JF2068: Experience Investor Danny Randazzo Shares His View During The Coronavirus

Danny is a Managing Partner at Passiveinvesting.com and Author of Wealth Lessons for Kids. He is also a multi-return guest and can be found on previous episodes JF1447 & JF1684. As you know, the Coronavirus has been impacting several investors and In this episode, Danny goes into how he is handling his business during this pandemic. 

Danny Randazzo Real Estate Background:

  • Managing Partner at Passiveinvesting.com 
  • Author of Wealth Lessons for Kids
  • Became a millionaire at 29
  • Controls over $225M in real estate
  • Based in Charleston, SC
  • Say hi to him at: https://www.passiveinvesting.com/

 

 

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Best Ever Tweet:

“Over the past year, I have really had the opportunity to work “ON” the business instead of “IN” the business.” – Danny Randazzo


TRANSCRIPTION

Theo Hicks: Hello, Best Ever listeners, welcome to the best real estate investing advice ever show. I’m Theo Hicks, and today we’ll be speaking with a multiple repeat guest, Danny Randazzo. Danny, how are you doing today?

Danny Randazzo: Theo, I am doing great. Thank you so much for having me on. I am excited to be back, and hopefully add some value to the Best Ever listeners.

Theo Hicks: Yes, and I think you’ll be able to add value, because we are going to talk about some of the challenges that Danny is facing during the current Coronavirus pandemic. For context, everyone, we’re recording this on the 29th of April.

Before we get into that, a little bit about Danny’s background. He’s a managing partner at PassiveInvesting.com. He’s the author of Wealth Lessons for Kids. He became a millionaire at age 29, and controls over 225 million dollars in real estate. He is based in South Carolina, and you can say hi to him at PassiveInvesting.com. Great website URL, by the way. Did you just find that right away, or did you have to pay [unintelligible [00:03:58].27] for that URL?

Danny Randazzo: We invested in that URL for an undisclosed sum of money, but it has been tremendously worth it when you think about the brand that you and Joe have really built around Best Ever. For us to have PassiveInvesting.com is a huge piece when we talk about what we do in the multifamily syndication space.

Theo Hicks: Oh yeah, I bet. Before we get into some of the challenges that you’re facing with the Coronavirus, let’s catch up, and you can tell the Best Ever listeners what you’ve been up to the past year. So maybe start and say how much you controlled a year ago, and then how many deals you’ve done, any developments that you’ve done in the past year, and then I can ask some follow-up questions on that.

Danny Randazzo: Perfect. Over the past year – and I’ll add in these first four months or so into 2020 – so between 2019 and today, we’ve acquired 120+ million in multifamily assets across the South-East U.S. If you go back and listen to my first episode of kind of how I got started, I wanna say it was episode 961, but Theo, maybe you can correct me if I’m wrong there… It’s been an incredible journey. Over the past year it’s really been the opportunity to work ON the business, instead of IN the business, if you will.

So a couple of high-level and strategic decisions that we made leading into the beginning of 2019 was to solely focus on multifamily and really tighten in on our scope and hone in on our specific property types and property locations. What that allowed us to do was be looking for really good deals in very specific  market and investment criteria in order for us to best serve our investors with great investment opportunities. And having that very specific focus and strict investment criteria has really allowed us to be successful and has carried us through that 2019 period into today, where we really focus on buying assets that are 150 units or greater, built 1990 or newer, in excellent markets like Charlotte and Raleigh, North Carolina, and Greenville, South Carolina, that are priced between 30 and 60 million dollars.

Having that focus has allowed us to acquire about 120 million in multifamily over the last year, and we’re slated to continue that growth in 2020, and as we continue through, to finishing the year.

Theo Hicks: Perfect. Thanks for sharing that. So let’s transition into talking about Covid. One thing that I’m curious about — so you do have a business partner, and I know a lot of people when they talk about finding about business partners that complement each other… I was wondering, so during a time like this, how are you and your business partner deciding what’s the best line of action? Maybe tell us what these conversations are like. Does one person have more control over certain aspects of the business right now, or are you both coming to these decisions together? I’m just wondering what that communication is like.

Danny Randazzo: Yeah. In terms of the business itself, we have a full team of people at PassiveInvesting.com. You have myself and two other managing partners, Dan Handford and Brandon Abbott. And then we have a director of design – that’s my wife, Caitlin, who helps with our value-add projects. We have Brian, who is the director of asset management, and he brings many years of experience. He worked with Aimco, overseeing over 175,000 units under management… So he brings a ton of experience to our asset management team. And then we’ve got Melissa, who is our director of marketing, and Ann, who’s our director of investor relations.

One thing that I always hone in on is the value of a team. Investing in large multifamily properties to have a successful business that buys hundreds of millions of dollars of properties, you need to have a strong team around you. So it’s not just two of us, it’s not three of us, it’s a whole team of people… But we, again, spend time investing and working on the business over the year of 2019, and even into today, where we are allocating roles and responsibilities so we’re not falling behind, and we’re always being proactive in 1) managing our current portfolio, and making sure investors are very well informed and up to date as of the current happenings in the economy, and just in the country in general, with the Covid pandemic.

One thing that was really important to us as a group was making sure transparency and information is always shared with anyone who invests alongside of us in these projects… And putting your money to work is a huge commitment. And then if you have an operator or a general partner who may not be sharing or may be giving quarterly updates, or all of a sudden distributions are stopping because of the Covid pandemic, and you don’t know why, that would be a red flag to me. I’d be asking a lot of questions of that operator.

So one thing that we always really strive to do is just overcommunicate things… And I’m pleased to say that in the month of April our portfolio collections average greater than 96% for April income, and we were able to pay out monthly distributions exactly as planned, from our performance.

So it really speaks to the quality of our management teams on-site, at each property, the quality of our resident base, just having very strict renting criteria in terms of qualifying a potential applicant, making sure that their income, their job history and their credit score are solid to live there… And then number three, it’s having a great property, in a great location, where you know people want to live and choose to live.

So having that team absolutely made it such a smoother process going through the Covid scare. I could not imagine being a single shingle, single-person operation at that time, where 1) you’re trying to manage the asset, 2) you’re trying to communicate with investors, 3) maybe you’re doing some marketing to keep your sales funnel or business funnel going – that would just be very overwhelming in a time like Covid… So to really highlight what we’ve done, Theo, we’ve had a great team in place and we’ve been building that team over the years to get to where we are today. I think one tip for the Best Ever listeners – if you are a single operator and you want to own a lot of single-family properties, or you wanna own thousands of multifamily units, you need to have a strong team around you… So I would heavily invest in building that team.

Theo Hicks: Thanks for sharing that. Let’s transition into something else. How have your underwriting standards and your due diligence process changed on the deals that you are looking at, that you are doing, over the past few months? Because obviously, you did 120 million dollars in acquisitions over the past year and 3-4 months, a year and a half… So obviously, you’re still doing deals, so I’m just curious what changes you’ve made to your underwriting process, to your due diligence process during this time when you don’t really know what rents are gonna be a month or two months or three months from now.

Danny Randazzo: Yeah… Two huge things that stand out to me. Number one from an underwriting perspective is your debt service assumptions. Currently, what has happened since the middle of March through today, the volume of lenders in the marketplace lending on multifamily properties like your size that we look at (150+ units) has drastically been reduced. A lot of CMBS, private lenders, bridge lenders, life companies have hit the pause button in their business. These lenders don’t just lend on multifamily assets, but they also lend on hotel projects, retail shopping centers, restaurants, other things like that… So I would imagine they hit pause in their business to see how their collections would be in terms of servicing their current debt on their balance sheet without needing to give out more loans and increase that debt and increase that volume of servicing.

So the debt underwriting assumption is a huge thing right now. It is a challenging time in the multifamily space to do value-add deals with bridge or private lenders. So one thing I would just encourage the Best Ever listeners to be is very cautious on what type of debt is feasible today. And hopefully, over the coming weeks and months, the lenders will stabilize. We are seeing some good indications that people will be getting back into the business, kind of unpausing, now that Covid has kind of settled in and the hysteria has died down a little bit.

So hopefully, some of these lenders come back into the game and force the agency lenders Fannie and Freddie to be a little bit more competitive. Over March and April of 2020 Fannie and Freddie increased their spreads in rates, because they were really the only lenders doing business, and there was a huge demand from buyers looking for new deals, or buyers looking to refi existing properties… So the rates went up.

We are seeing good signs that rates will stabilize, but if you are looking at an 80% occupied property that requires a couple million dollars in cap-ex renovations, I would be very inquisitive about what type of debt you’re gonna get. Is a bridge loan feasible? What sort of commitment can that lender give you? So that would be a huge thing for underwriting, is get your debt right, because the debt will kill the deal before closing, potentially, or it’ll kill the deal after closing, if the debt is not right.

Number two, it’s really that stabilization time period that we’ve updated in our underwriting. So even if we have a very strong property, with very strong occupancy, fundamentals, and job growth and population growth projected, we’ve done some minor adjustments to our underwriting to be even more conservative with the impacts of Covid. People may not move around as much, potentially, so that could impact occupancy. People could be moving back in with relatives, giving their apartment up for a couple of months if they’re laid off or furloughed… So those are just some considerations.

Our investment philosophy is to always be conservative when we’re underwriting a deal. So if we can increase the vacancy rate in which we are expecting the property to be at, it gives us a lot of comfort and cushion in the investment business plan to ensure that we can maintain the occupancy at the property and be able to run and stabilize the asset, given we don’t really know what’s gonna happen with Covid over the coming months.

Theo Hicks: Maybe you could quickly give us an example of what you mean by change in vacancies… So what have you been typically underwriting, and what are you underwriting as vacancy now? I know it’s gonna be very market-specific, so if you can just give us a ballpark…

Danny Randazzo: Yeah, in terms of a ballpark, let’s say if you were historically underwriting deals at 93% occupancy, when you close and maintain, and let’s just say the property has on average maintained a 94%-95% occupancy rate over the last few years, I would adjust and look at the occupancy with maybe a 7% drop. So maybe you’re looking at 85%, 86% occupancy at  the property, just to give you a level of comfort… And maybe you underwrite that to only remain for the next six or twelve months… And then we can kind of comfortably say in 6 or 12 months the market should be back to normal, so we’ll then assume a 93% occupancy once we stabilize.

Theo Hicks: Thanks for sharing that. Obviously, you’re director of marketing, so you guys are still actively looking for deals… Over the past 3 months or so, have you seen more owners wanting to sell, less wanting to sell, or has it been the exact same?

Danny Randazzo: I would say over the last two months, really when Covid broke in early March, the deal volume has kind of slowed down, where sellers may not be able to sell if they have huge pre-payment penalties with their in-place debt. Number two, buyers may not be able to buy because the interest rates have gone up, the volume of lenders has gone down… And a lot of investors, even if you think about it, whether  you invest with friends and family and private investor money, or if you go with private equity or institutional equity, a lot of those people have kind of just said “We’re gonna pause, we’re gonna see what happens over the next 60-90 days in the marketplace before we make an investment decision.” And while that makes sense in theory, I think there’s still good deals to be done.

We’re in the process of closing an active acquisition right now, which has been a fun learning process for us, going through due diligence with Covid… But I think there’s still really sound investment opportunities out there, and the biggest scare to me is just having money in the stock market when it goes up and down by 20%-30% in a day, which I think would give people a  lot of heartburn, potentially.

Theo Hicks: Okay, and what about from your investor relations standpoint, or whoever is responsible for finding new investors? Are you finding more people interested in investing in apartments, or less, or the same?

Danny Randazzo: Yeah, as the stock market continues on this rollercoaster and really scares a lot of people, we’re seeing a reasonable increase in investor interest. A lot of people are looking for stable investments that 1) are a secure place to store your equity, where it’s not gonna go anywhere overnight. You’re investing in a physical, real asset. It’s not a fictitious piece of paper or an internet technology-based thing. This is a  real asset. You can go there, you can see it. It’s not gonna go anywhere.

