feel comfortable about making an investment. I’ve always done well live and in person, Joe, and it’s so hard right now with COVID. The very best restaurants — Tampa is a little looser than we are up here in Massachusetts. Our offices in Tampa are firing on all cylinders. But up here in Mass, I think I’m down to about 18 to 24 butts in seats. But again, look, my minimum investment is $100,000. It’s two, three, four thousand dollars to put on a decent event, feed your potential clients, gauge their interest… This isn’t a hard sell.

Joe Fairless: How do you find them? Like the in-person one.

Dave Seymour: Yeah. Direct mail. We pull a list of accredited investors, we can go in and base somebody’s accreditation on earnings. It’s amazing how much information is out there when you know how to go find it.

Joe Fairless: Who do you use for direct mail?

Dave Seymour: My marketing team does it. Blockbuster, or Big Block, I think, is a postcard that we use. A little bit bigger. And again, that’s where we get a little pop for the TV thing, because you get to be able to use you know the face and the names, and people are like “Oh, that’s a little bit different.” It’s just separating yourself from the noise, Joe. If you can do that… Just like I did using profanity to get a TV show… I now use the TV show to separate myself from the other funds that are out there that are vying for this retail investor capital.

Joe Fairless: And I know this is more the marketing team, but if you do have knowledge of this, we’d love to learn about it. On the direct mail piece, do you have a frequency in what you send those direct mail pieces to the credit investors?

Dave Seymour: Yeah. Let’s say I pull a list of 1,000 accredited investors from direct mail marketing. It’s not like 1,000 pieces one time; you want to segment that out. So we’ll do either a three or five-touch campaign over, I think it’s a three to four-week period. I’m not exactly sure how often they send them out. But we commit to that. I’m not a great marketer, I know the basics. So with direct mail, my response rate for these kinds of events is probably around three and a half, 4%. We haven’t done too much split-testing with these pieces because we haven’t really needed to yet. But it’s trial and error. Marketing is all trial and error. It seems to be in such an intangible world sometimes for me; I’ve learned my lessons over the years with online marketing companies and stuff like that. I like tangibles. I want to see dollars out, customers in, cost of acquisition. Again, the marketing team does all of that. But it’s not just a “one list, one time, I hope it works.” Its three to five-touch campaign is what you generally need to get that kind of response rate.

Joe Fairless: And you said three to five touch campaign over roughly a three to four-week period. Just so I’m tracking right, does that mean about one per week?

Dave Seymour: Yeah. Approximately one a week. It’s the consistency that really gets it done.

Joe Fairless: Different postcards each week, or the same ones?

Dave Seymour: Well, we haven’t needed to split-test yet.

Joe Fairless: So the same one over and over?

Dave Seymour: Yes. So the same one. We back that up locally here in the Massachusetts market. I have a radio show that runs on Saturdays, like a talk show piece. It’s a one hour show called Real Estate Revealed. So I also use that as an education and a traffic-driving platform as well. I bring in Kevin Harrington and interview him, and I interview my custodian from Horizon Trust, and that kind of stuff. It’s all angles. It’s all angles.

Joe Fairless: It’s a fun conversation, I appreciate you sharing the inner workings of how you’ve put together the fund. Have you purchased any properties with the fund money yet?

Dave Seymour: Yeah. We’ve got a smaller asset class that’s just about to come into the fund. And there’s approximately, I would say, another 15 or 18 million that has been underwritten and has been walked, and is right on the cusp of coming into the fund. It’s interesting, because what we’re seeing now is practically zero outbound marketing for leads for properties. My partner Walter Novicki, he has over 25 years syndicating multi-family apartment complexes in the Gulf Coast region… So he’s known as the guy to call when the you know what hits the fan. And we’re actually getting pre-foreclosure leads now… Because we deal with a smaller asset class, Joe; I don’t like these 200, 250, 500-unit complexes. I’m going to let Wall Street and all the big boys fight over those. And then what we’ll do is we’ll pick up all the crumbs, because the verticals are exactly the same for us.

Joe Fairless: What size units are you targeting?

Dave Seymour: We target 40 to 150, we’re in that range.

Joe Fairless: Got it.

Dave Seymour: And again, because the verticals are there, property management, construction, those kinds of things for repositioning, we almost look at it as if it is (and it is) all one fund or one real estate strategy for each of these complexes inside the fund. It’s inbound calls.

I was talking to a fund manager the other day, and he deals with international pension funds for teachers. And he asked me bluntly, he said, “Your fund is 100 million.” He said, “If I write you a check for 100 million, how long can you put it to work?” That’s a hell of a question to have somebody ask you. And I quickly dialed in my CIO, Walter, and I said “If I give you 100 mil tomorrow, how long can you put it on the street?” He said, “I can buy 300 million of cash flow and assets within the next 30 to 45 days.” And that’s a pretty powerful statement to make. But again, it only comes through longevity and expertise in a market, being able to execute on that stuff. So that conversation is still going on. I wish I could tell you with all confidence that we pulled that one off, but it’s interesting the way that they’re looking at this stuff. They’re looking for a lot of distressed debt right now, and that’s probably part of the fund too for us, is bringing distressed debt into the fund and working some of those angles as well.

Joe Fairless: Just taking a step back, based on your experience in real estate investing. What’s your best real estate investing advice ever?

Dave Seymour: Educate, don’t speculate. Really, it’s that simple. There are so many investors out there who think they know what they’re doing. I’m watching a lot of speculative investments going out there right now. People got hurt in 2008, 2009, 2010 because they did the ostrich thing. You know what I mean, Joe? They put their head in the sand and said, “Nah, we’re going to be alright.” No, you’re not. You’ve got to pivot, educate. Do you know what’s going on in the marketplace? Do you know what the yield is on a T-Bond right now? Because that’s important. Do you know how many mortgages are in forbearance right now? That’s important. You know, all of the easy data that they throw out there needs to be analyzed with a professional mindset, and a lot of people just kind of wing it. And I’ve seen a lot of people get hurt. I’m very proud to say I have never ever in my career, missed one payment or lost $1 of investor capital ever, ever. I’ve always done that from an ultra-conservative standpoint. I don’t do skinny deals. I educate myself first before I execute. So yeah, sorry to get long-winded man, but it’s important. Educate, don’t speculate.

Joe Fairless: We’re going to do a lightning round. But first, are you ready for the lightning round?

Dave Seymour: Whatever you’ve got. Bring it on, Joe. I’m feeling strong. I’m on a roll.

Joe Fairless: I know you — you can handle anything. First though, a quick word from our Best Ever partners.

Break: [00:24:21][00:25:08]

Joe Fairless: Alright, let’s do a lightning round… Real quick, Best Ever way you like to give back to the community?

Dave Seymour: Tunnels for Towers. It’s a charity close to my heart that supports 9/11 victims, and veterans, and first-responders.

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

Dave Seymour: Freedomventure.com, look us up online. You can find out who we are, what we do, and how we can help you.

Joe Fairless: Dave, thanks for being on the show. Thanks for talking about your fund. Thanks for talking about a little behind the scenes action on the show Flipping Boston, and your personal story, along with ways that you’re currently attracting accredited investors to your fund, the focus of the fund being 40 to 150 units, and why that is the case. So I appreciate that. Hope you have a Best Ever day, and talk to you again soon.

Dave Seymour: Thanks, Joe.

Website disclaimer

This website, including the podcasts and other content herein, are made available by Joesta PF LLC solely for informational purposes. The information, statements, comments, views and opinions expressed in this website do not constitute 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. Neither Joe Fairless nor Joesta PF LLC are providing or undertaking to provide any financial, economic, legal, accounting, tax or other advice in or by virtue of this website. The information, statements, comments, views and opinions provided in this website are general in nature, and such information, statements, comments, views and opinions are not intended to be and should not be construed as the provision of investment advice by Joe Fairless or Joesta PF LLC to that listener or generally, and do not result in any listener being considered a client or customer of Joe Fairless or Joesta PF LLC.

The information, statements, comments, views, and opinions expressed or provided in this website (including by speakers who are not officers, employees, or agents of Joe Fairless or Joesta PF LLC) are not necessarily those of Joe Fairless or Joesta PF LLC, and may not be current. Neither Joe Fairless nor Joesta PF LLC make any representation or warranty as to the accuracy or completeness of any of the information, statements, comments, views or opinions contained in this website, and any liability therefor (including in respect of direct, indirect or consequential loss or damage of any kind whatsoever) is expressly disclaimed. Neither Joe Fairless nor Joesta PF LLC undertake any obligation whatsoever to provide any form of update, amendment, change or correction to any of the information, statements, comments, views or opinions set forth in this podcast.

No part of this podcast may, without Joesta PF LLC’s prior written consent, be reproduced, redistributed, published, copied or duplicated in any form, by any means.

Joe Fairless serves as director of investor relations with Ashcroft Capital, a real estate investment firm. Ashcroft Capital is not affiliated with Joesta PF LLC or this website, and is not responsible for any of the content herein.

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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JF2232: Self-made Multimillionaire Willie Mandrell

Willie Mandrell is a self-made multimillionaire real estate investor, broker, coach, lecturer and author and has been investing in buy & hold rentals for 13 years. He shares how he started and his journey to where he is today. 

Willie Mandrell Real Estate Background:

  • Self-made multimillionaire real estate investor, broker, coach, lecturer & author
  • Has been investing in buy&hold rentals for 13 years
  • Portfolio consist of  40+ units valuing at $10 million
  • Based in Boston, MA
  • Say hi to him at: www.WillieMandrell.com 
  • Best Ever Book: Retire Young, Retire Rich

 

 

 

Click here for more info on groundbreaker.co

Best Ever Tweet:

“What helps me is I wake up every morning with the same focus” – Willie Mandrell


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 Willie Mandrell.  Willie, how you doing today?

Willie Mandrell: I’m doing well, Theo. Thanks for having me on the show.

Theo Hicks: Absolutely. Thanks for joining us. Looking forward to our conversation. A little bit about Willie; he is a self-made multi-millionaire real estate investor, broker, coach, lecturer and author. He’s been investing in buy and hold rentals for 13 years and has a portfolio of over 40 units valued at $10 million. He is based in Boston, Massachusetts and you can say hi to him at his website http://www.williemandrell.com/.

Willie, do you mind telling us a little bit more about your background and what you’re focused on today?

Willie Mandrell: Yeah, sure. I’ve been a buy and hold investor since the very beginning of 2006. So 14 years, right at the height of the market, right before the market crashed 2007/2008, rode the market down and rode it back up again, and made some stupid mistakes, made a lot of great purchases… But I love the business; rental business is great, housing is something that’s always going to be needed, doesn’t go out of style… It’s been a great business for me.

Theo Hicks: You’ve got 40+ units. How many buildings is that? What are the types of buildings you focus on? Is it all single families? Are they a four-unit property? Somewhere in between?

Willie Mandrell: In Boston, everything’s a three-family. Almost all of our stock is twos and threes. Fours are pretty rare. They’re out there, but they’re rare. The majority of my portfolio is three family, so roughly 12-13 of them. I don’t even know. I can’t keep the count anymore. I know it’s a lot for the landscapers, it’s a lot for the snow removal guys, but 13 properties, 14 properties somewhere around there. I have a couple single families mixed in there as well.

Theo Hicks: Sure. Maybe tell us about one of your earlier deals. I know in Boston—I’ve talked to a few people in Boston on the show before; real estate is a little bit more expensive than it is in, say, Ohio or somewhere, so you’re going to need a little more money to buy these properties up front. So maybe walk us through one of your earlier deals. Walk us through how you found it, how you actually afford the down payment, what the business plan was, what the numbers were, things like that.

Willie Mandrell: Yeah, sure. The earlier deals — I worked with a lot of, on the brokerage side, a lot of buyers as well. The earlier deals are always those properties you find on MLS; they are FHA deals, mass housing deals here in Massachusetts, low down payment, 3%, down, 3.5% down. You scrape that money together. Me personally, I went out and borrowed some money from my mother, borrowed some money from my grandmother, friends, I did what I had to do, worked a couple extra jobs, and got that down payment. I think it was at the time roughly $15,000. My first multifamily sold for roughly $400,000.

Today, those prices in Boston since 2006 have basically doubled. The market obviously took a little bit of a dip and now they’ve pretty much doubled. But it’s the same method. Today, if you’re just getting into the business, it’s a high barrier to entry here in Boston. Yes, the real estate prices are high, you do what you can to scrape, crawl, grab, pull, and get yourself in the business. But once you do, it’s really great.

Today, I am no longer spending or putting 20% down or 25% down. My focus is on the BRRR strategy; the buy, rehab, rent and refinance strategy. I’m going out and looking for dilapidated three families, anything that is seriously broken down; heating systems, roof, bad siding, bad windows, no insulation, anything that needs a significant amount of work, and basically buying that with the combination of private money and commercial construction financing, rehabbing the property, and then going out and getting a commercial loan where I can put that into a permanent financing position.

Theo Hicks: I want to talk about that, but I want to ask a few follow up questions on that first deal. The first deal, you said that you used an FHA loan. Did you house hack this property?

Willie Mandrell: I did; lived in one unit and rented out the other unit. In addition to that, it was a three-bedroom unit, so I rented out the other two units and my bedroom as well. I was relatively young, I think it was 23 at the time, and I still wanted to travel, still wanted to do other things with myself, so it was a great opportunity… I think my mortgage was roughly, call it, $2700. I was getting about $1500 from the lower unit, and then another thousand bucks from the other two tenants within my rental unit, one of them being my brother. I would say 85-90 percent of my mortgage was paid off by somebody else. It was a great experience right from the start, and that’s why throughout the housing market crash 2007, I was still able to hold on, because the majority of my mortgage was being paid by other people.

Theo Hicks: Did you do the first BRRR strategy house with your own money or did you immediately jump from this house hack to raising money for BRRRs, or was there like an in-between step where you did something else first?

Willie Mandrell: Oh, yeah, no, there was definitely an in-between step. I think it’s very difficult for you to go from buying your first house to doing a complete rehab. Some people do it, but you really want to learn the business and learn rental property business, you want to learn, how to evaluate and how to figure out ARV and everything else.

For me, there was a couple in-betweens. I started a rental brokerage, and to be quite honest, I don’t advise everyone to do this. This is not what you’re supposed to do. But I was given a line of credit for my rental brokerage; brokers was doing pretty well,  I received a line of credit, and I used that line of credit as funding for the downpayment. In that particular situation I had about $100,000 line of credit for my rental brokerage and used almost all of that as downpayment and then the rest of the purchase price came from hard money at the time. It was hard money, it was financing 75% to 80% of the purchase price, and then 100% of the construction loan was given by hard money. That was my first BRRR strategy.

Theo Hicks: Was that a house hack, turnkey, or did you do some renovations there too?

Willie Mandrell: Minor. For the most part, it was turnkey. Very turnkey compared to what I’m doing now. I’m going in and pretty much gutting things down to the studs now. For the most part, that first house hack was all cosmetic; kitchens, bath, paint, carpet type of situation.

Theo Hicks: Perfect. Okay, let’s talk about the BRRR strategy. Maybe let’s start by talking about the private money raising for that. How are you structuring that with the people you’re raising money from? Who are you raising money from?

Willie Mandrell: Sure. When you first start out – and this is why it’s difficult to go out and do the BRRR strategy the way I’m doing it now initially, because you don’t really have those connections, you don’t have the resume. But once you build up a solid resume for yourself, you have that first two-family that you bought or three-family that you bought with an FHA loan, and then you can probably work the system, buy another one with a very low downpayment loan as well.

Now, you have four, five, six units under your belt. That initial private capital is probably still going to come from somebody within your family, somebody who understands what you’re trying to do, what you’re trying to build. It might be an aunt, it might be an uncle, it might be a parent, it might be a cousin.

The initial loan for me was my grandmother, who provided that initial private capital to go out and do and purchase that third or fourth property that I was working on. I basically presented it to her as, “Hey, I have this great opportunity. I’m going to buy this property under market. When I’m finished fixing it up, it’s going to producing let’s call it $2,000 a month. I think that the $24,000 or $25,000 that I’m borrowing from you right now, I can basically if everything goes smoothly, get it back to you within two years, basically giving you the cash flow of $2,000 a month.”

With my track record – she’d basically said, “Okay, you bought one two-family, and you bought another three family. I see what you’re trying to do.” That prior resume made her comfortable to make that purchase; couple that with the plan of getting that money back to her made her comfortable enough to go ahead and make that initial loan.

And then from there, it’s just networking. At that point, you start to go out and you get to networking meetings, you’re talking to everybody that you know, you’re telling them what you’re doing in the business, and then from there it springboards, and now you have eight units or 10 units under your belt, and you really start to put your name out there, and you gain the trust of other people. And now your access to private lending starts to expand.

Theo Hicks: Perfect. The structure is you return all their money within a certain timeframe because you’re doing full rehab. Is she getting that cash flow—that two grand a month, is that happening after you return the money to her? Is she getting the upside, like are you giving her money plus equity, or is it just, you give me the money and then two years later, you get the money back, plus you’ll get an ongoing cash flow forever?

Willie Mandrell: No, she had no desire, —and again, this is my relative, right? What you’re saying is—great question. It is a typical private money situation that I’m working on today. They’re either equity or debt partners.

My grandmother in this particular situation said, “I just want my cash back.” That’s pretty much what it was. I want to help you and I want to do what I can. There was no embedded interest rate, there’s no equity position. I own the property outright and still do today.

Today, though, my private money lenders are not my family members. They’re looking for a return on their investment. I either structure it as debt or equity. If there’s a really sweetheart deal on the table and I know that I’m going to be in and out of this thing in no time, and I can get all my money back and refinance and pay the lenders back, I’ll probably structure that deal as a debt partner. So meaning, “Hey, Theo, can I borrow 100 grand from you,” or “Here’s an opportunity to invest 100 grand with me, and I’m going to pay you 12% on your money.”

So 12% of the money on 100 grand is roughly 1000 bucks a month. Once I’m all said and done, if I’m rehabbing that property for six months, and it takes me another three months to lease up, then they’re going to earn $9,000 on their money during that nine-month period. Then I’m able to basically go back to the bank and once I consolidate those loans, and refinance out that private capital, I’m basically paying that private lender back; that’s a debt structure.

Or I can structure it as equity, and basically say your $100,000 comes in. And that $100,000 is now giving you a position of 20% within the property. For every $1000 that the LLC disperses from this property, you’re taking $200. And then if we ever sell the property in the future, let’s say we sell it for $100,000 profit, $20,000 of that $100,000 is yours. So they would own whether up or down; if you’re an equity partner, you participate based on your percentage ownership.

Theo Hicks: Is this something where you offer debt and equity in the same deals, or do you offer only debt for some deals and only equity for other deals?

Willie Mandrell: When I started off, it was a little bit too complex to do both in the same deal. Today, we do have deals where we are offering debt and equity to potential investors. Obviously, your equity position will be lower, but you are also achieving some type of return right from day one as well based on the performance of the property.

The calculations are a lot easier for debt. It’s a better upside for you if the property’s doing really well. It’s a better upside for an investor if the property’s not doing really well. Equity – if the property is doing really well, you’ll probably wish you’d gave away less equity and you’ll wish you had debt. There are give and takes for both. It all really depends on how you want to structure the deal and your access to capital at the time.

Theo Hicks: Sure. I’m trying to understand… From your perspective, why wouldn’t you just do debt in every deal?

Willie Mandrell: I’ll give you a perfect example. Today, we’re looking at Coronavirus. Since March, we’ve been dealing with this thing and no one has a crystal ball and no one really knows where the markets going to go. If this was 2014, we’re trending upward and it’d probably be best to do debt. But let’s say hypothetically we take a 10% to 15% downturn in the next couple months. It actually is safer for me, especially because—let me give another example. Here in Boston, we have an eviction moratorium, right? We’re not allowed to evict anybody. We have roughly 36 to 40 million Americans out of work at the current time. So if I have tenants that are not paying their rent, it’s better for me to have an equity partner, because that equity partner is also participating in that downside. If I had a debt partner, they want their interest payment regardless of the performance of whether the tenants are paying or not. The equity partner participates, it’s safer for me in an unknown environment. The debt partner doesn’t participate, it’s a better investment for me when things are a little bit more certain, if that makes sense.

Theo Hicks: That totally makes sense. Thanks for elaborating on that. All right, Willie, what is your best real estate investing advice ever?

Willie Mandrell: Stay patient. The best real estate investing advice I can give to anybody is stay patient. I’ve been in this business for 14 years now. People look at me and they see the end product, right? They see what’s at the end of 14 years. But it was a struggle going through the 2007, 2008, 2009 years, where people were getting foreclosed on and my home was worth less than what I owed on the property. It wasn’t certain whether my tenants were going to lose their job. This is a great business. I’m in my mid to late 30s right now, I’m probably going to see several more recessions. But I understand that I have a 20-year timeline before I’m even looking to settle down or retire and cash out.

Real estate – and again, this is just my opinion – people in society today, we live in a world where everybody wants something tomorrow; instant gratification. They’re not willing to wait for it typically. You can’t do that in buy and hold real estate. It’s a long game. It takes 5-10, 15-20 years to really start to see, but the upside is so great that if you just stay patient, this business is a terrific business.

Theo Hicks: All right, Willie. Are you ready for the best ever lightning round?

Willie Mandrell: Absolutely. Let’s do it.

Theo Hicks: Okay.

Break: [00:16:24] to [00:17:11]

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

Willie Mandrell:  Retire Young, Retire Rich. I wouldn’t say it was recent. It was probably maybe five years ago, but that was the game-changer for me. That was the one book that said—I’d read Rich Dad, I’d read The Millionaire Real Estate investor, I’d read The 10X Rule. A lot of great books. Start With Why, another great book. But Robert Kiyosaki’s Retire Young, Retire Rich is kind of like the next level to Rich Dad, Poor Dad. It really kind of took my mindset to the next level and said, “Yes, I can do this. This is absolutely doable for me.” It was more about just buying real estate than it was all the other things that come around that topic as well; the asset protection side of it, the making your real estate business an actual business.

