JF1342: How To Buy Non-Performing Notes & Keep People In Their Homes #SkillSetSunday with Jorge Newbery

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Jorge owned over 4000 apartment units before losing it all. He wrote about that experience in his book, Burn Zones. Now Jorge helps people stay in their homes when they can’t afford their mortgages anymore through loan modifications. Jorge also helps other investors do the same thing as him. If you enjoyed today’s episode remember to subscribe in iTunes and leave us a review!

 

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Jorge Newbery Real Estate Background:

Founder of American Homeowner Preservation LLC

– AHP utilizes Regulation A+ to crowdfund the purchase of non-performing mortgages from lenders at big discounts

– Author of Forbes Real Estate Council and amazon best-selling book Burn Zones

– Principal in mortgage, property management brokerage firms and have held real estate licenses in nine states

– Based in Chicago, Illinois

– Say hi to him at: www.notebuyerbootcamp.com


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Read Full Transcript

Joe Fairless: Best Ever listeners, how are you doing? Welcome to the best real estate investing advice ever show. I'm Joe Fairless, and this is the world's longest-running daily real estate investing podcast. We only talk about the best advice ever, we don't get into any of that fluffy stuff.
With us today, Jorge Newberry. How are you doing, Jorge?
Jorge Newberry: Hey. Good, Joe. Thanks for having me on.
Joe Fairless: My pleasure, nice to catch up with you again. I saw you in Denver at our conference a couple months ago(ish), and really enjoyed meeting you. I feel like I'd met you in person before, but if not, then I really enjoyed meeting you in person... But the reason why I felt that is because I've read your book, as I've told you before, and other people who I come across in life on a - I say this as much as I can, it is a must read for apartment investors; real estate investors in general, but really apartment investors, because it talks about pros and cons of how things can go up and things can go down with apartment investing in particular. The book is called Burn Zones, so I recommend reading that, Best Ever listeners.
Then also what Jorge does now - he is the founder of American Homeowner Preservation. American Homeowner Preservation utilizes regulation A+ to crowdfund the purchase of non-performing mortgages from lenders at big discounts, and also help homeowners stay in their homes.
Jorge has also recently been doing a program where he's helping others - he's training people how to do what they do to buy non-performing mortgages, so we're gonna talk about that, and that is the focus of our conversation today... It is if you are curious about how to do what his company does for yourself, then you came to the right spot.
If you wanna hear his best ever advice, go to episode 1126, titled "Bad Things Happen. Jorge Newberry Helps Families Stay in Their Homes When They Do", so episode 1126, you can hear more about Jorge. With that being said, Jorge, do you wanna just briefly give a background so the Best Ever listeners have some context? Then we'll dive into the training.
Jorge Newberry: Absolutely. You touched on it, but I'll give you the short story. About 15 years ago I owned about 4,000 apartments across the country, had a net worth in the tens of millions, and an ice storm hit my biggest holding and triggered this extraordinary sequence of events where I lost everything and ended up 26 million dollars in debt. That was more or less 2005-2006.
I was looking for a means to rebuild, and then I started hearing about the rumblings of the housing crisis and the mortgage crisis, and I thought hey, I just went through this ordeal and I survived, and now I see all these other families (millions of families in America) homeowners who are facing the same financial collapse that I did... And how can I help them? How can I use my experiences to devise strategies to buy their debt from banks and hedge funds at big discounts, and then we work that debt if they wanna stay in their home, but at much more affordable payments, reduce their delinquency... And that's how AHP started. We started in 2008, so we're almost 10 years old, and it's kind of evolved over the years into an investment fund which is now people can invest online $100 and support the mission.
We buy a lot of loans. We bought more than 2,500 loans last year, over 100 million dollars in debt, at huge discounts, and that's what we continue to do. We see there's a big opportunity, and once the market turns the other direction, we'll see it as an even greater opportunity.
Joe Fairless: Because the worse the market is - to put it crassly - the better your business is.
Jorge Newberry: Yeah, and it's not like we hope people get in trouble with their mortgage, it's just a by-product of a downturn in the market, and I guess the way to look at it is that we hope that families will need assistance at that point, and we'll be able to assist them. And literally, when we work a mortgage, it's not "Hey, we're cutting your payment by a few bucks." We can cut payments in half, we can forgive tens of thousands of dollars in delinquent payments or principal if we want.
We buy these at such discounts we have huge flexibility in terms of what we can do to make it. What you really wanna do is provide a solution so that the homeowner is saying "Hey, this is a great deal. I wanna pay you each month, because my payment is half of what I used to pay", and you're delivering a financial transformation, which also ends up yielding you a good return, because these things are sold at such great discounts often times.
Joe Fairless: And do you take accreditted and non-accreditted investors?
Jorge Newberry: Yeah, that's what's really exciting in our current fund - we accept both accreditted and non-acreditted investors.
Joe Fairless: And what type of returns have you historically achieved?
Jorge Newberry: We pay our first 12% to investors, and historically we've been paying that. And the actual returns, what do we generate - we've been generating 20% to 30%; our audit financials for 2016 we were I think 39.7%, so very high returns. It's gonna drop down; the first year is usually the highest, but it's still gonna be in the 20s and 30s.
Joe Fairless: And you said first 12% to investors, so is that 12% to investors and then the difference to your company, or is it split? Is there some sort of other performance hurdle?
Jorge Newberry: No, the difference goes to our company. We basically get everything over the 12%, but we don't get it right away. What we do is in the first years of the fund we reinvest any money that's over the 12%. That just gets reinvested in new mortgages, so if there's a downturn, if for whatever reason our returns get low for a moment, then we haven't just distributed to ourselves; it just stays in the fund and there's more and more assets in the fund.
The goal is at the end of five years all investors are paid back both their investment capital and their 12% return, and whatever is left is ours. I know the number from mid-2017, it's accumulated profits... So in our first year of operation in this particular fund we generated around a million and a half in accumulated profits; so that's profit over and above what we paid to investors, so that money was utilized to repurchase mortgages, and eventually if we were to liquidate the fund today, then that money would go to us.
Joe Fairless: And is that 12% annualized return?
Jorge Newberry: It's 12% annual return and we distributed it at 1%/month.
Joe Fairless: Sweet. Alright. So now let's talk about training people - and by people, I mean me and everyone listening, the Best Ever listenters that are listening - how we can buy a non-performing mortgage at the discount where we're able to then cut the mortgage payment in half to the owner?
Jorge Newberry: I'm gonna tell you two stories which will probably help illustrate this business. The first one is how difficult it is to get into this business. If anybody out there has tried and has not been successful, I sympathize, because when we started... You don't just call CitiBank and say "Hey, get me to your department that sells your non-performing mortgages." They're just like, "Hey, we don't have that department." So I could not figure it out, and finally what I did was I read a news story about [unintelligible 00:08:01.13] They were purchased by Bank of America and they laid off the CEO... So I said "Well, that guy probably knows the guy who I need to talk to." So I reached out to him on LinkedIn, and he accepted my connection, and I sent him a message saying "Hey, can you help introduce me to the people that can sell me defaulted mortgages?" Thankfully, he replied and he made me a proposal, I should say.
Again, he was unemployed at the time, so he said "Wire me $4,000 and then fly to New York and I'll spend a day with you and I'll take you to all the sellers I know." At first I was thinking "This sounds kind of weird", but he was a real guy; I'd read news stories about him, so I said "Let me do it." I sent the $4,000, and I flew to New York...
Joe Fairless: Any paperwork?
Jorge Newberry: No paperwork, all LinkedIn messages. That was the extent of our paperwork. I guess it was pretty -- well, it was $4,000... So what we did was we ended up flying to New York and he took me around to Bank of America, he took me around to all these different lenders, and it ended up being a highly productive day. We went to a number of big hedge funds, and again, Bank of America, and a month later we were buying loans.
At that point in the market - it was a point where the banks and hedge funds would sell to just about anybody who was willing to buy, because there was such an oversupply of loans.
Now, fast-forward to today, now it's tough for us to buy from some of those same banks that were willing to sell to us in our first few months. The reason is there's a lot more competition; just like in the real estate market and the note market, there's a huge amount of competition for these mortgages, so now they won't sell them a few hundred thousands or a million at a time, they're selling them at a hundred million dollar pools, so when we call and say "Hey, we have 10 million bucks or 5 million bucks", they're like "I can't help you."
But anyways, that was our start. But that is not a scalable, a repeatable start, so what I wanna do is provide that. The other part of your question was "How do these work in terms of buying these, and selling, and then discounts, and providing these extraordinary solutions to families?" I'll give you an example - we bought a loan... And this is a very common situation. We bought a loan on which the family had refinanced in 2008. Obviously, not a great time to refinance. The property at that point was appraised at $200,000, and they refinanced at $164,000. This is in Maywood, which is just outside of Chicago, and shortly after the crisis in 2009-2010, the breadwinner in the family was laid off from his 20-year job with Culligan water, basically delivering water to offices; he was laid off, so he didn't have money to pay the mortgage, he fell behind. The payment was more than $1,000/month, and the loan was serviced by Ocwen, so he applied for a mortgage modification; he told us his story - it went for months, and that turned into over a year, and finally they denied his modification, and they scheduled a foreclosure sale on his house.
Now, the good news is the hedge fund that owned that mortgage offered a whole pool of mortgages to us, which included this gentleman's home. What we did is we did a broker price opinion, which is kind of like a mini-appraisal on the home, and it came back at $33,000. So we offered 30%, $9,600. So just so your listeners understand that, the debt was -- unpaid principal balance on this mortgage was $164,000. He hadn't paid in several years. There were tens of thousands of dollars in delinquencies, and his payment was over $1,000/month. The home was worth $33,000, and we bought the mortgage for $9,600.
