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

 

 

 

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Best Ever Tweet:

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

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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

 

 

 

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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

 

 

 

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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.

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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.

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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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/

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.


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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/

 


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TRANSCRIPTION

Joe Fairless: Best Ever listeners, how are you doing? Welcome to the best real estate investing advice ever show. I’m Joe Fairless, and this is the world’s longest-running daily real estate investing podcast, 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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JF1754: Getting Started In College, Building A Great Team, Running A Successful REI Company with Prady Tewarie

Theo is interviewing Prady today on his real estate investing experience. Prady has a little bit of a unique story in that he got his start in college and began his real estate investing journey in a time where a lot of people are strictly focused on getting through school. Now he has a thriving condo development business in the Boston area. If you enjoyed today’s episode remember to subscribe in iTunes and leave us a review!

 

Best Ever Tweet:

“I don’t even do calls, I just knock on doors” – 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 or Instagram @iampradyuman
  • Best Ever Book: Built To Sell

 


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TRANSCRIPTION

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

Prady Tewarie: Hey man, I’m doing fantastic. Thanks for having me on.

Theo Hicks: Absolutely, thanks for coming on. I’m looking forward to our conversation and learning more about your real estate business. A little bit about Prady – he started as a buy and hold investor in college, and then transitioned into becoming a real estate developer, focusing on condo conversions. Currently, he has over 100 million dollars in real estate assets. He is based out of Boston, Massachusetts, and you can say hi to him at www.thetewariegroup.com. We’ll have that link in the show notes.

Prady, before we get started, can you tell us a  little bit more about your background and what you’re focused on now?

Prady Tewarie: Absolutely, man. I think you did a  good job with the intro. My background actually started in entrepreneurship, mostly focused on acquiring and selling under-performing small businesses, so basically anything from barber shops, to small restaurants, to cafes. I got into that while I was in college, helping out old friends of mine; I just kind of got sucked into that. From that, I started getting into real estate and buy and holds, and mostly focusing on multifamily properties around the Boston area. As many people know, it’s a huge college town, so focusing quite a bit on the college areas, multifamily properties… And I kind of phased from that into becoming a real estate developer, developing apartment buildings right now. So it’s kind of this up and down trajectory and scale that I’ve definitely seen, but I’m gonna talk about this a little bit today… But they’re all pretty much inter-connected, and using pretty much not real formal education in the space, or a lot of experience in figuring ways how to leverage my background in small business into this space.

Theo Hicks: Great. I’m looking forward to diving into that. But before we get into that, a lot of people when they first hear about real estate, they wanna jump right in, right away; and for some of them – they’re in college, and I’ sure a lot of people listening, at least me in particular, when I was in college, I had no right investing in real estate based off of how I was in college. I’m just curious, how were you able to balance going to school full-time, and you mentioned it sounds like you were also doing some other investing businesses… How were you able to balance all that while you were in school?

Prady Tewarie: Yeah, that’s a fantastic question. I think the hardest part with the balance was I didn’t know where I’m gonna find capital to do all this stuff, but also the time to manage all this. I went to college, I went to law school, and I was building all this stuff in real estate, and the biggest thing for me was to build a killer team that I could rely on. I think that if you have a killer team that you can rely on, that can propel you to do things that you can’t do by yourself.

I was at a point where I was like a workhorse. I’m gonna put hundreds of hours a week, and I’m gonna go all-in… And I recognized that at the end of the day there’s only one of me, and there’s only 24 hours. I can’t stretch out the day more. So at that point I changed my mindset a little bit and I started leveraging other people that really knew what they were doing, and really working together with them and creating an incentive structure (which I’ll get to in a bit). That was a big game-changer for me, that allowed me to go to school, keep my academics going, but also really focus a lot on real estate, where I was like “Look, these are my skillsets, this is what I have, but I also don’t know everything.”

I think the hard part for a lot of young people – they’re like “Man, I feel super-underskilled, I feel like I’m kind of an outsider, I feel like I don’t know what I’m doing”, but I think where they go wrong is they let that consume them. I think if you take another approach, which is “You know what, I’m gonna own up to it. I don’t know everything, and that’s fine”, instead of waiting until you get all the experience. Like any college student, I was a little impatient, so I had this philosophy, I was like “Look, there’s not enough time for me to get all the experience. It will take me forever.” So I was able to tap into a network of people – whether it’s brokers, whether it’s contractors, whether it’s architects now – that were just able to help me out. That alone propelled me to grow at a really rapid level. But you have to be humble about it and you have to admit you won’t know everything, and that’s okay, and then you have to be okay with asking for  help. I think many of us are sometimes super-hesitant to do that, for a variety of reasons.

That – just asking people for help, and building a team around me and what I wanted to do, that alone was a big game-changer. That allowed me to really go from just managing one income-producing property that was taking all my time, to really scaling it, because I recognized that I needed the help.

Theo Hicks: Did you face any challenges when you were reaching out to these people that you wanted to bring on your team, since you were a young guy, still in college, didn’t really have much experience? And if so, how did you overcome that challenge?

Prady Tewarie: Yeah, it’s super-difficult, but it’s also not super-difficult. Here’s the thing about networking… I recognized early on a lot of people don’t even try. We think things are super-difficult; why is that broker gonna respond, why is that contractor gonna respond? And the truth is they might not. But you should still try. I noticed if I was sending out messages or DMs or e-mails to people, a lot of them would actually respond. As crazy as it may sound, a lot of them would give me time in their day to actually meet with them and to speak with them. And the biggest thing that you have to do is you have to convey interest in your passion, but you also need to make sure that there’s an incentive structure tied for them in the process.

This is another thing I see quite a bit now – people think of networking like “I need something. Let me network right now.” But networking is a process, it’s an ongoing thing. It will rarely work “I need A, so I’m gonna look for people who have A and they’ll give it to me right away.” It’s like “I don’t need anything. I’m gonna network with people, and when I need it, maybe in 2, 3, 4 years from now, I can call to them because we have built that relationship.”

One of the things that I was doing when I was an entrepreneur in college – I built relationships with a couple of brokers, with people in the area that were in real estate, so when I started getting into that space, it was a little bit easier because I’d built those connections. But yes, it was difficult to get a foot in the door… But the biggest thing was just trying and going for it, and understanding “Look, if they don’t respond, it’s not the end of the world.” But you have to try. Most people don’t.

Theo Hicks: Tell us a little bit about this incentive structure. You’ve mentioned it a few times… What is this incentive structure that you offered to these team members?

Prady Tewarie: There’s a couple of ways, and I’ll take it right now, like what I do even now, in development. I was in the buy and hold; a lot of people are doing it using the cash-out refi strategy, and I really wanted to scale. At one time, my broker was like “Prady, you should start developing stuff.” And I was like, “Man, I don’t know what that is.” He was like “Don’t worry about it, you’ll figure it out.” And I knew going in that I didn’t know — it’s a whole different ball game. You’re not managing people, like day-to-day calls about “Plumbing isn’t working.” Real estate development means a plot of land, you go for permitting… It’s this whole process.

So what I did  was that I always asked for referrals from people that I know from each other. So I never bring anyone from my own team. What that basically means is my broker said “Okay, I think you can do real estate development.” I was like “Alright.” I had a couple architects that I knew, but I didn’t go to them. I went to my broker and I was like “Okay, do you know an architect that can help me?” He was like, “Yes, I do.” So he connected me to the architect, and I asked the architect, “Do you have a GC who can help me?” He connected me to the GC.

So what I’m doing is I set up a whole system that everyone’s tied to each other. So if my GC – which happens all the time in real estate development – they don’t show up, or they don’t do a good job, or if he runs away, well guess who’s gonna feel the heat? It’s my architect. And if my architect isn’t responding, guess who’s gonna feel the heat? It’s the broker. So because everyone’s tied to each other, the progress that I’m making on my projects – everyone else is winning along the way.

What I never do is I’ll never be like “I’m gonna bring my architect. I’m gonna bring my GC”, and they’re not tied to each other. Because in real estate you’re dealing with subs. Everyone’s subbed out. But all the subs are related or tied to each other in one or the other ways, where their jobs and their job security is tied to doing a good job. And I look at it from a futuristic standpoint, where it’s like “If this job doesn’t go well, there’s gonna be no more other jobs coming.” My broker knows that “Hey, if we don’t do a good job and we don’t make money in this project, Prady is not gonna work with me”, so he wants the architect to do well, and the architect wants the GC to do well. So setting up this incentive structure helped me tremendously, because that was the first thing I heard so many people speak about “Hey, I’m doing a fix and flip, I’m doing a development, and my property manager kind of screwed me over, my GC screwed me over”, and I wanted to avoid that all.

I’ve always built my businesses around “What can go wrong?”, and having plan B’s around it all the time. I knew that this could go wrong, so the way I set it up is “I don’t know much about this stuff, but other people do. But if they go, I’m screwed”, because there’s asymmetry; they have all the information I don’t. So I need to make sure they’re tied to the long-term plan for the project and for my long-term success. I did that by tying everyone together, and that’s always been my strategy. I’ve always used the same guys and I’ve always used the same brokers, so it’s been many deals now. That’s worked wonderfully for me.

Theo Hicks: That’s a very interesting and powerful strategy, that I’m definitely gonna take advantage of in my business. It’s a good idea. Transitioning a little bit, you said you started off real estate-wise doing the buy and holds, and then you transitioned into the developing, specifically condo conversions… Why did you decide to make that transition?

Prady Tewarie: Honestly, it was a new challenge. I came into this space knowing the buy and holds; I was an outsider in this space. This goes back to, again, a lot of people say “Well, I’m an outsider, I don’t know anything”, but I think being an outsider you have an advantage. You can see things other people don’t. I came in this space and a lot of people were like “How can we increase rents?” They would fix up the kitchens, they would fix up the floors… But I realized that my customer – they were college students; and the college students that I was talking to didn’t really care about which countertops they were using, or how everything was looking… And I was like “You know what they care about? They care about technology.” So I bought iPads, and I bought a lot of automation equipment. It wasn’t very expensive, and I put it in all the homes. I didn’t fix anything in the home, and the rents went up, because that’s what my customer cared about.

So building your product for what your customer wants and what you think the market thinks is important, is vitally important. So I did that, and it was a super-success. All the projects that I had around college campuses – the only thing I ever did was install technology, and the rents went up.

So I did that for a bit, and after that I was like “I need the next challenge”, because everything was automated and systemized, and that’s when my broker was like “Prady, I think we’re ready for the next challenge. Let’s start developing stuff.” It’s a whole different strategy, it’s super hands-on, it’s definitely not passive – you have to be at your project site pretty much all the time – but it was really for a different  challenge, because business is, I believe, about setting up systems and being able to automate a lot of things, and I felt that I was able to accomplish that to a large degree in my area where I wanted to be.

Then this whole condo conversion developing was a whole new challenge that I wanted to take on. It’s very different. There’s no cashflow; you make everything at the end, so you will go long periods of time where there’s just cash outflows. You have to be very good with numbers, very organized. I’m very glad though I didn’t do it right off the bat. I did buy and holds and I grew slowly with that, because it’s laid the foundations for me to do other bigger projects, which I’m doing right now, but… It’s all purely for the challenge.

Theo Hicks: Nice. How are you finding your condo conversion deals?

Prady Tewarie: Most of the time right now the way I find it – there’s a couple of neighborhoods here in Boston that are really up and coming, and most of the time where I go is I do the things that most people don’t  wanna do, which is I knock on people’s doors and I talk to the owners, and I just have a conversation and I let them know “Hey, I’d be interested in buying your property down the line. If you’d ever be interested, let me know.” I do that, and my team does that all the time, so it’s more than just finding stuff on the MLS, or sending out fliers, because they get so many. It’s all the human interaction, the human touch.

I don’t even do calls, I’ll just knock on the doors, and do that on several hundreds of doors. Now and then, every few months, once a  year, people wanna sell their properties. That’s always been  a winning strategy. But also looking at the properties from the inside for a condo conversion, which is turning a multifamily into a condominium – it needs to have certain characteristics for it to be able to be a condo conversion.

What I always do if there is an open house, or if I can inspect the property – I never go there by myself, because for me it’s pointless. I’m a developer, I know some stuff, but I always go there with my entire crew. When I used to go to open houses in the beginning I’d have my architect, my engineer, my GC, my broker and me. It was a five-person crew that would go in there to all the open houses. That way it was very efficient.

A lot of times you look at properties — for rentals it’s totally different, because you can kind of make out what you can get for rents. But for condo conversion  I need to know, if we tear down X amount of walls, what is it gonna cost? Is there enough space here? Is the ceiling height gonna be big enough? I can’t see all of that, and it goes back to what I was saying earlier – going in there with a team, that’s a much better approach.

I’ve seen this quite a few times, especially in Boston, because the market is super-hot… You go to an open house and you have 2-3 days to make a decision, or it’s gone. I see a lot of developers, a lot of guys, young people that are trying to get in there go there by themselves, and then they have to call their broker, or they have to call someone else and do all the due diligence. I don’t wanna waste time, so I go with a full crew every time that I see it. I never go there by myself, because I don’t know all the technical details.

All of it right now is knocking on doors, building personal relationships in the area, and then also making sure that my entire team vets it before I even go into any depth about financing, or anything like that.

Theo Hicks: You said that the condo conversion projects typically need to be multifamily properties. So are you knocking on the doors at the actual multifamily properties, or are you finding the owner and then going to their house and talking to them?

Prady Tewarie: Yeah, it’s a mix of both. A lot of times we have here in Boston — it’s an older town, so a lot of families that lived there for generations, so usually what you have is the whole family will live in each unit for a multifamily property. That’s very common here. But often times I reach out to the owner and I’m like “Hey, I was just passing across here… I just wanna have a conversation.” But especially for a lot of the areas that are gentrifying, I think where people go wrong is because they approach it super-aggressively. If you go there super-aggressively, people don’t like that. They feel like you’re kind of screwing them over, and then you get all the bad images.

For me, I’m just a young dude, I’m kind of laid back, and I just have a conversation with them. I’m not there to screw them over, kick them out, or any of this crazy stuff. I come from a big family, I totally understand the value of living in a place and growing up in that; I totally understand that, and it’s just a conversation, if they’re interested… And also making sure that I can help them. A lot of them maybe need help with a bunch of random stuff in their place that they need to get cleaned out; maybe they need legal help. A lot of them don’t wanna pay commission to their broker, so I’ll pay for it.

Being creative with it will go a very long way, because at the end of the day in business we can have all the numbers, but you’re dealing with people… So people have to like you. I think a lot of times that gets lost when we’re so numbers-driven. At the end of the day, it’s just another person that you’re talking to. That’s someone’s uncle, father, sister, brother, mother… It’s just another person, so if you’re willing to understand their problems and their situation, if you’re willing to generally help them out with it, I think it’s always a good thing to do. I’ve always found that to be very successful.

Theo Hicks: Do you mind walking us through a deal that you’ve recently completed? How you found it, what the business plan was, and then maybe some of the numbers.

