JF2216: Pre-Covid Deals With Charles Seaman #SituationSaturday

Charles Seaman is the Senior Acquisition & Asset Manager of Three Oaks Management, LLC. He is a returning guest from episode JF2081 so be sure to check out that episode to get his full background because today he is going to be sharing his experience with a deal he had before COVID and how he dealt with it after COVID.

 

Charles Seaman  Real Estate Background:

  • Senior Acquisition & Asset Manager of Three Oaks Management, LLC
  • 14 years of real estate experience
  • Portfolio consist of 92 unit apartment in Georgia, & a 48-unit in South Carolina 
  • Based in Charlotte, NC
  • Say hi to him at: https://www.3oaksmgmt.com/

 

 

 

Best Ever Tweet:

“During COVID I learned that If you persist, and you negotiate well, you can get yourself a nice deal ” – Charles Seaman


TRANSCRIPTION

Theo Hicks: Hello, best ever listeners and welcome to the best real estate investing advice ever show. I’m Theo Hicks and today, we’ll be speaking with Charles Seaman. Charles, how are you doing today?

Charles Seaman: Fantastic, Theo. How are you today?

Theo Hicks: I am doing well. Thanks for asking and thanks for joining us yet again. Charles’ first episode was Episode 2081. So make sure you check out the episode to learn more about his background and what he is focusing on today, because in this episode, being Saturday, we’re going to talk about a sticky situation that Charles was in, what the situation was and how he was able to get out of it, and the lessons that he learned.

Before that, as a reminder, Charles is the senior acquisition asset manager of Three Oaks Management. He has 14 years of real estate experience, he has a 92-unit apartment in Georgia, and then the deal we’re going to talk about today is a 48 unit in South Carolina that this sticky situation is about.

He is based in Charlotte, North Carolina, and you can say hi to him at https://www.3oaksmgmt.com/.

Charles, let’s just jump right in to the situation the Saturday. Tell us about this 48-unit deal.

Charles Seaman: Yes, absolutely. As everybody’s aware, the world’s changed quite a bit in the last couple of months. We had this deal under contract, we first looked at it in late January. We got it under contract in mid-February. At that point, the world was in a much different place. Initially, it was a deal that was mismanaged, that had, of the 48 units, 12 vacant units, and it was something that was an operational play that we were able to go in there and do better management; part of our play was going to be filling in the vacant units, and then also pushing market rents, because it’s under-rented compared to what it could be.

Being that it had so many vacant units, it was initially a deal that was going to be bridge financing. What happened is we had a bridge lender on board, we gave them an application fee, we were ready to proceed. And then on St. Patrick’s Day, that was a few days after the pandemic officially was declared, our mortgage broker gave me a call and said, “Hi, Charles. I got some big news here, the other lenders shutting down their entire bridge program, and it has nothing to do with us or with the deal. But just with the overall market conditions, there was too much uncertainty, and they didn’t want to lend to anybody at that point.”

That was the case with most bridge lenders, not just this particular lender, but many bridge lenders in the market.

At that point, we were faced with the situation because we were trying to figure out, “Okay, what do we do?” We were in the middle of our due diligence period, our money had not went hard yet, but we really had two options. Option one was either to terminate the contract, get our money back and get out of the deal, or option two was to work with the seller and see what we could do to potentially make it work for both sides.

The agreement that we came to is, we liked to deal and we wanted to move forward with this deal, but we extended the due diligence period by 60 days, and we also extended the amount of time that our money would not go hard for it. The thought was that with the extra 60 days for due diligence, even though all of our due diligence was really done, basically, it was just a waiting game to see if market conditions would change, and if we’d be able to get bridge financing during that time.

Lo and behold, we’re midway through the extension, and at this point, surprisingly, during the pandemic, the property actually got stabilized and filled up. Around early May, the property became stabilized and we no longer needed bridge financing, so we were now able to qualify the agency debt, which for anybody brand new is Fannie Mae or Freddie Mac. As that happened, it opened up opportunities, because to a point, Fannie and Freddie were more or less the only two major lenders that were actively funding multifamily transactions. So at that point, the property became stabilized.

Also in that period we were able to negotiate a price credit with the seller, because initially – while I’m not a fan of retrading, it was something that I thought we really had to do, because pretty much anybody that had a deal on the contract pre-COVID got some type of credit for it if they still decided to go through with it. I said we’d be foolish not to. We got a reduced purchase price, the property got stabilized and then all of a sudden, we go and we end up applying for agency debt with one lender. The lender gave us a term sheet for 75% LTV, which for the tertiary market was pretty good. We weren’t initially expecting it to be that high, but that worked out great, and they were projecting a 3.7 rate.

All of a sudden, the deal was looking better and better, because initially, we were looking at it as having to get bridge financing. Now we were qualifying for agency debt, we’ll have better leverage, we’ll have lower rate and just overall better terms, so it was starting to look better and better. Initially, we engaged with this first lender, and what happens is they go out there, they do their third-party inspections, the appraisal comes back much better than any of us anticipated it would… And overall, most of the boxes that the lender wanted checked, got checked.

Lo and behold, about a month and a half, two months later, they come back to us, and they tell us that their commitment’s only going to be for 65% LTV, which very much surprised us, because we were saying, “Well, how did we go from meeting most of the criteria that you have, starting off with 75% on a terms sheet, and now we’re at 65%?” We said, “Listen, we’re this far in, and the last thing we want to do is go out and start with somebody else,” because that means just negotiating an extension again with the seller, and just overall delaying the process and spending more money. But unfortunately, we couldn’t get them to budge. I don’t know if it was just overall nervousness from the market conditions the last few months due to the pandemic… But they wouldn’t budge, and 65% LTV wouldn’t work for us, because that would make our returns not as favorable as they were.

Lo and behold, we wound up nixing that deal, and we went ahead with a different agency debt lender. As of right now, we’re recording this, the deal isn’t actually closed, but we should be closing within the next two weeks, so it looks like everything is moving forward.

With this particular lender, they’re going to be right around the 75% LTV and pretty much the same great terms. So what happened is we have a deal that initially started with bridge financing, and that wound up not happening because of the pandemic, and it actually winds up getting better during it.

The real lesson I think I got out of this was that if you persist and you negotiate well, you can get yourself a nice deal.

Theo Hicks: That was a great lesson. Congratulations on still being able to hold on to that deal. Let’s go back a little bit. I just have got a few follow up questions. You said that you got that call, and then you had to brainstorm of what the next move was going to be. How much longer did you have until that money went hard?

Charles Seaman: We had about two weeks.

Theo Hicks: Two weeks?

Charles Seaman: I got the call from our broker on St. Patrick’s Day, March 17th, and our money would have went hard on April 3rd, so roughly two weeks left.

Theo Hicks: Perfect. So you went back to the seller, and you were able to renegotiate an extended due diligence and a hard money date. Did that require additional money down, or did they just accept it, because they wanted to start [unintelligible [00:11:14]?

Charles Seaman: They accepted it. They could see that we were serious buyers, they could see that we had already done over due diligence and everything we really needed to on our end, and they understood it was just a byproduct of the market, and unless they found the buyer who was going to come in there and buy with all cash, that they were probably going to experience the same thing with anybody else.

Theo Hicks: My main question is, talk about luck that the property was able to be stabilized – was that something that you knew they were working on? Did they do that because they knew they wouldn’t be able to sell it to you if it wasn’t stabilized, or was it just kind of a happy coincidence?

Charles Seaman: It was a happy coincidence. We definitely weren’t expecting that, but it gave us another option. Because even in early to mid-May, we were still debating, “Are we really going to be able to qualify for bridge financing?” As soon as we heard the deal was stabilized, we said, “That’s great.” Now we can go agency, and that’s a non-factor.

Theo Hicks: What would have happened if it wouldn’t have been stabilized? Do you think you would have been able to do the deal or would you have had to back out?

Charles Seaman: I think we would have backed out and terminated the contract, because the bridge terms weren’t great beforehand, just because it was a tertiary market. But with the amount of bridge lenders that temporarily suspended their programs, and post COVID-19, the charms would have been even worse, or rates would have been higher, or leverage would have been less, and it just wouldn’t have made sense for us to go through with it.

Theo Hicks: At what point in the process was that purchase price reduced?

Charles Seaman: That was actually reduced right before we decided to go through with it. Right before we told them, “Okay, we’re going to go through with it and not terminate.” I wanted to make sure we can get a reduction because I said it just seemed like we’d be leaving money on the table if we didn’t.

Theo Hicks: Did you do the price reduction because you needed to do that in order for the deal to make sense, or was it a, “I know I can do this because of where we’re at and this is more meat on the bone for us”?

Charles Seaman: It was more just that I knew we could deal because of where the market was at. We could have probably still made it work with the initial number, but it’s even better with the lower one.

Theo Hicks: How does that negotiation process work? Is it just you tell your broker, “Hey, we want to reduce price,” and then they negotiate with the broker and then it kind of comes back to you, the traditional negotiating back and forth on the purchase price? Is that how it works?

Charles Seaman: Exactly, yep. What I do is I initially sent the broker an email with the breakdown of the additional costs that we would have went with, because at that point the property still wasn’t stabilized when we had started that negotiation. We said if we went with bridge, this was the cost compared to what it would have cost us before, and we gave them a list of everything in particular, the lender required reserves.

Even after we went agency, with the lender required reserves it’s still going to be much more than what it would have been before. Now granted, as long as the loans and compliance and whatnot, we do get that money back after a certain point, but it’s still additional money that has to come out of pocket for it at the beginning. I said I understand that’s not the seller’s problem, but ultimately, it can’t be only our problem, because they said if we’re raising all that extra money and [unintelligible [00:14:03].00] the lender for a year or two years or however long it maybe, it’s still money that somebody is coming out of pocket for, so it lowers what we’re able to pay for that property.

Theo Hicks: And then last question, so you said that you had the bridge loan, you didn’t do that anymore. You found an agency loan that had great terms and they changed their mind for some reason, and you had to go with a different lender, which gave you kind of the original term that the first lender gave you.

How long did that process take? Traditionally, it takes two months to go through that entire process. Did you kind of go through that expedited phase?

Charles Seaman: With this particular one what happened is from start to finish we went seven months. So I joked around and told people, it was probably the longest closing we’ve ever had before the deal was closed. But from the time we first looked at it, it was January and we’re going to be closing it late August, so seven months from start to finish.

Thankfully, the second lender was willing to reuse the appraisal report the first lender had gotten, so that saved some time, and it also saved some money, so we didn’t have to pay for a new appraisal. They did require a new environmental, but at least the appraisal was done and they were able to reuse that, so it got the ball rolling and allowed them to get a jumpstart on it.

Theo Hicks: Perfect. Okay, Charles, anything else you would mention about this deal or about your company before we wrap up the episode?

Charles Seaman: Nothing else about the deal, but [unintelligible [00:15:17].24] shout out if they have any other questions? Otherwise, I’ll give people a quick way to reach me.

Theo Hicks: Oh, no other questions. Feel free to let people know where to find you and learn more about you.

Charles Seaman: Sure. Sounds good. One of the things I would say just to give a quick plug, every Saturday afternoon on Zoom I do an underwriting session. For anybody who wants the chance to go through and underwrite a multifamily deal and learn how we usually do it, feel free to reach out. You can either send me a text message at 347-306-3378 or an email, Charles@3oaksmgmt.com, and let me know that you heard me on the Best Ever show, and that you’re interested in joining the Saturday underwriting session.

Theo Hicks: That’s a really good idea. A lot of people want to learn how to underwrite multifamily deals, it’s really cool that you talk people through that, and actual live deals that you’re working on.

Charles, thanks for joining us, again, in this Situation Saturday and walking us through how you’re able to go from having a deal under contract pre-COVID to COVID hitting, and then having to figure out how to get new financing; originally had the bridge loan, that was not going to work out because the lender shut down its bridge loan division, and you only had two weeks until the money went hard. So you had the option to terminate the contract or work with the seller. You extended the due diligence and the hard money date, so you can kind of wait and hope that the market turned around. It didn’t, but there’s a happy coincidence that midway through the extension, the property was stabilized, and so you now qualified for agency debt, so you didn’t have to back out, and you were able to also, at the same time, negotiate a reduced purchase price.

Then you had another obstacle where the original agency lender reduced their LTV from 75 to 65, which obviously is a massive increase in the amount of money you needed to put down. which reduces the return percentage, and they wouldn’t budge, so you went with a different lender, who was able to get you not only better terms than the first one, but they were also able to expedite that loan application process.

The overall lesson was just to be persistent, and do what you can to continue working, grinding, don’t give up and just back out of the deal at the first sign of trouble. And if you are persistent, you’ll be able to do a really good deal, like you did, with better terms, better purchase price, and then you’re buying the property at a higher ROIs.

Charles, thanks for joining us today. Appreciate it. Best Ever listeners, as always, thank you for listening. Have a best ever day and we’ll talk to you tomorrow.

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JF2175: Understanding Depreciation With Natalie Kolodij

Natalie is the CEO of Kolodij Tax and Consulting, and she is also a real estate investor herself. She uses her investing experience to help other investors out in the tax world. Natalie gives advice on how to determine depreciation and shares examples of what you should specifically do. 

Natalie Kolodij Real Estate Background:

  • CEO of Kolodij Tax and Consulting
  • 6 years of real estate investing experience
  • Started off flipping mobile and manufactured homes
  • Based in Charlotte, NC
  • Say hi to her at: https://www.kolotax.com/

 

Click here for more info on PropStream

Best Ever Tweet:

“Depreciation is where most people make mistakes.” – Natalie Kolodij


TRANSCRIPTION

Joe Fairless: Best Ever listeners, how are you doing? Welcome to the best real estate investing advice ever show. I’m Joe Fairless This is the world’s longest-running daily real estate investing podcast where we only talk about the best advice ever; we don’t get into any of that fluffy stuff. First off, I hope you’re having a best ever weekend; because today is Sunday, got a special segment for you called Skillset Sunday and here’s the skill. It is a skill of, well, helping address one of your, if not the, biggest expense that you have, which might likely be taxes. Today we’re gonna be talking about depreciation and we’re gonna be talking about depreciation with Natalie Kolodij. First off, how are you doing Natalie?

Natalie Kolodij: Good, Joe. How are you?

Joe Fairless: I am doing well. Natalie is the CEO of Kolodij Tax & Consulting, she’s got six years of real estate investing experience. She started off flipping mobile homes and manufactured homes; she’s based in Charlotte, North Carolina, and the topic today, as I mentioned earlier, is talking about depreciation. So first off Natalie, do you want to give the Best Ever listeners a little bit more about your background? And then we’ll get right into depreciation and some things to look out for and some common mistakes people make.

Natalie Kolodij: Absolutely. So I got into tax and real estate at the same time. Got out of college, ended up doing exactly what I tell people not to do, which was I paid for one of those weekend guru seminars. So that wasn’t a great start, because it turns out it is actually a little harder because they lead you to believe, but that led me to–

Joe Fairless: Imagine that.

Natalie Kolodij: Yeah, it’s so weird. I paid them and they told me it was easy. That’s crazy.

Joe Fairless: Don’t tell everyone. That will kill their business model.

Natalie Kolodij: Yeah, pretty much. [laughs] So I was determined to make something of it though. So we decided to think outside the box and that’s how we got into mobile homes, and we ended up– at that time, I was in the Seattle area, so a high-dollar, competitive market, and so we were looking for blue ocean strategy doing something everyone else wasn’t. So we started doing a little bit of marketing and setting up some searches for mobile homes and parks, and we ended up–

Joe Fairless: Who is we?

Natalie Kolodij: Just one of my friends and I who I’d gone to the seminar with.

Joe Fairless: Okay.

Natalie Kolodij: Yep. So we ended up buying the first one off the MLS. It was listed. But the thing with mobiles is they cost people money. A lot of the time they’re holding them, they’re paying lot rent. If they’re age-restricted, they inherit them, they can’t live in them. So it’s not looked at as this asset to pass on like a house. It’s like a car, but if you had to make the car payment, but couldn’t drive it. So they’re really easy to find deals, and you can do a lot of creative stuff with them. The last one we bought, we paid $50 for. So if you’re looking for a good way to get started, I can’t say enough good things about mobile homes.

Joe Fairless: What’s the business model with that $50 purchase?

Natalie Kolodij: That one we bought for $50 came to me from an RSS feed search where pretty much I had a search set up for any mobiles under five grand kind of thing, and so I got the alert. She inherited it, thought it needed a ton of repairs, didn’t want to deal with it, was paying $400 a month for it, just wanted it gone. So we bought it, we put our sign in the window, and it was literally sold that same day. There was someone– it was in a highly desirable area. She had just been wanting to move out there to be closer to the grandkids. So she was ready to buy it. When she found out it would be renovated, she was even more excited. So we literally bought it and had it under contract to sell in the same 24-hour span, and then we had 30 days to finish the renovations. That one got a fair amount of work – subfloor flooring, drywall, a lot of the cosmetic and wear and tear upgrades on it.

Joe Fairless: How much all in and how much you sold it for?

Natalie Kolodij: That one was purchased for $50. I had just under $5,000 in renovations and it was sold for right about $18,000.

Joe Fairless: Wow. So the woman who put it under contract saw it in its original condition, and she agreed at that point in time to purchase it for $18,000?

Natalie Kolodij: Yep, knowing it would be updated… And that was tricky for me because I didn’t know what I had to do to it yet. I only owned the thing for 14 hours, but at that point, I felt like I had enough of a spread that — you can pretty much buy a whole new mobile home for $18,000, so I knew that could be good, but having it sold and knowing we didn’t have to worry about that was the best part of it. Like I said, highly desirable area, highly desirable park and I would say with mobiles, that’s your hardest selling point, is where they’re located. The park, the manager, how strict their guidelines are; that was one of the things we ran into with an earlier home. Why it was hard to sell was because their minimum tenant requirement was so high, their credit score income requirements, it ruled out a lot of people. So you’ve got to find a park that’s easy to work with where it’ll be easy to sell the home. The actual home itself is almost the less important part of the deal.

Joe Fairless: Well, why wouldn’t she just buy a brand new one for $18,000?

Natalie Kolodij: Because most parks don’t have spots anymore. So in a lot of the bigger city, the mobile home parks, they’re getting rid of them, a lot of places. So existing parks have the homes in place, but there’s not a lot that are moving in new homes, just because they’re running that risk of being zoned out or grandfathered out eventually.

Joe Fairless: Okay. Well, you are the CEO of your own tax and consulting business. What’s your background with taxes?

Natalie Kolodij: Yes, I went to college for five years and graduated with a degree in tax, worked for high-end CPA firms for several years… And I love it, I love tax, but what I found was, especially with real estate, it’s an area that gets ignored a little bit. Especially when it’s passive investors, there’s not the same amount of attention and strategy put towards those clients. It’s looked at as, “Oh well, you just collect your rent, there’s not much to do with it,” and that’s absolutely not the case. It’s a huge tax advantage area. So having someone who specializes in it can really, really put you in a good spot. It’s always just super frustrating for me to hear, because I feel like a lot of investors, they forge their own path. They’re sometimes taking money out of a normal retirement account, they’re making these big decisions and manifesting their own destiny for lack of a better word, but they’re doing something that’s not the norm to give themselves more freedom, and then if you go to someone who’s not putting in that same amount of effort as you are, it’s just impeding your goals. So having someone who really gets real estate and is on that same page as you and really will help you make the most of your taxes and keep the most money in your pocket, that’s who you want to work with.

Joe Fairless: You said you have a degree in tax. Is that the actual degree?

Natalie Kolodij: No, it’s imaginary. It’s from Pretend Degree University. [laughs]

Joe Fairless: I thought it was like accounting. I didn’t know there was a tax– what was your major?  Is Tax the actual major?

Natalie Kolodij: Yeah, for Master’s degrees, it is. So you can get–

Joe Fairless: Oh, Master’s. Got it.

Natalie Kolodij: Yeah, for a four year– Yep, so anyone who goes the CPA route has to have a fifth year of school, and you get either an accounting or tax specialization.

Joe Fairless: Alright. Well, it shows my ignorance. I thought everyone got the accounting degree. I didn’t realize there’s another–

Natalie Kolodij: It’s a little bit of both.

Joe Fairless: Alright, fair enough. So let’s talk about depreciation and some of the common mistakes that you see being made that come through your door.

Natalie Kolodij: So depreciation, just a quick background, is when you buy an asset, anything for your business that’s going to make you money over a long period of time, the IRS says, “Well, we’re not going to let you write it off all at once. You’re going to be using it for 30 years.” So write off a little bit each over the span of its useful income-producing life. So for residential rentals, that’s 27 and a half years, and the theory is that over that time, it should go down in value. You using the item, like a car gets worth less the longer you own it. We all know that’s not often true with houses, but the tax law is what it is. So when you buy a property, you get to depreciate it, and what that means is, when you buy it, you get to separate out the value of your land versus your building. Land doesn’t depreciate, you don’t get to; that just stays the same for millions of years. So you figure out your building value, and then you get to deduct it over 27 and a half years, and the reason this is so beneficial is that it’s an expense, it’s something you get to write off on your taxes, but you didn’t actually have to write a check to get the deduction.

Most of your write-offs you do, like you get to deduct insurance, you have to pay for that. So depreciation means that at the end of the year, you can make money. You can have $2,000 sitting in the bank that your rental made, but on taxes, if your depreciation is then a $5,000 deduction, it’s going to take your taxable, your paper income, what you’re showing, it’ll reduce that $2,000 by that $5,000, and on paper, you show a loss of $3,000. So it’s really important, because it’s what lets you make money, but not pay taxes on it, and then potentially use any leftover loss to reduce other income.

Common mistakes we see are people not separating out their land value; that’s really important. You can’t just depreciate the total price you paid. The land isn’t allowed to be depreciated. So something that’s important is that you’ll hear even tax professionals say, “Oh, we use an 80-20 rule. We just automatically put 80% to building.”

Joe Fairless: It’s got to be more precise.

Natalie Kolodij: That’s imaginary. Yeah, that’s not anything– that’ll never pull up an audit.

Joe Fairless: Like your degree. Just like your tax degree.

Natalie Kolodij: Just like that. That’s where you learn that rule, actually; that same place, that imaginary University. [laughter] So you can’t just pick an arbitrary number, but there are seven different allowable ways you can use, and most people don’t look at any of the other options. So what I tell people is, as a start, you have two really good options to look at. Look at the county assessor, you’re going to look at their percentage they allocate to land versus building. You don’t use their actual numbers, you just apply that same percentage to what you paid… Because I don’t know if you’ve noticed this, the county assessor is often nowhere near what the house actually costs.

Joe Fairless: Right.

Natalie Kolodij: So you just use the same split pretty much, 50-50, 40-60, whatever it is. The other option that you’re allowed to use is your appraisal, and oftentimes, an appraisal is more beneficial; they just tend to allocate less to the land portion. So I always recommend at least comparing those two options or talking to your accountant about looking at both options, because most accounting firms only just pull the county website and use that number and don’t look at anything else. So since you have a few different choices, you might as well compare and see which one puts you in the best position and gives you the best deduction.

Joe Fairless: Okay. So make sure we separate our land value, because we have to. Those are the rules. Okay. What if you don’t? What’s the consequence?

Natalie Kolodij: Potentially is if you get audited, they’re going to correct it and you’re going to end up paying back that excess depreciation you took on the land all at once as a result of that audit. The other thing with depreciation that’s a little weird is when you sell, you have to recapture it and pay back that tax. So pretty much the best way to describe that is, like I said, when you think about a car, it becomes worth less and less over time; that’s why they let you have this deduction. So when you go to sell and if you make money, the IRS is like, “Well, hold on. We let you deduct part of this every year because it should be going down in value, but it went up in value. We want that back.” So they tax it at 25%. So, if you don’t separate out your land, it’s going to be wrong for all those years. It’s probably gonna look wrong to lenders when they look at it, and it’s incorrect. You’re gonna get nailed in an audit, and the thing with audit is that it opens up a Pandora’s box. So if they find that one big red flag, they can now dig into every other little detail of your taxes.

Joe Fairless: Plus, correct me if I’m wrong, but wouldn’t you get fined? You’d have to pay interest on whatever money you should have paid initially to the government?

Natalie Kolodij: Yeah, having an audit go negative, go against you, puts you in a bad spot. So it’s gonna end up– you can be penalized for it depending on if– especially if it was like on purpose. If someone purposely did it, there can be additional penalties on it. So just yep, as a rule, you can’t deduct the land portion, you can’t depreciate that. So we’ve got to separate that out… But make sure you’re doing it in the smartest, most advantageous way you can.

Joe Fairless: By looking at the county assessor website and using the percentage they use, or looking at your appraisal.

Natalie Kolodij: Yep, I would start with those two.

Joe Fairless: Okay, that’s one mistake. What’s another mistake?

Natalie Kolodij: Another thing we see a lot is that if you do any big renovation on a property, like you buy a rental, you put 50 grand and you do the whole studs out renovation on it, they’ll literally just add that whole amount to the value of the property, and depreciate it over 27,5 years. And that’s fine… It’s not incorrect, but there’s quite a bit of things we can separate out from that, even without doing a formal cost segregation, which is where you separate out every component of a house. Just on a normal renovation, your accountant’s allowed to separate out especially things that aren’t attached to the house. So it’s important to, when you do a renovation, track your projects, essentially what it’s made of and what those costs were, because things like appliances, carpet, any land improvements, potentially kitchen cabinets, and counters – these are all things that can be separated out into a shorter life. So we can call those a five-year-old asset or seven-year asset or a 15-year asset. And what’s important is that anything under 20 years qualifies for something known as bonus depreciation, which is a freebie from the IRS that says, “Well, its life is short enough. We’ll let you write it off in this one year.” So your $50,000 renovation, if half of it was your appliances, carpet, cabinets and landscaping, we might be able to deduct $25,000 all in one year, instead of spreading the full $50,000 across 27 and a Half.

Joe Fairless: Will you elaborate more on bonus depreciation?

Natalie Kolodij: Yeah. So it is a rule the IRS has that says that — it used to be only 50%, but this was a change with the Tax Cuts & Jobs Act. So pretty much any asset that has a life of less than 20 years can potentially utilize bonus depreciation, and it’s just an option provided by the IRS that lets you deduct the whole value in year one instead of having to depreciate it over five years or ten years or whatever the life is. You just get to deduct it all in the first year.

Joe Fairless: What are some examples of assets that have lives of 20 years or less?

Natalie Kolodij: Your appliances, your computer, if you have a home office setup to manage your rentals… Something we see missed a lot is land improvements, which would be like if you put in a new retaining wall, you put up some landscaping. Land improvements are all 15 years, so as soon as you do anything on the outside of your house, keep that in mind, because there’s a good chance we might be able to use that as bonus depreciation.

Joe Fairless: Any other mistakes that you’ve seen that are common when factoring in depreciation?

Natalie Kolodij: Those are the big ones. The other one is just be careful of your date. I just reviewed a return done by a professional where they put everything in service. The date– the partnership was set up not when they actually bought the properties. So the date you get to start depreciating assets is when it’s purchased or when it’s in service, so it starts getting to do its job. So if you buy it, but it’s not livable at that point, you don’t get to depreciate it until it’s in its functional state. So just be aware of the dates you’re using as well.

Joe Fairless: Natalie, thank you for being on the show. How can the Best Ever listeners learn more about what you’re doing?

Natalie Kolodij: The best way to find me is you can find me on my website, it’s called kolotax.com; that’s a great way to find me. I’m also on Facebook at Kolodij Tax – The Real Estate Tax Strategist. So either of those places is a great way to find me and reach out and get a hold of me.

Joe Fairless: I enjoyed learning about the depreciation and the three common mistakes that you’ve seen, but then also the mobile home snippet that we talked about in the very beginning. Just learning the business model, a bonus on top of this episode, so thank you for that… And I appreciate you being on the show, enjoyed our conversation, learned a lot. I hope you have a best ever weekend and talk to you again soon.

Natalie Kolodij: Alright. Thanks, Joe. Have a great rest of the week.

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JF2120: Jumping In The Market With Patrick Menefee

Patrick served in the army for 6 years and is the founder of Invest DGP. Patrick started investing in June of 2019 and has acquired 12 units. Patrick is very open to sharing some of the hard lessons he learned from jumping in the market quickly and how he was able to improve his units and double his rent collections. 

 

Patrick Menefee Real Estate Background:

  • Founder of Invest DGP
  • Served in the Army for 6 years
  • Started investing in June 2019
  • Owns 12 units
  • Located in Charlotte, North Carolina
  • Say hi to him at : https://www.investdgp.com/ 

 

 

 

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Best Ever Tweet:

“Never have your inspector and appraiser go out to your property at the same time.” – Patrick Menefee


TRANSCRIPTION

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

Patrick Menefee: Hey, Joe, I’m good. How are you?

Joe Fairless: Well, I’m doing well and looking forward to our conversation. A little bit about Patrick – he’s the founder of Invest DGP, he served in the Army for six years – so thank you, Sir, for that – and he started investing in June of 2019. He owns 12 units, and he’s located in Charlotte, North Carolina. So with that being said, Patrick, you want to give the Best Ever listeners a little bit more about your background and your current focus?

Patrick Menefee: Absolutely. Thanks, Joe and thanks for having me on. So like you mentioned, six years in the Army right out of college, and then I ended that in about February 2018, transitioned into financial services consulting, working with banks, financial institutions, traveling every week for the last two years. As I moved and transitioned to Charlotte, that was when I realized that I wanted to get involved in real estate in some facet or another; I just wasn’t quite sure what. So I turned 30 towards the end of 2018, and that was when I started setting some goals for myself, realized what I wanted to get to, and I spent a lot of time over the next six to seven months doing a lot of education, networking, listening to podcasts, meeting as many people as I could, reading all the books that I could get my hands on… And it was in, as you mentioned, June of the following year 2019 that I really decided to start taking action, and then within about five weeks, I had 10 units under contract. They were all small multifamily; one of them a fourplex, another one was a portfolio of three duplexes that were all side by side. The fourplex, I did it down by myself and then the duplexes were all with a partner.

So once I had a little bit of a foundation, once everything was– I actually made a decision to take action. Everything happened rather quickly after that. So as you mentioned, now I own 12 by the end of the year. The other two units are also small multifamily with a partner as well, and that’s really been my focus right now. It’s been small multifamily property. Ultimately getting into some of the bigger commercial, but primarily small for right now.

Joe Fairless: You were doing a lot of education, and then when you decided, okay, now it’s time to rock and roll, in five weeks, you had 10 units under contract. What was the tipping point where you made the decision now it’s time to go buy some property?

Patrick Menefee: Actually, I’d purchased my own primary residence back in March, and the company and the guy that I bought it through, they were having a networking event. I still remember the day; it was June 6th, and I was networking with people, talking to some people. I had my plan initially, which was going to be to use the VA loan and [unintelligible [00:05:36].02] houses and slow roll it and live in a house for a year, rent it out; that was my plan, and maybe pick some up along the way that made sense. But there was one couple that I was talking to. I can’t even tell you exactly what they said, but it was the exact conversation that hit me, and I realized that they had a couple of condos that they were renting out. They were actually doing what I wanted to do, and something right there just really kicked me and said, “Why aren’t you just taking action?” After that conversation, I doved in, and that was when I found– I actually had the fourplex. I technically didn’t get under contract until July, but I found it about a week later and started the negotiations with the seller. So it happened very quickly.

Joe Fairless: Okay. So it sounds like you had just built up knowledge and things were bubbling, bubbling, bubbling, and then there was some breaking point, and perhaps in retrospect, it’s an insignificant conversation. Maybe it was similar to other conversations that you had previously, but you were just ready. It was just that time and this conversation just happened to be at the right point and place and time where it just made you have that decision.

Patrick Menefee: Yeah, it definitely did. I probably had some more conversations, five or six times a month before that, but that one just did it.

Joe Fairless: Well, let’s talk about your purchases, those 10 units. You did the fourplex yourself, you said, and then you got three duplexes side by side with a partner. How did you structure those transactions with the partner?