Joe Fairless: So the bank loses in that scenario, right?
Jorge Newberry: Well, somebody loses, clearly, because somebody loaned this gentleman $164,000 and now they're taking $9,600 for their position, so the bank or the Wall-Street-backed investment fund probably took a big hit at that point, but they're probably thinking "Hey, this home is worth $33,000. If we complete the foreclosure, we're gonna have to evict him", and they're gonna have to sell the property and pay brokerage... The recovery may be 20k, but there's still a lot more work, so it makes sense to take the $9,600 offer. I'm sure they thought ti was in their best interest to do it, and that's what they did. But when we contacted the gentleman and we said "Here's what we can do - if you wanna stay, we're gonna drop your monthly payment (again, it was over $1,000) to $320." So he is like, "Well, that sounds too good to be true. Maybe it's a scam", but he checked us out and discovered we really did own his mortgage.
We also gave two other options - "Hey, do you wanna settle this in one lump sum? We'll take 29k (10% less than what it was currently worth). Or if you don't want the house anymore, we'll give you $1,000. So you owe us all this money but we're gonna forgive the debt and give you $1,000 if you sign the deed to us."
Those are basically the options, and the way that we've had a lot of success is by just giving the options to the family, and they get to decide what's in our best interest, what makes sense for us to do. Do we wanna pay money and keep the house, or do we wanna get paid and just give up the house and get the debt forgiven? In this case, the family said "No, we wanna stay." So again, we dropped the payment to $3,200; they owed over--
Joe Fairless: $320, right?
Jorge Newberry: $320 from over $1,000.
Joe Fairless: Alright. You said $3,200, just wanted to make sure...
Jorge Newberry: Oh... That would be not good.
Joe Fairless: "We tripled it!"
Jorge Newberry: Yeah, "We tripled it!" No, we went from over $1,000 to $320. They hadn't paid in several years, so they owed over $20,000 in delinquent payments, and we took $2,000 and we forgave the difference. And the $320 payment was now gonna be the same payment for the remaining term of the loan, which is almost 20 years. So for them it was like "Oh my goodness, this is cheaper than rent, it's great deal", but for us - look at the numbers... We recieved $2,000, and then we got in that first year 10 payments of $320, so another $3,200. So $5,200 on $9,600 investment, so over 50% in the first year.
Then we continue to get $320 times 12 - almost $4,000/year for the remaining 20 years of the loan. So in the first year over 50% return, and then a 30%+ return for the next 19 years. We have all our money back within three years, and then we just have cashflow for the rest of the term.
That's basically in a nutshell what we do, and I know Wall-Street looks at what we do and they say "Okay, on paper you're getting these big returns, 20%-30%+, but really Jorge, you're making like $5,000-$10,000 a deal", and that's what it is, $5,000-$10,000 a deal, and for Wall-Street that's not something that's worth their while, which creates the opportunity, but here's where we've created a business - we bought $2,500 loans last year, so we make $5,000-$10,000 on all 2,500 loans, so we have a pretty decent business.
Joe Fairless: What is that math? 2,500 loans... How much do you make per deal on average?
Jorge Newberry: About $5,000.
Joe Fairless: About $5,000, got it. So that's 12.5 million, and you said "make", so that's profit after all expenses.
Jorge Newberry: Agreed. It's just a matter of how soon you make it, but yeah, there's a lot of money to be made on these things, there really is.
Joe Fairless: Now help us learn how to do this, please.
Jorge Newberry: So this is the challenge - how do you get started? The first thing is to figure out how to buy the loans, and there continues to be a very opaque market, but there are a number of hedge funds, smaller funds that will work with buyers who are wanting to buy just a handful of loans at a time.
A real kind of caution sign is when you're new it's very easy to overpay. You can use that situation that I described and said "Hey, the home is worth $32,000. If I get it for 20k, that's a 12k discount. That's pretty good." I might have even thought that 15 years ago, but it's not very good. You really need a significant discount; you wanna get into the 50% range or less of what the property is currently worth, because if they don't pay or you don't come to a resolution, now you're paying for an attorney to go to the foreclosure procedure, and that can take a long period of time, and your returns as time passes will generally diminish.
So unlike real estate, the longer you hold a non-performing loan, the value will tend to drop, and the reason is the taxes are going up and the property is potentially deteriorating, and just the duration of your investment is extending, so there's all kinds of reasons you wanna get to a fast consensual solution.
So there's funds out there, and I can name a few - there's Granite, there's Condor, even us, AHP, will occasionally sell loans in one, or two, or three, or four, or five at a time... So I think that's a place to start. And as you get bigger, if you say "Hey, I can do 50 or 100 of these", then you definitely go up the food chain and there's hedge funds and then even banks that will sell to you even in today's competitive market.
I think the strategy woudl be to maybe learn this while the market is competitive, get your bearings in terms of how all the pieces work, because when this market collapses again - which there's always a cycle; up, down, up down, boom, bust... And eventually there's gonna be another bust in the cycle, and that's where there's just immense opportunities. But if you decide, "Hey, I wanna buy loans" when all the opportunities are there, it's gonna take you a little bit of time to figure out what you're doing.
So I would think it's a wise time, and it's the reason why we're doing this - we're starting a servicer, which basically -- every loan needs to have a mortgage service, so we're starting a servicer and we're showing other people how to do this... Because when this crash happens, then there's no way we're gonna buy all the loans. We're not naive, thinking we're gonna buy every loan that becomes available. We wanna show other people who can find even other sources and other opportunities and do this in a social, responsible manner, which also coincindetally generally maximizes the financial returns.
Joe Fairless: In order to find the non-performing mortgages now, you gave three places: Granite, Condor and your company, AHP.
Jorge Newberry: And I can think of more. I can think of Security National Servicing (SN), they regularly sell loans. Basically, what happens is you'll call them up... We're setting up this program called Note Buyer Bootcamp and we'll add all the resources onto the site. Once you contact these groups, they'll send out periodic lists of loans. "Hey, we have this one loan available" or "We have these 100 loans available", and you can bid. Typically, even when it's 100 loans, they'll let you bid on one or all 100. Those are a handful, and NoteBuyerBootcamp.com - we'll put up a list of other sellers in the market and update that as people come and go, which inevitably happens.
Joe Fairless: And once you buy the note, is it just a cash transaction and then you now own the notes? So you've gotta pick up the phone and call the people living there?
Jorge Newberry: That's what you would like to do, but only part of that is true. So it is a cash transaction, so you're generally wiring the money, you sign a purchase contract... Somewhat similar to real estate purchase contracts, except now you're buying a note. Then you wire the money to the seller, and they will then send you the documents. What you're really buying is the note, the mortgage, the title insurance policy and whatever origination documents they maybe have for enforcing this laon - those are shipped to you, those originals, and they'll also transfer the servicing. Let's say it's serviced at Ocwen, and they're gonna say "Where do you wanna transfer it?" There's a number of servicers SN Servicing, FCI, BSI, ClearSpring... I think the number one choice should be AHP Servicing, but that's up to your listeners.
Then you'd like to call the homeowners, but you can't. In most states, they require that if you're doing any type of debt collections, particularly on a mortgage, that needs to be done by somebody who has whatever license that state requires. So that means that you usually have to take the loan to a servicer and have them call. This is where you end up kind of having this middle man - somewhat similar to a real estate agent - where they're the conduit for the interaction with the homeowner, but you can tell them what you wanna do. It's very simple. You can say "This homeowner wants to stay (just like the family in Maywood). We'll take a monthly payment of $320. They owe us $20,000 in delinquencies, but we'll take $2,000. And if they don't wanna stay, we'll give them $1,000."
You can do that, tell the servicer, and that's basically what they are communicating with the family. The ways they reach out is they can do phone calls, they can send letters, and ultimately they can send people and knock on the door. It starts with phone calls and letters, and then knocks on the door. If the home is vacant, they do a skip trace and they try to find where the people are... And think about it like this - people left, so they probably don't want the home, but now you're trying to track them down and say "Hey, I wanna give you $1,000 to find the deed and forgive the loan, so we don't need to foreclose." If you can do that and get the deed, and the homeowner is like "Hey, I didn't want the home anymore and I owe $200,000, so it doesn't make sense for me to keep it", but you bought it for $9,600, that's a big return, and if you can do that in a short period of time, your returns are through the roof... Because the alternative is to go through the long, tedious foreclosure process, which will take time and money, and you'll still probably make an okay return, but where the returns become extraordinary is where you can reach out to the family and make a deal.
Joe Fairless: I know we talked high-level about this and there are many bullet points underneath each of these, but for the purposes of this conversation, anything else that is a larger point that we should talk about as it relates to buying these mortgages at a discount?
Jorge Newberry: Those are nuts and bolts. It's so similar to buying a home that is broken in terms of it needs a lot of rehab, it needs a lot of fix-up, or a multifamily property that is in disrepair, has management issues... And then working out a solution in order to fix that house, fix that multifamily, or fix that loan. If you can generate a solution that works for the family, that's always gonna be your best resolution.
Joe Fairless: How can the Best Ever listeners get in touch with you or your company?
Jorge Newberry: Sure. If they're interested in purchasing notes, go to NoteBuyerBootcamp.com and you'll learn about the training program that we offer, which is basically online, and we have some free resources on there as well. You can reach out to that e-mail on there as well, info@notebuyerbootcamp.com.
Joe Fairless: Awesome. Jorge, thanks again for being on the show and talking about buying non-performing mortgages and notes, and how you got into it - fascinating story, about the LinkedIn trust that you had with that gentleman, and it turns out to be a very successful relationship... Definitely you, and he got $4,000, so I'm sure him too.
Jorge Newberry: It was the best $4,000 we've spent.
Joe Fairless: Yeah, absolutely... And then just talking about the overall process. Thanks again for being on the show. I hope you have a best ever day, and we'll talk to you soon.
Jorge Newberry: Alright, thanks, Joe.