I think people go in and they get that first multifamily or that second multifamily, and then they get stuck. They try to do everything themselves. They try to manage, they try to be a legal adviser, they try to be their own accountant. You can’t do it like that. That book really kind of took me to the next level and allowed me or helped me turn my rental property business into an actual business.

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

Willie Mandrell: If my business were to collapse today… I would have to push back on you and say, I would want to see how my business collapsed. Because that’s the thing that I love about real estate – you always need somewhere to live. I don’t know what a business collapse would look like. I still own the property at the end of the day. I look at it like this, if the market was to take a serious dip, we got hit by 25% in terms of my values – well, my net worth is going to take a serious hit. A lot of my net worth is tied up into the value of the real estate. My net worth would take a hit. But I’m not sure that the cash flow would change.

Let’s say for instance, 100 million people lost their job, right? And I have 10% to 20% of my tenant base that can’t pay, well, there’s a lot of other people in the country really struggling at that point, and I don’t see banks foreclosing, I don’t see banks taking my property back from me, because where would they go with it?

I can go on this long road of this hypothetical scenario that I’ve done 100 times in my head, but that’s what I love about real estate – the hypothetical collapse, I just don’t it see happening. If it did, I would do everything I could to find more money and to buy more real estate, because I don’t think that the collapse would last very long. I think we would end up coming back. Again, at the end of the day, everyone still needs somewhere to live and I think real estate is one of those investments that are tried and true, and that you can bank on.

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

Willie Mandrell: Education. I don’t think that I’m unique in any way. I think probably the only thing that makes me unique is, I wake up every morning with the same focus. I think that this business takes a lot of focus. It’s again, and like I’ve mentioned before, it takes patience. It’s a long haul. The thing that I would tell people and the thing that I go out and kind of preach is patience, consistency. But the way I give back is just through education; letting people know that you can do this as well. I’m not unique. I’m not gifted. I’m not Mark Zuckerberg, right? I didn’t come up with this secret algorithm for Facebook in my dorm room. This is one of the oldest businesses in the world. I did it, my grandmother did it. There was hundreds of people before her that did it. You can do it too. That’s kind of my message out to the general public in most cases.

Theo Hicks: Lastly, what is the best ever place to reach you?

Willie Mandrell: I would say Instagram and LinkedIn, I’m @wjmandrell. I also run a real estate investment group called Wealth Builder Nation. We are at at Real Wealth Builders on Instagram as well. I’m also on LinkedIn, and Facebook as well.

Theo Hicks: Perfect. Willie, thanks for joining us today and giving us your best ever advice. Some of the big takeaways from me was learning about how to determine whether to use debt or equity or not. When you’re raising money, the two options are debt versus equity. The debt would be get 100 K, pay 12% interest. You fix the property up, you lease it up, you refinance in however long, you hold on to it, you pay them back their equity plus interest.

Your example is nine months, the $100,000, down 12% would be $9,000, pay them back entirely and then the deal is yours. Equity would be, you borrow 100K and they get a percentage of the deal, say 20%. You offer both on your deals now, but equity is the safer bet for you during a downturn, because that investor is going to want that interest rate no matter what. If you’re not able to hit that 12% interest, I’m assuming the property as collateral – they can take the deal from you. That was interesting to learn.

And we talked about some strategies on how to raise money. You were very specific in saying how you first need to build a solid resume, do your first deal, FHA. Try to figure out another way to do your next few deals with low money down. Transition to raising money from some family member. For you it was your grandma, and she was nice enough to give you money without asking for any type of equity or interest rate. Do that and then start networking, you said.

Willie Mandrell: Absolutely, and that’s going out and networking, telling everyone and anybody who will listen exactly what you’re doing.

Theo Hicks: And then from there, it springboards. Lastly, was your best ever advice which is to stay patient. Realize that buy and hold real estate is a long term game. You’re not going to see massive upsides for a few decades. But once you actually do, the upsides are going to be massive.

Willie, thanks again for joining us. Best ever listeners, as always, thank you for listening. Have a best ever day and we’ll talk to you tomorrow.

Website disclaimer

This website, including the podcasts and other content herein, are made available by Joesta PF LLC solely for informational purposes. The information, statements, comments, views and opinions expressed in this website do not constitute 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. Neither Joe Fairless nor Joesta PF LLC are providing or undertaking to provide any financial, economic, legal, accounting, tax or other advice in or by virtue of this website. The information, statements, comments, views and opinions provided in this website are general in nature, and such information, statements, comments, views and opinions are not intended to be and should not be construed as the provision of investment advice by Joe Fairless or Joesta PF LLC to that listener or generally, and do not result in any listener being considered a client or customer of Joe Fairless or Joesta PF LLC.

The information, statements, comments, views, and opinions expressed or provided in this website (including by speakers who are not officers, employees, or agents of Joe Fairless or Joesta PF LLC) are not necessarily those of Joe Fairless or Joesta PF LLC, and may not be current. Neither Joe Fairless nor Joesta PF LLC make any representation or warranty as to the accuracy or completeness of any of the information, statements, comments, views or opinions contained in this website, and any liability therefor (including in respect of direct, indirect or consequential loss or damage of any kind whatsoever) is expressly disclaimed. Neither Joe Fairless nor Joesta PF LLC undertake any obligation whatsoever to provide any form of update, amendment, change or correction to any of the information, statements, comments, views or opinions set forth in this podcast.

No part of this podcast may, without Joesta PF LLC’s prior written consent, be reproduced, redistributed, published, copied or duplicated in any form, by any means.

Joe Fairless serves as director of investor relations with Ashcroft Capital, a real estate investment firm. Ashcroft Capital is not affiliated with Joesta PF LLC or this website, and is not responsible for any of the content herein.

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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JF2211: Don’t Underestimate Your Potential With James Evans

James Evans is the Owner of Gladstone Capital with 6 years of real estate investing experience with a portfolio consisting of 20 rentals, condo conversions, limited partnerships, and creative joint venture deals. James got into real estate because his job has him traveling constantly where he felt like he shouldn’t have to pay for a mortgage since he was never home which started his journey into renting houses and eventually grew into a nice portfolio. 

James Evans  Real Estate Background:

  • Owner of Gladstone capital 
  • 6 years of real estate investing experience
  • Portfolio consists of 20 rental units, condo conversions, limited partnership, and creative joint venture deals
  • Based in Boston, MA
  • Say hi to him at: https://gladcap.com/ 
  • Best Ever Book: Living with the Seal

 

 

 

Click here for more info on PropStream

Best Ever Tweet:

“We tend to underestimate our own potential” – James Evans


TRANSCRIPTION

Theo Hicks: Hello, Best Ever listeners. Welcome to the best real estate investing advice ever show. My name is Theo Hicks and today, we are speaking with James Evans. James, how are you doing today?

James Evans: I am doing great. How are you doing, Theo?

Theo Hicks: I’m doing great as well. Thanks for asking and thanks for joining us. Looking forward to our conversation. Before we jump into that, let’s go over James’s background. So he’s the owner of Gladstone Capital. He has six years of real estate investing experience and has a portfolio of 20 rental units, condo conversions, limited partnerships and creative joint venture deals; so a little bit of everything. He is based in Boston, Massachusetts, and you can say hi to him at his website, which is gladcap.com. So James, do you mind telling us a little bit more about your background and what you’re focused on today?

James Evans: Absolutely. So a quick version of the background – I was a finance major in 2006 through 2010, so through the financial crisis. Got out of school and ended up getting a job at PricewaterhouseCoopers on the consulting side of their business. So I was traveling around all the time. I would leave DC where I was living on Monday, fly out to my client site, fly back on Thursdays. It got crazy. I was just living on the road, never had any local projects. And after a year, I decided that it was stupid to be paying rent with all the time I was spending in hotel rooms. So I convinced a couple of my friends to let me just crash on their couch during the weekends, so I paid 100 bucks in rent, or 200, or whatever it was. It was something very, very much lower than the typical DC rent. So I was able to save a bunch of money that way. And then also traveling all the time, most of my meals and things like that were expensable during the week. So it was a ton of fun to fly all over the place, that nomadic kind of lifestyle.

I had been thinking for a while about saving up to buy my first place and simultaneously moving back home to the Boston area. So when I looked around at a few places, and I guess the math I was doing was I wanted to be able to buy a two-bedroom place where I could have a roommate to cover the majority of my living expenses. Living that couch life, I got really addicted to this low overhead lifestyle that I was loving and wanted to keep that going. So I ended up getting a really good deal on a place, and everything spiraled from there. Second part of the question is what I focus on now, right?

Theo Hicks: That’s okay. So you bought a single-family house and you rented out one of the units to someone else?

James Evans: It was a condo, a two-bedroom condo, and I rented out one of the bedrooms.

Theo Hicks: Perfect. So what are you doing today?

James Evans: Today, like you said, I’ve painted the board. I was doing a little bit of a lot of things, so in progress on a few joint venture development deals with other local partners around here… I have been slowly and steadily building up a multifamily portfolio of rentals, I have done some property management for others, I’ve done things outside of real estate. I bought, owned and operated and sold a website… I own a food truck with a few friends… So like you mentioned, I’m all over the board right now.

Theo Hicks: Yeah, you’re doing it all.

James Evans: Yeah. So the phase I’m in now is looking at everything through a different lens and figuring out what to actually keep on my plate, and really focus on and try to compound my efforts on over the next ten years or so.

Theo Hicks: That’s a good place to start. So you’ve got a lot going on, and you also have a full-time job?

James Evans: Correct.

Theo Hicks: Okay. What’s your day like? What’s your week? Like? Are you waking up at 4 o’clock in the morning and [unintelligible[00:07:18].27] blocked off to focus on each individual enterprise? I’m just curious, how do you do all that?

James Evans: So I wish I could tell you I was following the 4-Hour Workweek protocols correctly and was batching all my emails and time blocking things out really well, but I think — I try to do a little bit of everything every day and just keep momentum going. Like I said, now I’m focused on subtracting out the superfluous and really… The lens I’m looking at things through now is what I call return on headache. And I think what I want to do going forward is pick one, maybe two things that are really high headache, complex, take a lot of work to get through the other side of, but have a really high and the rainbow at the end of the road, or the pot of gold at the end of the rainbow – I’m mixing up my phrases – but really high reward. I think that’s where the really high impact, life-changing things come from, are these high headache, high return activities.

And then also where I can, pick off the low headaches, medium to high return things. A lot of how I do the rental portfolios fall into that category where I can put on some upfront time to make sure it’s a good deal. But then I have property managers and hands-off besides making decisions and holding people accountable. So I’m using that lens to cut out the middle tier of that things. So property management, the website I was running, I’ve really taken a step back. I sold the website, I’ve stopped doing property management for the most part, and self-managing any of my own rentals. So just trying to find those areas where I can either pay or cut off to eliminate a good chunk of headache and time [unintelligible [00:08:44].22] my day-to-day.

Theo Hicks: Sure. I like that concept of return on headache. Just to make sure I’m understanding this properly… So you’re saying that you want to focus on the things that do give you a headache, but that also result in higher returns, and get rid of the things that aren’t giving you a headache and then aren’t giving you a high return?

James Evans: Yeah, those are the two categories I’m focused on. So one, high headache, high return and maybe one, maybe two things like that. I haven’t quite narrowed it down yet, but I’d like one midi project/ten-year goal to track through that’s going to be complicated, it’s going to be messy, that I think I can do a better job in and have a higher return than if I put that time into something else.

Theo Hicks: So do you have an idea? Is it going to be real estate? Just in the intro, we’ve got your rental portfolio, we’ve got condo conversions, we’ve got limited partnerships and JV, some more passive deals. Do you have an idea of which one you plan on diving all in on, or is it something that’s not on that list?

James Evans: With the list right now, I would say building the multifamily portfolio is probably one of the highest priorities there. The joint venture deals I’m doing also tend to be lower headache on my end. Again, some upfront work, but I’m pretty hands-off, because I’m not super involved in the construction side of things. I really like the people I’m working with, so I don’t consider it a high headache thing. So those are the two real estate related tracks I’m gonna start focusing on.

Some bigger multifamily projects where I can have a property manager, cash flow as well, and I can just put it on autopilot for a five to ten year period… And then the joint venture deals which are more complicated, and I get to shadow and be involved with as it makes sense, but I don’t have the weight of every single decision on my shoulders, I’m not getting calls from subcontractors in the middle of the afternoon, and I can just be more involved a more strategic level.

Theo Hicks: Sure. So you’ve got your 20 rental units. How many properties is that?

James Evans: As of now, it’s five. So I have two six-units, a five-unit, a duplex and a single-family.

Theo Hicks: Okay.

James Evans: I think that math checks out.

Theo Hicks: Yeah, totally. So just to be clear, the biggest one, you said, is a six-unit?

James Evans: Yep. So two six-units. I’m on a contract on an eight-unit right now as well.

Theo Hicks: Okay. Let’s talk about the eight-unit under contract. So walk us through where did you find it, and then what’s the purchase price, what’s your plan…

James Evans: So it’s in Manchester, New Hampshire. That’s the area I look in predominantly; Southern New Hampshire. I can get into that later if you want to… But I found it through an agent. It was listed. My agent had another contract with a different buyer. Six months go by and the buyer’s circumstances change. The seller’s taking forever to get documents back and they just couldn’t get the deal closed. Sellers, upstate New Hampshire, no internet, everything gets paper signed to track down bills, financial statements, things like that. So just– it didn’t work out for the last buyer, so I ended up coming in and offering significantly less amount than it was originally listed for. So it grosses about $94,000 a year, and we’re buying it for $500,000. So a good deal, a good cap rate going in, pretty clear path improvement. Looking at things like doing either RUBS, or separating out some of the utilities, reduce expenses. And then as the units turnover, we’ll clean them up and fix what needs to get fixed to get higher rents. So kind of your bread and butter…

Theo Hicks: Sure. Do you know what the rehab costs are going to be, and then how much you will be able to raise the rents by?

James Evans: Initial capex budget is going to be around $50,000, and that’s going to be spread out across the board, some common area, things that needs to get fixed, and then unit turnovers. Some require a little more work than others. And then depending on the units, $50 to $100 a month in rent increase.

Theo Hicks: You said, “we”. So something else I wanted to ask too is, how are you funding all this? And then are you the only person, or do you have business partners you’re working with as well?

James Evans: Great question. So this is one of the first multifamily deals I felt comfortable enough to go out and raise private capital for, or doing that with private investors for some of the money. I’m going to put in some as well, and then bank financing for the majority of it. So I do tend to say “we” more than “I” because like anything, there’s going to be a lot of people involved in this. Even if this was like the other rentals I have where it’s solely my own balance sheet and money, my property manager’s involved, the broker’s involved, tenants involved… It’s a team sport, so I say everything with “we” even if it’s just me doing things.

Theo Hicks: So this is the first time you’re raising capital for the deal. How much money do you need to raise? How much do you already have? And then who are these people you’re raising money from?

James Evans: We’ll raise between $75,000 and $100,000, and I have about $60,000 so far, and commitments for the rest. So we’re just waiting on a closing date and a few other stipulations to get ironed out. But who we’re raising money from – a lot of them have been investors from previous deals we’ve done. So the joint venture deals, those I’ve brought investors into as well. That was my trial run raising money, and it was an interesting, unique experience doing it because I had really experienced developers and operators that were my backstop. I had always been hesitant to do something for my own projects, because I felt like I needed to skin my knees and learn using my own money before I would put anyone else’s money at risk.

So having two guys who do this full time, one of them being a contractor who has worked in the industry for a while, I was really confident in their ability to perform. I thought it was great deal, so I felt really comfortable bringing my friends and family into the project. So we’ve done two deals together in these joint ventures, and now some of the investors who have gotten to know us through that have expressed interest in things that provide monthly cash flow or quarterly cash flow versus development projects, which are you write a big check upfront and then a year, a year and a half, two years later you get a bigger check back, hopefully.

Theo Hicks: Yeah. So just to confirm. In the JV deals, one of your responsibilities was to raise capital. So you brought family and friends on to those deals. And then for this deal, you’ve got those same friends and family plus other people the other JV partners brought on as investors in those deals for this deal.

James Evans: Yep. So the people I brought to the other deals, plus so many people that have been following along and their time wasn’t right, or whatever, that just have been in the background, but now are interested.

Theo Hicks: And what structure are you offering these investors on this deal?

James Evans: These are going to be notes at 10% monthly interest-only payments two-year term. So by that time, we’ll be able to get the rehabs done, do a cash out refinance on this one, and a few other buildings. So that’s the game plan there.

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

James Evans: In two words is “buy low”. I think buying low, you can make up for a lot of other mistakes. But nothing on the back end you can do can really make up for paying too much for something. Thousands of other pieces of advice that I’ve learned along the way, but I think that a lot of it comes down to buying low.

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

James Evans: Let’s do it.

Break [00:15:45]:07] to [00:16:59]:04]

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

James Evans: I’d say, Living with a SEAL by Jesse Itzler. Key takeaways from that were how much we tend to under index our potential. There’s an interesting story in there about him going in to do pull-ups with this Navy SEAL who he had hired to live with them for a month. He did maybe,10 or 15 and was just toasted, arms were linguini. But the SEAL made him stay until he did 100. He did it. I think that key lesson throughout the book was that we tend to give up on things at about 40% of our actual potential. It’s a fun, quick read to go through and always brings me back to that key takeaway.

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

James Evans: If my business were to collapse today, what would I do next? It’s tough because you have to think in terms of what does collapse mean… So I was ready for that, and tried to prepare for people to stop paying rent as a result of COVID, and things really coming back… But I’d be really grateful for the journey that’s brought me down and what’s happened. I always know there’s potential and you have to have backup plans and cash sitting on the sidelines waiting to go back. So I think that’s a great equalizer in real estate. You’re buying cash-flowing asset, so one of the worst things that can happen is everyone stops paying rent at the same time, and then you’re sitting with mortgage payments. So then what’s the next step? Okay, can I work with my lenders to defer my mortgage payment so that we can time with these cash flows better? If a fire burned down one of my buildings or something like that happened, you’d hope and pray everyone’s okay, and make sure you contact your insurance agent right away. So I think it depends on the nature of the collapse.

Theo Hicks: Out of all the deals you’ve done so far, what was the best ever deal?

James Evans: The best ever deal is maybe not always, but I think it tends to be the first one. The first place I lived got me started, got me interested in real estate and I think everything circles back to the first condo I bought.

Theo Hicks: And then on the flip side, tell me about a time you lost money on a deal. How much did you lose and what lesson did you learn?

James Evans: I haven’t lost money on a deal, knock on wood, yet. I think there definitely have been times where I haven’t made as much as I thought or I’ve had to put in a lot more of my own time than I anticipated… So I think one of the key is, again, it comes back to buying low, making sure you’re doing inspection and just being really thorough in your upfront analysis and negotiations.

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

James Evans: So there are two big organizations I work with and devote a lot of time and energy to. The first one is called Build, and the mission of Build is to help teach entrepreneurship in lower-income schools and help students start an actual functioning business while they’re in class. So it’s incorporated in the curriculum. The teachers are school employees, and then they have Build mentors come in and help work with the students. So I mentor them weekly on Thursdays, and that’s been a really rewarding experience. Now I’m on the rising leaderboard for the Boston chapter. So getting to work at a more strategic level with them as well.

The second organization is the Pan-Mass Challenge, which is a 200-mile bike ride over two days, and we have a team of about 100 people, and we raised $500,000 towards glioblastoma research. It’s a rare brain cancer. John McCain famously passed away from glioblastoma. But it doesn’t get a lot of funding because as deadly as it is, the numbers aren’t as high as other cancers in terms of actual people diagnosed with it. So that’s been a really rewarding experience. Last year, the Pan-Mass Challenge, as a whole, raised $63 million to Dana-Farber, and some of that actually came from you and Joe, so I appreciate the donation towards my ride. I think that was super awesome of you guys, and that’s just been an amazing experience. Amazing organization. A 100% of rider-raised funds go directly towards cancer research. So they run a super lean team. It’s heavily volunteer-organized, and they’re just really efficient with everything they do.

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

James Evans: James@gladcap.com for email. And then I’m also on BiggerPockets. My website, Gladstone Capital, gladcap.com. Instagram, @gladstonecapital. So I think those are the best areas.

Theo Hicks: Perfect, James. Well, thanks for joining us today and walking us through your journey. I think the biggest takeaway that I got that I really enjoyed, and I definitely want to think about a little bit more, because it kind of goes against conventional real estate wisdom, where everybody’s talking about the four-hour workweek type of lifestyle, whereas yours is the concept of return on headache – making sure that you’re focusing on things that are hard, require less effort and headache, but also have that super high return. So picking a few of those things, focusing on those, and then trying to make everything else passive.

So as opposed to making everything passive, still have a few things that you put a lot of time and effort into, and then trying to take other things that are maybe a little bit of lower headache, but also don’t result as high of a return as those high headache tasks. So I definitely want to think about that one, but I appreciate you sharing that with us…

And also sharing the eight-unit you currently have under contract, walking us through the process for that and walking us through your process for raising money for your own deal for the first time. And then also we’ve got your best ever advice which was super straightforward and simple and to the point, which is to buy low.

So James, appreciate you coming on the show. Best Ever listeners, as always, thank you for listening. Have a best ever day and I’ll talk to you tomorrow.

 

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JF2197: Two Years In Real Estate With Jeff & Taylor Adams

Jeff & Taylor Adams are a husband and wife team attacking the real estate world. They share how they began investing with house hacking to out of state investing due to the cost of real estate in their area. Being only two years into their journey they have faced many different situations and they were very willing to share to help you pursue your personal real estate adventure.

Jeff and Taylor Adams  Real Estate Background:

  • Jeff is a software engineer and Taylor is a realtor and co-founder of @womensinvestmentnetwork
  • 2 years of investing experience
  • Portfolio consists of Duplex and a mix of long-term rentals/AirBnBs, a single-family home, and one 5-unit building
  • Based in Boston, MA
  • Say hi to them at: Instagram @TaylorColemanAdams
  • Best Ever Book: Four Hour Work Week

 

 

 

Click here for more info on PropStream

 

Best Ever Tweet:

“Listen to what you want to do and make sure you network with as many people as you can and try to add value to those relationships” – Jeff & Taylor Adams


TRANSCRIPTION

Theo Hicks: Hello, Best Ever listeners and welcome to the best real estate investing advice ever show. I’m Theo Hicks and today I’ll be speaking with Jeff and Taylor Adams. Jeff and Taylor, how you guys doing today?