Patrick Menefee: It was interesting. It was a mix of– by accident when that finally worked out, and then just some overall planning. I was looking for a partner on it, and I’d been doing a lot more networking and branding to let people know what I was doing. So as a result, some people from work were interested in working together on a deal.

So I was talking to one of my really good friends that I was in the army with, and we were talking through some of the options for how I might split this up and how I might pull off a partnership with him, especially because the guy was going to be someone out of state, was primarily just going to be investing cash. We worked out some terms that we thought made sense, and then at the end of it, I could work with this guy, but I didn’t even think to ask, “Do you want to do this and do you want to get involved instead?” and he said, “Sure.” So we worked out the terms, he brought the majority of the cast to it, and I did everything else. So it ended up– because it was six units, and this was something I wasn’t totally prepared for at the time, but since it was six units, I couldn’t get a conventional mortgage, so I had to get a commercial loan; and then on top of that, the way that we worked out the negotiation, the way we worked out the partnership was he was providing the majority of the cash, but I was going to be primarily on the loan. So that was not something that I could typically do going through most of the normal Fannie/Freddie loans, because if you provide that money, it either needs to sit in your account for two months, or it needs to be from someone who’s also on the loan. So we structured it that way, and then we split the equity accordingly. Me doing all the management and all of the activities and all of the primary effort and some of the bigger portions, but we worked it out in a way that worked out perfectly for both of us.

Joe Fairless: Reminds me of the saying, “If you ask for money, you get advice. If you ask for advice, you get money.”

Patrick Menefee: I have to write that down. It’s a good one.

Joe Fairless: That’s what happened here, right? You’re asking him for advice, and you got money.

Patrick Menefee: Yeah, that’s absolutely what happened.

Joe Fairless: Well, you said you got a larger portion of– is it each of the three deals based off of your responsibilities?

Patrick Menefee: Yeah, it’s very close to 50-50, but yeah.

Joe Fairless: How do you structure it? So 60-40?

Patrick Menefee:  It’s 55-45.

Joe Fairless: Okay, got it. Very close.

Patrick Menefee: Yeah. We, on this one — it worked out really well. We said– based on the fact that I was going to be doing all the work, we set the all-in cash as a percentage of the investment. So we said, “50% of the investment is going to be for the cash. So if you bring 100% of that, you get 50% of the deal. If you bring 50% of that, you get 25% of the deal.” So that was how we worked it out. He brought 90% of the cash and got 45% of the deal.

Joe Fairless: With the three duplexes – are they located in Charlotte?

Patrick Menefee: They’re just North of Charlotte. They’re about 45 minutes north in Statesville, North Carolina.

Joe Fairless: Okay, and what about the fourplex?

Patrick Menefee: That one’s just west. All of mine are just surrounding the Charlotte area, just because multifamily is hard to come by with solid cash flow within Charlotte. So the fourplex is in Gastonia.

Joe Fairless: Okay. How did you come across the fourplex?

Patrick Menefee: It was on the MLS, actually. It had been sitting on the MLS for almost six months.

Joe Fairless: Why do you think it wasn’t snatched up?

Patrick Menefee: As I’m still dealing with it, because it was a nightmare. They had it listed way too high. It was an older couple that had a large portfolio that they were selling. So this was one of them. They had it listed at $210,000. I ended up– after negotiating with them, I ended up getting it down to $160,000, which was fantastic, but they [unintelligible [00:10:29].22] did $210,000. Yeah, I think that was a big part of it, too. A lot of people saw $210,000 and said, “Absolutely not. I’m not interested in that,” because it was way overpriced at that, but at $160,000, it worked out. So I think that was a big part of it; and it’s also a 100-year-old house. They didn’t take care of it all too well. It just got neglected over time, and it was an old farmhouse that got converted into a fourplex. So it was the perfect storm of not too great, but a great opportunity.

Joe Fairless: So, talk to us about some challenges that you’ve had with it?

Patrick Menefee: Oh boy, where do I start? How long did you say we have? [laughs] I had problems from the acquisition part initially, not even getting into what the house was. So after I got it under contract, I started going through the due diligence process. I got it under contract at the beginning of July and was supposed to close at the end of July; I wound up closing on September 13, instead of July 29. Yeah, I almost lost the deal a couple of times. I had four closing dates scheduled and I had three different appraisals done.

Joe Fairless: What’s going on?

Patrick Menefee: The first time around, the first appraiser, I learned one very important lesson that I will, at any point, share with as many people as I can, and that’s – never have your inspector and your appraiser go out to the property at the same time. I now will base all of my properties around that, because the inspector looked at some of the stuff at the house. He was just having a casual conversation with people that were around them, pointed out a bunch of problems…

Joe Fairless: They love to talk.

Patrick Menefee: But he happened to point–

Joe Fairless: They love to share their knowledge.

Patrick Menefee: Yeah, and he’s a great guy, and he’s inspected all my properties, but he just said it to the wrong guy.

Joe Fairless: Yep. He was doing his job. He was inspecting the property and documenting everything, right?

Patrick Menefee: Yeah, absolutely. Unfortunately, the appraiser also documented that. So I had it under contract for $160,000, and he appraised it at $160,000, but he appraised it as– I think it was a C4 or a C5, so it was in too poor of a condition for banks to loan on; and I went in the inspection report, and it wasn’t like he cited specific things, he just cited comments from the inspector. So aside from getting it reappraised, I couldn’t go fix a certain thing and then get it back. So I went a different route, got a different appraiser. The next appraiser did the inspection. I actually went out and got the inspection done, and then no one ever heard from him again; just fell off the map. Very strange.

Joe Fairless: That is very strange. Okay…

Patrick Menefee: And then I finally got a third one. He did do the inspection; was very slow about all of it. He actually submitted the report, but when he submitted the report, he left the address off, which then took another week to get.

Joe Fairless: Goodness gracious!

Patrick Menefee: I don’t know how he left the address off of the report. Yeah, that could have been a sign upfront of things to come… But finally got it closed. It had tenants in it, which I thought at the time was a good thing, because I could go one by one and keep producing cash flow while rehabbing each one of the units. That turned out to be a huge problem. I evicted two of them. Dealing with the units themselves has been definitely challenging just because of how poorly they were taken care of, and then one of the tenants, on the way out, she, I think, I would say out of spite, she never registered any maintenance requests or anything like that, but on her way out, she called the city and registered a complaint. So I had a city inspector out there and all that stuff.

Joe Fairless: What was the complaint?

Patrick Menefee: It was just a general complaint of code violations. I had interacted with her before when I was out there doing some other work, and she had also said in other cases, she had talked about the lease and said how the lease was full of landlord-tenant violations. I have a other property manager that manages all of that, and I was asking her about it. It’s not something that we want to do… What’s wrong with it? What do we need to do? She said, “Well, it’s just old.” So it’s one of those lessons in dealing with tenants. So there’s nothing that’s ever going to be right.

Joe Fairless: Yep, some people you can’t please, no matter what.

Patrick Menefee: Yeah.

Joe Fairless: Alright. So where are you at with the business plan right now?

Patrick Menefee: Overall, on the six units, we initiated the refinance yesterday.

Joe Fairless: On the three duplexes?

Patrick Menefee: Yes.

Joe Fairless: Right. No, I’m talking about the fourplex. You were talking about the fourplex before, right?

Patrick Menefee: Oh, I’m sorry. Yeah, I’m sorry. When you said the business, I thought you meant overall.

Joe Fairless: Oh, sorry, yeah. So with the fourplex, where’s the business plan at?

Patrick Menefee: That one, I have two units that the rent has been increased. I made modest updates to them. I would eventually like to go in and do a little bit more, but kept the current tenants in and got a pretty good ROI on the improvements that I did make. I almost doubled the rent for each of those two units.

Joe Fairless: Tell us the numbers, please.

Patrick Menefee: Yeah, so when I took over, all four units were at $350 a piece. So $1,400 dollars a month total rent. I’m now getting from the two units that I did — I put a probably about $3,500 into those two units, and increased rent to $1,350 between the two. So pretty solid return on investment.

Joe Fairless: Wait, I want to make sure I’m hearing that right. You put in $3,500 per unit, correct? So $7,000 total?

Patrick Menefee: No, no, I’m sorry. $3,500 total.

Joe Fairless: Okay, even better. So you put $1,750 total, and… Let’s just do unit by unit. That one unit is now renting for how much more?

Patrick Menefee: One unit is up to $650. The other unit’s up to $700.

Joe Fairless: Wow, that’s incredible.

Patrick Menefee: Yeah, it’s a pretty solid return on investment.

Joe Fairless: Yeah, so let’s just do the $700 one. So that’s doubling your rent from $350 to $700. Wow, it’s quite the increase. If you hadn’t improved those units, and you just turned them over to a new tenant, could you have increased the rent at all from $350, and if so, by how much?

Patrick Menefee: Yeah, I could have. I probably could have turned them to about $500 or so.

Joe Fairless: There was already value-add built into it.

Patrick Menefee: Yeah, there absolutely was. Those units had been– I mean, I think the rent had been kept the same for– I can’t even speculate. I have no idea– for a very long time; that hadn’t been touched in a while. So there was definitely room to start with.

Joe Fairless: Nice. So you increased the rent $350 and you put in $1,750, correct?

Patrick Menefee: Yes.

Joe Fairless: So that’s 20% return on those renovation dollars. Nice job.

Patrick Menefee: Yeah, I can’t really complain about that. The other ones are getting to be a little bit more — and the one thing that I will say as a caveat is because they are lived in, there was a lot of stuff that I wasn’t doing. So I didn’t rip out and replace all the cabinets. I just updated what was there, and did some stuff in the bathroom, and replaced flooring where I could and all that stuff. But doing a full sweep of it, it will definitely, when I eventually get there, it’ll cost a little bit more, but it’ll also further increase rent by probably another $50 to $100 a month.

Joe Fairless: That area supports those additional rent increases?

Patrick Menefee: Well, I guess, given the current situation, I don’t know how much rent increases are gonna happen, but generally, yes.

Joe Fairless: Okay, got it. Well, now I interrupted you on the financing for the three duplexes. Will you pretend I did not interrupt you? What were you saying about that?

Patrick Menefee: Yeah, sorry about that. We had gone through the commercial loan — because they were all three on the same property when I bought them, the first thing that I did was subdivide them. So they’re all each on their own property now, and that way, I have a lot more flexibility if I need to sell one off to recoup some cash or whatever I need to do. So I’m refinancing them also into a 30-year fixed. So I initiated a refi last night; it’s definitely not a full BRRRR. Neither of them are going to be. Definitely not going to pull out everything that I put into it, but on this one, and especially that the six units, because I only put in 10% of the down payment to start with, I’m not going to see personally a big return, but I’m going to get my investor about somewhere between $15,000 to $25,000 back. I know that’s a– I had to give him a range, but with the whole electronic appraisal and everything that they’re doing with the virus, I’m less confident in my numbers now than it was a couple of weeks ago.

Joe Fairless: Yep, and just for the Best Ever listeners, we are recording this in the middle of the Coronavirus pandemic. So I recognize that this episode airs many months after we actually record it. So when he says virus, that’s what he’s referring to.

So the interesting thing that I heard, or one of the interesting things that I heard from you is that one of the first things you did was subdivide the three so that you have more flexibility. I thought I heard you say that you got a commercial loan on it initially. If I heard that correct, how did the conversation go with the lender where you said, “Hey, I know I’m getting this commercial loan, but I actually like to subdivide it and break it up”?

Patrick Menefee: That’s a great question. The one that I used is a regional lender. So I had the conversation with him upfront. I let him know what ultimately I was trying to do, and weighed out essentially the full roadmap. I’m looking to purchase these, I’m looking to subdivide them, I’m looking to rehab them and then ultimately look into refinance into a fixed loan. So I’ve had multiple conversations with a lot of different lenders before I settled on this guy, and a lot of places weren’t okay with it and understandably so, but as long as– it was, as long as when I refinance, everything is done at the same time, and they’re made whole on the back end, everything was A-OK.

Joe Fairless: What gave you the idea to subdivide?

Patrick Menefee: That’s a good question. I knew the conventional 30-year fixed route, and I knew that that was a way to get there. So that was really the only plan that I really had all along. But as far as what triggered it out at the very beginning, I think it was just because that was mostly what I knew, and I realized that it was a possibility that would likely add value, but also give me a lot of flexibility.

Joe Fairless: Absolutely. In my opinion, it’s an advanced thought process for you to think that way. So bravo to you on that, and it’s always good to have more flexibility than less, and especially if you can get more favorable residential financing even better… And get some of your money back out. I mean, there’s so many instances — and I would guess that more than 50% of investors would miss that part of the process and not subdivide; first off, not think about it, and then secondly, if they thought about it, not go through the process that’s required in order to subdivide. So bravo to you on that.

Patrick Menefee: Well, I appreciate it. I think that’s one of the big takeaways for anybody. I had no experience with subdividing, I had no idea what I was doing, but everything is easy enough if you just start taking action and figure it out. So I made a couple of calls and I started asking people and–

Joe Fairless: Who was your first call?

Patrick Menefee: I called my real estate agent and asked him if he knew anybody that did subdivision or anybody that he had worked with as a surveyor. Then next call after that was to the city to ask them what they recommended and what needed to be done.

Joe Fairless: And then who ultimately was the point person that you got a lot of help from?

Patrick Menefee: Everything after I had that initial conversation with the city planner, and she just laid out what needed to be done, I used the contact that my real estate agent gave me, who was a surveyor, and he took care of everything. He went out, and about the only involvement that I really had– my initial thought was, I didn’t even necessarily know if I wanted to separate all three individually, and I wasn’t sure if I could because of some of the setbacks. So we had a couple of conversations on that and he just showed me some of the property lines from before – because it used to be split as well. So he showed me some of those options and said that we can just revert back to what it was; and not only did I get all three split out, but I also saved money from what I thought I was going to pay, because he just went back to the previous one. So credit the enemy, did a great job and took care of all that for me.

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

Patrick Menefee: I think the biggest thing is what I mentioned before, just dive in and start taking action. You can spend all day trying to figure everything out like I did before, but the second that you jump in and decide to start taking action, a whole different world opens up to you and you learn a lot as you go.

Joe Fairless: We’re gonna do a lightning round. You ready for the Best Ever lightning round?

Patrick Menefee: Yeah, let’s do it.

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

Break: [00:22:48]:05] to [00:23:41]:04]

Patrick Menefee: Best ever book you’ve recently read.

Patrick Menefee: Tribe of Millionaires. I just finished it a couple days ago. I read it about two hours, couldn’t put it down. Speaking about the importance of accountability and mastermind and really being involved in something bigger than yourself. So it’s got me on the path to start some accountability groups.

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

Patrick Menefee: On that fourplex, the one thing we didn’t talk about is I didn’t listen to what the inspector said. I think I got a little bit excited and blinded by the first deal and the numbers on paper. His recommendation was to get everybody out there, all the contractors out there, plumber, roofer, electrician, all of that. I didn’t end up getting all that stuff ahead of time, and now I’m working through all those pieces as I pull some of the other two units apart. So definitely not listening to an inspector.

Joe Fairless: Best ever deal you’ve done so far.

Patrick Menefee: I think those three duplexes have got to be the best one. They’ve produced consistent cash flow the entire time. Having six units, if I have a vacancy, I’ve got five other units to cover it up, and it’s really been a very solid investment and a very good learning experience between the subdivision, the partnership, the commercial loan, the refinance. I’ve really run the full gamut on that one.

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

Patrick Menefee: Probably the two best places are going to be my Instagram account. I try to post on there regularly with lessons learned and always respond to anybody that I can; so that’s @investDGP. And then my website, investdgp.com, where I try to share a lot of what I’m doing; and then also anybody can reach out to me at any time, patrick [at] investdgp.com.

Joe Fairless: Patrick, thanks for being on the show. Thanks for talking about some moves that you’ve made in your real estate ventures, one of them being buying three, side by side duplexes that were all on one lot, and then subdividing it and maneuvering around the financing, as well as partnering up with a friend of yours to get those deals done; and then also your business plan for the fourplex and the 20% return on the renovations that you’re doing and the challenges that you overcame in order to get to that point with the inspectors and the appraiser and a couple other things. So thanks for being on the show. Hope you have a best ever day. Talk to you again soon.

Patrick Menefee: Thanks Joe. Really appreciate the opportunity.

Website disclaimer

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

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

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

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

Oral Disclaimer

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

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JF2081: Time Management in Finding Deals and Investors With Charles Seaman

Charles is a managing member and Senior Acquisition Manager of Three Oaks Management LLC. In this episode, Charles explains why it was important for him to focus on what he enjoys and finding his niche in the market. He shares the value of building relationships with investors and spending as much or if not more time doing this as you are finding deals.

 

Charles Seaman Real Estate Background:

  • Managing Member and Senior Acquisition Manager of Three Oaks Management LLC
  • He actively works to locate high-performing multifamily real estate deals throughout the Southeast region of the United States.
  • Owns 92 units in GA
  • Based in Charlotte, NC
  • Say hi to him at www.3oaksmgmt.com 
  • Best Ever Book: How to Win Friends and Influence People 

Click here for more info on groundbreaker.co

Best Ever Tweet:

“As much time as you find looking for deals, you need to spend equal time in building relationships with investors.” – Charles Seaman


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, Charles Seaman. How are you doing, Charles?

Charles Seaman: Great, Joe. Thanks a lot for having me on, and I’d like to say a big hello to the Best Ever listeners.

Joe Fairless: Yeah, I’m looking forward to our conversation. A little bit about Charles – he’s a managing member and senior acquisitions manager of Three Oaks Management. He actively works to locate high-performing multifamily real estate deals throughout the South-East, and he’s got 92 units in Georgia. He’s based in Charlotte, North Carolina.

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

Charles Seaman: Yes, absolutely. Prior to June of last year I lived in Brooklyn, New York, and I had the fortune of working for a commercial real estate investment for 14 years. During that time I was able to learn a lot, from acquisitions, to negotiating, leasing properties up, managing them… So I was able to pick up a lot of good skills, that have served me well in the multifamily syndication business.

I was there for 14 years, I hadn’t really done any investing on my own. I dabbled into single-family for a little bit, but I decided that it wasn’t really for me. And I said “You know what, I like these larger commercial and multifamily deals better”, so I said “How can I get into them?”

The one difference was the guy that I worked for had his own capital supply, whereas I didn’t. So I knew I had the skill and the expertise, I just didn’t have the capital, and that’s what really turned me onto syndication.

For all the Best Ever listeners out there, as I was just joking around with Joe before we started, it was Joe’s influence that really exposed me to syndication for the first time in my life.

Joe Fairless: So I met Charles in 2014 probably, maybe 2013, somewhere around there, when I was living in New York City and I did a class once a month or something on investing… And he attended. It was probably you and maybe three other people or so? [laughs]

Charles Seaman: Yeah, it’s probably between that on the high side, three on the low side, but it was a nice little group there you had.

Joe Fairless: Yeah. But you were reliably consistent with attending. You were one of the people who always attended, and you now own 92 units in Georgia… Tell us about that.

Charles Seaman: Sure. So it was a two-year process to get to that point. I started really learning about syndication and taking action with it in 2017. And between that point and the 92-unit deal I looked at probably somewhere between 150 and 200 deals, and there was a lot of brokers that were involved, a lot of underwriting, a  lot of hours, and ultimately what it came down to — there were a few things that I would say really helped me get to that point. One is focus. I think the problem that a lot of people have is that they don’t have focus. And I was guilty of that too when I started in this business, because I was looking at properties in a lot of different areas… And instead of really having a target area, one month I looked at a property in Ontario, another one I looked at a property in Indiana, and another one in Kentucky… Twice in Kentucky, actually. But the challenge with that is by not having focus you’re constantly spreading yourself a little too thin, especially just starting out.

So last year – actually, I guess 2018 now – around Thanksgiving time my partners and I decided to choose a target area, and that helped give us a little bit of focus, and also to really hone in on the types of properties that we were looking to buy. So gaining focus and clarity helped a lot, and that was a major step.

Another thing along the way that was really helpful was building good relationships. And again, that was something that I probably hadn’t thought as much of at the beginning. Initially, a few months after I started looking for multifamily deals to syndicate, I found a decent one in Ohio, but the only challenge was I didn’t have a sponsor. And for anybody listening that’s not familiar with that term, a sponsor or a key principal is somebody that’s going to sign on the mortgage for you… Which means if you’re taking out a mortgage on a seven or eight-figure asset, the lender wants to make sure that they’re giving it to somebody that has the net worth and the track record to back that up.

So it was a case where I found a deal, but didn’t really have any relationships with people in that class, that would sign on the loan for me. And it’s not the type of thing that you’re gonna call somebody out of the blue and say “Hey, Mr. Sponsor, would you sign on this seven-figure loan for me [unintelligible [00:07:14].04]” It doesn’t work, because nobody’s gonna lend you their professional track record and their reputation without personally knowing who you are and having a relationship.

So from that point on I went out and I built relationships with sponsors, and now my partners and I have  a couple that we have really good relationships with, so it’s helped us a lot. It actually ties into how we got our first deal, so we’ll get into that in just a minute.

The other thing in terms of relationships and network as far as business is related – investors. As much time as you spend finding deals, you need to spend an equal or greater amount of time finding investors. So between those things, that’s what really helped me get to the first deal, and then the relationship with one of the sponsors we had, actually the one that sponsored that 92-unit deal for us – he also bought the deal for us.

What happened is he knew that we were actively looking for deals, and we had looked at a few with them, we submitted offers on them, but for one reason or another we didn’t get accepted. Either somebody else had a higher offer, or any number of different reasons. So we had looked at a few deals over the course of a couple months, maybe even a year with him. He knew we were actively looking, and he came across this 92-unit deal [unintelligible [00:08:20].20] He’s very familiar with that area, because his primary territory is the Atlanta market… And he wasn’t really looking for himself, because he’s doing 200 and 300 and 400-units. So the 92-unit one, as big as it may sound to somebody who hasn’t done a deal, it’s on the smaller side when you get more experienced.

So he thought of us, and he sent it over to us and said “Listen, do you guys wanna take a crack at it?” So we looked at the numbers, we went through the underwriting and everything checked out, so he said “Okay.” He gave us the greenlight, and… Lo and behold, he found the deal, he brought it to us, and actually wound up sponsoring it, so it was a really good relationship that helped us out a lot.

Joe Fairless: How do you structure that from an ownership standpoint on the general partnership side, with a sponsor like that?

Charles Seaman: Sure. When you have a sponsor — and I’ve heard of sponsors taking anywhere from 10% to 50% of the GP, really depending on two things. One, their own personal preference, and two, how much you’re really expecting them to do. So if all you’re looking for them to do is just really sign on the loan dots, then some may go as low as 10% or 15%. In our case, our sponsor took 35%, but he did do a good amount for us. He helped us out from 1) bringing us the deal and consecutively signing on it, and he also owns his own property management company which is based in the Atlanta market, so we actually wound up hiring that. So he was very helpful to us, and he was a great partner to work with, so we were glad to have given him that 35% of GP.

Joe Fairless: Oh, absolutely. Found the deal, sent it to you all, signing on the loan, and has a management company that’s overseeing it. Worth every percentage point, that’s for sure. Very fair for you all, as well as for him

Charles Seaman: Yes, I would agree with that.

Joe Fairless: And that Ohio property – where was it in Ohio?

Charles Seaman: That one was in Northwood, Ohio, which is right outside of Toledo. And if I remember correctly, I think it was a 96-unit deal. I know that for a while you were dabbling in the Ohio market. Do you still [unintelligible [00:10:18].26]

Joe Fairless: I live in Cincinnati, so that’s what I was wondering… So when you had that deal identified, tell us how those conversations went when you spoke to potential sponsors who ended up not moving forward with you.

Charles Seaman: So the first thing I did with them was simply introduce myself. Having a background working for a commercial investment for 14 years, I said “You know what – nobody’s gonna really do anything like that for you, unless they know who you are”, so I said “Let me just start casually build some rapport with them.” And then after we’d lighten the mood a little bit, I would say “Listen, I have this deal… This is something you might be interested in.” So I sent it over to two or three people that actually expressed some interest, but either they didn’t wind up getting back to me, or they replied politely that they had no interest, which in retrospect I don’t blame them, because if I was in the position to sign for somebody and be a key principal on their loan, I wouldn’t wanna do that either, unless I was confident that they could actually perform. The last thing you wanna do is lend your professional reputation to somebody, that you worked very hard to build, and then realize that you didn’t do due diligence and they went out there and did a poor job and ruined it for you.

Joe Fairless: Yup. How did you find the people that you were reaching out to? None of them said yes, but I just wanna know what your approach was.

Charles Seaman: I actually got them through referrals. I got them through SEC attorneys and I got them through other people that I met at different real estate networking events… So I probably came up with maybe 5 or 6 of them initially, and there were two or three that expressed mild interest [unintelligible [00:11:48].13], but I’d say it was a good teaching point.

Joe Fairless: Interesting. That’s an interesting lead generation for co-sponsors or people signing on loans, SEC attorneys. Very logical. I don’t know if I’ve heard of that. Maybe, I don’t know, but it makes a lot of sense. Now, they didn’t say yes, but my follow-up question is have there been any sort of business transactions or any other business or anything evolve as a result of those conversations?

Charles Seaman: There actually has. One of the particular people that didn’t wind up doing anything on that deal is one of the sponsors that we have a really good relationship with nowadays, and generally speaking he has enough trust in myself and my partners that if we find a deal – obviously, he’s gonna do his own due diligence and vet it anyway, but he would usually be willing to sponsor just about anything we bring, because he knows that we really vet it pretty good.

Joe Fairless: And that was from an SEC attorney recommendation?

Charles Seaman: Yeah, that’s correct.

Joe Fairless: That’s pretty cool. I hadn’t thought about that. It’s a low-hanging fruit. So the 92-unit – how long have you owned it?

Charles Seaman: This one we own since September 5th, so a little over four months.

Joe Fairless: What’s the business plan?

Charles Seaman: The business plan is a 2 to 5-year hold. We were pretty fortunate that it was 98% occupied from the time we acquired it, so it was already a cash-flowing property… And we’re not looking to go in there and do any significant value-add, but the biggest value-add is really through operational efficiencies. A large part of what we’re doing is just implementing stricter collecting procedures, and having more available management. The seller had part-time management, they had a manager in the office about maybe 15-20 hours a week. We have a full-time person at 40 hours a  week, so that ways it gives tenants a different impression. One, it lets them know that somebody’s available if they have a concern, and two, it’s also somebody there on the property to oversee it, and have a set of eyes and ears on the property.

Another thing we did is just enforce stricter collecting procedures. The previous owner was very lax  with collections. A lot of the tenants paid, but whether they paid by the 3rd of the month or the 28th of the month didn’t seem to make much difference. So the first month we went in there, we had to file 19 eviction warrants, which was a pretty hefty amount on a 92-unit property… But what we did is we re-educated the tenants to let them know “Listen, we expect you to pay by this 5th. If you don’t pay by the 5th you’re gonna have a late fee, and if you don’t pay by the tenth, we’re gonna file an eviction warrant.”

So by the second month, in October, that went down. We were able to drop it to seven eviction warrants. Of those 19, only six of them actually wound up being evicted. Most of them caught up. And lo and behold, by December we were down to two eviction warrants. So litlte bit little, it’s going in the right direction. The rent is being paid in a more timely fashion, which is good, and we were also able to increase market rents in October. So for anybody listening, you can’t go in there and just raise rents on existing leases, but for people that go in there and move in as new tenants, you can start them at a higher rate. And for people renewing their leases, you can do the same thing.

So we realized that the rents were under-valued in comparison to the sub-market, so we implemented a $70 increase, of course, for various unit types, on October 1st.

Joe Fairless: From a collections standpoint, what are some things you’ve learned that have helped you with that process?

Charles Seaman: The biggest thing I would say from a collections standpoint is just being strict. You can’t be too lax with collections, because if you give somebody an inch, they’ll take a foot. And that’s just human nature. So if the tenants have a clear expectation that “Listen, guys, we expect you to pay by the fifth, and if not, you’re gonna have an extra $50, $75 fee. It’s amazing how many of them pay, especially when you have a C class asset, where a lot of them don’t have that $50 or $75 to pay.

Joe Fairless: Okay. Based on what you’ve seen so far in the four months, what’s been the biggest challenge?

Charles Seaman: I have to say, we’ve been pretty fortunate, knock on wood… It’s been pretty smooth so far, so I can’t complain.

Joe Fairless: There’s been a challenge, there’s been something that’s been unexpected, where it’s like “Oh, really?!” There’s gotta be something.

Charles Seaman: The biggest challenge was actually prior to closing – raising capital.

Joe Fairless: Okay.

Charles Seaman: A lot of people had told us that it’s harder than you think it is, and it’s one of those things that you don’t realize until you actually get in the driver’s seat and do it… So one of the things we do – my partners and I wrongly assumed that just because we know a network of people that have money, that we’d be able to easily go out there and raise money. We jokingly said amongst ourselves it was a very humbling experience… Which it was. But it also taught us that we have to be more diligent. We wound up completing the race, but it did take a lot more effort and a lot more diligence than we thought.

There were certain instances where we would send our brochure to different people that would be potential investors, and they’d tell us “Okay, I’ll take a look at it”, but the obvious scenario is that it’s not as important to them as it is to us. So you really have to  follow up and really be diligent.

So what we’ve done since then – we made sure to  make an effort to go out there and start expanding our network, and also increasing our investor database, so that way we’re constantly cultivating investors, as opposed to just really contacting them cold when we have a deal.

Joe Fairless: What are a couple of effective ways that you’ve found to identify new investors?

Charles Seaman: The biggest way that we’re actually knowing is our social media at this point. My partner, Adam, is a lot more video-friendly than I am, so he posts videos on Instagram and Facebook, and probably YouTube I’d say, at least every day, if not more than once a day a lot of times.

Myself – I’ve actually been doing it on Bigger Pockets, I use LinkedIn a bit… I’m kind of old-fashioned, so I do it through articles in written communication. I haven’t quite gotten in touch with modern times and started doing a ton of video.

Joe Fairless: [laughs]

Charles Seaman: So a lot of my stuff is on Bigger Pockets. That’s where I’m finding a lot of success personally. And one of the things I’ve done is I’ve been very active in the multifamily forums. So what I do is generally if I see something that I can provide value to, I do. A lot of the times people that post on those forums are relatively new, and what I’ll do is I’ll usually answer their questions and give them some insight.

I do it for two reasons. One, because I genuinely enjoy that and I do like helping people, and two, it usually works out well, because what happens is people that are more experienced than oftentimes passive investors will see that and then they’ll come to me and contact me and say “Listen, I saw you comment on such-and-such post. I’m a  passive investor. Would you be interested in talking?” And then from there it opens up the dialogue and we can start communicating and building relationships, so that way when we have future deals, we’re able to present them with those deals.

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

Charles Seaman: Be persistent, don’t quit. Oftentimes that’s very cliché. People are right around the corner from success and they don’t realize it. And what I’d say – especially in syndication there’s a lot of money, but there’s a lot of work involved, and there’s gotta be a lot of work before you see a lot of money. So I say don’t get discouraged by that; just have a realistic expectation, and know that you may have to work your butt off before you really start making the money. But eventually, as the money starts coming in and you start systemizing it, you’ll be able to put yourself and your business in a better position and live a more favorable lifestyle, where you’re not constantly working like an animal.

Joe Fairless: A book that addresses that is Three Feet From Gold. I love that book. I highly recommend that everyone reads it. Have you read that one, Three Feet From Gold?

Charles Seaman: I haven’t, but I’m gonna have to check it. That’s a good suggestion.

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

Charles Seaman: Sure!

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

Break: [00:19:36].07] to [00:20:16].00]

Joe Fairless: Alright, Charles, what’s the best ever book you have read recently?

Charles Seaman: Best ever book I’ve read… I’m gonna give you two, actually. One is a pretty common one – Rich Dad, Poor Dad. I’ve always been a big fan of Kiyosaki. I think he has a gift of taking complex things and putting them in laymen’s  terms. And the second one I’m gonna say is actually not a real estate or finance book, but it’s How To Win Friends And Influence People by Dale Carnegie. That’s my favorite book of all times. I think it has a lot of common sense principles that need to be reinforced on a regular basis, and people need to implement it in their everyday lives.