JF1317: Trouble Finding Deals? Clickinvest Can Help with Rosario Terracciano

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Rosario shares his real estate investing story with us as well as explaining how his brokerage and online platform, Clickinvest helps investors find deals. From taking hits and being able to bounce back, to easily finding deals via his platform. We can all learn a lot from this episode. If you enjoyed today’s episode remember to subscribe in iTunes and leave us a review!

 

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Rosario Terracciano Real Estate Background:

-Co Founder and CEO of Clickinvest

-Began Real Estate career 2003 when he partnered with a Real Estate Broker specializing in distressed real estate

-He has sold over 2600 properties and in 2013 was ranked 1st in IL & 4th nationally by WSJ for units sold

-Now in his 15th year working exclusively in investment real estate he has launched Clickinvest.com

-Based in Chicago, Illinois

-Say hi to him at www.clickinvest.com and 708.369.3151

-Best Ever Book: Power of Positive Thinking


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TRANSCRIPTION

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

With us today, Rosario Terraciano. How are you doing, Rosario?

Rosario Terraciano: I’m doing great, man. Thanks for having me on.

Joe Fairless: Yeah, my pleasure, nice to have you on the show. A little bit about Rosario – he is the co-founder and CEO of Clickinvest. He began real estate in 2003 when he partnered with a real estate broker specializing in distressed real estate. He has since sold over 2,600 properties, and in 2013 was ranked first in Illinois and fourth nationally by the Wall-Street Journal for units sold – very impressive. He is based in Chicago, Illinois.

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

Rosario Terraciano: Yeah, absolutely. Thanks again for having me on. I got in real estate in 2003 as you mentioned; prior to that I was in the financial markets; I was trading EuroDollar futures and S&P futures, and it was time to move on. I dove in head first, and for the first couple years I was a wholesaler; I’m sure a lot of the Best Ever listeners know what that is. I was finding deals that were off market, getting them under contract and then wholesaling them out to investors that I was connected to.

I did that for the first couple of years, then got the itch and in 2005 I started building a rental portfolio for myself, I started raising money from family and friends, and doing flips along the way. I got married in 2005, had our oldest son in 2007, and then got completely wiped out in 2008. The market turned, and I was not ready for it… But I was blessed with having good people around me, and that led to launching Ressurecting Real Estate in 2009, which eventually became Clickinvest.

Within the first few years of launching Resurrecting Real Estate, I quickly became one of the top brokers in the Chicagoland area. In 2013, as you mentioned, I ranked first in Illinois and fourth national by the Wall Street Journal for selling 640 homes in one year, that year in 2013. In 2014 I began building out what is now Clickinvest, and in 2016 I partnered with Jeffrey Kershner; he ran the Midwest operations for Invitation Homes, which is a huge hedge fund in the marketplace, and he bought over 4,000 homes for them just over a two and a half year period or so. Then today Clickinvest is just pounding away doing what we do, helping local investors in our marketplace.

Joe Fairless: So your business model now through helping local investors in the marketplace is to do what?