Jeff Adams: Great, how about you?

Taylor Adams: I’m doing great. Thanks for having us.

Theo Hicks: I’m doing great. Thanks for asking and thanks for joining us. Looking forward to our conversation. Before we get into that, let’s go over Jeff and Taylor’s background. So Jeff is a software engineer and Taylor is a realtor and the co-founder of Women’s Investment Network. They have two years of investing experience. Their portfolio consists of a duplex and a mix of long term rentals and Airbnbs, a single-family home, and a five-unit building. They’re based in Boston, Massachusetts, and you can say hi to them at their Instagram page, which is @taylorcolemanadams. So do you guys mind telling us a little bit more about your background and what you’re focused on today? And we’ll start with Jeff.

Jeff Adams: Our background is so intertwined. I mean, we’re a married couple, obviously. We met in college, we did the whole “We’re gonna get jobs…” I became a software engineer in robotics and Taylor went through a few things, you can talk about that… But really, the thing was, we needed to figure out how we were going to buy a house that we could actually live near our jobs and afford. The prices in Boston are crazy and our jobs were in the city of Boston. And the commute to get into Boston, if you’re even just 10 miles from the city, can take an hour and a half. So we started looking at single-family homes, but they’re just too pricey. So then we started looking more towards the duplexes. I mean, I’ll let Taylor do some of her background before we get into the real estate side.

Taylor Adams: Yeah, absolutely. So my background, I graduated from Northeastern University, and I started in finance, found out that was not for me, and I moved into higher education where I was before I left that work to become a real estate agent.

So I transitioned into real estate after Jeff and I started investing. So going off of what Jeff was just saying, we were looking for our single-family home to start out our lives together and decided to move forward with the duplex. At the time, we didn’t know anything about house hacking or BiggerPockets, and we eventually decided that we wanted to continue to buy properties because we got the bug. But we wanted to buy locally with our own money and realized that was going to take too long and it was going to be too expensive. So we started to explore out-of-state investing, and that’s what led us to dive into the properties that we purchased over the last two years.

So we dove in to test the waters in Tennessee with a single-family house. We found out we loved it and decided it was time to scale up to a five-unit. Given all of this happening, the market in the Boston area was super, super hot, and Airbnb was something of a lot of interest to us. So we decided to turn our upstairs unit into an Airbnb in our house hack. So we were full steam ahead at this point. We’re ready to scale up into large multifamilies. We had a 25-unit under contract. We ended up backing out of that because the numbers didn’t work out, and then COVID hit. So now we’ve been pivoting our strategy a little bit to try and take advantage of all the new opportunities that we’re seeing.

Theo Hicks: Perfect. Thanks for sharing that. So let’s start with the duplex. So you didn’t know about the house hack, but was it a house hack deal? Did you owner occupy it and then rent upstairs to cover your payments?

Jeff Adams: We did, exactly. We rented out the second unit.

Theo Hicks: Great. So do you mind telling us the numbers on that deal?

Jeff Adams: Yeah. So I’m more of the numbers person in the partnership… So it was on the market for $650,000 which around here was a pretty good price at the time. It might be crazy for some areas of the country. We did the inspection, we found some issues, we were able to negotiate down to $625,000. There was a renter in place that was paying $900 a month. So we asked that it be delivered vacant, because they were month-to-month renters. So then, we were able to get that rented out for $2,000 a month upstairs – that’s a three-bedroom – and then we lived in the other unit that’s a two-bedroom.

Taylor Adams: And we did 4% down using an FHA loan for that.

Jeff Adams: Yep.

Theo Hicks: You guys still live there now right?

Taylor Adams: We do.

Theo Hicks: Okay, perfect. So then after that, you said that you wanted to keep investing and you moved to out of state. So why did you select Tennessee?

Taylor Adams: We were evaluating a number of different markets, but we found out that the cash flow in the Sunbelt was really appealing. So we narrowed our search down, landed on Memphis for the cash flow, the low barrier to entry as far as pricing, and then started speaking to some of the more substantial property managers in the area to get a better sense of the market, and that just propelled us to move forward with Memphis.

Theo Hicks: How did you find these property management companies? What type of questions did you ask them? How many did you talk to? What was the timeframe between speaking with them to buying a deal, things like that?

Jeff Adams: There’s a few places you can look for the list of property managers to call down. Back then, we didn’t know as much. So we were looking at Google and looking at just Zillow, who was renting out the most units and stuff, which wasn’t a terrible strategy, but there’s also lists of qualified property managers that you can go through. So we actually compiled a list – I think we had 10 or 15 – and did more research on them offline, looking at reviews and stuff, and we could just cross off a whole bunch right away.

So I think I ended up talking on the phone with three of them. And it was the questions like– a part of it was how do you handle vacancies and turnovers and just the logistical questions, but a lot of it for us, too, was trying to get a sense of whether we could just trust this person. If they’re 1000 miles away from us and handling an asset that we put money into, and it’s going to be giving us money every month, is this a person that we feel that we can deal with? Some people on the phone, you can tell right away. Your gut just says, “This isn’t the right person for me.” Maybe for someone else, they’d be fine, but not for me. So we finally narrowed it down to the person who said the right things and we actually trusted, and then went and saw him in person and did a tour of Memphis for the whole day with him and then decided, “Yes, this is definitely the guy.”

Taylor Adams: Yeah, and the guy that we ended up going with, he is really well connected in the area. When we met him, you could tell that he really had a good relationship with lots of different contractors and people in the area and he could build those relationships and that was really important to us.

Theo Hicks: For sure. So at this point, you knew that you were gonna do Memphis and you were just trying to find the right team on the ground in Memphis.

Taylor Adams: Yep, exactly.

Theo Hicks: Okay. How did you find the deal?

Jeff Adams: So the property manager also has his real estate license. So he actually helped us find it. It was just on MLS, on Zillow, all that, and we just went through a whole bunch. We went down there and physically looked at ten properties. It didn’t end up being one of those. A few days later, after we got back, we found the one after maybe ten more that we investigated.

Theo Hicks: What was the number? So similar to before – what did it cost? Did you put your money into it? Was it turnkey? And then what’s it renting for now?

Jeff Adams: We got it for $65,000. I think that was $5,000 less than his price. We only had to put about $2,500 into it. There wasn’t too much to do; just the little stuff that comes out of inspections and just like you’ve got to fix that system and this thing. And then it was already rented out for $895 a month, and I just– they had a year left on their lease, so that’s lasted for a while. We actually had to evict them because they stopped paying last fall. But that was a pretty easy process in Tennessee. It’s very landlord-friendly down there. And then we got a new tenant in for the same price, $895 a month, and that one’s been going pretty smoothly.

Taylor Adams: And that one, we did 25% down on that property.

Theo Hicks: Yeah. So it was a pretty steep price reduction from the 650k in Boston down to 25k. So [unintelligible [00:10:24].11] difference. Perfect. Okay, so then the next deal after that, you said, was a five-unit, right?

Taylor Adams: It was, yep.

Theo Hicks: Was that also in Tennessee?

Taylor Adams: Also in Tennessee. Pretty close to our single family.

Jeff Adams: Yeah. So that one, five units, it was listed at $140,000. We did an inspection, got it down to $120,000, renting it out. It’s on average, I think, $400 a unit right now.

Taylor Adams: And I think we put 20% down on that property.

Theo Hicks: Was that an MLS or was that off-market?

Jeff Adams: That was on the MLS, yeah.

Taylor Adams: And that one’s been quite a bit of work. That one is definitely more of a BRRRR strategy. We’ve put quite a bit of money into it so far and will continue to, and we hope to double the value of the property, so that we can refi it at around $240,000.

Theo Hicks: Okay, so are you gonna increase the rents on that after you do the repairs?

Jeff Adams: Yeah. So we actually got two vacant units when we bought it. So we rented those out, and then there’s two units that are way below market. They’re at $350,000, and we can get them probably up to $450,000 or $500,000 if we redo those units.

Taylor Adams: Yep.

Theo Hicks: Okay, something else you had mentioned during your intro was that you had a larger multifamily under contract and then backed out and then Coronavirus it, and then you’re pivoting to take advantage of new opportunities. What are these new opportunities?

Taylor Adams: When everything happened, we had planned on continuing to move forward with syndication, but our investors were feeling a little bit unsure about what was going to happen during lockdown and whatnot. So what we decided to do was really focus on our house hack, which we hadn’t really been focusing on at all. So over the course of the lockdown, we refinanced the property, we’ve done a ton of renovations, and we’re actually in the process of transitioning our Airbnb upstairs to a long-term rental, because it just makes more sense for our area at the moment. And by doing these two things, the refi and turning upstairs into a long term rental, we actually are going to be able to get another house hack. So that’s something that we’ve been focusing on with the assets we already have.

And then really just trying to free up cash and focus on what are going to be the big opportunities that happen once we’re in a “post-COVID” world. So we’re thinking about, do we want to continue to look at large multifamilies or does it make sense to continue our approach around smaller multis? Is there opportunity in other asset classes? So we’re trying to keep our investors in mind and what they’re interested in and make sure that we are putting them in positions where they’re not at a ton of risk, given the uncertainty of the market right now.

Theo Hicks: Do you have any potential new asset classes you want to move into in the post Coronavirus world?

Taylor Adams: Yeah, this might sound crazy, but we’re really curious about retail space right now. We know that because a lot of smaller businesses, unfortunately, are going out of business, we anticipate that’s going to be a burden on these landlords who are holding these retail spaces. So we’re interested in keeping an eye on what happens with some of these and seeing if that’s an asset class that we can move into.

Theo Hicks: Yeah, that’s definitely an interesting approach. Alright, so starting with Taylor, what is your best real estate investing advice ever?

Taylor Adams: My best advice would be to listen to what you want to do. So people who have never invested will have lots of opinions and tell you to not invest in real estate. But this is your journey, so you should pursue it anyway if it’s something that you’re passionate about.

Theo Hicks: And then Jeff?

Jeff Adams: So going off of that one, some people are going to say things that you don’t know anything about what you’re doing and you shouldn’t listen to that, but there’s also gonna be a lot of people out there that have already done exactly what you’re looking to do. So networking is just so important, getting to know those people. And you don’t want to pester people every day like, “Well, what do you do about this?” But just being around them, you often pick things up that you just wouldn’t have otherwise. So being able to add value to them and network with those types of people is going to help you on your journey.

Theo Hicks: Before we go into the lightning round, I do have another question. What advice would you give to others out there who want to start a real estate business with their husband or wife in order to make sure that that goes smoothly? What are some things you guys do to make sure that the business functions smoothly together 24×7?

Taylor Adams: Yes, especially right now, we’re together a lot. Well, first of all, it’s a ton of fun. So I think that the biggest thing is communication and making sure that you’re on the same page. We very much treat this like a business. So we’re doing quarterly, monthly, weekly meetings to make sure that we are on the same page and we’re approaching this in a very specific fashion, and I think that helps to balance it out. But then also do not forget to take time to not talk about real estate and to talk about something else, or else you could be talking about real estate 24×7.

Theo Hicks: Anything to add there, Jeff? Or you’re just, “I agree”?

Jeff Adams: Yes.

Taylor Adams: Yes, I agree.

Jeff Adams: That’s another key, is agreeing.

Taylor Adams: Yes. [laughs]

Theo Hicks: Alright, are you guys ready for the lightning round?

Taylor Adams: Yeah, I think so.

Break [00:15:40]:03] to [00:16:43]:09]

Theo Hicks: Okay. And we’ll just do for all of these, we’ll do Jeff first and then Taylor second. So what is the best ever book you’ve recently read?

Jeff Adams: For me, it’s the 4-Hour Workweek by Tim Ferriss.

Taylor Adams: And then for me, I’m gonna say that it’s the Seven Levels of Communication by Rick Masters.

Jeff Adams: [unintelligible [00:16:57].21]

Taylor Adams: I’m sorry. Seven Levels of Communication by Michael Maher.

Theo Hicks: Perfect. Okay, if your business were to collapse today, what would you do next?

Jeff Adams: We’re just always starting new businesses. This isn’t the first thing that we’ve done. We’ve started software-based things… I think we would just find a new business to create.

Taylor Adams: Yeah, we’re a little bit of serial entrepreneurs. I think that the other thing that I would say is that we would figure out a way to make it work, because I think we’re really passionate about real estate. So we would want to figure out a way to pivot in a way that allows us to continue to do it even if it’s not exactly what our strategy looked like before.

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

Taylor Adams: So I’ll go ahead and say… So I actually started a community for women who are interested in investing in themselves, in their future. I definitely see that there’s not as many women in the investing world as I would like. So this is something I’ve created to help women gain the confidence and just inspire them to get involved.

Jeff Adams: Yeah, and we just like to help people get there. We help to mentor other people that just haven’t done anything yet. So that’s why I’m really excited for what Taylor’s doing with her women investors network.

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

Taylor Adams: For me, that would be my Instagram @TaylorColemanAdams.

Jeff Adams: And for me, email is fine. So it’s jeff.adams.c@gmail.com.

Theo Hicks: Perfect. Well, Jeff and Taylor, thanks for joining us today and walking us through your two-year journey. I really enjoy these conversations. I really like getting into the weeds and details on specifically what you guys have done to get started because other people who haven’t started can take a look at what you did over the first two years and replicate that so they can get their first deal.

So we talked about your first deal is that duplex in Boston and then from that, you transitioned to doing out of state investing with that single family property in Tennessee. We talked about why you chose Tennessee because of the low barrier of entry and cash flow. We talked about the process for understanding the market out of state, not really knowing it, never being there, or at least not living there, and that was through property managers. You created a list of 10 to 15 managers, you did some online research like looking at reviews, and you narrowed down to three. And then when you spoke to them, you obviously asked them the logistical questions about how they operate properties, but you really wanted to know if it was somebody that you could trust.

And then ultimately, you landed on one person who you ended up actually going down and touring Memphis with this person who was really well connected in the area and you ended up going with them. They also help you find this first deal, which is that single-family home. You went through the numbers on that. After that, you scaled up to the five-unit, which you also found on the MLS. The plan on that one is to do more rehabs and increase the rents. And then your next thing was to do the Airbnb upstairs, which we didn’t really talk about, which is fine. And then now, you said you’re going to be focusing on your house hack. So you refinanced it, you’ve done a lot of renovations and rather than doing the Airbnb upstairs, you’re going to do a longer-term rental.

And then in the future, that plan is to do another house hack, as well as making sure you’re freeing up some cash to focus on other opportunities, which you said you’re looking into the retail space because all these smaller businesses are going out of business and the people who actually own these retail spaces are probably going to be motivated because they’ve got no one paying them.

We talked about your best ever advice. For Taylor, it was to listen to what you want to do as opposed to letting other people tell you what you want to do. And then for Jeff, it was making sure that you’re networking with people who are already doing what you want to do. And then we talked about some best ever tips for working with a spouse or significant other – communication, making sure you’re on the same page, making sure you’re still structured in doing your quarterly, monthly and weekly meetings. And then you mentioned that it’s also important to take time to talk about things that aren’t real estate related and then obviously, making sure that you guys are agreeing a lot on things. So Jeff and Taylor, again, appreciate you guys coming on the show. Best Ever listeners, as always, thank you for listening. Have a best ever and we’ll talk to you tomorrow.

Website disclaimer

This website, including the podcasts and other content herein, are made available by Joesta PF LLC solely for informational purposes. The information, statements, comments, views and opinions expressed in this website do not constitute 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. Neither Joe Fairless nor Joesta PF LLC are providing or undertaking to provide any financial, economic, legal, accounting, tax or other advice in or by virtue of this website. The information, statements, comments, views and opinions provided in this website are general in nature, and such information, statements, comments, views and opinions are not intended to be and should not be construed as the provision of investment advice by Joe Fairless or Joesta PF LLC to that listener or generally, and do not result in any listener being considered a client or customer of Joe Fairless or Joesta PF LLC.

The information, statements, comments, views, and opinions expressed or provided in this website (including by speakers who are not officers, employees, or agents of Joe Fairless or Joesta PF LLC) are not necessarily those of Joe Fairless or Joesta PF LLC, and may not be current. Neither Joe Fairless nor Joesta PF LLC make any representation or warranty as to the accuracy or completeness of any of the information, statements, comments, views or opinions contained in this website, and any liability therefor (including in respect of direct, indirect or consequential loss or damage of any kind whatsoever) is expressly disclaimed. Neither Joe Fairless nor Joesta PF LLC undertake any obligation whatsoever to provide any form of update, amendment, change or correction to any of the information, statements, comments, views or opinions set forth in this podcast.

No part of this podcast may, without Joesta PF LLC’s prior written consent, be reproduced, redistributed, published, copied or duplicated in any form, by any means.

Joe Fairless serves as director of investor relations with Ashcroft Capital, a real estate investment firm. Ashcroft Capital is not affiliated with Joesta PF LLC or this website, and is not responsible for any of the content herein.

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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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JF2166: House Hacking Together With Sam & Nick Riccio

Sam & Nick Riccio have been in real estate for 3 years and currently own 6 doors consisting of a condo, triplex, and duplex. They are solely focused on house hacking, and they share how they went about house hacking their way to 6 doors and share why they decided to take this route instead of buying and renting out properties. 

 

Samantha & Nick Riccio Real Estate Background: 

  • 3 years of real estate experience
  • Currently own 6 doors, consisting of a condo, 3-family, & 2-family home
  • From Boston, Massachusetts 
  • Say hi to them at: www.eaglehill-properties.com 
  • Best Ever Book: The one thing

 

 

Click here for more info on PropStream

Best Ever Tweet:

“Network and focus on your plan, don’t get caught trying to compare yourself to others.” – Sam & Nick Riccio


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’m speaking with Sam and Nick Riccio. Sam and Nick, how are you guys doing today?

Nick Riccio: Good. How are you? Thanks for having us.

Samantha Riccio: Happy to be here.

Theo Hicks: Absolutely, I’m doing great. Thank you for being here. I look forward to our conversation. Before we get into that, a little bit about their background. So they have three years of real estate experience, they currently own a six-door consisting of a condo, a three-unit and a two-unit, they’re from Boston, Massachusetts, and you can say hi to them at eaglehill-properties.com. So Sam and Nick, do you guys mind telling us a little bit more about your background and what you’re focused on today?

Nick Riccio: Absolutely. So as you said, we started investing back in 2017, we’ve been house hacking small multifamilies in Boston, and we’ve primarily been focusing on that, like I said, for the last three years, and now we are just renovating our duplex that we will be owner-occupying once we stabilize the property.

Theo Hicks: So you’ve got the condo, the three family and then the duplex you’re working on now. So all three of those were house hacks?

Nick Riccio: Yeah.

Theo Hicks: Perfect. So which one was first, the condo or the three-family?

Samantha Riccio: The condo was first and then the three-family came after. It actually started as a duplex and we converted it to the triplex while living in it.

Theo Hicks: Perfect. Let’s talk about the condo first. So I guess, maybe taking a step back first, why did you decide to do the house hack as opposed to just buying it and renting it out?

Nick Riccio: We wanted to get started in Boston. We really like the market, we’re here locally, so we thought it was a good way for us to get our feet wet and be close to our properties. Really expensive market. So for us, that was the way for us to enter the market, being able to get in at low down payment and get started that way.

Theo Hicks: Perfect, and then what did you buy the property for and then which house hack loan did you use?

Nick Riccio: We bought the condo at a conventional low down payment loan, I think we put 5% down, and then on the duplex/triplex conversion, we did an FHA loan and put 5% down.

Theo Hicks: What was the purchase price of the condo?

Nick Riccio: It was $325,000.

Theo Hicks: How long did you guys live in that property for? Was it turnkey or did you invest any more money into it?

Samantha Riccio: Yeah, so the condo is turnkey, and we lived there for about seven months, and that’s actually how we ended up acquiring that duplex. It was an attached property and our neighbor on the other side who was actually living in that duplex and the landlord’s currently living above her had reached out to me after we had been living there for, like I said, about seven months, and we had become friendly, and she was like, “Hey, my landlord’s selling. I’m gonna have to move. I love the area.” She was all bummed out, and I had asked, “Hey, can I have your landlord’s info? I’m actually really interested in the property.” So we bought it off-market that way and that’s how that came about.

Theo Hicks: You said that was your neighbor, that was in the same building?

Samantha Riccio: Yeah. Yes, it was three condos on one side, and then on the other side, like I said, it was a one-unit at the bottom and then the landlord, that current owner had lived [unintelligible [00:05:44].09] level unit upstairs. But from the outside, it looks like it would be a six-unit building. So we shared a back porch and became friendly that way.

Theo Hicks: Nice. So you bought the duplex after living in the condo for nine months, and then that’s the duplex you converted into a triplex, right?

Samantha Riccio: Yeah.

Theo Hicks: So maybe walk us through that. So did you know beforehand that it can be converted to a triplex, what made you decide to convert it into a triplex, and then walk us through the numbers on that deal.

Nick Riccio: Yeah. So because it was an attached building, like Sam said, it looks like a six-family home. So we knew that since our side of the property was put in three condos and it was an identical layout, we had a really good understanding that it would work, and then on top of that, we were able to do some research with the city, and see that at one point it was used as a three-family. We were actually able to find the original blueprints from a million years ago. So we were able to do some of that due diligence, which led us to feel pretty confident about it.

Theo Hicks: Did you know you were gonna convert it to a triplex before you bought it or was it after you had already acquired it?

Nick Riccio: It was part of our due diligence. We ran it both ways, we were trying to see– we had a larger unit and it was just two units if we’d be better off, but we decided it would be more advantageous to have it as a three-family.

Theo Hicks: Perfect. So what was the purchase price and what was the cost to convert it to a triplex?

Nick Riccio: I purchased it for $630,000, and we did the rehabs in two stages. We allowed that tenant that brought us into the loop on the house, we allowed her to stay. So we didn’t renovate her unit, but we converted the second and third floor and we separated them and did that work, and then later we did the first-floor unit once that tenant moved out… But all-in it took us about $80,000 to do the renovations.