Number two, it’s investing in multifamily for the cashflow. So having great cashflow-producing assets — I always think about Benjamin Graham, the mentor and coach to Warren Buffet, educating about compound interest. So if you have money sitting on the sidelines, not doing anything, you’re really technically losing money, because you have the opportunity cost to invest that money, while it may be at a good rate of return; that would b an opportunity cost to sitting on the sidelines.

So if you sit on the sidelines for one year, where your money is not compounding, it really ruins the future value of that equity when you think about what it will be valued at in 30 years if it compounded at 6% or 7% interest year over year.

So having money and having a safe place to put it, like multifamily, is one reason why I invest. Of course, monthly cashflow is great, and the tax advantages that come with multifamily as opposed to really zero tax advantages coming from active investing or from the stock market – it’s just another plus that kind of is a good indicator for my family and my personal wealth to be invested in these assets.

Theo Hicks: Perfect. And then the last question, I guess more on a personal note – what types of things are you doing to make sure you stay sane, stay emotionally grounded during this Covid time? Because it’s pretty crazy out there. I’m just curious, do you have like a ritual you do every night before you go to bed, or what types of things are you doing just to kind of relax?

Danny Randazzo: I love to read. When I was growing up, through high school, I was never a big fan of reading stories or the required school books… But in high school, I stumbled upon Rich Dad, Poor Dad, and other investing books, and real estate books, and I love to read those books. So I stay pretty in-tune and mentally sharp by just reading more.

I’ve got four books that I’m working on right now, simultaneously. One is a shorter story that is less than a hundred pages, and I am about halfway through it. I’ve got another longer book – it’s the story of Jim Clayton, First a Dream. It’s an excellent kind of autobiography story about his Clayton homes, the mobile home manufacturing company, but they are so much more than that, and I’m loving that book right now. I’m almost finished with it.

And then I’ve got two other books that are on my nightstand. So that’s what I enjoy to do. It keeps me sharp, it keeps me sane, and it gives me great ideas for us to implement at PassiveInvesting.com.

Theo Hicks: Alright, thanks for sharing that, Danny, and thanks for joining us today again, and sharing some of the — I don’t wanna say ‘challenges’, but things you’re going through right now with Covid, and some of the changes you’re making to your business. We talked about your underwriting changes, we’ve talked about marketing, and more investors coming in… Overall, really solid advice.

As Danny mentioned, he’s been on the podcast before. He hit the nail on the head with his first episode number, it was 961. So if you just go to joefairless.com and go in the Search function and you type in Danny Randazzo, he’s got his own full page of content on our website, from all the interviews he’s done… So make sure you definitely check that out, so you can learn more about how he’s gotten to where he is, and then you can learn more about him and his business at passiveinvesting.com.

Danny, thanks for joining us today. Best Ever listeners, thank you for listening. Have a best ever day, and we will talk to you tomorrow.

Danny Randazzo: Thank you, Theo.

 

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JF1999: How to Identify The Right Partner With Ryan Groene #SituationSaturday

Returning guest Ryan Groene from episode JF1686 shares a great learning experience around partnering with the wrong group of individuals. Ryan explains how quick partnerships on a single deal or two is significantly different from partnering to grow a business. He shares 5 great questions he plans to ask before deciding to partner with a future individual and how important it is to get to know them at a more personal level. 

Ryan Groene Real Estate Background:

  • Full-time Mobile Home Park Owner and Operator
  • Has owned 3 mobile home parks totaling 175 spaces, 
  • Based in Charleston, SC
  • Say hi to him at ryan.groene55ATgmail.com 
  • Best Ever Book: What it Takes By Stephen Schwarzman

Best Ever Tweet:

“You kinda have to find somebody who matches your lifestyle, and somebody you don’t mind spending a lot of time with, whether it’s virtual over on the phone, email back and forth, texting back and forth or even in person.” Ryan Groene

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. First off, I hope you’re having a best ever weekend. Because today is Saturday, we’ve got a special segment for you called Situation Saturday.

Here’s the situation – you want a partner. You then go get partners, and then you might have a different vision for where you need to go once you get into a partnership… So what do you do, how do you approach it, and what are some things you can put in place prior to that partnership, to help make things smooth whenever you do part ways.

With us today, we’re gonna be talking to someone who has gone through that process, learned a lot of lessons, and is wanting to share it with us. I’m looking forward to that conversation, Ryan Groene. How are you doing, my friend?

Ryan Groene: I’m doing great. I hope you’re doing well, Joe.

Joe Fairless: I sure am, and I am grateful that you’re back on the show. Best Ever listeners, you can just search Ryan’s first and last name and my name, and I’m sure his other episode will come up, where he gave his Best Ever advice.

A little bit about Ryan – he is a full-time mobile home park owner and operator. He has owned three mobile home parks totaling 175 units, and I say “he has owned” because now 1) he sold his interest in two of them, which is part of the main part of this conversation… So he’s no longer in two of the partnerships, but he still has one. He’s based in Charleston, South Carolina. With that being said, Ryan, first, do you wanna give the Best Ever listeners a refresher on your background, and then we’ll go right into it?

Ryan Groene: Yeah, my background is basically right out of college I worked in finance; I had a W2, like most of the Best Ever listeners. Then I made a transition to full-time mobile home park owner/operator/investor. About a year and a half ago, right before we [unintelligible [00:03:16].02] Basically, the past year I have owned three parks, bought three parks, like Joe said; I’ve also operated a portfolio with Buckeye Communities in Ohio.

We had about ten parks, about 500 spaces or so, and then I also had my 175 spaces. So I  was operating that portfolio the last year. We’ve since scaled that back. We’ve sold a handful of those parks, we still have a couple, and I’m still doing that, but I’ve also changed locations, so my role has kind of changed a little bit. Still looking for more parks to buy, and I’m kind of gonna get into what transpired the last year with my partnerships with buying parks, and stuff like that.

Joe Fairless: Tell us the story.

Ryan Groene: Basically, I had bought one park, my 75-space community in Fayetteville. Then through that I have met some other potential partners. They were interested in mobile home parks. They had never maybe necessarily owned one, or they had limited knowledge, or they were looking to get into this space… So basically, we bought two parks together. I had relationships with the deal, and I am the operational piece to the partnership side of things.

Long story short, we were looking to basically scale a business, grow a business, and put about 500 to 1,000 pads under our management and ownership. And building a business is a lot different than who we partner with, than doing one deal together. Because  when you just do one deal together, you maybe only talk to each other a few hours a week. Building a business together when you have large amounts of work to do, you’re around each other a lot more, communicating a lot more. So establishing those boundaries upfront is pretty important.

I would advise everybody to get to know somebody, not just in a working relationship, but also on a personal level, because you wanna find out what is their lifestyle, what is their work schedule, what is their communication schedule, what is their life goals, where are they at in their lives… And when you’re building/scaling a business – do they have that ability or want to do that? That buying one deal together, or even a couple deals, is a lot different than building a massive portfolio together.

And then, when you get past all that – we had known each other relatively short timeframe. We knew each other really less than a year; they were the capital pieces, I was the operational piece. I had also found the deal. And really, you wanna have an operating agreement going in; that’s really just a fail-safe for partnerships. You wanna have clear, defined roles, what’s everybody’s expectations… And then if something happens, life happens – people get sick, people have kids, people pass away, their spouse passes away, if they have a regular job, their work gets real busy, so they can’t devote as much time…

You kind of have to find somebody that matches your lifestyle,  and somebody that you don’t mind spending a lot of time with, whether it’s virtual, on the phone, emailing back and forth, texting back and forth, or even in person. And it is kind of like a marriage, but you’re playing with a lot more money… And in marriage, while you’re playing with money, people sometimes can get ugly. It gets ugly when things go bad. Luckily for me, we had a pretty good split. There were no lawsuits involved, or anything. We kind of realized that maybe we weren’t the correct fit to build a  larger business, so that’s kind of why I sold my partnership rights. It’s just easier for everybody.

I may have lost some money in the short-term, but in the long-run it’s probably better for my mental capacity, in order to focus on new things, versus bringing up the past and always having to deal with it.

Joe Fairless: What was happening that resulted in you saying “Okay, I think we need to part ways”, and with them agreeing that that was the case?

Ryan Groene: When you’re trying to build a business, like forming a partnership to build something larger, you have discussions, right? People’s goals come out, people’s lifestyles come out… And most of my partners – I was full-time, and some others were full-time, but they also had other jobs or other commitments…

Joe Fairless: How many total partners?

Ryan Groene: There was five.

Joe Fairless: Five. Well, there’s the first mistake.

Ryan Groene: Yes, I agree. Too many people. You should limit it — most of the good partnerships, kind of like you see Warren Buffet and Charlie Munger, just to name a clear example… There’s two people. So that was the first problem; there was a lot of people, and everybody had their own lives and their own time commitments. And then once you start putting pencil to paper and starting to look at more deals and buy stuff, you start to figure out maybe who’s committed and who’s not. If they are committed, maybe they want something a little bit more, that you’re not necessarily willing to give up… Whether that be equity, time, whatever it might be.

So first of all – yeah, we had too many people. That was probably the first mistake. But you don’t learn that until you go through it. And then the second thing was just maybe our communication styles weren’t the same. Maybe one guy needs everything right away, and the other person, while they have other stuff going on, they may take a little bit more time to do it. So expectations, communication styles, and also just who is doing what. We have to establish that upfront… Whether you establish different reports, and you go over it, you measure it, and then you discuss it, versus trying to micro-manage the situation from afar.

Joe Fairless: What’s your preferred method of communication?

Ryan Groene: It depends on what we’re talking about. If we have to have a phone conversation, that’s perfectly okay. When you have that many people, a lot of times it takes a long time, and you have to have drawn-out conversations, conference calls…

Joe Fairless: Way too many people. [laughs]

Ryan Groene: Yeah, it’s too many people to make a decision. So you have to have the person that can make the decision, or two people that can make a decision. My preferred method, depending on what the decision is, is to get on the phone and talk about it… Because I think you get tones, you get a lot more truth than behind a screen.

Joe Fairless: Yes…

Ryan Groene: When you read a text or read an email, it’s hard to decipher what that is… Because I’m not a very good texter. Or if I text, it might not be how I talk in conversation, I misspell stuff sometimes… So it can kind of get lost in translation. There’s a million different things… Versus actually having a conversation – the flow of the conversation, and tones and all that plays into it.

Joe Fairless: I agree. Alright, partners — going into it, you found the deal, and you were on the operations side… What were the other four doing? You said money, but were they all four money people, or what?

Ryan Groene: Yes and no. Everybody had their own roles, had different experience with different things. One guy was maybe better at scaling a business, one guy was good at finding deals, one guy maybe had the balance sheet… On the deal specifically they weren’t necessarily all money (I played a little bit of it), but they had key strengths that maybe I didn’t necessarily have, or I had something they didn’t have… So we all kind of played a role, we all kind of knew each other, and we were trying to buy a bunch of stuff… And it kind of just snowballed into that organically. Then when we were starting to move and look to buy things, things came out that maybe it wasn’t the best, because people have lives. Like I said, life happens.

This was a transition of 4-6 months, give or take… So it wasn’t just like a weekend type of thing. It was a longer, drawn-out process, and we had thought about it a lot… And like I said, life happens and you start thinking about it… When you pull away from the calls and emails, you start thinking about it, “Can this actually work?” and most of the time when you have that many people it doesn’t necessarily work. It’s hard to make it work.

Joe Fairless: But the two deals that you sold your interest in – were they performing well?

Ryan Groene: Yeah, the deals were performing. There was nothing wrong with the deal.

Joe Fairless: Why not just ride those two deals out, and then just choose not to partner up on other stuff?

Ryan Groene: Because the reason being I think it was an easier decision, just like I said, split and not have to deal with the headaches. For me it was more of a mental type of thing; I don’t wanna keep having a conversation… And then it was just more of like still continuing to be friends with an ex-wife, an ex-girlfriend, an ex-boyfriend, whatever. There’s always a little bit of tension. Maybe you don’t talk about it, but it’s hard to get past the emotional side of things a lot of times.