Rosario Terraciano: Taking what we’ve learned being on the REO side and then being investors for ourselves, and then working with these large hedge funds, we saw there was a need in the marketplace for not just a system, but also a team that’s experienced in identifying buy and flip opportunities or buy and hold opportunities in the Chicagoland market. Basically, what we’ve done is we’ve built a proprietary system that identifies deals in the marketplace, goes through thousands of deals a day, filters it down to the best deals based on an ROI or based on a yield if you’re looking to hold the property, and then we have an in-house analyst that will do the final review, package everything for that client based on the client’s numbers, send it to them right to their inbox, and if they like it, they can click a button and submit an offer within seconds… So just expediting the whole purchase process for them.

Joe Fairless: That’s a very turnkey business model, I love that. That’s pretty cool. I wanna spend most of our time talking about Clickinvest, but based on your background and your story, I’d love to ask just a couple follow-up questions, if that’s fine.

Rosario Terraciano: Yeah, absolutely.

Joe Fairless: Let’s see – 2008 hit, you said you got wiped out, the market turned and you weren’t ready… What was the cause of the portfolio getting wiped away?

Rosario Terraciano: I had no idea what I was doing. I’m not sure if anybody listening can relate to this, but I read a book, I got super excited, right…? I’m an excitable guy, I’m very passionate — I saw a show, or two, or three, and thought “Man, this looks really easy.” Back then it was super easy to get money; you were paying super high interest in points, not like today, but it was easy to get money. I raised some money from family and friends along the way as well, and I went out there not knowing a thing about construction, not knowing a thing about how to screen tenants, and got ripped off left and right by contractors, because I had no clue.

I didn’t have the right mentors around me to really come alongside and say “Hey man, do you even know what you’re doing?” I was like, “Yeah, I wanna build a rental portfolio and start buying rentals. In a few years I’ll have a hundred and I can sit back and retire on the beach.” That’s the biggest reason by far – just mismanaged and clueless about what it took to run a portfolio.

Joe Fairless: Cool. Alright, I appreciate you sharing that. The last question I have on this and then we’ll move on to present day… With your investors, I imagine they lost money with you… Because 99% of the time we always hear about “Raise money, bring in investors, two thumbs up, sunshine, roses and puppy dogs”, but then what happens in a scenario where you lose money? Can you tell us about that and maybe some lessons you learned there?

Rosario Terraciano: Yeah, so I’m known for getting beat up quite a bit, and being totally free in sharing my story, because my prayer in this is that people avoid the same mistakes I made, right? So when I partner with family members or partner with friends, thinks about that – these guys were not in a position to invest, most of them. They saw that I was having success, because in an upward market, everybody was having success… Or in an appreciating market. So they started whipping money at me, like “Man, turn money for us!” So I started turning it, and I went from saint to devil within a year and a half. I was literally making everybody money, and then lost everybody’s money… So imagine that, showing up at Thanksgiving and your brother doesn’t wanna talk to you. So not only did I lose money, I lost friendships and hurt some close relationships through it for sure.

Joe Fairless: What advice would you give someone who is contemplating bringing in investors for the first time, knowing what you just said and your experience?

Rosario Terraciano: Are they accredited? Are they a real investor? Because somebody that’s just got 20k or 30k sitting down on the sideline, to me if they don’t have the experience and if they can’t afford to lose that money, they’re not an investor. It’s not worth it. There’s plenty of money in the space today, whether it’s lenders or private capital… Even some banks have just gotten a lot looser when it comes to real estate. Go to the pros. If the banker or lender doesn’t wanna give you money for the deal, then you really need to call a time out and ask yourself why. “If they don’t wanna give me money, should I be going out and taking someone else’s money?”

I’m a big believe in private capital. We have clients that raise money from private capital sources all the time, but these guys know what they’re doing and they have a track record, and they choose to do it not because they can’t get approves from a lender or a bank, it’s because ease of the deal, or whatever, it’s their choice. But if you’re getting declined by lender after lender after lender and all these other sources, I would really just pump the brakes a little bit before you go asking your brother or your cousin or your friend for money, if they’re not in a position to lose it.

Joe Fairless: And just so I’m crystal clear, your business model was fix and flipping?

Rosario Terraciano: Back then it was fix and flip and buy and hold. As I was flipping deals, I was rolling the money back in and buying more rentals.

Joe Fairless: And the domino effect was that those rentals weren’t cash-flowing enough to service the expenses when the market turned, so you lost them?

Rosario Terraciano: Yes.

Joe Fairless: Got it.

Rosario Terraciano: So what happened was I would buy a house for 60k, the contractor told me 25k before we closed, and after we closed it’s now 45k. So yeah, I couldn’t weather the storm, and then the second one person missed – as you said, domino effect and that was it.

Joe Fairless: Got it. Well, I sincerely appreciate and I have little prayer hands right now – I don’t know why, but I’m sending this your way… I sincerely appreciate you sharing that, because as you said, it’s something that’s very valuable for everyone to hear, just a cautionary tale, so thank you for that.

Rosario Terraciano: Absolutely.

Joe Fairless: So since then — that’s in the past, it was ten years ago… Holy cow, that was ten years ago.

Rosario Terraciano: Yeah, way too fast…

Joe Fairless: That was a decade ago… Welcome to today, Clickinvest – what is the number one challenge that you have with Clickinvest right now?

Rosario Terraciano: I think just in general, for real estate investor, and I’m sure you’re experiencing this where you’re at, but definitely in our market it’s inventory. Real estate inventory, specifically distressed inventory, is down 60% in the Chicagoland market just in the last two years. So the average flip for an investor is at a nine-year low. A lot of our clients were used to doing five, six, seven flips a year. Now because inventory is so tight, they’re doing three flips a year, or four flips a year. And when your average profit is let’s say $30,000 a flip, well if you’re doing one to two less flips a year, that’s a big hit to your income and to your lifestyle. So a lot of these guys are just stretched, because with less inventory, it means you’re putting in a lot more time just to find a deal, so your return on time is just really getting crushed.

So I would say that’s the biggest pain point for sure in our marketplace with our clients – the inventory side.

Joe Fairless: Do I have to log in to Clickinvest or something in order to see the deals, where then I click and make an offer, or is there some sort of login process?

Rosario Terraciano: Yeah, absolutely.

Joe Fairless: Okay, so the follow-up question then is when I log in and I see those properties, are they just properties that are listed, or are they properties that you also have another means of getting through different tactics?

Rosario Terraciano: We source multiple ponds. One of the first things I tell a potential client is “Hey look, we’re not a silver bullet. We’re not gonna be the beginning of the end of sourcing for you. We’re gonna be one of your ponds, and we hope we’re gonna be your best pond.” But in today’s market, you need to be working with wholesalers, you need to be working with local brokers that have pocket listings… If you have the cash, you need to be going to auctions, you need to be fishing on the web for online auctions as well, like the Hubzu’s and the Auction.com’s and whatnot.

So what we do is we try to pull in as many sources as possible into our system. The only thing we’re not touching right now are share of sales. But we’ve got wholesalers that we’ve vetted out that we feel do a great job; they bring us deals. We work with the Cook County Land Bank, which essentially is a middleman between Fannie Mae and Freddie Mac in our area, and these are all pre-listed REO’s; we’re their biggest strategic broker. And then we have brokers that are constantly bringing us pocket listings and whatnot… But the MLS has still been our best source because of the technology we’ve built and because we have the ability to go through thousands of properties a day and find those opportunities that a lot of people just aren’t willing to sit down and hit refresh every minute 24/7, waiting for that deal to come out, and then have it completely analyzed according to your deal analyzer, with your cost of capital and your buy side and sell side costs.