Theo Hicks: So you moved out of the condo and into this triplex now. What did you rent the condo out for once you left?

Samantha Riccio: Yeah, so we rented the condo out at that point for just covering our mortgage. We made 20 bucks on a good day, but it’s been a few years so now we’re able to profit a little bit from that. So it was $1,900 dollars for the one bed/one bath condo.

Theo Hicks: That’s what it is now is or that’s what it was in the beginning?

Samantha Riccio: That’s what it was in the beginning. Now we’re at $1,950, I believe.

Theo Hicks: So you moved into the triplex after the renovations were done, and then once the tenant moved out downstairs, you renovated that unit. So purchase price, $630,000, investment was 80k. What were the two rents you got from the two units that you did not live in?

Nick Riccio: Before we renovated the first unit, we were collecting $2,900 between the two units. So it was $1,950 in one unit and then that first-floor tenant was only $1,000 a month. After we renovated it, that $1,000 rent became $1,950 per month.

Theo Hicks: Nice. And then do you guys still live in that three-unit now while you’re doing this second duplex?

Nick Riccio: No, we actually moved out, because we wanted to fully stabilize it. We moved out and we’re actually back living with Sam’s folks here while we’re renovating that property.

Theo Hicks: Is that unit you moved out of also rent at $1,900?

Samantha Riccio: No, we’re actually getting $2,200 for that unit. It was our owner unit, so we put in a little bit more; we had a washer dryer in the unit, it also came with a parking spot, and we do also have additional parking out back that we rent out for additional income as well, to increase the rental of the property.

Theo Hicks: So you’ve got the duplex now. Do you wanna walk us through how you found that one? Was it off-market or was it MLS deal? How did you find it?

Nick Riccio: We found that on the MLS.

Theo Hicks: What did you buy it for and then what’s the rehab cost right now?

Nick Riccio: This one’s a pretty big project for us right now. We purchased it for $840,000 and we’re gonna put about $130,000 into it in renovations. We’re finishing the basement to make a bi-level unit which will turn into a five-bed, two-bath. So quite a bit of work there.

Theo Hicks: Duplex, you’re finishing the basement to add additional space to one of the units or is that single unit right now and you’re making it into a duplex?

Samantha Riccio: Yeah, so adding additional space to one of the units. So the first-floor unit was a two-bed, one-bath and then when we walked the property, it had crazy ceiling heights in the basement, like over 8ft, which is obviously tough to find, especially in the Boston area. So we decided to add down to the basement adding three beds and one bath. So altogether, it’s a five-bed, two bath unit, and then we’ll live in the upstairs which we’ll  have renovated as a two-bed, two-bath.

Theo Hicks: That’s what I was gonna ask you next – which unit you guys gonna pick, but it was a 100% smart move. So how much do you think you’re gonna rent that big unit out for?

Samantha Riccio: We actually already have a signed lease and they signed the lease when it was fully framed, just completely under construction, for September 1st; that’s a pretty common rent cycle here in Boston, and they signed for $6,000.

Theo Hicks: For how much?

Samantha Riccio: $6,000.

Theo Hicks: Oh, wow. Are all the properties in the same market or are they different neighborhoods in Boston? Obviously, it’s a big city, so one street over might be a little bit nicer than the next street. So I’m just curious, because $6,000, as opposed to $2,000, is a pretty big difference.

Nick Riccio: Yeah, they’re really close. But yeah, one of the neighborhoods– the condo and the triplex are in a neighborhood called East Boston, which is now a really up and coming area, which is why we chose it, but it hasn’t matured yet. The duplex is in a neighborhood called South Boston, which is your young professionals, lots of buyers, lots of restaurants, beaches, really close to downtown. So it’s a hotspot for the young professionals.

Theo Hicks: So you guys are moving around a lot. Do you guys plan on continuing to house-hack, or at some point you will you stop doing that and rent or buy your own home and then start buying this straight up regular traditional loans? Just curious.

Samantha Riccio: Yeah, we’ve definitely moved quite a bit, especially now jumping back to my parents’ house. We lived with Nick’s parents for a little bit during our last renovation, so we’ve moved a lot. We’re planning on staying in the duplex for a little while, and maybe exploring some different financing with commercial loans and trying to maybe dip into the condo conversions here. It’s pretty big in the Boston area, and then be able to use that profit to roll into more rental properties, and then as far as us, we talk all the time – who knows where we’ll land; but we’re definitely open to continuing to house hack as we find the properties.

Theo Hicks: How are you affording the down payment? So you said you got $325,000, 5% down, you’ve got a $630,000 plus the 80k renovations, and I think you said that was FHA, so I’m assuming that’s 3.5% down, and then you’ve got the $840,000 purchase price with 130k in renovations with 3.5% down. So how are you covering the down payment and how are you covering the renovation costs?

Nick Riccio: That’s a good question. So they’ve all actually been 5% down. So the FHA allows 3.5%, but with the competition here, most sellers, we’ve found they’re not happy with the 3.5%, so we’ve been forced to go to 5%. But most of the down payment and the funds have come from us just personally saving, and then credit cards and things like that, and then now we’ve recently started to use a home equity line of credit. So we’ve been able to use that for some renovations, then we were able to use that actually for a portion of the down payment for our most recent acquisition.

Theo Hicks: Are the renovation costs? Because I know the first one was turnkey, but with that second one and the third one, the 80k renovation and the 130k renovations – are those included in your FHA loan, or are those on top of the FHA loan, and you paid out of pocket?

Nick Riccio: Those are out of pocket. So the numbers I gave was just acquisition.

Theo Hicks: Alright, Sam and Nick, I want you guys both to answer this question – what is your best real estate investing advice ever?

Samantha Riccio: Alright. So mine’s definitely going to be network.

Nick Riccio: And I would say mine is focus on your plan, don’t get caught trying to compare yourself to others with it being so easy now with social media. Just stick to your plan.

Theo Hicks: Any tips that you have for creating a real estate business with– I’m assuming you guys are married, right?

Samantha Riccio: Yes.

Theo Hicks: Any tips on how to successfully navigate creating a business with your husband and wife?

Samantha Riccio: There’s a laundry list, but I definitely think communication is key. We over-communicate to a fault even sometimes, but there’s a lot of moving parts every single day, especially with all these projects going on. I think keeping each other in the loop, keeping a to-do list that we can both have eyes on, cc-ing each other on emails. We start the day talking about what we want to get done and we need to get accomplished and we end the day doing the same things, and in middle of that day [unintelligible [00:14:18].13] we both feel like we’re on the same page.

Theo Hicks: Anything else to add to that?

Nick Riccio: I’d say that’s really it, and the biggest thing is the communication. We’re moving towards trying to just use the same inbox, because it’s hard just constantly relaying messages to each other when you’re getting a ton of them a day. So I think just being able to always have each other in the loop is probably the biggest thing.

Theo Hicks: Perfect. Okay, are you guys ready for the best ever lightning round?

Samantha Riccio: Yeah.

Nick Riccio: Let’s do it.

Break [00:14:47]:09] to [00:15:55]:03]

Theo Hicks: Okay. So I’d like both of you guys to answer each of these questions. First one is what is the best ever book you’ve recently read?

Samantha Riccio: Rich Dad, Poor Dad.

Nick Riccio: The One Thing.

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

Samantha Riccio: Start it back up tomorrow,

Nick Riccio: Start networking as soon as possible.

Theo Hicks: Out of all of these deals you’ve done so far, which one did you make the most money on? Let me take that back. What was the best deal out of these three deals, and it could be money or something else? Why was it the best?

Samantha Riccio: I’m going to go with the duplex, because we’re getting a great living space out of it, definitely the best we’ve had, and money-wise, we’re thinking we’re going to have hopefully $500,000 of equity in it. So we’re feeling like that’s a pretty good deal.

Nick Riccio: Yeah, and I’d say the triplex, just because it’s shown us how powerful the cash flow piece is and it’s allowed us to take more risks moving forward.

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

Samantha Riccio: Definitely connecting with our audience on Instagram. We started our Instagram account not too long ago and have really connected with a bunch of people on there and talking to new investors and current investors. So I just think that free knowledge and networking is a big part of it.

Nick Riccio: For us, now that we’re seeing the power in real estate, we’re actually trying to bring our parents into the fold so we can help get them prepared for their soon to be retirement.

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

Samantha Riccio: Probably Instagram. Like you mentioned, we do have our website but Instagram is @renosandrealestate. We’re on that every day checking our direct messages and love connecting with people there.

Theo Hicks: Perfect. Alright, Sam and Nick, I appreciate you guys coming on this show and sharing the details on all of your house hacks. So we talked about your first condo that you bought for 5% down, $325,000 turnkey property, lived there for seven months and then ended up buying the duplex/triplex that was on the other side of the same building as you, and you spoke to the neighbor and they said that the landlord was selling and you contacted the landlord and ended buying that one for 630k, and then did a two-stage rehab where you first converted the larger upstairs unit into two units, and then once the bottom tenant moved out, rehabbed their unit, and you mentioned that you were able to get $1,900 dollars for two of those units and $2,200 for your unit once you moved out, and then when you moved out of that condo, you were able to get $1,900 at first and now you’re getting about $1,950 in rent. And then next the duplex you’re working on now which you found on the MLS – a larger project, 840k purchase price, 130k renovations, you are converting the basement into an additional three bedrooms and one bathroom, I believe, and then you already have a lease signed for $6,000; it’s great to hear. And then you plan on staying here as [unintelligible [00:18:39].00] for a little bit longer and then are potentially exploring some condo conversions. How you’re funding all these is all 5% down and it’s just personal savings, credit cards and then you did mention that on this most recent deal, you’ve been able to use a HELOC loan for the down payment.

We talked about your best ever advice. Sam said networking, Nick said to focus on your plan and don’t get caught up comparing yourself to other people, and then your main tip for creating a business with your significant other, husband and wife, is to make sure you have very good communication, which I’m sure is good for relationships in general, but especially when you’re doing business together.

Sam and Nick, I really appreciate you coming on the show and sharing your journey with us. I wish you the best of luck with this current duplex and on any other future house hacks that you do, as well as teaching your parents how to do the same. Best Ever listeners, as always, thank you for listening. Have a best ever day and I’ll talk to you tomorrow.

Samantha Riccio: Thanks so much.

Website disclaimer

This website, including the podcasts and other content herein, are made available by Joesta PF LLC solely for informational purposes. The information, statements, comments, views and opinions expressed in this website do not constitute 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. Neither Joe Fairless nor Joesta PF LLC are providing or undertaking to provide any financial, economic, legal, accounting, tax or other advice in or by virtue of this website. The information, statements, comments, views and opinions provided in this website are general in nature, and such information, statements, comments, views and opinions are not intended to be and should not be construed as the provision of investment advice by Joe Fairless or Joesta PF LLC to that listener or generally, and do not result in any listener being considered a client or customer of Joe Fairless or Joesta PF LLC.

The information, statements, comments, views, and opinions expressed or provided in this website (including by speakers who are not officers, employees, or agents of Joe Fairless or Joesta PF LLC) are not necessarily those of Joe Fairless or Joesta PF LLC, and may not be current. Neither Joe Fairless nor Joesta PF LLC make any representation or warranty as to the accuracy or completeness of any of the information, statements, comments, views or opinions contained in this website, and any liability therefor (including in respect of direct, indirect or consequential loss or damage of any kind whatsoever) is expressly disclaimed. Neither Joe Fairless nor Joesta PF LLC undertake any obligation whatsoever to provide any form of update, amendment, change or correction to any of the information, statements, comments, views or opinions set forth in this podcast.

No part of this podcast may, without Joesta PF LLC’s prior written consent, be reproduced, redistributed, published, copied or duplicated in any form, by any means.

Joe Fairless serves as director of investor relations with Ashcroft Capital, a real estate investment firm. Ashcroft Capital is not affiliated with Joesta PF LLC or this website, and is not responsible for any of the content herein.

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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JF2099: TowerHunt With Matt Marino

Matt is the Co-Founder of Tower Hunt, an online network of commercial real estate dealmakers. He brings his 15 years of real estate experience to the show and sheds some insight into real estate deal-making. 

 

Matt Marino Real Estate Background:

  • Co-founder of Tower Hunt, an online network of commercial real estate dealmakers 
  • Has 15 years of real estate experience 
  • Located in Boston, Massachusetts
  • Say hi to him at: www.towerhunt.com 

Click here for more info on groundbreaker.co

 

Best Ever Tweet:

“You should really take every line item from the top to the bottom of that cash flow, and look at it and ask yourself “What it means and why those numbers are moving around?”” – Matt Marino


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, Matt Marino. How are you doing, Matt?

Matt Marino: I’m doing well, thanks. How are you?

Joe Fairless: I am doing well, and looking forward to our conversation. Matt is the co-founder of Tower Hunt, which is an online network of commercial real estate dealmakers. We’ll get into the specifics in a bit. He has 15 years of real estate background and he’s located in Boston, Massachusetts. With that being said, Matt, do you wanna give the Best Ever listeners a little bit more about your background and your current focus?

Matt Marino: Yes, sir. I wanna first thank you for having me on. I spent — from 2011 to 2017  I was at a capital markets firm called Eastdil Secured, that was located in Boston. They tend to function in gateway markets like Boston, New York, DC, San Francisco, Los Angeles. I started there as a very junior team member, and ended up kind of at the mid-level before I left to start Tower Hunt, and in the process I underwrote 11 billion dollars’ worth of closed transaction volume, and had the opportunity to work on a couple of cornerstone transactions in that market.

By the time I left, I was more focused on some internal projects. The firm was trying to build some proprietary technology to take advantage of a lot of the deal data that they aggregated. That allowed me to cut my teeth a little bit in technology and how software gets built, which is something I’ve always had a passion for.

I ended up leaving the company in 2017, and co-founded  Tower Hunt, and we’re working on a network for commercial real estate dealmakers. The goal is to quantify somebody’s relevance in a way that you can’t do with a place like LinkedIn, because relevance in commercial real estate is power. It allows you to be independent, and not rely so much on the brokers in the market and some of the larger parties that tend to control all the information.

Joe Fairless: Keep talking about it please, and maybe I’ll ask some follow-up questions. I’d love to learn more about what exactly this is.

Matt Marino: Sure. I hope it’ll be kind of a back and forth, because  I’d like to learn and incorporate the things you’ve done well… But I’ll keep coming back to the idea of relevance here, and I’ll define relevance as momentum in a market that somebody else cares about. Momentum – what does that mean? Momentum can be deal flow, momentum can be some kind of insight that you have… It could be experience or skills that you’ve built up doing something in the industry. In my case, I had a ton of industry experience doing very detailed underwriting at the institutional level, and then packaging up transactions, and eventually interfacing with my counterparts on the principal side.

Insight could be research that you’re doing into a specific pocket of the market, or it can be an isolated data point about something like a development project and what’s going on there that others in the market may not know about. So if you have that momentum, then in theory people who overlap with the market that you’re in should want to take your phone call, or should want to call you to get information. And it’s from that that you can aggregate data and corner opportunities that other people don’t get to. I think that’s something that you can speak to just as well as I can, with the work that you’ve done in growing your platform, and how you go about isolating deals that maybe other people can’t get to.

Joe Fairless: That’s interesting… What an idea, and what an undertaking! [laughs]

Matt Marino: Yeah, very difficult… Networks, and especially anything to do in an industry like real estate that’s very resistant to change – it’s a challenging undertaking. So I think first and foremost you’ve gotta be willing to fail, and be okay failing, and have that comfort that you can take your skills and go do something else if it doesn’t work… But this was something that I felt the industry really needed, and I would have regretted not taking a shot at it… So we’re gonna give it the best we can and then we’re gonna see what happens.

Joe Fairless: I see on your website there’s three prompts. One is “Where do you focus?” So these are questions that I imagine the new user who’s signing up for this platform would answer… So where do I focus? In your example you’ve got equity sale, data origination, equity recap, the market, the asset class and the price point, as well as the deals that you’ve done… And then how active are you, and it shows a map of where those deals are, with a certain location… So if you’ve done, say, Dallas-Fort Worth, if you’ve done some in Carrolton, if you’ve done some in Duncanville, wherever – then it’s gonna have those placed on there. And then who do you work with, so then it helps identify people who you have worked with on previous transactions or other deals, with the logic being “Well, now you’ve worked with them, so they might be good advisors/partners/colleagues to other people.” Is that basically the three steps that you would go through as a new user to fill out information, and then gain access to other information that other people fill out?

Matt Marino: Yeah, the core of the product initially, given that the network is very small, is to provide you with a way to build your resume in real estate… In the same way that you might go to LinkedIn to say where you went to school and a list of companies that you worked at. If you work in the industry, that stuff is a lot less relevant than being able to talk to somebody about the pockets that you’re in within a market; so that’s a geographic area, like you saw on the page. Typically, that’s one or more product types, typically it’s one or more strategies on the risk spectrum… Like Stabilized, Transitional, Distressed development fields. Some people have a limit on their deal size… So it’s being able to articulate that, and then kind of on a go-forward basis, as you operate in that market and do deals, it’s a way to very simply add the deals that you’ve done, and then what the system is doing is it’s automatically categorizing things against your markets.

The end result is that you have a profile that will quantify what you’ve done in an area, and that’s really kind of the conversation you typically are having, especially as a new investor or a new participant, broker/lender in a market – you get introduced to somebody and you immediately recite “Well, I’m from XYZ company. We’re trying to do development deals in the multifamily space between 2 and 10 million on the South Shore of Massachusetts.” And you recite that, and if you’re disciplined, you’ll follow up on that… But it’s all in voice, and email, and it gets lost, and there’s no way to search it, so fundamentally we wanna start by trying to provide just a really good resume that you can share with people as a leave-behind, that people can come and search by these extremely detailed criteria to find people… And then understand what have we actually done; you just say you wanna be in this market, or are you in this market?

Joe Fairless: What’s the benefit of someone who is not starting out to joining this network?

Matt Marino: If you’re an established operator or an established participant?

Joe Fairless: Yeah.

Matt Marino: It depends on where you are within an organization. If you’re somebody within an established organization and you have a track record, one use case for this could very easily be if you’re looking to make a change from one side of the business to the other, it allows you to quantify, again, what you’ve done, what your skillset and experience is. If you’re focused on driving deal flow on an established platform, there’s constantly competition, no matter how you segment the market.

The more successful you are and the larger the deals that you’re going for, the more you’re exposed to a better pool that typically includes equally sophisticated and capitalized people, so it’s a way to — I’ll use the example of being on the principal side, it’s a way to make the broker’s life a little bit easier, where when it’s time for them to go to their client and pitch why your pitch should be chosen over somebody else’s, they may have some anecdotes about you in the market, but there may also be just a really nice, clean way for them to show that person who you are and what you’ve done, and that when you say you’re gonna deliver on something, “Here’s the 90-day activity. Here’s 3-4 deals they’ve done in this market that show that they show up and get it done.”

Joe Fairless: What’s been the biggest challenge so far?

Matt Marino: Awareness is a challenge, and the so-called cold start issue of networks generally is a big challenge, where a lot of people at the beginning would visit the site, and in a  previous design we had a search capability right on the front page, and if you go in, people gravitated immediately to this, and they would go in and they would search for a market or a specific segment of a market, and there’d be nobody there. And they’d churn and they wouldn’t come back.

So trying to understand the challenge that that represents, and trying to provide something with the product that is independent of the size of that network, which kind of brings me back to starting with the notion of a resume in real estate. Something that we’re working on currently to flesh this out a little bit further is the idea that this can be a place where you can capture market intel information about things like industry events, tenants in the market, live deals that are anonymously sourced and put into the Tower Hunt network and then are filtered very specifically against your interests, as a way to just kind of try to provide value that isn’t dependent upon having 100 or 500 other people in your market on this system. But there’s no doubt that’s a big challenge to overcome, so you have to be patient and just really work hard and show up every day, and at the beginning personally interact with every single user who wants to have a conversation with you and provide feedback.

The page that you’re looking at right now – we’re in the process of visually overhauling pretty much the entire product in response to feedback, just because I built it myself at the beginning to get immediate feedback and exposure, and what’s there is not as intuitive as it should be, so we’re kind of redoing that… And you learn that by talking to people and measuring what’s going on, in a similar way to how I imagine it works when you’re operating your property – you’d better have it instrumented, so that you can understand who’s showing up, why are spaces leasing or not, why are expenses moving around or not, and then make adjustments.

That’s one of the interesting parallels I’ve found so far moving to the software side – you have to be just as aware of what’s going on tactically as you do with real estate stuff.

Joe Fairless: Yeah, I could see its use case, for sure, and I do like the examples. Hopefully, the examples on the next iteration will still be alive and well, where you’ve got email after an intro call, after an email to a sales broker, leasing broker and operator… But the before and after – I think that you do a good job showing the benefit.

And for Best Ever listeners who do not have this in front of them, an example is a sales  brokers before you saying “Hi, so-and-so. Following up to see if you have a chance to review information. It should be of interest, given your nearby holdings.” So this is you being a sales broker, I guess… But now you can simply have a link – “Here’s our track record” and explore the recent nearby deal activity.

I could just see this being a differentiator whenever you’re reaching out to owners about buying their property directly, and establishing that credibility… Because it’s a third-party source.

The question will come up “What verification process, if any, is there of this data?” Because someone could just be lying their face off. Is there any sort of checks and balances?

Matt Marino: Yes, the goal here is to ultimately make something that’s equivalent to the algorithm that Google runs to rank your search results. It’s a little bit of a black box, but they run your web page against everybody else’s on a number of different variables to figure out “How useful and relevant are you?” So when it comes to people in real estate, and this question about – okay, if you spam deals in there that aren’t deals you’ve actually done, I think one way to detect that and to reward the use of the network would be every deal that you put in, you have the opportunity to add participants to the deal. Those could be colleagues of yours within your firm, it can be counterparts on the other side of the deal, it could be the broker in the middle of the deal… And simply by inviting a couple of other, or even one other human being who was part of this deal, who doesn’t necessarily work with you – I think there’s a powerful social verification going on there. You won’t be forced to do it, but I think something that we’ll try and experiment  with is providing height and visibility to things where you verified it against other parties within that transaction. It’s a great question though, because bad data is everywhere.