Prady Tewarie: Yeah, I’ll give you a pretty straightforward one. This was a smaller deal that we recently did. This was a deal in East Boston. East Boston is an area right around the airport, that is just kind of abandoned. This whole town was part of the Boston zip code, Boston’s real estate market; East Boston was this immigrant neighborhood that people really weren’t focusing attention on. This past year is it really started to grow… And basically I had a broker who’s a buddy of mine, he said “Hey man, we should probably look at East Boston.” There was a developer who was developing one big building, had two sides; he was trying to sell me one side, completely finished, but we weren’t able to agree on a price, so I kind of let that deal go… And then one of the guys that owned the building right next to it – the family had owned it since early 1900’s.

It’s a fairly decently-sized building. I think it’s about 6,000 square feet. It was about 2-3 units only there, so it’s fairly big, and a small amount of units… And he was just walking outside and we were just having a conversation. He told me about the neighborhood, what’s all going on, and I was like “Hey man, if you’re ever thinking about moving, I’d love to talk to you.” Same thing like I just mentioned. He was like “Yeah, I’ll definitely keep you in mind.” Long story short, two weeks later he ended up calling me. His mom also lived there, and he said “She’s getting really sick, and we’re thinking about leaving.” So me and him started talking and chatting… And I know I went in there with my crew, and I saw an opportunity.

Basically, there were two units in there. I believed because of the size and the space that we could turn that into four. It’s a process in Boston where you have to ask for variants, and work with permitting. Long story short, we were able to close on that property in about a month or two. He needed help with moving his stuff, he needed extra time and buffer. He needed some cash to buy one property… His other property that he was buying in the middle – he needed some buffer, so I helped him with that.

It was basically trying to solve all his problems that he had, from moving, to timing, totally working with him through the whole process, building a relationship in the beginning. Once he moved away, immediately we were able to successfully get a permit to build four units in there. Basically, we got two units for free. We didn’t pay for those two units, so we got two units for free, which ends up being a big windfall for us. But I knew that we could do that because I had my attorney pull some permits, think about it, look at it before we even closed. So by the time he and I met for the first time, I had my team do a lot of due diligence.

Right now we are still developing that property. It should be done end of July, early August, and there’s gonna be four luxury condos. What we’re doing – something different again, because that’s been my signature –  we don’t have parking in the spot, so a lot of people don’t always like that, but what we did is we partnered up with Uber and Lyft, and anyone who lives in our condos gets to use Uber or Lyft for free, as long as they live there, when they leave from the condo… So they don’t need that parking, which is included in the condo fee. So that’s the process that’s been there, but it’s really about building that relationship, which was huge.

Theo Hicks: Thanks for sharing the story, it was very interesting. How much did you buy that for, and how much did you put into it, and how much do you expect to make on that property?

Prady Tewarie: We paid $970,000 for it. It was listed at over a million, but basically even before they put it on the market, I was the first person who called; he said he was thinking about selling it for about 1.1, 1.2. We went back and forth and he agreed on the 970k. We did finance that completely cash, and then I think the total of the construction right now [unintelligible [00:19:17].02] shy of 900k we put in the construction. Then the sell-out, because it’s four units – they’re gonna be luxury units, so anywhere from 800k to 900k each. We’re trying to be shy of 3.4 to 3.5. So the total net on these is anywhere from 1.5 to maybe shy of 2 million dollars. This is, of course, the Boston market, which tends to be pretty lucrative at this time.

Theo Hicks: Yeah, that’s impressive. So almost doubling your money.

Prady Tewarie: Yeah. It comes mostly because you buy a two-family and you make a four, so you get two condos for free. And if you do live in Boston, and you got a condo for free — right now we’re paying about $200-$250/sq.ft. to build. You only have your construction costs, but you’re getting a full two condos for free. I always recommend people when you’re doing condo conversion, seeing if you can get a variance for it to increase the number of units in the building, because that’s gonna be your buffer.

You can make  money if it’s three units, but it’s gonna be very tight sometimes, so if you get another condo in there that you didn’t pay for, that’s gonna be your massive buffer. And it works out for everyone. He bought that like a 100+ years ago, it was like 40k or 50k or something. Everyone wins in this project. It’s building that relationship, but also knowing what you’re gonna get into. At the end of the day, it’s a numbers game. And yes, it’s a fantastic deal, but it’s also the market, and it’s also making sure that you can go for a variance, and a lot of people don’t wanna do that because they’re afraid of dealing with the city, and the town hall, and the neighbors’ meetings… But I really enjoy that, because I like talking to people, I like to understand “Hey man, were there issues?” So I was not afraid to talk to the town about getting an extra two units, and it ended up being super-successful as far as we got the permit fairly easily. A lot of people are scared of doing that, but I welcome the challenge.

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

Prady Tewarie: The best real estate investing advice ever is that it’s okay to not know everything. You don’t have to know every single thing about real estate. I meet quite a few young people that constantly ask me about which books to read, which resources to go to, which courses to take in college… I love all those resources, I love all the podcasts, I love all that, but at the end of the day the people that win in life are the people who take action. All the talent, all the skill – it will always pale in comparison to action. So if you don’t know everything, that’s totally fine, because there’s plenty of people out there in the world that do know the things that you don’t, and your goal is to find  a way that they can help you. That should be your obsession, as opposed to trying to learn everything all the time… Because what that’s going to do is that’s going to lead to procrastination.

I’m here on this podcast today, and able to build real estate and financial freedom just because I went for it. I don’t think I have any special gifts, or talents, or business acumen at all. I just took the challenge, like “Yeah, I’ll do it.” And if I don’t think I can do it, I’ll find other people that can help me get there.

Theo Hicks: Prady, are you ready for the Best Ever Lightning Round?

Prady Tewarie: Sure, man.

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

Break: [00:22:13].09] to [00:22:57].15]

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

Prady Tewarie: The best ever book that I’ve recently read is Built to Sell. It’s a book that talks specifically about how to systemize businesses. And I’ll mention another book that [unintelligible [00:23:07].29] which is a very famous book, “Principles”, by Ray Dalio. It talks about systemizing and finding principles in everyday occurrences.

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

Prady Tewarie: Start another one.

Theo Hicks: How would you start over today if you had little or no capital?

Prady Tewarie: Build better relationships.

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

Prady Tewarie: The worst deal that I have done is where I didn’t do my homework on the tenants. That was a big mistake. I didn’t know the product. It was in a college area, which down the line ended up being profitable; in the beginning it was a nightmare. I remember I had the tenants in there, and it ended up being Section 8 tenants… And while it was great, but it was a huge nightmare. A lot of legal battles. I just didn’t know the product that I was getting into, nor did I understand the tenant pool, so… Big mistake of mine.

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

Prady Tewarie: The best place to reach me is actually through Instagram. If you’re looking up Prady Tewarie, you can usually reach me through DM. That’s probably the best way to reach me.

Theo Hicks: Alright, Prady, I really appreciate you coming on the show today and speaking with us about your real estate journey.  Some very powerful information… Just to summarize what we discussed – we talked about how you were able to start your investment journey while you were in college, and not really knowing how you’d pay for these deals and how you had the time to actually complete these deals, and your solution was to build a great team to rely on.

You talked a lot about your strategy behind building a team. First and foremost, you’re gonna be under-skilled when you’re starting out, but don’t let that be the reason why you don’t do anything. Instead, own that and then focus on how to solve that problem, which is, again, to create this team.

One specific strategy that you talked about is your networking strategy. When you’re ready to, for example, transition into condo conversion, you didn’t go out and try to find individual team members that had no relation to one another. You started off with the broker, and then from then you asked them for a referral, and then from that referral, the architect, you asked a referral from them… That way, everyone is connected, there’s that alignment of interest, and everyone is gonna win along the way and everyone’s in it for the long-term because of that incentive structure and because everyone is connected.

We talked about why you decided to go from the rentals to the condo conversions, and essentially it was just because it was kind of the next challenge for you, and you wanted to try your hand at something else, essentially completely different than the rentals.

You did provide a really strong piece of advice about your rental property strategy when you were doing it, which was focusing on [unintelligible [00:25:43].07] using that to your advantage, and realizing that you had a different point of view, and while everyone was figuring out what types of kitchens, and what types of flooring to put in these homes for college students, you instead knew that college students actually cared about technology, not how nice their kitchen was… So rather than just fixing things, you just bought iPads and some automation. The other example was the Uber and Lyft example.

You talked about how you found your condo conversions, and you are doing that through knocking on doors and actually talking to the owners in person. Sometimes it’s a quick deal, like the example you gave when the [unintelligible [00:26:14].03] was two weeks; other times it might not be for months or for years.

Then you went through a specific example of a deal that you’re currently working on. That was the one that was actually two units, and you were able to convert it into four condos, so you got those two condos for free, and because of that, you’re gonna hopefully net around 1.5 to 2 million dollars on that deal.

One of your value-adds for that deal was figuring out how to solve the problem for the owner. You helped them move their stuff out, then they needed help with cash to buy another property, they needed some flexibility with the closing date.

Then lastly you provided your best ever advice, which was something you live by – you don’t need to know everything to get started. It’s more important to take action. As you said, the people that win in life are the people that take action.

Prady, I really appreciate you coming on the show today and talking with all of us and providing your best ever advice. Thank you to everyone who listened. Have a best ever day, and we’ll talk to you soon.

Prady Tewarie: Hey man, thank you so much. It was a pleasure.

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JF1673: IT Guy Realizes Retirement Looks Bleak – Turns To Real Estate Investing For Help with John Fortes

At some point, most of us start thinking about retirement. John was ahead of the curve for most people and at a younger age started projecting out his income and savings. He realized retirement was not looking great, tried to figure out the stock market, then fell in love with real estate investing. Now he’s got a large portfolio and currently working on a 41 unit deal. If you enjoyed today’s episode remember to subscribe in iTunes and leave us a review!

 

Best Ever Tweet:

“It’s all about partnerships” – John Fortes on his real estate investing success

 

John Fortes Real Estate Background:

  • One of the founding partners of Community First Investment Group
  • has 62 units under management and is currently syndicating another 41 units
  • Based in Boston, MA
  • Say hi to him at https://www.cfigwealth.com/
  • Best Ever Book: The Third Door

 


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TRANSCRIPTION

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

John Fortes: Hey, Joe. How are you doing? I’m doing good. Thank you for having me.

Joe Fairless: Well, I’m doing well, and I’m glad to hear that also. Well, looking forward to this conversation. A little bit about John – he is one of the founding partners of Community First Investment Group. He’s got over 63 units under management, and is currently syndicating another 41 units. He’s based near Boston, Massachusetts. With that being said, John, do you wanna give the Best Ever listeners a little bit more about your background and your current focus?

John Fortes: Yes. I have a background in IT, but back in the day I noticed that the 401K situation wasn’t gonna help me retire. I presented this to my wife, and I stumbled upon multiple other things. I went through five years of just researching, and I finally decided to do it.

I valued real estate over stocks, so that’s how I got here, and it led me to form the company, Community First, with my two other partners, and… Now I’m here on your show.

Joe Fairless: So you were looking at your retirement plan, and what indicated that “Hey, this isn’t gonna work out. I need to do something else”?

John Fortes: Great question. Projecting it out. I started working, and then nine years later I’m projecting it out to see in another nine years what it would look like, and I said, “Hm, this is very shaky to me.” It’s not much to live off of, so I said,  “I’ve gotta figure out something else.” I literally turned to stocks, I tried to figure that out, I could not make sense of it. Real estate really was understanding… And I could completely understand real estate because I went through the process of buying a house and seeing how equity worked.

Joe Fairless: So how long ago was this?

John Fortes: Five years ago, in 2013. Six now, yeah.

Joe Fairless: Okay, five to six years ago. And what did you do immediately after, to prepare you, to where you are today?

John Fortes: I presented it to my wife, and I went through a huge growth process from 2014, 2015 and 2016, and in 2017 I finally joined Bigger Pockets. From there I did a bunch of research, and just kind of networked with a few people and just poked holes in a few arguments that I had, but nothing really fell through the concrete, so I was like “Okay, it’s got some legs.”

Then I started looking at my own home in value, and how it’s appreciating, and how basically if you buy right, you can really enjoy the benefits of the appreciation… But when I go back and look at it if I have a tenant doing everything that I’m doing in my own home, I saw crazy value in that.

Then when I purchased my first single-family – kind of like you; you have a few single-families…

Joe Fairless: Yup, I do.

John Fortes: I’m always kind of surprised that you still have them, but you said they cash-flow well…

Joe Fairless: You want them?

John Fortes: [laughs]

Joe Fairless: 175k per single-family. I’ll give them to you; we’ll do the contract right after we get done with this conversation.

John Fortes: I’ve shifted my focus since then… [laughs]

Joe Fairless: Oh, darn it! Okay…

John Fortes: [laughs] I purchased mine and then I saw the value of multifamily, because I wanted to scale… So that’s when I reached out to my first partner, who’s my tax accountant. He runs my analysis for me, and he’s great with numbers; I don’t wanna do anything with numbers. Now I wanna focus on investor relations, raising money, raising capital, broker relations, looking for the opportunities and presenting it to my partner… Because he doesn’t wanna be the face of anything, meaning he doesn’t wanna speak to people really…

Joe Fairless: [laughs] I know the type, yeah.

John Fortes: Yeah. He’s awesome when you get him to talk, but he just doesn’t wanna go ahead and look for it.

Joe Fairless: Yup.

John Fortes: But with that said, my other partner’s the same way, but he has a focus in inspection companies. He has an inspection company on the residential side, and then he has a multifamily inspection company as well, so… He helps us with boots on the ground and what we’re looking for when we’re looking through the property, when we’re walking through the property; he knows exactly what to look for. So we really, really help each other. We form a nice little team.

Joe Fairless: Oh, absolutely. Yeah, so you’ve got someone who is good at the underwriting, you’ve got someone who’s good on due diligence, and you’ve got someone who’s good at bringing in the capital… What about asset management? Is that the inspection person who focuses on asset management, or the accountant?

John Fortes: Well, it’s the inspection person who focuses on the asset managing, making sure everything’s going according to plan, and then we’ll all get on a call with the PM if we have to, and just say “Hey, why is this happening, why is that happening? Can you explain  this to us? We expected this…”, or something like that.

Not that any call has gone bad or anything, but we just have a good sense of what we’re looking at when we’re dealing with certain things, when we have to reach out to the PM.

Joe Fairless: Got it. So let’s talk about this – is it 63 units that you have under management?

John Fortes: It’s a 62-unit, yeah. A 62-unit in Johnson City, Tennessee.

Joe Fairless: Alright, 62 units in [00:07:24].20] You are near Boston, Massachusetts, which is not close to [00:07:30].04] I imagine. I know where Tennessee is, I don’t know where Johnson City, Tennessee is. How did you find the property in Johnson City, Tennessee?

John Fortes: One of our partners in the community that we’re part of–

Joe Fairless: Which one?