So every deal that our client gets has all of their numbers baked into the deal, so they’re seeing the true net profit and the true ROI on every single deal, so they can quickly submit an offer.

Joe Fairless: That is beautiful. What a smooth system that you’ve got, and it really should be a system in every market. Have you thought of doing some sort of licensing or franchising?

Rosario Terraciano: We have. So the goal right now is to get into Florida. We feel like we’ve got a good handle on the Chicagoland market – we’re doing flips, we’re doing rentals… The next market will be Florida, and then once we have a grip on another market, then I think we’re gonna seriously consider whether it’s licensing or just expediting our growth with partnerships or whatnot… But yeah, it’s a life-saver.

We have clients that literally — can I share an example?

Joe Fairless: Please do.

Rosario Terraciano: Okay, so the typical call I get is an investor who’s like “Man, there’s no deals.” I go “Well, we did 47 last month.” [laughter] “No, you don’t understand…” “Well, I understand, but we’re seeing deals, we’re getting deals.” We had so many that signed up within the last week… Before she signed up, she said she spent money, got set up, got educated, did all the things you’re supposed to do; one year later she still hasn’t done her first deal, and she’s like “This is ridiculous. I don’t know what to do.”

Well, another client signed up I think the day before I had the conversation with her… Within two hours got his first deal accepted. That’s not the norm, mind you, but the point is instead of running the 20 or 30 or 40 properties a week, which is what most investors are doing now, only to find that the deal is already gone or that there’s 15 investors lined up outside that door, we’ve built everything in a way that we’re giving you all the information, all the data with the rehab estimate, ARV, all the comps, even a suggested offer price, so that you can review the deal and submit an offer site unseen with confidence, right from your phone. And then we go to town negotiating that deal to get it locked up for you.

So instead of running through 20 or 30 or 40 properties a week that will take you 40 to 50 hours and then doing all the research yourself, within 20 to 30 minutes our clients can literally submit 20 to 30 offers and get them in, and then it’s just a numbers game.

Joe Fairless: What are all of your revenue streams for this company?

Rosario Terraciano: So it’s a subscription model, and it’s two-fold. Every client pays a monthly, because you’ve gotta pay just to have access. There was a time where it was free, and we had an army of tire-kickers that just wasted our time. So it’s a monthly fee to get into the system, and then we have our brokerage, because Clickinvest is a brokerage; it’s not just software. So we have in-house brokerage that does everything – your offer submissions, negotiations, escrow, coordinating delivery of earnest money, coordinating your appraisal inspection, contractor bids… Anything you need, it’s in-house, to get you to the closing table. So it’s all done right in our office, with our team.

Joe Fairless: And then do you have a property management arm?

Rosario Terraciano: We do not. We’re focusing right now on what we feel we’re best at and it’s the acquisitions. We’re not even doing the resale. We do have a ton of partners that we work with that we’re happy to refer out. Anytime we refer out, we don’t make anything; it’s just these are guys that we trust in our marketplace, that we’ve vetted during these 15+ years, and we’re like “Hey, these guys are good.”

Linda Liberatore referred me to you – she runs a management company in Illinois, Secure Pay One, which is like half the cost of traditional property management, which is crazy. So we like to open our network up to our friends, and we tell our clients “Hey look, if you need an attorney, here’s this guy. If you need  property management, here’s this person. If you need an education provider or somebody to just help take you to the next level, here’s this person.” So we feel by being that hub we can really help our clients just cut down the learning curve, if that makes sense.

Joe Fairless: Absolutely. It’s such an intuitive business model, too. Those two revenue streams are very logical, that makes a lot of sense. There are costs associated to the software development and maintenance, as well as the team, and then just the value that’s created through the subscription, and then the brokerage – obviously, that’s pretty simple for what you do there… Not simple for what you do, but just to understand why you have that in place. And I forgot Linda introduced us… Now I connected the dots right when you said that.

When was Clickinvest founded?

Rosario Terraciano: 2014 is when we started to build it out internally, but it officially launched last year in 2017. So we converted Resurrecting — well, really we merged Resurrecting Real Estate, which was the brokerage, with Clickinvest, which was the tech arm, and now it’s all bundled under one banner, which is Clickinvest.

Joe Fairless: And why change the model from what you had in 2013 when you were being recognized by Wall-Street Journal to something different? It seems like that first thing was working really well.

Rosario Terraciano: I love you… That leads right into one of the nuggets – knowing your cost. I told you I’m like a student of pain, I guess… So all that stuff is fluff, man… I can’t stress that enough.

Joe Fairless: We don’t like the fluffy stuff here.

Rosario Terraciano: Well, you’re gonna love me then, Joe. [laughter] So everybody’s like “Oh my gosh, top broker! Wins fourth nationally! Blah-blah-blah…” I didn’t understand margins. I didn’t understand my cost, and I think that’s a big mistake that a lot of people make, but I’m just gonna [unintelligible [00:20:22].14] So I go into this and I was so bent on being number one and top line and selling more real estate than anybody else, and paid no attention to my bottom line, none whatsoever. So I had 25 people in my office, I had virtual assistants in the Philippines and India, I had field operations… I had this crazy heavy operation, and overhead was through the roof. Nine million bucks over a 3-4 period (maybe less), but my margins were ridiculously low. And at the end of the day I’m like, “Okay, time out.” I just hit the top of our game and had nothing to show for it — I don’t wanna say nothing; a ton of experience, but not as much as I thought from the financial side… My poor wife and kids, they’re like “Wait a minute, weren’t you like number one?” “Yeah…” “Weren’t you ranked fourth?” “Yeah…” [laughter] “Why don’t you have the fancy car and why aren’t we in Hawaii for a month or two?” I’m like, “Well, kids, you’re gonna learn about margin.”

It was just ridiculous, so I called a time out in 2014, I’m like “I can’t do this anymore. I can’t run at this speed anymore”, and my solution back then was just hire more people, like that solves problems. That’s not what’s gonna solve problems. You have to leverage technology, you have to outsource your low payoff activities, and you have to really figure out what your return on time is, because at the end of the day… Investors always make this mistake, I deal with it every day – they’re always looking at the gross. Who cares about the gross? What’s your net? What are you walking away with at the end of the day, and then back into everything?

So the reason we made the switch was I, number one, couldn’t maintain the amount of staff I had, because the overhead was 150k/month just in payroll. And then number two, I’m like okay, if we’re going to do this because we know we have a system that works, how do we automate 80% of the processes? And that’s where Clickinvest was born. We said, okay, let’s take the filtering of properties, let’s take the transaction coordinations, let’s take the contract creation — we had two people full-time just drafting contracts. Now one person could send out 200 offers a day, with technology and what we’ve built out.

So we had to rebuild to survive, or there was no way we would have made it, not a chance. And then along the way we figured out “Wow, we have something really cool here, and this can help a lot of people.”

Joe Fairless: Thank you, again, for sharing that. That is a lesson that we all should pay attention to… If we’re not, then we’re gonna have a similar story that you just had, where we’re gonna reach the top of the game from a perception standpoint, but then have not a lot to show for it monetarily. And your return on time, as you said, is something we need to focus on… And the net — not the income coming in, but what you are actually putting in your bank account.

Based on your experience in real estate — we’ve talked about a lot of lessons and a lot of advice… What is your best real estate investing advice ever?

Rosario Terraciano: I would say just driving home knowing your margins… Going back to that and just understanding that. What do you want? Everybody wants to make a million bucks. You know, been there, done that; it’s not gonna give you happiness. It will help a little bit, but believe me – happy wife, happy life. I’m a man of faith, I’m involved in my church, my kids are a huge blessing to me… That’s what fuels me nowadays. So don’t get so caught up in top line, and when you get there then you’ve made it, because when you get there, it may not be where you wanna be… If that makes any sense. Or when you get there, it’s not what you thought it was gonna be.