Maybe you partnered on these deals, and the deals were performing, but then when you’re trying to build a business and build a larger portfolio, those things stumble into those deals.

Joe Fairless: Alright.

Ryan Groene: They were performing financially, they were good assets, and everything about that. We had bought them right… I’m mainly a turnaround, big value-add, buy-at-discount type of investor, and we were starting that process, and it does take a lot of effort to do that… So it was easier just to part ways, just so we could all focus on new things and not have to worry about it. We’re not talking millions of dollars, we’re talking enough to where somebody could maybe write a check and just be done with it.

Joe Fairless: Okay. And you got into those deals with no money of your own?

Ryan Groene: Correct.

Joe Fairless: Okay. You told me that before we started recording, that’s why I wanted to just mention it. So you got money when you exited out, so you did come out ahead financially, just perhaps not how much you would have if you had stayed in it through its completion.

Ryan Groene: That is exactly correct. My piece, while I may have some money to invest in certain deals — basically, I had found the deal, some equity based on finding the deal, and then also operating the deal… The day-to-day in charge of the asset, and in charge of the on-site manager.

Joe Fairless: What are five questions that you’re gonna ask your next partner, either directly or indirectly you’ll get the answer to? What are five questions you would ask?

Ryan Groene: One, “What is your goal for the next five years, when it comes to investing in real estate? What is your lifestyle? Are you investing because you want passive income and you wanna sit on the beach, or do you wanna build a large business?” Two, “How do you communicate? How do you manage problems?” Four, I’d probably say “What is your time commitment? Do you wanna be active or passive? Do you want an active role, or what role do you want and can you play?” And that kind of translates into “What are your strengths? What are your weaknesses? How do we line up?”

And five would be “Let’s become friends first before we start a partnership together. Do we have similar interests in your personal life? Do you have kids, and maybe I don’t have kids? Or are you a golfer and maybe I’m a golfer? Do we have similar interests that aren’t just real estate related?”

Joe Fairless: Okay, I like that. “Goals for next five years/what’s your lifestyle that you wanna be?”, number one. Two is “How do you communicate and manage problems?” Three, “What’s your time commitment? Do you wanna be passive or active?” Four, “Strengths and weaknesses?” and five, “Let’s get to know each other on a personal level.” You can ask questions about interests, but really that can just develop over time, to see.

What about also when the chips are down and there’s a — well, I guess you already asked that; you’re one step ahead of me. “How do you manage problems?” I guess what I’m really getting at is the character of the person. How would you go about assessing if they’re a good person or not? Because it’s one thing “How do you manage problems?” “Oh, well, I identify the root of the problem, then I take steps to resolve it, and then I see if it’s gonna be reoccurring or not.” That doesn’t at all get to “Am I going to lie to you about the problem? Am I going to steal money from you or the partnership?” How would you go about qualifying that when you’re in the honeymoon stage?

Ryan Groene: Yeah, that question you could get a little bit more clear, because that can translate into a whole set of other questions, scenarios. For me, I’m very transparent about my past, about what I’ve done, partnerships that have gone bad or that have done well, my strengths, my time commitment… So I would ask people that, I would try to get to know them. Your reputation is what it is, and people talk, whether it’s for good or bad.

I would probably ask around, kind of “Hey, have you ever done a deal with this person? What are they like? What is his personal life?” You try to get to the root of the problem… And people are deceiving at times. I’m not saying deceive somebody for the benefit of doing a partnership together, but it comes back to the personal interest and kind of hanging out with the person. You do get to know their character when you get to hang out with them a lot more.

So that comes back to the getting to know a person, both on a  professional level, and also a personal level… Because most  of the time, people can put on a fake facade when they’re in their professional life; you can fake it for an hour or two when you’re hanging out with a person. But when you hang out with a person repeatedly, when you go tour properties together, when you get on calls, when you hang out with the person, maybe you go do something that’s not related to investing at all… You start talking about personal interests and you can find how that person is… And then also just watching their demeanor, how do they treat people, how do they talk with people, and the reputation when you start asking around. It definitely comes out a lot of times.

Joe Fairless: A couple other ideas I had just now while we’re talking about this is 1) looking them up on social media, which is probably an obvious thing, but something that deserves to be mentioned here… Because if they’re posting whacky posts on Facebook about some controversial thing that you are completely against… One thing I’ve noticed is if someone is posting things and then the comments are people cussing a lot to them, or just talking in ways that I wouldn’t want to be associated with those commenters, then most likely the person who’s posting it, who has all these people commenting in whatever capacity that I’m not agreeing with, I’m probably not gonna agree with the person posting that stuff, too. It’s probably not someone who I’d wanna be associated with, if they’re associating themselves with a bunch of people who are talking in ways that I wouldn’t wanna be around… Even if the person posting is putting on a front that “Hey, we’re all good. I don’t act this way”, if their friends are acting that way, that’s indicative of how they probably are.

And then on a related note, in addition to looking them up on Facebook and Instagram and wherever else… And if they have their account private on Instagram, for example – well, that could be  an indication of something, as well… But then also asking them “Hey, who are a couple of your really good friends? How do you know them?” Just getting a sense of who they are currently connected with, how they know them, and then even a step further, having lunch of dinner or drinks or something with those friends and you, and maybe a couple of your friends, or something like that.

It gets a little weird if you say “Hey, why don’t you bring your best friends and I’ll bring my best friends, and we’ll hang out?” That’s just a weird thing, so I understand that, but it isn’t weird if there is a happy hour, and everyone’s at a happy hour together… Or you just go hang out with their friends if they’re going somewhere. There could be a less weird scenario where you could hang out with their friends. Because ultimately, you’re a product of those who you surround yourself with, and it’d be good to know that.

Ryan Groene: Exactly. Yeah, and I’m not talking like become best friends with them, and go have sleepovers and all that; that stuff that we did as kids. I just mean you have to get along with the person. This is mainly when we’re talking about active joint venturing with people. I’m not talking about syndicating from a general partnership/limited partnership type of relationship, because that could be a little bit more professional… And as you know, you still wanna qualify people, and you still wanna get to know them, but that’s a little bit different, as you definitely talked about and had a lot more experience with. I am talking from an active joint venture, where everybody has an active role as defined by the SEC. The active role could be weekly meetings, weekly calls, or just a monthly call… But they are all general partners.

Joe Fairless: Mm-hm. Ryan, how can the Best Ever listeners learn more about what you’re doing?

Ryan Groene: I am on all social medias. I’m on LinkedIn, Facebook, I’m also on Instagram… You can email me, ryan.groene55@gmail.com [unintelligible [00:18:51].20] questions. Also, you can follow me on all the social media platforms. And I appreciate you having me on the show.

Joe Fairless: I appreciate you sharing what you’ve learned from your first-hand experience. That’s the best way for us to learn. Well, the best way for us to learn is for us to experience ourselves, but we might not want to… So sometimes it’s good to learn from others who have experienced it, and then that is the purpose of this show – to learn from others who have experienced it, so we can all do bigger and better things.

I appreciate you talking about some questions that you would ask potential partners. Really quick – what are your goals for the next five years? What type of communication style do you have and how do you manage those problems that come up? What’s your time commitment look like that you want to have in this venture? Is it active or passive? Strengths, weaknesses? And then lastly, “Let’s learn about each other personally/ Similar interests” etc. And don’t phrase that  last question that way… “Ryan, let’s learn about each other…” [laughter]

Ryan Groene: Yeah, exactly.

Joe Fairless: Well, everyone gets it. Okay, cool. Well, Ryan, thanks for being on the show. I hope you have a best ever weekend, and talk to you again soon.

Ryan Groene: You too.

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JF1910: Residential Real Estate Expert’s Take On Short Term Rentals with Brian Page

Having become a millionaire in his twenties through residential real estate investing, Brain was on the fast track to being on top of the real estate game. That changed a little when he got into building homes, it didn’t work out as well. Brian got into short term rentals to turn things back around and now has the #1 selling Airbnb training out. If you enjoyed today’s episode remember to subscribe in iTunes and leave us a review!

 

Best Ever Tweet:

“Partner with the owner of a property and list their house on Airbnb” – Brian Page

 

Brian Page Real Estate Background:

  • Became a millionaire in his 20’s as a residential real estate investor, only to lose it all in the historic crash of 2008
  • Created a training called the BNB Formula, which is now the world’s best selling Airbnb training
  • Based in Charleston, SC
  • Say hi to him at https://www.bnbformula.com/
  • Best Ever Book: Outwitting The Devil

 


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, Brian Page. How are you doing, Brian?

Brian Page: I am great. Good to be here, buddy.

Joe Fairless: Well, I’m looking forward to our conversation. A little bit about Brian – he became a millionaire in his 20’s as a residential real estate investor, lost it all in 2008, and then created a training called BNB Formula, which is now the best-selling Airbnb training out there. Based in Charleston, South Carolina. With that being said, Brian, do you wanna give the best ever listeners a little bit more about your background and your current focus?

Brian Page: Sure. I have been a real estate investor for many years; ever since I graduated from college, I started flipping homes. That was the first thing that I did. I flipped a little over 100 properties, and did some wholesale deals, and multifamily, and you name it, I’ve probably done it. That was my main business for many years, up until the big crash around ’07-’08. That was where everything kind of came to a grinding halt. I had a huge portfolio of properties that I lost and were foreclosed on, and I had to find a way to start over… So somehow I backed into this idea of using other people’s properties and putting them on Airbnb. That led me down this road, and that’s what I do in addition to getting back into real estate investing.

Joe Fairless: A couple takeaways from losing it all are what…?

Brian Page: A couple takeaways… Well, don’t over-leverage. It’s not a good idea to leverage yourself, and it’s also —

Joe Fairless: How do you quantify that?

Brian Page: Well, for me – I had very little equity in my properties. I had a big portfolio of properties, but very little equity.

Joe Fairless: About how many properties did you have?

Brian Page: At the time I had 23 units, I believe it was…

Joe Fairless: Okay.

Brian Page: But that wasn’t the problem. It wasn’t the rentals. It was — I got into speculative real estate construction, and high-end residential construction. That’s something that’s high risk. I built a multi-million dollar home on the beach in North Carolina, and I had condos being built, and all these things… And when the market turned, of course, the first part of the market that got crushed was vacation properties.

So I would say that had I just stayed with my rentals and flipping business, I probably would have been okay… But I got too big for my britches and got into development and construction. So I would say be very careful if you’re getting into speculative real estate.

Joe Fairless: Okay. Noted on that front. It’s interesting that the high-end spec homes that you described – you mentioned they were more vacation homes… And now here we are with Airbnb, and your BNB Formula. You’re still focusing on the vacation customer, but you’re taking a different approach. Do you own the properties that you’re doing the Airbnbs with?

Brian Page: I don’t, but let me go back to the first thing you said – actually, vacation rentals and Airbnb are not the same thing. It’s a very small minority of people on Airbnb that are traveling for vacation.

Joe Fairless: Okay.

Brian Page: That’s more VRBO, Vacation Rental By Owner. Airbnb is a whole other subset, and we can get into that. But what I did is I started leasing properties, and I got written permission from the owners to list them on Airbnb. I did that over and over and over again, across a whole bunch of units, and that’s how I started making a whole bunch of money with Airbnb. Now I’m back into acquiring. I am buying properties and renovating them, and turning them into Airbnbs… But my primary business and what I teach is how to use someone else’s properties to do this.

A lot of your listeners, of course, are real estate investors, a lot of people listening right now… And that’s great; if you own property, you can do this. But the vast majority of people that go through my training have no real estate background whatsoever, so I encourage them to lease.

Joe Fairless: Okay. And will you educate me a little bit more on Airbnb most of them not being vacation people?

Brian Page: Well, Airbnb is similar to the hospitality industry as a whole, if you look at hotels, motels in the hospitality industry, most people that are staying at hotels are not staying there because they’re on vacation, they’re staying just because they need a short-term place to stay. They might be traveling, they might be coming into an area, but not necessarily on vacation.