Joe Fairless: Yeah, just like LinkedIn, right? There’s no LinkedIn police that I’m aware of, verifying that what you’re saying is accurate… But colleagues are gonna know who worked with you, if that information is accurate or not. So the more people connected together, the more accurate the data would likely be.

Matt Marino: Yeah, and the notion too that markets tend to be – with exceptions like New York, but a lot of markets have known players, and once you’ve established yourself or spent a significant amount of time, you start to know who the names are, and you probably interacted with some of those people… So if I allege that I sold a deal to ABC Co. and somebody from that company is added to this deal, and you show up looking at my profile and you know that other person, there’s some immediate credibility that’s lent to that record, versus me just saying I did the deal.

Joe Fairless: Taking a step back, based on your experience, what’s  your best real estate investing advice ever?

Matt Marino: I’d just say the devil is in the details. That’s the biggest thing I learned, coming from Eastdil Secured… And the way to make that concrete and applicable is think about the underwriting process that you go through. I was doing it from the brokerage perspective… But as a principal, if you’re underwriting a transaction, your end product is typically (among other things) a one-page cashflow that can be 5 or 10 years in length, and it’s kind of a property-level unleveraged, and then  you’re typically running a leverage model on top of that, and you may even run it through a waterfall to understand your relationship between yourself and the other investors.

The biggest thing I learned going through that over and over and over again, with hundreds of millions of dollars’ worth of deal volume, is as you dig deeper into that single output, that cashflow, it can challenge your understanding of the market if you let it. And I mean that in a good way, which is to say that some people will take a template, pump a bunch of numbers into it, print it out, and they’ll look at the price at the bottom and they’ll say “Okay, I get this deal, no problem.”

What I would assert to you is you should really take every line item, from the top to the bottom of that cashflow, and look at it and ask yourself what it means and why the numbers are moving around within that line item. What you’ll find is you can take any line item on the cashflow, whether it’s the top-line revenue, whether it’s the operating expenses, or a single line item in there, or the cap ex coming from TIs and LCs, and you can dive down a rabbit hole with that in a good way, where it forces you — if it’s an office asset, for example, it may challenge you to go and make sure that you’ve walked the space and you’ve seen the vacancies. Or in the multifamily space you may need to look at the different vantage points of that building, the different sides to the building, and understand “Why are we driving revenue more so from one space than the other? Is that a reasonable assumption to be making?” If somebody blows out of that space and it’s vacant, why do we have it down for three months? Why shouldn’t it be six or nine? And so on.

On the operating expense side, why did the historicals show this big variance in 2018? …and dig into understanding why that was. Or trying to understand what you need to do to execute a business plan around the op ex that you think you’re gonna put out at this building; who do you need to know, how do you need to contract with those people, what are the kinds of things within this asset that can go wrong? It’s just to me a super-fascinating part of the business, where it’s the same process on every asset, as you need to run through that underwriting… And if you’re really a student of the business and you’re a deal junkie, then that’s the area where you can really learn, and from that learning comes – again, back to this topic of relevance, where you can speak with authority after you’ve underwritten 5, 10, 15 deals in a market…  You can  really understand what makes certain parts of the cashflow stand out in that market, and why. And then you can go talk to other people about it, and it’s from conversations like that that you tend to move your whole career forward.

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

Matt Marino: Yes, sir. We’ll see if I’m ready for it or not.

Joe Fairless: I know you are. First though, a quick word from our Best Ever partners.

Break: [00:20:23].20] to [00:20:58].17]

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

Matt Marino: I don’t know if it’s the best ever, but I’ve just finished Alone At Dawn, which is a book about a Medal of Honor recipient named John Chapman from the Air Force Combat Control, who was killed in combat in Afghanistan. Just a fascinating (for me) dive into a part of the military that I fully appreciate, and it’s really — within that branch of the military, it’s a deep, extremely specialized air force. The capabilities of those people and their willingness to do things that even the other elites, like Delta Force, Navy SEALs, SAS aren’t necessarily qualified to do… And it gave me an appreciation also for the humanitarian side of this particular part of the military, where their motto is “First there. Air Force Combat Control First there.”

That applies to military conflicts, but it also has applied to a number of humanitarian crises, like major earthquakes and things like that, where they can literally get onto the ground before anybody else. The highlight that stuck out to me was within 30 minutes they dropped on the ground into an airport in Haiti, after a massive earthquake, and within 30 minutes that airport was open and receiving aid deliveries from 50 countries around the world.

It made me cry like a baby on an airplane when I was reading the end of it, but just a powerful book… One that sticks out more within other things I’ve read in the last couple months.

Joe Fairless: It puts it in perspective.

Matt Marino: Yeah, we’re not curing cancer here, so… There’s other really powerful  things going on.

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

Matt Marino: I’d say come visit towerhunt.com. It’s likely that the product that you see the day you show up, when this airs, is gonna be different than the one you and I, Joe, are looking at right now. If I’m doing my job, it’ll be different and better… But please come visit it. And then, like I said, at the top, a big part of my job at the beginning is connecting personally with people who are passionate about the industry and want to differentiate and create an avenue for them to grow. So reach out to me.

Joe Fairless: Matt, thank you so much for being on the show, talking about Tower Hunt, talking about the idea behind it. It makes a lot of sense to me. I hope you have a Best Ever day, and we’ll talk to you again soon.

Matt Marino: Thanks, Joe. I appreciate it.

Website disclaimer

This website, including the podcasts and other content herein, are made available by Joesta PF LLC solely for informational purposes. The information, statements, comments, views and opinions expressed in this website do not constitute 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. Neither Joe Fairless nor Joesta PF LLC are providing or undertaking to provide any financial, economic, legal, accounting, tax or other advice in or by virtue of this website. The information, statements, comments, views and opinions provided in this website are general in nature, and such information, statements, comments, views and opinions are not intended to be and should not be construed as the provision of investment advice by Joe Fairless or Joesta PF LLC to that listener or generally, and do not result in any listener being considered a client or customer of Joe Fairless or Joesta PF LLC.

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Joe Fairless serves as director of investor relations with Ashcroft Capital, a real estate investment firm. Ashcroft Capital is not affiliated with Joesta PF LLC or this website, and is not responsible for any of the content herein.

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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JF2040: Early Start With Robert Leonard

Robert is a young investor who started with house hacking a condo right out of college. He initially had the impression that real estate was only for those with money and it wasn’t for him since he was young and couldn’t afford to buy a house. He now has completed 6 deals and is even focusing on long-distance rentals to find a better ROI. 

 

Robert Leonard Real Estate Background:

  • Real estate and stock investor, podcast host of two shows, ‘Real Estate Investing’ and ‘Millennial Investing’, and a full-time Corporate Finance Manager.
  • 24 years old, has completed 6 deals, now focusing on long-distance rentals
  • Based in Boston, MA
  • Say hi to him at https://www.theinvestorspodcast.com/

 

Best Ever Tweet:

“Because of technology, my inspector was on face-time with me as he walked through the property. Showing me the inspections and helping mitigate the risk.” – Robert Leonard


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, Robert Leonard. How are you doing, Robert?

Robert Leonard: Joe, I’m doing really well. Thanks for having me.

Joe Fairless: I’m glad to hear that, and it’s my pleasure. A little bit about Robert – he’s a real estate investor and stock investor. He’s the podcast host of two shows. First one, Real Estate Investing, the second is Millennial Investing. He’s a full-time corporate finance manager. He’s 24 years old, has completed six deals, and is now focusing on long-term rentals. Based in Boston.

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

Robert Leonard: Yeah, absolutely. So I started originally investing in the stock market, and I always thought that that was gonna be my way to wealth. I knew for a long time that after college I wanted to go work in a hedge fund. I was familiar with real estate, I knew it was something that people were doing, but I didn’t think that I could do it. I was only 20 years old, I didn’t think it was something that was possible for me. I thought it was only for the wealthy… Until one day I got more interested in it and I started to study it.

I learned that I was technically already investing in real estate, because I was told by my parents that as soon as I got a full-time job after college, I’d have to pay rent to live in their house… And I knew this even before entering college. And since I didn’t wanna pay rent to them, I worked almost full-time, my entire time throughout school, so that I could save money to buy a house when I graduated. Thankfully, I was able to save enough money to buy a condo before I walked at my college graduation.

So after living there for a  few months I realized that I had a second bedroom that I never went in. So I thought “Well, I should probably just try and rent that out.” So I did, I was able to rent that room out for $700, and my total all-in costs were only $1,100, including the HOA fee…

Joe Fairless: Wonderful.

Robert Leonard: …so my housing costs were only cost me about $400/month.

Joe Fairless: And that’s in Boston?

Robert Leonard: It was just outside of Boston.

Joe Fairless: So that’s pretty cheap for just outside of Boston, I imagine.

Robert Leonard: Yeah. It was a condo, so it was not a full house, but it wasn’t too bad. So my housing costs were only $400/month, and at the time I didn’t know what I was doing, I didn’t know that that was real estate investing… But once I started to study real estate investing more, I realized that I was doing a strategy called house-hacking. So that’s how I initially got started. I continued to learn more about real estate, and I realized that there was a lot of people that were having success investing in real estate, and they really weren’t much different than me… All of the stories I heard with people that were actually just like me. So I said to myself “If they can do it, so can I.” That’s when I started to get more into real estate, and I’ve continued to invest since.

Joe Fairless: So you’ve completed six deals… Let’s talk about those. We know the first one… What was the second one?

Robert Leonard: The second one was a live-in flip. It was a property that I bought that needed a little bit of renovations, and we were doing those while we lived there, and then we’ll eventually turn it into a long-term rental.

Joe Fairless: Who’s “we”?

Robert Leonard: My family and I.

Joe Fairless: Okay. So did your family and you buy the first one?

Robert Leonard: No, the first one was just me by myself.

Joe Fairless: Got it, so the first one was you. How many years or months from one to two?

Robert Leonard: I went pretty much from one to two. The first one ended actually pretty interestingly… So I knew that there was something going on with the condo complex, because they were adding a special assessment to the HOA fee that we paid. We didn’t have any details as to what was going on, but we knew that something was happening.

So I decided to take a chance on it, and it turns out that they put seven million dollars in renovations into the property, but they used six million dollars from their HOA savings fund, which meant that the owners of the units only had to put about $10,000 into each of their own units for $65,000 in renovations. So essentially, I got $55,000 to my unit done for free… That increased the value of the unit itself, as well as the complex. So I decided to sell that property, and then I rolled that into the live-and-flip that I’m in now.

Joe Fairless: Oh, okay. Did you do a 1031 exchange?

Robert Leonard: I did not. I just sold it.

Joe Fairless: Okay. So how much did you buy the first condo for and what did you sell it for?

Robert Leonard: The first condo – I bought it for about $130,000 and I sold it for about $165,000. That was only over about a 7-8 month period.

Joe Fairless: And how did you have the 130k to buy it while you were in college?

Robert Leonard: I didn’t pay cash. I used a conventional — just 5% down, and so I saved 5% down and bought it that way.

Joe Fairless: Okay. When you were getting approved for that loan, what were some challenges that you had to overcome, if any?

Robert Leonard: I really actually didn’t have to overcome any challenges, because the job that I worked at throughout college was at a local bank, as a loan officer… So I knew everything that they needed, I had a great credit score, I knew everything that was going to go on, so that helped me a lot.

Joe Fairless: Okay. Did you get the loan from the bank that you worked at?

Robert Leonard: I did not.

Joe Fairless: How come?

Robert Leonard: I didn’t like their mortgage process. It was a small, local credit union, and they took a long time, and the fees weren’t necessarily as competitive, so I went with the bigger bank.

Joe Fairless: Okay. So you bought it for 130k, you sold it for 165k, over a very short period of time. Congratulations on your first deal;  you went and put that into your second deal, which was a live-in flip,  you and your family. How much did you buy it for?

Robert Leonard: We bought this for about a 145k.

Joe Fairless: 145k, okay. And how much down did you put in?

Robert Leonard: We put another 5% down.

Joe Fairless: 5% down… And what happened to that property?

Robert Leonard: We still live in it to this day. We’ve been in it for about 2,5 years, and we wanted to turn a little quicker and turn it into a rental, but we’ve liked living there, so we haven’t done that yet.

Joe Fairless: Okay. And property number three?

Robert Leonard: Property number three was actually my first real rental, and I went a long distance for this one. As you mentioned, I live in Boston; it’s an expensive market, so I actually went all the way to Texas to buy my first rental.

Joe Fairless: Alright. Well, where in Texas?

Robert Leonard: In a small rural town called Wichita Falls. It’s about an hour and a half, two hours outside of Dallas.

Joe Fairless: Okay. I have some cousins who live there, and I’m from Fort Worth, so I know the area. What did you buy? Purchase price, rents, budget to get it move-in ready, if any – what are those numbers?

Robert Leonard: We bought it for about 65k. I believe they were asking 70k and we were able to get it for about 65k. It was pretty much move-in ready, we really didn’t need to do anything; so there was no renovation costs, no rehab costs. We were able to get a tenant in there within about three weeks or so, for $900/month.

Joe Fairless: Excellent. And you still have that property?

Robert Leonard: Yes, I do.

Joe Fairless: You’re in Boston. That property is not in Boston. It’s a city that is very far away. How did you land on Wichita Falls?

Robert Leonard: So I am a big fan of a gentleman named Neal Bawa. He has great information about demographic data. I studied his strategy. So what I did was I was able to aggregate a ton of census data into an Excel spreadsheet. So I had all of this census data for about 7,000 cities across the U.S. So what I did was I narrowed it down to about a dozen different cities that had a lot of deal flow, a lot of inventory that I could afford, and also had good demographic data. It just so happened that I was making offers in all kinds of different cities, and it just so happened that the first deal that got accepted was in Wichita Falls.

Joe Fairless: How do you define, in this instance, what “good demographic data” is?

Robert Leonard: For good demographic data we’re looking at income growth, population growth, house value growth, a crime level that’s not too excessive, and then also I’m looking for crime levels that are trending down. So I don’t want crime to be trending up.

Joe Fairless: Okay. And trending over what period of time?

Robert Leonard: I usually look over the last decade or so.

Joe Fairless: Oh, that’s a good period of time. Do you look at it over the last decade for those other items as well? Growth, population, income, house value?

Robert Leonard: Yeah, so everything is pretty much over the last decade, except for the current crime level. That’s where we’re at currently.

Joe Fairless: Got it. Okay. Anything else besides those five things that you look at?

Robert Leonard: Those are the  main things. Then once I’ve decided that it’s a good town, then I start to look at if there are real estate professionals there that can help with my business – competent and willing to help real estate agents, property managers, contractors, handymen, things like that. Because even if it’s a good city and you don’t have those people to help you, it’s very difficult to go long-distance.

So I look at those things, and then I’ll start to look at neighborhood data, and try and find the best neighborhoods to invest in. For that, we’re looking at income, poverty level and unemployment data, just to make sure that we’re investing in a good neighborhood.

Joe Fairless: Did you visit the house before you bought it?

Robert Leonard: I have not. I’ve never seen any of my long-distance properties. I still haven’t to this day.

Joe Fairless: I did the same thing, living in New York City, buying in Dallas-Fort Worth. I didn’t visit any of the properties before I purchased them, so I understand your thought process. A lot of people did not understand my thought process when I told them that… So why did you choose not to visit the property, and how did you mitigate the risk?

Robert Leonard: It’s funny, I went through the same thing. A lot of people told me I was kind of crazy, and all kinds of things… But it really didn’t seem that crazy to me. Technology has completely changed how we can invest in real estate. So for me personally, I work in finance, that’s my day job, so I’m not very handy; I don’t know anything about fixing houses. So even if I was buying a house literally next door to where I live, I wouldn’t know how to do anything to fix the property, I wouldn’t know even really what I’m looking at… So I’m relying on real estate professionals no matter where the property is. It’s the same when I’m  investing long-distance. If something goes wrong, I’m gonna call my handyman and he’s gonna go fix it; or my contractors, or somebody on my team is gonna help me solve that issue, regardless of where the property is.

So going back to technology, my inspector that I had going through this property – he was literally on FaceTime with me as he walked through this property. He’s showing me all these different things, we’re having a  conversation, and it was basically like I was standing there with him. So it really wasn’t much different.

And then to really mitigate the risk, since this is my first property, I really did try to mitigate the risk. I always told myself I was never gonna buy a single-family property. I only wanted to do multifamily. But I decided to go with this single-family because the numbers seemed great, and the mortgage was only about $250 or maybe $300/month. So I said to myself “Well, I can cover that myself with my salary if everything goes wrong. I can cover that, and at least not lose the property.” So the risk is relatively small on the downside, and the upside is great. So I knew if I didn’t just do a deal to get started, if I didn’t buy my first rental, I probably never would have. I knew I needed to just take action. The downside was pretty limited, so I just dove in.

Joe Fairless: How long ago was that?

Robert Leonard: That was about a year or a year and a half ago.

Joe Fairless: Okay. And what are your plans for that property?

Robert Leonard: The plans are to just continue to keep it as a rental for the long-term.

Joe Fairless: Property number four.

Robert Leonard: We just basically kept multiplying that process. I brought in a good friend of mine, who was interested in investing in real estate, so I brought him in with me as a business partner. We just continued to buy single-family properties. We buy multifamily too, but we also just buy more affordable, low-cost areas, and we just continue to do the same process.

Joe Fairless: Okay, so let’s talk about it. What was the fourth property?

Robert Leonard: The fourth property was a single family, also in Wichita Falls. Very similar to the first one. It was actually just a couple streets down. All the numbers were pretty similar. I think we got this one for about 72k, and it’s pretty much been the same. I think we rent that one for about $950/month, so it’s a little bit more… But it’s pretty much been the same process. We just try and rinse and repeat.

Joe Fairless: Okay. And you said you brought in a partner for this one?

Robert Leonard: Yes, so we’re 50/50 partners. We just put in 50/50 everything together and we try to keep it simple that way.

Joe Fairless: And I know you’ve got a property manager, so there was probably not any ongoing oversight on you and your partner’s part… But if there is something that needs to be addressed, who addresses it?

Robert Leonard: Actually, we don’t have a property manager. We manage long-distance ourselves… And we tested this with our first property. That first one in Wichita Falls that I did, I tested it. I said “Well, let me see what it’s like without a property manager. If it ends up being too difficult, I can always call X, Y and Z to get that property manager put in place.” I always made sure I had that as a backup, but I wanted to try it myself to see if I could save 10% a  month.

So I did it for a while, I did it for six months, and it was really only an hour or two hours a month, so it really wasn’t taking a lot of my time. We’ve decided to just continue to do it ourselves, and save that 10% per month.

Joe Fairless: When there is something to be addressed, it sounds like you’re the one addresses it…?

Robert Leonard: Yeah, more or less. My business partner does some things as well, but I handle a lot of it.

Joe Fairless: What does he do?

Robert Leonard: More or less the same as me. I do most of the financial reporting, our accounting, and then if we need a maintenance call, or we need to call a handyman, or talk to our agent and set up a showing, he gets the showing set up.

Joe Fairless: Tongue twister.

Robert Leonard: Yeah… [laughs] He’ll do a lot of that.

Joe Fairless: Okay. How did you meet your business partner?

Robert Leonard: We actually just met through mutual friends, and we’d been friends for 4-5 years. We are very similar in mindset. We have characteristics that complement each other, so we’re not similar in that sense. He’s very extroverted, very good at sales, and talking to people; I’m more introverted, accounting, numbers-focused… So we complement each other well that way, but long-term we have a lot of the same goals, we have a lot of the same work ethic… So we sit really well together, and we had a lot of the same interests, so we decided to go together.

Joe Fairless: What type of loan did you get on this property?

Robert Leonard: Just a conventional 20% down.

Joe Fairless: And is it owned by an LLC that you two have ownership in?

Robert Leonard: Yes. So we buy it in our personal names, and then we quitclaimed it to an LLC.

Joe Fairless: Okay. Is that behind the scenes, because it would trigger  a due on sale clause with the lender, or is that something that the lender is fine with?

Robert Leonard: Yes, exactly. It’s more behind the scenes. In general, of course they have the right… It’s not necessarily illegal to do as far as I’m aware, but to your point, the bank does have a clause in their note agreement usually that says they have a due on sale clause, which means they can make the loan due when the property is sold, and transferring it to an LLC is technically selling the property.

So they do have that right, but in general they don’t have an issue with it as long as you’re making monthly payments. So for us it hasn’t been an issue.

Joe Fairless: And what’s the advantage for you to do that?

Robert Leonard: We do it for the liability protection. We could get an insurance policy to do something similar, but in terms of protection, we wanted the LLC in place.

Joe Fairless: Property number five.

Robert Leonard: Property number five was, again, very similar to this one. This one was a duplex in Wichita Falls. We went a little bit outside of a good area for this one. We didn’t stick to our perfect neighborhood. But so far it’s been okay.

We got that one for — I believe it was about 122k. We put 20% down. Each unit rents for $750 a month.

Joe Fairless: And what gave you the confidence to move forward with it if it’s outside of your criteria that you had established previously with the crime?

Robert Leonard: It was still in the same town that we were happy with, and we had built relationships with a lot of people there. We started to get a little bit more comfortable. Our agent was very straightforward with us; he said “Look, it’s not the best neighborhood, it’s not the best area, but it’s also not the worst.” So we figured we would take a little bit of a risk on it. So far it’s been okay.

There were a couple properties that we were very close to buying, that were in some of the worst areas, but we decided not to, and we decided to really just stay focused on the middle or upper-class neighborhoods.

Joe Fairless: Okay. Earlier when we were talking about the current crime level, you wanna make sure it’s acceptable – how do you quantify what acceptable is?

Robert Leonard: So I got the acceptable number from Neal Bawa. There’s a crime index on a website called CityData, so basically we use that. Basically, anything under 500 is pretty good, it’s pretty acceptable. Anything above that, we tend to not look at. And of course, the lower, the better.

Joe Fairless: And the sixth property.