John Fortes: [unintelligible [00:07:41].25]

Joe Fairless: Okay. Yup.

John Fortes: They’ve been good to us. And everybody in the community has been kind of really formed like a brotherhood/sisterhood, and it’s tightly knit with anybody that’s actively in the communities… So they found an opportunity and they had someone drop out, and my team was literally looking; it was a JV opportunity, and after we did our due diligence and looked at everything, and we knew we had another member as boots on the ground in the area, it made sense to do it. We would have been crazy if we didn’t do it. Everyone in that JV opportunity has been wonderful to work with. Had we not been part of the community, we probably wouldn’t do the deal because we wouldn’t know them like we did. So that was important.

Joe Fairless: What did you all bring that was missing from the partnership?

John Fortes: We brought capital, but also we brought another level of looking over the analysis of the work, and then another level of being able to walk the property, and with my partner Matt give a great detail of what the scope of the work that needs to be done there in the inspection period.

Joe Fairless: Okay. And how many other partners do you have besides your team of three?

John Fortes: There’s seven of us total in that deal.

Joe Fairless: Wow. So seven total people, or you three plus —

John Fortes: Yes. I’m counting us as an entity, yes.

Joe Fairless: Okay, so you three is one, and then you’ve got six other people who are in the deal?

John Fortes: Yes.

Joe Fairless: And are they six other entities, or are there literally six other people?

John Fortes: I believe some came in as entities and some came in as just an individual.

Joe Fairless: Okay, so there’s probably more than six–

John Fortes: Oh, no, no, we know everybody that’s part of the deal, but some people wanted to come–

Joe Fairless: Oh, right, right, right. So it’s six people behind the entity, or six people, plus you three. So there’s nine of you on the general partnership side, correct?

John Fortes: Yes.

Joe Fairless: How did you structure the general partnership?

John Fortes: We came in with a per capita amount, and that’s kind of how we came through with it. The person that found the deal got a little bit bigger piece of the equity as well.

Joe Fairless: Okay, so someone who found the deal got a piece of equity, plus it was split up among you all based on the capital that you brought to the deal.

John Fortes: Yeah. And then another partner – I wanted to mention this because he’s been very important. One of our partners, Darren – he has been boots on the ground, because most of us are all out of state. So he got another additional piece of the equity as well as part of the structure, for his hard work in that. That’s very important, because he deserves it.

Joe Fairless: Yeah, that’s very valuable. So you’ve got someone who found the deal, they get equity; someone boots on the ground, they get equity, and then those two people may or may not have raised money, but everyone gets equity based on how much equity they brought to the deal.

John Fortes: Yes.

Joe Fairless: How do you make decisions on which direction to take the property, on which direction to take the property?

John Fortes: This is the fun part – we all get on a call and we discuss the two different options that we need to decide on, and we all make the decision on the call. So that’s really, really been a great experience, because in the other syndication the pool is smaller, and now we have a better understanding of how to tackle certain things because of this project, the 62. So we do make a decision by getting on a call, presenting the details first and then presenting the options.

Joe Fairless: What were you making the decision on on the last call you did with everyone?

John Fortes: The last call we had to make the decision because when we hired a contractor for a particular piece of the project, when he presented us a bill, his bill was a little bit higher than what he already negotiated on…

Joe Fairless: Imagine that…

John Fortes: [laughs] Oh man, you’ve gone through that too? [laughter] So with that said, we had to decide on how could we pivot for this, and good thing we work with a great PM that could outsource different project to different people to bring at different phases of the project… And it’s a very, very highly intense project. We have one building down, but two of them still with some vacancies in it… But we are still cash-flowing about $3,000/month. So that’s a testament to the underwriting that was done on this project.

Joe Fairless: How much higher was the bill than what they quoted?

John Fortes: I believe it was like — it had to be over 50k, because we weren’t comfortable…

Joe Fairless: Dang…

John Fortes: I can’t remember the exact number, but it was like “Are you kidding me?” And we were looking at the itemized — it appeared he was charging an hourly rate for just like a light fixture, or something like that…

Joe Fairless: Oh, wow…

John Fortes: Something insane. And when we went through and itemized it, because we’re questioning everything on that, and it was ridiculous from what he already told us… And it was certain things like that lightwork that could have just been done by a handyman, and8 he just really, really overcharged us on those things.

Joe Fairless: So when you have those calls, how do you structure the conversation with — I’m sure not all nine of you are on every call, but I’m sure there’s more than three or four of you on every call… So how do you structure a conversation with that many people?

John Fortes: Well, it’s all about communication. If we know certain people are not gonna be on the call, we try to present what is actually happening and what will be discussed and what needs a decision on, and we try to give everyone an opportunity to have a voice. That’s very important. And that’s been very, very awesome with this group, because we all have the same end goal, we all have the potential of this property, and we all know exactly what we need to do.

We also present options, the worst-case scenario and the best-case scenario during those calls, and we make sure that whoever can’t make it knows exactly everything that we are going to discuss, and we try to get something beforehand, for their not being able to make the meeting.

Joe Fairless: Yup. It sounds like you get along really well with the other partners, and you have a lot of respect for them. You can tell just by hearing how you talk about them.

John Fortes: Oh, they’ve been great. It’s been an awesome partnership, and I know there’s a bunch of us in it, but it was everybody that wants to learn, everybody that wanted to do this, and anybody that just had the desire, the passion to just be able to go ahead and let’s make this happen.

Joe Fairless: How much equity did you bring to the deal?

John Fortes: As my group, we brought in 81k of the raise.

Joe Fairless: What was the total raise?

John Fortes: It was 550k, I believe.

Joe Fairless: Okay. And what structure do you have with investors?

John Fortes: Everybody that’s in it — we don’t have any passive investors in this deal.

Joe Fairless: Okay.

John Fortes: So that’s why on this one, the 41, we are syndicating.

Joe Fairless: Okay. Of the nine people that you have on the GP side, is that everyone in the deal? The equity actually came from all nine of you?

John Fortes: Yes. Everyone has equity in the deal.

Joe Fairless: Okay, got it. Did you personally invest in this one?

John Fortes: Yes, we all did. My whole Community First did, we invested in this deal, and everybody else that is part of the GP contributed to the deal.

Joe Fairless: Is the plan to renovate it, reposition and refinance out, or what’s the exit strategy, if there is one?

John Fortes: The exit is pretty unique. We have a worst-case and a best-case. The worst-case is we stay in the bridge loan, and we have options to be able to go out. The best-case is to refi after repositioning, and… As a matter of fact, the last conversation we had, the property is going to be one of the best in the area, so we will be able to [unintelligible [00:15:42].01]. We can command – or whatever we wanna try to do – market rate, and maybe even a slight bump, but I’m not even entertaining that; market rate would be great.

Joe Fairless: This 41-unit that you’re syndicating – where is that located?

John Fortes: In Chattanooga. It’s quite a way.

Joe Fairless: In Tennessee…

John Fortes: Yes.

Joe Fairless: And how many partners do you have on that one?

John Fortes: There’s five of us on the GP side, I believe.

Joe Fairless: Oh, that’s nothing.

John Fortes: [laughs] That’s nothing anymore, right?

Joe Fairless: Yeah. You make a decision in the blink of an eye.

John Fortes: Yeah. It’s basically a lot of people from the first deal, that came on this deal… So it’s great. It’s a great opportunity again, and the raise was, I believe, 600k, and it was recommended by us to syndicate this one. We kind of fell into syndication, and it was funny, because we had  the money raised to complete the deal before we even kicked off the meeting with the syndication attorney. It was just that quick for us to raise.

Joe Fairless: And what’s the business plan with this deal?

John Fortes: It’s gonna cash-flow from day one. It is under-rented by $75 to $125 in certain units, and it’s a light value-add play where we can turnover units as people’s leases come up, if they don’t choose to stay… And we can kind of be able to position a unit for them to get the bump increase, and just really, really light value-added, and complete that for a five-year hold on that one.

Joe Fairless: And when you take a look at this deal, compared to the other deal — I know you said the other deal you came across through the group that you’re in… How did you come across this deal?

John Fortes: The same person that found the other deal was like “Gosh, are you guys ready to rock ‘n roll again?” We said, “Absolutely!” We work well together, it’s a great opportunity, and it’s all about partnerships… Because sometimes it might take you two years to find your own deal, and if you wanna hold on to whatever you have for two years, or you wanna rock ‘n roll with someone else – you’re still doing what you want to do, it’s just someone else found an opportunity. It doesn’t matter at the end of the day. You’re all doing it and you’re all going to benefit from it at the end of the day as well… So partnerships are important, and I preach it heavily everywhere; I don’t know if you’ve seen me screaming from the hills… I really believe in it, because there’s a lot of people in the industry, and it’s built off partnerships. I can’t probably name one person that’s doing it alone.

Joe Fairless: Yup. Well, when you look at the two deals and you think about the lessons you’ve learned so far, what’s something that hasn’t gone according to plan? …other than that contractor, which clearly that’s an issue, but you resolved that… What’s something else that hasn’t gone according to plan? Probably the 62-unit, since the 41-unit is still in motion.

John Fortes: Yeah, funny you ask… It’s been the 41-unit. The reason why is we’ve pivoted lenders twice. Was it twice…? Once, once. The other time was a back-up, just in case we needed to… So we were going to with agency debt, and they didn’t approve of our seasoning from the 62-unit because of how fast we went under contract with this one; we were supposed to close in December 21st, or something like that… And we’ve extended twice since we actually — we’re supposed to close tomorrow, but we’re extending out to the 8th, and it’s only because we had just received approval from the lender, we shifted to a community bank, and… If all went according to plan, we would have had this thing closed already; it’s just we had to move from the agency debt to community bank debt. We got the approval… And I think that was all in part to maybe the government shutdown, because it slowed a lot of things down; we don’t know, I can’t pin that down for sure. But yeah, that’s the only thing.

Joe Fairless: Are you signing on these loans?

John Fortes: Yes.

Joe Fairless: And are they recourse?

John Fortes: Yes, they are recourse.

Joe Fairless: How do you think about that in terms of your personal financial stability?

John Fortes: Well, it doesn’t bother me, because of the fact that the business plan — I’m confident in our underwriting, I’m confident in our business plan, I’m confident in our strategy, so it doesn’t bother me as much as it would for maybe someone else… But I do see the power of non-recourse, and I completely get it, but when you’re trying to make things happen in the beginning, why not…? I mean, come on…

Joe Fairless: [laughs] Yeah, I get that. Based on your experience, what is your best real estate investing advice ever?

John Fortes: Partner up. Find partners that complement you, and just go for it.

Joe Fairless: And clearly, you’re living and breathing that advice. I don’t think I need to ask you to elaborate, because we’ve already talked about the power of partnerships with what you’re doing.

Alright, we’re gonna do a lightning round. Are you ready for the Best Ever Lightning Round?

John Fortes: Let’s do it.

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

Break: [00:20:57].05] to [00:22:14].19]

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

John Fortes: Best ever book… The Third Door, by Alex Banayan I love it.

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

John Fortes: When I bought my single-family home, I wanted to do the BRRRR strategy, but when you buy turnkey, you can’t do the BRRRR strategy… [laughs] So that was my mistake, but it’s still cash-flowing well, it’s doing good, and… I just can’t refi out of it, so hence why partnerships is important when I kind of ventured out.

Joe Fairless: I would think in Boston it would have appreciated just because the market went up enough, even if it was turnkey… Not the case?

John Fortes: I failed to mention that, but my first investment was in Florida. [laughs]

Joe Fairless: Oh, okay… What part?

John Fortes: Cocoa. right next to my sister-in-law, because my wife’s parents have a home in Cocoa Beach, and their daughter lives in Cocoa, and I was like “Hey, I’m just gonna look in the area.”

Joe Fairless: Well, I’ve never been to that area of Florida, but I don’t feel sorry for you, because you mentioned that it’s Cocoa Beach, so…

John Fortes: [laughs]

Joe Fairless: …it sounds like you’re still enjoying yourself, and you got some life experiences from the transaction.

John Fortes: Yes, yes.

Joe Fairless: What’s the best ever deal you’ve done?

John Fortes: My own personal home. The reason why is when I was going through those periods of 2014 through ’16, I saw the value of how appreciation worked with every paydown when I paid my own mortgage… So when I incorporated that and made sense of it, saying “Hey, what if I had someone else do this for me?”, I saw that basically an investment home could be a big piggy bank for you.

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

John Fortes: I love [unintelligible [00:23:53].19] my church and helping my friends and family with realizing the power of real estate. Like I said, you don’t need me to say it again, but I’m gonna say it again – I scream it from the hills, and I blast it and I try to promote it as much as possible, because I think it’s important. Because where I grew up, no one was telling us this stuff; schools ain’t, we don’t have a lot of people around us that tell us these things, and we don’t grow up around certain people that kind of know better, so… When I took my education in finance and it kind of shifted into this, then I scream it from the hills.

Joe Fairless: What was the point in time during your path where you had to put the chips on the table, and you were financially really strapped, at what point in time — if any; perhaps I shouldn’t imply that there was, but usually in any entrepreneur’s journey there’s a point in time where it’s like “Okay, I really stretched, but I believe in this.” Is there a part that you can think of?

John Fortes: Man, this hits home, because right now, the reason why I say that is had I not put all of this in motion — and this is the first time I’m gonna speak on it publicly, and I thank you for the platform, but I think it’s important… I was laid off in November. So right now, right now is the time.

Joe Fairless: You’re all in.

John Fortes: Going through it, yes. I am living it.

Joe Fairless: Well, it’s impressive what you’ve done, and the partnerships that you’ve created as a result of the value that you’ve added to all the people, and the communities that you’re actively participating in. Before we started recording, you and I hadn’t had a conversation before, but I’d seen you on my Facebook community, BestEverCommunity.com, and other places, and I told you (I think I said) “I feel like I know you already because of how active and how involved you are”, and also in the Bigger Pockets community… You’re always encouraging others. That type of stuff – well, “Service to many leads to greatness.” You’re an example of that.

John Fortes: I appreciate that, thank you. I believe firmly in the giver’s gain. I don’t do it for that reason, but it’s something of a mantra that me and a fellow person recite back; one of my brothers in this community – we say it back and forth to each other, and it really resonated between us because it helps us in certain situations, so I appreciate you saying that. Thank you.

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

John Fortes: I’m all over social media, John Fortes. I kind of use Instagram every now and then, but www.cfigwealth.com.

Joe Fairless: John, I’m grateful that you were on the show, thank you so much for joining us. Thanks for talking about the power of partnerships. That’s one components of this, it’s a main component, but I think the primary component is you being resourceful and putting yourself out there and adding value and wanting to help and contribute, and as a result, you find yourself in situations where you’re attracting others who want to be around you, and then you’re adding value, and then you all go together, and you’re just scratching the surface right now.

I’m excited to interview you at this stage in the game, and then I’m excited to bring you back in a couple of years once you continue to do what you’re doing now, for even an extended period of time.