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

Charles Seaman: The biggest mistake that I’ve made was assuming that people I knew with money would wanna participate and invest in our deals. So I didn’t do as good of a job at finding investors as I should have, which is why I learned that mistake the hard way, that you need to always be actively marketing for investors.

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

Charles Seaman: They can follow me on social media. Probably the best way to get me is actually on Bigger Pockets, but they can also reach me on LinkedIn, and they can search me by name on either one of those, Charles Seaman. Or they can also check out the website 3OaksMgmt.com.

Joe Fairless: Charles, thank you for being on the show, thanks for talking about your 92-unit deal, the challenges you had prior to that, what you learned from it, getting your co-sponsors or really the people signing on the loan in place first, having the SEC attorneys provide you with leads, and then ultimately partnering up on the next one, the 92-unit that you found via one of your connections, and the partnership.

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

Charles Seaman: Joe, thank you very much for having me and thank you very much to the Best Ever listeners.

Website disclaimer

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

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

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

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

Oral Disclaimer

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

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JF2065: Hard Work Niche Deals With Karl Spielvogel

Karl has done over 200 real estate deals focusing on the more difficult deals that no one likes to deal with because there typically is less competition, harder work, but a bigger reward. Some of the deals he likes are multiple heirs, title issues, excess proceeds, and partition sales.

Karl Spielvogel  Real Estate Background:

  • Real Estate Investor in Charlotte
  • Has done over 200 Real Estate Deals.
  • Specializes in Niche Deals/ Solving messy situations that lead to big profits.
  • Examples of niche: multiple heirs, title issues, excess proceeds, and partition sales: Some of the Profits from these deals have been 243k, 228k, 163k, etc..
  • Say hi to him at : www.UnclekarlsMastermind.com 

Click here for more info on groundbreaker.co

Best Ever Tweet:

“These niche deals are a lot of work, but the profits are very high per deal. ” – Karl Spielvogel


TRANSCRIPTION

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

Karl Spielvogel: Doing great.

Theo Hicks: Great, thank  you for joining us. Looking forward to our conversation. A little bit about Karl – he is a real estate investor in Charlotte, NC. He has done over 200 real estate deals and he specializes in niche deals, solving messy situations that lead to big profits. Examples of niche deals would be multiple heirs, title issues, excess proceeds and partition sales. Some of these big profits from these deals is $243,000, $220,000, and $166,000. You can say hi to him at UncleKarlsMastermind.com. Karl, do you mind sharing a little bit more about your background and what you’re focused on today?

Karl Spielvogel: Yeah. When I first got involved in real estate, I owned some Subway sandwich shops and I was getting tired of that, and a buddy of mine said “Hey, there’s this course from Ron LeGrand.” He took me to that and I started learning and getting involved in that. I did real estate from 2000 to 2008, I did pretty good, but I went from (I thought) being a badass and lost everything in 2008 and became a dumbass, and then I did a used car business with my ex-girlfriend, another mistake, and then I got back into doing real estate again about four years ago.

We have about 5.5 million in assets right now, and we owe about 2.5 million. We like to do a lot of deals, like getting multiple heirs, partition sales… We also do land, we do variance, subdividing assemblage, anything that’s difficult. We wanna stay away from the stuff where somebody’s getting 20 postcards… We’ve found that by diving into these niche deals – they’re a lot of work, but the profits are very high per deal. We’re not a volume type person. We do maybe 3-5 deals a  month, but they’re typically bigger deals.

Theo Hicks: Of your portfolio of 5.5 million dollars, what is the main niche that you focus on? I know you talked about a lot of them, but what’s the main one, so they can dive into that one?

Karl Spielvogel: Well, we find most of our deals through tax delinquents, foreclosures, vacant properties, and then we use our GIS system. We’ll find some land that can be subdivided, we’ll look for a small lot that we’ll buy and get for cheap, and get a variance and make it buildable… We’ll look for a house next to a land, and then we subdivide the land off… But most of our stuff just comes by looking at the tax delinquents, the vacants, the foreclosures, and using the property look-up. That’s our main source. Then after that it’s about diving deep and solving the problems.

Theo Hicks: So you’ve got the tax delinquents lists, you’ve got the foreclosure lists, you have the vacants lists. What’s the next step?

Karl Spielvogel: Let’s say we’ve got the tax delinquents lists. We’ll typically skip-trace it, or we go out and knock on the doors… For example the tax delinquents – what we like to find is we like to pull up the tax delinquents and see if the people are passed away, because those are the best ones. Or if the house is vacant… So we look into that stuff and then we dive deep into it.

We even have one deal where there was six different people passed away; it was a vacant house. It had 23 heirs. We put it all together. We’re into that deal for about 65k and it’s worth 200k. So we dive deep into them, that’s how we get the big deals.

Theo Hicks: Let’s do an example. Let’s talk about the 23 heirs, 65k all-in price, worth 200k. How did you find it, and then how does that even work? How do you buy a deal with 23 heirs?

Karl Spielvogel: Well, we started out — I was basically driving for dollars. We had a property that we were looking at… I was driving by, and the grass was cut, but something looked funny about the house. I don’t normally do this, but the house didn’t look lived in, for some reason. So I jumped the fence, and went up and looked in the windows, and noticed it looked basically vacant. I noticed that the electric meter was missing.

After that, we pulled up our county GIS system, pulled up the owners, and found out that they haven’t been paying taxes for four years. Then we skip-traced them and found out both owners were deceased. After that, we started building the family tree out.

We built this whole huge family tree out, and then  we started calling all the heirs… And most of them didn’t even know they were heirs to a property. Basically, we just called them all up, told them they’re heirs to this property, that we wanted to buy their shares out, and then we just made deals with all of them and got them to sign.

It was sort of funny – we threw a little barbecue in South Carolina, where most of them met me. We went down and got everything signed there. One guy was a semi-homeless guy. We tracked him down in Chicago… But we just basically called everybody and signed it, and then we ended up owning the property.

Theo Hicks: You guys are like private investigators.

Karl Spielvogel: We’re more private investigators than we are anything else.

Theo Hicks: How are you funding these deals? Are you raising money? Is it your own money?

Karl Spielvogel: Yeah. Well, my business partner uses IRA money. We use private funds… We could always use some more (hint, hint). But private money and our own funds. Because we’re buying stuff with messy titles, we have to pay cash, and then we straighten the title out afterwards.

Theo Hicks: So I’m not sure you can answer this question or not, but — you own 5.5 million assets, you owe 2.5 million. Obviously, some of that is equity created. But of the equity put into the deal, what portion is yours and your business partner, and what portion is private money?

Karl Spielvogel: That’s a good question. I really don’t know. Probably private money is maybe 20%-25%. The rest is our money that’s invested in it, and my partner’s Roth IRA money.

Theo Hicks: Okay. So Joe does apartment syndications; they buy apartments that are stabilized, have some cosmetic changes, so it’s pretty easy to get the projections and present those to investors. How does that work for deals like this? It seems like the profit margins are so large, it seems like there’s a bit more risk… So what types of returns are you offering, and how are you calculating these returns?

Karl Spielvogel: For the private money, you mean?

Theo Hicks: For the private money, yeah. Or even for yourselves, I guess.

Karl Spielvogel: Yeah, for the private money we’re anywhere from 8% to 15%. Typically, people are loaning us money on the ones once we clear the title. But we’ve got people that will loan us money on the bad titles, because they know that we can clear it; that’s typically around 15%.

But most of these deals we’re in for very little money. That deal that we’re into 65k – that includes renovations and everything. What we do is we typically have people deed us the property upfront, when there’s a multiple heir situation, and they get paid later. We’ll pay them anywhere from 0 dollars to 500 upfront, our own money, and then when we clear the title, they get the rest.

So we’re getting into these deals for very little, because a 23 heir deal – who’s gonna buy a fraction of that? They know we’re the only game in town, so they’ll sign us over the property, typically for no money to $500, and they get paid when we clear the title.

Theo Hicks: Okay, so it looks like your most profitable deal was the 243k deal. Let’s talk about that one, kind of similar to this 23-heir deal. How did you find it, and then how much did you buy it for, how much money did you put into it, and how much is it worth, and what did you do with it?

Karl Spielvogel: That property – a birddog called us up that we know, Gerald. He does some work for us. He said “Hey, there’s a property that’s vacant. Some squatters in it, the guy passed away…” So we got it from a birddog. And the first thing we did was pulled it up — it’s in a very good area, and these squatters had moved in. So I’m like “This could be a huge deal.”

So the first thing we did was we built a family tree. Actually, for this one, even though we didn’t own it, I hired a genealogist, so we built a family tree. What happened was the wife passed away first, so her side was out… So the husband passed away, and when he passed away, his share would have gone to his brother. Well, his brother died in an airplane crash in Crete in 1973, so then it would have gone to his two sons, Jack and Louis. So they were the rightful heirs to the property.

So we skip-traced — we couldn’t find them, we couldn’t find them… We did so much investigation on this deal… I went to the funeral home where the guy was buried, I got the book everyone had to sign in, I called everybody there, and one of the people there told me that the mom from the two boys had remarried a police officer outside of DC. So we spent nine months just working this deal, trying to figure it all out, trying to find Jack and Louis.

Well, one night after probably ten beers, it sort of clicked that maybe the mom had changed her name when she got remarried, and Jack and Louis had a different last name. So then we had our genealogist do some more searching, and she found where the lady – I don’t wanna say their names – got remarried to the police officer outside of DC. Then we skip-traced the kids and found them.

Now, there’s a lot of other problems, too. There was a code enforcement letter, it was going for sale for taxes, and there’s also a niece that had a lease for a dollar a month, which we ended up buying that out. So it’s really important once you track these people down that you set the table.

Also, because he had passed away without a will, there was estate issues. So basically, we called the guys up, we said “Hey look, there’s a property in Charlotte, you guys are the rightful heirs, but there’s a whole bunch of problems. There’s squatters in the property, there’s code enforcement, there’s estate issues, and it goes to sale for taxes in two weeks. We can offer you $35,000.” “This is found money, first of all, and normally we’d negotiate, but since there’s so many problems, we’re gonna sell it to you for $35,000.” So we bought the property for $35,000, and then we had to wait nine months in North Carolina — we didn’t wanna open the estate, because were afraid there’d be claims and stuff, so we waited…

He had to be passed away for two full years, so we had to wait nine more months. We were totally into it in the $50,000 range. We did a couple little minor repairs to get it off the code enforcement list, paid out bonuses and everything, and we sold it for $310,000. So our net on that deal was $243,000, but it was a lot of work. We were basically private investigators, tracking down heirs that their names had changed. That’s how we ended up getting that deal.

My partner even a couple times said “Give up on it, give up on it.” I’m like “Nope, I’m gonna get this. I’m gonna figure it out”, and we got it done two weeks before it went to sale for taxes.

Theo Hicks: Wow, that’s a crazy story. I bet you have a lot of stories like that.

Karl Spielvogel: Yeah, everything from guns pointed to our head while knocking on doors, to being threatened by motorcycle gangs… It’s crazy.

Theo Hicks: Before getting into the best advice ever, what’s the craziest story you have?

Karl Spielvogel: The craziest story… I’m trying to think here. There’s so many of them, I can’t even think. This was sort of a funny; this will take a little time, but there’s a piece property that — again, I don’t drink anymore, but I used to drink a lot. So I was drinking at the bar, and my bartender said “Hey, my mom is going into foreclosure. Could you help her?” I’m like, “Yeah, we’d like to talk to her.” So I met with her, and she owned a piece of property in the county of York. It was surrounded on two sides – this piece of property – by the city of Tega Cay. Tega Cay is a very rich area, and if I could annex the property into Tega Cay, then it would be worth a lot of money, versus being in the county.

So I went and met with the city manager, and I said, “Hey, can you annex this piece of property into the city of Tega Cay? Because I wanna build some houses on it.” And I’ll never forget what he said. He said “Son, we’re not gonna do that.” I’m like, “Why not?” He goes, “Well, we’re building a baseball field. We’d like to buy your property, but we don’t really need it.”

So I came down and met with him, he said “I can give you maybe 85k, maybe 90k on this property.” I was like “Okay, well that’s a little bit low…” During the time we went back and we did a short sale on it. From 65k, we ended up getting it for 50k. So I went back to talk to the city manager and said “Hey, let’s negotiate on this property. Your price is a little bit low, but let’s talk.” He goes “Well, now I can only give you 65k for it.” I’m like “Why?” He said, “Well, that’s all we have in our budget. I can only give you 65k.” I was like, “Well, wait a minute… Your price went down. Let me ask you a question. You’ve just told me you have no jurisdiction. It’s in the county.” He goes, “Correct.” “You said you’re not gonna annex it”, he goes “Correct.” I said “Then I can open a freakin’ goat farm.” And he crossed his arms and said “Well, I guess you could…”

So what we did is we went and rented goats… You can actually rent goats. We went and rented three goats for two hours, and we had goat cupcakes, we had a big banner “Uncle Karl’s Goat Farm Coming Soon”, we had Goat Farm T-shirts printed up, we had a little party out there and we did this whole thing about how we were gonna open a goat farm in Tega Cay. We did a Facebook live… I even sent them emails saying “Hey, we’re getting ready to open a goat farm.”

We were just silly. We filmed a Facebook live, we had some neighbors come over, and we did this little whole production. We had a little ribbon-cutting ceremony, and had a little golden key made up… We got pictures; I’m gonna send you pictures. That day we got a $100,000 offer for the property, closed in seven days. So we ended up selling it for $100,000, closed in seven days.

So I guess the moral of the story is that — we positively extorted the town of Tega Cay. So that was probably the craziest deal we ever did.

Theo Hicks: Oh, man, this is very entertaining. I’m sure I could talk to  you for hours about some of these stories… So based on all these experiences, what is your best real estate investing advice ever?

Karl Spielvogel: Two things – focus on niches. We do a lot of land, a lot of stuff too, but find some niches that not everyone else is doing, learn those, and then also be relentless on your deals. I could tell you story after story where we were relentless… But also, pivot. Most of our deals we got stuck, and we were done, we couldn’t get them to go through, and at the last minute we pivoted. I could tell you crazy stories, like — we mailed out chocolate bars one time to this lady who kept telling us no, no, no… We said “Hey, you’re missing out on a sweet deal. Please give us a call.” She called us, we got the deal, two days before the foreclosure.

So you’ve always gotta be persistent, learn the niches, and then take that step back, pivot, and also collaborate. We spend a lot of time at our office, talking to people, trying to figure out how to put these crazy deals together, with multiple heirs, and partition sales, and buying liens and judgments.

So I would say that the persistence, pivoting, and learn niches.

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

Karl Spielvogel: Yup.

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

Break: [00:16:52].24] to [00:17:55].03]

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

Karl Spielvogel: I like Traction, because my business is so disorganized and messed up… I’m trying to straighten it out, so it’s more organized and streamlined. So I’d say Traction is probably one of the best books.

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

Karl Spielvogel: I would go back in, because I’ve made a lot of great connections… I would go back to everybody — because I lost everything in 2008.  I’d go back to say “Hey, I’m starting over…” I have the knowledge, I have the know-how, so I’d just reach back out to all my business partners… Because you don’t need money for what we do. We’ve just gotta find the deals, and we can go out and start doing the exact same thing. Going back after tax delinquents, foreclosures, using our property look-up system, and that kind of thing. That’s how I’d start back over.

Theo Hicks: So besides that $243,000 profit on that deal, what has been your best ever deal?

Karl Spielvogel: We did a $228,000 deal on a vacant house that was owned by a defunct corporation; they had a divorced couple, the wife had the rights to it. It had a $750,000 lien she thought was attached to it, but it wasn’t attached. So that was our second-best deal ever.

Theo Hicks: What about a deal that you’ve lost the most money on?

Karl Spielvogel: I was really stupid… I went off a Zillow value, and I put it under contract, and I had two partners with no money, and we ended up losing about $32,000, and I got sued… And had to settle a lawsuit. So that was being really stupid; not even a rookie would go off a Zillow. I just was trying to hurry and not paying attention, and I was just stupid.

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

Karl Spielvogel: I’ve got a phone to call: 704 777 77777. That’s our office number. Leave a message. That’s probably the best way to reach me. Or send a friend request on Facebook. We’ve got Uncle Karl and Friends, or Karl Spielvogel. Or let me give you my personal number – 704 995 5385.

Theo Hicks: Well, Karl, this has been a very interesting conversation. I was muted while you were talking, but I was laughing a ton at your stories. Very entertaining, very interesting, and definitely all of the different stories and examples you gave hit on your best ever advice, which is focus on niches obviously, be relentless on your deals, pivot when you need to, and then obviously, when  you’re doing these kinds of complicated deals, to collaborate with people to brainstorm what to do.

Just to go over some of the examples you gave – there’s one that had 23 heirs, that you bought for 65k, that was worth 200k. Driving for dollars, you just found out that it was vacant… Both owners were dead, you build out a family tree, you called the heirs, made deals with each of them, even put on a barbecue to get that deal done.

You talked about your best ever deal, with a $243,000 profit, where a birddog calls you up, he found a vacant property where the owner passed away. You had to hire a genealogist and it took you a long time to find who the rightful heirs were. Then you talked to the about all the different issues and offered them 35k to buy that property because of these issues. They ended up selling it to you. Based off of the rules with the estate, you had to wait two years after the original owner had died, so nine more months before you could sell the property. You sold it for 310k.

And then my favorite, which is the goat story, where you found a property through a bartender. The property was surrounded by a very nice area, that you wanted to get annexed into the area, and the city manager said no, because they’re building a baseball field, and offered you money for it. Then he comes back with a lower offer, and you did your Goat Farm production, something [unintelligible [00:21:22].10] That same day you got a 100k offer that closed in seven days.

I’m sure you’ve got plenty more of this type of stories. I’m sure you’ve got some content on that on your website…

Karl Spielvogel: We have a podcast, Uncle Karl’s Crazy Real Estate Stories. And also the mastermind group, Uncle Karl and Friends Mastermind Group. It’s only $149/month and we dive into details on how we do these kinds of deals.

Theo Hicks: Yeah, and [00:21:51].15] because as he mentioned in his best ever advice, a lot of people are focusing on the single-family rentals and apartments. And while that’s obviously a great investment, if you do have the time and you are relentless,  you  can focus on these niches where there’s really no competition at all, it sounds like. It just takes time, takes effort, it takes some creativity… And you can make a lot of money, without having much competition in today’s market. So definitely take him up on that offer.

Alright, Karl, I really appreciate it. Again, very entertaining interview, I really enjoyed it.

Karl Spielvogel: Thanks for having me on, I appreciate it.

Theo Hicks: Absolutely. Best Ever listeners, thank you for listening. As always, have a best ever day, and we will talk to you tomorrow.

 

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JF2038: Mobile Home Parks With Ian Tudor

Ian is the Co-Founder of Archimedes Group, they have sourced, participated, and closed over $20,000,000 deals since 2016. In a previous position, Ian has underwritten over $1 billion in acquisitions and dispositions. He is a mobile home park investor and has been doing it for the past 3 years, and part of his learning how mobile houses work, both him and his partner decided to live in a mobile home park, living in a double-wide sleeping on a blow-up mattress for 14 months alternating weeks with his business partner.

 

Ian Tudor Real Estate Background:

  • Co-founder of Archimedes Group, they have sourced, participated, and closed over $20,000,000 in deals since 2016 
  • In his previous position, he underwrote over $1B in acquisitions and dispositions
  • Based in Charlotte, NC
  • Say hi to him at http://www.archimedesgrp.com/  

 

Best Ever Tweet:

“Treat your boss nicely, you never know where that relationship will go.” – Ian Tudor


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, Ian Tudor. How are you doing, Ian?

Ian Tudor: Right, thanks for having me.

Joe Fairless: Well, I’m glad to hear that. My pleasure. A little bit about Ian – he’s the co-founder of Archimedes Group. They have sourced, participated and closed over 20 million dollars in deals since 2016. In his previous position he underwrote over a billion in acquisitions and dispositions. Based in Charlotte, North Carolina. With that being said, Ian, do you wanna give the Best Ever listeners a little bit more about your background and your current focus?

Ian Tudor: Absolutely. I appreciate you having me on. I’m a mobile home park investor; I’ve been doing it for about three years. In my prior life I was working on the institutional side at a publicly-traded REIT – of formerly publicly-traded REIT – underwriting office buildings, skyscrapers across the South-East. I was on the investments team, and I decided I wanted to make a little change and invest on my own. That’s when I stumbled on mobile home parks, and Ryan Narus, my business partner and I decided to go into business in 2015, and we purchased our first park in 2016.

Over the past three years we’ve been a part of about 12 transactions, 1,300 lots, with various partners. Part of our learning of how mobile home parks work was in 2017; we partnered with a big operator, and that was a  way for us to get our apprenticeship in mobile home parks. We lived in a mobile home park, slept in double lot, on a blow-up mattress for 14 months, alternating weeks; Ryan was there for a week, I was there for a week… And that really gave us the foundation of who our company is today and where we’re looking to go forward now.

Joe Fairless: Why didn’t you get into office buildings? That’s where your experience was.

Ian Tudor: Great question. Coming into real estate, my family is from the medical world, and for me, I just didn’t have a huge amount of capital behind me… So I found mobile home parks as — this kind of started off just like a side hustle; I bought my first house when I was 23 years old, and I guess what they call house-hacking now… And lived there while my roommates paid my rent. That was in Richmond, in the  job before I got into real estate.

So I continued that path in Orland, and I just found mobile home parks was a lower capital requirement, and it seemed like there’s greater opportunity than other forms of real estate at the time, which was around 2014-2015, when I was looking.

Joe Fairless: Okay. So doing quick math, over 20 million in deals, you did 12 deals – that averages to be 1.6 million, which I know varies greatly… Probably you’ve got a couple of really big ones and some small ones in there. What was your first one?

Ian Tudor: The first deal we did was with a now formally-owned company – that was 1.525 million – in Hillsborough, North Carolina, which is right outside of Durham, which is in the Raleigh MSA, a great town. I live in Charlotte, and that was the first deal that we did. Then we did a small $500,000 deal in Asheville, which is in [unintelligible [00:04:05].27] which is about ten miles outside of Asheville. We still own that; that was 33 lots. Then we did a 10.5 million dollar deal that we sourced; that was 450 lots. Then we brought that to a regional operator… And that’s where we went to move in, to that community, for 14 months.

Joe Fairless: Okay. Let’s talk about those first three. 1.5 – how did you fund it?

Ian Tudor: That one they put up a lot of capital.

Joe Fairless: Who’s “they”?

Ian Tudor: That was Parkstreet Partners–

Joe Fairless: Another operating partner?

Ian Tudor: Correct.

Joe Fairless: Okay, cool.

Ian Tudor: So they used to own 25 mobile home parks, and they’ve kind of  just gone a different direction… But starting off, we had no money. I couldn’t really bring these deals to my boss, because I didn’t want them to know that I was side-hustling on the side, trying to find things to make happen… So for us, we did finger’s fees. For the first deal we got a 5% finder’s fee, which was about 75 Gs, for the 1.525 deal. We kept some of that in and we cashed out the rest, to allow us to invest in more deals.

Ryan and I put a little of our own capital into Archimedes Group, which then allowed us to invest in other deals. So that $500,000 deal, Ryan and I were able to put a little money in, and we had another capital partner, which turns out to be my former boss after I left that company…

Joe Fairless: [laughs] Nice.

Ian Tudor: So treat your boss nicely. You never know where that relationship could go.

Joe Fairless: Ain’t that the truth… The 5% finder’s fee, you got 75k on the first one… How did you find that deal?

Ian Tudor: So another reason we like mobile home parks a lot was just how fragmented it is. And it’s still relatively fragmented, but the secret’s kind of out on the asset class… But we built a database of about 1,400 in the South-East that we wanted to target, and then we mined those owners’ information. So a lot of what we did was kind of direct mail cold-calling. This particular one was just an up and coming broker who I guess I told a good enough story and we connected, and had rapport – actually, I just spoke to her today – and that allowed us to get into the first deal. So that first one was a broker, and then the second one and third one were cold-calls.

Joe Fairless: Nice. How do you go about building a database of 1,400 parks?

Ian Tudor: It’s various types of methods. There’s several parks on some of the larger sites that list a few of the parks, but the best way to do it is to get on Google Earth and just scan Google Earth and click parks… So it’s very time-intensive, and it took me quite a few hours. Now I’m working with a VA out of the Philippines and they update it yearly. So we’re in our yearly update, so we know what parks have traded for what amount, what’s the new owners, and then we mine those owners to then contact them.

Usually, the trades happen with the owner that’s owned for a while, not the one who just bought; they’re not looking to sell the second they bought.

Joe Fairless: Right. So two questions… When you do Google Earth and you scan for parks, you go into Maps, and then do you type in “mobile home park” and then just zoom around, or do you have another approach?

Ian Tudor: Yeah, we do Google Earth, not Google Maps. You can do Google Maps, it’s not bad; there are several places of Maps for mobile home parks. But a lot of parks aren’t mapped, or they’re not Google Places. So the owners haven’t set that up for those parks, and you’ll miss a lot of parks that way. So you go into Google Earth and then you get this application called Parlay 2.0. That allows you to pull parcel numbers. Once you have the parcel numbers, then you can go to the county GIS, and you can find the LLC, the owner, what they paid for it, and some other information. Sometimes they tell you the log count, the type of utilities, XYZ.

Then you have to go find who’s behind that LLC. Then you find that person, then you have to go find their number. So it’s wildly time-consuming. There’s people out there now that are selling these datasets, which makes life easier. It depends on what path you wanna take, but for us, that’s the one we took, and so far it’s been lucrative.

Joe Fairless: That’s pretty cool. And how does the virtual assistant know which parks have traded hands?

Ian Tudor: That’s all updated on the county GIS, the county’s property record search. So that all depends on when the deed was recorded and how quickly they update their database. Sometimes parks trade and three months have passed and we call the owner, they’re like “Yeah, I sold it three months ago and the county GIS still has not updated”, so it’s county-specific. But for the most part, counties will update their informations so it reflects online, at which point  you can see who the note owner is, what they paid for it, and the date in which the deal closed.

Joe Fairless: The third deal, the big one, the big kahuna – I imagine a price point that was the largest deal you’ve done. I know it is, because if you’re at 20 million, then that was 10.5. Is that correct?

Ian Tudor: Yeah, that one was interesting. That was June 30th, 2017; it’s funny how you remember some of these moments in life… [laughter] I cold-called him in July of ’16; I was at my friend’s house, cold-calling, when I lived in Orlando, Florida.

Joe Fairless: How does that call go?

Ian Tudor: It was surprising… I called a few of his numbers and he’s like “Hello?” and I said “Hey, my name’s Ian”, and I forgot the exact pitch I had, but it was like “I’m interested in buying mobile home parks” and he was like “Well, who are you?”, so he was starting to qualify me quickly. I had to think quickly on my feet, and I basically told the story that the company that I was currently working for, that was in office buildings; I said some vague things about how they may be considering mobile home parks, and that we purchased four billion dollars’ worth of office buildings… Just trying to give myself some credibility. Luckily, he bought it, and we had some great rapport, and we continued to talk. He’s like “Yeah, my dad’s an old, senile man, and he doesn’t wanna let go of it, but we’re trying to work as a family to get him to let go of it.” So I followed up with him over the year and we continued to chat, and talk, and I went down there several times, and had to meet the family… Seven of them were surrounding Ryan and I and asking us questions… It was really nerve-wracking.

Joe Fairless: And this was a 10.5 million dollar transaction, compared to the 1.5-ers and the 500k one that you did… So it was a massive opportunity for you all.

Ian Tudor: Right. In hindsight, we had a partner who we thought had a lot of interest. So Ryan connected, and is still very good friends with a larger operator who has about 6,000 pads in the South-East…

Joe Fairless: How many pads was this one?

Ian Tudor: This one was 450, which is surprising, this is now their flagship asset… Because we partnered together — since we’d had no capital to bring into it, it was another large finder’s fee where we kept some in the deal, helped operate it, and then we refinanced to obviously improve the value of that park, and increase our money, putting no money down… So we put no money down on a 10 million dollar deal and walked away with over half a million dollars. So that’s one way to make things–

Joe Fairless: You and your partner, you and Ryan did? Nice!

Ian Tudor: So over about a year we had to give a lot up to make that happen, but now we’re able to make a lot more money for ourselves on deals because we’ve got the know-how. So what I tell people early on in the game, and something I struggled with a lot, is the way you make this game work is you’ve gotta make rich people richer. It’s hard to wrap your head around that, but a lot of times for investors, when you don’t have money and you’re just trying to learn, you find the opportunity, you make it happen, and then  you can start demanding better terms and structures as you have more experience. But getting started, you might have to give up some upside, but just know that that’s not your only deal. If you’re gonna do 600 deals in your lifetime, it’s worth it getting your experience so that you can really get started.

I think some people look at the dollars too much for not enough of their ability to just get started… So that has helped to now catapult us into so many other deals, because now we have credibility.

Joe Fairless: What a necessary philosophy… I’ve never heard it put that way, “Make rich people richer”, which is another way of saying what you said – find the opportunity, make it happen; you have to give up the upside. It’s not gonna be  your only deal… So you just continue to build that momentum and then eventually — in this case, you and your partner made in total a little over 500k, so that’s a wonderful chunk of change to then go start doing your own deals, and not having to rely on partners… So thank you for sharing that philosophy.

Ian Tudor: Yeah, early on I’ve found myself at times… It’s easy to put in hours — I remember us putting in a large amount of hours, and it’s easy to forget both sides have to come together for that to work… And we would have never had that deal, we would have never had that opportunity if the gentlemen who we partnered with came to that table. So it was a great exchange of value for both of us, and we both walked away happy. We stayed in contact and we’ve done a few more deals since then. So that has turned out to be a wildly successful relationship, and it’s just some slight mental shift that you have to make, and I personally had to make it… Because there were times where I was like “Man, I feel like I’m doing all this work and I’m not getting paid enough for what I’m actually putting in.”

Joe Fairless: Which is true. You weren’t. But it was a long-term play.

Ian Tudor: Yeah, in hindsight a lot of people say I got ripped off, and that’s okay. I don’t care, because long-term we’re in the game now that we’re doing deals, and our structures are way better. So get started and find ways to just get into the game. Things are just gonna start playing your way.

Joe Fairless: What about the fourth deal? What was that one?

Ian Tudor: That was a little small deal. That was probably one of our return deal for our partner, and as well as ourselves… But it was a $465,000 purchase price, it was 42 lots right outside of Greenville, in a town called [unintelligible [00:14:16].16] We still own that today, and that was a textbook deal. We came into the industry thinking that all the deals were gonna pay like this, but we learned very quickly that mobile home parks is a lot of work. That was a cold call that the owners were absentee, in Ohio, and it was just time for him to 1031 into some farmland close to his house, because they couldn’t manage the tenants. They’d master leased the community to a bunch of attorneys, and then they didn’t pay property taxes, so it was just a giant mess.

Joe Fairless: Oh, man… That sounds like not quite textbook, with a master lease contract in place, with attorneys on the other side… What were some things that you had to do to eventually close on it that  you wanna share?

Ian Tudor: A lot of it just seemed like the owner’s lack of putting in the correct energy to monitor his assets… So I guess this deal was struck between the attorneys, and the owner — ten years passed and he got a monthly stipend, where the attorneys didn’t show him financials for ten years, which I think most people can come to the conclusion that that’s just not an ideal place to be… But these attorneys were very hands-off as well, and they wouldn’t talk to us much.

A lot of it was working through the daughter-in-law, because the old man was senile and he couldn’t hear very well… So she was the advocate to help him move to the next step, and she was the bridge between everyone.

That transaction went well, in hindsight. We could have paid a lot more for it and still been alright, but they released the appraisal to us. We were at 600k, they released the appraisal to us, which again, questionable to do… And it was at 450k, and we’re like “Listen, we’ll give you 465k and you guys are coming out ahead, but if it just appraised for 450k, it’s unlikely we’re gonna get to 600k.” They were desperate enough, they took that deal, and now that park’s worth over a million bucks.