There’s all kinds of reasons people travel. They could travel because they’re relocating and they need a place to live for a few weeks, they could be going to an event in a particular city, for example in cities with big convention centers… That’s actually how Airbnb started in San Francisco – it was near a convention center. People travel to go to visit colleges, they travel because they’re on business, they’re going to a town for a couple days… There’s all kinds of reasons people travel, and it’s generally not vacations.

We’ve seen it time and time again, that people are successful doing what I teach in the most random places that are not at all tourist destinations… And I know that for a fact, because some of my students are in towns of under 10,000 people I’ve never even heard of, and they’re doing really well.

Joe Fairless: So the primary model is getting permission from landlords to use their property as an Airbnb, so you’re basically subletting it on a short-term basis, right?

Brian Page: Well, there’s two models. The first model is leasing it, where you control the property for (let’s say) 12 months, and then you relist it on Airbnb. And let’s say it’s a $1,000 rental. You’re gonna make somewhere between 2k and 3k on average on that unit. After you pay for utilities and your rent…

Joe Fairless: Per month.

Brian Page: Yeah, per month, you could be making 1k, 1,5k, or even more. Now, that’s on a cheaper 1k rental. So that’s one model. The other model is where you partner with the owner. So you approach and owner and say “Hey, you’re asking 1k for your unit. What if I get you $1,300 for your unit, or even more? I propose that you let me list it on Airbnb, and we will split everything we make, all the profit, and I’ll guarantee you your first $1,000, so at least you make that… And we’ll do month-to-month. And if you don’t like the arrangement, at any point I’ll take a hike and you can go back to running it long-term.”

I basically teach people how to pitch these owners… Because I was an owner for many years; I had a lot of properties, and I had to think about what the objections are and how to overcome those objections, and why people might wanna consider doing this versus long-term rentals.

Joe Fairless: And I’ve interviewed some people who do this on the show, and one thing I’ve found surprising, but it made sense once they explained it, is the property is actually taken care of better with short-term rentals than long-term…

Brian Page: Yes, that shocks people.

Joe Fairless: Yeah, it shocked me whenever I heard it. Then this person explained it and I was like “Yeah, it does make sense.” Can you just elaborate quickly on that point?

Brian Page: Yeah. Well, one of the biggest objections I got meeting with dozens of not over 100 owners face-to-face was “Hey, Brian, it’s a cool idea, but it’s too much wear and tear on the property. And I don’t know who’s coming and going, all these people dragging their luggage in and out of the property… I just don’t like the idea.”

So I used to play this little game with the owners; I said, “Okay, I wanna play a quick game with you… It’s called Tenants vs. Guests.” I’m gonna make a statement. I just want you to think of whether this is more likely to happen with a tenant, or with a guest.” And I said “Okay, I’m gonna speak from personal experience here (I’m talking to the owner). Somebody paints the bedroom pink without permission. Is that gonna happen with a tenant or guest? Somebody leaves their car on blocks in the driveway. Somebody’s dog digs holes all over the yard and destroys it over the course of a year. Is that gonna happen with a guest? Well, no, because my guests don’t have pets, for example. Somebody’s ex-boyfriend or ex-girlfriend shows up at 2 in the morning and kicks the front door in. Somebody puts a satellite dish on the roof.” You can go on and on and on.

So all these nightmares that happen are with tenants, and I’ve had a lot of nightmare tenants. But with guests, it’s a different mentality, it’s a different psychology. Guests don’t treat the property like it’s theirs. They don’t say “This is my property. You can’t come in here and–” They look at it like they’re a guest; they’re there for 2 nights, one night, 3 nights, and then they’re gone. So the respect level is completely different than it is with tenants. You don’t see the wear and tear. And then additionally, the cleaning company is coming in every couple days and cleaning that place to be immaculate; because if my place is not immaculate, I’m gonna get bad reviews, nobody’s gonna book the place on Airbnb…

So my owners are always really shocked when they come in in month 4 or 5 and they look at the property, and they’re like “This thing is in the best shape I’ve ever seen it. This thing is immaculate.” I’m like “Yeah, that’s what I do.” So they’re very, very happy… And then owners all the time are like “Hey dude, I’ve got some other units that are becoming vacant soon. Do you wanna take those, too?” So that’s kind of how it works.

Joe Fairless: Yeah, it makes sense after it’s explained… But I imagine 90% of those conversations that question is asked and you have to change the perception of the owner…

Brian Page: Yeah, you’ve gotta educate them, you really do. And one of the biggest objections is “What about liability? What if somebody slips and falls, and sues me, and all this stuff?” The cool thing is there’s an entire insurance industry that sprung up around short-term rentals. For very little money you can get not only a liability policy to cover you if anybody gets sued, but you can also get a policy that’s specifically designed for short-term rentals… And I like to just pay for the policy myself. So I tell the owner “Look, not only am I gonna take excellent care of your property, I’m going to insure it. And on top of that, Airbnb has a one million dollar guarantee.

So you’ve got that, you’ve got the insurance that I’m paying for, you’ve got your own insurance… So your property is insured three different ways. When was the last time a tenant offered to insure your property?” So they’re like “Okay, I get what you’re saying here.”  So I overcome all those objections with reasonable arguments.

Joe Fairless: Would you say you make more money relative to the risk when you work with a landlord, versus when you own your own property and do it?

Brian Page: Well, that all depends on how you quantify risk. Somebody that’s brand new to real estate, has never been a real estate investor, I strongly recommend they don’t rush out and buy a property and put it on Airbnb, because they don’t really know the right locations to purchase in, and all that kind of stuff. An experienced real estate investor – of course, buy property, because you’re gonna build wealth, you’re gonna build equity; why not own the property. But the ROI on the small investment you’re gonna get doing a lease is just unbelievable… Because you’re talking first month’s rent, and deposit, and maybe some furnishings if it’s not already furnished. So for $5,000 you can get a property.

It’s like, if I said to you “How many properties would you buy if they only cost 5k/piece?” Because once you get into it, the cashflow is yours. And the cashflow is way more than if you just do a  long-term tenant and you own the property. So I look at it like, hey, every 5k I pop down, or even if it’s 10k, I know that that’s gonna generate 10k, 20k, 30k/year in net cashflow. And I don’t know any other thing in real estate where you can have that kind of ROI on a very small investment.

Joe Fairless: Let’s talk about an Airbnb that’s gone wrong.

Brian Page: [laughs] Hey, actually that’s a good question. I’ve never been asked that, strangely enough… Because you do hear about horror stories. I’ve  never had a horror story. I’ve had some very messy guests… Luckily, I’m not cleaning the property, so that really just — the cleaning company is like “Oh, boy.” And they charged me a little  extra to clean those. And I’ve never really heard any real horror stories from my students, other than messy guests.

Occasionally there’s small things that are damaged, but what I tell people do to is you can charge people a deposit – so Airbnb will do a hold on their credit card. It could be $100, it could be $500, whatever amount you want. That money is not taken off the card unless you make a claim. But the cool thing is you can make a claim up to a couple weeks after they leave. So if somebody breaks something, I can make a claim, saying “Hey look, I need 50 bucks”, and Airbnb will then ask me for proof and then they’ll release that money.

So you can do a deposit to cover that kind of stuff. And like I said, you wanna be insured for these kinds of things. You wanna do the business properly.

So does it happen? Yeah, I’m sure it happens. Does it happen at the rate that tenants destroy properties? I don’t think it’s anywhere even close in that neighborhood. And you’ve gotta remember, every guest that comes through Airbnb has already uploaded their identification… So I have a license or a passport of every individual. Their credit card has already been uploaded, they’ve already paid in advance for their stay, before they even show up at your property, because that’s what Airbnb does… So all these things – it’s not like you’re just taking a stranger off the street. And not only that, you can see the reviews. So I can say no to anybody that doesn’t have good reviews on Airbnb.

There’s a lot of safeguards there, which prevents a lot of the riff-raff and people that are gonna disrespect the property  from getting in there. So I’m not saying it can’t happen, I’m just saying it’s extremely, extremely rare.

Joe Fairless: When you take a look at the political climate in certain areas being against Airbnb, especially in the North-East and on the West Coast, what do you do as an investor who relies on Airbnb for your cashflow?

Brian Page: Okay, that’s a great question, and I’ve been asked this many times… So there were a couple years there where I was teaching this where I didn’t really know what to tell people, because they would say “Well, I don’t think it’s allowed where I live” or “I don’t know what the regulations are here” or “It’s definitely not allowed.” So I didn’t know how to really handle that, because I don’t know of every city and every town… So what I decided to do was I hired a research firm, and we paid a lot of money to do a study over the course of several months… And what we did is we essentially looked at every single town and city in the U.S. over 30k in population. And just so you know, that’s 2,000 cities. And we put them in a spreadsheet and we basically categorized then. We quantified whether short-term rentals were allowed, banned or not. And what we’ve found is really interesting. We’ve found that 92% of towns and cities do allow home sharing, and 8% don’t. So 9 out of 10 places you can do this.

Now, the ones that say no are usually the bigger cities, usually cities where the hotel industry is very powerful. We’re talking San Francisco, New York, Atlanta proper… These kinds of places. But what was interesting was as I started researching these cities, I found out that I had many students in all of those cities that were doing well, that have results, and I was like “How are you guys doing this?” So I reached out, “Are you guys breaking the rules, or what are you doing?” And some of them were; some of them were doing it despite the rules… But most of them were just “Hey Brian, I just drive to the next town over, where it’s not regulated, not restricted, and that’s where I do my Airbnbs.” And I was like “Ohh, okay.”

So I started looking into this and I found people in Atlanta for example wouldn’t do Airbnbs downtown, but they would do it in any of the ten other towns that make up that metro area. So I just tell people “Look, any kind of real estate is location-specific. So if you’re gonna open a Laundromat, you can’t do that in a residential neighborhood. You’ve gotta go where it’s zoned. And you can’t live in a Laundromat, you’ve gotta go to the residential.” So it’s the same thing – you’ve gotta go where it’s allowed. And for most people, that’s within a 20-30 minute drive of where they live, or it could be in their backyard if it’s an unrestricted town. Essentially, anywhere that you live in the U.S. you could do it, especially if you’re willing to just go where the opportunity is.

Joe Fairless: What’s something that we haven’t talked about, that we should?

Brian Page: Hm. Well, one of the questions that I get a lot from people is they doubt that owners would be willing to do this… And they say “Why in the world would an owner not just do this themselves?” And it’s a good question. There’s many reasons why they wouldn’t do it themselves, but I can just tell you over all the years of doing this I’ve never had an owner that said “Hey Brian, that’s a great idea. I’m gonna go do that right now myself.” They just don’t do that… Because you’ve gotta put yourself in the shoes of the owners.

I am an owner of properties, and many people listening are probably landlords… Most of us just want the least amount of hassle possible. We wanna get our rent, and we wanna make sure our property is gonna be maintained and taken care of. That’s all we care about. We do not wanna get in, start another business, or handle guests coming and going… And it sounds like a lot of work, and it can be a lot of work if you don’t have a system. So I’ve never really had that be an issue. I’ve never had owners just say they’re gonna do it.

So it’s really just a matter of “Hey, do you wanna rent to me, or do you wanna rent to some other random long-term person?” And if I can convince them that I’m the best choice, they’re going to lease it to me. That’s a huge opportunity, to be able to set up those properties. So that’s one of the questions I get a lot…

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

Brian Page: Let’s do it!

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

Break: [00:16:41].08] to [00:17:17].23]

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

Brian Page: Oh, man… I’ve just finished a book yesterday, and I read a lot of books. It was amazing; it’s by Napoleon Hill… It’s not the one you’re thinking of probably top of mind; it’s called Outwitting the Devil.

Joe Fairless: Really… With Sharon?

Brian Page: Unbelievable. Sharon Lechter… It was unpublished for 70 years. I didn’t know it came out in 2011, but that book rocked my world, and I shared it with other people and they said it’s changed their lives… So I can’t recommend that strongly enough.