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

John Fortes: I appreciate you. Thank you, and God bless.

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Steve Breton with Joe Fairless on a Best Ever Show flyer

JF1574: From Real Estate Being A JOB To Being A Passive Investor with Steeve Breton

Steeve was like a lot of real estate investors, started buying properties to hold and was self managing. He grew tired of all the work he was having to do, a full time job almost. He started passively investing in apartment syndications and never looked back, even performing his own syndication deals now. If you enjoyed today’s episode remember to subscribe in iTunes and leave us a review!

 

Best Ever Tweet:

 

Steeve Breton Real Estate Background:

  • Founder of Velocity Capital, focus on large multifamily syndications
  • Partner in over 14 apartment syndications totaling over 1,700 units – 1,100 as LP, 608 as GP
  • Based in Boston, MA
  • Say hi to him at https://velocitycap.com/
  • Best Ever Book: The One Thing by Gary Keller

 


Sponsored by Stessa – The simple way to track rental property performance. Get dashboard reporting, smarter income and expense tracking and tax-ready financials. Get your free account at stessa.com/bestever


TRANSCRIPTION

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

With us today, Steeve Breton. How are you doing, Steeve?

Steeve Breton: I’m doing great, thanks for having me.

Joe Fairless: My pleasure, nice to have you on the show. A little bit about Steeve – he is the founder of Velocity Capital (velocitycap.com), which focuses on large multifamily syndications. He’s a partner in 14 apartment syndications totaling 1,700 units, and we’ll break that down for you from an LP/GP side – 1,100 as a limited partner, and 608 as a general partner. Based in Boston, Massachusetts. With that being said, Steeve, do you wanna give the Best Ever listeners a little bit more about your background and your current focus?

Steeve Breton: Sure. I started in 2012 in real estate investing, after watching my portfolio go down with the financial crisis of 2008… I saw it coming back slowly, but it just wasn’t coming back as quickly as I’d like, and I had always done the “Hold on to your portfolio, it’s all gonna come back. You have to listen to everyone’s financial advice there.” Then I finally got tired of it after reading Rich Dad, Poor Dad; that was a  good clue as to what other people are doing.

I went out and bought a triplex, and then a duplex, and then another triplex, and I just kept going. Then I slowly was realizing that this is like having another job, because I was self-managing, and that’s when I got into the passive investment space, buying into projects or apartment buildings that were sponsored by other folks. They were doing all of the heavy lifting, and I was just simply a limited partner, making a great return.

Joe Fairless: Before we get into the second half of the story, I imagine, which is you on the GP side, pros and cons of investing in a triplex, versus a passive investor in a syndication?

Steeve Breton: I’ll go with the pros – I think in the end if you’re self-managing, you can probably make a bit better of a return, because you are gonna get all the tax benefits, the mortgage paydown, the appreciation etc. plus your cashflow. So all in all it’s probably a little bit better, depending on your market, but it also comes with a lot of headaches. It’s a fair amount of work.

I still do own some of those apartments. I just sold off some just to make it a bit more manageable for me. So that’s the pros of ownership.

On the syndication side, or being a passive investor, I literally do the analysis upfront, so I do have to vet the project sponsor and the project itself, the apartment complex. Once I have written that check and I’ve decided to invest, I’m pretty much hands-off for 3, 4, 5 years or whatever it is, and the mailbox money just comes in.

Joe Fairless: And you mentioned perhaps better returns on the triplex… I was just looking at my single-family home portfolio – I have three single-family homes; I’ve had them since 7-9 years… And this year, year-to-date, I’ve made $951 in total across all three of them, because when someone moves out there’s an expense, and mortgage, and property management etc. So from a better returns standpoint, are your deals value-add deals, or what allows your triplexes to get slightly better returns?

Steeve Breton: I also have a single-family, but on most of these I did buy them where there was at least a little distress. One of them in particular I did a gut rehab on a triplex… So there was a lot of construction management upfront, and now they’re cash-flowing about 10%-12% for each of them. It’s in the Boston area, so all-in we were in at 300k-400k.

Joe Fairless: So you invested in 1,100 units as a limited partner… Is that still your focus, or since you are in 608 as a GP, now you’re focused on the GP side?

Steeve Breton: I’m still doing a bit of both, actually. I literally just signed up as a passive investor again, limited partner, in a syndication out of Texas. It’s a great operator there. We’re between buying and selling a house, so we’ve got a bit of money to invest on the sale of our old house… So I jumped on that one as a passive investor, because I wanna put my money to work.

I also invest, I would say, as a limited partner in my own syndicated deals, because I wanna have skin in the game as well… So I’m very much still active in the passive side of it, but then what happened was after investing in a dozen of these things over the course of 5-6 years, I got to know some of the syndicator pretty well, I got a bit under the covers… One of them is here in Boston, so we’re very friendly; and I started realizing how much there is to gain as the syndicator.

I also had a lot of friends and family who wanted to be involved, and I was steering them toward these other passive deals that I was getting into, but in the end they wanted to invest with me on my properties, which was a bit of the nudge that I needed to start looking at what other possibilities there were where I could be the lead, I can get the greater returns and I could also help friends and family.

Joe Fairless: You’ve got 608 as a general partner… How many apartment communities is that?

Steeve Breton: The 608 is three communities. My first deal was 130 units in Texas. Then we did another 90 units, and then 388.

Joe Fairless: Where in Texas is the 130?

Steeve Breton: The 130 is in San Antonio.

Joe Fairless: Okay, and then the 90?

Steeve Breton: Tyler, Texas, and then back in San Antonio again.

Joe Fairless: Got it, alright.

Steeve Breton: I’m under contract at the moment for 152 units down in Georgia.

Joe Fairless: Okay. You said 152?

Steeve Breton: 152.

Joe Fairless: Okay. Where in Georgia?

Steeve Breton: That’s Thomasville. It’s down in the South-West corner, by Tallahassee.

Joe Fairless: Okay. So you live in Boston, Massachusetts, your first GP deal was in San Antonio, and then you go way out in East Texas in Tyler, Texas (San Antonio is not East Texas), and then you go back to San Antonio and now you’re in Georgia. The main question is how are you finding these deals all over the U.S. so we’ll go with that.

Steeve Breton: Okay. Primarily, when investing in these investments, for me as a passive investor I’ve always considered the general partner first – who is the operator? Who am I putting my trust in to ensure that the deal is gonna go well, ensure that they’ve picked a good market etc.? There’s so much that goes into that. So now that I’ve become more active – I went and got a ton of training, worked my tail off trying to understand this business, I realized it’s going to be difficult to operate these from Boston. So I reached out to a lot of operators, people that I’ve invested with in the past, as well as others that I’ve met through a couple of different masterminds that I’m in, and what I’m looking for there are operators with high integrity, a long track record of success, folks that I know are gonna do what they set out to do. With that trust, I’m able to then partner with them, and what I have here in Boston is the ability to raise capital. That’s what I’m bringing to that partnership.

Joe Fairless: Got it, okay. So you found the operators through relationships, and they find the deals, and then your primary role in the partnership is to bring money to the transaction, so that they can close on the deals and they can operate it successfully.

Steeve Breton: Correct, yeah. And over time that has also evolved a bit, so I’m getting more involved in the underwriting of the deal, to right upfront looking at the numbers, helping with assumptions, talking to property management companies that are in the market, also getting involved in the actual due diligence, physical on-site due diligence, and signing on the loans to be a co-sponsor as well… So it does continue to evolve, and eventually I would like to be the sponsor myself at some point… But all of this that I’m telling you is all being done as I’m still working a full-time job.

Joe Fairless: Hah! I didn’t know that… What’s your full-time job, what industry?

Steeve Breton: I am in a biotech company, and I manage the IT systems for the commercial aspects of the business.

Joe Fairless: How much have you invested in your training? …for multifamily, not IT stuff.

Steeve Breton: I’ve gone to several weekend courses. Those were not a lot of money, but you’re gone for the weekend, you’ve gotta pay for your travel, and all that. That seems to be the first step most people take, these weekend bootcamps, and there’s a lot of value there initially.

Then I got into coaching, so I signed up as a coaching student. A lot of folks know where I’m doing that, so I don’t wanna throw numbers out there… But let’s say coaching in general, across the bunch that I’ve looked at, can range from 5k to 15k.

Then I’ve also jumped into a couple of masterminds, and again, those can be anywhere from 10k-20k. I think there’s probably some that are far higher than that.

Joe Fairless: And you’re in multiple masterminds where you’ve invested at minimum 10k to be in?

Steeve Breton: Correct.

Joe Fairless: And you said you’re a coaching student – who are you a coaching student of?

Steeve Breton: I signed up with Rod Khleif.

Joe Fairless: Got it. Cool. And when you take a look at the investment that you’ve made for all the training – for the weekend bootcamps, the one-on-one stuff, the masterminds – approximately how much have you invested in total?

Steeve Breton: That’s funny, I should have calculated this well in advance of this interview, but I would say 25k is the minimum. It’s probably closer to 35k-40k.

Joe Fairless: Okay. So let’s go on the high end, let’s just say 40k. You’ve invested 40k… With just the GP side of things, approximately how much money have you made as a result of being a GP, to date, on 608 units?

Steeve Breton: I would say about 125k — I’m sorry, it will be 125k when I close this new property here in December.

Joe Fairless: And that’s over what period of time since you’ve started the training?

Steeve Breton: That is almost a year to date, since I started coaching. The training – probably another six months prior to that.

Joe Fairless: Got it. The reason why I ask – and I believe we’ve just met on this call, right? Okay, yeah — I meet a lot of people… So the reason why I ask is I didn’t know where the conversation was going, and it’s just interesting to hear the thought process of people who choose to do training, and go into weekend bootcamps, and travel all over, and how they think about the investment of their dollars into that, versus people who think “Oh, this is too expensive. I’m not gonna do it.” Ultimately, that’s why I was asking about the return on your investment for this, and it’s three times.

Steeve Breton: Yeah. Let me also clarify a couple points there… So that’s the money that I made just this year. Going into the deal, you get various parts of that general partnership. One of the things that I’m also gaining there is equity in the deal, and all of these deals are heavy value-add, so in the end we’re making a lot of money on the back-end. If the project goes well, the sponsors are then going to be compensated for bringing together a complex project at the end of that project when it sells; so I’m probably sitting on half a million dollars in equity that, again, if all goes well, and we have every intention of meeting our goals, I’ll have that payout in five years from now.

Joe Fairless: The 130 units in San Antonio, the first one that you were on the GP side, how was that structured on the GP side where you brought the equity?

Steeve Breton: So in that case, generally on these deals the equity or bringing in the money to get the deal closed is about 30% of the general partnership. So if the deal requires two million dollars in capital raise for your down payment, because the bank loan’s gonna finance 80% or 75%, and it’s also the capital – we try to raise the money for the cap ex upfront, so we’re never strained for capital… So when we bring in that money – say it’s a  two million dollar raise and I do half of that, I bring in a million, then I would get 15% of the general partnership just for the capital raise piece. And of course, again, you can earn additional general partnership by being involved in the due diligence, the underwriting, and some of the other aspects.

Joe Fairless: The 152 units – this will be the fourth deal that you’re GP on… Has that structure evolved, and if so, how? …from the first one.

Steeve Breton: It’s only evolved in that I am trying to get more and more involved from the beginning, so when they’re first looking at the property and they think they have a winner, “Let’s talk about that underwriting and how might we make it a better return for investors” or “How may we de-risk it with (perhaps) the way that we’re going to finance the property?”, and many of the assumptions that we can make around raising rents etc, so that in the end we end up under-promising and over-delivering.

Joe Fairless: You’re in 1,700 units as an LP and a GP… What’s something that’s gone wrong?

Steeve Breton: A couple of those deals I jumped in probably a little too quickly… Mostly on the development side, and we all know it’s a bit more–

Joe Fairless: Oh, development…

Steeve Breton: Right… Some of those were amazing, so I made 30%, 35% in a couple of those deals. The one that went a bit sideways, it took a lot longer than we expected, there was an insurance claim… I won’t get into too many details there, but in the end we got all of our money back; I think I got maybe a 5% return over 18 months… So I didn’t lose any money, I certainly didn’t gain, but it did teach me a bit of a lesson. That’s one of the ones that I got in early on.

Another lesson was my very first commercial multifamily. It was a six-unit property, and I went into that one knowing it was in a bit of a rough neighborhood… And I thought “I’m gonna be able to help people by providing a nicer place to live, and I’ll clean up the neighborhood a bit by starting with my properties.” It was basically three duplexes all on one larger lot… And I did achieve those things – they did have a much better place to live, I’m providing this wonderful service for the people that live there, but in the end I think about that and I say “Well, at what cost? What could I be doing instead of all the hassles and the annoyance and the work that I had to do in that place, and continue to do?” I think I now have a really good property manager there, who’s now kind of running the show, so I’m a bit more hands-off… But I like to give back, and do other things, and I think my energy is much better served or spent there.

Joe Fairless: Yeah, opportunity cost, that’s for sure. I’ve been there as well. In terms of the 5% return over 18 months, what’s something that the general partner could have done differently, in your opinion, to have a better outcome with the deal?

Steeve Breton: In that case it was mainly — there was an insurance policy that wasn’t fully vetted; it didn’t quite cover what they thought it covered, and there’s a debate whether it was the agent or the insurance broker or whatever… But in the end, we could have gotten better insurance, we could have been certain that they were getting enough insurance, and then I think more importantly is when the deal started to go sideways, the partner went a little silent on us. It took a little bit of prodding, and then there was more communication, but at that time when it was no communication, everyone was thinking the worst. In the end, it wasn’t the worst. It’s not horrible to only make 5% on your money; I can live with that. But it’s not communicating enough, or often enough, and with enough detail.

Again, out of all these things you take from the various partners that you work with, or the many partnerships that you join – you understand what it is that you wanna do or not wanna do when it’s your turn to have that risk come to fruition, which, again, we all try to mitigate, but eventually something happens… So what are you gonna do about it? How are you going to communicate?

Also, even in your due diligence, in your underwriting upfront, how are you going to ensure that you avoid these things?

Joe Fairless: Very helpful, both of those points. From an insurance policy standpoint, what’s something that  you do with your deals now to mitigate that risk from happening on your deals?

Steeve Breton: To me – I wanna actually read the insurance policy, and just make sure that it’s in line with the area. If we’re in a high flood area, or hail area, you wanna make sure they’ve got proper coverage for roofs; flood area – what sort of flooding are we covered for and not covered for? There’s a lot of nuances there. Not that I’m an expert by any means, but I’ll just read it and then ask questions.

Joe Fairless: Based on your experience as a real estate investor, both on the LP and GP side, what’s your best real estate investing advice ever?