So just work smarter, pay attention to your return on time, because what you don’t wanna do is lose ten years of your life only to look back and be like “What the heck was that for?” And even worse, be like me – spend ten years of your life, and then look back and be like “And I didn’t even make what I thought I’d make.” [laughter]

Joe Fairless: But you had a really good story to tell us, so it’s all worth it. [laughs]

Rosario Terraciano: Yeah, there you go.

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

Rosario Terraciano: Yeah, let’s do it, man.

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

Break: [[00:24:54].09] to [[00:25:26].24]

Joe Fairless: Best ever book you’ve read?

Rosario Terraciano: The Power of Positive Thinking, Norman Vincent Peale.

Joe Fairless: Best ever deal you’ve done?

Rosario Terraciano: I would say a deal — pulling in 300k in commission in one month was pretty sweet.

Joe Fairless: And that’s profit, yes?

Rosario Terraciano: [laughs] That was gross.

Joe Fairless: Oh, we’re still talking gross, huh?

Rosario Terraciano: [laughs] Oh, man, I know…

Joe Fairless: Old habits die hard, right?

Rosario Terraciano: Absolutely.

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

Rosario Terraciano: Assuming. Never assume. Assuming that somebody’s dropped off earnest money, or assuming that a house still exists. Because sometimes they get torn down before closing.

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

Rosario Terraciano: God willing, one day I’d love to get into full-time ministry, whether as a pastor, or youth minister, mentor, whatever.

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

Rosario Terraciano: Cell phone – I try to be as available as possible, except on the weekends. 708 369 3151. Or check out Clickinvest.com, and then my information is on there as well.

Joe Fairless: Rosario, a lot of life lessons, a lot of real estate lessons that are applicable – I’m gonna speak personally – for me, just to have things reinforced, as well as just hearing the things you’ve learned and how you’ve evolved the business too with Clickinvest.

Clickinvest sounds like a beautiful business model for you and for investors number one… And then from bringing investing partners into it, your approach is now if you do, make sure they’re accredited, so they are at the financial level of being able to have their investment dollars at risk. You’ve talked about the downside of what happens when a deal goes the opposite direction and you’ve got family and friends investing, and then also margins.

We can be recognized by New York Times or Wall-Street Journal, but it doesn’t mean that the business is optimized for long-term growth from a profit and loss standpoint… So really taking a look at our return on time.

Congrats on Clickinvest and what you’re doing there, and looking forward to staying in touch. I hope you have a best ever day, and we’ll talk to you soon.

Rosario Terraciano: Thanks a lot, man. I appreciate the opportunity.

JF1262: Investing and Managing In South Side Chicago with Jared Kott

Listen to the Episode Below (27:32)
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Jared started in real estate 5 years ago. Now he has over 75 rental units of his own, and manages over 100 more for his clients. Jared prefers the south side of Chicago, which he says is an often forgotten area of the city. He has a lot of wisdom to share with us today with both investing and managing properties. If you enjoyed today’s episode remember to subscribe in iTunes and leave us a review!

 

Best Ever Tweet:

 

Jared Kott Real Estate Background:

-Owner of Marblestone Property Group, a property management company

-South Side Chicago real estate investor, an often forgotten area of the city

-Has accumulated 75 rental units, over 100 under management in under 5 years with no prior real estate experience

-Has a long lasting relationship with Secure Pay One, whom they partner with

-Say hi to him at http://www.mpghousing.com/

-Based in Chicago, Illinois

-Best Ever Book: Never Split the DIfference

 


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TRANSCRIPTION

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

Jared Kott: Joe, I’m doing great. Thanks so much for having me.

Joe Fairless: Well, that is great to hear. It’s my pleasure, and I’m looking forward to diving in. A little bit about Jared – he is based in Chicago, on the South side of Chicago. He lives where he invests. He has accumulated 75 rental units, he’s got over 100 under management. He also manages his own stuff, as well as for other people. He’s the owner of Marblestone Property Group, which is a property management company, which I’ve just mentioned. With that being said, Jared, do you wanna give the Best Ever listeners a little bit more about your background and your current focus?

Jared Kott: Sure, Joe. I started in real estate just shy of five years. Prior to that I was a corporate guy, working in downtown Chicago for some insurance firms… And unbeknownst to me, I bit off a little bit more than I could chew, I was fired, I was too proud to go back, and at that time in 2013 I spent a lot of time looking for deals but never had the courage to actually go out and invest myself. So I looked at this as just a perfect opportunity to jump in.

So I jumped in in February 2013, started absorbing every piece of knowledge, from books, podcasts, local REIA’s, relationships – anything I could use to learn about real estate, because I didn’t have much going on when I got fired. That’s kind of how I got started.

I worked for a guy for free for about 4-5 months, and learned a lot… He owned a management company and I learned a lot about how I didn’t wanna run a company, after about 60 days working with him.

I purchased the first unit – that was like 5th August, 2013. $25,000, Joe. A $25,000 brick two-flat on the South side of Chicago. I still have it.

Joe Fairless: Okay. Obviously, a couple questions and then we’ll keep rolling. One is you said you bit off more than you could chew so you got fired; what did you get fired for?

Jared Kott: We just didn’t see eye to eye. I think it was more of my personality of a guy that kind of — I just don’t sit back; I’m a driven guy that kind of likes to rock the boat, bring new ideas, and the company I was with at that time was more structured, “Let’s follow every procedure to a T”, didn’t like new ideas… And they just said “Hey, do you know where conference room B is?” and I knew that was my time being on that chopping block. [laughter] But it was the greatest thing that could have ever happened to me really, and [unintelligible [00:04:38].08]

Joe Fairless: [laughs] That’s funny. Alright… You said you got started by reading books, you worked for a guy for free… I think you mentioned how long, but I was trying to take notes and I didn’t catch it. How long did you work for someone for free?

Jared Kott: I worked for this guy for about four months. I met him at a REIA, exchanged some business cards and contact info and stuff, and I said “Listen, I have a lot of time on my hands. I’d love to learn the business.” I think he threw it out there he’s looking to train guys, and stuff like that… So that’s kind of how I made that introduction, and I remember — I didn’t have a car at the time, I had a Harley Davidson, and I rode my motorcycle down to one of his properties and met him… And it was crazy – there was like stickers on the door, the place just looked completely run down. He was banging on the door to get some rent, and I said “Man, I don’t wanna operate my business like this, but I could sure probably learn a couple things.”

Joe Fairless: You did that for four months… What were your responsibilities during those four months?

Jared Kott: It was more kind of just like — and I work well like this, Joe… I was like thrown into the fire. I was delivering five-day notices, calling tenants for back rents, updating utilities with the water companies and stuff like that. Looking back, it was a really good exposure, because sitting in an office you don’t know these things that you have to do to manage properties on a day-to-day basis… You know, the proper way to do it.

Joe Fairless: You said that you learned some things that you wouldn’t apply towards your business now… What are the things that you learned that you don’t do?

Jared Kott: Well, this is the key – there were zero processes in place, and when there’s zero processes in place, it’s chaotic all the time. Absolutely chaotic. So what I decided at that time was I needed to be able to create processes fairly quickly, so when I jump off on my own to start this, that I can scale, I can repeat, there can be consistency… Because there was none of that in my experience with this guy.

Joe Fairless: Now you’ve got over 100 properties under management… Tell us about the internal process structure that you have set up with your business now.