Robert Leonard: The sixth property was a single family… Nope, actually. Sorry. That was a duplex more local to us, where my business partner is house-hacking. We did that together, we bought  it together, but he’s house-hacking in it; he’s living in it and we rent out the second unit.

Joe Fairless: Okay. That’s the most recent purchase, correct?

Robert Leonard: Correct.

Joe Fairless: Okay. So you’ve got the five purchases that you still own. You still own the first one, right?

Robert Leonard: Correct.

Joe Fairless: Okay. You sold the first one… Why not sell some of these other ones, since you were able to sell the first one so quickly and generate some cash?

Robert Leonard: We plan to in the future, but for now — they haven’t appreciated in value like the condo did. The condo – I was planning on holding it for a significant period of time and just renting it out, but because of the renovations that the entire complex went under, I decided to sell it, because of the gain. But for these, we plan on buying some more single-families probably in Wichita Falls, and some other areas that we’re targeting. Eventually, we’ll sell all of those and 1031-exchange them into a larger multifamily property.

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

Robert Leonard: My best real estate investing advice ever is to live where you wanna live, and invest where the numbers make sense… And to also not go big on your first deal.

Joe Fairless: And why is that?

Robert Leonard: The first part isn’t a quote or an idea that I came up with myself. I’ve heard quite a few different people talk about it… But I think it’s so important, because a lot of people don’t invest, because they can’t afford their local area. Like you said, you were in New York City, I’m in Boston… We couldn’t. So technology I think has completely changed how real estate investing can be done, and made it more accessible than ever to invest long-distance.

I also think it’s important for people to not go big on their first deal, because I think that keeps a lot of people from getting started. I love the idea of going big and having massive goals, but when it comes to investing in real estate, especially for new investors, I think it’s important to start with something small. Similar to what I did, start with something that you could cover the mortgage if you had to, so that that risk is really limited and it’s really mitigated that way. I think that’s a great way to learn the ropes and then scale from there.

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

Robert Leonard: Let’s do it!

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

Break: [00:19:51].29] to [00:20:37].22]

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

Robert Leonard: Virtual Freedom, by Chris Ducker.

Joe Fairless: What’s  a resource that you use in your business, that you think would be helpful for others to check it out as well?

Robert Leonard: If you’re interested in long-distance investing, I think a great resource is a software platform that I’ve created. It’s called [unintelligible [00:20:49].06] It allows you to find the demographic data very easily on 6,000 cities across the U.S.

Joe Fairless: And how can someone get access to that or learn more about it?

Robert Leonard: Just go to wiserei.com.

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

Robert Leonard: The best ever way I like to give back is I like to help new investors get started, and I really like helping younger students to learn about personal finance and money, and help fill the gaps that isn’t covered by traditional curriculums.

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

Robert Leonard: The best ever place to reach me is probably on Instagram. My username is Robertattip, or as you mentioned at the beginning of the show, you could check out my two podcasts, Millennial Investing and The Real Estate Investing.

Joe Fairless: Well, Robert, thank you for being on the show, talking about the six purchases that you’ve made in about three years time, and getting into the details of each of those… The financing, the numbers for purchase price, the rents, and how you’ve built your portfolio and how it’s progressed, from the first condo at 5% down, and using your own money and your experience as a loan office while you were in college, working at a local bank, to then doing a live-and-flip, to then researching out a state… And then, once you identified a market, then you bring on a partner, and now you two are buying deals.

It’s interesting to hear how you’ve progressed and the steps that you’ve taken to get to where you’re at, and it certainly could be a roadmap for others… So thanks for being on the show. I hope you have a best ever day, and we’ll talk to you again soon.

Robert Leonard: Thanks for having me, Joe.

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JF2024 : Starting With a USDA Loan With Chad Duval

Chad started his journey at a bank straight out of college and after 3 months of working there, the crash of 2008 happened and he lost his job. His first house was with a USDA loan where he found a house with a basement where he lived while he rented out the top half of the house. He has recently bought a 15-unit and is now working on a 50-unit +.

Chad Duval Real Estate Background:

  • Worked at a bank out of college, after 3 months of working there, the crash of 2008 happened and he lost his job
  • House hacked his first investment, bought a 9 unit on seller financing, and most recently bought a 15 unit
  • Based in Boston, MA
  • Say hi to him at www.chadduval.com 

 

Best Ever Tweet:

“If you can, continually be looking online or networking with everyone and you might actually get more deals.” – Chad Duval


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, Chad Duvall. How are you doing, Chad?

Chad Duvall: Good! How are you doing, Joe? Thanks for having me.

Joe Fairless: I am doing well, and it’s my pleasure. A little bit about Chad – he worked at a bank out of college, and after three months working there the 2008 crash happened, and he lost his job. He has house-hacked his first investment. He bought a 9-unit on seller-financing. Most recently he bought a 15-unit – congratulations on that. Based in Boston, Massachusetts. With that being said, do you wanna give the Best Ever listeners a little bit more about your background and your current focus?

Chad Duvall: Yeah, so you hit all the big highlights in real estate. As you know, ’08 was not the best year to graduate school… But yeah, I got a job at a bank because I had my uncle who was the president over there, and got me started over there… And like you said, three months into it I showed up to the bank and all of us were locked out, and they closed the branch. So after that, I kind of tried to dabble in a lot of different things. I moved to California, I worked anywhere from Kohl’s, at night, stocking shelves, to Sherwin-Williams, stocking shelves there, and just doing anything I could to pay the bills.

I kind of made myself move around. I made it to Miami, and Connecticut, and ultimately I landed back in Boston, where — I’m from  the greater Boston area.

In 2014-2015 I was talking to my dad, who has been hounding me for years to buy a house… So I finally cracked, and went back to that same uncle that had got me the job a couple years prior, and I got approved for a USDA rural development loan, which is 100% financing… Which is an awesome loan product if you’re willing to move to rural areas of the country.

I ended up finding a property that had a full walk-out basement that I converted into an accessory unit and lived in that while I rented out the upstairs, all underneath this USDA rural development loan. And then from there, like you said, I scaled up to a 9-unit, then to a 15-unit, and now I’m looking to slowly get into the 50 to 100-unit properties.

Joe Fairless: So when I think of Boston, I don’t think of USDA rural loan being in Boston… So where was this?

Chad Duvall: This was in a small town called Colchester, CT. At the time I had taken a job in Connecticut in Essex, for an aerospace company, and it was about a 45-minute drive to work. I couldn’t qualify within the same area as the job was, so I had to move outside to Colchester, where there was really not that much around.

Joe Fairless: Yeah, well that’s the reason why they offer those loans, right?

Chad Duvall: Yeah… What I like to say is if you can put in a year of time to do it, to get into the game, then it’s a good product… But yeah, you might pull your hair out if you’re used to living in the city, for sure.

Joe Fairless: Right. It’s a year and then you can rent it out? Is that how it works?

Chad Duvall: Yeah. After a year you can move out of it and rent it out. Usually 12 months. I actually looked at the loan documents to confirm that too, just to make sure that they weren’t gonna call the note if they found out… But it’s very similar to what a lot of people do with the traditional FHA loan.

Joe Fairless: One catch-22 for that with the USDA rural loan is if you have a plan of renting it out  – okay, great, but you’re in the middle of nowhere, so can you rent it out? So how did you get comfort in being able to rent it out prior to purchasing it?

Chad Duvall: I was super-green to it and kind of took a big gamble. I just did a quick scan on Zillow and Craigslist and kind of looked at what the market had… There was enough population that I knew that I could get it rented, I just didn’t know how much I could get it for… So basically, I bought the house because I knew that based on the upstairs where I was gonna rent it – it was like a 3-bed/2-bath – I definitely could make enough money to cover the mortgage and most of the expenses, just by doing a little bit of the Zillows, and that sort of thing.

Joe Fairless: Well, let’s talk about this nine-unit on seller financing. Tell us the story.

Chad Duvall: So after I moved into the basement of that USDA rural development property, I got that first check, and like a lot of people, it’s a weird experience. I was hooked instantly, and was like “Man, I’ve gotta get more of these.” And I was looking at just a couple duplexes, and maybe some fourplexes, but then I ended up stumbling upon this nine-unit, because what I was doing is on Craigslist I was typing in keywords like “seller financing”, “owner financing”, “second mortgages” and keywords like that… And I actually stumbled upon this 9-unit.

So I enquired about it, and they ended up carrying back 85%, and then I had to bring about 15% to the closing table… So it was a really quick transaction, everything was done through them and the title company.

Joe Fairless: Let’s talk more about it. You bought it for how much?

Chad Duvall: I bought it for $420,000.

Joe Fairless: $420,000. Where is it located?

Chad Duvall: In central New Hampshire.

Joe Fairless: What type of area is that?

Chad Duvall: It’s a small city called Laconia. It’s the outskirts of a pretty rural area, but it’s also a very touristy area. There’s a big lake there, so there’s a lot of influx of tourists in the summertime, so that brings in a lot of traffic. And the property is just on the outskirts to a lot of big malls; there’s a Walmart right there, and a few chain stores, too.

Joe Fairless: Why were they selling it via seller financing on Craigslist?

Chad Duvall: I think what they had decided as they talked to their accountant — they had owned the property for 20 years, and they owned it free and clear… And I guess they had listed it before, but then once they had it under contract, they realized that the tax implications are pretty significant on a $420,000 capital gains, pretty much… So they ended up relisting it and tried to do seller financing just to reduce that tax burden.

Joe Fairless: Okay. Your initial offer was how much?

Chad Duvall: I think with that it was actually really low. I think I was down at 380k(ish) and kind of worked the numbers back and forth… I ended on 420k, but it was on 420k because they ended up carrying more of the mortgage. At the original negotiations of the lower price I had to  bring more money to the table, which ultimately I figured “I’ll pay a little bit more than I think it’s worth, but I think that’s a premium for having seller financing, and not have to go through the bank.”

Joe Fairless: What did they list it at?

Chad Duvall: I think they had it listed at 475k. But another little key indicator was that it had been sitting for a while. I think it was on the market for like 180 days when I had come across it.

Joe Fairless: And how did you know it had been on the market for 100-and-some days if you saw it on Craigslist?

Chad Duvall: Oh, I’m sorry. This one wasn’t on Craigslist. I think I was searching for keywords on realtor.com.

Joe Fairless: Oh, okay.

Chad Duvall: Yeah, sorry. I don’t think it was on Craigslist. I do continue to search on Craigslist for stuff, but I think that property was actually on realtor.com. And of course, those always tell you days on market.

Joe Fairless: Did they ask you about “Hey, have you done this before?”

Chad Duvall: They weren’t too interested in the real estate experience, because what we had talked about is they had a resident building manager that had been there for like 8-10 years, and she knew the property inside and out, and I had told them that I planned on keeping her on as a partner. No money invested in it, but keeping her on, because she knows the building. And when I had met her the first time, it was a really good feeling; she seemed like a decent person. So I told them I was gonna keep her on… So that kind of mitigated any of the risk in their mind, I think, as far as having real estate experience…

But I did have a resume, and I had my uncle, again… It’s just a recurring theme in my stories – my uncle; he helped a bunch. He wrote a nice recommendation, because I had worked for him for a couple of months, and he’s known me my whole life… So he really talked me up. The bank that he was working for talked me up, and then all of my other employers that I had been working with had given good references… So I guess they had relied heavily on the references and my secure financial situation at that time.

Joe Fairless: What was the business plan with that 9-unit?

Chad Duvall: At first it was to raise rents immediately, because it was definitely mismanaged. A lot of the rents were 10%-15% below market… So at the time was to raise rents for current tenants that didn’t have any leases in place, and then slowly turn over tenants, and just light-rehab units. Light rehabs meaning paint, carpets, some appliances, a few countertops here and there… But no crazy moving walls or stripping it down, or anything like that. So that was the biggest thing.

And then the second thing is once we started doing that, we also came across the RUBS policy; I don’t know if you’re familiar with that – Ration Utility Billing Service… Where  we hired out a   third-party to come in and evaluate the property, the square footage, and the usage and the occupancy, and then take all of our utilities and then calculate a bill per unit based on the occupancy and the square footage back to the tenants, and get a portion of that expense billed back to them. So those were the two main driving business plans.

Joe Fairless: What was your role in the renovation process?

Chad Duvall: At first it was me and my dad most of the time. My dad owns a construction business, so–

Joe Fairless: You had a very active role. Very hands-on role.

Chad Duvall: Yes, very active.

Joe Fairless: [laughs]

Chad Duvall: And then once I got three or four units into those, I’m like “Man, it’s too much for me.” Of course, I was working a full 9-to-5 and everything like that, and my dad was getting busy too, so we couldn’t put [unintelligible [00:10:01].27] So by the last unit I had fully hired right out.

Joe Fairless: When you closed on the 9-unit — how long ago was that?

Chad Duvall: That was in 2016. March of 2016.

Joe Fairless: Okay. What’s the status of the business plan?

Chad Duvall: Actually, two weeks ago we just actually sold that property. So what had happened is we had finished basically the business plan of it, and then went to go do a cash-out refi with it… And for some odd reason the property actually when we went to do the refi appraised significantly lower than it was valued… So at that time I had this 15-unit under contract, and that’s what I was gonna use for the down payment of it.

So what I ended up having to do was just take out as much as I could for that property, close on the 15-unit, but because I had to put so much of other money and scrounge at the last minute to get that down payment together for the 15-unit, I needed to sell the 9-unit now to recapture all of the equity, so that I can pay off all of that other stuff that I had to club together to close on that 15-unit… Which is so crazy, because that 9-unit, when I did sell it, the selling appraisal came in at 485k, and when I went to go do the cash-out refi a couple months before that, it had come in at 430-something. So it was a huge discrepancy, and I didn’t have enough time to fight it, because I had this other property that was getting ready to close… So it became kind of a cluster, pretty much…

Joe Fairless: Now let’s talk about this 15-unit. What’s the story with that?

Chad Duvall: That was kind of a funny story… It was Christmas time; my girlfriend lives in Chicago and we go back and forth there a couple times a year and at Christmas time. Last year we were flying home, and [unintelligible [00:11:43].14] so I’m always looking for things to do; I’m either working, or browsing real estate is a thing I do all the time… But I ended up coming across this 15-unit and then putting in a really, really low-ball offer on it… And ended up getting some traction on it while I was on this airplane on the way back from Christmas.

Long story short, I ended up getting them to carry a second on that particular purchase, and I got the bank to finance 80% of it. They carried back 75k and then I had to come with the balance of that at closing. So we closed it at 675k; they had originally listed it at 890k (I think it was).

So again, another very similar story – it’s really way over price. I don’t know if people were actually even taking it seriously and putting in offers because it was so over-priced… But I don’t see any downfall in putting in low-ball offers… So we ended up closing for 675k, and it’s been going pretty good. We closed in April, and this is the first property that I actually have full-time property management as well. It’s kind of  a weird transition; I’m a little bored, because I don’t  have to really do anything. All I have to do is manage the manager now once a month, so… It’s kind of a cool transition from duplex all the way to a 15-unit where I’m very hands-off.

Joe Fairless: What have been some challenges that you’ve come across with the deal? …whether it’s the management or something else.

Chad Duvall: Actually, the biggest challenge right now has been the tenant base when we took the property over. Apparently, the number one drug dealer in all of New Hampshire lived in that building and we didn’t know that… So two weeks after we closed on it we had a huge FBI drug raid, and all this stuff… So it’s been quite the hotbed for a lot of drug activity, and not a favorable tenant base. We’re trying to combat that. We’ve kicked out most of them and putting in better tenants. As you upgrade the units, you tend to level up your tenant base, so that’s kind of what we’ve been doing.

Joe Fairless: When you now are managing the manager, versus being the manager, what are some ways you’ve changed your approach? Because I’m sure that the early days you were approaching it one way as managing the manager, but now you’ve gotten into a system with managing the manager.

Chad Duvall: It’s hard for me — I’m still learning, of course, because the first couple of properties I had to do everything; so I took the bull by the horn. Now I had to transition into stopping myself from micro-managing, I guess… I think the pendulum has swung a little bit too far, where I’ve been a little bit too hands-off, because I’m seeing a few things slip, so I might have to reel it in a little bit… But that’s been the hardest transition for me since doing that.

Joe Fairless: And how are you working through that, so that you navigate that transition?

Chad Duvall: Yeah, it’s just more communication and being more honest with the property managers. I’ve planned out every time that I’m up in New Hampshire, because my family still lives up there… So I’m still up there quite a bit. What I’m trying to do is actually meet with them every time I’m up there, just to kind of get more face time and be more transparent about things that I’m seeing, or concerns that I have, or “Oh, you guys are doing really good here”, and that sort of thing.

Joe Fairless: What are some concerns that you’ve had?

Chad Duvall: Well, I drove by the property at Thanksgiving and there was a lot of large items around the dumpster, and I don’t know if that’s been addressed, or if they even know that that’s been going on… But with a lot of turnover, with all these bad tenants, they leave mattresses and beds and couches and they’re just putting it behind the dumpsters. That’s a cost for us, because we have to call a special company to come and take that out… So things like that I need to address and make sure that we’re all on the same page, and find ways to combat that with either cameras or whatever we’re gonna do.

Joe Fairless: You’ve got a 9-unit on seller financing that’s rockin’ and rollin’… How much money does that put in your pocket every month?

Chad Duvall: Full disclosure – I’ve never taken any money out of any of these properties. I’ve kind of just put them back into the properties.

Joe Fairless: What are you living off of?

Chad Duvall: I work a 9-to-5, and aerospace sales job. So that’s my real job. All this real estate is kind of on the side; the podcast, all of this. It’s my passion.

Joe Fairless: Good for you.

Chad Duvall: It’s so fun… But yeah, I do actually work a regular 9-to-5.

Joe Fairless: Okay. My respect for you just increased even more. Nice job.

Chad Duvall: Thanks, man. [laughs] It’s challenging some days. Some days I ask myself why I’m doing it. But again, going back to having full-time property management has freed up so much time that I can really focus on my 9-to-5. Having somebody else try to grow my portfolio while I’m working is a really nice bonus.

Joe Fairless: When were you doing those renovations on the 9-unit?

Chad Duvall: The lucky thing is in sales — I’m super-fortunate to work from home, so I can pretty much work from anywhere… But at that time I was just going up Friday afternoons and working all weekend. So it was a lot of weekend work, for sure.

Joe Fairless: Okay.

Chad Duvall: Because yeah, my job is pretty rigorous travel; I’m traveling a lot, so I couldn’t squeeze it in during the week… But yeah, definitely during weekends.

Joe Fairless: The 15-unit – what’s the anticipated hold period?

Chad Duvall: Right now, with the way the economy is going and everything like that, my anticipation is it’s gonna be a long hold. However, if we continue to see things increase and it becomes a point where I’ve got a lot of equity there, I might try to cash in on that and keep going bigger, because that’s the ultimate goal – to get into the 50 and 100-unit buildings, similar to yourself, and start syndicating a little bit… Only because, as you know from your story, you buy one property and you run out of money, and then you have to save and save and save; then you buy another one, and then save, save, save. And as you start getting bigger, it’ll be easier to a) raise money, and b) to manage, for sure.

Joe Fairless: Anything else that we haven’t talked about as it relates to the 9 or 15-unit that you think we should mention?

Chad Duvall: Not really, but I know that the market is a little different now… But if you can just continually be looking online, or networking… I shared this recently – the furnace guy that was at that 9-unit, he did all the furnace work for that, but he actually gave me some leads, because I’d been talking to him about how I’m wanting to buy more buildings, and certain things like that… That’s something I wanna reiterate about that 9-unit, is just talking with everybody – all your contractors, and brokers, and just make sure that everybody knows what you’re doing and you might actually get some more deals that way.

Joe Fairless: As a refresher, the two large deals, the 9 and the 15 – one you’ve found on realtor.com, most likely; and then where did you find the other one, the 15-unit?

Chad Duvall: The exact same way.

Joe Fairless: Okay. Realtor.com.

Chad Duvall: And talking to everybody about it; people are gonna give you leads. I haven’t closed any deals that way, full disclosure, but I know I’ve been getting a lot of options and been in communication with a lot of owners… And as soon as I talk to them, at least in my experience so far, they’re just not quite ready to sell. But the second they are, I know I’ll get a phone call from them.

Joe Fairless: Do you have a follow-up system?

Chad Duvall: Yes. Every six months I’m following up in my calendar. If you saw my calendar, it would cause you to go dizzy, because I have so many things in there… So every time I do it, I just move that notification six months out.

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

Chad Duvall: Start. You’ve gotta start to be in it, man. Gotta start. I know it’s cliché; you’re never ready to have kids, you’re never ready to do all these things, and real estate is the same thing – just start.

Joe Fairless: Now we’re gonna do a lightning round. Are you ready for it?

Chad Duvall: Yes.

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

Break: [00:18:47].15] to [00:19:34].26]

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

Chad Duvall: So the 15-unit that I just closed on in April – I didn’t get a proof of payment from the sellers that they had paid the last water bill, and ended up having to go to court to get that paid by them. So make sure at closing you have receipts and proof of all of the utilities being paid off, up to the closing date.

Joe Fairless: How much did it cost you to go to court?

Chad Duvall: We ended up settling after. $1,500, but we ended up adding that to the amount that they owed us.

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

Chad Duvall: Right now I think the best way that I’m doing it is through my podcast and my Instagram feed. I don’t consider myself an expert in real estate, but I have done a few deals, and I’m trying to give back at least some of the mistakes that I’ve been making, fumbling through to get these properties.

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

Chad Duvall: ChadDuval.com is the hub for everything. Again, my podcast is Start FM; it’s on iTunes, Stitcher, it’s on all the platforms. Those are the two main areas.

Joe Fairless: Fun conversation, talking about those two deals, and the USDA loan, too. That’s interesting. It doesn’t happen often where investors use that program, because a lot of people aren’t willing to move out to rural areas where you can get that type of loan… But you bite the bullet, and it could also be a wonderful thing to be out in the country.