Steeve Breton: I would go with checking your mindset. There’s a story that I have in particular where I went and defined my goals – I’m gonna own X number of units, and I’m gonna be able to retire early, and all these things that I had thought of… And I spoke about those with my family; I have three boys – one of them is now in college. The oldest son kept asking me “When are you gonna go big?” This was when I had those 16 units still; I had sold one at the time, but I hadn’t really bought anything large yet. And he kept asking and I kept putting him off; “I have a responsibility, I have a family to feed” etc, all those stories I told myself.

Then one day at dinner time he just says “When are you gonna stop being such a…” — and I’ll say wimp, but that’s not the word he used.

Joe Fairless: [laughs] God…

Steeve Breton: This is when he was a senior in high school.

Joe Fairless: [laughs] Oh, man…

Steeve Breton: So I had to take a good, hard look at myself in that moment, and he was 100% right. I had already researched, I had done training, I knew everything about this business — not everything, but everything I needed to know in order to go and succeed at it. What I didn’t have is the right mindset. I didn’t realize the things that were holding me back.

Sure enough, I went ahead and signed up with Rod Khleif at the moment; I had looked at a bunch of coaching, and what I really liked about Rod or the Lifetime CashFlow coaching is he has a lot of mindset built into there. It also reminded me of — I think Tim Ferriss had something called “Fear setting.”

Joe Fairless: Yeah, that’s Tim.

Steeve Breton: Goal setting is super important, but at the same time you need to understand what are your fears. On the goal side, if you have absolute certainty that you can’t fail, what is it that you’re going to do? What would you wanna accomplish? And then you have to look at the opposite side of that, which is “What are the things that you’re afraid of? What are your fears that might prevent you from going and doing that thing, and actually accomplishing it?” That’s super-important.

Of course, once you list it out, then you can start looking at ways to prevent it or to fix whatever it is that might go wrong; it brings things to a better light.

All that said, I would say that I was on the precipice, I was almost ready, which is why I think he said that to me, so that when I did sign up for coaching, it was just like putting gasoline on the fire.

Joe Fairless: Yup.

Steeve Breton: I know a lot of people sign up for coaching and maybe they don’t have their head on straight yet or they’re not ready yet, and they may not do well, but trust me, it’s not the coaching. That’s more about your mindset.

Joe Fairless: And Tim Ferriss has a TED talk on that. Everyone listening, if you wanna watch that or listen to it, just google “tim ferriss ted talk.” There might have been two by now, but you’ll figure it out, one of those two talks about fear-setting.

Steeve Breton: Yeah, TED talks in general… I did a stint a couple years back where I just listened to a ton of those; I’m sure Tim was in there, but… There’s a lot of really good ones on mindset.

Joe Fairless: Oh, absolutely. Tony Robbins’ TED talk is another really good one. We’re gonna do a lightning round. Are you ready for the Best Ever Lightning Round?

Steeve Breton: Sure.

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

Break: [00:21:44].08] to [00:23:00].25]

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

Steeve Breton: I’ve just recently re-read The One Thing by Gary Keller.

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

Steeve Breton: Other than the three-family that I gut-renovated (but that’s not as interesting), the first deal in San Antonio – we added value to the point that when we sell this property, it’ll be about a two million dollar profit. Our plan on that was to do it within about 24 months of renovations, and it’s looking like about a year. That goes back to partnerships – the partner I have there is outstanding. He’s on point on every point, and really driving that project… And again, to be able to over-deliver in such a short period of time for us – it’s like a home run.

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

Steeve Breton: I used to coach — I have three boys, so coaching their soccer teams, hockey teams as they were growing up; now they’re in high school and college, and it’s like “Well, what do I do now?” I got involved in a local service organization, helping there… I also am thinking “How can I be a force multiplier?”, so it’s not just my activity that helps people of the world, but what I wanna do is help people by mentoring them.

I have a lot of friends in this business that I’ve met over the past year and  a half or so, and I’m always open for a phone call, always wanted to mentor and help people along in this business, because I think at some point they’ll be just like me; I sit here and think at some point I’m gonna cash in on some of these deals and I’ll have half a million dollars in my pocket. How much of that is enough? How much do I need, and at what point am I able to, let’s just say, I can write a check and fix a lot of other people’s problems? If I can do that, I hope the people that I surround myself with and that I mentor will also have that same mindset and do the same thing.

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

Steeve Breton: On the passive side it was that deal that I didn’t fully vet on, on a development deal.

Joe Fairless: That’s the 5% return over 18 months?

Steeve Breton: Yes.

Joe Fairless: What could you have done there on the passive side? Because it sounds like it was an insurance policy… Or was it something else?

Steeve Breton: It was a policy, but also the sponsor wasn’t really that experience as far as his own ability to manage these things. He had some experience, and I took a chance; I knew it going in. But then on my own side, as far as having my own property that I worked on and made a mistake – again, I go back to the headache of that sixplex I bought, and just not thinking that you can just change the world. If it’s in a bad neighborhood, it’s probably gonna stay that way… Or even if it’s up-and-coming, it could be years, and you have to live with the potential brain damage that comes with that.

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

Steeve Breton: Through my website. My company name is Velocity Capital, but the website is velocitycap.com.

Joe Fairless: Steeve, thank you so much for being on the show, talking about how you’re on the GP side and still have a  full-time job. You started out buying the duplexes and triplexes, and then went to the LP side, and then went to the GP side on deals… How it’s structured from a compensation standpoint, and then the importance of mindset. If everyone doesn’t have an 18-year-old full of testosterone calling him out at the dinner table, then at least we can go watch Tim Ferriss and learn about fear-setting, and go about it consciously, so that we do continually evolve our mindset. You mentioned TED talks is something you watched a lot; I did, too, when I was starting out, and that’s another great resource.

Congrats on what you’ve been doing, thanks for being on the show; I hope you have a best ever day, and we’ll talk to you soon.

Steeve Breton: Thank you. Take care.

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#BestEverShow banner with Ricky Beliveau

JF1349: Using Social Media To Build Your Real Estate Brand #SkillSetSunday with Ricky Beliveau

Ricky has been a guest before and shared his Best Ever real estate advice and told us about his real estate business. Today Ricky is back to tell us about his social media division of his company. From tactical strategies to overall benefits of using social media, hear how a bigger presence on social media can help your real estate business. If you enjoyed today’s episode remember to subscribe in iTunes and leave us a review!

 

Best Ever Tweet:

 

Ricky Beliveau Real Estate Background:

-Owner of Volnay Capital

-Social media division Volnay Social Media has over 500,000 Instagram followers on 3 accounts

-Specializes in both buy and hold as well as condo conversions

-Currently have 8 development development projects in different stages in/around Boston

-Based in Boston, Massachusetts

-Say hi to him at www.VolnayCapital.com  

-Listen to his Best Ever Advice here: https://joefairless.com/podcast/jf1001-a-hidden-wealthy-niche-that-involves-a-fine-tuned-team/


Join us and our online investor community: BestEverCommunity.com


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TRANSCRIPTION

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

With us today, Ricky Beliveau. How are you doing, Ricky?

Ricky Beliveau: Hey, Joe. How’s it going, man?

Joe Fairless: It’s going well, and nice to have you back on the show. Best Ever listeners, you might recognize Ricky’s first and last name; that’s because either you’re a buddy of his, or you heard his podcast. It was episode 1001, titled “A Hidden, Wealthy Niche That Involves a Fine-tuned Team.” If you want to learn more about that, as well as his best ever advice, then feel free to check that episode out – episode 1001.
Today we’re going to talk about the importance of social media in your business, Ricky, and how Best Ever listeners can implement a social media approach in theirs and help drive business results.

A little bit more about Ricky – he is the owner of Volnay Capital. He’s also got a social media division – Volnay Social Media – that has over $500,000 Instagram followers across three accounts. Based in Boston, Massachusetts. He currently has eight development deal projects in different stages in and around Boston. I personally know one person who has invested with Ricky and has many good things to say about that experience.

With that being said, Ricky, do you wanna give the Best Ever listeners a little bit more context around the importance of social media in your business and how you got started out with it?

Ricky Beliveau: Sure. I made my first Volnay Capital social media account on Instagram back a few years ago. The idea behind it was to showcase my work and to start building a brand. I didn’t really understand back then the importance of it or what it would grow into or what it would become today; at that time I really just wanted to be able to post pictures of my work and have people be able to see it.

Over the time, as that account grew and people started to follow it, it kind of picked up a lot of traction and started building recognition in the city of Boston as a company that people need to know about. I started being recognized, if you were able to understand what our brand was about and the quality of our work.

As that account was being built, I realized that I kind of shifted away from what I really wanted to be doing on that account, and I think that’s one thing that’s really important for the listeners to understand – when you’re creating a social media following, you wanna make sure you understand the direction you wanna take it.

What I’m kind of saying now is that I started showcasing other people’s work and stuff that wasn’t my own; stuff that I liked, and that I thought people would like to see, but wasn’t my own work… And I realized that that wasn’t Volnay Capital. So at that point is when I started our social media division, which was built around featuring other people’s work, and let Volnay Capital stand on its own as just showcasing artwork.

Joe Fairless: That makes sense. I apologize, because I should have asked this question at the beginning… What business results have you generated as a result of having a social media presence that you can tie a direct cause and effect to? And then once we establish the benefit for it, then I’ll follow up with some how-to questions.

Ricky Beliveau: Sure. So the first thing would be for selling real estate, as well as renting real estate. We used our Volnay Capital Facebook page, as well as our Instagram account, to market our condos that we do in Boston, as well as our rentals that we have both in Boston and in Providence.

So we were able to sell those directly to buyers, without having agents who would need to list those properties. We do put them out on the MLS and other ways to show them, but social media has been a huge asset to sell our properties.

One thing that’s different – and I love this about social media – is you can reach buyers who had no idea that they wanted to buy or rent in that location. When a buyer is thinking about where they wanna buy or where they wanna live, they might have a specific area that they’re thinking of, and then they’re close-minded to that area.

When you’re using social media you’re able to reach someone who might not know they wanna live in the neighborhood that you’re doing a project in… And when they see the quality of your work, and they see everything, it can trigger them to say “Hey, maybe I do wanna look in that neighborhood.” We’ve had many buyers buy from us who originally would never have considered the neighborhoods where our projects are, and the next thing you know they’re putting an offer in.

Also, we buy properties through social media, so we’ll have homeowners reach out to us, wholesalers will reach out to us, agents who come across opportunities, they’ve been following us and they say “Oh, I see they’re doing projects just like this [unintelligible [00:05:39].20]” from contractors. We use social media to vet a lot of our contractors, as well as find contractors.

I love a contractor who’s proud of his work; I love a contractor who wants to show it off on social media. If I can see a contractor is putting his tile work, his woodwork, the stuff that he’s doing, the project, and he’s proud of it, that just gives me a reassurance that he’s not hiding things; he wants to be out there, he wants to be seen.

So we use social media to find new subcontractors all the time, and we’re contacted all the time by subcontractors who wanna be featured on our accounts and they wanna be part of what we’re doing, and they understand the value in that… It’s been a great asset to our business.

Joe Fairless: One cautionary note, and it’s just because I’ve come across this recently with a contractor – not personally, but just through a meetup (one of the members of a meetup)… They worked with a contractor, he was terrible, took all their money, ran away, and then started a new Facebook page with a brand new company and now he’s trying to, I suspect, do the same thing again, because he’s done it to multiple people.

So the cautionary note here is if they do have a social media profile and they are promoting stuff, check out how long they’ve had that company and do some due diligence if they’ve had previous companies under different names… Because it’s free to create a Facebook page.

Ricky Beliveau: For sure. Instagram is great for that, you can see how long they’ve been on there, you can see their work, you can see if it’s something that was just created, if they have the past 2-3 years of work they’re providing. That’s just one small step in selecting a subcontractor, but it is a nice addition to the meetings and talking to other developers they’ve worked with.

Joe Fairless: So you have benefitted, from a business standpoint, in the ways you described, which are 1) selling real estate, as well as renting real estate, so finding buyers and finding renters. You have found buyers who wouldn’t necessarily looked at that neighborhood, because of the way social media is structured, and you find and do a component of the vetting process for vendors and other people who you work with… Are those the three primary business reasons why you’re focused on social media?

Ricky Beliveau: Yeah, and I guess another smaller one is, from an investor standpoint, I think just as I would look at a contractor and see his work, I think from investors, they like to see your track record and also what you’ve been up to or what you are working on. So if you’re someone who is doing house flipping or development projects and you are looking to raise capital, if someone’s able to look back and see your work and follow along with what you’re doing, there’s an additional level of comfort that that creates for an investor, and it gives your business more legitimacy.

The final one is really brand building and networking. You’ll meet like-minded people through social media, you follow each other’s accounts, you get ideas, as well as you’ll be able to build your brand so that when the time comes, you start to become recognized for your work.

Joe Fairless: Got it, okay. So that helps us set the foundation for our conversation, and Best Ever listeners, if you don’t have a social media presence and you are full-time in real estate investing – I mean, come on, really? So these are business reasons why, but I’m sure that most listeners, if they’re full-time real estate investors, have some sort of social media presence… But we went over that just to make sure we caught everyone’s attention in case they didn’t have it.

So now that you and I know that most people have some sort of presence, now it’s how do we get to the level that you’re at? …500,000 Instagram followers, from where we’re at – or hell, where I’m at. I’m not on Instagram; I personally don’t enjoy social media, which is something else we should talk about… But with Facebook, I think my Facebook page, the Joe Fairless page on Facebook – it’s got maybe like 2,500 or so likes… So how do I get to the level where you’re at?

Ricky Beliveau: From a Facebook perspective, Facebook is much more of an organic growth, and it’s been around for a lot longer, and they have a lot of algorithms in place. We look at Facebook more for when we want to run ads and use their ad platform. Our most growth on Facebook is when we’re looking to market a property to sell or to rent, because then we’ll run specific ads to target individuals who we feel would be interested in that unit. And then by doing that, we’re using keywords that we feel would hit people who are interested in what we do.

So one thing that’s different for our brand is how we allow the buyers to customize their units, kind of like the show Fixer Upper. So when we’re looking to target our condos, we’re looking for using the hashtag #fixerupper, #HDTV, #DIY… People who are interested in that space, because we feel that they’d be more likely to be interested in our units.

Joe Fairless: Interesting.

Ricky Beliveau: From an Instagram perspective, which is obviously our specialty, which is obviously a newer and still evolving platform – they’re continuously changing their algorithm, which makes it more complicated to continue to grow… But I think — kind of running through what you guys need to concentrate on… Number one is really figure out the direction of your page. When you’re building a social media presence, people wanna know what they’re following, and the posts that are gonna be posted there should follow that direction. So if it’s gonna be business-related for a house you’re renovating, it should be showing pictures of the house you’re renovating; it shouldn’t show your dog in the park. Because for the person who’s following that, they don’t wanna see your dog in the park; they’re interested in you from a real estate development perspective.

There’s a lot of accounts out there that are extremely successful with being both personal and business, and that’s fine; if you wanna show off yourself personally, with your work, as well as your family, and your dog, and your restaurants, that page can work as well. But you wanna select what direction you wanna go, and grow in that direction.