Joe Fairless: And why would the numbers have still worked at around 600k, if they were appraising at 450k?

Ian Tudor: Because the appraiser had no information. When the appraiser has no information, you go conservative. So at that moment we didn’t know what the real market rents were; they were at 170 when we took over in August of 2017. We’re at 275 today. So we were underwriting it at 230, thinking that that was being aggressive. 230 to 250. But I think the market there is really like 325. So it’s just a matter of time for us to get there.

And these are lots, these aren’t rentals. There’s two different models in mobile home parks – one where you own the home and rent it out like an apartment, and the other one is where they own the home and they rent the lot from you. So this is all rentals of the lots, and for market price we’ve still got another $50 to go, and this park will be worth over 1.3 million, probably in the next year-and-a-half, two years.

Joe Fairless: Taking a step back, from your experience as a mobile home park investor, what’s your best real estate investing advice ever?

Ian Tudor: I should have probably prepared a little better for this one, because I knew this question was coming… I would say it’s easy to overthink this entire business. My best thing – I think my former boss probably has helped me more than anything else – is find mentors and be willing to make mistakes or sacrifices that other people aren’t gonna make to get the life that you want. Those are the two things that we’ve done, and now we personally own over 300 lots ourselves, without unattractive structures.

So step one would be get mentors; people are very helpful and they wanna help. Step two, I would say just be willing to sacrifice for your work. It took us 13 months to close our first deal.

Joe Fairless: What sacrifices have you personally made?

Ian Tudor: I’d say driving to Atlanta to sleep on a blowup mattress in a double [unintelligible [00:18:16].25] for over a year would be a sacrifice most people wouldn’t be willing to make.

Joe Fairless: I thought that was a week. Okay, I misheard you.

Ian Tudor: That was for 14 months. Then I moved into Ryan’s family’s home and made $4,500 when I first jumped off full-time into this business. I lived in his childhood bedroom, with his parents and two yappy dogs for ten months, in the suburbs of Charlotte, when I was making no money… So those two things we’ve done, and then Ryan helped another park owner and lived in a mobile home park in Tallahassee, where his life got threatened, and he was dealing with very, very violent tenants.

I’m not suggesting that people put themselves in harm’s way, that’s not what I’m getting at, but certain opportunities require you to give up a lifestyle that you may be comfortable with.

Joe Fairless: What are a couple takeaways that you got from living at the parks?

Ian Tudor: Well, I’m much more empathetic to these people probably than just putting in keystrokes in an underwriting model. Two, I feel like I can train my managers much better, because I’ve gone through everything that they’ve gone through… So I can speak to them in a way that I understand, because I’ve sat in eviction court; I’ve been to the DMV and changed titles. I dealt with exploding sewer pipes and tenants screaming in my face. I’ve had to bring in new homes and I know the issues with having to stare someone in the face and tell them they have to get rid of their beloved dog because it’s a pit-bull and our insurance company doesn’t allow it.

So I’ve been in all these situations, I can empathize with these people, and that allows me to be a better manager with my managers, because I’ve been in their shoes.

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

Ian Tudor: Let’s do it.

Break: [00:20:01].19] to [00:20:46].12]

Joe Fairless: Alright, what’s the worst piece of advice that you’ve received?

Ian Tudor: The worst piece of advice I have ever received… That’s a good question. I would say a piece of advice that I haven’t listened to is just because it worked in the past doesn’t necessarily mean it’s gonna work in the future. And real quick, the reason I say that is certain people told me that brokers was the only way to get deals in this industry. 9 of 12 deals we’ve done off-market.

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

Ian Tudor: The mobile home park community or just the community in general?

Joe Fairless: Just people, however you wanna think about it.

Ian Tudor: Ryan and I are trying to be more charitable within our organization, so recently one of our residents whose on a very fixed income — I guess the previous landlord had bed bugs, and she lost all our furniture… So now she’s renting a lot of our furniture, so we paid off the balance, so then she didn’t have to pay for that and her rent.

So now we’re offering scholarships and looking to be more within the community we have, because we have a very good target audience.

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

Ian Tudor: Luckily, we haven’t lost money on any deal. I’d say my single-family home that I bought – I bought it and I sold it to my partner for breakeven, so I didn’t really make much money there. The biggest due diligence mistake I’ve made was on our second deal I didn’t check the water bills close enough, and we had $120,000 of additional capital that I did not account for… And that was a painful experience to have with our investor.

Joe Fairless: [laughs] I bet. How did you approach that conversation?

Ian Tudor: I’m extremely fortunate in the regards that my business partners are very understanding of the process. Our saving grace here was we have a [unintelligible [00:22:25].03] so we bought it for 500k and it’s appraised for 950k, so we’ve got some cushion there… Ideally, they’re understanding of my mistake that I’ve made, but it just leads me to believe that some of these things you just can’t read in books, unfortunately. You will have your own mistakes in some form or fashion, it’s just when those happen… And not to say that it’s good to make mistakes, I guess; what I’m getting at is that I’ve come to peace with it. My investors are very understanding of it, but I would say just fess up to it, be fully transparent, and be really totally honest with yourself when these things happen, and take full blame.

Joe Fairless: How can the best ever listeners learn more about what you’re doing and get in touch with you?

Ian Tudor: Absolutely. I post quite frequently on LinkedIn, so you can follow me on Ian Tudor. It says “mobile home park investor” on that. Feel free to follow me there. We also have a Facebook group called Mobile Home Park Mastermind. Feel free to engage with us on there. Also, Ryan has a podcast, Mobile Home Parks in Real Life (MHP IRL), where we speak about that. So we’re very active on all those platforms. I would love to connect with you; we set up calls with newcomers all the time, if we can help you in any way.

Joe Fairless: Even if a listener is not interested in mobile home parks, there’s a lot of value from this conversation. Rolling up your sleeves, doing things that others aren’t willing to do to get things that others won’t have, as a result of you doing that. Then two is, as you put it in a way I hadn’t heard, “Make rich people richer”; in other words, find the opportunities, make it happen. Know that you’re not gonna make as much proportionately on the first deal as you would on future deals for the same thing, but it’s part of the process. Believe in the process. It’s not the only deal. The momentum and the foundation of experience is much more important than any incremental dollars that you would have earned on the first deal that you didn’t.

Thank you for being on the show, talking about how you’re also finding off-market deals. I now have Google Earth on my computer, which I didn’t before… I thought it was the same thing as Maps; that’s a very ignorant thing of me, I know… But now I have Google Earth because of you.

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

Ian Tudor: Thanks a lot.

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JF1951: Lessons Learned From A New Book Based On Napoleon Hill Writings with Jeffrey Gitomer

Jeffrey has a long background in selling, both as he was and is in the selling field, and he also trains people on the science of selling. He was given access to Napoleon Hill’s first writings and wrote a book about what he learned from the writings. If you enjoyed today’s episode remember to subscribe in iTunes and leave us a review!

 

Best Ever Tweet:

“The average person in business goes for sale tactics rather than value tactics” – Jeffrey Gitomer

 

Jeffrey Gitomer Real Estate Background:

  • Author of 15 books, renowned speaker for sales and personal development
  • Host of the Podcast Sell or Die, getting over 100k downloads per month
  • Based in Charlotte, NC
  • Say hi to him at https://www.gitomer.com/ or seegitomer.com

 


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

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

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


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 we’ve got Jeffrey Gitomer. How are you doing, Jeffrey?

Jeffrey Gitomer: I’m doing fine. How are you, Joe?

Joe Fairless: I’m doing well–

Jeffrey Gitomer: I was gonna say “How are you doing, Frank?” but I didn’t wanna–

Joe Fairless: Yeah, that’s my business partner actually, so it would have made somewhat sense… A little bit about Jeffrey – he’s the author of 15 books, he’s the host of the podcast Sell or Die. It gets around 100,000 downloads a month. Based in Charlotte, North Carolina. His most recent book, called Truthful Living, The First Writings of Napoleon Hill is something we’re gonna talk about, and get some lessons from that.

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

Jeffrey Gitomer: Sure. I grew up in Philadelphia, so that means automatically that people who live in New York, Washington or Dallas can hate me. It’s standard. Teams don’t care about pre-season games unless it’s Philly Dallas. Then we care.

Joe Fairless: [laughs]

Jeffrey Gitomer: So we kicked your butt just to show we could, and football season will commence September 8th; I’ll be Philadelphia, watching the Eagles play the Redskins and beat the shit out of them because we now have [unintelligible [00:02:28].05] and that’s my background.

No, actually I grew up selling in New York City. I owned a couple of manufacturing plants in New Jersey and in Florida, and I cold-called in Manhattan for years, and made a bunch of big sales. And I used all of those strategies and technologies to write the books that I’ve written. I wrote the Little Red Book of Selling, which is at the moment the largest-selling sales book of all time. That’s where I’m at, and I’m having a good time; I love going on podcasts, I love to talk to other listeners who may want to involve themselves a little bit more in the science of selling, not the art of selling… And I do as much online as I can; not just my podcast, but we have a live virtual series of trainings that’s going on right now. If you go to SeeGitomer.com, you can see what the next offering is. I don’t wanna make a pitch out of it, but it’s pretty darn cool.

Joe Fairless: You said the science of selling, not the art… Will you elaborate?

Jeffrey Gitomer: Sure. Selling is a repeatable, understandable, learnable science, just like any other science. People say “The art of sales…” There’s no art of sales, unless — there’s one small, subtle thing, and that is never let the other person feel like they’re being sold. You walk into a car dealership and the guy says “Are you looking for a car today?” I’m like “No, I’m looking for a f****n house… What do you think I’m doing?” And “Did you have a trade-in today, did you have a budget today?” If it wasn’t for the word today, they couldn’t say a word, and they feel put upon. When I walk into a place, I don’t wanna feel put upon. I go into a hotel and they say “Checking in?” I go “No, I’m here for my hair transplant.”

Joe Fairless: Right…

Jeffrey Gitomer: What do you think I’m doing?! I’m here. I’ve got a bag. Just help me. Like “Welcome, you’re gonna have a great stay here.” “Oh, cool.” But they choose to say the dumbest things on the planet. “Can I help you?” “No, I’m just looking.”

Joe Fairless: Right.

Jeffrey Gitomer: So there’s a science to that, and the science is “Can you create something using the science of creativity, that impacts me emotionally, and feels good about you as a person, and will I tell the story when I’m done? Hey, I went into this department store today, and they said “Can I help you?” Like, seriously? No one’s gonna talk about that.

And the department store people don’t realize it, trainers don’t realize it… There’s all kinds of things that — they don’t ask anything that’s emotionally engaging. All they do is do the easiest thing they can do, so they can get back to texting their boyfriend.

Joe Fairless: What should a department store salesperson say when you enter?

Jeffrey Gitomer: It depends on what department they’re in, but let’s say they go into the men’s clothing department. You look at the person and go “I have something perfect for you. It just came in. Let me show it to you.”

Joe Fairless: That would get me. I’d follow them.

Jeffrey Gitomer: Exactly. But they don’t. They go “Can I help you with something specific?” Go away from me. Go away. And I don’t understand what they do and how they do it, I just don’t understand.

Joe Fairless: What are components of this science? You mentioned something that creatively impacts me emotionally…

Jeffrey Gitomer: Right.

Joe Fairless: Is there more to the science than that?

Jeffrey Gitomer: Yeah, I wanna make a connection, I don’t wanna repel you. “Thanks for calling. Your call is really important; please select from among the following nine options.” Seriously? Is that to help me? Was my call important, or is that just to piss me off? So I’m asking the person to think in an emotional way, to say “How can I engage this person? What’s engaging about me, what’s different about me?” and you have to use creative science in order to be able to do it. It’s not that difficult. I promise you, it’s not that difficult.

Joe Fairless: What are some other tactical examples? That department store example was really good, and it helped me understand that. Do you have a couple other ones?

Jeffrey Gitomer: Let’s do a real estate one. How about that?

Joe Fairless: Cool.

Jeffrey Gitomer: Okay. I’m gonna go to a home, I’m gonna go to a real estate agent that sells homes, and they’re gonna greet me like I’m here. I walk in, “Hi, my name is Jeffrey.” “Oh, hi. My name is Bill.” “Yeah, I’m looking for a home here in Charlotte, North Carolina”, and the real estate guy says “Do you have a home for sale?” and I’m gonna walk out of that place… Because he’s trying to qualify me, and I don’t wanna be qualified. He’s gonna say “Do you have a mortgage right now? Have you been pre-qualified? Have you ever missed a payment?” Like, dude, back off. “No, I’m just trying to help you.” “No, you’re just trying to qualify me.”

Real estate agents, they’re one of the  few people in the world that already know everything. It’s unbelievable. And don’t take my word for it, just ask them. They’ve been doing this for 14 years and they’ve got it down. Meanwhile, they’re pissing people off.

So if it was me, and somebody walked into my model home, I would say “Would you like a cup of coffee?” and they’d go “No, we just wanna see…” I’d say “Look, before we go out, I just wanted to ask you one question, if you wouldn’t mind…” And I’d bring them over to the sofa and sit down, and I’d look at the guy and I would say “Tell me about the bedroom that you grew up in.” Can you think of yours?

Joe Fairless: I can. Yup.

Jeffrey Gitomer: If you have siblings, did you have fights with them, are your parents still alive? Maybe you’ve moved from home to home? Whatever it is, I just flashed your entire youth by your head. And then I’m gonna turn to the woman and I’m gonna say “Tell me about the bedroom that you grew up in?” And she’s gonna go “Tah-dahdah-dahdah…” And then I’m gonna say “Is that the kind of bedroom that you want for your children?” Because it’s gonna help me when I show a home. Got it?

Joe Fairless: Yup.

Jeffrey Gitomer: Now let’s talk about the home tour that everyone screws up completely… Because the real estate person is taking them on a three-home tour so they can sell their own listings. Any argument with that?

Joe Fairless: No.

Jeffrey Gitomer: Okay. So I go into a home, and the person says “This is the master bedroom. It’s 16×19”, and I’m gonna say “Well, I have a tape measure with me. Would you mind measuring this? Because if it’s not 16×19 I’m out of here.” Why wouldn’t that real estate person who already knows everything ask “Where do you think in a room like this you should put the television?” And then I’m gonna go to the walk-in closet; you know how they all have walk-in closets?

Joe Fairless: Mm-hm.

Jeffrey Gitomer: And the real estate guy is gonna go “This is the walk-in closet.” No shit! A walk-in closet. What do you do, you walk in? Is there a light switch? No, I’m gonna look at the woman and I’m gonna say “Will all of your clothing fit in here?” Because if it doesn’t, that house is out. Correct?

Joe Fairless: Right.

Jeffrey Gitomer: So why wouldn’t they ask that question? Answer, because they’re the smartest people in the world. Any other questions on real estate? [laughs] I could ask you a question – why do real estate agents go to closings?

Joe Fairless: Why do they closings?

Jeffrey Gitomer: Mm-hm.

Joe Fairless: I don’t know, it depends on the agent.

Jeffrey Gitomer: No, they all go for the same reason.

Joe Fairless: Everyone doesn’t act and think and do the same thing. They’re not robots.

Jeffrey Gitomer: They go to get their check.

Joe Fairless: You can get your check outside of the closing.

Jeffrey Gitomer: I know, but most of them need the money, so they get the check right away and they go to the bank.

Joe Fairless: Well, they could be going to build a relationship with their client…

Jeffrey Gitomer: They could be, but for what I’ve seen in my career in real estate – and I have been fortunate enough to talk to a hell of a lot of real estate agents; like in the thousands, not in the hundreds. And I’ll ask them, “How many of you go to real estate closings?” and  people raise their hand; I go “How many of you go to get your check?” and no hand goes down. Not one. And I explain to them that they’re missing the best opportunity on the planet if they go to the bank. Why would you not go to the person’s home with them and walk in when they walk in? Could there be a more emotional time in any human being’s life than walking into your new home?

Joe Fairless: Yeah, that’s a good approach, for sure.

Jeffrey Gitomer: Yeah, why wouldn’t they video it and then send that back to the customer? The kids running to their room and claiming their space.

Joe Fairless: Yup.

Jeffrey Gitomer: The reason is they don’t think beyond the close, they think “Oh, this person’s not gonna be good for me unless they get me a referral.” And they’re gonna send me a postcard saying “Thanks for your XYZ. I run my business on referrals, so please fill this card out or call me with anyone that you know that might be moving.” Tear it up, burn it, throw it away, never talk to that person again, ever. Because they don’t care about me, they just care about the referral.

Joe Fairless: Right.

Jeffrey Gitomer: Correct.

Joe Fairless: Well, I don’t know if that’s a correct statement, but the perception certainly could be correct.

Jeffrey Gitomer: Exactly. So why wouldn’t they, when I move in, go “Congratulations! Here are the 50 best places in the community. Restaurants, dentists, barbers, hairdressers, clothing stores, car rentals…”, anything. Why wouldn’t they send me that list of preferred merchants? They’re new to the community, and even if they’re not, they’re still moving across town… So I wanna know “These are the places that I go, these are the places that my team members go. These are the places that we personally recommend. We don’t make any money from them, we just want you to have the list.”

Joe Fairless: Cool. Yeah, that’s a good approach.

Jeffrey Gitomer: It’s a value tactic, not a sales tactic.

Joe Fairless: Right.

Jeffrey Gitomer: So the average person in business goes for sales tactics, rather than value tactics, and they lose the long-term business, even though they may gain a little short-term business.

Joe Fairless: I like the value tactics.

Jeffrey Gitomer: You buy insurance, don’t you?

Joe Fairless: I do.

Jeffrey Gitomer: Yeah. And you have a property and casualty guy? You probably have a big one for the business you’re in, right?

Joe Fairless: Yes.

Jeffrey Gitomer: And the guy calls you up on the phone and says “You know, we’ve been doing business for a couple of years now and I was wondering if you would mind sitting down with me and going through your friends and see if you have any referrals or people that really would wanna do business with me the same way I do business with you.” And you feel a little uncomfortable about it, because you’re not 100% crazy about this person… So you say “Let me get back to you in a week”, and the guy says “Okay.” And of course, you don’t get back to the guy. And he calls you up on the phone and says “Remember last week, we talked about referrals? I was wondering if you had a chance to go through your list?” And you say “No, I haven’t had a chance yet. Call me again next week.” And the guy goes “Okay.” You’ll never take that guy’s call again, ever.

Joe Fairless: Compared to which approach should he take?

Jeffrey Gitomer: Well, he’s a taker, isn’t he? But suppose that same guy calls up and says “Hey, I know of  a couple apartment buildings in town. I think these guys wanna sell. I think you can get a really good deal. Would you like me to introduce you?” “Sure. Let’s have coffee.” “Okay, fine.” Isn’t it better to give a referral than get one?

Joe Fairless: Mm-hm.

Jeffrey Gitomer: But see, that takes work. And most salespeople are not willing to do the hard work that it takes to make selling easy, because their boss said “Now as for a referral. As soon as you’re done, blah-blah-blah.” Really? Why are you asking me for a referral? You have earned nothing.

Joe Fairless: Yeah, I like the approach that you’re talking about, for sure… And it certainly makes a lot of sense.

Jeffrey Gitomer: Yeah, and it’s not that difficult. I haven’t said anything to you that’s like “Well, explain that nuclear physics theory again?” No, dude; it’s giving value.

Let’s go back to the original thought of this. I have a relationship with the Napoleon Hill Foundation, and they came across Napoleon Hill’s first writings, and called me to see if I wanted to edit and annotate them. Now, why did they call me? And the answer is 15 years ago I met the guy who runs the foundation, and told him my story of Napoleon Hill when I read Think and Grow Rich ten times in one year, yadda-yadda, and it literally launched my attitude. And I said “Listen, does Napoleon Hill’s Foundation have an email magazine?” and he said no. I said “Well, look, let me do one for you on one condition.” The guy said “What’s that?” I said “That you never pay me a dime.” And it was like a stunner. Because people always will ask someone successful “I can make you a lot of money, all you have to do is give me some of yours.”

So I’ve been doing their email magazine for free for more than a decade, built a list of almost 100,000 people, and everything that goes with it. So when they came across this stuff, they figured “Oh wow, here’s something we can help repay Gitomer. That’s pretty cool.” And they did. And that’s where Truthful Living comes from. It’s the first writings of Napoleon Hill.

Joe Fairless: Nice. Is that out?

Jeffrey Gitomer: Yeah, it’s out now in the bookstores, you can get it on Amazon… It’s actually published by Amazon. You may not be able to find it in Barnes & Noble, because I think they hate each other, or something; I don’t know, something stupid.

Joe Fairless: Cool!

Jeffrey Gitomer: But go online, go on Amazon and look up Truthful Living by Napoleon Hill and me, and you’ll get it. And I didn’t change any of his words, I just annotated things for the 21st century, because these are the first writings of Napoleon Hill from 1917.

Joe Fairless: Yeah, they spoke differently.

Jeffrey Gitomer: Oh, my gosh… It’s [unintelligible [00:14:58].02] but it’s accurate. Just look at the table of contents. The first chapter is “Success is up to you.” The second chapter is “Finish what you start.” The third chapter is “How to think”, and there’s 23 different chapters in the book, all about how you can become successful by the way you dedicate yourself to the way you think, and the way you dedicate yourself to the way you work. Just that simple.

Most people do not have a foundational, fundamental education about how to succeed. You didn’t get it in school, did you? Algebra, and geography, and bullshit like that, which – it’s great, but only in Trivial Pursuit or Jeopardy… And all the way through college, same Trivial Pursuit/Jeopardy. And now you’re in the real world and you need to have a great attitude, and you need to have enthusiasm for what you sell, and belief and love in what you sell… And that’s what this book is all about – helping people understand how they can become a better person, both in their family and in their business. But it uses old words.

Let me give you an example of the old words. Do you know the new word mindset?

Joe Fairless: I do.

Jeffrey Gitomer: Okay. It came from the word “focus”. That was the second iteration. The first iteration is “concentration”. Hill wrote about concentration. And what it meant was “distraction-free concentration”. And in today’s world, distractions play this amazing role in your life, and my life, and everybody else’s life… Because you get a text, or you get a phone call, or you get a notification of some kind… I have a 10-year-old daughter, her phone dings more than it rings, but she likes to get those notifications. I’m trying to wean her off of them, but when you’re ten, you wanna know what happened on TikTok. Do you do TikTok?

Joe Fairless: I don’t.

Jeffrey Gitomer: Oh. It’s a…

Joe Fairless: I know what it is…

Jeffrey Gitomer: It used to be called Musical.ly. But it’s huge, they have a billion users. Unbelievable. Where did they come from? So the world is changing, and you and I and everyone who’s in our genre has to change with it or die. That’s why we call our podcast Sell or Die.

Joe Fairless: Got it. And the best way for the listeners to purchase the book – you already mentioned. What about learn more about what you’ve got going on?

Jeffrey Gitomer: Just go to Gitomer.com. Or actually go to SeeGitomer.com. That’ll take you to my virtual events that are taking place, and people can learn more about me by watching me work.

Joe Fairless: Well, Jeffrey, thanks for being on the show, talking about the value tactics, and giving a lot of specific examples for how to do it, which were very valuable themselves. Thanks for being on the show.

Jeffrey Gitomer: Joe, it’s  a pleasure.

Joe Fairless: I appreciate it. I hope you have a best ever weekend, and we’ll talk to you again soon.

Jeffrey Gitomer: Thank you.

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JF1834: From The Corporate World To Mobile Home Parks with Ryan Narus

Ryan had a job in the banking world, didn’t like it, looked for a way out, found his way out with real estate investing. We’ll hear how he was able to take the leap to being a full time investor, and how he closed his first deal. We’ll also hear how he has scaled his business to owning over 500 mobile home pads. If you enjoyed today’s episode remember to subscribe in iTunes and leave us a review!

 

Best Ever Tweet:

“We are obsessed with getting people on the phone” – Ryan Narus

 

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

Ryan Narus: Great, I’m honored to be here. Thanks for having me.

Joe Fairless: Well, I’m glad that you’re on the show, and looking forward to our conversation. A little bit about Ryan – he is a real estate investor and has been one for the past four years. He’s closed on 20 million dollars in mobile home parks. Currently owns eight parks and about 535 pads. Based in Charlotte, North Carolina. With that being said, Ryan, do you wanna give the Best Ever listeners a little bit more about your background and your current focus?

Ryan Narus: Absolutely. So I woke up one day with a corporate job, and realized I hated it, and realized I needed to find an escape because I was stuck. And I refused to take what the world gave me, so I picked up books, I read everything I could, I picked up the phone, I called anyone I could… I looked at about 100 or more different possible business to buy, because I realized I needed to be an owner. And it was Rich Dad, Poor Dad and 4-Hour Workweek…

Joe Fairless: What was your job?

Ryan Narus: I started off as a car salesman, because I graduated in ’09, which was the worst year ever to graduate, other than the great depression, for jobs. I was sold this idea of “Hey, go to college. You’ll get a good job, you work at a good company for a long, long time…” That might have been true for my parents, but that’s definitely not true for us millennials today… So I just refused to take what the world gave me, and I went out and I just for years met people, learned, tried to figure out who I was and what I wanted to be, and eventually I buddied up with a childhood friend,  Ian Tudor, and he turned me on to mobile home parks, and I said “Hey man, if it’s anything like the show Trailer Park Boys on Netflix, sign me up, because that show is hilarious.” And I found that it matched my skillset extraordinarily well.

Flash-forward – no money, no experience, no network, four years later I found my way into over eight deals, because we’ve sold out of a few… I hope that your listener base  hears my story and goes “You know what – why am I making excuses? If this guy can do it, I can do it.”

Joe Fairless: Well, let’s dig in there… So I had asked “What was your corporate job?” and you said you started out as a car salesman, but what was that last job that you were hating? That’s what I was wondering.

Ryan Narus: Banking.

Joe Fairless: Banking. So what were you doing exactly?

Ryan Narus: I was in THE leadership program… [laughs] Which turned out to just be a lot of hype and not a lot of substance, and it was probably everything that you would guess. “Hey, come on in. You’ve got an MBA… This is  a big bank. We want you to be a future leader”, and then you get there and you’re ignored, and you find you’re doing copying and pasting more than actually providing a ton of value; and then you go and you do something no one else has done, and provide a bunch of value, and you get a pat on the back and that’s it. And then it’s “What have you done for me lately?”

I’ll put it to you this way – a friend of mine, my best friend just started a business, and he was a former banker as well. We were having lunch the other day and I told him “At your bank, in the next five or ten years, were you in any danger of basically having your job removed and being  able to walk away with a couple million bucks?” Because that’s his exit. He wants to in 5-10 years sell his company for a couple million bucks and ride off into the sunset, maybe start another business, maybe do something else…

And we both were laughing because we were like, there’s literally no way that a bank would ever be like “Oh, you’ve done such a great job scaling this, that and the other thing. Here’s a couple million bucks. Go retire, go do something else that you wanna do.” The United States of America is about the ability to go and start your own business and chase wealth, and I’m just so glad I did that.

Joe Fairless: When you were in banking, noted on being in the leadership program, but that isn’t what it was cracked up to be, or at least positioned to you… But what were you doing? You weren’t a teller, it doesn’t sound like. What was your role within banking?

Ryan Narus: I was in operations. Anytime something like a credit default swap trades, I was the guy behind the scenes, making sure the trade is made properly.

Joe Fairless: Got it. Sounds riveting.

Ryan Narus: [laughs] That’s why I’m gently trying to steer the conversation away from —

Joe Fairless: No, I get it, I get it, but it’s important to know where you came from and what types of skillsets you were using then, and what you’re using now. Okay, so that was four years ago… So I’m decent at math, I can subtract; that was around 2015, correct?

Ryan Narus: Correct.

Joe Fairless: Okay, around 2015 you had your corporate job in THE leadership program for a bank, and you were in operations… Then what?

Ryan Narus: I’ll unwind this… [unintelligible [00:07:03].13] wanted to be a salesman. Went and sold cars for four years, loved it, until I didn’t anymore… Because I realized — I sprained my ankle once playing basketball, showed up the next day in crutches, trying to sell cars, because I realized I wasn’t getting paid sitting at home with ice on it.

Joe Fairless: That’s gotta help you sell cars, when you’re out there in crutches…

Ryan Narus: Believe it or not, it got a lot of attention.

Joe Fairless: Of course.

Ryan Narus: I can’t remember… It’d be funny if I sold a car that day, but I don’t think I did. I don’t remember… But I just remember that day; I don’t wanna get a promotion to the finance office, because that sounds miserable. And then the sales desk sounds miserable, and then 20 years goes by, I’m a general manager, and the best advice my general manager had for me was “Go start your own business. You know why?  Because I never see my kids!”

So then I went and got my MBA, because I figured “Alright, maybe my MBA will show me what business I wanna start, and give me that toolkit to go start a business”, and it did, because in 2015 I met back up with Ian Tudor during my internship between my first year and second year of MBA, and then my second half of my MBA I spent starting the mobile home park business, and then I was a year in banking, working on my mobile home park business while working full-time, and then I quit to go full-time in mobile home parks in June of 2017. So as of today, we’re almost two years into it full-time.

Joe Fairless: What was the first deal you did, mobile home park, and what was your role in that deal?

Ryan Narus: Our first deal was an 89-lot park, 1.525 mil acquisition. We wanted to use that as a training wheels deal. So we grabbed that deal and we went out to try to get debt financing, and we reached out to 40 banks, and I am proud, Joe, to tell you that I got 40 no’s. Every single bank rejected me. And here’s the sad part about it – that deal has been an absolute home run in terms of debt  coverage ratios and anything a bank would be looking at… And we still just got nothing but rejections, which… I think it’s important for folks listening in that have never started a business before – you can’t let no stop you. Because eventually what we did is we brought in some investors who were outstanding, and we decided we wanted to be a fly on the wall, and learn.

So our first deal was more about “Okay, how can we monetize this and how can we educate ourselves?” And our second deal was really our first deal, because that was our first deal without training wheels, if that makes sense.

Joe Fairless: You mentioned the person’s name… Who is “we”?

Ryan Narus: Ian Tudor is my business partner, and I have not asked my investors if I have permission to talk about them, so I’d prefer to leave them out.

Joe Fairless: Yeah, I would have never asked for your investors’ names, but your business partner is Ian Tudor – okay. How did you meet Ian?

Ryan Narus: Believe it or not, we grew up in the same neighborhood, and if you asked him, he would say he absolutely hated me growing up. [laughs] But we kept in touch, and we bumped up when I was doing my MBA internship in Miami, and he was in Orlando. We hung out a bunch of times, discovered we’d be great business partners, and four years later talking almost every single day. We’ve grown a business, and were able to quit corporate America, and have done pretty cool things that we probably had no business doing, just because we refused to stop when we were told no.

Joe Fairless: On that first deal, what did he bring to the deal in terms of value, and what did you bring to the deal in terms of value?

Ryan Narus: Sure. Ian is an underwriter, so that’s what his background is in. And he found a new up-and-comer broker, who was weak in underwriting. So what she was doing was funneling him off market deals, so he could help her underwrite, and also teach her. So he provided value to this broker, and she provided value to us. Because what ended up happening there was we got a look at a great deal before it ever went to market. So that’s where he brought the value to that first deal.

Where I brought value to the first deal was my networking, because eventually we ended up finding the right bank, and we ended up finding the right investors… But I don’t think it’s fair to necessarily put that in those buckets, because we were both wearing many hats during that process… But if I was to just say “Boom, this is what Ian did. Boom, this is what I did”, that’s probably — with a little blurry in the lines, that’s probably how I’d put it.

Joe Fairless: Of course. Even after many deals, the lines are still blurred on, and responsibilities.

Ryan Narus: Yes.

Joe Fairless: But that’s helpful to categorize them, at least for this conversation’s purpose. The up-and-coming broker that Ian met – how did he meet her?