Chad Duvall: Yeah, it’s a good way to test if you like it… Because I thought at the time when I was getting into it, I was like “Oh, this is gonna be awesome. I can cut the lawn, and paint this, and that…” and then I was realizing I was gone a lot, trying to go have fun with my friends, and I was like “Damn, I can’t. I have to go home and cut the lawn.”

Joe Fairless: Yeah, chop wood, and kill your dinner, and all sorts of things.

Chad Duvall: Yeah. So if anything, it will teach you if you like that stuff or not, if you’ve never done it before.

Joe Fairless: I’m glad you experienced it, because it was fun to talk about… And even more fun was the 9-unit and the 15-unit conversation. Thanks for being on the show, congrats on what you’ve done to date. I hope you have a best ever day, talk to you soon.

Chad Duvall: Thanks, Joe. I appreciate it.

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1964: Technology In Lending with Kirill Bensonoff

Kirill Bensonoff is the Chief Product Officer at New Silver. Kirill is a successful entrepreneur with multiple exits in SaaS and IT services spaces, investor with a focus on fintech and IT, advisor and host of The Exchange With KB Podcast.

Best Ever Tweet:
“Using data, looking at this property, looking at the neighborhood, looking at the trends, I think that will help them be more intelligent” – Kirill Bensonoff

Kirill Bensonoff’s Real Estate Background:

  • Chief Product Officer at New Silver
  • 5 years in an investor for a fund that does lending
  • Based in Boston, MA
  • Say hi to him at https://newsilver.com/

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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.


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

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

 

Best Ever Tweet:

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

 

Dave Friedman Real Estate Background:

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

 


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

Dave Friedman: Awesome, thanks for having me.

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

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

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

Joe Fairless: Congratulations!

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

Joe Fairless: Congratulations!

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

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

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

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

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

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

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

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

Dave Friedman: That’s right.

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

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

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

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

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

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

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

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

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

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

Joe Fairless: They’re  your enemies.

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

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

Joe Fairless: Of course.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Joe Fairless: Name three or four others, please.

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

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

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

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

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

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

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

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

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

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

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

Joe Fairless: Yeah. Please.

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

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

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

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

Joe Fairless: How long ago?

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

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

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

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

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

Joe Fairless: What CRM do you recommend?

Dave Friedman: Salesforce, all day long.

Joe Fairless: How come?

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

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

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

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

Joe Fairless: Wonderful.

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

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

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

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

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

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

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

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

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

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

Dave Friedman: Let’s do it!

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

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

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

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

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

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

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

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

Dave Friedman: Check us out at KnoxFinancial.com.

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

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

Dave Friedman: Thanks, I really enjoyed it.

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JF1825: Building A Short Term Rental Business With Other People’s Properties #SkilSetSunday with Michael Sjogren

Michael is here today to tell us more about short term rentals. We’ll hear three different ways to make money from short term rentals. If you enjoyed today’s episode remember to subscribe in iTunes and leave us a review!

 

Best Ever Tweet:

“Here is how I will mitigate all these risks” – Michael Sjogren

 

Michael Sjogren Real Estate Background:

  • Michael and his wife Krysten are the founders of Occupied, LLC, a short-term rental investment and management company
  • They have a portfolio of six properties across three markets and are actively expanding across the northeast
  • Recently launched an education platform called Short Term Rental Secrets to help real estate investors launch their own STR business
  • Based in Boston, MA
  • Say hi to him at https://www.occupiednow.com/

 


Evicting a tenant can be painful, costing as much as $10,000 in court costs and legal fees, and take as long as four weeks to complete.

TransUnion SmartMove’s online tenant screening solution can help you quickly understand if you’re getting a reliable tenant, which can help you avoid potential problems such as non-payment and evictions.  For a limited time, listeners of this podcast are invited to try SmartMove tenant screening for 25% off.

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


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. First off, I hope  you’re having a best ever weekend. Because today is Sunday, I’ve got a special segment for you called Skillset Sunday. The purpose of this conversation is to help you acquire or hone a skill in real estate investing.

The skill we’re gonna be talking about today – and I suggest, if you’ve got some rentals, this is a skill that you at least become aware of, and then you can choose what to do with it – is the skill of making money on short-term rentals. Our guest today has been on the show before; he is an expert at short-term rentals, and he’s gonna talk about three ways to make money on short-term rentals. One of them is gonna be fairly obvious – you have a property and you make that a short-term rental, but we’ve got two other ways that are gonna be interesting, and we’re gonna dive deep into.

First off, how are you doing, Michael Sjogren?

Michael Sjogren: Hey, Joe. Thanks for having me back.

Joe Fairless: Yeah, my pleasure, and looking forward to our conversation. Best Ever listeners, you can just search Michael’s name and my name, and you can listen to his previous episode that he was on. We’re gonna dive right into short-term rentals. First, let me introduce you, Michael, just to refresh memories. Michael and his wife, Christen, are founders of Occupied LLC, which is a short-term rental investment and management company. They have a portfolio of seven properties across three markets, and are actively expanding across the North-East. They recently launched an education platform called Short-term Rental Secrets, to help real estate investors launch their short-term rental business. Based in Boston, Massachusetts.

Here’s what we’re gonna talk about – three ways to make money on short-term rentals. What are those three ways? And then we’ll get into the details of those three ways.

Michael Sjogren: Sure. The first is to purchase a property. The second is to lease a property from a landlord, you furnish it and then you put it on Airbnb, or HomeAway, or Rent It Out, however you want, and you make the difference between what your rent payment is to the landlord and how much revenue you can generate on a nightly basis. And then the third is to partner with a landlord, or landlords to partner with somebody that knows how to run a short-term rental business, and you set up a management fee, a percentage of the revenue collected. What I find is typically the landlord makes more with this model, obviously, than if you’re just gonna rent it out on 12-month leases to somebody.

Joe Fairless: Alright, let’s talk about number two and number three, because the first one is the “Buy  a property, make it short-term.” If you are interested in that, Best Ever listeners, then go listen to the first conversation I had with Michael, where he talks in detail about how to do that. You have a webinar for that… What’s the webinar?

Michael Sjogren: It’s STRSecrets.com.

Joe Fairless: Okay, STRSecrets.com. If you wanna do that, then go to STRSecrets.com, and/or listen to the interview. So let’s talk about number two and a number three – lease a property from a landlord. How do you approach a landlord and convince him/her that this is a good idea.

Michael Sjogren: I think the first thing to think about before you approach someone is what problem are you trying to solve for them? If you’re approaching a landlord that has a vacancy at their property, what is their biggest problem? Their biggest problem is vacancy. Every month that that property sits vacant, they’re not making money but they still have to pay their mortgage, and their expenses, and everything else. So the problem that you are solving is that you’re going to fill their vacancy, and that you’re going to take better care of their property than anybody else, and not be a pain in the butt and calling them every time a toilet gets clogged. Those are the three problems that you’re solving.

I know a lot of folks think “Oh, short-term rentals – that sounds like there’s more wear and tear on the property. How can that possibly be better for the property?” If you think of it, the last time you stayed at a hotel, or an Airbnb, or wherever you traveled to, how much time did you actually spend in the property? Probably from 8-9 o’clock at night until about 9-10 o’clock in the morning, and the majority of that time you’re sleeping. How many of you actually use the stove, or the dishwasher, or the washer and dryer, or any of the major appliances in there? You probably didn’t. And for those of us that are landlords, ask yourself this question – when was the last time one of your tenants hired a professional cleaning company to come in and sanitize and deep-clean that entire property? Probably never.

So with this model, the property stays in pristine condition, because it has to. It gets professionally deep-cleaned multiple times a week, and it has to look pristine every single day, otherwise we don’t make money. It has to look great every single day. So those are the problems that you’re solving. If you’re gonna sign a lease with a landlord, or if you’re approaching a landlord and saying “Listen, I’m happy to sign a 12, 18, 24-month lease and take care of your vacancy problem. And by the way, here’s why I’m going to take way better care of your property than anybody else… Oh, and by the way (and this is totally up to the listeners if you wanna go this route), I’ll actually take care of any maintenance requests that are $250 or less. I’m not even gonna call you, I’ll just handle it. If anything major happens, I’ll let you know, but otherwise I’ll take care of it myself. And if you ever wanna go inspect the property, just give me a heads up; I’ll make sure nobody’s in there, and you can go in there any time you want.”

Joe Fairless: That sounds like a very compelling case. [laughs]

Michael Sjogren: Right? So many folks get scared, like “Why would somebody rent me their property?” Well, what problem are you solving for them?

Joe Fairless: Yeah. So I’m gonna flip the script on this… If the listeners are listening and they’re like “Well, sold”, how does a listener or real estate investor find people who want to do this at their property?

Michael Sjogren: Email me. I’ve got a whole database of students that follow my exact system. Or just go on some of the platforms. Go on Bigger Pockets, go on the different groups, and find out who’s active in the space. Then it’s just like “Okay, well, show me your numbers. Show me your data.” If they don’t’ have experience, “Okay, well who are you learning from? Who are your mentors? What has been their success, and how involved are they gonna be?” So if you’re on the other side, like some of my students – they’re just getting started – they get so nervous, like “Yeah, but I don’t have a track record.” That’s fine, leverage my track record; say I’ll analyze the deals. You’re following a proven system from somebody who’s been in the business for two years and has trained a bunch of students doing this, and walk them through. Figure out what their fears are, and then walk them through how you’re gonna address those fears.

Joe Fairless: And one last follow-up question on that line of thinking… If a Best Ever listener has property, and they’re thinking “Well, I’d like this, too. I’d like my property in better condition than full-time residents, and I’d like to make more money than I could, and I’d like somebody to handle $250 or less in expenses, because then I would make more money (whether or not they offer that is another story).” How can a landlord quickly determine, “Hey, does my property qualify to be a short-term rental or not?”

Michael Sjogren: You can go back and listen to the interview that Joe and I did a little while ago, where I broke down the nine different traveler profiles. I’ll recap them real quick, and we’re not gonna go into detail. If you’re anywhere near a vacation town, that’s great. If you’re anywhere near an employment base… It doesn’t have to be huge; but are there decent-sized offices anywhere near you for corporate travelers that are coming in? Are you near any medical offices or specialty treatment centers, or major hospitals? Are you anywhere near a university, or a cosmetology school, or any type of trade school? Are you anywhere near an entertainment area, like a music hall or a convention center, or a professional sports stadium? Are you near a military base? There’s a few other ones, but those are applicable in any market; emergency situations, life events like birthdays, Christmas, wakes, funerals, all that stuff. And then relocation. People are always relocating, people are always moving. So if you’re anywhere near those… Basically, if you live anywhere near other people, it probably will work in your market.

Joe Fairless: Now let’s talk about someone who is facilitating this, so you in this case, or someone who’s in the industry… How much can you actually make on the spread when you are renting from a landlording and covering all this stuff, and then you’re getting short-term people coming in?

Michael Sjogren: As one example – we’ll take one property that I have, it’s a 2-bed 1-bath, about 40 minutes outside of Boston. It’s in a small city. That property previously was renting for $2,000/month. Now, during slow season in March, that property generated $4,400 in revenue. In July it’s gonna bring in close to $8,000 in revenue. In October probably closer to $9,000. So for somebody to go in and pay you $2,000 in rent, they’d be happy to do that.

Or on the flipside, like I did with this landlord, I said “I’ll give you the 2k, but quite frankly, you’re way better off staying in the deal. I’ll build it out, you invest the $10,000 to furnish it, but you’re gonna make way more money if I just manage it for you for 25% of the revenue. You’re still gonna make way more money than if I just rented it from you long-term.”

Joe Fairless: What did they decide?

Michael Sjogren: They decided to partner with me. This person’s been clearing at least 25% more than they would have made as a long-term rental.

Joe Fairless: Let’s talk about the third option. So there’s three ways to make money on short-term rentals. One, you buy the property and you do it yourself. Two, you lease the property from a landlord and you make the spread on what you lease it, and all the expenses, and what you actually rent it for. Three is you partner with a landlord and you get a management fee. Will you describe that model in detail?

Michael Sjogren: Sure. Real quick though, just to recap, when you look at the three different models, it kind of goes from based on how much capital you have. If you have capital to purchase property, great. Do the first model. If you’re got a little bit of capital, say 15k-20k – okay, great, you can do the leasing model. But if you have no capital and you’re just getting started, the co-hosting or the management model is the way to go. I’m not blowing smoke, you’re literally doing this with none of your own money. This is how I built my portfolio; other than the property I own, I have no money in these other deals.

Joe Fairless: Thank you for putting that in context.

Michael Sjogren: No problem. So the third model is similar to a property management company for a long-term rental, except now you’re doing it on a nightly basis. You’re basically running a distributed hotel. In this instance, in that example, he was getting $2,000/month for this two-bedroom property, unfurnished, as is. So I said “Okay, if you invest 10k, I’ll have my wife design it, because I don’t have an eye for that; she’s an interior designer, so she’ll design it. I’ll build it out, and then I will run the operations for you and take 25% of the revenue after cleanings.” Because I didn’t feel it was right to take my cut on top of the cleanings; that just didn’t feel right to me. So if this property brought in 4k/month in revenue, and say the cleanings were $500 for the month, then I’d take 25% of $3,500, and then he’ll clear the rest of it.

Joe Fairless: Okay.

Michael Sjogren: So for him, if he can get anywhere from $2,4000 and up per month, he’ll get his initial investment back within 15-18 months, and then he’s just increased his profitability by 25% forever.

Joe Fairless: When you’re starting out and you propose that fee structure, is there any negotiation that takes place with the landlord?

Michael Sjogren: I’ve had some landlords push back and say “I don’t know…”, and I said “Okay, fine. Here’s the deal. I have one landlord that actually will do the cleanings. He’s a retired gentleman, great guy. And I tell him he’s nuts to do this, but… He’ll actually do the cleanings, just to make an extra $70 or whatever it is per clean… And he’ll manage the supplies. So I don’t have to deal with coordinating supplies, he takes care of all that, so I charge him 15%.”

I’ve got another gentleman who handles a similar amount of the work, and I’ll do 15%. But if I’m doing everything, soup to nuts, I’m charging 25%. And quite frankly, I show them the numbers – and I’ll give the listeners another nugget, to give them some ammunition… You can go to a site called AirDNA.co, and that is a site that pulls all the data behind Airbnb and HomeAway, and you can plug in any address and it’ll spit out 5-10 comparable properties and what they did for revenue and occupancy last year, and what the site thinks this property will do for occupancy and revenue.

So I would just print that piece of paper out and I’d go to the landlord and say “Listen, you’re bringing in $2,000/month right now. This thing is telling me that you should bring in like $50,000/year as a short-term rental. I’ll manage it for you. What do you think?” And then obviously, we go through and talk about all the other controls that I have in place, around security, and locks, and all that fun stuff that we talked about on the last interview.”

Joe Fairless: That’s great. Anything else as it relates to these three ways to make money on short-term rentals that we haven’t talked about, that you think we should in this conversation?

Michael Sjogren: Now, I’ll just reiterate – just put yourself in their shoes. If they’ve never considered this, what are their biggest fears? Typically, it’s that their place is gonna get trashed, so how are you gonna mitigate that risk and how are you gonna explain that to them? Because it almost sounds too good to be true. At the beginning you’re like “Wow, okay…” But if you can explain it and just show them… I have all these credibility packs that I bring to these meetings, and I just show them “Okay, here’s what this property could do, here’s how I’m gonna mitigate all these risks”, step by step, with screenshots, and past experience, and reviews, and everything else… And I just show them. If you’re interested in this, great; if you’re not, that’s totally fine, too. Never get attached to it or try to force somebody into a deal that they don’t wanna do. There’s plenty of fish out there, and I see so many people get caught up “Oh, I talked to ten people last week…” Okay, go talk to ten more. It’s a numbers game. Keep going, man… You’re not done yet.

Joe Fairless: Yeah.

Michael Sjogren: Go back and listen to Joe’s podcast; how many guests have you had on that — I was listening to one the other day that you had… He emailed brokers for like nine months, every two weeks… I’m like, “Yes! Grind, man. Go make it happen.” It will happen.

Joe Fairless: Yup. And on the ninth month he got his largest deal he’s ever done, and then he’s continued to scale from there, to like a 50 or 60-unit property.

Michael Sjogren: Another piece of advice that you gave me a long time ago, that I took and it worked, for this model, was “How can I become an authority figure?” I started a local meetup called “Airbnb Mastery.” Every month I was getting people in a room, educating them about this, and I got three leads just from hosting that meetup. And it didn’t happen right away. That happened like five months in. And I had two months where not a single person showed up. And I said “Okay, fine. I’m gonna do it again next month, and again, and again.” So start a meetup, start putting content on social media, start becoming an authority figure in the space, and showing people “Hey, when I think of Airbnb, I think of so-and-so.” I changed my name in Instagram and Facebook to “The Airbnb Guy.” So anytime somebody thinks of Airbnb, I want them to think of The Airbnb Guy. How can you position yourself as an expert in your field?

Joe Fairless: And the last question real quick – this might be a larger question, but it can be a quicker answer… How can we determine if our property is in an area where the city or the township or whatever regulatory body there is, it is okay for us to do short-term rentals? Because I know New York City – not so much.

Michael Sjogren: Yeah, absolutely. Great question. For me, I always like to go to the source; so what I would do is I would google these exact words “short-term rental ordinance”, and then insert your city name. Try and go directly to their website. You can do a general search and just type in “Short term rental laws” and see what articles come up, but I always try and go to the source.

The reason that I am not in Boston, or in San Francisco, or New York City, or any of these major markets, is because these markets have a lack of “housing” or affordable housing. Lobbyists and everything else are going to say “Hey, you should put restrictions on short-term rentals, because they’re taking our inventory off the street.” So I would look for markets where they’re not seeing that message. And if you are, then just go 30 minutes outside of the city. If you’re in Manhattan – okay, go 30 minutes North, or go 30 minutes South, somewhere in New Jersey.

I told you, my property is three hours away in New Hampshire, and I manage that no problem. The last one we picked up was in Florida, and I can manage that remotely. So don’t be afraid to go a little bit outside your comfort zone.

Joe Fairless: Thanks for being on the show, talking about three ways to make money on short-term rentals. One, you buy the property, two, you lease the property, three, you partner with the landlord. And those are tiers based on how much cash you have access to. The value proposition to owners, landlords, of first identifying what problem we’re trying to solve for them, and then we are filling a vacancy, taking better care of the property, and we’ll be a painless person to work with, and actually might make their life even easier and even more profitable on the expense side if we’re handling things up to $250.

Thanks for being on the show. How can the Best Ever listeners learn more about what you’re doing?

Michael Sjogren: They can follow me on the social platforms @TheAirbnbGuy. You can send me a note at info@occupiednow.com, and for the free training that Joe and I were talking about, it’s a 60-minute class that I break down my entire business model, and help you kick off your own business within 6 weeks. Go to STRSecrets.com.

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

Michael Sjogren: Thanks, Joe.

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JF1810: How Can You Build A Short Term Rental Business With Other People’s Properties? With Michael Sjogren

Michael has been building his company for the past few years and has seen success in a niche that almost anyone can do. He prefers doing short term rentals, and he doesn’t even own the properties (usually). Hear how he builds his business with property owner partners. If you enjoyed today’s episode remember to subscribe in iTunes and leave us a review!

 

Best Ever Tweet:

“You can do it yourself, but what is your time worth?” – Michael Sjogren

 

Michael Sjogren Real Estate Background:

  • Michael and his wife Krysten are the founders of Occupied, LLC, a short-term rental investment and management company
  • They have a portfolio of six properties across three markets and are actively expanding across the northeast
  • Recently launched an education platform called Short Term Rental Secrets to help real estate investors launch their own STR business
  • Based in Boston, MA
  • Say hi to him at  https://www.occupiednow.com/
  • Best Ever Book: The Millionaire Fastlane

 


Evicting a tenant can be painful, costing as much as $10,000 in court costs and legal fees, and take as long as four weeks to complete.

TransUnion SmartMove’s online tenant screening solution can help you quickly understand if you’re getting a reliable tenant, which can help you avoid potential problems such as non-payment and evictions.  For a limited time, listeners of this podcast are invited to try SmartMove tenant screening for 25% off.

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


 

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JF1776: The Entrepreneurial Mindset #SkillSetSunday with Prady Tewarie

Prady is back on the show today to help us with some entrepreneurial tips. His advice today is focused all around the mindset that is important for any entrepreneur to have in order to succeed as entrepreneurs, which of course includes real estate investors. If you enjoyed today’s episode remember to subscribe in iTunes and leave us a review!

 

Best Ever Tweet:

“Must approach things in a non confrontational way” – Prady Tewarie

 

Prady Tewarie Real Estate Background:

  • Started as a buy and hold investor in college and became a real estate developer focusing on condo conversions
  • Has over $100M in real estate assets
  • Based in Boston, MA
  • Say hi to him at www.thetewariegroup.com
  • Best Ever Book: Built To Sell

 


Evicting a tenant can be painful, costing as much as $10,000 in court costs and legal fees, and take as long as four weeks to complete.

TransUnion SmartMove’s online tenant screening solution can help you quickly understand if you’re getting a reliable tenant, which can help you avoid potential problems such as non-payment and evictions.  For a limited time, listeners of this podcast are invited to try SmartMove tenant screening for 25% off.

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


TRANSCRIPTION

Theo Hicks: Hello, Best Ever listeners. Welcome to the best real estate investing advice ever show. I’m Theo Hicks, and today we will be talking with Prady Tewarie. Prady, first of all, how are you doing today?

Prady Tewarie: Hey man, I’m doing fantastic. Thanks for having me on the show again. I had a lot of fun last time. I hope I was able to provide a lot of value, and so glad to be able to do it again.

Theo Hicks: Absolutely. So if you haven’t done so already, make sure you listen to Prady’s first episode. Search “Joe Fairless Prady Tewarie” and you will find that interview.

I actually was the one that interviewed Prady, and we’ve had a great conversation about his real estate investing. But today, since it is Skillset Sunday, so we’re going to talk about a specific skill that us as real estate investors can use to improve and expand our business… And the skillset that we’re going to talk about today is going to be around mindset. So the topic is going to be the ideal mindset that you’re going to need to have in order to thrive as an entrepreneur in general in today’s competitive market.