Joe Fairless: It’s crazy… I love Three Feet From Gold; I think Sharon participated in that one. I can’t remember… I did not like Outwitting the Devil at all; it came highly recommended to me by someone, and… I just didn’t — I just wasn’t feeling it. But so many people said they love it, so Best Ever listeners, don’t listen to me…

Brian Page: Okay, there’s parts of the book that are slow. The first 2-3 chapters – you’ve gotta burrow through those. But once you get into the meat of it, it is so good.

Joe Fairless: Huh. Well, agree to disagree on that.

Brian Page: [laughs]

Joe Fairless: What’s the Best Ever deal you’ve done?

Brian Page: Best Ever deal I’ve done… In  real estate?

Joe Fairless: Yup.

Brian Page: Okay. So in real estate I would say I bought a fourplex that was fire-damaged. It was pretty huge… It was like a 3,500 sqft. building. There was a little tiny sign out front, and I approached the guy who I saw coming out the front door… I said “Hey, how much for this thing?” and he said “Thirty grand.” I said “Holy crap.” Thirty grand for four units; big, big building. And I knew that I could get $800/unit.

I bought it for thirty grand, I ended up fixing up those units… I don’t remember what I put into it. It was quite a bit of money to fix everything up. But I ended up flipping it and I think I made 130k on that deal. So that was really one of my most profitable deals ever. I probably should have kept it… I now like to acquire and not flip/sell… But that was probably my best deal.

Joe Fairless: What’s a mistake you’ve made in real estate that we haven’t talked about already?

Brian Page: A mistake that I’ve made in real estate… Huh.

Joe Fairless: Or maybe thinking about a particular transaction, just something that “Hey, I missed this, but I won’t miss it again”, something like that.

Brian Page: Yeah. I sometimes will pull the trigger really quick on junk properties, and not do a thorough inspection… But I’ve had a couple of those times where it’s backfired on me. But not enough to make it unprofitable deal.

For example, I just got a house a few weeks ago, and I drove up — I was the first person to respond. It was a wholesaler – I’m on his email list –  he’d sent out this deal… I dropped everything I was doing, rushed over to the house… I was the first person to arrive. And when I got there, there must have been five other pick-up trucks that pulled up right after me…

So I got on the phone with the guy, couldn’t get in the house, I was peeking through the windows… I just said “Look, I’m gonna pay you exactly what you are asking on this house, but you have to promise me you’re gonna sell it to me right now. I don’t wanna get in a bidding war with all the people that are about to look at this house.” And he said “Deal.” So I just bought it.

Today I went over there and looked at it… It needs some work, but nothing too major… So I sometimes roll the dice like that and it works out, but I knew that my numbers were good enough that even if there was something majorly wrong with it, it was still gonna be a good deal.

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

Brian Page: Sure. Well, if they wanna learn my strategies of how I’m doing this and how I’m making money with other people’s properties, and how I do Airbnb, and most importantly how to scale it to 6-7 figures a year, then you’re gonna wanna check out my free training. Just go to thefreetraining.com.

Joe Fairless: Brian, thanks so much for being on the show, talking about how to pitch owners about these opportunities to partner up or lease out their properties and make the spread above whatever you’re paying them with that partnership or that lease, as well as talking about some things to keep in mind if we are gonna do this liability insurance, then clarifying some Airbnb stuff  that perhaps they’re amiss about certain perceptions, like what I was mentioning with the short-term rentals being much cleaner and more well taken care of than longer term…

So thanks for being on the show. I hope you have a Best Ever day, and we’ll talk to you again soon.

Brian Page: Thanks, Joe. I appreciate it.

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JF1684: Teaching Children Wealth Lessons With A New Kids Book #SituationSaturday with Danny Randazzo

Danny has been on the show before, but has ventured into a new field to share with us today. He decided to start writing a series of kids’ books about the wealth lessons he has learned along his real estate journey. No doubt that teaching children money and wealth lessons early can have a tremendous impact on their future, as it did for Danny at the age of five. So tune in to hear ideas on educating our children, or even check out Danny’s book after the episode! If you enjoyed today’s episode remember to subscribe in iTunes and leave us a review!

 

Best Ever Tweet:

“Make sure if they do get a birthday present or earn a little extra money running a lemonade stand, that they always take care of it and have a special place to keep it” – Danny Randazzo

 

Danny Randazzo Real Estate Background:

 


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TRANSCRIPTION

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

First off, I hope you’re having a best ever weekend. Because today is Saturday, we’ve got a special segment, Situation Saturday. Here’s the situation – this hits home for me, and you’ll probably know why in a second… The situation is you’ve got some kids, you’ve got a kid, and you wanna teach them wealth lessons. You don’t know, or maybe you don’t have a good resource to teach them those wealth lessons.

We have a Best Ever guest who has been on the show multiple times before, Danny Randazzo. How are you doing, Danny?

Danny Randazzo: Joe, I am doing great, and thank you for having me on. I am excited to be back again, and be able to speak to the Best Ever listeners.

Joe Fairless: Yeah, looking forward to it. Best Ever listeners, you probably recognize Danny’s name; maybe you attended the Best Ever Conference in Denver and you heard him there, and/or you’re a loyal listener. Episode 961, titled “House-hacking Bay Area to a one million dollar commercial building.” That’s where Danny gave his best ever advice. Then episode 1447, “What to look for when vetting a potential partner?”

Today we’re talking about wealth lessons. Danny owns or has ownership in and assets under management – 130 million dollars of real estate. He was previously a financial consultant, now he’s an investor and owner of Randazzo Capital, and they focus on 150-unit multifamily properties. But here’s the thing we’re talking about – clearly, he’s got qualifications to have this conversation, and the thing we’re going to be talking about is if you are looking to educate your kids or children on wealth lessons, he’s now an author of a five-part book series, and each book is focused on a  key lesson for  kiddos.

Danny, first off, tell us about what was your inspiration for why you have this series, and ultimately Best Ever listeners, we’re gonna get to one of the lessons. That’s the focus of our conversation. But first, let’s get a little bit of context from Danny.

Danny Randazzo: The background to this very important wealth lesson that really set me on a path to financial freedom and taking ownership of my financial outcomes in life all started on my fifth birthday, and it’s really a transformational journey of how a single birthday present at five years old gave me financial freedom at the age of 30. It was so impactful and powerful, that lesson that I learned at such a young age. When I share that story to people – and that’s really what the first book is all about – it’s called “The Boy Who Lost His Wallet.” The focal point of the story is about protecting your money.

When I share that story with people of all ages – I’ve shared it with seniors, I’ve shared it with young people, I’ve shared it with middle aged folks, anywhere from 20 to 60 or 70 years old, and a lot of the feedback that I get really shocks me. They say “Danny, I wish I would have learned that lesson like you did, and I would be better off today.” Because in my daily life I interact not only with high net worth individuals who invest in our real estate investment opportunities, but I interact with just everyday folks like you and myself, Joe, who are always interested in how can they get ahead, how can they achieve financial freedom.

I needed to write this book about why it’s important and imperative for everyone to protect their money, whether you’re a young child, or you’re just getting out of college and getting started, or you’re a professional and you’re working and trying to take care of your family, it’s absolutely critical to take ownership of your money and your financial situation. That’s the inspiration behind this book.

One thing that I was thinking about as I was preparing to write the book is how can I not only get into the minds of the young people, but I’ve also tailored the book to be helpful to that parent or that adult figure who’s reading the book to the child for them to be able to learn the lesson if they may not know it as well as they should. Does that make sense?

Joe Fairless: Yeah. What ages would this be best for?

Danny Randazzo: This would be best for ages between two to five, and the caveat to that, I would say, is some of the Dr. Seuss book series I’ve seen gifted to the older generations of people, and they are such impactful lessons that it really applies to anyone. If you’re struggling or want to take better control of your financial freedom and your financial outcomes, then I think this book and this lesson will be very helpful, not only to the young people in your life, but also to you potentially.

Joe Fairless: So let’s talk about the lesson. This is a five-part book series, so how do you structure the book, and then what is ultimately the lesson that, regardless if we read the book, that we should teach our kids or kids that we come across?

Danny Randazzo: Like you said, Joe, it’s five lessons and five books to the series. The first lesson is about protecting your money. The takeaway to that is ownership of your financial situation and where your money is at at all times. The lesson that I learned very early on. The point to the story is that my wallet was lost; I went from $120 total net worth at the age of five, to zero, and it really impacted me. It was a traumatic and emotional event, because I was so excited about the wallet that I got, but also the birthday present and the money that also came with it. All of that was lost in one decision. And because I didn’t keep track of it as well as I should have, that really shaped how I track and take care of my finances today.

Joe Fairless: How do you go about telling the story?

Danny Randazzo: We go about telling the story really how it first happened. The story kicks of with Danny, who’s very excited on the morning of his birthday, and–

Joe Fairless: Who is this Danny character? Any inspiration from anyone you know?

Danny Randazzo: Right, no idea. All of the books that I write are based off of real life experience, so I think it makes it relevant to the audience and to the reader. Every five year old has a birthday out there, so… We start off in the morning, Danny wakes up, he’s very excited about his birthday; he wants to know who’s gonna be coming, what kind of food is being prepared, is there gonna be a birthday cake…

He has a conversation with his mom and his parents, and really gets teed up for the birthday event. Then people start showing up to the house, so he’s got aunts and uncles, grandparents, cousins… Everybody is coming in and they have a small little package in their hand, and Danny is really excited throughout the day, and throughout the meal, of “When are we gonna get to the presents? When are we gonna get to the presents?”

It kind of leads to this event where Danny gets to open several presents, and one of those presents is this awesome, new wallet. He is just so excited about getting this wallet. He also received a little bit of money for his birthday to put inside of the wallet. It was a ton of excitement, and he finds a great place to put his money and put his wallet at the end of the day, to wrap up this wonderful, best birthday ever.

Then it rolls into the following day, and his wallet ends up getting lost. That traumatic experience, that emotional event, which really helped shape my financial future, and which will shape Danny’s financial future in this book series as we continue. It really takes on a nice journey, and the great thing is I worked with a wonderful illustrator who was able to bring that graphical presentation… So I think it will be very relevant and fun for the young people to see the great artwork and be able to embrace and understand the story, and take away that basic lesson of “You are ultimately responsible for your money and for your financial freedom.”

Joe Fairless: With that point of “You are ultimately responsible for your money and for your financial freedom”, did you go with the angle that Danny, since he is responsible for his own money and financial freedom, it was on him for losing the wallet, or was there a more Hollywoodesque ending to that?

Danny Randazzo: There’s a little twist on how the wallet is lost, and again, it’s based on the real life example. I’d like the audience to be able to pick up the book and understand that twist… But the takeaway is that Danny is responsible for it. Even at the age of five, you are responsible for it. There’s no blame on anyone outside of himself, and really it’s your job to keep track of your money and make sure that your finances are in order.

Joe Fairless: Personal responsibility, I love it. Where can the Best Ever listeners get this book?

Danny Randazzo: The book is available on Amazon. I’ll be sure to get you a link for the show notes. The other place that listeners can go to get the book is RandazzoCapital.com, and will just click on the Book link that’s available on the website there.

Joe Fairless: Danny, thank you for being on the show, talking about the book that you’ve got — what is the name of the book?

Danny Randazzo: The book is called The Boy Who Lost His Wallet.

Joe Fairless: The Boy Who Lost His Wallet. Thanks for being on the show. I love the series. It is something that I will purchase for my daughter. She is three months old, so we’ll get her early, teaching her early these lessons, and certainly protecting your money at a very young age… And then you said it’s a five-part series, so it progresses into different lessons after that. It’s something that as long as they are good lessons, which they are, why not teach our kids these things? And then continue to reinforce them.

One question I have is these are books, and these are lessons, but once the book is over, do you have any tips in the books, or do you have something that you’re following up with for “Okay, here’s the lesson. Now here’s some practical ways you can actually practice this with your children”?