Ryan Narus: Straight networking. Ian and I are obsessed with getting people on the phone. It doesn’t matter if you’ve never bought real estate before, or if you own billions of dollars of real estate – we wanna get you on the phone. I’ve gotta say, Joe, that most of the times when I reach out to someone, especially when I started, they were not interested in taking my call… So I’ve gotta say, of the 100 people that both of us reached out to, probably less than half actually took our call, and she was one of them. Probably because she too was just starting out.

Joe Fairless: And do you remember how Ian found her, to initially reach out?

Ryan Narus: Man, that was four years ago… That’s tough. But I will put it to you this way – we hit any avenue we can. We ask people “Hey, do you think there’s anyone that would be cool for you to introduce us to, and vice-versa?” We do LinkedIn, we do Facebook, we look people up online… There’s so many avenues. Any stone that we can unturn, we try to unturn. So that would be a great question for Ian, but those two just hit it off. They’re still buds to this day, really close friends. You’ve just gotta turn up the rocks and see what’s under them.

Joe Fairless: And was there a particular focus on mobile home parks at the time, so that’s the type of people you were connecting with? Or is it just more general?

Ryan Narus: Absolutely. The primary goal at that time – and really still – is anyone who has any interest in mobile home parks, I wanna talk to you. Whether you bought them or not, you own them or you don’t, I would love to get on the phone with you. That was our focus at the time, and we really decided mobile home parks fit our skillsets extraordinarily well; this was going to be it.

We’ve looked at marinas, we’ve looked at RV’s, but we keep coming back to our skillsets are set for mobile home parks, so it’s almost exclusively been mobile home parks.

Joe Fairless: Okay. And how do your skillsets fit mobile home parks?

Ryan Narus: Straight car dealership. When I graduated in 2009, undergrad with a degree in psychology and a big dream of being a salesperson, business-to-business, and no one was hiring… And I went “Alright, well I guess I’ve gotta settle with car sales”, it taught me everything I needed. It was probably the best job I could have ever not realized that I needed to have… Because it was rejection every day you show up.

So it’s learning how to get basically punched in the face, and then when that next customer walks through the door, if you’re not smiling, you may cost yourself a sale, so you have to learn how to pick up your own emotions rather quickly… Because that next person walking through the door – it’s not fair to them that your boss just yelled at you, or you just blew a sale because X, Y or Z, or someone was calling you a scummy car salesman, even though they’ve never met you before. That plus persuasion, overcoming objections, negotiating, organization, learning how to use business analytics, statistics – all of that was perfect for mobile home parks, because it is a lot of learning how to deal with confrontational situations, be it [unintelligible [00:14:44].09]  yourself and your business… Because people don’t just flock to you. You have to put yourself out there to get them to come to you, and have to have word of mouth.

So it’s a lot of sales, it’s a lot of marketing, it’s a lot of organization, it’s a lot of things you would not expect you need if you just listen to the hype stories about mobile home parks, which are “Wow, it’s a great investment. They’re ten-caps everywhere. Buy it from mom and pops, and you set it and forget it.” It’s quite the opposite. And mom and pops in and of itself are a sale; you have to convince them that you are not like everyone else who’s calling them… So I’ve gotta say selling cars was probably one of the best things for me in terms of enjoyment, yet it fits this industry like a glove.

Joe Fairless: How do you differentiate yourself when you’re having those conversations, to position yourself not like everybody else who’s calling them?

Ryan Narus: With the mom and pops? Well, one big thing is I speak Spanish, I’m on my properties, I do not have a fund, I do not have pressure to acquire. I go for the long game. I like to show up at folks’ houses – obviously, if I’m invited – and shake their hand.

Joe Fairless: I have a feeling you’d show up even if you weren’t invited.

Ryan Narus: True story, I have done that before. I showed up at a woman’s house and we ended up watching Wheel of Fortune, and we had such a great conversation. It pulled over into The Price is Right, so we ended up spending a couple hours. And I’ve got a baby boy on the way, and she texts me every now and then and asks me how my wife is doing with the pregnancy, so… Look, you have to be different, and the way that I want to be different and I have been successful being different is I’m doing things no one else wants to do.

Who wants to go and knock on someone’s front door? Who wants to pick up the phone every morning and get yelled at and hung up on? Who wants to do anything other than call someone and say “Will you sell me a property right now? No? Okay.” Hang up.

I constantly am looking to put myself in situations that differentiate myself, and one big thing I’m not afraid of is being embarrassed. If you ask my wife, she hates it. She’s like “You’ll literally walk the dog in dress shoes, dress socks, athletic shorts and a tank, because you just don’t care what people think about you, but I care what people think about you… And it’s weird, dude.”

Joe Fairless: You’re doing mobile homes… Why are you knocking on front doors?

Ryan Narus: No one else is doing it.

Joe Fairless: Whose front door are you knocking on?

Ryan Narus: Sellers. Potential sellers.

Joe Fairless: Sellers. So their residence, where they live, you’re knocking on their front door, or…? Help me understand the situation.

Ryan Narus: Absolutely. I’ll give you a good for-example. There was an elderly woman who we called a bunch of times, had wonderful conversations with, but every now and then she’d just disappear for 30 days… And one time she kind of casually was like “Oh yeah, sure, come on over.” And long story short, she set up a time for us to go over, and we went over and she was in the hospital. We met her whole family, and long story short, we ended up knocking on her door several weeks later when we figured that she was probably back… And yeah, literally we showed up at her residence.

Now, it wasn’t completely cold, out of the blue, “Who are you? Go away. This is trespassing.” This was more of a warm knock on her front door… But we have done that several times. I’ve also done the cold knock on the front door as well. I’ve showed up to mobile home parks and just walked into the office… But all of the above because what’s happening in our industry now is you have wholesalers coming in with Boiler Room types of telemarketers, just trying to find the low hanging fruit. You have tons of brokers and you have tons of folks sending mailers, and the competition has just exploded.

I do anything in my power to be different, because otherwise I’m no different than anybody else who’s calling and sending mailers, and doing all that stuff.

Joe Fairless: Has walking into the office cold resulted in a completed transaction for you?

Ryan Narus: It has not. We are getting very close with one, but I will say that one that we did close here in Gastonia, North Carolina, right outside of Charlotte – it wasn’t knocking on her front door; we showed up at the property with an LOI, and a contract, after months of talking with them. And the reason why we showed up is because the seller said “You know what – we like you guys, we wanna do business with you guys, it sounds like the price is right, but we just wanna wait until January 2019 for tax reasons.” I remember Ian did this, and I’ve gotta give him all the praise in the world for doing this, because he walked me through the objections that the seller threw out, and I said “Show up at the property when we know she’s there and we’re at least somewhat warmly invited.”

Joe Fairless: Yup.

Ryan Narus: So in other words, “Hey, Ms. or Mr. Owner, are you around then?” “Yeah, we’re in our home right now.” “Great, do you mind if I stop by?” “Yeah, sure.” So he shows up with the contract and the LOI, and I told Ian, “This is what we did in car sales, this is what you’re gonna do when you get there. You show up, you give them the pitch…” You say “Hey look, it takes 60-90 days to close, period.” Because it was August. “Why don’t we go ahead and sign this contract, just in case the economy takes a dip. We know the price, the economy takes a dip, this price is locked in; we will do literally everything we have to do with the bank, and the appraisals, and the surveys, and everything, so that way on January 1st, 2019, all you have to do is sign it and it’s done.” And then just sit there and don’t leave. [laughter]

It took over an hour… This is a hysterical story, because he showed up, he walked them through it, same objection, and then he said “Well, why don’t we go through the contract?” and she said “We’ll just leave it here.” He said “Okay.” And he left it there, and he just sat there. Created an awkward silence. Didn’t say anything, which was by design… And that awkward silence unearthed another objection, and then–

Joe Fairless: What was that?

Ryan Narus: It was just that “Well, I’ve gotta go through the  contract.”

Joe Fairless: Which is legit.

Ryan Narus: Legit, right. But it’s also a dodge, too. Because “Oh yeah, leave it here”, and then you leave, and then they got you out of there. So then it was “Great, I’ll wait right here while you go through it.” Well, I’ve gotta finish this sub-floor job.” “Okay, I will wait in my car then.” Then he went out and waited in his car.

Joe Fairless: I’m surprised he didn’t offer to help with the sub-floor job.

Ryan Narus: I hate to say it, but neither of us are very good handy folks, so…

Joe Fairless: Still… He could do something. Move some materials around, or play some Spotify, play their favorite playlist, at least from your phone, while they work…

Ryan Narus: That’s actually a great idea. I might try to offer that. Like “Hey, you’re doing some tiling work. You definitely need an extra hand here. Let me help out.” But here’s my favorite part of the story – he went out and he sat in his 2006 Honda CRV, with very limited, questionable air conditioning, in the hot North Carolina sun, in the middle of August… And waited for her to walk back out, which she did. And then he sat in his car, with the window rolled down, for what he described to be forever, and they went through every single line of that contract, and he left with a signed contract that day.

So when I say my skillset — and our skillset really, Ian’s too, because he doesn’t have sales experience, but he is a natural salesperson… It fits like a glove, and that’s just the only way you can compete when it is a hot market right now. Because it is a seller’s market right now.

Joe Fairless: Thinking about one other mobile home park that you’ve closed on, what’s one other way that you found the deal?

Ryan Narus: Networking has been phenomenal. I’ll give you a good for-example. If an outfit is selling their way up; in other words, they maybe built a giant portfolio on two and three-star, and now they’re selling while the market is good up to four-star properties, a lot of times you can snag something off market, because someone knows you can perform… Eight mobile home parks, 20 million dollars, plus you’ve heard of me, and we’ve talked several times, and maybe we’ve had a beer, maybe we’ve had a lunch, maybe we joke about the NBA together… I’ve had several looks at several properties, a lot of which I’ve passed on, but several which we’ve closed, from bigger name folks, who were like “Look, I don’t wanna put this to market, because I don’t wanna see a bunch of knuckleheads who’ve never bought stuff before. I’d rather just sell it at a fair price, get it off my books. This is less than 10% of my company’s overall revenue, it’s a liability to me at this stage. You guys are growing, you’re comfortable with two and three-star assets – here’s a fair price.” Boom. That’s one way to do it.

Then another off market way — obviously, networking is huge, and then also I know a ton of folks through my podcast who anytime I see a deal, I pitch it off to them, and I’m happy to do that, so… Literally not even an hour ago a broker brought me a deal off market, that I had already looked at, and I immediately connected her with someone else. So there’s plenty of folks within my network  who have reached out to me, who I am happy to pitch something off to you. So networking is huge.

If you’re listening in right now, reach out to me, reach out to folks like Joe, because you never know. If you’re like “Hey, I’m looking for something in Greensboro, North Carolina, about this many units”, if you’re in the back of our minds and we have good deal flow, we see a lot of deals, we’ll think of you. And if you’re like me and you like helping other people out, you get something off market from a broker; you make a cold call and the deal doesn’t make sense for you – we’ll call you. And that comes right back to me, I’ve done several deals just like that.

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

Ryan Narus: Bet big on yourself. I don’t know if you’ve ever watched the Austin Powers series – they’re totally silly movies, with Mike Myers in it, but there’s–

Joe Fairless: I’m not a fan, but I know it.

Ryan Narus: [laughs]

Joe Fairless: I hate those movies, but go ahead… [laughs]

Ryan Narus: I don’t blame you… There is one line which I was sitting down with a single-family home flipper, just as “Here, let me help you out, man” kind of thing, because I don’t do single-family home flips… But it was one of the best meetings I have ever had, with a newbie home flipper, not interested in mobile home parks, I’m not interested in his – we sat down and he hit me with a line from Austin Power, from the fat, bad guy who says “I’m unhappy because I eat, and I eat because I am unhappy.” And he hit me with the real estate equivalent of that line, which is “I can’t go full-time, because I don’t have deals, and I don’t have deals because I’m not full-time.”

And when I pressed him on that, I said “What’s stopping you from quitting your job, going and living in one of your flips to cut expenses…? What is the one thing holding you back right now from increasing your deal flow?” And he’s like “Man, if I could just go full-time…” and I was like “Can you get a job, in 12 months?” If you just said “In 12 months, if I can’t make my business happen by giving it full-time effort…” and he looked so uncomfortable, Joe; he was so uncomfortable, but he was like “You know what, you’re right.” And I’m proud to say that he’s not gonna just quit his job tomorrow; he’s gonna take the next 3-6 months to plan for it, but he is gonna do it. He’s gonna bet big on himself. Obviously, plan because he’s got kids etc, but it’s gonna take some prep, because it took me a lot of prep too, to go full-time; even without kids it took me a lot of time to prep.

So don’t just blindly jump into it. But here’s the thing – if the one thing stopping you is deal flow, and you are confident you can get that deal flow if you devoted your full-time to it, what are you gonna say when you’re 80 years old, looking back on this, when you’re in your early thirties or twenties, or even in your forties or fifties? What are you gonna say? Are you gonna say “Boy, I’m glad I stuck with the job that I hated?” or are you gonna say “When I was a young lad, I had the courage to bet big on myself. And if it fails, even though it failed, I learned so much and I’m glad I took a chance on myself.”

Because if that’s the worst you’re gonna say when you’re 80… The flip of that is “Boy, I quit corporate America, I literally work from my couch now, and I get to do what I want, when I want, and I live my career dream.” If that’s the upside there, why wouldn’t you bet big on yourself? So that’s probably bar none my best advice to anyone looking to break into the industry.

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

Ryan Narus: Let’s do it!

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

Break: [00:27:25].14] to [00:28:14].22]

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

Ryan Narus: Oh man, that is just so tough, because there’s so many I wanna talk about… Probably Chris Voss, and I’m gonna forget the name of–

Joe Fairless: Never Split the Difference.

Ryan Narus: Never Split the Difference, bar none best negotiation book I’ve ever read.

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

Ryan Narus: Not checking the water bills.

Joe Fairless: Best ever deal you’ve done? Which one?

Ryan Narus: Probably a countryside mobile home park, because it was a huge win for the residents, huge win for us, huge win for the investors. Everybody won.

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

Ryan Narus: My time. Call me, email me. It doesn’t matter what type of real estate you’re getting in, I want to help you and I want to talk to you.

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

Ryan Narus: Ryan Narus, just literally google me, shoot me a line. All my contact information is there, my podcast is there, all  my YouTube videos are there. I have nothing to sell, I have everything to give, give, give.

Joe Fairless: Ryan, I enjoyed our conversation thoroughly. I love your never-quit, very resourceful, gonna-make-things-happen approach, a do-whatever-it-takes type of attitude, and I loved hearing the story about Ian and the sale that took place in August, when perhaps it for most people would have taken place in January or not at all taken place without that perseverance.

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

Ryan Narus: I loved it, Joe. Thank you so much for having me.

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JF1803: Selling $40 Million In Real Estate Before 25 Years Old with Chris Salerno

Chris got his real estate start as a real estate agent, he gained traction quickly and led his team to being the #1 team for residential sales in the Carolinas. Theo will ask about how he was able to do that, and then they’ll talk about his newest venture into multifamily real estate. If you enjoyed today’s episode remember to subscribe in iTunes and leave us a review!

 

Best Ever Tweet:

“For people trying to get into multifamily syndication, give people details on what you’re doing” – Chris Salerno

 

Chris Salerno Real Estate Background:

  • By 25 years he sold more than $40M in real estate volume and helped lead the #1 real estate team in the Carolinas
  • Named to Charlotte’s 30 under 30
  • Leads QC Capital as a well respected, high-return investment firm
  • Based in Charlotte, NC
  • Say hi to him at https://qccapitalgroup.com/
  • Best Ever Book: Best Ever Apartment Syndication Book

 


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TRANSCRIPTION

Theo Hicks: Hi, Best Ever listeners. Welcome to the best real estate investing advice ever show. I am your host today, Theo Hicks, and today we are speaking with Chris Salerno. Chris, how are you doing today?

Chris Salerno: Hello! I am doing phenomenal. How are you, Theo?

Theo Hicks: I am doing fantastic, I’m looking forward to our conversation. I actually know Chris, so it’s our first time actually meeting virtually face-to-face. I’m looking forward to learning a little bit more about you and your business.

Chris’ background – by 25 years old he had sold more than 40 million dollars in real estate volume, and helped lead the #1 real estate team in the Carolinas. He was named to Charlotte’s 30 under 30. He leads QC Capital, which is a  well-respected, high-return investment firm. He’s based out of Charlotte, Carolina, and you can say hi to him at QCCapitalGroup.com.

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

Chris Salerno: Yeah, definitely. Thank you, Theo, for the introduction. Best Ever listeners, I’m excited to be on here… I started listening to the podcast about two years ago to gain my knowledge and education throughout the real estate industry.

I’ve been living in Charlotte, North Carolina for 13 years, and this is where my family is. Within those 13 years I focused heavily on real estate, and I got into the residential side of selling real estate here locally, and very quickly gained a success track record.

From that success track record in residential real estate I landed myself in the position of leading the number one team here in the Carolinas for residential real estate, and made  them 46% profitable in one year, compared to their three years of just being stagnant.

With the education of learning that, I just fell in love with multifamily, especially value-added, B and C class assets… Because I feel when acquiring those type of assets – they’re basically a failing business, or they’re not extremely profitable as they could be… So I find it very exciting to go in there and make them extremely profitable for our investors. So that’s how I got into the multifamily industry,  and I love it ever since.

Theo Hicks: That’s an interesting way to look at it, that you’re basically taking over failing businesses and turning them. [unintelligible [00:04:16].01] TV shows where they go into failing businesses and flipping them around. I can’t remember what it’s called, but I’ve got the picture of the guy’s face…

Chris Salerno: Yeah.

Theo Hicks: So before we dive into the multifamily, let’s talk about your time as an agent, leading a team. What were some challenges that you faced? Obviously, you were a young guy, you came into this industry… Obviously, you were very successful at it, but being a manager is tough.

Chris Salerno: Very much so.

Theo Hicks: Anyone who wants to grow a massive business at some point is gonna bring on team members. Maybe talk a little bit about some challenges, maybe talk a little bit about some tricks you learned, about hiring people, and anything surrounding being a manager and building a team.

Chris Salerno: Great question. My big thing was I enjoy studying businesses, and not just successful businesses, but failing businesses too, because you can learn a lot from studying a failing business.

Before I even got into that role, I just would study different types of businesses, like Sears for example. I studied Toys R Us. I just studied them and why they failed and why they didn’t succeed. So when I went into that role, I found a lot of holes… We call it the T-12, but I’m still used to calling it the P&L. I found a lot of holes in the P&L that needed to be filled to make sure we are tracking the leads better, to make sure that the money that is being spent on advertisement and marketing is being spent properly, and we’re not just dumping money anywhere.

So I really honed in on the P&L and the structure of that to get a good grasp of it, to make sure that we are cutting down our expenses and then making sure that the agents who are on the team, their sales role — every agent that joined the team I trained in selling; sell themselves, and how to sell a product.

So I’d made sure that they were selling themselves at a very high level, to make sure that the homes would sell. That was definitely a big difference, that I had a role into making sure each agent was trained properly and selling at a very high level, and then also overlooking to make sure expenses were lower.

Theo Hicks: When you did this deep-dive in the P&L, were you at this point already the manager, or is this something you did when you were just an agent, and then by doing this they’re were like “Geez, this guy is legit”, and then because of that you became a manager?

Chris Salerno: Yes, this was just me as an agent. I would go in there and all the other agents didn’t care about running a business or operating a business, but my long-term goal was owning a billion-dollar business and running it… So I would always walk into the boss’ office and ask him “Hey, can I see your P&L?” At first he was extremely hesitant, but then he just felt that I just wanted to gain the education that comes behind studying a P&L and understanding how money flows in a big business, that is an over 100 million dollar revenue business.

Theo Hicks: That’s what I thought. But that’s definitely a great way to get educated, but also to position yourself as a leader, and someone who’s serious about the business. A lot of people – your typical W-2 job; you kind of go in there, you do what you’re told, and that’s it… Whereas you went above and beyond, you looked at the business and you wanted to actually improve the overall business, for the business itself, but also for yourself, to learn and to grow as well. I think that’s awesome.

So because of that – you think that’s one of the reasons why you were eventually able to lead… Was it this same team, or was it a different team that you led?

Chris Salerno: No, that was the same team that I led. I was their top sales person leading that team and training each agent that joined the team. So that was the team that I led, and then going in, making that transition to multifamily – I then cut selling residential real estate off in full, so I do not sell residential real estate, and I’m full-time into multifamily syndication.

Theo Hicks: Was it your plan to start off by selling residential, and then transition into multifamily, the entire time?

Chris Salerno: It was my plan to make that slow transition, but a big thing that I preach to a lot is that when my back is against the wall, I end up doing things that I would normally not do, to gain business or to gain the knowledge. And I think that’s all of us as humans – when our back’s up against the wall, we would end up doing something that we’re normally not comfortable in doing. So when I figured that out, I spoke with my coach and I told my coach “Hey, in six months I’m done selling real estate.” Then I called him in a month and I said “I’m done selling real estate.”

I made that transition right away, and I took that risk. It is a big risk, jumping straight into it… But I will not fail, and that’s the only thing I have going – I will make sure I succeed in it.

Theo Hicks: What was — not necessarily the biggest challenge making that jump, but after you made that jump, what was the biggest challenge you faced to complete that first deal? What was the hardest part about completing that first deal?

Chris Salerno: Really gaining the knowledge. I think I’m always gaining knowledge, and I will always be gaining knowledge, and especially in this business. That’s one reason why I love it – it’s always different, it’s always transforming. It’s not the same thing over and over.

When I first made that transition into multifamily syndication, like I did when I first got into that company’s role by giving up my own time to gain the knowledge – I did that in the syndication world here; I met with Dan Hanford, who only lives an hour and a half away from me, and I told him “If you come to Charlotte, anything you do in Charlotte, let me know. I wanna shadow you, I wanna gain as much knowledge as possible.”

They acquired a property out in Greenville, South Carolina, and I drove out there 2-3 times a week when I first got into the multifamily syndication business – it’s about two hours from Charlotte, North Carolina – just to shadow Brandon Abbott, Danny Randazzo and Dan Hanford, to just soak up as much knowledge as possible to help myself close that first deal.

Theo Hicks: So that deal that Dan Hanford did – is that your first deal, or is this what you did before you did your first deal?

Chris Salerno: That’s what I did before I did my first deal. It actually closes tomorrow.

Theo Hicks: Oh, congratulations.

Chris Salerno: Thank you, I appreciate it.

Theo Hicks: You’re basically there. So how long were you doing this gaining knowledge period? How long were you shadowing other successful investors before you started the process of starting your own syndication business?

Chris Salerno: Great question. It was about two to two-and-a-half months. But I’ll never stop that. Any chance I get to just learn from someone where I want to be and where I want the company to be – I’ll always shadow them, I’ll always ask questions, just to gain the knowledge… Because to me, that better helps the investors that invest in our deals.

Theo Hicks: Let’s talk about this first deal… So you gained that knowledge from the other successful syndicators; what were the steps you took from “Okay, I’ve got the knowledge, I’m ready to go” to “Alright, I got this first deal under contract”? What is some of the upfront work that people who want to do what you are doing need to do before they actually sign on the dotted line and put their first deal under contract?

Chris Salerno: Great question. It’s very nerve-wracking, too. I started the same way Joe Fairless started; I actually started with no money down. I have a very strong client that I have with QC Capital, who trusts me very much, that actually lent me 220k to put down as hard money for this particular property.

So once I found that I had someone who trusted me and trusted my business and my real estate education here in the Charlotte area, once I had that, then I had that footstep to go ahead and put that down for a non-refundable deposit on this particular property.

Once I finished with the PSA and all the negotiations in regards to that – and I definitely feel from my residential background side it’s definitely helped me with the negotiation and understanding the contracts to a point here… That right there has definitely helped in making that transition to getting my first deal under contract.

Theo Hicks: Alright. How did you meet this person? Was it one of your clients you met through residential selling?

Chris Salerno: Great question. He’s one of my clients for residential selling. A very high net worth individual here in Charlotte, North Carolina, with a big public company, and it took me eight months — I was all about cold calling when I sold residential real estate, and scripting. I taught people around the United States and I coached people around the United States in selling real estate, so it took me eight months to get him on the phone. But I finally got him on the phone, and when I did get him on the phone, he bought four houses from me.

Then when I was making that transition into multifamily, he called me up and he said “Chris, I wanna buy some more single-family or condo rentals.” I said “Well, let’s sit down and talk a little bit.” He always does a business deal over brewery here in Charlotte, so we went to a brewery… And I spoke to him, I said “This is what I’m doing now in multifamily. Your returns are higher, you have higher tax benefits, and you don’t have to manage the property, you don’t have to worry about the tenants.”

Once I showed him the returns on some of these deals, he invested in myself, and I raised capital for another deal… Once he saw that, then he said “Okay, this is where I want to park my money, for the tax benefits and for the returns.” So that’s when he trusted me to move forward with this particular deal. It was a very risky point, but we are closing tomorrow, so everything turns out good for it.

Theo Hicks: Is he investing in the deal as a passive investor, too?

Chris Salerno: Yeah, so he’s investing as a passive investor as well, and he’s also investing in other deals throughout the Carolinas, passively-investing.

Theo Hicks: What about your other investors? You mentioned that when you were presenting this particular business to this client, you mentioned that “Here are the returns I’ve gotten on some of the other deals I raised capital for…” So obviously, you have experience raising capital. What are some tips you have on how you were able to raise all that money without having necessarily done a deal before?

Chris Salerno: Yeah, it’s very difficult. I think the biggest thing is really network. If you see me on social media – I’m very active on social media in all the real estate groups that are on social media that I’m in. I’m extremely active on social media, and I try to stay in front of everybody, especially my network that I have. I’m always reaching out to them.

And I think a big thing for people who are trying to get into the multifamily syndication is not necessarily sell yourself or sell the deal, just give them the education on what you’re doing. Once they figure that out… And because this was my first deal, some did not want to invest, and they just said “We wanna see how you do your first one”, which is totally understandable… And I’m still staying in contact with them and keeping them updated through this process, just like if they would passive invest, so they feel comfortable with me.

So I’d say the big thing is just making sure you’re staying in contact, staying in front of them, and just giving them the education of the returns on multifamily real estate, not necessarily selling them on a deal.

Theo Hicks: What percentage of the total capital you’ve raised so far has come from your residential real estate network?

Chris Salerno: The percentage of the total capital came from (I would say) right now around 15% to 20%, and it’s growing. I had a couple of phone calls yesterday with some high net worth individuals here in Charlotte who actually found me on social media and we’re having lunch next week, in regards to me just being out there in front of people. But from my network I’d say about 15%-20% for this particular deal.

Theo Hicks: And the rest – where is that coming from?

Chris Salerno: The rest is coming from me networking. And with my KP and my sponsors as well, who are on the deal. I feel that with your first syndication — or I would say all the syndications, it’s always good to have multiple people on the KP and on the sponsor, because you’re having multiple people see the issue. If an issue arises or if anything comes up, you have multiple people seeing it, so it’s very helpful to have multiple people in that position.

Theo Hicks: Alright, Chris, besides all of the fantastic advice you’ve provided thus far, what is your best real estate investing advice ever?

Chris Salerno: Best real estate investing advice ever… I would say find someone that is at your goal or where you want to be in the future, and find a way to get with them and just soak up as much knowledge as possible. I’m willing to fly on a plane to meet with my coach, and just sit in the same room with him and soak up as much knowledge as possible.

So I would say find someone who’s where you wanna be and has already hit your goal or has the same goals as you with business, and just soak up as much knowledge as possible.

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

Chris Salerno: I am.

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

Break: [00:16:47].01] to [00:17:27].27]

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

Chris Salerno: I would say Joe Fairless’ book. I’m actually currently reading that right now, and that is just phenomenal. I’m gaining the education from it.

Theo Hicks: That’s the Best Ever Apartment Syndication Book. You can find that on Amazon, or BestEverBook.com.

If your business collapsed today, what would you do next?

Chris Salerno: I’m a big believer in never giving up, and focusing on your one thing. I would rebuild the business. I would rebuild it.

Theo Hicks: Besides your first deal or your last deal – and this could be syndication-related, or any properties you sold through your residential selling career – what is the best ever deal you’ve done?

Chris Salerno: Best ever deal I’ve done was actually a single-family rental. I bought it off market for 55k; I found a tenant to pay $1,100. I had to put 20% down; I got a conventional loan, and in six months I refinanced that deal. I got my 20% back, plus an additional 5% back, and it’s still renting for $1,100 and it’s cash-flowing around $550.

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

Chris Salerno: Worst deal I’ve done – I would have to say going from a flip, dealing with contractors and finding good work, and trusting contractors to say they’re gonna get the job done. So I’ve learned not to trust contractors saying that they’re gonna get the job done, and oversee their work.

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

Chris Salerno: Best ever place to reach me is at QCCapitalGroup.com, or Christ@QCCapitalGroup.com.

Theo Hicks: Alright, Chris, I really appreciate you coming on the show today. It was nice finally officially meeting you virtually. Lots of solid advice. Just to quickly summarize some of the main takeaways – I really like your perspective about looking at these B, C multifamily assets as failing businesses, that you go ahead and essentially turn around and make profitable, or more profitable again. I really like that.

You also talked about your experience as a residential agent, and how you’d go in there, go to your boss  and say “Let me see the P&L and the T-12”, and you’d take a look at that and you’d essentially figure out ways to increase the bottom line. And because of this, you were the leader of that team.

We talked about your transition to multifamily and how this was kind of your plan all along. You started off as an agent and eventually transitioned into multifamily, and how your plan was to quit after six months and you were able to do that after one month, which is always great to hear… And you mentioned what you did is you essentially found the people who were doing what you wanted to do and just met with them and shadowed them. It wasn’t just a virtual meeting or a back-and-forth; you literally went out there to a specific deal they were doing, multiple times a week, multiple hours’ worth of driving, and just watched and observed and asked questions to the syndicator. You mentioned Dan Hanford, Danny Randazzo, Brandon Abbott… You did this for about two and two-and-a-half months. Obviously, you’re continuing to do this, but once you did that, you made the transition into your own deal, which you’re closing on tomorrow; once this goes live, you’ll be well into that business plan.

You mentioned that, like all new things, it’s pretty nerve-wracking, and you were actually able to start with no money out of your own pocket. We talked about the client you had met through your residential agent career, and how because of your credibility and trust with that person, they actually lent you the non-refundable down payment for that property, which I’m sure was very helpful in securing that deal.

Chris Salerno: Very much so.

Theo Hicks: And then we talked about raising capital for your first deal, and it basically comes down to networking. Sometimes I really liked that you said is you’re not selling yourself, you’re not selling the deal, you’re just educating them on what you’ve got going on.

Something else that I think — I’d never heard this before, because most of the time when people raise money for deals, they send the deal out to their main database, and then whoever says they wanna invest, they make a new email and they’re only giving those people updates… Whereas you will also include people who said “Well, we wanna invest, but we wanna see how you do on your first deal.” So keeping them updated on what’s going on that deal I’m sure probably elicits that fear of missing out response.

Chris Salerno: Yeah, that too. It does tap into that. So then once we close, they’re like “Oh, I wish I got into it.”

Theo Hicks: Exactly. And then your best ever advice, which obviously you live, is find someone who is either at your goal, or is doing what you wanna do, and then find a way to meet with them and soak up as much knowledge as possible, even if that involves getting on a plane and meeting them in person.

Again, Chris, I really appreciate it. Great advice. Thanks for joining us today. Best Ever listeners, thanks for listening. Have a best ever day, and we’ll talk to you soon.

Chris Salerno: Thank you.

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Best Real Estate Investing Advice Ever Show Podcast

JF1190: Protect Yourself By Not Piercing Your Corporate Veil with Patrick Camuso

Patrick specializes in real estate taxes and tax planning/advice. He’ll give us multiple strategies that we can use to grow our wealth as real estate investors, and pay minimal taxes LEGALLY. We’ll learn a good amount about what the corporate veil is, why it’s important, what it means to “pierce the corporate veil”, and how to avoid doing that. If you enjoyed today’s episode remember to subscribe in iTunes and leave us a review!