Also, another thing is you’re gonna feature only your work, or you’re gonna feature your work and other people’s work. You’ll see a lot of successful accounts that only show off their own work, because that’s what they want people to know. If you see a post on our page, it’s our work.

Then once you’ve decided that, it really comes down to content, and I preach this to all the people that I meet, regarding advice on social media – if people don’t like what you’re posting on your pages, they are not going to follow your account. That comes back to the quality of the images, quality of what you’re putting into the body of the post, the information you’re providing.

So is the content you’re providing both on Instagram with the images, or the post that you’re putting on your Facebook page, whether it’s linked information to websites or data about your area that you’re in regarding real estate  – is it something that people want to see on their page? And if it is, that’s the first step in getting them to follow you.

Joe Fairless: The quality of image and quality of the content in the post… Quality can be subjective based on who’s doing the quality assurance, so for you, what does a quality image mean and what does a quality content or copy of a post mean?

Ricky Beliveau: If you’re looking at my Volnay Capital page – that page, we’re doing a lot more photos taken with a phone, because it’s being taken on the job site of active work. So on that perspective, my content level (what is acceptable) is lower, because that’s much more active job site videos and active photos from job sites.

So I would say you just wanna make sure that if you’re doing a video, it’s using a steady hand, it’s not all over the place, and that you’re also describing what’s happening in the video well in the body of the post.

If you wanna go to the next level, there’s stuff out there that can hold your phone, like self-levelizers. We use those to post videos where you can put your phone right into the leveling device, so that when you do the video your phone will be completely still. That’s something that you’re starting to see more and more people do; they cost around $300 and it definitely takes your content to another level.

Another thing you can do to improve your videos is you can actually buy additional lenses to add to your camera on your phone. You go on Amazon, you can look up “additional lenses”; you can do a wide lens, you can do a more detailed lens… So it actually slides right onto the front of your iPhone or your other device, and then that will allow you to do wide-angle pictures or wide-angle videos right on your own phone. So these are all ways you can improve your content from just a standard video.

On our social media platform pages, the Kitchens of Instagram, Bathrooms of Instagram – those large accounts – we’re looking for professional-level photos, and we get hundreds of messages a day from people wanting us to showcase their work, and what we write back is we say [unintelligible [00:14:20].00] professional photographer, with a professional camera. That’s the level of picture that we expect, and that’s what our followers expect. So if we put a picture up that’s not at that level, we see that we don’t get the number of impressions, and we actually see that it can actually hurt our growth for that week.

Joe Fairless: And what page is that, compared to the other page?

Ricky Beliveau: So our main business page is Volnay Capital, and the kitchens_of_insta is our largest account; that’s the one with 186,000 followers. That showcases other people’s kitchens, and the designs of others; people are sending us their work, and we’re putting it on that account.

Joe Fairless: Very cool. So that’s how many followers?

Ricky Beliveau: Kitchens_of_insta has 186,000, and then our next account is bathrooms_of_insta; that’s 118,000. That features bathrooms that we’ve renovated and completed, as well as people all over the world send us their bathrooms to be featured on there.

Then bedrooms_of_insta – 84,000; exteriors_of_insta – 46,000, and then designers_of_insta – 50,000. So in total we just went over the 500,000 mark this Saturday.

Joe Fairless: Congrats on that. Interiors is how many thousands about?

Ricky Beliveau: Exteriors is 46,000, and then designers_of_insta is 50,000.

Joe Fairless: 46,000, and designers… What’s on designers?

Ricky Beliveau: That’s featuring the whole house, so it’s living rooms, laundry rooms… It can include kitchens, it can include patios… Really any type of design, as well as more actual design items, so the way a living room or a bedroom has furniture places in it, and all that. More than just the actual buildout.

Joe Fairless: Do you have a Volnay Capital account as well?

Ricky Beliveau: Yeah, that was the original account; that’s Volnay Capital, and that’s where we now feature solely our own project and our own work.

Joe Fairless: And how many does that have?

Ricky Beliveau: That has 16,000.

Joe Fairless: Got it. So here’s what I notice  – your largest one is People’s Kitchen, and that makes sense, along with the bathrooms and the bedrooms, because that captures a wide audience. That captures not just investors, not just people who care about or don’t care about real estate investing, it’s just people wanna check out kitchens… And same with bathrooms etc. So when you have this account that is showcasing kitchens, how does that help your business?

Ricky Beliveau: When you look at our business as in Volnay Capital, this is a whole division of our business. We’re using those large accounts not only to feature our own work and build our brand, we also use those to leverage for marketing opportunities. The way that works is we actually sell ads, as well as negotiate terms with our suppliers based on our social reach.

So do to the fact that we have a reach of almost 400,000 individual people per week, we’re able to use that when we leverage our purchasing with suppliers. When I purchase an order with a tile distributor who is looking to push a product, I can then show them that reach and say “We’d like a preferred price, we’d like this at cost, and then we’ll help promote your tile.” That goes for appliances, that goes for — across the board we’re able to leverage that reach.

Joe Fairless: It’s fascinating. I love that, because it’s connecting a larger audience, and then you’re repurposing it for some business reasons. As far as if someone is listening to this and wants to take a similar approach – it sounds like if they’re an apartment investor, then maybe they create an Instagram account about the beautiful apartment designs, or architecture or something, and then they do that, they build a following, and then they can help decide how they wanna monetize that or leverage that.

Ricky Beliveau: Exactly, and I think one key part about it is it needs to be something that they’re passionate about. A lot of work and a lot of time goes into this, it’s not something that just happens overnight, so it needs to be something that the person is passionate about and that they’re willing to put that time in.

So if it is something that they’re interested in with architecture, or building design, or apartment layouts even, if it’s something that they really like to look at and they’re interested in, that’d be something great to start an account about.

Joe Fairless: Got it. That’s interesting stuff. I’m glad you went through each of those… One is an Instagram account, a Facebook page, a twitter handle… What’s the Instagram thing? Instagram account?

Ricky Beliveau: Yeah, Instagram page, or Instagram account.

Joe Fairless: Alright, got it. I’m glad you went through each of those. Clearly, I’m not an Instagram guy. [laughs] I’m glad you went through each of those Instagram accounts and said the followers, because that helps us understand how you’re getting the traction… I can see my wife, Colleen, being interested in your Instagram page on kitchens and bathrooms and bedrooms and exteriors and designers… That’s interesting stuff, so it casts a wide net.

Would you suggest doing that? Because this is the approach you took, you evolved into… You’ve got things that are interesting to a large audience, but still relevant to your company, and you’re using that to build your own company’s profile. Is that the approach that you’d recommend?

Ricky Beliveau: I would say the first step would be concentrate on your own business and your own brand, and then through doing that, being active on social media, I think you’ll start to see pictures that you like, the stuff that you’re seeing that you feel that other people would like, and then from that you would then grow it into an additional account and go from there. You’re gonna do one at a time, it’s probably gonna be a slow growth, but I think that would be the first step.

So kind of like we did – start with your brand, start with your account, and then see the direction that social media is taking you.

Joe Fairless: It makes sense. As far as — let’s take your showcasing kitchens (the 186,000 followers), how long have you had that account open?

Ricky Beliveau: That accounts started in November of 2016.

Joe Fairless: November 2016, got it. So what is that, like a year and a half or so…? How much if any have you paid in advertising dollars or some other way to get followers?

Ricky Beliveau: Zero.

Joe Fairless: So it’s all organic followers, based on content.

Ricky Beliveau: All organic, yeah. That’s one thing that people always ask me. “I have an account, Ricky. I’m posting on it. Why am I not growing?” That’s the number one question I get. They’ve gotta understand the way Instagram works; yeah, content is important, but when you post onto your account, Instagram is really a closed circle. Yeah, there’s hashtags, but if you were to post with no hashtags, that post will be seen by about 10% of your followers. That’s the new algorithm, that’s the way Instagram works. So if you have 100 followers, you do a post, only 10 of them are gonna see it.

Then to decide if more people are gonna see that post is based on interactions with the post, so that’s likes and comments. If your post isn’t being liked or commented on, Instagram is not gonna show it to anybody else; they’re not gonna show it to your other 90, they’re not gonna show it to the rest of the people on Instagram.

So it’s key to ensure that the content is good, but then also that when you’re posting, you are having your post interacted with. And the way to do that is that you need to be active yourself. When I say being active on social media, that means that you’re commenting on other people’s posts, you’re responding to comments on your own posts, you’re liking other people’s posts, and that you’re interacting with other people’s posts… So you’re continuing that interaction.

What that does is that shows Instagram that you’re not a bot, and that you are an active participant in their platform, and all that plays into the algorithm that they use to show your post to the world.

So when you just post and you just go away from the day, unless it’s something that your first ten people like and that starts going, if you’re not doing these other things, you’re gonna see no growth. So I think that’s where the time comes in, that you have to really be committed to not just posting, but being an active member of the Instagram community.

Joe Fairless: You can’t just post and forget; you’ve gotta post and then get in there and really engage with others, and then they’ll engage with you.

Ricky Beliveau: Exactly.

Joe Fairless: Excellent. Well, anything else that we haven’t talked about that we need to talk about as it relates to this before we wrap up?

Ricky Beliveau: No, I think we’ve covered pretty much everything.

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

Ricky Beliveau: You can find me at VolnayCapital.com, and you can e-mail me there. And obviously, on all these Instagram accounts…

Joe Fairless: [laughs] I was waiting for it… I was like, “Wait… And Instagram!”, right? [laughter] Sweet! Well, Ricky, thank you for being on the show again and sharing with us how you have grown your social media presence in these different channels, on Instagram primarily, and the way that you did it.

Your recommendation is to start with your own page, and then see where social media takes you and what you want to be focused on… But then the macro-level approach that you now have is  casting a wide net with different topics or areas of focus that are appealing to a whole lot of people, and then using those channels or those pages to then drive business to your company, and save money on projects through in-kind exchanges of exposure with discount on supplies.

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

Ricky Beliveau: Great, thanks for having me.

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Joe Fairless episode 1306 banner with guest, Dan Palmier

JF1306: He’s Got Capital For Your Deals with Dan Palmier

Dan and his company UC Funds provide funds for larger deals for investors. If you’re a syndicator, you can go to him for 100% of the financing, rather than tracking down the funds on your own. At the same time, wealthy individuals will invest their money with him and his company so they can get great returns on their money. If you enjoyed today’s episode remember to subscribe in iTunes and leave us a review!

 

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Dan Palmier Real Estate Background:

  • Founder, President and CEO of UC Funds – a vertically integrated private commercial real estate firm
  • Been in the real estate business for over 25 years, as investment manager, owner, developer, and financier
  • UC Funds originates, structures, underwrites, and manages commercial real estate investments
  • Based in Boston, Massachusetts
  • Say hi to him at http://ucfunds.com/
  • Best Ever Book: Purpose Driven Life by Rick Warren

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TRANSCRIPTION

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

With us today, Dan Palmier. How are you doing, Dan?

Dan Palmier: Very good, Joe. How are you doing?

Joe Fairless: I’m doing well, nice to have you on the show, my friend. A little bit about Dan – he is the founder and president of UC Funds, a vertically-integrated private commercial real estate firm. He has been in the real estate business for over 25 years as an investment manager, an owner, a developer and a financier. UC Funds organizes, structures, underwrites and manages commercial real estate investments. Based in Boston, Massachusetts. With that being said, Dan, do you wanna give the Best Ever listeners a little bit more about your background and your current focus?

Dan Palmier: Absolutely. We are a firm that focuses on capital solutions and providing financing to entrepreneurs nationally. We have a growing investor base, we’ve done about two billion over the last four years. We’re transforming, we’ve got some really good new investors and joint ventures with some of the biggest banks in the world, and we’re very eager to grow our platform and provide capital solutions.

Most of what we do is debt mortgages, first mortgages, mezzanine capital, equity, preferred equity, and all asset groups.

Joe Fairless: Who is your ideal client?

Dan Palmier: We have a lot of repeat business, so I think the smarter the client is, the more entrepreneurial, the quicker they need things is the best client for us, so that they understand the difference between our capital solution and something more commoditized that our competitors or another bank will do. We’re very creative, so entrepreneurs that are very skilled and experienced are really our best customers.

Joe Fairless: Will you elaborate or perhaps give an example or two on having a creative solution versus what a traditional bank would do?

Dan Palmier: Sure. So one of our groups centralized here in Boston is called our screening group. Borrowers will come to us, brokers will come to us and they’ll ask for a first-mortgage loan to buy something, or they’ll come to us and say “We need some mezzanine capital” or “We need a little equity…” So we encourage them to give us all the information on the deal, and we’ll go back to them and say “We could do it this way, we could do it A, B, C, D.”

Joe Fairless: What would be examples of A, B, C, D?

Dan Palmier: If an entrepreneur or borrower comes to us and says they have a first-mortgage bridge loan, or first-mortgage loan to acquire or construct a property from the bank down the street, and that looks like 65% leverage and they’re looking for the remainder of the cap stack, so the next 35%, and they’ll say “Well, we have the equity, we only need 10% mezzanine loan.” So we’ll say “Great, here’s what that would look like. Your request was a mezzanine loan, 10% of the subordinate capital stack, but we can also do a 90% first-mortgage loan versus the 65%, and we can also do the equity piece, and your blended cost of capital would be less than doing it the way you’re doing it”, which is three phone calls, three meetings – one to the bank, one to the mezzanine lender, and then syndicating, which is basically cobbling together equity or going down the street to a big institution to give you that equity piece.

The syndicator would go to the country club and raise that equity, and all that is time, energy, and most of these guys lose the deal. So as a one-stop shop for commercial real estate capital solutions they could call us, and right here under one roof I can provide them 100% of the capital. That gives us a lot of flexibility on providing that A, B, C, D options. We could do the first, we could the first and the mez, we could do first, mez, preferred equity, or first, mez, preferred equity and the equity.

Joe Fairless: So there’s one of two thoughts going on right now. One thought is a Best Ever listener who is thinking “100% financed… Something’s not right here.” And the other thought that is going on could be “I want in on that. I want 100% financed deal.” Help me understand a little bit more about that, and kind of talk us through a little bit more, please.

Dan Palmier: Okay, so a traditional capital stack for a real estate owner to buy something, if they’re financing it – they can do this all-equity, but that doesn’t make much sense in our arena… So there’s the traditional debt piece, which if you go to a bank today, depending on what it is that you’re gonna do, between construction and something that is fairly stabilized, that may look like — let’s just call it 65% of the capital needed to buy or construct.

The 35% to get to 100% – that’s where some creativity comes in. Some of our borrowers will come to us for the next (let’s call it a) tranche or segment of the capital stack, and we’ll call that a mezzanine tranche. We’ll call that another 15%-25%. Let’s call it 15%, so now we’re up to 80%. The next 20% is typically equity, so what the entrepreneur or the buyer is bringing to the table; it may be his cash, or a combination of his cash and others. That’s kind of a traditional — 80% of the buyers buy like that.