Jared Kott: Really good segue. So one of your past guests, Linda from Secure Pay One – I got to know her about two years ago… And I thought I had some processes in place, and they were decent, but it’s just not my skillset. So what we currently do now – we have a relationship with Secure Pay One, so all of the backroom stuff is done through Linda and her team… So the write-ups of the leases, all the data that goes into our management system – we use Buildium – all the rents that go in… All of that backroom stuff is done not in-house, not in our office, it’s done with Secure Pay One. That leaves us to be able to focus on boots on the ground, relationships with the clients where needed, sourcing more deals, bringing more management opportunities in the door.

Joe Fairless: For me to understand the business relationship more in terms of responsibilities, you said it allows you to focus on relationships with the clients and boots on the ground… So what are the boots on the ground doing from a management standpoint?

Jared Kott: Well, this all started in Chicago, if I paint it with a broad brush. It’s not the easiest place to manage properties. There’s just a lot of activity – people hanging out a lot of times on the larger units (three, four bedrooms), you have to do quarterly inspections just to stay up on the tenants… It’s just a very, very high touch, so we like to be visible, and we’re very clear with our tenants when we go through the interviewing process and the leasing and things like that, that we will be around. We’re not a hands-off operation where you just sign a lease and send the rent checks into the office. We don’t operate like that; we will be around.

So we do a lot of that… It’s the sixth of the month today, and there’s a couple folks in the portfolio that are late, so today that’s what our stuff is out there… Getting to five days out on the sixth. We’re just really on top of the things that [unintelligible [00:08:50].05]

Joe Fairless: Now let’s talk about 75 rental units… You started five years ago – how much money did you start with when you were buying deals?

Jared Kott: I had a small retirement account. I looked at it as it was liquid; I would have done things completely different now, learn some different strategies with investing with IRAs and things like that, but… I started with 250k, and I was just draining my 401k. It was basically everything I had, right? So I was taking it from the 401k, I was buying assets at the time for 20k-25k, putting 30k-35k into them, and then refinancing them.

I also had a small HELOC from a condo that I owned downtown, which was good… And things were great, until two things happened. One, I ran out of money. I saw the light at the end of the tunnel, that I was gonna run out fairly quick. And then two, I didn’t pay tax on any of that money, so I got a nice bill from the IRS. It was just a lack of knowledge.

So when I started to realize… I think I had like 10-12 units, Joe, at the time, so there was no debt, money was coming in and it was okay, but it was like “Who wants to stop at ten”, right? You’ve gotta keep going. So I went to a bunch of different banks… Remember in 2013, 2014 we were still bouncing off the bottom in terms of pricing here on the South side of Chicago, and not having a W-2 job made it really difficult for me to get financing to carry on. So I went to 21 banks, and I had a pretty decent plan put together…

Joe Fairless: What was it?

Jared Kott: What was the plan?

Joe Fairless: Yeah.

Jared Kott: It was like a 24 months rinse and repeat, sort of the BRRRR strategy before it was coined that… And all the banks loved it, but they said “You’ve only been doing this nine months, you don’t have a W-2 income anymore… Come back to us in a couple of years.” And I was like “I don’t have a couple years. I’ve gotta keep this train moving.” So I ended up hooking up with a local lender, a higher interest REIT; I wouldn’t say hard-hard money, but it certainly wasn’t soft… And they gave me a line of credit, so I pledged my assets and then from there I bought ten more, and went to a community bank that all the while I had been nurturing a relationship with, a local community investment corporation, and then they took me out. Since then, we’ve been just rinsing and repeating back and forth. It’s been a nice relationship.

Joe Fairless: What are the terms?

Jared Kott: Double-digit, like ten and two, so you’ve gotta be really, really good at your process on construction. We can’t be sitting on these things too long; we have to get in and get out of them… But certainly want to rent it up. My play down here is it’s all about high cashflow. What it’s worth on paper to me is not nearly as important as the monthly cashflow, so that certainly can cover that service.

Joe Fairless: On average across your portfolio, what does one unit cash-flow per month?

Jared Kott: Just under $400.

Joe Fairless: $400. And that’s post-renovation, correct?

Jared Kott: Yes, correct.

Joe Fairless: Okay. So your model is you buy for cashflow, and maybe it depreciates, maybe it doesn’t, but the cashflow is the main thing… And is a typical deal about a 25k purchase, put 30k all-in, and then rent it out and cash-flow the $400?

Jared Kott: Yeah, that’s the model. Now, things are beginning to change. The assets that you could buy for 25k-30k are now in the $50,000 range, and rents certainly aren’t in line with the increase on that… But there’s still significant play for cashflow, but it’s not what we’re used to seeing, hence why we’re slowing down a little bit, and growing the management and really continuing to tighten up these processes, because — I don’t know; I don’t have a crystal ball, Joe, but I do think something is gonna change… I don’t know what or when, but I just kind of — and again, I haven’t seen a full cycle, so I may be way too early making this assumption, but it just seems to me like prices are a little bit out of line.

I’m seeing stuff in our local market, apartment buildings where some off-shore money is coming in and purchasing stuff for 80k-90k a door. At that, you’re gonna be cashflow-negative, so to me it doesn’t make sense; I’m gonna sit back for a little bit.

Joe Fairless: If a project does cash-flow the $400, but you’re paying more for it than you were previously, would you still buy it?

Jared Kott: Yes. Depending on the location and the deal, yeah. I’m never gonna turn away a deal, but it’s gotta be a deal, it’s gotta cash-flow.

Joe Fairless: Cool. It’s incredible what you did with $250,000 five years ago… How much was the HELOC loan?

Jared Kott: The HELOC was just under 100k… It was like high 80’s, so that I can move around.

Joe Fairless: Alright. So under 350k, about 330k…  You basically took 330k and in five years you now have about 330k in annual cashflow as a result of it, right? Because $400/month per property, times 75 properties, that’s 360k cashflow/year.

Jared Kott: Yup.

Joe Fairless: And would you say it’s just through the tried and true you buy a place, you renovated it, you’re refinancing into a loan and then you’re taking that cash back out and put it into a new deal that cash-flows? Is that basically the model?

Jared Kott: That’s it. Yeah, it’s like a see-saw. The line of credit will go up, and then the permanent debt will take it out, and it’s back and forth, back and forth, back and forth.

The only issue that we currently are running into is with our local bank. And it’s not really an issue, it’s just kind of like as you evolve, you go into uncharted waters… We’ve hit a ceiling cap in terms of debt with them, so we have to refi out of them now to get more relief, to be able to continue that cycle if we choose to do it. But I do think in the future that our model is gonna be more towards scaling up in the larger buildings.

These assets, single-family homes, 1-4 units – they’re great, they cash-flow like crazy; as we’ve touched on earlier, there’s a  lot of high touch and a lot of just administrative work for it. If you have 50  properties — let’s just say you have 50 properties and they’re all two-flats, so you have 100 units. That’s 50 grass to cut, 50 water bills, that’s 50 rent checks… I mean, it’s 100 rent checks, but you get the point – there’s so much of it, where if we can get more doors under one roof, I think that’s our next move.

Joe Fairless: You told me before we started recording that you listened to podcasts, so maybe through that you just — through your experience and my questions, you’ve basically stalled my question… You answered this; perfect, thank you for that. And that was, I’m sure a lot of listeners have a similar goal of “Hey, I’ve got some money”, whether it’s 330k, like you had available, or whether it’s 100k or 50k or 10 million (I don’t know), whatever it is, but “I’d like to take that money and turn that into that amount of cashflow in five years”, and that’s exactly what you did – you took the money you had to invest, and in five years, boom, now it’s actual cashflow… So what suggestions would you give a listener who wants to replicate what you did and maybe some cautionary things along the way we should watch out for.