Danny Randazzo: I haven’t really thought through applied example or a tactic when it comes to protecting your money. I think a simple lesson that you can instill with kids is to make sure if they do get a birthday present, or if they earn a little extra money running a lemonade stand, that they always take care of it and have a special place to keep it.

One thing that I do with my nieces is if they leave a dollar or something on the counter, and they’re out running around and it’s not being taken care of, I have a very adult conversation with them that says “Look, either you need to put this in some place, or I will take it from you.” It’s really important and impactful, because I think there’s people today who don’t know their finances, and ultimately what we’re trying to teach in this lesson is that you are the responsible party, so having that practical, applied example and just making sure that if there’s a quarter on the street, go pick that quarter up and put it in your pocket, and when you get home, have a special place for it.

So I would say with the protecting your money lesson, you can do that in everyday life, whenever you have extra change, or someone makes a couple dollars running a lemonade stand, that there’s a special place and you can revisit and instill that lesson with them on a regular basis.

Joe Fairless: There’s a penny in the security tray at the airport in Cincinnati, and it was an unclaimed penny. I put it in my pocket and took it all the way to Denver for our conference, and brought it all the way back to Cincinnati and put it in the little change drawer. So I certainly practice that.

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

Danny Randazzo: Thank you so much, Joe.

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Episode 1530 Best Ever Show flyer

JF1530: Broker, Flipper, Landlord, & Syndicator Tells His Best Stories with Carlos Gutierrez

Carlos is a broker and has been flipping houses since 2010. He also owns over 40 units and has syndicated 20 of them. He shares some great stories with us of how he’s gotten to where he is today. From his syndication deal to why he is no longer flipping much. If you enjoyed today’s episode remember to subscribe in iTunes and leave us a review!

 

Best Ever Tweet:

 

Carlos Gutierrez Real Estate Background:

  • Realtor since 2010, flipped about 20 properties from 2011-2017
  • Purchased 20 units raising $200k to close, rehabbed and paid investors back after 14 months
  • Owns another 41 units
  • Based in Charleston, South Carolina
  • Say hi to him at cg4properties@gmail.com or 843.934.4250
  • Best Ever Book: Best Ever Apartment Syndication Book by Joe Fairless

Get more real estate investing tips every week by subscribing for our newsletter at BestEverNewsLetter.com


Best Ever Listeners:

Do you need debt, equity, or a loan guarantor for your deals?

Eastern Union Funding and Arbor Realty Trust are the companies to talk to, specifically Marc Belsky.

I have used him for both agency debt, help with the equity raise, and my consulting clients have successfully closed deals with Marc’s help. See how Marc can help you by calling him at 212-897-9875 or emailing him mbelsky@easterneq.com


TRANSCRIPTION

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

Carlos Gutierrez: Good, Joe. How are you guys doing?

Joe Fairless: I’m doing great, and welcome, and looking forward to our conversation. A little bit about Carlos – he has been a realtor since 2010; he flipped about 20 properties from 2011 to 2017, purchased 20 units, raising $200,000 to close; rehabbed and paid the investors back in 14 months. Owns another 41 units. Based in Charleston, South Carolina. With that being said, Carlos, do you wanna give the Best Ever listeners a little bit more about your background and your current focus?

Carlos Gutierrez: Yeah, how’s everybody doing? As Joe and I were speaking earlier, we are safe here in Charleston, from the hurricane. It wasn’t that bad. We got a little bit of rain and some wind.

A little bit of my background – I’ve started flipping houses in about 2010-2011. I flipped about probably over 15 to 20. When I first started, I got my real estate license, became a realtor, and at the same time that I was flipping houses I was also doing the brokerage side of the deal, so I was buying and selling houses with buyers and sellers. I did that from 2011, and I still do it now. I don’t concentrate as much on it.

Joe Fairless: Why not?

Carlos Gutierrez: Just because it’s like multifamily – it’s gotten harder to find good, solid deals. I’ve always been of the model that I’d rather keep my money than lose money.

Joe Fairless: Ditto.

Carlos Gutierrez: So if I get a solid deal, then I’ll go after it, but they’re just hard to find, especially locally here in Charleston; we’ve gotten a lot of investors – not only local investors, but national investors – just buying stuff up left and right. They’re essentially buying for yield, so they’re kind of overpaying, in my opinion, for properties that I was buying for 20%-30% less two or three years ago.

Joe Fairless: And you purchased 20 units raising $200,000 to close. Can you talk about that?

Carlos Gutierrez: That’s a little bit of a cool story. My wife and I, we moved from the DC area from Virginia, down to Charleston. She’s from Virginia, I’m from Florida. I didn’t wanna be in Virginia, she didn’t wanna be in Florida, so I said “Pick somewhere in the middle.” So we ended up in Summerville, South Carolina, a submarket of Charleston. We’d come visit a couple of times, to look at houses and see where we wanted to be.

One day we were down here looking at new construction, and I have a five and a three year old, and my wife wanted to stop and get some food, and we looked at our phones and we’re like “Oh, let’s go to a Subway.” When we actually got to the Subway, there was actually no Subway there. The Subway had closed down and it became an office building. But while I was in the parking lot I had looked across the street; there was an 8-plex that was empty, and it was a pretty solid-looking building. It was all brick, a little bit of siding… But other than it being empty, it looked pretty decent. I’m like “I’m wondering why that thing’s empty.”

I wrote the address down in my phone, and about a year later we moved down to Summerville, Charleston, and I said “You know what, I’m gonna write this guy a letter.” I wrote the guy a letter and said “I’d like to buy your apartment if you’re interested.” He called me back and he said, “Not only do I own eight, I actually own 20 on that street. Are you interested in buying all 20?” I said, “Sure, if we can come to an understanding.”

Back and forth – he’s an older gentleman, so everything was done over the mail.

Joe Fairless: Mail, like…?

Carlos Gutierrez: Yeah, literally. I talked to him on the phone, and I said “This is how much I can give you.” Then he’s like “This is how much I want.” We were kind of back and forth. We finally agreed on a $750,000 price. He’s like “Alright, send me the contract.” I was like, “Yeah, what’s your e-mail?” He’s like, “I don’t have an e-mail. Mail it to me. I’ll have my lawyer look at it, and if it’s good, I’ll fill it out and send it back to you.” About two weeks pass… [laughter]

Joe Fairless: Did you at least overnight it?

Carlos Gutierrez: I did. [unintelligible [00:07:04].12] where he would have to sign for it. We’re used to technology; I send you a contract today, and it’s gotta be settled in half an hour. So it took about a month before we finally got all the paperwork.

Joe Fairless: How does it work when he has markups to a printed out contract? How are those updates communicated?

Carlos Gutierrez: What I did finally was — because he was an older gentleman and I don’t know if he’s never dealt in real estate or just happened to have this property, but I wanted to make sure that everything was okay, so I said “Why don’t I just have my lawyer contact your lawyer? And that way we can have no miscommunication.” Because I would call him and be like “Hey…” His name was Skippy, by the way. [laughter] I could write a  book on this whole deal, literally. And finally, back and forth, the lawyers kind of agreed and put an actual contract together. But it was still like a residential contract, it wasn’t like a LOI type of thing.

Joe Fairless: Okay, so a $750,000 purchase price, all 20 units… What was the reason why you did not contact him when you first saw the property? I know you weren’t living there, but…

Carlos Gutierrez: Yeah, I wasn’t living here at the time, and I knew that it was gonna be  a heavy construction type of a deal, so I didn’t wanna buy it and be in DC and have to fly back and forth.

Joe Fairless: Okay.

Carlos Gutierrez: And at that time I had a three-year-old and a one-year-old. You know about that, I think you said your wife was pregnant–

Joe Fairless: Yeah, she’s due in a couple– well, by the time this airs, hopefully we have a baby girl.

Carlos Gutierrez: You’ll have a child, so you’ll understand that. All that time that you had in the world, when you start having kids, you’re like “I had so much time before. I literally have no time right now.” So that’s the reason why I waited.

Joe Fairless: Okay. So you got the contract agreed upon… High-level, besides the purchase price, what were some of the terms?

Carlos Gutierrez: It was basic terms. I gave him a $10,000 earnest money deposit, I put 90 days to close… I did it on no contingencies, because I had already walked around the buildings, I looked through the windows… I knew I was gonna do heavy construction, so other than having an appraisal contingency or things like that, there was no other contingencies in the deal.

Joe Fairless: Okay. Was your earnest money non-refundable day one?

Carlos Gutierrez: No, the lawyers agreed that it would be non-refundable (I think it was) 30 or 45 days.

Joe Fairless: Okay.

Carlos Gutierrez: Kind of after we got the appraisal and all that stuff.

Joe Fairless: Okay.

Carlos Gutierrez: And I wanted to put that in the paperwork, because I knew it was gonna be one of those things where it’s too small for the big banks, and too big for the local banks. It kind of fell in between, so I had to get a local credit union that wanted to see that area move forward. I had 30%-40% occupancy.

So there was a lot of things that a Fannie Mae/Freddie Mac type of thing or a local Bank of America would be like “No, we’re not gonna have it.” So I’ve got a Heritage Trust Credit Union which is a local person, he got me a pretty decent loan; it would amortize over 20 years, 20% down, instead of 25% down; 4,9% or 5% interest rate, which was a little bit higher at that time, but still it was decent for the occupancy.

Joe Fairless: What was the loan term?

Carlos Gutierrez: Five years.

Joe Fairless: Five years, okay. And then what about your construction?

Carlos Gutierrez: So the construction was — I estimated about $100,000, because it was gonna be about $10,000/unit for the building that was empty, and then about another 20k-30k in the other units that needed to be either turned, or put another roof on another building… There was a total of four buildings, and two out of the four buildings got new roofs.

Joe Fairless: How did you estimate that?

Carlos Gutierrez: I had experience with single-family flips, and I literally just went into an apartment and said “Well, I need (from A to Z) plumbing, electrical, roof flooring”, all that stuff… And I just put a budget together from my experience in single-family, and I also had experience with apartments, because I had a old-time job as an apartment manager/maintenance guy.

Joe Fairless: Okay. Did you plan on doing that work yourself?

Carlos Gutierrez: No. Since I first started, I said “I’m never gonna be one of those guys that buys the house and does everything and it takes him six months to flip.” The name of the game, in my opinion, is being fast. So other than maybe like demoing a house or pressure-washing something outside just to keep me a little bit busy, other than that I never did heavy construction.

Joe Fairless: Okay. In the loan that you got, did that $100,000 — was that included in your loan?

Carlos Gutierrez: No. They treated it as a — I wouldn’t call that a performing asset, but they knew that I was gonna get to that level, so they just treated it as stabilized, 70%-80% stabilized…

Joe Fairless: Even though it was 40% and you were probably kicking those 40% out, I imagine.

Carlos Gutierrez: Correct, yeah. It was a huge obstacle, because like I said, “nobody really wanted to touch it” type of a thing; they couldn’t see past the numbers. It had to have been somebody that was local, that knew that area, and knew that that area was starting to turn around.

Joe Fairless: How long ago was this?

Carlos Gutierrez: 2016.

Joe Fairless: Okay, great. About two years ago. Perfect. What have been the major milestones that you’ve accomplished from then to now?

Carlos Gutierrez: In that particular deal?

Joe Fairless: Yeah, with that particular deal.

Carlos Gutierrez: When I did the ARV on that deal, I thought it was gonna be around a million, a million fifty. So I knew I didn’t have that much spread, but I knew it could be a nice performing asset once it gets stabilized… And we estimated the rents, once it was rehabbed, about $750 to $775. With so much demand in the area for rentals and so many people moving down to Charleston, we were able to rent all those at $850.

Joe Fairless: Uuh…

Carlos Gutierrez: And I’m talking about my phone was ringing off the hook. And I could probably push it higher, but I just thought that at that level I didn’t need to push it anymore. The biggest milestone when we actually finished the rehab, I was able to refinance it at a valuation of 1,2 million. I was able to get a new loan, longer amortization, close to the same interest rate (4.84%), amortized over 25 years, 10-year call… I was able to pay the first loan off, plus the investors, plus give me back my initial investment in the deal.