What we can do, and do do here at UC Funds, we can do that 65%  piece, we can do that 15% mezzanine piece, and we can do the equity piece. Now, the cost of those tranches are different, but because our investor base is diverse, we have investors that wanna be in the first piece, they wanna be in the mezzanine piece, another would wanna be in the preferred equity and the equity. But it’s one phone call and we can do 100% of that cap stack.

Joe Fairless: With the actual investor who comes to you, if your group is doing all the financing, then how do you have alignment of interest with that individual so that you know they have some skin in the game?

Dan Palmier: Are you talking about the borrower?

Joe Fairless: Yeah, the borrower. Let’s just use me for an example. I’ve just found an apartment building, it’s (let’s say) 500 units, we’re talking right now, and I’m like “Yeah, I’ll roll with you, Dan. You fund everything. Here’s my deal, and I’ll take some ownership, and great. I hope it works out.” How does this work exactly?

Dan Palmier: Right, so every deal is unique. We wanna make sure that our investors that are providing the capital are safe, so we would like you to have skin in the game, we’d like you to have cash in the deal, but if you, like some of our other investors, just know how to buy right more so than others, and you’re buying something that’s worth 20 million for 15 million, being an entrepreneurial provider of capital, I’m gonna give you credit for that 5 million.

So I’m gonna say, “Joe, nobody does this except you. You’ve got something for 20 and you paid 15, so I’m gonna give you implied skin in the game an equity value of that 5 million bucks.”  So I feel good that if I’m financing 90% of your acquisition, you still have more equity in the deal. So it’s a case-by-case basis, but we look at the deal and we figure out “How are our interest aligned? How do we get paid back?” I wanna make sure we always get paid back with the appropriate yield on our investment.

So there’s some implied equity, there’s cash equity that we like… If they wanna give us a personal guarantee versus putting cash in, we’ll take a look at that, also being entrepreneurial on our side. You may say “I don’t have that much equity. Can I pledge another asset?” That’s another way of skinning the cat, and as a private institution I can do it, while others are not allowed, or don’t want to or don’t understand how to do it.

Joe Fairless: Yeah, that is incredibly nimble, that’s for sure… With the implied equity – let’s just go with that example that you used… We’re buying a 20 million dollar property for 15 million, so that’s at a 25% discount, so the implied equity – would you give me credit for all 25% of that, or just a percent of that 25%?

Dan Palmier: Again, it depends on the deal. As a real estate professional, you understand that every deal is unique. We try to do as much of the 25% as possible.

Joe Fairless: Wow. And what do you read from a interest aligned standpoint? You’ve mentioned implied equity, cash equity, personal guarantee, pledge another asset… What is the total amount, percentage-wise? …and I know every deal is different, but generally, what percent of skin in the game do you look for, regardless of how you get it, from any of those sources?

Dan Palmier: I would say that here we’d like to have about 25%. We can mix and match what the different enhancements are, but we like to have about 25%, whether it’s cash equity, or implied, or a pledge of another asset and a personal guarantee.

Joe Fairless: Got it. Very interesting.

Dan Palmier: Yeah, a very unique way of looking at things. And we too commoditize stuff also, but I think the audience probably wants to know something more entrepreneurial, and we do a lot of this stuff.

Joe Fairless: Two billion dollars in the last four years? Help me understand how that’s derived? Just break that down for me, will you?

Dan Palmier: I’d say we’re probably up to almost 150 separate transactions, in 26 states throughout the country; a lot of downtowns throughout the country, where we’re actually breathing life into obsolete buildings in urban areas, so that millennials can go down there and live, work, and play, we do that. A lot of multifamily… I’d say 75% of the 2 billion is in the multifamily sector, and then everything else of the 2 billion – most of it is debt, 75% of it is first mortgages, and mezzanine, and equity, and we do some ground-up construction, and we bought some assets, too. We bought two hotels and a nice multifamily in downtown Stanford, Connecticut a year and a half ago; we bought a hotel in Pittsburgh and we bought a broken condominium in Gulf Shores Alabama. So we do a little bit of everything throughout the country.

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

Dan Palmier: I’d say get to know your customer, your borrower. It’s never really a good time to lend to somebody that’s not credit-worthy, and it’s never a bad time to lend to somebody that’s very credit-worthy. So know your customer.

Joe Fairless: In addition to 25% equity in the deal – there are many ways to get that we’ve talked about – what are the other things that you look for in the borrower, other than credit-worthiness, and will you define credit-worthiness a little bit more?

Dan Palmier: Well, we do a background check, we look at their history in the real estate field, we kind of rate their experience level, their credit score and all that traditional stuff. We really get to know the people we do business with, and not everyone has not had a problem. Obviously, we came from a very bad time back in ’07, ’08, ’09, so most borrowers have some kind of workout history, so we just evaluate what they’ve done, how they’ve done it, whether they’ve been honorable with their creditors and others. It’s very important to us.

Joe Fairless: I’ll give you a scenario, and based on the information I give you, I’d love to hear your thoughts, and then we’ll go from there. So let’s say I just quit my W-2 job, so no W-2 income. I’ve found an apartment deal; it’s the largest I’ve ever bought, any transaction. It’s about 100 units. The closest to that I’ve done is a single-family house, and I only have one… But the deal is a really good deal, and I have a good third-party property management company who I’ve lined up to manage it.

The deal appraises for 20 million, but I have it under contract for 15. I have good credit. If I come to you, are we doing the deal?

Dan Palmier: Absolutely. If the market is okay… You see, we look at the deal like a pyramid – we’ve got the borrower on one point, we’ve got the market, and we’ve got the property. For us, not all three things have to be stellar, but if it’s a good property, you’re buying it right and you’ve got a good property manager, we’re doing the deal.

Joe Fairless: And I have no money to put into it, but I can use that implied equity for it?

Dan Palmier: I’d like you to put something in.

Joe Fairless: [laughs] But I don’t have any money. I just left my job, but I have that one house… So let’s pretend maybe I have $15,000 in equity there; can I just say “Hey, here’s the house if things go wrong?”

Dan Palmier: We can do it that way… One of my mantras is we’re not going to lend a dollar unless we’re ready to own and operate the underlying real estate. So if that 5 million dollars is real, because it’s gonna be better luck next time – although we’re certainly not predatorial, we’re relationship lenders, we have no problem in taking the asset. And then it depends on the state. Some states are easier to take assets than others.

But I would do that deal for you, if that’s you, and I’m seeing you’ve got promise, and I like the story, and I think you have a lot of skill and future potential – I would help you. I would grow you and I would expect in return “The UC Funds guys, they helped me. They helped me actualize the American dream, they’re my guys. I’m going back to them over and over again”, and then you’ll say nice things about us.

Our referral network is very important to us. A new borrower that comes to us that may not know us, we give them 5-10 names and we just say “Just call them.” We don’t tell them to say nice things about us, but that’s what we work for. Reputation is very important.

Joe Fairless: I have a feeling you’re gonna get a lot of calls after this interview airs.

Dan Palmier: Joe, we do things others can’t or don’t wanna do. I’ve done a million, two million dollar working capital facilities for people that were referred, they needed some help making payroll, what have you, and I’ve done it off an e-mail. And subsequently, I’ve done hundreds of millions of dollars with the same people, because they remember that you did something that others can’t do or won’t do.

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

Dan Palmier: Yeah, let’s do it.

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

Break: [00:17:45].08] to [00:18:20].10]

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

Dan Palmier: The Purpose-driven Life, by Rick Warren.

Joe Fairless: What’s a best ever deal you’ve done?

Dan Palmier: I haven’t done it yet, but starting UC Funds is a deal to me, and that’s awesome. This new product called UC Go – it’s a joint venture with Barclays Bank, and we’ll do a billion a year, 85% loan-to-value, and transitional [unintelligible [00:18:41].16] resonating throughout the country.

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

Dan Palmier: Lending to the wrong person.

Joe Fairless: I would think that would come up frequently with the 100% finance stuff.

Dan Palmier: In reality, have I lost a dollar in this business? I’m asking myself…

Joe Fairless: Yeah.

Dan Palmier: I lost on one transaction out of — I’ve done a thousand. It was a guy that we didn’t do a good job underwriting.

Joe Fairless: If presented a different person, but the same exact scenario, what question would you ask or what data point would you research to then mitigate that risk?

Dan Palmier: [unintelligible [00:19:17].17] just make mistakes. We would have done more due diligence. It was my mistake.

Joe Fairless: On what particular thing?

Dan Palmier: Really evaluated the history that he had with investors and other bankers. We overrode the [unintelligible [00:19:31].10] because we looked at the real estate and we fell in love with the real estate, and we can do some hard money asset-based lending, and we got wrapped up with somebody that really didn’t wanna pay us back, and couldn’t and then then Great Recession hit, and we just didn’t have enough capital to wait it out… But phenomenal real estate, phenomenal real estate. So it was definitely a timing thing, and we made it through the Great Recession at all odds, but there was definitely some bruises and some scar tissue.

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

Dan Palmier: Palmier Foundation. I woke up probably six years ago, seven years ago and was a little sluggish getting out of bed, and it occurred to me that God made me to create, so… I like to give back, throughout the world, for different causes.

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

Dan Palmier: I’m on LinkedIn, and also my website, UCFunds.com, and my initials, dp@UCFunds.com.

Joe Fairless: I thoroughly enjoyed this conversation and really enjoyed learning about your business, how you structure deals, we got into the specifics of it, and how you approach transactions in a creative way… So thanks so much for being on the show, Dan. I hope you have a best ever day, and we’ll talk to you soon.

Dan Palmier: Thanks, Joe. Take care.

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Tom Cafarella and Joe Fairless

JF1233: Fired Accountant Builds 150 Agent Brokerage with Tom Cafarella

Tom was fired from his accounting job because he was spending too much time researching real estate investing online. Now he his a full time investor and broker. He flips over 100 properties a year and buys all kinds of properties from single families up to 10 unit properties. Listen in to hear how Tom built his real estate business up from nothing, and how he’ll continue to grow. If you enjoyed today’s episode remember to subscribe in iTunes and leave us a review!

 

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Tom Cafarella Real Estate Background:

– Owner/broker of Cameron Real Estate Group, Founder of Ocean City Development, a residential real estate investing company

– Host of the Real Estate Mogul Podcast

His company buys everything from single families up to 10 unit properties

– Quit his full-time job as a CPA in 2008 so he could flip full-time with two partners

– Based in Boston, Massachusetts

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

– Best Ever Book: Rich Dad, Poor Dad

 


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TRANSCRIPTION

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

With us today, Tom Cafarella. How are you doing, Tom?

Tom Cafarella: I’m doing awesome, thank you for having me on.

Joe Fairless: My pleasure, nice to have you on the show. Tom is based in Boston, Massachusetts. He’s the owner-broker of Cameron Real Estate Group. He’s the founder of Ocean City Development, which is a residential real estate investing company. His company buys everything, from single-family houses to up to 10-unit properties. He quit his full-time job as a CPA in 2008, so he could flip full-time with three partners. You can say hi to him at his website, TomCafarella.com. He’s also the host of Real Estate Mogul Podcast.

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

Tom Cafarella: Yeah, my background – like you mentioned, I was an accountant out of school; I hated it, I hated getting to work every single day, and I ended up getting fired because I was spending so much time reading online about real estate investing. Luckily for me, I was pretty young; this was ten years ago, I was 25 at the time… I did need to make a lot of money, and I knew at that point I needed to make a decision; I needed to go one way or the other – either I was gonna stay in corporate America, or I was gonna figure out how to be an entrepreneur, how to be a real estate investor… So I just started failing on my own, just trying every single thing, and finally figured it out.

Today we’re doing over 100 fix and flips a year. Like you mentioned, I’ve got a real estate brokerage of over 150 members, and just basically right now as of October 2017 trying to make as much money as I can while we’re in a market that allows us to make a lot of money.

Joe Fairless: Are you holding on to any of these properties?

Tom Cafarella: I am, but I’ve actually sold off some of my rental portfolio, and I don’t know, Joe, what market are you in?

Joe Fairless: I invest in primarily Dallas-Fort Worth right now.

Tom Cafarella: Okay, so Dallas has gone through a lot of appreciation, but some of my rentals in the past three years have doubled in price, so it’s really difficult for me to consciously hold on to some of them knowing that it’s gonna take so much longer for the prices to get up to that price point… So we’ve sold off some of our rental property portfolio, done some 1031s into other markets. I do hold on to some, but I make most of my income as of today fixing and flipping.

Joe Fairless: Okay, you already answered the question that I was gonna ask, but I’d like for you elaborate if you wouldn’t mind on the 1031, because I get it – if you see the property is double than what you paid, you sell, then you said you’re 1031-ing… Approximately what percentage of deals that you have sold have you 1031-ed, versus just taking the cash and putting it in the bank and using it somewhere else?

Tom Cafarella: We just started 1031-ing because we just kind of got fed up with paying the taxes. We just started doing that, and now we’re gonna try to 1031 everything going forward that we sell.

Joe Fairless: Alright, so the percentage isn’t as important as really your philosophy now. So you’re now doing the 1031. From an investor’s standpoint, when does and doesn’t it make sense for you?

Tom Cafarella: I think it makes sense if you can get into a market that is more flat, that hasn’t had as much appreciation and where you can get a lot of cashflow. I think it doesn’t make sense — what I see a lot of times in my market is people will 1031 over one inflated property, and then 1031 into another inflated property. To me, that doesn’t really solve the underlying problem. If you’re cashing out to make a lot of money and then you’re only 1031-ing to save on the taxes but you’re going right into the same market, to me that doesn’t make any sense.

Joe Fairless: Good point, really good point. The hundred fix and flips that you’re doing – that’s a lot of deals… I assume most deals you’re making money, so what are you doing with that money if you’re not actively acquiring new deals in your market?

Tom Cafarella: We’re always actively acquiring new deals.

Joe Fairless: For buy and hold I mean.

Tom Cafarella: So you’re talking about I sell a fix and flip, what am I doing with that money?

Joe Fairless: Yeah.

Tom Cafarella: I’m mainly rolling that into more fix and flips. So if we lose money on some of the deals here and there… You know, we might lose money on three deals out of 100, but it’s pretty few and far between.

Joe Fairless: So you’re creating a larger and larger bankroll for your fix and flip business. And then are you investing in other markets for buy and hold with some of that, or are you just putting most of it into the bankroll to do more and more fix and flips?

Tom Cafarella: Both.

Joe Fairless: We’ve started to invest in Jacksonville, Florida because it’s a market that we like a lot, so we’re pushing a lot of money there as of today. Then we also invest back into the brokerage as well, because we see that as kind of a play for us when the economy does start to go down a little bit and dip and we’re not making as much on the fix and flips. So really the best way to say what I’m doing with the money now is I’m trying to figure out how to keep making a lot of money when the market changes, and we’re anticipating that happening pretty soon. So my income might go down, but I don’t want it to go to zero, and that’s one of the things that we’re putting a lot of emphasis on as of today.