 

Best Ever Tweet:

 

Patrick Camuso Background:

  • Founder of Camuso CPA PLLC, a  real estate business advising company
  • World class experience in investment management and real estate space and consulting for the world’s premier asset managers, real estate companies and retailers
  • Leverages advanced knowledge and experience in tax and accounting to serve his top clients

 


Made Possible Because of Our Best Ever Sponsors:

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TRANSCRIPTION

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

With us today, Patrick Camuso. How are you doing, Patrick?

Patrick Camuso: Hey, Joe. How are you doing? Thanks for having me on, I appreciate it.

Joe Fairless: My pleasure, nice to have you on the show. A little bit about Patrick – he is the founder of Camuso CPA PLLC, which is a real estate business advising company. He leverages advanced knowledge and experience in tax and accounting to serve his clients. He’s based in Charlotte, North Carolina, and you can check out his company’s website in the show notes, just by clicking that link. With that being said, Patrick, do you wanna give the Best Ever listeners a little bit more about your background and your current focus?

Patrick Camuso: Absolutely, Joe, and I do appreciate that introduction, as well. As you mentioned, I’m the owner of Camuso CPA. We’re a multiple service CPA firm located in Charlotte, North Carolina. We’re serving clients right now in about 12-13 different states. We’re heavily focused on the real estate industry, as you mentioned; about 80% of our clients are involved in the real estate industry at various levels.

Our wheelhouse is helping clients setting up their portfolios, as well as working with them on a year-round basis with tax minimization strategies.

Joe Fairless: Alright, well let’s talk about some of those tax minimization strategies… Let’s pretend we’re an investor who’s just starting out. What are some questions we will likely have for you and what are those answers?

Patrick Camuso: The first question that I would be looking to get a handle on if I’m consulting with a new investor is what their strategy is for investing. Really, the big determining factor for me is finding out whether or not their business is gonna be active or passive. If you find someone that’s fix and flipping properties, that’s usually gonna be treated as an active business. Someone who’s holding rental properties, we treat their properties as a passive business.

Joe Fairless: Okay, so number one – identifying if they’re active or passive.

Patrick Camuso: From that, it’s really gonna determine what the optimal entity structure is for that investor. Obviously, this is a scenario where we’re looking at someone just starting out; they’re not creating a multi-entity structure.

So if you’re dealing with a passive investor, they’re either gonna form a single-member LLC, or they’re gonna form a partnership to get flow-through treatment on the passive income. That’s gonna give them the most advantageous tax rate from that perspective.

For active investors, their income is going to be exposed to self-employment tax, so as opposed to going into a partnership or single-member LLC structure, what I recommend for investor in this regard is to form an S corporation, because when you form an S corporation, one of the biggest tax planning benefits to being in this structure is shielding a portion of the income that you make from self-employment tax.

Now, the caveat that I will give to investors in this regard is that if you do go into an S corporation structure, there are additional compliance costs to being in an S corporation, so these need to be considered in addition to the tax savings that would be associated with it.

Joe Fairless: Like what, for example?

Patrick Camuso: If you’re a single-member LLC, you’re basically only gonna have to file a personal tax return with a few additional schedules on it. If you go into an S corporation, you’re gonna have to file an additional tax return that’s more complex and more time-intensive than filing a personal tax return… Since you are determining a reasonable wage to pay yourself, it’s recommended to all my clients that you substantiate the ways that you’re paying yourself with a reasonable compensation study, which also will be an additional cost come tax time.

When you’re in an S corporation, there are additional tax planning benefits outside of minimizing the amount of income that’s exposed to self-employment tax… So you may wanna work with a CPA more closely in tax planning within the corporation. And finally, there is more of an administrative burden on having an S corporation as well, just because you have to be much more careful about not co-mingling funds when you’re moving money in and out of the corporation.

Joe Fairless: Okay. I imagine that might seem daunting to a beginning investor who is just getting set up, so what would be steps that they need to take in order to make this all happen, to get them set up properly?

Patrick Camuso: The thing with the S corporation structure with investors that are starting out in that regard – I did highlight that you wanna make sure that the tax planning benefits are gonna outweigh the costs of moving into this structure, so I usually recommend clients looking at electing S corporation once they’re at about 60k-70k gross revenue. At that point it makes sense for me to sit down and crunch their numbers and really determine it down to the penny if it is gonna make sense for them or not.

Any time you’re working with a CPA, they should be able to relay the actual benefits over the costs to you to moving into an S corporation structure. All too often I do see clients get moved into this structure too early, to where they can’t afford to administer it correctly, and that either leads to them getting burned financially, or just not handling the company correctly and then having further compliance issues down the road.

So firstly, I recommend electing S corporation status when it does make sense for a cost/benefit perspective, and then at that point I recommend working closely with a CPA, a firm like Camuso CPA, to handle all of your tax and accounting needs related to S corporations.

If you elect that within the threshold that I mentioned, all the costs will be outweighed substantially by the tax benefits that you would realize.

Joe Fairless: And if you have a single-member LLC, you can convert that into an S corp, right?

Patrick Camuso: Yes, and that’s a great point to touch on. When you form a single-member LLC, you have the first two-and-a-half months from when you formed the LLC to elect S corporation status. Additionally, you have the first 2.5 months of every calendar year to elect S corporation status, so within those timeframes you can file form 2553 and make the election.

Additionally, throughout the whole entire year you still can make the election. You have to make a retroactive election, which does potentially pose additional penalties and fees, but again, if your income throughout the year makes sense from a tax planning perspective, where the tax is gonna outweigh the cost, then we also recommend retroactive elections to clients.

So if I’m working with an investor who’s just starting out with fix and flips and they’re not gonna be able to readily anticipate where their income is gonna be at, I recommend that they start with a single member LLC, and check back with me in two months. Most likely, they’re not going still to be able to determine what their salary is gonna be for a year, which [unintelligible [00:07:56].17]

At that point, I recommend “Let’s do another check-in in six months, then ten months”, and we see where they’re at in terms of their income, and I’ll run projections on the benefits and the costs of doing a retroactive S corp election.

That to me is the best approach for setting clients up for tax minimization without moving them into an entity structure that’s gonna impose an additional compliance cost on them too early in the game.

Joe Fairless: I started out with an LLC, and then I converted it to an S corp, as I went further along, based on my accountant’s recommendation… So I’m listening to you and I’m shaking my head, “Yup, yup, that’s exactly what I’ve been told”, and that’s why I converted it from a single member LLC to an S-corp.

Patrick Camuso: Absolutely. The last thing that I would mention is that some investors are utilizing multiple strategies in the market. Maybe they’re doing fix and flip and they’re also doing buy and holds – then I do recommend holding those in two separate companies to minimize the liability and also not nix the various forms of income from a tax perspective as well.

Joe Fairless: Will you elaborate on buy and holds in a single-member LLC, and why we should do that?

Patrick Camuso: Sure. The reason that you want to structure them in a single-member LLC or partnership is just so you can get pass-through treatment, and it’ll just flow through onto your personal tax return, and you’ll only have to pay tax on the income, as opposed to self-employment tax. That’s the reason why if you are doing fix and flips and if you are doing buy and holds, I would recommend putting them in separate entities, so the income is co-mingled and all treated as active income, and it’s exposed to self-employment tax.

Joe Fairless: Okay. So if we’re a fix and flipper who is then taking some of the profits from every third or fourth fix and flip and buying a buy and hold, then we should have separate entities to own the property buy and hold, versus the fix and flip company.

Patrick Camuso: Absolutely. And to that point as well, whether you have one company or two companies and you do establish articles of incorporation, then you set up your different bank accounts onto your company’s EIN and you set up your operating agreements, what you’re doing is you’re establishing what’s called a corporate bail for your company, and you always wanna make sure that any income related to the specific that it’s coming from or any expenses that are coming out of that specific company stay in their specific bank accounts to maintain that corporate veil. Because when you are utilizing different strategies, it is imperative to maintain the separate companies, to maintain the separate companies, to maintain distinctions between the incomes.

Joe Fairless: You said corporate veil… Will you elaborate on what that is?

Patrick Camuso: It’s a legal term, and all that it really represents is a clear demarcation between you as a person and your company that you set up; it sets a clear line between the two. And you do that 1) by filing your articles of incorporation, 2) by drafting an operating agreement, and 3) by establishing separate bank accounts and credit cards and financial records for your company, and then making sure to not co-mingle funds, which means mixing personal and business accounts together.

Joe Fairless: Why is it important to not co-mingle the funds and mix personal and business together?

Patrick Camuso: If you’re owning a single-member LLC, it’s not gonna have as much of a negative impact as if you’re in an S corporation or if you’re operating multiple entities. When you’re owning a single-member LLC, the only purpose that being in an LLC is serving is liability protection. So if you do co-mingle funds and you do have an issue where you find yourself in court related to one of the properties that are in this company, you may face the potential of people being able to come after your personal assets, because you’ve eliminated the corporate veil of your company.

Now, once we get into an S corporation and setting a wage and distribution for yourself, we have to make sure that we maintain a corporate veil so your whole entire S corporation isn’t disqualified and then all of your income will be exposed to self-employment tax.

Joe Fairless: So it could be a double whammy.

Patrick Camuso: Yeah, when you’re in a single-member — it’s really just from the liability perspective, but once you get into an S corporation, then it does become an issue from a tax perspective as well.

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

Patrick Camuso: I’m sure that the best piece of advice is probably one of the most common, and that is to build a strong network around you and a team of advisors. At Camuso CPA we like to think of ourselves as the financial part of your real estate team, and that is an imperative piece. But in addition to that, building a strong team of both colleagues and peers, and just a network of real estate professionals is really what I see as the driving success factor for investors.

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

Patrick Camuso: Absolutely.

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

Break: [00:13:10].14] to [00:14:15].00]

Joe Fairless: Best ever tax planning book that you recommend?

Patrick Camuso: The Tax Planning Guide For Real Estate Investing is really one of the best that I recommend, and it’s a very general title. I would have to look up who the author is.

Joe Fairless: Okay, Tax Planning Guide For Real Estate Investors?

Patrick Camuso: Yes.

Joe Fairless: Okay. That’s not Tom Wheelwright, is it?

Patrick Camuso: That is the author. And the other one is The Logic Of Subchapter S. That would be for someone that’s more technically inclined and is really looking to learn the in and outs of subchapter S corporation taxation.

Joe Fairless: What the heck is a subchapter S?

Patrick Camuso: It’s like when you form an S corporation, that’s the tax code that you’re operating under… So reading that would give you more of an idea of the nuts and bolts of the company. But if you don’t wanna get into those types of details, you could always Camuso CPA as well.

Joe Fairless: Okay. And the book you were referencing, is it Tax-Free Wealth, by Tom Wheelwright?

Patrick Camuso: That’s it.

Joe Fairless: Okay, sweet. Yeah, that’s a great book. What’s the best ever story you have about helping a client lower their tax basis or lower the amount of taxes they pay?

Patrick Camuso: One interesting strategy that I’m able to employ on a  few different occasions with investors that people like is if you find a fat pattern of, say, a high W-2 earner that’s married to someone that doesn’t have a job, maybe they’re a stay-at-home parent, opening up some real estate investments in the stay-at-home parent’s name, and then qualifying them for the real estate profession status, which allows them to take in unlimited amount of losses against all of the income that they generate on their personal tax return. That’s something for investors that are looking to get the ball rolling and maybe are still working the job and supplementing an income for a family – that’s something that’s beneficial for them a lot of times.

Joe Fairless: Okay, I wanna make sure I understand this… If we’re making a high income and we have a spouse who is stay-at-home or just not making much or at all of an income, then buying an investment and putting it in the spouse’s name who’s not making much or any money, which will then qualify them as an active real estate investor, and then that helps with taxes?

Patrick Camuso: Yes. With the spouse, it’s better if they have no job, because you do have to qualify them as a real estate professional if your losses are going to exceed a certain threshold, which [unintelligible [00:16:46].10] $25,000. The scope of the real estate professional status is probably a whole other episode, which I’m always happy to do, but mainly there is an hours requirement, that you do have to meet a 750-hour requirement and it has to be your main activity, among a lot of other criteria.

Joe Fairless: Got it.

Patrick Camuso: But if you can qualify someone for that, they can count all of their losses against their income, so it’s a powerful strategy for someone that has a partner that can qualify for that and is filing [unintelligible [00:17:16].15]

Joe Fairless: Okay, great strategy. Thanks for sharing that. What’s the best ever way you like to give back?

Patrick Camuso: I like to white-water kayak, so I find myself helping to train some of the younger children that are at the center… More on an ad-hoc basis, but just being able to do something that I like and informally help out someone that is also inspired by the same things that I am.

Joe Fairless: Best ever way the Best Ever listeners can get in touch with you and learn more about your company?

Patrick Camuso: The best way to both learn more about my company and also to get in touch with me would be to go to CamusoCPA.com. If you go to the Contact page you’ll see all my contact information there, and if you go to the About Us page when you cruise our site, you’ll get a very good perspective on what our company is able to offer.

Joe Fairless: Patrick, we’ve been talking for about 25 minutes, you’re based in Charlotte, North Carolina, there’s no way you’re from Charlotte… You’re definitely from New York or somewhere in the North-East, correct?

Patrick Camuso: Yes, sir.

Joe Fairless: Where are you from? Jersey?

Patrick Camuso: I’m from the North-East, originally from North-Eastern Pennsylvania, up in the Poconos, which is a country setting. I went to school in Montclair State New Jersey, and before moving down to the Charlotte area I worked about five years in the New York City offices [unintelligible [00:18:41].03] accounting firms.

Joe Fairless: I know my accents… [laughs]

Patrick Camuso: I do stick out like a sore thumb with the accent…

Joe Fairless: Well, Patrick, I enjoyed our conversation… Thank you for talking through in detail multiple things. One, as a beginning investor, what entity should we choose; we talked about if we were doing buy and hold properties, then most likely LLC. If we’re doing fix and flip, most likely S corp, but we’ll need to look at the revenue that we’re generating – if it is 60k-70k gross revenue or above, then most likely it makes sense to do an S corp. Then the piercing the corporate veil and how not to do that, the things we need to keep in mind, as well as that last tip about a powerful strategy if you’re filing jointly and you have a spouse who does not have a job, so that he/she could become an active real estate person and get those benefits on properties that are purchased.

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

Patrick Camuso: Thank you very much.

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Best Real Estate Investing Advice Ever Show Podcast

JF1182: Answering Your Clients Questions Before They Ask Them with Nancy Braun

Nancy started a brokerage at a very strange time, in 2008 right before the market shifted. Luckily for her and her team, she had a great niche and system already in place, which made it easy to expand to a new niche when the shift occurred. Nancy says one of the most important things for her brokerage to stay successful is staying top of mind with her clients, even after their transaction is completed. When she is in the middle of a transaction with a client, Nancy and her team work to proactively answer any questions that might come up from the client. If you enjoyed today’s episode remember to subscribe in iTunes and leave us a review!

 

Best Ever Tweet:

 

Nancy Braun Real Estate Background:

  • Charlotte Real Estate Broker / Owner Showcase Realty & Showcase Property Management
  • Creative force behind Charlotte’s Showcase Realty and its several divisions.
  • Showcase Realty specializes in many different areas of real estate
  • Focusing on technology and delivering a new kind of real estate experience
  • Nationally recognized consistently ranking in the Top 1% America’s Best Agents category for sales and volume, by RealTrends
  • Based in Charlotte, North Carolina
  • Say hi to her at http://showcaserealty.net/
  • Best Ever Book: 10x by Grant Cardone

Made Possible Because of Our Best Ever Sponsors:

Fund That Flip provides short-term fix and flip loans to experienced investors. If you’re looking for a reliable funding partner, their online platform makes the entire process super easy, and they can get you funded in as few as 7 days.

They’ve also partnered with best-selling author, J Scott to provide Bestever listeners a free chapter from his new book on negotiating real estate. If you’d like to improve your bestever negotiating skills, visit www.fundthatflip.com/bestever to download your free negotiating guide today.


TRANSCRIPTION

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

With us today, Nancy Braun. Nancy, how are you doing?

Nancy Braun: Great! Excited to be on the show.

Joe Fairless: Nice to have you on the show. A little bit about Nancy… She is the owner – and I love this title: Broker In Charge at Showcase Realty. They’re headquartered in Charlotte, North Carolina, and they are not only a brokerage, but they do property management as well. Nancy, in particular, has been recognized and has consistently ranked in the top 1% of America’s Best Agents category for sales and volume by Real Trends. With that being said, Nancy, do you wanna give the Best Ever listeners a little bit more about your background and your current focus?

Nancy Braun: Sure. I started my career in retail management and then went off to law school, and then practiced corporate law. Then I lived my fantasy, which was being a chef-owner of a restaurant for five years. Then I got tired of cold – I was in upstate New York – and beelined for Charlotte, NC, 21 years ago, which was a great decision, great life, much easier on the body, nicer environment.

I moved down here and didn’t know what I wanted to do, and I was urged by my dad to take a real estate class. I took it, I didn’t really have much interest in real estate, didn’t know anything about it, but that career stuck; all my other careers kind of had a five-year turnaround, and this one I’ve been in 21 years.

I didn’t really know anything about real estate when I got here, but I joined a local brokerage and I became one of their top brokers, and 12 years later I opened Showcase Realty in 2008, right when the recession hit… And we’ve been growing ever since.

Joe Fairless: You opened it up at a very interesting time in 2008… Tell us about what that was like.

Nancy Braun: It was… I didn’t really see it coming, but we fortunately had a good niche with the REO foreclosure markets, so when I simultaneously opened the company, I really focused big time on growing the REO division. At that time, that’s how we grew, and we focused on marketing – that was my big thing, it was internet digital marketing, before a lot of the bigger brokerages even took a hold of that. We had a tremendous internet presence, and at the peak, I’ve closed 525 units one year, and the bulk of that was REO.

When the market shifted, we shifted before it shifted, knowing that the REO was gonna dwindle, and now we have — I think it’s reversed, it’s about 80% regular real estate transactions, and about 20% REO in that dynamic, where we kind of change with the times before the times change, so we’re not obsolete.

Joe Fairless: Do you anticipate another change coming, so you can change before the actual change occurs?

Nancy Braun: Yeah, I think it always happens. So we’re all just sort of [unintelligible [00:04:25].00] especially from an investor perspective, we’re all waiting for the market to shift, since the prices are so high and there’s so little on the market. So there is an expectation that there’s gonna be another challenging real estate market, and we’re positioned so we can grow that division back up again. Fortunately, my traditional real estate will stay strong, so with that I’m glad, because they kind of feed off of each other.

My REO listings and my shortsales and distressed listings drive a tremendous amount of leads and a lot of people are interested initially and trying to get a deal, so they contact us first. They may not buy a foreclosure or a shortsale, but we’ve got them hopefully as a client to buy the right house for them, or the right investment. So a lot of investors come to us because they know we have a strong foothold in the REO market. We have great relationships with all the banks and asset managers out there, so even when the market starts shifting, I think we’ll be in a good place.

Joe Fairless: From a management standpoint, how many units do you manage?

Nancy Braun: Well, we have a small showcase… I have a division that’s actually a company called Showcase Property Management, and we probably just manage at any one time about 50-70 properties. It’s not a large division, but it also makes it very personal, and we take a real personal approach to it

Joe Fairless: As the owner who’s overseeing all the different types of revenue streams coming in, how do you identify where to put your focus to help to increase the overall profitability of your company?

Nancy Braun: That’s great, I’ve been in the midst of that right now. I’ve been trying to recharge and re-energize the divisions that are bringing in better profit, rather than just more revenue. In our general brokerage, the average buyer and seller and investors really are the bulk of our profit drive, so I’m focusing a lot on just building up that segment of my company. The REO has become so that I can manage that pretty easily, but the profit is very low.

The banks have really shaved a commission split to us, and the tasking is very labor-intensive, so it’s not a profit segment of my division, it’s kind of like the loss leader in a grocery store; you need that cheap milk to pry them in there. So that’s what drives our investor focus – investors love us, because they see that we have a strong inventory of distressed assets… But I think that’s really good; you have to keep on looking at your business and your business model and seeing where you’re shoving a lot of money or time or energy in, and where that should be refocused into a side of your business that’s making you money.

Joe Fairless: I noticed you didn’t mention the property management, the 50-70 properties, and growing that or optimizing it.

Nancy Braun: Actually, that is one of my strategies. It’s an area that has been profitable to us, but it would certainly be a lot more profitable if we had more doors, so that’s an area that we need to build on as well.

Joe Fairless: Knowing that you’ve got the general brokerage, where you’re working with buyers and sellers and investors – that’s the main profit machine for you. Then you’ve got the loss leader of REOs, and then you’ve got kind of the wild card of property management. How do you choose to spend your time to focus on what’s making money now, versus what could be making you more money?

Nancy Braun: Yeah, I’m engrossed in that right now. I’m trying to build my retail division I have on my own little team. These are people that I worked with buyers and sellers I’ve worked with in the past, they trust me, they know me… They specifically asked to only work with myself or my team, so I can’t delegate those clients over to my independent contractor agents. That’s the division I’m kind of focusing on right now, because it’s doing very well. And I have control, because I have my employees focusing on that segment, so I can dictate to them what exactly they need to do to make sure that each of my personal clients gets the same quality experience from Showcase.

Now, if I delegated a client to one [unintelligible [00:08:54].07] agents, it doesn’t necessarily transcribe to the same experience that my specific team has. It’s kind of like a craft, because we follow a protocol and a system… It’s very systematized, so that especially our sellers get the exact same experience and same marketing, and obviously we wanna make them lifetime clients.

So that’s an element I’m focusing on – hiring people to be in that division that are really quality, A players, that will do things as I dictate that they need to be done, or as the team dictates how things have to be done, so each client has the same quality experience. So that’s one of the focuses – building that division, getting the right people in the right seats.

Joe Fairless: Okay. You’ve mentioned ensuring – or at least attempting to ensure – that the same quality of experience is experienced by clients, whether they’re working directly with you or with your immediate team, and then trying to scale that… And you said you’ve got a system in place and that’s really important to you… What aspects of this system have been improved upon the most since you’ve started creating a system?

Nancy Braun: Communication. That is critical, especially when you’re talking about sellers. They really wanna know what we’re doing behind the scenes; they wanna have a clue on where our marketing is. Our sellers are much more educated and internet-savvy today than they were ten years ago. They go online and they wanna see that their property is marketed everywhere and they can find it online very easily. They’re checking on it, and we have an incredible team of marketing specialists that make sure that the property is plasted everywhere on the internet and has very strong SEO. I have an SEO person specifically focused on that.

Then we update the clients with snapshots of everywhere they’re exposed on the internet, as well as the hits and the interest that they’re getting, and we make sure that they know when we’re boosting ads on Facebook and targeting ads… They’re getting copies of everything. So we have systems in place, and that certainly took us a long time to create, so that they’re all engaged in the same processes that we’re doing, so they don’t second-guess us and think “What’s my agent doing?” I think that’s the biggest problem – a lot of agents work really hard for their clients, but they don’t relate to their client what happened yesterday and what happens tomorrow and where you’re gonna be the next day.

Our placement and our focus is very strategic, so that way we don’t just plaster the internet with their property on day one of when it goes on the market, because Google hates that. They wanna see steady progress, so we have a calendar that’s a live calendar, that the client can click on any day and see “Oh, look where I’m gonna be on this day. Look what they’re doing on this day.” So it’s very strategic marketing.

Joe Fairless: That is… It’s so methodical; I hadn’t heard of a process that detailed. It holds their hand along the way…

How many updates — and perhaps I think you might have answered it with them just being able to log into the calendar, but when you were saying when you boost the Facebook ad, things like that, they get an update… How many updates are too many updates for the client?

Nancy Braun: They’re insatiable, they want [unintelligible [00:12:12].03] [laughter] There’s never too much. I think if they were notified every day, they’d be happy. But we definitely let them know professionally on a weekly basis, we give them an update. Then I’ve done live webinars with them, and I let them see my screen. They can see there’s ways that we can figure out how many showings are going on in their neighborhood or their zip code, outside of their listing, and I can say “Look, if you were priced in this price range in your neighborhood, you would have had eight showings this week. But because you’re priced at this other bracket, we’ve only had two showings this week. Should we shift to the other bracket? Because that’s what’s getting all the activity.”

The clients love it, because it’s so transparent. They really see what’s going on in the market and we’re not just feeding them a bunch of baloney; they can actually see it, and they go “Wow… I’m not strategically placed in the market, I need to reposition our listing.”

Joe Fairless: Let’s pretend that same client has gone through the process with you and gone through a successful closing, and now it is seven months from when you closed. What (if any) communication have you provided to that client on a regular basis to stay top of mind?

Nancy Braun: That’s critical, too… And we have a closing process. We obviously send a handwritten thank you note after the closing, we call that week to see if everything is good, do they need us for anything, water heater work, and “Do you need any of our vendors?” and we send a gift, and then we put them in a program that is called our Seller Suite. They get updates from their community. If they moved to a new neighborhood and have a new address, then they will get updates on all the properties that are going on the market or are under contract in their particular neighborhood. I think everyone wants to know what’s happening in their own neighborhood – are the prices shifting, are they changing, are they selling fast? So they’re just e-mailed listings in their neighborhood forever, so they can just see what’s the pattern in their neighborhood and how their investment is doing.

So we do that, and then obviously we put them on a drip, so they get updates on how the market is, what’s going on in the real estate market in their local market. Then it’s really my job to keep calling them and seeing how things are. There’s more things I can do when those things are in place; we’re trying to create a better mail campaign as well, so they’re getting more newsletters from us and more updates.

Joe Fairless: As far as the Seller Suite goes, where you give them updates on their community, is that a software program that you created, or is that just a name that you created for subscription to the MLS in their neighborhood?

Nancy Braun: We use [unintelligible [00:15:00].26] so we have to just place that client into the Seller Suite with their new address, and then they’ll get auto-emailed activity in their neighborhood.

Joe Fairless: Got it. What would you say is the number one way that you stay top of mind with your clients after the closing, if you had to pick one?

Nancy Braun: I think Facebook. We do a lot of focus of our marketing on Facebook. We obviously invite them to follow us on Facebook once we meet them, once they come on board with our company, and then they’re gonna see updates – they’re gonna see recent solds, recent new listings, but they also see personal things… About 20% of my posts are person. Then they’re gonna see what’s going on in the market. Video is one of our biggest drives. Everyone loves video, so we do a lot of video posts on Facebook. I think that’s probably our number one.

Joe Fairless: You work with investor, right?

Nancy Braun: Yes.

Joe Fairless: Can you tell us a story about working with an investor? And take that in whichever direction you wanna take it.

Nancy Braun: Well, we work with mom-and-pops, and we also work hedge funds. Totally different experiences, working with someone to buy one or two properties if they envision owning and maybe holding and renting out as a future investment for them. Those are always very personal, because it’s their life savings and it’s very important that what they pick is gonna be a profitable, strong investment for their future.

Recently – my babysitters are Brazilian and they had some inheritance that they could flip some money over from Brazil, but it was like their life savings, and we bought a couple homes for them. They’re easily rented, and they’re gonna be great investments for them down the road when they wanna sell them… But they’re probably gonna hold them a long time; they trusted me, because they’ve been with our family for so long.

Then on the other side, we work with hedge funds. We do acquisitions for them, and it’s on a computerized program where you plug in numbers, and they have to meet certain fields, and it’s just a machine, so it’s not as personal. It’s just “Do the numbers work?”

Joe Fairless: And I’m sure that a hedge fund buys, in general, more than a mom and pop person, correct?

Nancy Braun: Yeah… Ideally. If their numbers work… It’s tough right now. There’s so little on the market, and the hedge funds have really tight numbers. If they have a multiple offers scenario, it’s really hard to meet those numbers sometimes.

Joe Fairless: What are the typical numbers of a hedge fund that they’re looking to achieve?

Nancy Braun: Most, if they’re holding, they want at least a 5% or above [unintelligible [00:17:38].16] When you factor in their figures, that could be tough, because they have a lot of holdings costs, and carrying costs, and they have cushions built in, so that they are gonna see at least a 5% net. A lot of them have very similar criteria – they wanna be in great school districts, they wanna have no obstructions, no visual views of [unintelligible [00:18:02].29] or corner lots, they don’t like water around them, they have to have amenities in the neighborhood, they have to have a two-car garage, it can’t be older than 10-15 years old… They’re all after the same thing. [laughter] It’s tough.

Joe Fairless: How did you initially get connected with your first hedge fund that you worked with?

Nancy Braun: I think it’s usually someone mentions me to someone. “Oh, did you speak to Nancy?” I think I went after the first one I did initially — a large hedge fund I worked for, and I think I went after them. I saw them starting to acquire a lot of properties and I did some research and contacted them. But sometimes it’s just they find me, because we have such a strong internet presence, and they know we have such high inventory in distressed markets.

We’re kind of well-suited to assist for hedge funds, because we have the expertise and the experience working in this arena.

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

Nancy Braun: Best advice ever for real estate investors… It’s all different. Some people want different things, but the best advice I guess is to get something — if you really wanna be safe, closer into the city you live in… The ones that are farther out are more susceptible to economic changes, whereas the city properties closer in are always gonna be highly desired.

Joe Fairless: Got it. As long as it’s not in a bad pocket. But eventually, perhaps that pocket will change.

Nancy Braun: Yeah. As long as it is close in… I’m not afraid of buying things further out either, because it’s cheaper, but it depends on what level of safety you want and how risk-adverse you are.

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

Nancy Braun: Okay…

Joe Fairless: Alright, let’s do it. Hey, you went to law school, you are ready for this, believe me… First though, a quick word from our Best Ever partners.

Break: [00:20:02].21] to [00:21:06].15]

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

Nancy Braun: Best ever book I read… I’m reading 10X right now, which I love.

Joe Fairless: Okay, by Grant Cardone…

Nancy Braun: Yes.

Joe Fairless: Best ever transaction you’ve done, either buying your own or working with someone?

Nancy Braun: I bought my own recently in a transitional neighborhood close to the town. It like an old bungalow, and I just think it’s gonna be a terrific investment. It’s easy to rent, and it’s charming, it has a lot of character. I’ll either keep it for a long time and rent it out… I even thought of doing an Airbnb with it, because of the proximity with the city. A lot of choices.

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

Nancy Braun: I’ve bought a property once… My staff messed up and made some mistakes, and with the asset management was mad at me, so I said “I’ll just buy it. Don’t worry, I’ll fix it, I’ll fix it”, and I’ve done that before – I’ll just buy the property just to get the problem solved… And it’s been a headache ever since. Its condition was horrible, it’s out in the country, and it’s on a well and septic… You don’t wanna do that. [laughter] Gosh, I hate that property.

Joe Fairless: So note to self – if someone else has a problem, then don’t just buy the property from them.

Nancy Braun: Well, don’t buy something old, and a well and septic… Yeah.

Joe Fairless: Well and septic, noted. What’s the best ever way you like to give back?

Nancy Braun: We are very focused on that. I’m on the board of director and advisor counsel for the Boys and Girls Club of Greater Charlotte. I’m there almost every week. We are one of the top donors to the Boy and Girls Club in the Charlotte region. I love the organization, I love the people in it, I love their gratitude and the results. It’s very result-driven, and these kids are really different, not because of their membership in the Boys and Girls Club. 94.5% graduation rate in high school, and a lot of them go off to college because of their experience there, so that’s very fulfilling.

Joe Fairless: How can the Best Ever listeners get in touch with you or learn more about your company?

Nancy Braun: They can call my cell, 704 488 3109, go to my website, ShowcaseRealty.net. They can e-mail, Nancy@ShowcaseRealty.net.

Joe Fairless: Well, if they can’t get a hold of you after those three things, then there’s a big problem. Nancy, thanks for being on the show. Thanks for talking about your macro level business and your approach right now, focusing on profitability, where the majority of it is coming from the general brokerage, growing the property management and then REO as a loss leader. I loved that example of the grocery store milk.
Then the approach for how you stay top of mind with your clients after the close: handwritten Thank You notes, gifts, a call the following week, you’ve got monthly updates about their community, and then your drip campaign, as well as using Facebook.