Joe Fairless: When you paid off your investors, did you buy them out, or are they still owners with you in the deal?

Carlos Gutierrez: No, I bought them out. We came into this deal — we gave them promissory notes. I had a partner at 40% equity, and he brought all the money from investors. We gave them 10% return on their money, and I gave him a 40% equity, and I was able to pay everybody back, including him, his equity. So I’m the sole owner now of the 20 units.

Joe Fairless: Wow… If you hadn’t got a favorable appraisal of 1,2… Let’s say you execute the business plan but the market just went South – what’s your plan for having those investors at that 10% promissory note?

Carlos Gutierrez: Even at a million dollar ARV, I knew I was able to pay at least the investors off. I was planning to keep the partner with his equity in, and my initial investment. I knew that it was gonna be a longer-term play. But this time, when I refinanced it, I knew I could pay at least the 2-3 investors back.

Joe Fairless: And how did you know that?

Carlos Gutierrez: Just by doing the math on the ARV, and working backwards.

Joe Fairless: Okay.

Carlos Gutierrez: I factored that into the business plan and into the underwriting that I did.

Joe Fairless: How much monthly income does it net you in your bank account?

Carlos Gutierrez: It’s about $125 to $150/door right now. That’s factoring in the management fee, escrowing the taxes and insurance… Because when you buy a multifamily, especially small ones, they don’t escrow all that, so at the end of the year you’ve gotta pay $15,00-$20,000 in taxes, and you’ve gotta make sure you escrow that monthly… Which I see a lot of investors not do that. When they net out cashflow, I’m like “Did you net out vacancy rate? Did you net out taxes, insurance, all that stuff?” They’re like “No.” Well, [unintelligible [00:16:03].13]

Joe Fairless: Why do you think the property was still for sale one year after you looked at it?

Carlos Gutierrez: It actually was never for sale?

Joe Fairless: Oh, I missed that.

Carlos Gutierrez: Did I not say that?

Joe Fairless: I don’t think you said it was for sale, I just thought it was.

Carlos Gutierrez: I’ve always been a guy that’s always kind of looking for a deal. And when I see empty places, I’m like “This is for the taking.” So I just sent the person a letter. I’ve gotten my best deals from dealing straight with owners, from sending them letters. Instead of doing a massive 2,000-3,000 fliers, I’m kind of bird-dogging, I guess you’d call it

Joe Fairless: Sure.

Carlos Gutierrez: Yeah, and I look for places that are empty, and then send them out letters.

Joe Fairless: What does that letter say that you sent to the gentleman who had the 8-unit that then grew to a 20-unit portfolio that you purchased?

Carlos Gutierrez: I did basic letters. I remember wholesalers back in the day in Maryland used to send out those yellow letters… Real basic. “My name is Carlos Gutierrez. I own Cg4Properties. I would like to purchase your property at 123 Smith Street. I can buy it in cash in 30 days or less. Call me at this number.” I don’t even put an e-mail, because most of these people don’t do e-mail.

Joe Fairless: So Skippy called you, and he says “Oh, great! Buy my place for cash, 30 days”, but then you ended up financing it, so how did that conversation go?

Carlos Gutierrez: I said “Listen, Skippy… Usually I buy properties in cash, but this property has significant amount of construction, so I need to keep that capital that I was gonna pay you cash for, and try to finance it. I’m gonna try to finance it, and then with the capital that I was gonna pay you, the straight cash, for the property – I’m gonna need it for the construction.” And he was actually really nice to deal with, and open, and he knew that to have 20 units and to have a 30% occupancy — and he had a mortgage on; it’s not like one of those guys that has owned a property for 30-40 years and it doesn’t matter if it’s 40% occupancy, they’re still making money.

Joe Fairless: What was the main challenge you had turning the property around after you closed on it?

Carlos Gutierrez: The hardest challenge was to actually get contractors to work. Again, Charleston has been an area where there’s been so much new construction and so many people moving in that they actually have a shortage in blue-collar type of contractors. For the roof, I had to call like four roofers to do a roof on this property, because all the roofers were doing new construction… They’re not gonna leave new construction where they can do 2-3 roofs a day, to come do my roof.

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

Carlos Gutierrez: In the short time that I’ve been doing this, I’d say a couple of things. I’d say – as cliché as it sounds, finding your big WHY. I always say, the fun times when you actually make money or when everything’s going fine, your big WHY is not that big of a deal; but when you have a fire at your property, or when the tenant is calling you in the middle of the night and there’s a toilet backed up, or something, you’ve gotta have that big WHY of looking past tomorrow, or next year. You’ve just gotta know why you’re doing it. If it’s just for the money, like people always say, you’re just gonna get tired; it’s just gonna mentally drain you. So your big WHY – you’ve gotta have that.

And the other advice I would say is build relationships with people and always go into the transaction or relationship with a win/win attitude. Again, as cliche as that sounds, and I’ve sure people have read it in books, it’s the truth. Most of the times that I’ve gotten the best deals through contractors or through people that send me deals, or relationships that I’ve built over time, they 1) trust me, and 2) it’s always gonna be a win/win when we do a deal or a transaction.

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

Carlos Gutierrez: Yes, I am.

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

Break: [00:20:24].04] to [00:21:17].08]

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

Carlos Gutierrez: Other than your book… [laughs]

Joe Fairless: Which one? The syndication one?

Carlos Gutierrez: The syndication book, yeah. I’ve been trying to get into syndication for the last two years, and I find your book to be actually very informative and very easy to read. There’s a lot of books out there that have a lot of information, but they’re difficult to read. When I say difficult, I mean boring. [laughter] They’re putting you to sleep.

Joe Fairless: I’m a very simple-minded person, so it’s easy for me to…

Carlos Gutierrez: [unintelligible [00:21:45].26] myself. I call myself the Forrest Gump of Charleston. [laughter]

Joe Fairless: What’s the best ever deal you’ve done that you haven’t talked about during this conversation?

Carlos Gutierrez: Okay, I’d have to go to single-family flips. Probably the most money I’ve ever made on the deal, and the reason why it’s my best deal is because 1) I’ve made the most money, and 2) it was the happiest buyer that I’ve ever seen in my life. She had struggled for a long time, husband left her with two kids, he was the breadwinner, she was down and out… This was in [unintelligible [00:22:25].15] Virginia. I bought the property through a HUD, and got a real good deal because it was back in 2013, so they were pretty much giving you houses back then; 2012-2013. I made the most money, but I also felt really good, because I sold her the property and left her with some good equity, meaning that I didn’t sell it to her at top retail. And she was able to move into a home and have a good future for her and her kids… And I was able to get her a good loan, and she really didn’t have to come out of pocket too much. So not only did I make a lot of money, but it felt good to help somebody else.

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

Carlos Gutierrez: A mistake I’ve made on a transaction? I guess I’m an old-school guy, and I used to go a lot on people’s word; unfortunately, in real estate you cannot do that. I went on somebody’s word, and it came back to bite me in the butt. Monetarily, as well.

Joe Fairless: Oh, literally?

Carlos Gutierrez: No, no… [laughs] Something didn’t literally bite me, but losing money felt like [unintelligible [00:23:36].24]

Joe Fairless: Sure, of course. Best ever way you like to give back?

Carlos Gutierrez: What we’ve done lately – and when I say lately, I mean probably back in 2013-2014 – when a big hurricane or a storm would ravage either a country or a state, we would partner up with local non-profits, and even collect food and supplies and stuff. We collected a lot of supplies for when the storm hit New Jersey, and when the storm hit West Virginia… Through Keller Williams we were able to raise a lot of funds and collect a lot of items.

And also in Puerto Rico – I’m originally from Puerto Rico, so this one kind of hit close to home – we collected over 2,500 pounds worth of food and water and all that stuff. We sent probably 3-4 pallets to Puerto Rico from Charleston.

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

Carlos Gutierrez: The best way is probably e-mail, or a phone number. Cg4properties@gmail.com, or you can call our offices at 843-934-4250. Myself or my wife Christina will answer.

Joe Fairless: Carlos, thank you for being on the show. Thank you for talking about your deal with Skippy and how that’s netted you now $30,000/year in income. Now that the dust has settled, you don’t have any money in the deal; you own it 100%, and you make $30,000 as a result of it… And it sounds like you didn’t put any money in the deal initially, because you partnered with a private equity partner who then got bought out… So here’s a case study right here – how do you replace your $30,000 job income (if you’ve got $30,000), well, do one deal, and here’s exactly the step-by-step process for how to do it.

Thank you so much for sharing that story. I hope you have best ever day, and we’ll talk to you soon.

Carlos Gutierrez: Alright, Joe. Thank you for the opportunity.

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best ever real estate pro advice

JF961: House HACKING Bay Area to a $1MM Commercial Building

His total out-of-pocket after house hacking in the expensive bay area of California was $400. Not too bad! He put his life savings into it, then eventually purchased a 1 million Dollar commercial building with six units. This is a rare case but definitely turn up the volume and take notes! Best Ever Tweet: Get your mindset right and believe your purpose.

Danny Randazzo Real Estate Background:

– Owner of Randazzo Capital
– Took every available liquid dollar to buy my first primary residence in San Francisco Bay Area
– First purchase was a $1 Million dollar commercial building
– His portfolio holdings are focused on commercial and multi-family properties
– Based in Charleston, South Carolina
– Say hi to him at http://www.randazzocapital.com/
– Best Ever book: Mistakes Millionaires Make by Harry Clark

 

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Commericial Building Real Estate podcast

 

 

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

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

Dan Randazzo: I’m doing well, Joe. How are you?

Joe Fairless: I’m doing well, and nice to have you on the show. Danny is the owner of Randazzo Capital. His first purchase was a million-dollar commercial building. He took every available liquid dollar to buy his first primary residence in the San Francisco Bay Area. He’s now based in Charleston, South Carolina. His portfolio holdings are focused on commercial and multi-family properties. With that being said, Danny, do you wanna give the Best Ever listeners a little bit more about your background and your current focus?

Dan Randazzo: My background is in financial consulting. When I graduate from college, I was working for a small local company and started within the corporate world working a financial consulting job, traveling around the country, landing a project overseas in Abu Dhabi, United Arab Emirates, where I worked for about a year and then came back to San Francisco.

When I moved back home, I was kind of ripe with cash from my job living overseas and not having living expenses to pay for, so I took all of my savings and dumped it into my first primary residence purchase, in which I rented out two of the bedrooms and lived pretty much free (with the exception of about $400) in the Bay Area in cost of living.

I held on to that property for just over two years and came out with tax-free gains, sold it and that really created my equity nest egg (as I like to call it) to relocate across the country, start investing in commercial property. You mentioned my first property was a million-dollar purchase that I did on my own. So I put in about 200k that I had in savings to purchase the six-unit commercial office building which has currently five of the six units occupied and I’m in the process of getting a long-term 3-5 year lease in place with a national mortgage lender to fill up my six-unit. Once I have that six-unit filled, I’ll then look to refinance the property and get my initial investment back out, but also build up some equity in that property. So that deal should be a pretty good one for me.

My current focus nowadays is still on the commercial acquisition side, as well as multi-family properties. I’m really looking to get into some of these larger deals, as I feel that there’s more ability to control and scale your business having fewer properties to oversee and manage. That’s kind of been my strategy, to really go for the larger properties that generate more cash flow in order to build the lifestyle that my fiancée and I wanna have.

Joe Fairless: You took every available liquid dollar and you put it into your primary residence in San Francisco, and you’re basically house-hacking – you had some people renting out the rooms… Repeat what you mentioned earlier, will you please? How much did you actually pay after the rents were coming in every month?

Dan Randazzo: After the rents were coming in, I paid out of pocket about $400; part of that went to cable and internet, part of that went to heating and cooling, and part of that went to an HO A/C, because it was a condo. But for the Bay Area, I call that a win if you can live off $400 between all of your housing expenses and everything included. That was a big one.

Joe Fairless: How much were the rents?