Joe Fairless: And you said one of the ways is to invest back into the brokerage…

Tom Cafarella: Yeah.

Joe Fairless: Another would be — is that the investing strategy in Jacksonville?

Tom Cafarella: The investing strategy in Jacksonville is to buy cashflow properties. In Jacksonville you can buy single-families that still cash-flow right now, and I like that model a lot. I like to look at “What’s gonna happen when the fix and flip income goes to zero? How much am I gonna make?” So right now we’re putting a lot of emphasis in building my brokerage, buying cashflow properties in other markets… We’ve got cashflow properties in the current market, and I also have a partnership program where I partner with people out of state and help them fix and flip properties, and I make money on that, too.

So those are kind of my other revenue pillars to make sure that, again, when the market does change, I’m still making good money.

Joe Fairless: As far as the brokerage goes, when you invest money back into the brokerage, what are you investing in specifically, and how do you track that that has an ROI?

Tom Cafarella: For example, we just did an $80,000 buildout of our office. So what ends up happening is you put the 80k into it, and how do we track the ROI? We’re looking at year-over-year what we’re doing for sales volume and number of agents. For example, two years ago I only had five agents in my brokerage, and I didn’t need to do an $80,000 buildout. But now that I’m up to 150 agents, I need to do the buildout to attract more. Eventually, I wanna have somewhere between 500 and 1,000 agents in the greater Boston area, so we need to build ahead of that space.

Other things in terms of reinvesting back into the brokerage to get that to grow would be hiring specific staff. For example, I’ve just recently hired a sales manager who is responsible for helping the agents get from point A to point B. She’ll work with them directly and coach them in order to get their sales up. So investing in capital expenditures and in labor as well.

Joe Fairless: What’s the lifetime value of a new agent that joins your brokerage to you?

Tom Cafarella: To me minimum probably $30,000 to $40,000.

Joe Fairless: That’s incredible.

Tom Cafarella: Again, it’s about who you’re bringing on, how you can help them and how long they stick around. If you get somebody good, they’re willing to work hard and you can train them, it’s very profitable. But of course, the thing that is a little bit difficult on the brokerage side is people could come and go as they please, and they’re always getting recruited by other top brokerages, so if you don’t do a really good job of helping them, then you’re gonna lose them.

Joe Fairless: At 150 brokers, $30,000 lifetime value, that’s 4.5 million dollars. That’s great. I’m glad that you talked to us about that; that’s helpful for anyone who has a brokerage, just how to think about it… Or anyone who’s joining a brokerage, their value to their team.

Tom Cafarella: The reason besides having the multiple revenue pillars to get us through the storm when the market changes – we needed people to take our leads. So as a real estate investor who fixes and flips over 100 houses a year in a very competitive market, we have to get the sellers before their property goes live on the MLS. So we have a huge marketing budget to get face-to-face with these sellers, and we needed agents in order to take these leads, in order to take these face-to-face appointments. So our brokerage has kind of grown on the back of those leads, and then obviously when we go to fix and flip a property, we can put a sign in the ground, we can promote the properties that we’re gonna be selling, so we generate a ton of buyer leads. It really works hand-in-hand, so if you’re a real estate investor, you have such an easy platform to become a big real estate brokerage.

Joe Fairless: That’s a great point, and something that could be another revenue stream, so thanks for mentioning that. You started out – I believe, because I’m reading this in your bio – with three partners. Is that correct?

Tom Cafarella: I’ve got two partners. I started out with two partners.

Joe Fairless: You started out with two, okay. You have two partners, so you’re the third, and you still have those two other partners.

Tom Cafarella: Yeah. At the end of the day, it’s segregation of duties. So in the investment side of the business, I’m the person who is responsible for generating leads and getting properties under contract at a really good price, so that we can make money. I also run the real estate brokerage. My two partners manage the construction and the accounting and legal side of the fixing and flipping business, so that we all have separate duties, we all have separate roles and we all work really hard and don’t get in each other’s way for the most part.

Joe Fairless: The construction, accounting and legal – does one person handle the construction, and the other two, accounting and legal?

Tom Cafarella: Exactly. Essentially, I’m typically in the office, managing the salespeople who are out making my offers for fix and flips and listing properties. My second partner is out in the field, managing the contractors. My third partner is in the office, making sure that we’re lining up financing, making sure that we’re getting the deals closed, making sure that any legal work, architectural work that needs to get done, permitting – basically, all of the administrative work behind the business itself is getting done.

Joe Fairless: That leads me to believe that you’re the one who’s really charged with the growth of the company.

Tom Cafarella: Oh, yeah. Basically, they say to me I create the masses… [laughter] But it’s my job to create the masses. So if it wasn’t for me, there would be no business to be had, but if it wasn’t for them, there would be a lot of business, but it wouldn’t be getting serviced. So it’s great that you can get a good deal under contract, but if you can’t actually renovate the property, then there’s nothing that can be done there.

Joe Fairless: Understood. Tell us the story of a deal that you’ve done recently, just to give us an idea of what type of projects you’re working on.

Tom Cafarella: They’re all kind of the same. They’re all cookie-cutter typical single-families. In my market, we might buy something for $300,000, put $50,000 or $60,000 into it, and then sell it somewhere in the high fours, low fives, in that range. We do so many, and it’s basically like just a factory, that for the most part for me not many of them stand out anymore. The ones which stand out are the ones that we did in the early days where I was really actively involved negotiating with the sellers, getting face to face, sweating out every deal… But now it’s kind of like, they come and they go, and I don’t think too much about them anymore.

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

Tom Cafarella: My best advice is you have got to learn the sales and marketing aspect of it. I see way too many people, especially today, trying to get deals on the MLS, trying to buy properties of HUD, trying to do things really the easy way, and they can never get a good deal. If you can control the sales and marketing funnel, so if you can market to get face-to-face with sellers and then do the sales part to get the great deals, you can make a ton of money. But if you try to shortcut that and not create the sales and marketing funnel, you’ll never make a lot of money in this business and you’ll always struggle to get a good deal, and you’ll start buying deals that don’t make sense, because you need to do your next deal… So that would be my advice – learn the marketing and sales side before you learn anything else.

Joe Fairless: What are some tips that you have on the marketing and sales side?

Tom Cafarella: There’s only three things that work when you talk about trying to generate leads for sellers in today’s market. There’s cold calling, which you can do for free; there’s online marketing, Google AdWords, Facebook Ads, which you can pay for, and there’s mailing. Those are the three things that work really well; they all have a different cost, they all have a different type of lead that will come through… So my advice would be to put together a budget if you can, and put it into one of those three mechanisms. If you don’t have a budget to me, then you have to cold-call… Which is fine, you can definitely generate a lot of face-to-face appointments that way, but that’s your only option if you don’t have any money.

Joe Fairless: Which of those three has been the best ROI for your company?

Tom Cafarella: That changes. So we’re having this conversation in October 2017; October 2017 Facebook Ads for me are the biggest bang for your buck. It changes though, because the market becomes crowded. Three or four years ago I would have told you mailers, but as of October 2017 everybody’s mailing. So when we go on a mailer lead, typically we’ll go on that appointment, and stacked on that person’s dining room table will be ten other letters. Obviously, the point of marketing in general is to eliminate your competition, to not have a bunch of bidding on a property, so you wanna go where other people aren’t going.

Number one for me right now would be Facebook, number two would be cold-calling – and we pay people to cold-call for us.

Joe Fairless: One thing that’s not in one, two or three is word of mouth referrals and intentionally having a system to generate word of mouth. Do you have anything for that?

Tom Cafarella: I’ve never seen anybody effectively do that, and I’ll tell you why I don’t think that that works… Because the majority of sellers period don’t sell to investors; maybe 5% of the overall population sells to an investor, so you only know so many people in your sphere of influence… And I know this from my real estate brokers that work for me. From your sphere of influence, you might only sell ten properties a year; the good agents, maybe they sell 20. So if a good agent is always prospecting to their sphere of influence and they’re selling 20 houses a year and only 5% of typical sellers sell to an investor, that’s only one investment deal a year. So to me, the problem with the sphere of influence is that you’re not in control of your business.

If you really wanna have a pipeline of doing a ton of deals, I don’t think that sphere of influence stuff will work. Maybe you get lucky and you do one a year, two a year, but I don’t think that you can really create a huge company off of sphere of influence when it comes to that. You don’t get many referrals when you buy properties at a discount, it’s just not typically a referral-based business.

Joe Fairless: Got it. As far as Facebook goes – you said that’s number one – what are you doing there?

Tom Cafarella: We’re just writing ads to people… We’re putting ads in front of them – “Sell your house fast for cash. Click here to get your offer today!” They’re clicking on it, that goes into my CRM, my inside sales agent is making that call to book one of our agents to go to a face-to-face appointment. So we’re not doing anything magical on Facebook other than we are running the right images, the right copy, we are putting it in front of the right people. So when you are talking about Facebook, those are the things that matter.

People, when they’re on Facebook, they’re not looking to sell their property fast. You don’t log into Facebook saying, “I wanna meet with an investor this weekend.” But if you put that ad in front of the right people… And it’s crazy what Facebook knows about you today; Facebook knows how old you are, Facebook knows where you work, Facebook even knows if you’re likely thinking about selling your property.

Joe Fairless: How is that possible?

Tom Cafarella: Based on what people’s interest are. For example, one of the things that you can look for is somebody looking for loans. Somebody that’s looking for loans is looking to buy, but it’s also possible that they’re looking to sell, so Facebook does know if you own property, because what Facebook does is they will actually take the data that they have and they’ll run it against other data. So Facebook automatically knows their age, because this is required in Facebook; they know your age, they know your name, they know the city that you live in, and then they’ll run that data against public records to see if you’re a homeowner. So Facebook knows if you’re a homeowner or not, and if you’re a homeowner that’s looking at mortgage rates or something like that, you’re possibly thinking about selling. So that’s just one example of someone that is possibly thinking about one indicator that will lead them to believe that you’re possibly thinking about selling… And it’s not 100% accurate, but when you run the algorithm the right way, you get your cost per lead down a lot.

I used to pay on Facebook somewhere between $200 and $300/lead, but now that I’ve got my filters down correctly, I’m at about $100/lead, which is very low for a motivated seller lead.

Joe Fairless: Did you learn that yourself, or do you have a team?

Tom Cafarella: I have a team. I have somebody that just runs these ads for me, and I actually started now running ads for other investors in other parts of the country too, because they were experiencing that the cost per lead was really high, so we ended up just offering that as a service. But the reality is that on Facebook you just have to keep trying and testing, so the person who runs them for me will split-test all day long. They’ll say, “What is the cost per lead if I run this image? Okay, great. How does that compare to the second image? Okay, I’m running the ad in front of this city. Okay, how does it compare to this other city?”, and they just keep working and split-testing to get the cost-per-lead down as low as possible.

Joe Fairless: With cold calling and mailing, any top of mind tip for either of those?

Tom Cafarella: Well, they’re different. When it comes to cold calling, you need to get good data, so you need to make sure that you’re getting cell phone records. The biggest mistake that people make is that they’ll get home phone numbers and have a lot of difficulty… And you need to loan them into a three-line dialer, so that you’re calling anywhere between 500 and 600 people a day. That would be my tip on the cold calling.

On the mailing, there’s a couple tips. The first is that you wanna make sure that you’re mailing the right people. A mistake that I see some people make is they’ll mail people from a list; maybe it’s a notice of default list, somebody’s behind on their mortgage… So when you’re mailing, you don’t wanna mail for somebody who bought that house two years ago, because it’s unlikely that they’re even gonna be selling, period.
You also don’t wanna mail to people who are in a younger demographic. I’m a 35-year-old guy – 35-year-old guys don’t tend to sell to investors. So you just wanna make sure if you’re mailing that you’re mailing to the right type of person and the right type of property.

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

Tom Cafarella: Yes.

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

Break: [00:22:47].10] to [00:23:36].00]

Joe Fairless: Best ever book you’ve read?

Tom Cafarella: Robert Kiyosaki, Rich Dad, Poor Dad.

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

Tom Cafarella: Man, that’s a tough– [laughs] That I haven’t talked about? I don’t know…

Joe Fairless: Well, that you haven’t talked about with us.

Tom Cafarella: Oh, sorry. Yeah, that would be my first deal – I wholesales something and I made $115,000… A two-family in Summerville, Massachusetts.

Joe Fairless: Your first deal?

Tom Cafarella: My first deal, yes.

Joe Fairless: You made how much?

Tom Cafarella: 115k on a wholesale. And I’ve made more on deals, but that was the luckiest deal based on the skill that I had and what I was doing at that time.

Joe Fairless: Why didn’t you just retire? [laughter]

Tom Cafarella: You know what, that deal actually hurt me though, because I made so much that I started doing the wrong things, because I didn’t have the skills necessary to really ramp up the business… So I got lucky, and then what I ended up doing unfortunately was I spent a lot of that money on marketing, and I went a long time before doing my second deal.

Joe Fairless: I’m glad we got the rest of the story, as Paul Harvey would say, on that. That’s good. What’s a mistake you’ve made on a deal?

Tom Cafarella: A mistake I’ve made on a deal – I’ve made this mistake multiple times… I bought a deal that on paper looks good, and the numbers work on paper, and then not thinking “Is somebody gonna want to live in this house?” And it probably sounds really stupid, but if you run comps in an area and your ARV is a certain number and your formula tells you you can pay 150k, that doesn’t always necessarily mean you should pay 150k… If nobody’s gonna want to live in that house at the end of the day, I wouldn’t buy it. And just simple things, like it has super low ceilings, or a terrible layout, and I would just think twice about buying that property.

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

Tom Cafarella: Best ever way I like to give back is raising up people in my brokerage… So helping people that work for me make a lot of money.

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

Tom Cafarella: The best way to get in touch with me would be to go to my URL, www.realestateinvestingiseasy.com. If they go in there and they put in their e-mail, they’ll get onto my newsletter. I hold trainings every single day for people who want to get into real estate, and it’s totally free. So if you’re putting your e-mail at www.realestateinvestingiseasy.com, you’ll get the links with all of that information and how you can get on that free training each and every week.

Joe Fairless: You’ve got a machine, and I appreciate you showing us the inner workings of it. Thank you for being on the show, talking about how you’re doing 100 deals (fix and flips) a year, what you all are doing, and that is you’re preparing for when the market changes, having revenue streams… Three ways you’re doing that – one is your brokerage, where on average it’s $30,000 to $40,000 lifetime’s value of a new broker who joins. Two is to buy cashflow properties, and you’re looking and actively involved in Jacksonville, Florida, even though you’re in Boston, Massachusetts. And three is a partner program where you help people do fix and flips and you get a cut of the action.
Thanks for being on the show, plus talking about the marketing tips, the three ways to get sales and leads… I really appreciate you spending time with us. I hope you have a best ever day, and we’ll talk to you soon.

Tom Cafarella: Thank you, Joe.

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