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

Nancy Braun: Thank you very much, it was a pleasure.

 

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Best Real Estate Investing Advice Ever Show Podcast

JF1146: How To Generate Referrals Without Asking #SkillsetSunday with Stacey Brown Randall

Word of mouth referrals are without a doubt the most effective lead you can get. Asking for a referral is different than when it happens organically. Stacey is here today to tell us how to make it happen organically. If you enjoyed today’s episode remember to subscribe in iTunes and leave us a review!

 

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Stacey Brown Randall Background:

  • Referral Marketing Strategist, Business Growth Accelerator, Productivity Coach, Adjunct Professor
  • Helps other in referral strategies, particularly focused in real estate
  • Her online programs, VIP days and live events provide a blueprint to follow to take control of your referrals
  • Based in Charlotte, North Carolina
  • Say hi to her at www.growthbyreferrals.com/joe  

 


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TRANSCRIPTION

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

Well, I hope you’re having a best ever weekend. Because it is Sunday we’ve got a special segment, like we usually do, called Skillset Sunday. By the end of our conversation you’re gonna have a skill that you can go apply towards your real estate endeavors.

Today we’re going to help you learn how to generate referrals without asking, and I can tell you based on my experience in advertising prior to getting in real estate, full-time, and also in real estate now full-time, word of mouth referrals are the number one influencer of purchase intent. So listen up, Best Ever listeners, Stacey Brown Randall is going to share with us how to generate referrals without asking. Stacey, how are you doing?

Stacey Brown Randall:  I’m doing great today, thanks for having me.

Joe Fairless: My pleasure. This is a topic that is important for all real estate investors, as well as to any entrepreneur, really. A little bit about Stacey – she is a referral marketing strategist, she’s a business growth accelerator and a productivity coach, as well as an adjunct professor. She is based in Charlotte, North Carolina and she’s gonna help us generate referrals without asking. With that being said, Stacey, do you wanna give the Best Ever listeners a little bit more about your background and your current focus?

Stacey Brown Randall:  Absolutely. The short story is this is actually my second business. I actually started a business a number years ago that failed, and when I looked back over that business and why it failed, I realized I didn’t touch business development every day in a way that was gonna work for me, so I needed to figure out a business development strategy that I would be willing to do… Because I wasn’t gonna cold call and I wasn’t gonna stalk people on LinkedIn, and I wasn’t gonna network every night.

So when I started my second business, that’s where I kind of came up with this whole strategy behind how do I generate referrals and how do I do that without asking, because asking for a referral to me feels a lot like a cold call; kind of like that red-headed stepchild, it feels like a cold call. So I needed to figure out a different way, and I did it out of necessity, because I didn’t want to have a second business that failed. From that perspective, for what I do with my clients now as I started having success with my referrals, they were like “What are you doing?” and “Teach it to me.” That’s really where my focus has become over the last couple of years – really helping service professionals and business professionals and business owners understand that you can generate referrals, you can do it in mass, you can do it with volume and you can do it without asking.

I would say, if you look at my history – my background is kind of a portfolio career; I did the corporate thing, of course, and then until I hit that business failure… The learnings from that is what’s changed everything with what I’m doing now.

Joe Fairless: So how should we structure our conversation so that by the end of this we’ll know how to generate referrals?

Stacey Brown Randall:  I think the best thing is we probably need to kind of set a foundation of understanding the definitions behind leads, word of mouth buzz, introductions and referrals, and then maybe dive into some of the points that I teach folks on the best way to go about generating referrals and what are those rules you should follow, or those no-no’s that you shouldn’t do.

Joe Fairless: Yes, I love that. Let’s do it.

Stacey Brown Randall:  Alright, so just to kind of give everybody an understanding, as I think it’s really important that we understand what we’re talking about, because word of mouth buzz is different from a referral, which is different from an introduction, which is different from a warm lead. So let me give you some quick high-level definitions and examples of those.

A warm lead is where someone says “Hey Joe, company ABC down the street needs your help. You should call them, and when you call them, use my name.” That’s not a referral, it’s not even an introduction, it’s not even really word of mouth buzz, it’s a warm lead. You just happen to have the person’s name to call, and you happen to have a person you can use, but it’s still like a cold call, just a little warmer.

Word of mouth buzz is what I think most people think is much like a referral. The reality of the word of mouth buzz is I would come up to you and be like “Hey Joe, were your ears burning last week? Because I was just talking to you; there’s someone who really definitely needs to call you, and I now they will.” Well, that’s great that they identified that there was a need with that person and why they needed to work with Joe, but they didn’t actually make the connection happen… So it doesn’t do anything for you. You don’t know who that person is, and if they’re not willing to connect you, it’s still just word of mouth buzz; it’s awesome and we’ll take it, but it is not a referral.

An introduction is where they say “Hey Joe, meet Stacey. Stacey, meet Joe. You guys probably should have some great synergy” or “You guys should get to know each other to grow your network.” So they make the connection for the introduction, but they don’t say why we should be meeting. So I don’t know, are you interested in what I do so you’ve been referred to me, or is this just one more person I get to meet that’s gonna grow my network? Nothing wrong with that, but a true referral has the connection that’s made to the person who has the need, by the referral source, so the prospective client is connected to you by someone (your referral source) and that referral source has already identified why they should be connected to you, why they should work with you, and states that. That is the definition of a true referral, and that’s why the close rates of referrals are higher, that’s why when you said with the introduction that it is the best way to bring in new business because people want referrals over anything else, and they’re the easiest to close because they’re less price-sensitive because they show up already valuing what you do. But you have to make sure it’s the right thing for all those pieces to fall into place.

Joe Fairless: Will  you give an example of what that sounds like, what that connection is made to the person who has a need? Just what that would sound like

Stacey Brown Randall:  Sure. Most of the time, I always prefer for them to come over e-mail, because I think that you are in control at that point. So when someone says “Hey Stacey, I’m having so-and-so call you”, I’m like “Yeah, why don’t you go ahead and send them an e-mail and copy me on it?” But typically, what that e-mail would say – I just got one yesterday… Literally, that e-mail comes in that says “Hey Stacey, meet Rob. Rob does this. Hey Rob, I was telling you about Stacey; Stacey does this. I think she can help you with your referrals. You guys should definitely set up time to connect, or go ahead and download some of her free resources.” So there’s already that opinion of that met need of “Hey, we’ve already talked about, Rob, why you need to be meeting with Stacey; she’s gonna help you with your referrals, and I’m connecting you with her so that she can kind of take over and facilitate the next conversation or the next meeting.”

Joe Fairless: Okay. So that’s what it is. Now, how do we do it?

Stacey Brown Randall:  Here’s the first thing I have to tell folks – you’ve gotta have the right mindset, and that is there’s a couple of things you can’t do. You can’t ask for referrals and you can’t be willing to pay for referrals. Now, I know, if any of your listeners is a realtor, in their industry actually a referral feedback to another licensed realtor is common practice and it’s identified and disclosed to the client, so that’s not a big deal. What I’m talking about is the things you don’t disclose to the client, whereas you’re gonna get a kickback, you’re gonna get paid for sending someone to somebody else… Because at that point we’ve commoditized the relationship. We do the same thing when we ask. When we ask somebody to send us a referral, we’re manufacturing the need for why they should actually reach out to us, why they should actually take time to meet with us.

When we manufacture or we commoditize any piece of the referral process, then we’ve cheapened it. If you think about commoditizing it, if I’m getting paid to send you referrals, actually what you’re asking me to do is just to work for you… And I have a full-time job. I don’t need to be doing work for anybody else, unless that’s a relationship I’m willing to enter into and there are guidelines and things in writing that needs to then be disclosed to the people I may be referring to you.

The other part of that is that when we pay or we ask, when you think about that ask, I’m asking you to do something you hadn’t thought of before. That’s why when we ask people “Hey, who do you know who needs what I do?”, if you’re in a face-to-face meeting with them, you literally see them shift in their seats; they literally pull back in their seats. You’ve probably been a part of that, right Joe?

Joe Fairless: Yeah…

Stacey Brown Randall:  You’ve probably been in a meeting like that. They either slide the blank sheet of paper across the table to you and you’re like “Can you write down ten people who are just like you, who need to do work with me?” Or they just come to you and say “Who’s like you that I need to be doing business with?” and you literally see them lean back in their chairs, or they start to shift uncomfortably. That is literally their physical reaction to what you just asked, and they are trying to distance themselves from what you just asked them to do. The truth is it’s because you’re asking them for something that they’re not maybe willing to do, or they don’t want to do, or you didn’t set it up correctly.

I always tell folks, I don’t teach anybody how to ask, but I do teach folks in my online program and in some of my live events, I do teach folks how to plant referral seeds so that I don’t have to ask, and I know I’ll come up top of mind when that situation presents itself.

I think the question most people always ask themselves is “Okay fine, but does that mean I’m gonna generate any level of volume?” I’m like, “If you know the language to plant the seeds and you have the right group of folks that are your referral sources and you follow a process to stay consistently in touch with them year in and year out, yes, you can definitely generate volume.” I know in my practice from the very first year that I started out as a business coach I generated over 100 referrals and I’ve done that every year consistently.

In my first year as a business coach — and my first business had nothing to do with business coaching – I generated 112 referrals following this process. It’s just a process, right? But you have to have the pieces that fit, so that you know what to do so you’re not having to ask, you’re not having to do anything else that would put you in a position to cheapen the relationships you have with people.
So we don’t ask and we don’t pay, but there’s a few other things we also have to make sure we have in place too, and that is that your client experience and the work you do – it can’t be choppy. You’ve gotta deliver a quality product or quality service… Because nobody refers crappy work, but even in this day and age nobody refers average work either. So you’ve gotta elevate that experience.

Joe Fairless: One quick follow-up question – the 112 referrals you got in your first year, looking back on it, what was the difference between the conversion rate for those 112 that were referred to you versus the leads that you got from other sources?

Stacey Brown Randall:  I would say in my first year, when you’re thinking about those 112 referrals, the other source that brought in a number of new clients for me was my speaking engagements. I would say in my first year, at the end of that first year, I was in the 60% range of closing on referrals, and the other 40% of my client base came through because they saw me speak. Maybe not a full 40%, because there were still some people who just knew me from my past life and just hired me because they knew me. So there’s definitely some percentages in there.

Now I’m at the point where a couple years later I’m more in the 90% rate of my clients coming through referrals, which means my close rates have gotten better because I learned different language. It’s really fascinating – when you go any type of sales training, there’s like a script they teach you when you’re in that first meeting with that person – identify their pain, figure out if you’re the fit… And what I realized is when someone was referred to me, the questions I asked and how I handled those conversations were entirely different. And when I figured that out, like “Oh, right, you actually already want to buy what I have; you already wanna buy me, I’ve just gotta figure out how to get you to that place by asking different types of questions.” When I figured that kind of language out, then my close rate definitely went up.

I’ve also gotten better at training my referral sources on the right type of person to send to me, so I think that’s increased me from like a 60% to more of like a 90%-95% close rate from where my clients come from.

Joe Fairless: Okay. And you said language, right group of people that you’re speaking to, and training them on who you’d like to be referred to, and the process. Can you elaborate on those three?

Stacey Brown Randall:  Sure. So I always tell folks, I believe that this system works best – it can work with a lot of different folks, but I believe this system works best when you’ve been in business for at least a year or two, and you have clients already that you’re working with, and we have to identify where those clients came from, and how they arrived. If they were referred to you, that’s where we start with your referral sources.

My referral sources are from clients that have referred to me, and the centers of influence (COIs) that have referred to me, which basically means they’ve just never done business with me, but they know what I do. So it’s cultivating enough of those people to generate the type of volume you need.

Whereas I may have 20 or so folks in that category, that are sending me referrals – some of them only send me one or two a year, and some of them send me double digits, like 10, 11, 12 a year… That’s enough to give me what I need for my business. But relate that to an attorney that I work with that can only take 12 cases a year, and we got her referrals up from six or seven a year to averaging about 27 to 30 a year. Now, she gets to pick and choose the cases that she takes, because she’s only still gonna take on about 12 cases a year, she just wanted an easier way for those cases to fall into her lap, so to speak.

So it’s figuring out who already refers you, and if you don’t have enough of those people who should be referring you, and then building out a relationship with them; that’s really the process I teach in my online program and my live events – what are the steps we take, what’s the process we take so that we know we’re doing something consistently that matters, that’s memorable and meaningful, and is all about the referral source, nothing about us…? Because nobody actually refers to us because of us; they refer to us because they know somebody who has a need, and they wanna be the hero to help that person solve their problem, and I am the right solution.

Joe Fairless: That’s a money line right there, they refer to us because they know people who have the problem, and — what did you just say? I don’t wanna butcher what you just said… [laughs]

Stacey Brown Randall:  No, you’re doing great! So basically, we have to remember who’s the hero in the referral story, and the hero is the referral source, because they know the person with the problem, and they wanna be a hero to the person who has the problem, the prospective client. The fact that I happen to be the best solution is just bonus and benefit.

Joe Fairless: So it’s not saying in your e-mail “If you like this, please share with your friends”, it’s focusing on that person delivering the outstanding work, but then identifying the right people who can refer you to their friends, and then making them the star of the show by doing memorable things for them… Is that correct?

Stacey Brown Randall:  Correct, and then doing it on a year-long basis, because that way you know if you’re gonna have enough touch points, if you bill out what you’re going to do. You can manage your budget better that way, and you can manage your calendar better that way if you know what you’re gonna do for a full year.

But what I’m not talking about, and Joe, I think a lot of people get this wrong – I’m not talking about your newsletter; that does not count.

Joe Fairless: Right.

Stacey Brown Randall:  I’m not talking about the fact that you’ll send them out an e-newsletter or you’ll happen to see them at a couple of networking events and so you’ll strategize time to go to talk to them… I’m talking about people who make your life easier because they draw clients into your lap; what is that worth to you and how valuable is that to you? In some cases it depends on how much a client spends with you, but I had one client drop a client in my lap that was worth 20k. I will do a few things above and beyond just sending them a thank you note or a thank you e-mail.

Joe Fairless: What do you do?

Stacey Brown Randall:  There’s two secret sauces to what I teach – it’s the language that I teach; for most folks, there’s usually about nine different situations where there’s this particular strict or messaging I want you to know, so that’s one piece of the secret sauce.

The second piece of the secret sauce is what I call this “referral experience.” Any person who refers to you, they should feel like they’re important to you, and you put them through an experience. That experience is something that’s memorable and meaningful, and I tell folks, it follows three platinum principles… And then I’ll give you some examples.

So the platinum principles are – first, anything you do is all about them. If I send you a water bottle with my logo on it, Joe, who’s that about?

Joe Fairless: Yeah, who cares?

Stacey Brown Randall:  Right, that’s about me. “Woohoo, my logo!”, right? So for instance, this is an example I use a lot, because I think it makes the point the easiest – a lot of my referral sources are working parents, so I recognize Mother’s Day and Father’s Day. Of course, I have referral sources and client sources that are not parents, so obviously I do something different for them. But if they’re a working parent, if they own a business, they’re working, and they send me referrals, on Mother’s Day they get recognized. Last year I sent a Wonder Woman water bottle to each of my top referral sources, and a card on it just said “Never forget you are a hero! Happy Mother’s Day! Stacey.” And when they took the card off, there was nothing on that water bottle to say Stacey sent that. My logo wasn’t printed on the back, it wasn’t on the bottom, it wasn’t on the top, but they never forget that I am the one who gave them that water bottle, because it was memorable and meaningful, and I was acknowledging something about them that I know, because you should know your referral sources well. You should know if they’re a parent or not, you should know the type of business that they’re in, you should know the type of clients they’re interested in bring in to their business… Or whatever their needs are.

You should know things about them so that you can provide an experience for them, which is done, and that experience is done whether it’s face-to-face time that you spend with them grabbing coffee or lunch, helping them grow their business, or it’s events that you may invite them to so they can grow their network and meet other people, it could be gifts that you do, it could be something you mail, like a thank you card or a “I appreciate you” kind of card. It could also be something that you e-mail – “I saw this article, I thought of you”, but it’s all about them, through all those things that you do, and then we just build it out over a year so we know we’re not doing too much and we’re not doing too little… Because platinum principle number one says it has to be all about them.

The platinum principle number three says it’s gotta keep you top of mind. And then platinum principle number two is you have to be comfortable doing it.
An example I always give is I worked with a financial advisor and he said “You know what, Stacey, I will do just about anything you tell me to do, but if I have to take people to a bunch of dinners or a bunch of events that are after hours, in the evenings, I’m not doing it. Because at five o’clock, when it rolls around, I wanna go home and be a dad, and I wanna be a coach with my kids in their sports teams, or be in there with them after school”, and I said okay… So if we built something for him that was all these evening things — well, first of all he wouldn’t have done it, and second of all, he would have every right to fire me, because I wouldn’t have given him what he needed.

Joe Fairless: What’s an example of what you did with him?

Stacey Brown Randall:  I have to learn a little bit about folks when we’re crafting these things, whether they’re in the online course or not; I give them things to think about to help them figure out what this looks like. For him, he happened to have told me that he loves to eat at off the beaten path locations. He loves finding that new restaurant, or that ethnic restaurant that no one’s really tried, and taking people to them. So we put that in as a part of his process, but also he loves baseball, so doing at our minor league stadium that we happen to have here in town [unintelligible [00:19:53].27] where he brought all his referral sources and they got to bring a spouse or someone with them… So that was part of what we did. He had the budget for it.

I have some folks who come to me and they’re like “I have no money.” I’m like “Okay, we can do this on a shoestring, it’s not a problem. It looks different, but it’s not a problem.” So you just have to be willing to figure out what is it that you are willing to do, but more importantly, what is it that those referral sources want or need, and then how do we build that out so that you stay top of mind throughout the year in a memorable and meaningful way, so that it feels authentic and genuine, because it should be. Because if you’re trying to do this to buy referrals from someone by buttering them up, they can tell. It has to be real. And if you’re doing it and it feels okay to you, then it’s probably real.

That’s why those platinum principles are so key and everything we build is around those three principles.

Joe Fairless: What are some other examples that you or your clients have done throughout the year to stay top of mind in a memorable and meaningful way?

Stacey Brown Randall:  I have one client that is a fire and safety company, and they do this for their referral sources, but also for their clients, because they’re all in that fire and safety world… And apparently sometime in March – I don’t know the exact date – there is a national day known as Near Miss Day; I would not know anything about this. There’s lots of national calendars and whacky holidays calendars out there. When people go through my course they get a copy of one, because sometimes it’s those things that make you most memorable and meaningful… It’s like “What’s a whacky day that connects somehow to my business that I can do something for?” I have had people pick some crazy things. Ask me in a minute and I’ll tell you what someone did for National Pickle Day.

But for this particular client, because they’re in the fire and safety world, they’re all about safety and protection and that’s what they do with their clients… So there’s this thing called Near Miss Day, which is I guess when an asteroid almost hit the Earth, but it missed us. It’s back from the 1980’s I think, but it’s known as Near Miss Day. So for Near Miss Day they were gonna send Earth squeezy balls to everybody, with a story of Near Miss Day and why they’re celebrating it, and “Thanks for using us. We don’t want near misses”, but then also the referral source says “Thanks for sending us to other folks, that we can help them out with their safety, so they don’t have a Near Miss Day.” So they just tied it all in, and it worked for them to do it that way.

Joe Fairless: Okay. And the pickle thing? Obviously, I have to ask you about that now. [laughs]

Stacey Brown Randall:  We have a National Pickle Day sometime in October or November. The things I now know because my clients tell me… I’m like “Fascinating!” It’s funny, because this person is a coach that helps people figure out if they want to become entrepreneurs in a franchise model system. This client, she was thinking [unintelligible [00:22:24].06] whole referral process and she was like [unintelligible [00:22:26].08] and I was like “Cool!”, so she came up with National Pickle Day.

Basically, she had it much more clever than I’m about to say, but it was something to the effect of “I think pickles don’t get their due. National Pickle Day is overlooked, everybody only cares about November (because she mentioned Thanksgiving, or something). Other major holidays overshadow this very important day and I wanna bring it to the forefront, so I want you to celebrate National Pickle Day with me”, and she sent — there’s an herb that you have to put in with cucumbers to turn them into pickles, and she literally sent that as the gift with the recipe about how to do this to make your own pickles for pickle day. Again, I kind of butchered what her note said, because I don’t remember – it was a while back – but it was really funny.

And then I have a homebuilder that happens to know how to juggle. Well, in June it’s National Juggling Day, so he did a video of himself juggling hammers, because he can juggle… He know what he’s doing. He can juggle, so he’s juggling hammers, because hammers/homebuilding fits together, and he was saying something cute like “This is National Juggling Day. I bet you didn’t know that, as your builder, I could juggle. Thanks for your business” and then for his referral sources, “Thanks for always sending clients my way.”

Joe Fairless: And that’s part of the language? Even if they’ve never sent new clients, you’re just assuming that they have and you’re implying that they already have and then they might be compelled to do so?

Stacey Brown Randall:  It’s how we word it, yes. It’s something to that effect. If they have sent a referral, we never miss an opportunity to thank them for that, either by a person they referred to us, or just to say “Thanks for sending all the referrals over the years.” If they haven’t, we use just a little bit of a different language, and it’s more so the token of “We love helping the people that you know and care about.” So it’s not like we’re necessarily doing a presumptive close in that type of language, but we are planting the seed.

Joe Fairless: Great stuff. I love how you’ve torn down the typical paradigm for how to get referrals and you’ve built up from the center focus of the actual referrer, and not about us and our business, but it’s about them and making them the star of the show.

Where can the Best Ever listeners get in touch with you?

Stacey Brown Randall:  I put together a page just for your listeners to make it easy for them. They can go to GrowthByReferrals.com/joe and they’ll be able to download some of those no-no’s I was talking about in the beginning about not asking and not paying. I call them “The Seven Deadly Sins Of Generating Referrals.” They can download that on that page, and then if they’re interested and wanna join the Facebook group, it’s called Referrals Without Asking; it’s an awesome, active community. I answer every question that’s asked personally, but the community’s great about answering questions, too.

Then also I have challenges like “Five days to jumpstart your referrals.” That challenge is free and I do it throughout the year. So they can sign up for those different things, learn more about me before they decide to dig and decide “Hey, do I actually wanna work with Stacey or do I actually wanna go to one of her live events or join her online course?” That’s the best place to just kind of start to understand my philosophy, to decide if you wanna learn more.

Joe Fairless: Stacey, thank you for being on the show and, as I mentioned earlier, identifying the best way to grow our business through referrals, and tactically how to do that. First, we need to know the lifetime value of a customer, because that will help us determine what type of ongoing meaningful and memorable approach are we going to take, whether it is doing the [unintelligible [00:25:34].20] thing with the spouses, or maybe it’s just juggling some hammers, or anything in between.

Then also what things we should say or should not say, and how we should never end a water bottle with our logo on it, because it’s not about us, and I think that’s the main takeaway for me, but then also tactically how you approach it. I’ve got a page of notes and I’m gonna be looking back on this and listen to this interview again.

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

Stacey Brown Randall:  Thanks again, Joe.

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JF1113: Protect Your Income With Rental Income Protection with Sky Mikesell

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-Based in Charlotte, North Carolina


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TRANSCRIPTION

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

With us today, Sky Mikesell. How are you doing, Sky?

Sky Mikesell:  Hey, Joe. How are you? Thank so much for having me.

Joe Fairless:  My pleasure, nice to have you on the show. I’m doing well, and looking forward to diving in. A little bit about Sky – he is the CEO of Nationwide RentSure, which is a rental income protection company. He has invested in eight states over the last 20 years. He has grown a portfolio to 19 single-family homes before transitioning into turnkey property. Based in Charlotte, North Carolina… With that being said, Sky, do you wanna give the Best Ever listeners a little bit more about your background and your current focus?

Sky Mikesell:  Absolutely, thanks again. I’ll dive right in and give you my quick background. I actually started on the West Coast; I’m from Portland, Oregon, originally and I am now in based in Charlotte, North Carolina, but I started out investing as a 19 year old… That was a long 20 years ago. I was making six dollars an hour as a plumber’s laborer – not a real plumber, but just the helper… And I started buying real estate. I had saved enough to buy my first piece of real estate, a year later I bought my first rental property, and I’ve pretty much grown since then. About 2005 I liquidated my portfolio on the West Coast, knowing something bad was coming. The writing was on the wall, so we got out.

We searched the country over and researched where we were gonna go, and ultimately ended up settling on Charlotte, so here we are… I started a turnkey operation shortly after arriving, and we were one of the first few turnkey operations in the country back then. We were doing what turnkey operations do – we were buying, renovating, leasing, selling… We did quite a few transactions over that 10-year span that we ran that operation, and we decided to transition out of that as 40-50 turnkey providers came into the marketplace. We really shifted our focus in the last three years into rental income protection.

We  looked hard, and I said “All of my clients over the years have bought good properties from me. We renovated them well, but a few things always hurt them”, and it was never anything that we did, but it was the things that we could not prevent – it was the unexpected maintenance and the unexpected vacancy, or unexpected eviction, in most cases.

Unfortunately, with those cases, that’s what really is a cashflow killer. It’s a cashflow killer for me as an investor, most likely you as an investor, and most of our [unintelligible [00:03:34].19], so a few years ago we shifted our focus into the rental income protection business, and we launched a rental income protection company here in the US, the first one of its kind in the US, and as of now, as far as I know, the only one that’s up and running and doing it.

Joe Fairless:  I’ve heard about companies like this, but maybe I just dreamt it, or something, or maybe it isn’t exactly what you’re doing, so tell us about the company and the business model.

Sky Mikesell:  Sure. Basically, rental income protection — all these years that we’ve been in real estate, I think all of us are raised as these landlords to just accept this fact that “You know what? Evicting a tenant and losing that rent is just a cost of doing business.” That’s a mantra that all of us have said. Well, the fact is it does not have to be this accepted belief.

In Australia they’ve had rental income protection for well over 25 years. Over 80% of the landlords in Australia have rental income protection. In the UK, in Germany it’s well over 60%. In the US we just haven’t had it up to this point. What rental income protection really is in its simplest form is if the tenant defaults and stops paying rent, then rental income protection generally will step in, pay for the eviction, do the eviction for the landlord, they will go ahead and start paying the landlord the rent that they’re no longer getting from the tenant… And in our case, we actually cover malicious damage caused by the tenant, in addition to everything else. So all of those things kind of encompass rental income protection.

Overseas there’s different iterations of it, but for our program here in the states, that is exactly what we handle.

Joe Fairless:  How do you make money?

Sky Mikesell:  That’s a great question. There’s 48 million rental units in the United States, so there’s not a shortage of market for us to have. Our critical mass number is not a huge number for us to get there. The cost is relatively affordable compared to what it is covering. I’ll just cut to the chase – we’re hovering right around $500-$600 on the starting tier. We will run from $600 to $900 in rent for the starting tier, and it steps up from there. Obviously, the more the rent, the more the cost of the membership.

Joe Fairless:  And is that a monthly or annual?

Sky Mikesell:  We got it set up so landlords can pay each month.

Joe Fairless:  Got it. So the minimum to have that insurance – $500/month?

Sky Mikesell:  That’s the starting, yeah. $528 is the lowest threshold we’ve got, and that’s up to $900 in rent. So it covers the lower-priced [unintelligible [00:06:04].07] in most cities here in South, South-East, Midwest.

Joe Fairless:  Now, that $528 is what I pay as a landlord for this insurance?

Sky Mikesell:  Yeah, it’s a good question. The way we’re set up is we are set up as a membership-based organization. What that means is we are backed by an A+ insurer that’s actually owned by Lloyds. Our membership organization is backed by insurance; we have gone through the regulatory process in all 50 states, we’re 100% financially-backed and legally protected. The way the membership organization works is you sign up as a member, and part of your membership comes the benefits of rental income protection, comes eviction protection, the cost of the eviction and malicious damage protection. Those things are all part of the membership, so for that membership you’re buying, per unit, you’re looking at $528, depending on the price point, and that’s on an annual basis.

Joe Fairless:  That’s annual or monthly basis?

Sky Mikesell:  That’s the annual cost, and it can be broken down per month.

Joe Fairless:  Oh, that’s what I was missing. So the $528 is annual, not monthly.

Sky Mikesell:  Yeah.

Joe Fairless:  Okay, I misheard you. Now that makes sense. It’s a lot clearer now. So $528 is the minimum to get in, and that would cover you for one rental property. Does that depend on how much the rent is of that rental property?

Sky Mikesell:  Yeah, that’s exactly right. On that first tier, at $528, your rent can come in anywhere from $600 all the way up to $900 in rent. Then it’s the next step up from $901 to $1,200, and it continues to step up from there.

Joe Fairless:  Got it. Okay, cool. So for $44/month I am guaranteed income for 12 months, or for the lifetime of the lease? How does that work?

Sky Mikesell:  That’s exactly the way it works. If one of your tenants defaults, we step in, we pay for the eviction, we do the eviction, and then rent starts up. So within 60 days you get a personalized rent check, and that is for the previous two months – so from the time the tenant defaulted. So you’re covered all the way up to 11 months on the rental income protection. It’s one or the other.

This is the month of June right now, so let’s say in June the tenant defaults, and let’s say it takes RentSure until the month of September to get them out. So you will have received your income from June, July, August and September. Let’s say 15th September rolls around, the tenant has been removed, you’ve been granted possession of the property. At that point, our system will pay you an additional 90 days worth of rents. That’s October, November, December rent. So you get three additional months. That’s 90 days.

That’s kind of a headstart to say “Go get it cleaned up, get it ready, re-rent it…”, and I don’t know too many property managers in the U.S. that can’t rent out their properties in 90 days. In small towns, bad neighborhoods maybe, but everywhere else, 90 days or less is pretty reasonable for getting it rent-ready and back on the market and re-rent it, obviously. So that’s what happens during the rental income protection process.

Now, if the tenant was to maliciously damage the property, you can go on and file another demand on our website as part of your membership, saying “Look, it wasn’t just normal wear and tear, it was malicious. Fist holes in the wall… They beat up my property pretty good, and I’d like to file malicious damage demand.” At that point, we protect up to $10,000 in malicious damage caused by the tenant.

Joe Fairless:  How do you qualify a landlord and the tenant in order for them to be in this program? Because there’s a lot of ways to scam this.

Sky Mikesell:  Of course there is. Anything that has any sort of protection benefits like this I think there’s always gonna be the people that are smarter and more conniving than we are, and they’re gonna figure out a way. We’ve got some pretty good checks and balances in place.

Look, what we didn’t wanna do is we didn’t want to be the failing bottleneck for the landlords and the property managers, meaning we did not want the landlords and property managers to have to come to us and say “Hey, I’ve got this tenant and we’d like to know what you think of her. Will you approve her?” No, we put all the power and the control into the property managers, in the landlords’ hands as to how they wanna do it.

Our criteria is so simple – we are expecting the tenant to make two and a half times the gross rent. Most property managers, as you know, are screening for three times gross rent. We’re looking for no evictions and no judgments in the last three years. We’re looking for a simple rental agreement that’s approved by the state for wherever they’re at, and then we’re looking for the fact that the tenant actually paid first month’s rent when they moved in, and they weren’t in default the second they arrived. This is a pretty low barrier to entry.

Credit score – I don’t care what the credit score is, it makes no difference to us. Data supports that tenants’ credit scores has nothing to do with their follow-through or their ability to pay rent. This may come as a shock to some of your Best Ever listeners, but the fact is that tenants’ credit score has nothing to do with whether they’re gonna pay rent.

You know what else doesn’t matter? Whether a tenant pays a true deposit on not has no bearing on whether or not they’re gonna continue to pay the rent. Sounds crazy, but we wouldn’t be in business if we didn’t have the data to support that, so that’s where we’re at.

Joe Fairless:  How large units do you do? I imagine you don’t get into apartment communities, but that might be an incorrect assumption.

Sky Mikesell:  We do get into apartment communities. There’s very minor variations with apartment communities. Actually, there’s only one, and I’ll tell you exactly what it is. With a single-family home we will cover a maximum of $100,000 in lost rent, and as you know – we can do the math on that together – it’s pretty unlikely for us to hit that. Possibly California, possibly New York, but to date we’ve never hit that number.