Dan Randazzo: The rents were 900 for a basement room and 1,100 for an upstairs room.

Joe Fairless: How much would the room that you were living in had rented out for, if you had rented it?

Dan Randazzo: I probably could have rented it out for about $1,300-$1,400.

Joe Fairless: So you’re fiscally responsible, and I know because we know each other outside of just this interview… So I know you’ve had a budget ever since high school, to the penny, of the in and out of money in your checking account – is that correct?

Dan Randazzo: Yeah, that’s correct. I really enjoy tracking and understanding where all of my money comes in from and where it goes out to. I can see over the course of time “Am I spending a lot in areas where I don’t really need to be spending?” There was a period in my life where I was buying clothes and I played a little bit of golf, so I would buy some golf shorts and some golf shoes, and during the summer months during the golf season my spending was pretty crazy, and I was really getting no value out of purchasing some new golf shirts when I had several in the closet or in the dresser that would work just fine.

Having the ability to track to the penny of what comes in and what goes out was really important for me. As I look at my history of tracking my budget, if I didn’t save every single nickel, dime and quarter over that span of my life, I might not have been able to afford that down payment that ultimately got me into that single family house, which then ultimately lead me to build that equity nest egg, which then allowed me to purchase my first commercial property.

Joe Fairless: I’m glad that you explained that, because that’s what I wanna ask you about. You put every liquid dollar into that primary residence in San Francisco. Knowing that you do count your budget to the penny, it almost seems counter-intuitive – although I understand it, but an outside might think “Wow, he’s so focused onto the penny, but yet he’s going all-in on a primary residence in San Francisco.” What did you think through in order to actually pull the trigger in going all-in, where every liquid dollar was in a primary residence in San Francisco?

Dan Randazzo: Well, what I evaluated was the opportunity to purchase that property. As I moved back to the U.S., I had a pretty decent stockpile of money. I purchased my primary residence at $475.000, so the 20% down payment – 80k, 90k, almost 100k dollars was sitting in my bank account and I was thinking, “What is the best use for this money? Because I don’t wanna go out and buy any silly golf clothes, I don’t wanna buy a new car, I don’t wanna buy anything that isn’t going to generate some positive value and income for my life.”

Looking at the property that I was going to purchase, it was previously trading at almost $800,000 back in ’06 and ’07, so I figured that it would be a relatively safe play. The California market, and specifically the neighborhood that I was in within the Bay Area was just really stabilizing. From 2012 to 2013 it had a little bit of market appreciation, but over 2013, 2014 and 2015 there was some significant appreciation and growth in that specific neighborhood, just because the Bay Area was rapidly growing and the neighborhood that I was in was in the path of growth. So I was able to really buy it at a good discount, compared to the ’06, ’07 peak, and realize some of that upswing as the market continued to rebound and strengthen over the last three years.

Joe Fairless: And what did you sell it for?

Dan Randazzo: I sold it for 585k. On top of that, I had $400/month in living expenses, so the house – I was able to build a good amount of equity in it, but also pay down the principle interest and taxes really without using any of my own money.

Joe Fairless: You sold the property in San Francisco, and then you went East to Charleston, South Carolina. Why did you go from San Francisco to Charleston?

Dan Randazzo: Well, my fiancée and I were getting a little bit more serious and she was my girlfriend at the time, so we were having some discussions about life and lifestyle and what we wanted to do with our time and how we wanted to live, and one of my conversations with her was “Hey, I remember reading Rich Dad, Poor Dad back in school. I’ve studied and really enjoyed real estate. Let’s look at buying some rental properties here…” Just really using basic math, if you can buy a property and you get paid rental income that’s greater than all of your expenses, you’re doing pretty well. That’s kind of how I instilled the bug into my girlfriend and now fiancée.

So we eventually said and realized in the California market that returns were not very good, and capital was a high barrier to entry in that market, because most of the properties are quite pricey in the Bay Area. So we evaluated a few markets – Florida, Texas, a couple of cities in each of those, and then Charleston.

We settled on Charleston because the real estate market, first and foremost, is doing very well there, and we felt very comfortable in knowing the market. My fiancée is originally from Charleston, so she knows some of the ins and outs of the neighborhood, she had a built-in network there, her brother is also in the real estate industry, so we were a little bit more comfortable going there versus any other city, because we already had a network of people set up to help us. In addition to that, I was still travelling and still am traveling for my full-time job as a consultant, so going to a new city and me flying out for the week and leaving her there didn’t seem like the best option, versus going to Charleston where she has some people in the area to support her and support our real estate needs. It seemed like the best move for us.

Joe Fairless: So now you took the money that you had saved up, as well as earned tax-free from the sale of your primary residence to Charleston, and you purchased a million-dollar commercial property that is a six-unit office building. Tell us about how you found that and what is the business plan for you.

You mentioned that you’re gonna refi the property and get your initial investment back out, but is this a long-term hold? And any other details that you think are relevant.

Dan Randazzo: The property was identified, it was an on-market deal. Timing just seemed to be right. The property, when it was originally listed – probably about six months earlier – I think it was about 50% occupied and nobody was really interested in paying what the seller was asking with only 50% occupancy. So by the time that we had moved to Charleston and really got settled in the area, I started exploring and looking at properties, anything and everything that I could get across my desk around the computer. It happened to come up, and I looked at it and I thought, “If this property was fully occupied, it would be a pretty good deal.”

We contacted the listing agent, got the financials, and the property had actually gone up from 50% occupancy to 85% occupancy. Basically, one out of six units was vacant. We did some negotiations with the seller, we got a great deal on the purchase price coming into the deal, and then also the seller leased back the vacant unit for three months, and that gave us some time to do some marketing for the vacancy, generate some interest, and we should be signing a lease for that unit in the next couple of weeks, and we’ll have it fully occupied.

The property is currently generating about 30% cash-on-cash return. Again, it was just a great deal, great timing, and being open to analyze the numbers and think outside of the box a little bit.

Joe Fairless: What aspect did you think outside the box on this one?

Dan Randazzo: Well, having the property on market for about six months and going back to the listing agent and getting some more information on where it was currently at. The other piece that is a good tip for all of the listeners – the owner was the developer of the property and of about 10,000 single-family residences. They were a mid-to-luxury homebuilder, and this homebuilder had finished up their entire development project, so in that area there was really nothing left for them to do. They were trying to liquidate and close their LLC books on the development, but they were kind of burdened by having this office professional unit still on their books… So they were able to cut a really good deal where they were coming down off of their asking price by almost $250,000, because for them that property was a little bit of a burden to keep their business operating and functioning when they had sold off their main asset, which was the home development portion.

One thing that I learned is if you know a developer is selling and it’s towards the end of the month, it’s usually in their best interest to close or sell as many deals by the end of the month, so they don’t have any additional accounting or legal fees from their teams, because the developers have large fees and teams that are required to close those deals and close the books. I just had some good success with buying direct from developers, and if it’s towards the end of the month, they’re usually a little bit more motivated to sell.

Joe Fairless: You said the seller leased back the vacant unit for three months… Did they actually sign a lease, or did they just give you the equivalent of three months’ rent credit at closing?

Dan Randazzo: They did sign a lease for that unit, and they did pay monthly installments or monthly lease payments for that unit. The agreement was if I fill the space before their three months was up or due, that they wouldn’t have to pay anymore, so it was kind of a “pay as you go” piece, and we utilized all three months leaseback from them, and they paid on time and in full.

Joe Fairless: What did they lease it for and what’s the new prospective tenant going to lease it for, if you can share that?

Dan Randazzo: They leased it at market rent, which was $15/square foot, which is annual, so they leased it for — breaking down their square footage, they were paying $1,25/square foot/month in base rent. They also covered the utilities, real estate taxes, insurance and association fees, so it was a true triple net lease for that short period of time, but all of the tenants that I have in the five other units are all paying about $15/square foot and they’re all triple net lease setups.

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

Dan Randazzo: My best advice is to get your mindset right and believe in your purpose. It took me some time to figure that out, and really believe in it deep down inside of myself. I had always wanted to be an investor, and the want was just not enough to drive someone to take action on the little things that are required to ultimately create a good deal. Once my mindset was there and deep down inside I believed in my purpose, my want really transformed into a need, and it really makes me unstoppable. I’m willing to do any little annoying, painstaking task to get deals closed, and it just doesn’t matter, I’ll get it done.

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

Dan Randazzo: I am.

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

Break: [00:19:54].10] to [00:20:36].21]

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

Dan Randazzo: I’m currently halfway through it. It’s called Mistakes Millionaires Make, by Harry Clark. All too often I think people get a little bit overconfident in themselves, myself certainly included in that mix. Harry’s book really talks about some brilliant business men and women, some in real estate and some in just general business, who have amassed fortunes, lost fortunes, and even maybe rebounded some of their fortune. It’s a great read with tons of lessons on how to protect your business and your personal assets from any sort of risk that’s out there or financing, personal guarantees of that sort. It’s been great.

Joe Fairless: Who’s the author again?

Dan Randazzo: Harry Clark.

Joe Fairless: Best ever deal you’ve done?

Dan Randazzo: The best ever deal that I’ve done was that first primary residence purchase that really created the equity nest egg. I bought a three-three condo in the Bay Area for about 775k, rented out two of the bedrooms, which covered all but about $400 in living expense for me. I then sold the property about a little over two years later with tax-free gains in 2006 for 585k, and with those proceeds my fiancée and I started building our real estate empire.

Joe Fairless: So we should all move to another country, earn money, save it, move back to U.S., live on the West Coast, buy a primary residence, rent out one side or two sides, live there, and then move somewhere else that’s more affordable and then use that money to buy a commercial property…?

Dan Randazzo: That’s not a bad way to do it, but another option that some people might think they’re open to is if you have a relative, live with the relative cheaply for a couple of years, save up some money, live with your parents if that’s a possibility… I’m all about understanding and tracking your personal finances, so whatever income’s coming and whatever as expense they’re going out, really try to optimize how much you can save and how much money you can generate.

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

Dan Randazzo: The second deal that I did was a $960,000 commercial property. It was four office professional spaces and I syndicated that deal and raised about $200,000, which was just enough money to close the deal and make some improvements to the property. The mistake I made was forgetting to include startup funds for marketing and office professional furniture that we needed for that deal to be successful. So I had to go back to my investors and get more money from them, which wasn’t a problem… However, the investors only wanted to put additional funds in based on the equity share that we had agreed to, so I had to come out of my own pocket to cover my equity position in that property, which in hindsight, if I would have included those startup costs upfront, it wouldn’t have been a big deal to the overall return on investment for the investor, and I would have kept a little bit more money in my pocket.

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

Dan Randazzo: The best ever way I like to give back is through what I like to think of as random acts of kindness. The other week I was traveling through the airport and there was this lady who was just struggling with holding her child, trying to put her stroller and all of her luggage down the plane, down the jet bridge and get on board in a reasonable time fashion to keep everybody else happy, and nobody was helping her. So I pulled off to the side of the line, helped her get her stroller, put away, helped her get her kid on board, and then notice that she was seated in the row behind me. I happened to be in first class, so she was in the middle seat and there were two larger gentlemen to both sides of her and she was very uncomfortable in her seat, so I gave up my seat in first class for her to be comfortable with her child, and for her kid to have some space on that flight.

So random acts of kindness, buying people cups of coffee when they least expect it, and just making people smile on a daily basis.

Joe Fairless: I love those stories, thanks for sharing that. Where can the Best Ever listeners get in touch with you?

Dan Randazzo: You can check out my website, RandazzoCapital.com. You can find me on Bigger Pockets, you can find me on Facebook at DannyRandazzo, you can find me on YouTube at Danny Randazzo.

Joe Fairless: Danny, thank you for being on the show and sharing your incredible start, as well as how your approach has evolved from house hacking in San Francisco to then moving to a more affordable market and buying a commercial property, getting at right now 30% cash-on-cash return on your million-dollar property, and it’s not even fully rented… Along with the lessons you’ve learned along the way.

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

Dan Randazzo: Thank you, Joe!

 

 

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