Before we get started, a little bit about Prady – he started as a buy-and-hold investor in college, and eventually transitioned into becoming a  real estate developer who focuses on condo conversions. He has over 100 million dollars in real estate assets currently, and is based in Boston, Massachusetts. You can say hi to him at thetewariegroup.com, and that link will be in the show notes of this episode.

Tewarie, before we dive into the topic of today, can you give us a little more about your background and what you’re focused on now?

Prady Tewarie: Absolutely. I think you did a fantastic job with the bio. My interest — and when people ask me “Prady, what do you do?” I do something things. I’ve owned an investment group where I invested in startups, I have a real estate development firm… What I do, in one sentence – I find under-appreciating assets and I turn them into appreciating assets, whether it’s real estate, condo conversions, or scaling a small business. The last time we talked a little bit – [unintelligible [00:04:19].03] or has potential, but hasn’t really found their momentum, and I like to go in there and see “Hey, what can we do to make this profitable?” And that’s my biggest passion and what I love to do. I feel that when I do that, it just makes it come alive, and I really enjoy that, so… Turning under-appreciating assets into performing assets is what I’d say in one sentence.

Theo Hicks: Alright, thanks for sharing that background. As I mentioned, we’re gonna talk about mindset today, and I think a good place to start — because I remember during our first conversation, when I asked you how you find your deals, you actually mentioned that you do door-knocking… And I know – at least for me personally, and maybe other people share this as well, but I think a lot of people (myself included) may be a little fearful of doing that. And obviously, since you do do that, that’s kind of proof of your powerful mindset… So maybe we can begin by — kind of walk us through what allows you to have that very outgoing personality, that’s willing to go out there and actually knock on people’s doors, and face all that rejection… And more specifically, what advice would you give to someone who (maybe like me) is completely turned off by the idea and doesn’t wanna do it, for those anxiety and fear reasons?

Prady Tewarie: Yeah, 100%. It’s a fantastic question, so thanks for asking that. I think the biggest thing about in-person communication or door-knocking, and the mindset that I always go into it – it’s not confrontational. I think if we frame it “Hey, I’m on one side. I’m the businessperson trying to buy a house, and the other person is on the other side”, we’re working against each other, and I think that mindset causes anxiety, because you think it’s confrontational. I’ve experienced that, too. You live in a place and someone’s trying to buy something from you, and I feel like I’m trying to sell it for a price that I want, and they want another price, and we’re going back and forth in just this negotiation and this power thing… And I can see for some people that has merit, but I never approach it that way.

For me it’s “Hey, we’re on the same team”, and I think that approach has allowed me to feel less anxious about approaching people for deals, because I go in there and it’s like “Hey, I wanted to see if you know anyone in the area, or if you’d be interested in selling, I’d be more than happy to help you out with that process.”

The way I approach it is they have a problem that I can solve. So I’m not selling them anything. I think a lot of salespeople – they’re generally a little bit anxious because they’re like “Man, I’m trying to sell something, and because I’m selling something, we’re on the opposite side. They need to buy what I have, and I need to trick them into buying it.” But if you don’t go in that mindset, if I’m like “Man, I can genuinely help you. You have something, and I can help you in that process, so we’re on the same team.” I’ve always approached it like that, even when I’m buying other companies, small business; I’ll go in and say “Hey, what are your bottom line problems? Okay, I can help you with those things.”

In real estate it’s actually very common – when you talk to a lot of owners who are not listing their property on the MLS, some people are hoarders (that’s very common) so they need someone to help them out… A lot of them don’t wanna go through the whole legal due diligence process, so what I do is I help them find  a lawyer, or I’ll take over all the legal fees. They don’t like working with brokers, so I’ll play for all the broker fees. Stuff like that.

When you put it that way, it’s like “Hey man, I’m here to help you.” That way, I don’t feel any anxiety, because it’s not like I want something from them that’s actually gonna hurt them. It’s none of this Wolf of Wall Street mentality, “Hey, I’m trying to get someone to buy shares that are useless, and then I win.” When you do that – for me, I’ll feel a little anxious, knocking on someone’s door, trying to get them to give me a product or sell them  a product where I know I’m getting a windfall and they’re not.

So I always approach owners in a way where I know they’re gonna benefit tremendously from this, and I’m also gonna benefit, so since we’re on an even playing field and we’re on the same team – that’s my number one thing I always tell about any type of relationship, I’m like “We’re on the same team.” That way I take the anxiety out tremendously, and I think that mindset alone is really powerful.

Theo Hicks: Thank you for sharing that. I haven’t heard it from that particular perspective. Most of the time people say “You’ve gotta just expose yourself to it, and eventually you’ll get over it.” But I like your advice there. Essentially, keep the same mindset and just expose yourself to it until you get over it, but think about the actual situation differently. As you said, it’s not a battle, it’s not a competition; you’re actually trying to help them. I appreciate you sharing that.

Prady Tewarie: Yeah, that’s huge. If you think about it from an analogy standpoint, if I approach you on the street like “Hey man, I want five bucks. I want it right now”, and then I try to swindle you… It’s a competitive approach. If you’re trying to sell cars, or something, it’s very combative. I was always very big on negotiation strategy, and I think a lot of the negotiation strategy we have, especially in the U.S, from the ’80s and ’90s, is very combative. We have tricks and things you should say, and themes… And maybe they’ve worked, and I’m sure they have, because there might be some anecdotal evidence for it, but I was like “What if you don’t do that?” What if I approach you and I’m like “What do you need help with?” You’re looking for some kind of help, and then I help you. Then you’re like “Oh yeah, here you go, man. Here’s something in return.” That way I’m not asking for a favor, I’m not tricking you, I’m not misleading you, and I don’t feel awkward asking you to give me something in return, because it’s just there.

So I think approaching it from kind of like friends, but really deep down knowing that — I do condo conversion development now in East Boston, what I talked about last time, and it’s kind of a hot topic, and a lot of developers are not able to fix your permits; my team is able to do that fairly well, fairly easy, fairly quickly, just because the people there like me… And the reason they like me – I don’t have any tactics or skills; it’s because I’m invested in their future. So I will make sure that they have a  place to go, they’re happy, their family is there, it’s secure… I make sure that the P&S is as long as they need in order to get to a new home, and sometimes they’re like “Hey, I’ve been able to secure a mortgage for my new home. Can I use some of the P&S money to put that forward?” I was like “Yeah, why not. We can figure something out so it’s beneficial”, and then of course the neighborhood isn’t gonna look at me from a poor standpoint, because I’m on their team. I’m helping them with what they need, and they help me back.

So I don’t really feel anxious at all anymore because I approach it from that standpoint. It’s not because I’m an ultra-confident guy, and all that stuff. I mean, of course, that’s part of it, but that’s not the advice I would give. I would say change your mindset around it, and think that you’re helping someone when you’re doing sales. When I sell a product from a supplement company, it’s because I believe it; I know that I’m gonna help someone with the product I’m gonna give, so it’s easier for me to get them to buy the product, because I think I’m helping them, and I know I’m helping them… As opposed to “Hey, buy my product. Here’s a flash sale. Here’s this, here’s that”, just to convince them to buy.

That creates word of mouth and a buzz for you as well, especially in real estate, where the market is fairly small, and people kind of know you in the neighborhood, and there’s lawyers and attorneys who will know you, and all that stuff. It doesn’t take long for that to really catch up.

Theo Hicks: Okay, so we talked about one particular mindset, just based on a personal question of mine, but I’m sure other people relate to that as well… Essentially, that was “It’s not confrontational, it’s you helping other people”, and that’s the mindset you need to approach when you’re going into negotiations or when you’re looking for deals.

What’s another top mindset/trait/characteristic that we need in today’s market to be successful?

Prady Tewarie: I think a lot of it — and this was really down to real estate… You’re gonna have to knock a lot of doors, and you’re gonna have to sometimes face rejection. This kind of goes back to the first thing I said, but it’s okay sometimes to be a little bit outcome-independent. We don’t have to tie ourselves — if something doesn’t happen, I know in the back of my mind that I’m gonna be okay. If the deal doesn’t happen, or if the negotiation falls through, I’m gonna be okay and I’m gonna find something else that’s gonna be equally good, or better. Down the line, I will.

I think that mindset changes the way I approach negotiations, because if the deal is not good, I’m okay to walk away from it. I’ve seen a lot of younger developers [unintelligible [00:11:47].02] and they get very tied to the project… And it’s hard not to. Here for instance you go through the permit process, that takes a year, you’ve gotta get this permit, and that permit, you’ve gotta talk to this politician… It’s a very long process, so it’s very easy to get married to it; I don’t blame anyone for it. But sometimes the deal isn’t good, and it’s okay to walk from it. And the reason why we’re afraid to walk from it is because we think “Hey, a door has closed. And because a door has closed, I’m not gonna be able to open any doors anywhere. I’m stuck in this hallway. All these doors are closed, I won’t find anything again anymore”, and that makes people really desperate and needy, and desperation and need is probably the worst emotion you can have in your life, because that makes you take incorrect decisions.

I think being outcome-independent is another thing… And that’s gonna help with the first question you asked, too; I don’t mind knocking on doors and sometimes people saying no, because it’s okay. At some level it’s a numbers game, and I know I’m gonna be fine whatever happens; even if I heard a no, what I am right now hasn’t changed, because I didn’t have property before, I didn’t have the deal before, and if they say no, I still don’t have the deal. So I’m actually never worse off.

If I was worse off after hearing no, then I’d be like “Okay, that’s risky.” But it’s not risky at all, because I’m not losing anything. So asking and going for things in life — most of the time, asking a question like “Hey, would you sell your house?” is a zero risk, and almost all reward type of play, so I really commend people to do that. By being outcome-independent, you can really foster that growth, and you can really believe and you know that it’s gonna be okay and you don’t have to be tied to a deal.

We hear this a lot, especially a lot of flipper — and I say young developers because they kind of get lured, and they see all the money that a lot of developers are making, and they get very tied in the project, and they forget that sometimes it’s not a good deal anymore, so it’s okay to walk… And that’s another mindset process that comes from being outcome-independent.

Theo Hicks: Yeah, that term “outcome-independent” reminds me of a concept that me and Joe have talked about a lot on the podcast, which is 50/50 goals. Essentially – because I know Best Ever listeners have heard it before – you set a goal, and 50% of the success is based on “Did you achieve that specific goal you set out to do?” and then 50% is based on “Did you identify some lesson by going through that process that you’ll be able to use to better yourself in the future?”

Similar to what you are saying, when you’re going into a negotiation, obviously you want them to say yes, but if they say no, one thing you mentioned is it’s really low-risk and very high-reward. But also, if they say no, you can go back like “Alright, is there something I could have done differently to make them say yes?” If the answer is no, then it is what it is. If the answer is yes, then you identify what that reason is and move forward and get that next deal, so in a sense, that no was actually successful, because it helps you get that next deal.

Prady Tewarie: A hundred percent, man. That’s math. When it comes to time as well – I think we all have a finite amount of time, and I think failing is good; we’ve heard that a lot, “It’s good to fail, you learn from it.” But failing is good as long as you learn from it, and I always say “If you’re gonna fail, try to fail as quickly as you can.” A lot of times in our life we know that something is not gonna be good for us, but we try to extend it. What I would always do is do everything possible right in the beginning to actually force failure, to see if I fail… Because that way I get it out of my way and I can learn quickly.

So that’s another thing about learning from failure – if it took you a year to learn from a mistake, if you could have learned that in one month, then that’s wrong; you should have learned it in one month. I’ll give a quick story on that point – a lot of times for instance I’m running a company, and we start selling products, and one of the biggest things that can happen when you sell a product is that your suppliers cannot handle the demand. People know this, and this happens a lot on Kickstarter; people start a Kickstarter project, they raise a lot of money all of a sudden, and then they can’t meet demand and the whole thing  collapses. So if you know that going in, what do I do? The first thing I do is when I make my first order, I go to my supplier and I say “Hey, instead of doing 100 of these units, give me 20,000. How quickly can you do it?” And I say that’s what I want, although I’m not gonna pay for all that, because I wanna see their reaction. And a lot of times the supplier is gonna say “Well, we can’t do that. We don’t have the capacity.”

So I could have just known that by talking and asking them right from the bat, than waiting for seven months by the time we have to make a 20k unit order, and then we ask the supplier and they’re like “Sorry, we can’t do it.” I could have known that before. This goes with real estate, working with the right contractors… A lot of times we’ll ask them about their schedule and I’ll say “Hey, I have a property. Can you do this right now?” I create situations that will actually most likely be the ones where you can fail. Instead of waiting… “Well, this can go wrong if we scale. That can go wrong…” – well, do it now. You can just simulate the situation and force failure and get the answers as soon as possible. That’s one big thing that I do all the time if I know that there’s room where things can go wrong, which there always are. I try to simulate that situation and I try to see how the people or the things which could lead to failure – how they react right now, instead of waiting for 6, 7 months when the stakes are really high.

Theo Hicks: I appreciate you sharing that example. That was gonna be my next question. So you gave two examples – one was the supplier situation, where right now you need 500 orders to get started, but your projections are saying you’ll need 20,000 in the future; then you’re gonna go upfront and ask for those 20,000 and see how they handle it.

You also gave the example of the contractor, and let’s say right now you need a project done in a month, but down the line at some point something might go wrong, or you might have a project that needs to move quicker, and so you ask them “Hey, I need a project done in a week”, or whatever. When you actually do fail in either one of those situations – or a different example – what’s the next step? Do you just go to another supplier/contractor and ask them the same thing, until someone says yes? What if no one can actually fulfill that? What’s the approach from there?

Prady Tewarie: The first thing is I find someone that can fulfill it. And if no one can fulfill it, then I have a big problem. That means that the company can never succeed. If there’s no one in the world or in a market that I could ask that could ever fulfill it, that means that I just don’t do it. Especially in real estate, a lot of deals sound really good on paper… But they’re only good if you can get certain points or interest rates with the bank; but then you ask all the banks and no one can give you that interest rate, and then it’s not profitable anymore. So you just don’t do the deal.

I think that’s the big thing. All the issues that you will face – and we can all list them out, because if you listen to your podcast, for instance, there are so many examples of things that have gone wrong, that people actually tell you. So you don’t need to be very experienced to know all the things that can go wrong. You can listen to your podcast, and there’s so many examples that people have provided… Real-life examples, like me giving this example. So you can test it out.

I gave the example of a contractor – huge issue. A lot of contractors are not responsive. They don’t show up at the project site. Well, you don’t have to wait until you start a project, when you’re securing your project, and then all of  a sudden you’re taking bank financing where you have to pay every month and the contractor doesn’t show up… Then you’re kind of screwed.

So the best way to do it is  — it’s very easy to check someone’s availability; you just call the contractor every day, have them do different tasks, have them do different things, tell them to go to different sites, tell them to help you out with inspections before you close, and then you can see how responsive he/she is. And of course, that’s not always gonna be a fool-proof method, but more likely than not — I think most of the failures that I had in the beginning, one thing that I did wrong was I waited a long time until I failed, and it was usually in the middle or right when the project was supposed to really start off and really go into higher gear; it’s that shift that you make from being good to great, where most people fail. And that’s because of this – they didn’t vet properly. Proper vetting is very important.

Now the change that happened is I still fail a lot, and people are like “Prady, you didn’t do this project, you didn’t project; you said you were gonna do this”, because all my failures are at the beginning. They’re not in the middle anymore. That allows me to have a huge portfolio right now, that I’m able to speak to you on this podcast. If this kept happening with all my failures, like most people, in that little growth phase, right from good to great – then they can’t handle it. But for me, I don’t even start, and when I start, it’s definitely gonna be great, because I’ve already crossed most of the hurdles that are gonna stop me from going from good to great, if that makes sense.

Theo Hicks: That totally makes sense, and I really like that – the interest rate anecdote that you gave. If you’re looking for  a deal and you need  a certain interest rate, and you’re not gonna get it, then you just don’t do that particular deal, or you need to figure out another way to do that particular deal. That really resonated with me.

As it relates to the mindset that we need in order to thrive as a real estate investor, as a general entrepreneur in today’s competitive and fast-evolving market, that we haven’t talked about already?

Prady Tewarie: Yeah, one thing that’s huge that I’ve implemented in my life – and I’ve seen some other CEOs talk about it – very valuable, is that you don’t have to be fantastic at everything. We talked about this a little bit the last time. I actually have come up with a rule, which is the 75% or 70% rule, which basically means if someone can do a task that I’m doing in my day-to-day 65%, 70%, it’s okay, I’ll outsource it. You as a CEO or as a developer, you wanna be able to free up your time to do big-level strategy things.

We think “Oh, I need to do all the small things, all the time.” You’re so deep working in your business, when you should work on your business. And that’s a  big mistake I see a lot of people make, especially developers. They kind of stay in the same game. They do their buy and holds, they do a fix and fix and flip, and they stay in fix and flips all their life… Which is fantastic, it’s awesome, if you can build a career. But I know a big question a lot of people have is “Man, how can I scale? How can I get to the next level?” When I was younger, I was doing really small rentals, really cheap and cost-efficient. Now I’m doing real estate development in Boston, and it’s because I recognized that I had to free my time at every point. Everything that I can outsource right now, I do. And there’s really cost-effective ways to really do that; through virtual systems…  There are so many ways to do that, you just have to be open to that.

Also, if you’re not good at something, it’s not the end of the world. That’s really where you should leverage other people. People say “Who should I hire?”, and usually people hire people just like them, because they like those people, because they’re the same. But then you guys are both doing the same thing.

If for instance you know that you’d get more leads by knocking on more doors, and you’re super uncomfortable with it, like it’s not your thing – that’s not the end of the world. You can train a team, find a group of guys, find a group of college students or someone that’s excited that wants to maybe learn from you, because you have all this wealth of knowledge… I do this right now, because I can’t knock on so many doors anymore, so I built a list from the tertiary that I wanna target, and I have a couple of guys that come to me, they found me on some website, and I’m mentoring  them. One of the things they do is they knock on doors, because I can’t knock on 500 doors every week, so they do it for me.

So it’s okay to not know everything. Don’t let it stop you. If you’re the CEO and an entrepreneur, always work on your business, not in your business… Because that is the number one way you’re never gonna be able to really scale, if you’re doing the minute things. You should always be doing the bigger things.

My concept is if I’m not good at something, I fire myself all the time. A lot of CEOs fire their employees, they fire everyone, but they don’t fire themselves. So I always fire myself; I’m like “Hey, I’m not so good at this”, I fire myself, and I free up my time to do other things.

Theo Hicks: Just to add to that – and you kind of already hit on it – obviously, if you aren’t good at something, then outsource it… But then you also mentioned, if you don’t like to do something, you could probably also outsource that too, instead of just not doing it at all.

Prady Tewarie: Right, 100%. Yeah. You asked earlier about the global economy of the internet, and I think we should take advantage of that. Back in the day it was maybe harder to find people [unintelligible [00:22:35].11] but nowadays even for my real estate — we think real estate is a more analog business, so we can’t use people online, or freelancers, or virtual assistants… You can definitely use them. Use the global economy, use the internet to help you scale, and use the internet to help you do things that you’re not good at.

Especially now, I’ve built a whole team that is just being outsourced, where they qualify leads, and they’re all based overseas; virtual assistants that help me vet deals and go through more… Because I realized my deal flow was too big for me to look at every single thing, so I had other people look at them, and it’s very cost-effective… And they’re happy, because they’re getting a job; and you’re happy, because — are they as good at managing and looking at deals as I am? No, but I can train them.

I think it goes back to your earlier question, where it’s like — use the digital economy to your advantage when you’re trying to do this. It’s relatively inexpensive, and it will actually make you more money down the line. The people who think “Hey, I wanna reduce costs” – you’re actually increasing costs by hiring yourself, because you’re not the cheapest source of labor.

Theo Hicks: Well, Prady, I’m really glad that I got to speak with you again. Again, powerful advice, specifically to the mindset that we need to have as investors to thrive in today’s global, digitalized economy. I just wanted to quickly go over the four mindset factors that we discussed.

First as it relates to essentially getting over that fear of rejection and anxiety, whether it’s negotiating or door knocking or whatever… And the mindset shift is to not think of it as a confrontation or a battle or a  confrontation where one person wins and one person loses, and instead go in with the mindset of genuinely wanting to help people, and thinking that you’re both from the same team, and trying to add as much value to each other as possible. That was number one.

Number two – if something bad happens, which is obviously eventually gonna happen to everyone, the mindset is to not just sulk and give up, but to realize that you’re gonna be okay, and you are going to eventually find something else, as well as you’re going to learn from whatever that bad thing that happened… And the term that you used was “being outcome-independent.” I also mentioned the 50/50 goals as well.

Something that I really like too when it comes to the example of door knocking and searching for deals – you’re really not putting anything at risk. If someone says no, you’re not really losing anything, whereas on the other hand there’s really nothing but upside and reward. So that’s number two.

Number three, which is probably my favorite one, which is not only learn from your failures, but try to fail as quickly as possible. You gave a few examples on that, as well as your philosophy behind that, which is essentially if you are going to fail at something and it takes you a year to do it, that’s a waste of time and a waste of money, whereas if you could have failed at that within a week or a month, then technically you can try 12 extra things before a year ends, as opposed to just trying that one thing and failing and having to start over again. So that was number three.

Number four was that you don’t need to be fantastic at everything, and you don’t have to like everything in your business. And you talked about your 70% rule, which is if someone can do a task 70% as well as you, then you’re gonna go ahead and outsource that task.

You also mentioned the reason why you’re outsourcing that task is so that you can focus on the big-level strategy. You are the CEO, so you’re gonna be working on your business, instead of in your business. That’s really the only way to expand and scale.

Then I’ve really liked what you said, that people get fired from their jobs all the time, or they are firing people from their jobs, but people never really fire themselves. Obviously, I’m not saying fire yourself from the entire business, but fire yourself from one particular role within that business, and bring on someone else to do that for you.

Again, Prady, I really appreciate you coming on today, great advice. Thank you to everyone who listened. Have a best ever day, and I will talk to you soon.

Prady Tewarie: Thank you so much, man. It was a pleasure.

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