For apartment communities, one address, it’s capped at $500,000 per domicile address. If you have ten units in an art building, you would have to have a membership on each one of them, but we cap you at $500,000 in rental income protection.

Joe Fairless:  How long has Nationwide RentSure been around?

Sky Mikesell:  We have been in North America for going on two years now. We’ve had a Canadian operation just right on the other side of the border, right in Toronto, for over two years, and the US operation has been in full effect for about a year now. We’ve got a combination of multifamily owners, turnkey operators, do-it-yourself landlords, we’ve got property managers utilizing us… We don’t know too many investors that are not in need of some sort of rental income protection.

Most of your Best Ever listeners, ranging from the private do-it-yourself landlords to property managers — the property managers are basically looking to reduce their workload and increase their income. That’s what rental income protection does for them. They no longer have to go to Court for the property manager, and they get to stabilize the property management income that they no longer would have if the tenants had stopped paying. So now the income continues to come in, they continue to get their management fee, and everybody keeps moving forward; the owner is happy.

Even guys like you, Joe, who are trying to get the highest return possible for your syndications — obviously, you’re trying to predict what that return is going to be, and the only thing that really throws that proforma off would be maintenance and vacancy, would you agree?

Joe Fairless:  Pretty much, yeah.

Sky Mikesell:  Pretty much. I mean, we’ve always got some variables. We probably don’t have time in this 30-minute podcast to go in all the variables, but we’ll call those the two big ones. So this solves at least the eviction fees. Of course, we do cover abandonment, as well. The protection for abandonment has a few different variations, but [unintelligible [00:13:46].25] the same way.

I really do feel like this is a fit for everyone. We don’t see anyone in the real estate sector — I’ve talked to one landlord so far (do-it-yourself landlord) who managed about 20 unit and he said “I haven’t had an eviction for 12 years.” That’s okay, well you probably —

Joe Fairless:  Raise your rent.

Sky Mikesell:  Yeah. [laughs] Raise your rent, and you probably don’t need Nationwide RentSure, because clearly you’re better at this business than the rest of us are.

Joe Fairless:  Why Canada? You’re not Canadian, are you?

Sky Mikesell:  No, I’m an Oregonian by blood. So it started in Canada; this project originated in Toronto. They wanted to beta-test it in Toronto, just because it’s a much smaller market than the US. The US is a very complex market, which is why no one has come here up to this point. We refer to the US as 50 different countries; there are 50 states, 2,200 jurisdictions, all with different rules for Court, different eviction — landlord/tenant law has a lot of similarities…

For example, in Texas if a judge does not like where your signature is on the eviction form, he can move your signature to the other side of the page and does not need to notify anybody of such change. So when you start thinking about having to file eviction in quantity electronically and over a large scale such as we’re doing, judges moving signatures really creates a problem. Having to solve that has been the biggest reason why rental income protection has not been in the States up until now.

Joe Fairless:  What’s been the biggest challenge that you’ve had growing the company?

Sky Mikesell:  I hate to put this so bluntly, but I personally believe that the biggest challenge that we’ve had is the gotcha factor, the “too good to be true” factor. I hear it on the phone, and I heard it when I used to sell turnkey property… “This seems too good to be true.” I’m like, “Well, what’s wrong with that? Do you not expect that things could happen to you? You sound like a good person, why can’t good things not happen to you?” So it’s not a too good to be true scenario, it’s not a gotcha scenario, and I think because it’s not familiar here in the US, that’s the first obstacle to overcome.

I will tell you, the folks that have probably most widely accepted it are the turnkey providers and multifamily folks, because they already allocate money for this type of expense in their proforma; they’re calling it vacancy or eviction. But a lot of do-it-yourself landlords and smaller investors that are using professional property management that own ten or less properties – they’re rarely making this allocation, despite — you’re a good counsel on this podcast, and this probably could counsel numerous other resources saying to allocate for these expenses… They’re not. So it was a lot easier to convince the turnkey providers, the multifamily folks, because it made sense to them because they already had this number in the proforma anyway.

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

Sky Mikesell:  My best advice would be to protect your rental income. I’ve owned a lot of property in the last 20 years, and as you know, lost rent never gets found. Once you lose that rental income, it’s gone. You’re unlikely to ever recover it. You can’t immediately raise the rent high enough to recover one month worth of rent, no less the average of five months worth of rent losses that it takes to get somebody out and get the unit re-rented. So it’s just a distant prospect that you’ll ever get that rent loss recovered, unless you maybe sell the property at some near point down the road. So my best advice is protect your rental income.

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

Sky Mikesell:  Let’s give it a shot.

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

Break: [00:17:21].29] to [00:18:24].01]

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

Sky Mikesell:  Best ever book I’ve read is a book called “It’s Not About The Money” by Bob Proctor.

Joe Fairless:  Best ever deal you’ve done as an investor?

Sky Mikesell:  Okay, this is not gonna be a lightning response…

Joe Fairless:  That’s fine.

Sky Mikesell:  Best ever deal I’ve done… Okay, I’ll give you a very strange response on this one. And honestly, I’ve had hundreds of real estate deals that I’ve made a lot of money on over the years. Many of them were structured in a very cool and creative fashion that allowed me to earn that money, but honestly, the deal that I’m probably the most proud of – and this might sound really strange and probably not the response you’re looking for, but in 2012 I sold one of my companies, and in that transaction I made some blaring mistakes… Joe, within six months of that transaction I went from 30 employees and a massive real estate portfolio to pretty much losing almost everything. I went into debt… So you’re saying “This is great, Sky, but where’s the best part of this deal? Is this the best that you’ve ever done?” Here’s the best deal I’ve ever done – I found myself in this crazy place… Not a lot of money left, no income, not a lot of assets left, and I just picked up the phone and I started working out a plan with every single one of my lenders.

I made a choice. I had people encouraging me to give up, to file bankruptcy. Some of them were investors and clients, some of them were family and friends, but I made a choice not to give up, but to work harder, to rebuild and to honor all of my debt… But I had to start by picking up the phone and working through it with every single person, and it was honestly some of the toughest negotiations I’ve ever faced in my entire real estate career… And I got through it. I’m here, I’ve rebuilt — I started rebuilding the portfolio and we’re quite strong, and three and a half short years. So that’s been my best deal so far.

Joe Fairless:  On that note, what’s a mistake on a transaction that you can pinpoint maybe specifically?

Sky Mikesell:  Any mistakes made on transactions are always due diligence and your gut instinct. One of them is verifiable, and the other one is deep down… And you know, even when sometimes the due diligence makes sense, the gut instinct is telling you something different. So those are two big checkpoints on every deal – I always do my homework.

Joe Fairless:  And can you give a specific example?

Sky Mikesell:  Well, in that specific example the numbers looked great, but the gut was telling me that the partner on the other side had other plans for that transaction, so… They had already made plans to move around me on that particular deal, and they were quite successful in doing that. Of course, Joe, my wife warned me that it was gonna happen; she didn’t trust him… Gosh, I hate it when she’s right!

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

Sky Mikesell:  I support various Christian Ministries and I support Special Olympics, because of their courage. My brother has Down Syndrome so I support Special Olympics for almost twenty years now.

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

Sky Mikesell:  Probably the easiest way is my website – it has everything I’m involved in. SkyMikesell.com.

Joe Fairless:  Cool. And then also NationwideRentSure.com would be another place?

Sky Mikesell:  Nationwide RentSure has everything about the rental income protection that you ever need to know. I’m happy to talk on the phone, or you can call direct.

Joe Fairless:  Sweet. Well, normally I don’t spend a lot of time talking about someone’s business, just because I wanna make sure we’re adding value and not like a promotional thing, but in your case it was unique because it’s a different business model, so it’s important for us to dig in there and talk about it, and I’m grateful that we did, and I’m grateful that we talked through the cost implications, from what it would cost as a member to participate, as well as the benefits of participating, which seem really good

Sky, thank you for being on the show, thanks for talking through the business plan, thanks for talking through the lessons learned along the way. I hope you have a best ever day, and we’ll talk to you soon.

Sky Mikesell:  Thanks, Joe. Keep up the good work!

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Best Real Estate Investing Advice Ever Show Podcast

JF1035: Managing $100,000,000 and Raising Money in a BIG Way!

From wealth management to real estate development, John has seen A LOT in the real estate world.  His insight is invaluable as he tells us how to raise and manage a HUGE private fund.  Get your pen and paper ready, this is a good one!

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John Azar Real Estate Background:
-EVP and Managing Member of MACC Venture Partners, private equity commercial real estate firm
-Co-manages the company’s newly launched $100M private equity fund
-Oversees alternative financing and investor/portfolio development
-Prior to MACC he co-founded and served as
-Managing Partner of Boston Venture Partners
-Based in Charlotte, North Carolina
-Say hi to him at http://maccvp.com/
-Best Ever Book: Freakonomics

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raising investment capital

 

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 – John Azar. How are you doing, my friend?

John Azar: Good, man. How are you?

Joe Fairless: I’m doing well, nice to have you on the show. A little bit about John – he co-manages the company’s newly-launched $100M private equity fund, so we’ve got a lot to talk about. He’s the executive vice-president and managing member of MACC Venture Partners, which is a private equity commercial real estate firm. Based in Charlotte, North Carolina. With that being said, John, do you wanna give the Best Ever listeners a little bit more about your background and your current focus?

John Azar: Sure. My background is mostly investments, financer-heavy [unintelligible [00:03:08].26] wealth management, commercial banking as well as institutional investment products. I had a real estate startup company, a real estate development consulting company that started back in 2003-2004, right after I left Morgan Stanley and did some consulting for large-scale mixed-case developments in New York, Philadelphia, Miami area.

Then obviously when the market took a dive in 2007-2008 my projects dried up and I had to look for a day job again. At the same time my brother was launching a new company here in Charlotte, which is the commercial firm that we have today. We grew it to a certain extent in the next few years and then in 2012-2013 he got more involved in the [unintelligible [00:03:51].05] and by 2015-2016 we launched a new private equity pursuit, and we just launched a new 100-million-dollar fund.

Joe Fairless: You’ve been busy.

John Azar: We have. That company was for the most part a multifamily owner operator. We buy and upgrade apartment complexes essentially across the South-East.

Joe Fairless: I want to focus our conversation on that, but just to tie up some questions on your background… You were consulting for large mixed-case development projects in the North-East – what were they paying you to talk to them about?

John Azar: Our role with the company that I was with was essentially investment bankers for these large scale developments. We would essentially package the deal in a nice little package with a ribbon on it and get paid a fee, and kind of walk away from it. We didn’t really necessarily take equity in any of the deals; we just made sure the buyers and the sellers are in the same place, the financing is there, the alternate financing if it was there, we would arrange the feasibility studies and any kind of introductions to local municipality, maybe if the Federal Government was involved… If there’s any [unintelligible [00:05:01].19] or contamination issues that needed federal involvement we’d kind of look into that as well.

Most projects typically took about a year, a year and a half to come to fruition, just because it’s a long cycle. We’re talking about large-scale projects. Most of them are projects that are ranging between 50-250 million dollars.

Joe Fairless: So you would work with the operators and they identified the opportunity, you then go find them the money and help take it to the finish line?

John Azar: No, sometimes we would identify the opportunities for them as well. They would just tell us “We’re interested in this city.”

Joe Fairless: “They” meaning the money people?

John Azar: “They” meaning the developers or the money people.

Joe Fairless: Okay.

John Azar: We would work with developers, we would work with money people, we would work with pretty much anybody that had an interest in getting a large-scale real estate project off the ground. Most of the time it was usually developers who would come to us and say “We’re interested in possibly doing a residential project in Boston. What do you think is out there that could be worth pursuing?” From there, we would sort of go and look for something.

We had a hotel conversion project in New York City that went from a condo project to a hotel project… That was an example.

Joe Fairless: What hotel?

John Azar: It was an old hotel and it had shut down; it was no longer operational, but I turned it into a mixed-case residential, higher-end residential. That would be one sample of a project.

Other projects could be just raw land… The two or three projects that kind of died out in 2007 were on the waterfront in East Boston, in Charlestown. They were large, old Navy Yard projects that had a lot of contamination issues, that were gonna be set to be converted to large-scale mixed-case or residential developments. Then 2007 hit and any money for decontamination or stuff like that dried up completely.

Joe Fairless: And how long — just on that waterfront project, how long had you been working on it before you no longer were working on it and had to shut down?

John Azar: We worked on it for over a year, a year-and-a-half.

Joe Fairless: For a Best Ever listener who perhaps has a taste of that – maybe not the full spectrum, but maybe they’ve been working on a project for 6-8 months and then it disappears, what would you say to them for how to deal with that?

John Azar: Look, you’re gonna have failures… That’s just part of the game. You’re gonna work on projects that you’re gonna put your heart and soul into and it’s not gonna come through. That doesn’t mean it wasn’t a good project, it doesn’t mean that you were a failure, it just means that the project and the timing just wasn’t right, for some reason, and the stars didn’t align. The project could maybe work in five years later, or three years later, or maybe three years earlier… But for whatever reason it just didn’t work.

Just dust yourself off and just keep moving, that’s the only choice that you have.

Joe Fairless: Now let’s talk about the 100 million dollar fund that you all have recently launched. What is your specific role with the fund?

John Azar: Most of what I do is I work with our investors and equity participants, equity partners. I help structure the capital — the capital structure, the capital fundraising portion of it… Anything that involves the capital and the financing end of it, that’s typically sort of my domain. My brother, who is the principal and CEO of the firm as well, he handles a lot of the acquisitions and asset sourcing and the underwriting when it comes to some of the assets that we do. So he’s out shopping for stuff to buy and I’m out shopping for money.

Joe Fairless: Yeah, it makes sense. That is a very similar structure for how my business partner and I have it set up. I am sure, just like with us, your responsibilities overlap, but those are your primary focuses, right?

John Azar: Exactly.

Joe Fairless: I get it.

John Azar: I’m responsible for the money, he’s responsible for the assets.

Joe Fairless: Right, I get it. So 100 million bucks – how long did it take to raise that amount of money? We’re still raising, and it’s gonna be an institutional-grade fund, which means that we will mostly be after institutional investors, that are mostly gonna be the pension funds, the endowments of the world, as opposed to the accredited investors – which we still have.

How historically we’ve operated and bought our properties is through individual syndication, which is sort of the model that most people in our industry have, and we still have that. We did not get away from the individual syndication model, so we’re gonna have a fund that will buy assets [unintelligible [00:09:30].27] maintain an individual syndication model, which is gonna be open for our normal investors, our regular sort of day-to-day accredited investors, high-net-worth investors that have been with us for the past ten years plus.

These are investors that are usually typically investing anywhere between 100k and up to 500k on a project with us. And they’re usually good for two or three projects per year. They’re not necessarily our target for the 100 million dollar fund. They can certainly participate in the 100 million dollar fund, but the minimums are much higher for our fund; there’s typically a one million dollar minimum for individual investors and 15 million dollars for institutional investors.

Joe Fairless: So your experience with how your career started is really gonna play a big role in this; you started in wealth management, and you’re in the North-East where a lot of the money is… Are you working on those connections to get the 100 million dollars closed out?

John Azar: You work all of your connections all the time.

Joe Fairless: [laughs]

John Azar: You have your connections that you worked with in the past, you create new connections… I love meeting people. To me, this is a people business. I love meeting new people; I’ve made a lot of great friends and a lot of new connections here in North Carolina, and I continue to expand my network on a day-to-day basis. Every now and then I’m lucky enough to make a few new friends along the way, which is fantastic.

Joe Fairless: The goal is 100 million – what have you got right now committed?

John Azar: Right now we have about five million because we just got started.

Joe Fairless: You just launched it.

John Azar: Yeah, we literally just launched it a couple weeks ago. The ink is still drying on some of the docs that just got finished.

Joe Fairless: So how does that work with a fund? With the five million that’s committed, do they transfer the money into an account, since it’s a fund?

John Azar: We don’t have to take all the money; we do capital commitments, and what that means is that you sign a capital commitment letter or capital commitment documents and essentially put a portion of the money down, and the rest of it is due upon capital calls. That’s how you sort of use the money – you use the money via a capital calls structure.

As soon as we hit certain milestones or certain hurdle rates, then we do a capital call. Let’s say our first milestone for this month is 20 million dollars. As soon as we hit 20 million dollars, then we do a capital call and start buying assets. We don’t have to wait until the whole 100 million is in.

Joe Fairless: Okay.

John Azar: It might take us a year, a year and a half to raise the hundred million, or even two years. We have up to two years to raise 100 million. It might take us the full two years, or we might be lucky enough to finish it in the next 10-12 months.

Joe Fairless: You might finish it after this interview goes live. [laughs]

John Azar: That would be fantastic. That would be music to my ears. [laughter]

Joe Fairless: With the initial portion of the money down, what percentage is that of their overall commitment?

John Azar: It’s 5 million, so that 5%.

Joe Fairless: No, you said you do capital commitment letters, and a portion of their money is down. What percent does someone have to put down?

John Azar: Typically 20%.

Joe Fairless: And that doesn’t generate an interest until you actually buy something, so you reach the 20 million dollar threshold?

John Azar: That’s right, it generates an interest. We put it in an interest-bearing segregated account, so it’s almost like an escrow account. It’s the same interest as that of any escrow account. You’re talking about market rates of next to nothing on escrow accounts these days… But once you actually pull the trigger and start buying projects, no, they’re not earning anything.

Joe Fairless: Why 100 million? Why not 105, or 85 million, or 125 million? How did you come up with that number? Besides that it sounds good.

John Azar: [laughs] Yeah, it does sound good. Funds are sort of an interesting creature… You’ve gotta do certain numbers, and it’s almost psychological. If you’re not gonna do 100 million, you should do 50 million. If you’re not gonna do 50 million, you should probably do 25 or 20 million, or something like that. Once you hit certain thresholds, you should just move on to the next thresholds, because otherwise you’re putting just as much money and effort into raising 15 million as you are raising 100 million. Once you start getting into that range between 50 and 100 million, you might as well go for the 100 million… To raise 75 or 80 or 85 million is gonna take you just as much effort, just as much being on the road, just as many meetings as raising 100 million, so why would you cut yourself short and raise 85 million, as opposed to 100 million?

Joe Fairless: And why do a fund versus do individual investments like I image you all have been doing?

John Azar: Well, like I said, we still have the individual investments. The fund really is going to allow us to have ready-to-deploy capital for projects that we can pull the trigger on pretty quickly and deploy capital quickly. It really gives us sort of a competitive advantage on some of the smaller deals, rather than the larger deals.

On the larger deals we have a lot of institutional partners that we deal with that we feel pretty confident that we can pull the trigger on and we can always participate in. Larger deals meaning [unintelligible [00:14:17].11] deals that will require anywhere between 10-20 million dollars in equity raises. Smaller deals are below that 8 million, 7 million threshold.

There’s a tricky sort of delta which is between the 2 million, 1 million and 6 million, where it’s a really tough place to do between 2 million and 6, 7, 8 million, because it’s not quite big enough for institutional guys to participate in, a little bit sometimes too big for the smaller guys to participate in… Because you can easily raise 3 million dollars from regular individual investors, but when you hit that 8 million or 3-7 million, it gets to be that no man’s land kind of parameter where you have to either do a combination of smaller investors and an institutional investor, or you have to find a specialty institutional investor where they’re willing to do a 5 to 6-7 million dollar investment with us.

So it’s a little bit more tricky and it takes a little bit more time, so having the fund will really give us a lot more flexibility and will allows us to be more nimble executing on deals.

Joe Fairless: From an advantage standpoint for you all, what are the ways that you make money on the fund versus a typical syndication?

John Azar: On the fund we make a little less money, that’s for sure. We make more money on syndications that we do on the fund, but the fund allows us to expand our bandwidth a lot quicker, obviously… 100 million dollars in an equity fund will buy us close to – if we’re doing 75% leverage, 25% equity, you’re talking about close to 400 million dollars worth of assets to add to our portfolio. You can scale pretty quickly with those parameters, as opposed to individual syndication, which is onesie-twosie, you have to go out there and…

And the other thing that the fund will allow us to do is we can go out and buy a portfolio of assets, as opposed to just one asset at a time and syndicate it one at a time. If we see a portfolio of two or three different assets — four different assets that have maybe an aggregated number of 1,100-1,200 units, we can utilize the fund to pull the trigger on something like that much easier than we can if we have to syndicate that.

Joe Fairless: I know you’ve been asked this before – what’s your answer to someone saying, “John, this is the hottest time right now to sell. It’s a seller’s market, why are you doing a 100 million dollar fund to buy?”

John Azar: Because we are in the top of the market. We’re gonna start seeing a contraction soon. We have already started seeing a contraction in the marketplace in some larger cities. Rents and class A products have already started taking a hit in some larger cities like New York, Boston, L.A. We’ve already started hearing whispers on the street that the contraction already started in the A class in certain metropolitan areas… So it’s really only a matter of time before this hits the rest of the street.

Right now there’s still a glut of buyers and a glut of sellers because of that exact reason. They know the rollercoaster’s at the top and it’s getting ready to get down a little bit. I’m not saying we’re looking at a cliff scenario per se, but even a small contraction is gonna leave plenty of room for more buyers than sellers, which is a great place for us. That’s what we want.

We feel that this is the right time to be in the market. We’re not quite at the back of the truck scenario with buying, but we feel like in the next 6-12 months there’s gonna be some really great deals coming out in the market.

Joe Fairless: And there will be really great deals coming on the market because they will be forced to sell because of the contraction, or because they’re trying to sell to get out ahead of it?

John Azar: The ones that are trying to sell ahead of it are selling now. These are the people that are in the market now, trying to sell. If you have a project that you’re trying to sell, any broker that you talk to, any commercial broker that you talk to will tell you “This is the time right now to put it on the market.”

Joe Fairless: Of course they’ll tell you that.

John Azar: Of course they [unintelligible [00:18:02].22] [laughter] But in all honesty, this is the time to put it on the market, because we’ve already started seeing interest rates rise and we’ve already started seeing — cap rates and interest rates are not quite matched up to each other yet; cap rates are still pretty low, and interest rates are just starting to creep up after the election. We’ve already seen 70, 80, 90 basis points upsurge in interest rates since the election until now.

I think once you start seeing an equalization of interest rates and cap rates, meaning the growth in cap rates or the expansion in the cap rates is gonna match what the expansion in the interest rates are, that’s when you’re gonna start seeing more buyers and less sellers in the marketplace — or actually, maybe the opposite: more sellers and less buyers.

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

John Azar: [laughs] My best real estate advice is, like I say with anything as far as investing is concerned – don’t worry about timing the market per se; it’s your time in the markets. You’ve gotta put your time in, you’ve gotta always be on the lookout to buy or sell. Don’t worry so much about whether you’re gonna hit it exactly right, because you’re never gonna hit it exactly right. Nobody has a crystal ball.

If you’re in the market, if you’re playing the game, if you’re doing deals on a regular basis, you’re gonna hit it right when the time comes for you to hit it right. So don’t worry so much about timing the market. A lot of people I talk to in [unintelligible [00:19:22].20] all worry about how they’re gonna time the market… I’m like, “Just be in the market! Be playing an active role somehow.” You don’t have to buy… I’m not saying “Buy all the time.”

We took a backseat on buying, in all honesty, back in November, and we just started buying now. We stopped buying from November, December, January, February and we just pulled the trigger on some projects just in the past month. For a firm like us, which we’re about 5,000 units size, for us to stop buying for four months was not an easy decision. Four months is a long time to stop buying, [unintelligible [00:19:54].03] to get out of the market, but it’s okay because we had a lot of other projects going on, we had some refi projects… So you’re always doing things and always looking in the market, your eyes, your hands are in the market some way or another, and that’s really what the key and what my advice is: just be in the market somehow – doing deals, looking at deals, looking at the projects… And don’t worry so much about timing the market.

Joe Fairless: I like it. That makes things really simple. If and when I repeat that quote, I will attribute it to you, I promise.

John Azar: [laughs] Well, thank you.

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

John Azar: Sure, I love it!

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

Break: [00:20:36].11] to [00:21:27].13]

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

John Azar: Freakonomics.

Joe Fairless: Did you say “Freakonomics”?

John Azar: Freakonomics, yeah.

Joe Fairless: Cool. I was just reading Tim Ferriss’ Tools Of Titans, and one of the authors of Freakonomics was profiled in that book, and I was just reading some quotes that he said on the podcast.

John Azar: Yeah, it’s a very entertaining book and it just kind of sticks to you.

Joe Fairless: Best ever deal you’ve done?

John Azar: Best ever deal I’ve done is pulling the trigger on joining my brother and expanding this company.

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

John Azar: I expected less of myself and settling for less than what I’m owed.

Joe Fairless: Can you elaborate?

John Azar: I was involved in a deal and we were doing mixed-case development consulting; we kind of got pushed around a little bit on what we were going to be paid. At the time I was younger and probably a lot more green than I am today… And even though we brought tremendous value to the deal, I thought that — it was one of those things where you think you’re just kind of lucky to be at the table and you’ll kind of take what they’ll give you, and that’s the wrong attitude, because don’t ever underestimate what value you bring and don’t undercut your own value. [unintelligible [00:22:32].07] with that deal and we got paid a lot less than what we should have done.

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

John Azar: I give back in a lot of different ways. I love mentoring, I love working with younger folks — and “younger” I mean sometimes a lot younger. I’m involved in a couple of different mentoring organizations for high schoolers and young adults. When I was in Massachusetts I was involved in an organization called [unintelligible [00:22:54].19] which mentored young adults that are between 18 and 24, and kind of helping them on a career track.

I was involved in an organization called NFTE (Network For Teaching Entrepreneurship). It’s more targeted for high school kids. I love working with Habitat For Humanity; we have teams here every now and then. A couple times a year here in the company we line  up a couple of habitat projects that we work on… Various other community projects I’m involved in, but mostly mentoring and coaching jazzes me up a lot.

Joe Fairless: Where can the Best Ever listeners get in touch with you or your firm?

John Azar: They can e-mail me, they can find me on Twitter, they can find me via our website… My e-mail is John@maccvp.com. They can go our website, maccvp.com. I’m on LinkedIn as well under Jalal John Azar. I’m in plain sight.

Joe Fairless: You’re everywhere. [laughs]

John Azar: I’m everywhere.

Joe Fairless: Well John, thank you for being on the show… Thanks for talking about the 100 million dollar fund. I enjoyed learning about the advantages of doing a fund, compared to an individual syndication. You mentioned a couple things – one is the fund allows you to buy faster so you can scale more quickly, and two is you have the flexibility to buy a portfolio of assets.

Then also just your overall thoughts on why you’re doing a fund now, because as I said earlier, I imagine you get that question a lot… And the best ever advice, where you said you want to make sure that you don’t worry about timing the market, but rather it’s about your time in the market. That doesn’t necessarily mean you’re always buying, but you’re actively involved in the market in some capacity, and you gave the perfect example of your group that has about 5,000 units and had a hiatus for five or six months, and is now back at it.

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

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Best Ever Show Real Estate Advice from experts

JF820: How to Own America, or at Least Portfolios of Properties that Render Big Returns Nationwide

Would you like to begin earning a massive yet passive income on large portfolios? Today’s guest sets up a somewhat turnkey operation that you are able to analyze and purchase all at once. His business model is fascinating with a ton of upside for the buyer, hear how you can buy your next portfolio.

Best Ever Tweet:

Adam Stern Real Estate Background:

– President at OwnAmerica; A National Real Estate Investment Brokerage
– OwnAmerica is the leading broker in the single family residential space
– Adam is currently the number 1 portfolio salesperson in the US
– 14 years in senior leadership positions within companies in the residential and investment real estate space
– Based in Charlotte, North Carolina
– Say hi to him at http://ownamerica.com
– Best Ever Book: Think Bigger by Mark Van Rijmenam

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Door Devil – visit http://www.doordevil.com and enter “bestever” to get an exclusive 20% discount on your purchase. Subscribe to Joe’s YouTube Channel here to learn multifamily and raising money tips:

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JF811: How to Be Rich and Generous and B.R.A.G. About It

Would you like to give back? Our guest helps other people complete real estate transactions as a coach and allows others to give back to the community. He is the host of a radio show and has completed just about every type of deal in the residential real estate investment realm. Here why he believes there is no excuse to not buy real estate if you’re making offers and some interesting deal scenarios.

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Larry Goins Real Estate Background:

– Active real estate investor & Host of the BRAG Radio Show
– Founder of Real Estate Day Trading, the art of buying and selling homes from your home office
– Real estate for over 30 years
– Travels to speak and train audiences on his strategies for buying and selling houses
– Author of “HUD Homes Half Off!” and “How to Get Started in Real Estate Day Trading
– Based in Charlotte, North Carolina
– Say hi to him at http://www.larrygoins.com/besteverlisteners
– Best Ever Book: Lessons from the Richest Man Who Ever Lived by Steven Scott

Want an inbox full of online leads? Get a FREE strategy session with Dan Barrett who is the only certified Google partner that exclusively works with real estate investors like us.

Click here: http://www.adwordsnerds.com to schedule the appointment.

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JF648: How to Host a Rockstar MEETUP Where all Deals Find You

He and his partner host four meetings A week, no mistake, four meetings a week! It makes sense as the majority of all his deals came from these meetings of adding value to other investors and has been diligent in doing so. He has raised a following in Charlotte and is quickly establishing himself as an authority in his local market. Hear how he sets it all up and what success he has seen.

Best Ever Tweet:

Taylor Peugh Real Estate Background:

– Holds 4 meeting a week for real estate investing (over 15 hours)
– Acquired properties via meetings
– Based in Charlotte, North Carolina
– You can reach him at taylor.peugh@gmail.com

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

Made Possible Because of Our Best Ever Sponsors:

You find the deals. We’ll fund them. Yes, it’s that simple. Fund That Flip is an online lender that provides fast and affordable capital to real estate investors.

We make funding your projects easy so you can focus on what you do best…rehabilitating homes. Learn more at http://www.fundthatflip.com/bestever.

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JF582: Why Hearing “No!” is MONEY and What this Property Manager can Teach You about Lead Generation

This highly proactive property manager is our guest today and he is on the attack! He take massive action by calculating how many “No’s” it takes to get to the yes. He calculates all his metrics and spend three hours daily prospecting, he has also purchased several buy-and-hold’s in the last 12 months, this is a powerful show and you should hear it!

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David Kerner real estate background:

  • In real estate for 20 years as a realtor-broker in residential sales
  • Been doing property management for 8 years and has 50 clients
  • Started investing 1 year ago and has 7 buy-and-holds with a focus now of growing his property management company and investing business for passive cash flow
  • Say hi to him at: davidkerner.com
  • Based in Charlotte, North Carolina
  • His Best Ever book: E-Myth by Michael Gerber

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

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

Need financing?

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

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

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

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JF 409: 32 Unit Deal Closed by Wholesaler Only 3 Years In!

He does it all! Wholesale, seller finance, lease option, you name it! He not only invests in single family homes, but multifamily buildings as well. Our Best Ever guest is hungry for deals, and he’s well connected socially via social media, seminars, and meetups. Hear about his investing experience in his hot market in Charlotte and be inspired to repeat! Oh yeah…he’s only been at it for 3 years, so what are you doing?

Best Ever Tweet:

Kevin Angle’s real estate background:

  • Based in Charlotte, North Carolina
  • CEO of Right Angle Properties
  • Buys and sells single family and apartment communities all over the southeast
  • Been doing real estate investing for 3 years
  • He controls 5 single family properties and wholesaled 35 properties; he is also doing owner financing
  • Played semi-professional golf for 7 years
  • Say hi to him at https://www.facebook.com/RightAngleProperties

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

Made Possible Because of Our Best Ever Sponsors:

You find the deals. We’ll fund them. Yes, it’s that simple. Fund That Flip is an online lender that provides fast and affordable capital to real estate investors. We make funding your projects easy so you can focus on what you do best…rehabilitating homes. Learn more at http://www.fundthatflip.com/bestever.

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