Jared Kott: Let’s use round numbers. If you can get 300k, I would probably find the right partner and try to get it to 600k. I think that partnerships can really get you to the next level quick. If that’s not the road you wanna go, I think that leverage is your answer. Start now developing relationships with your lenders, your bankers, your private investors. It’s very difficult to go to somebody and say “Hey, I have this idea, let’s make this happen” in terms of institutional money, right? If you can begin it early, start and put a couple deals together and continue to leverage up, I think that’s probably the quickest way to do it.

Or some guys – I didn’t go this route – just swing for the homerun on the first one. I couldn’t put all those pieces of the puzzle together, so the way that I started was “I’m gonna do a two-flat, and then I’m gonna do another two-flat to make sure that this one wasn’t just a gimmick.” Then I did a four-flat, and then I sought a few single-families… I think there’s a lot of ways to do it, but I think the ultimate answer here is it’s all about relationships… Relationships and action – that’s the way to make it happen. And don’t wait. I got fired on a Friday, and I literally signed up for a week-long training session on Monday.

Joe Fairless: Which one was it?

Jared Kott: It was a property management program for community investment corporation (CIC), which is here at a local college. Then there was another guest who actually I’m buddies with out in Virginia, Jim Ingersoll, and he had a Bank Elimination Blueprint program, him and Daniil Kleyman, and I bought that thing for $500; there’s 100 hours of content and it’s amazing. If you don’t have a job, you have a lot of time, and I just absorbed all that stuff that I could.

And don’t be afraid to ask questions. Anybody who’s listening now and just trying to get into this, and “How do I break through?” and “How do I get started?”, “How do I make this happen?”, ask people. Nobody was just born with all these answers.

Joe Fairless: How good are you at swinging a hammer?

Jared Kott: I’m horrible.

Joe Fairless: You’re horrible, okay. So you’re not a handy guy.

Jared Kott: No, not at all.

Joe Fairless: Alright, what role did you have in the renovation process at the beginning and now?

Jared Kott: My role in the beginning was — I also wanted to learn, right? That’s why I worked for that guy for free. So I would talk to the guys who were on the job sites during some — because there was a construction arm that was construction arm that was going on… And I would ask them, “Hey, how long is this gonna take? I’m not your boss, I’m just curious… How long is this gonna take to frame this up? How many sheets of drywall is 500 square feet?”

Then I would go to Home Depot and I would look at how much is a piece of drywall, how many sheets is it gonna take, and then I would know the time. Then I would ask that question, like Grant Cardone says, 10x. I would ask ten people the same thing, over and over, to see if I’m in that same realm. So that’s kind of how I began to do it, and now what I do is I just deal with referrals and relationships and guys that I trust to get things done.

I’ve done some demo work on days where I was frustrated, but I’ve never–

Joe Fairless: After you went to conference room B?

Jared Kott: Yeah, exactly… [laughs] But I’m just not a handy guy.

Joe Fairless: Well, that give encouragement to everyone out there who is not a handy guy or gal, that’s for sure, but wants to replicate this process.

Jared Kott: Sure. And again, get the systems down. Every city has probably got some weekend course on construction management, or something like that. Learn the basics, because it’s important to know the basics. I’m not saying you have to know how much a piece of drywall costs, but you should know about some pricing in the beginning, and then you can get project managers and things like that to kind of take it over… But you just don’t wanna get taken for a ride too early.

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

Jared Kott: Start now, and when you make mistakes – because you will – everything and anything is fixable. Don’t freak out.

Joe Fairless: You mentioned something earlier I’d love for you to elaborate on – you said you had a small retirement account, knowing what you know now, you would have done things differently. What would you have done differently?

Jared Kott: I would have had the 401k transferred – and please, to the listeners, I’m not an expert at this, so I’m just telling you what I would have done, but I would definitely sit down first with an accountant to make sure that it was the right way to do it… I would have taken the 401k, put it into an IRA, and then I probably would have found somebody with a similar account balance that was willing to lend back and forth at very low interest rates, so we can continue to move money back and forth. We do do some stuff now. But I just wouldn’t have withdrawn it like it was an ATM; it was one of the worst mistakes I could ever make.

Joe Fairless: Why?

Jared Kott: Because it was like a $50,000 bill, if not more.

Joe Fairless: At the end, when you weren’t expecting it?

Jared Kott: Oh yeah.

Joe Fairless: That’s fun.

Jared Kott: Yeah, it sure is… But it’s one of those things, Joe – you make that mistake and it will never happen again.

Joe Fairless: You won’t make it again!

Jared Kott: That’s right, we’ll not make that one again.

Joe Fairless: What did you do to make sure that didn’t happen again?

Jared Kott: Well, I don’t believe in the markets anymore, so I put my money into cashflow real estate… So I won’t have to worry about that anymore.

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

Jared Kott: I’m ready!

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

Break: [[00:22:08].13] to [[00:23:02].19]

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

Jared Kott: I’m reading it now, Never Split the Difference, Chris Voss.

Joe Fairless: Boy, that’s the second time today I’ve heard this book mentioned, and I bought it after — I haven’t read it, because I’ve just bought it, but after the person mentioned it on the last interview I said “I’m gonna buy it as soon as the interview is over”, so I’m looking forward to reading it.

Jared Kott: Awesome.

Joe Fairless: Best ever deal you’ve done – not the last one and not the first one… One of the in between.

Jared Kott: Sure. I offered a guy $20,000 on a four-flat, he didn’t wanna take it, and I noticed he had a Las Vegas ball cap on, so I was talking to him and it was him and I doing kind of a direct feel sit-down, and I said “What else do you like doing besides hanging out in the neighborhood?” and he goes “I love Las Vegas.” And I said, “How about this – how about I get you a limo and some plane tickets and a hotel around $12,000 or $15,000 for the house?” He goes “You know what, that might work.” The whole thing, Joe, came up at $19,000, but it was… It’s perception, so… Yeah, he took it, and we did it. [laughter] Yeah, Vegas four-flat, baby.

Joe Fairless: Wow. How much does that make you a month?

Jared Kott: [unintelligible [00:24:17].23] $4,300.

Joe Fairless: Do you have debt on all your deals? I guess you do, because you do the cash-out refinance on them…

Jared Kott: Yeah, I do.

Joe Fairless: Okay. And that’s what you were saying earlier, where you’re about to reach a limit?

Jared Kott: Yeah.

Joe Fairless: Okay. Who do you have the debt with?

Jared Kott: I have it primarily with one bank, the commercial lender here, a community investment corporation.

Joe Fairless: Okay, just a local bank…

Jared Kott: Local, yeah. They’ve been around for like 30 years. Again, I try to deal with experts in the field, so this is what they do – they work in somewhat distressed neighborhoods and they lend to owner-operators.

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

Jared Kott: I make them all time. I think my personality is — if you look at the disk, I’m [unintelligible [00:25:03].05] so a lot of times I don’t think through things as clearly and as detailed as I should… So I guess my mistake is I’m all gas, no break… Which can be good.

Joe Fairless: [laughs] Can you think of a specific example where that’s burned you?

Jared Kott: Yeah, I hired somebody about three months ago, and I had to let them go two weeks after… It was just because I shouldn’t be in charge of hiring. I was like, “Can you fill this role?” “Yeah.” “Okay, let’s go.” And then I just said “I’m really sorry, I made a big mistake here. It’s not you, it’s me.” I know it sounds like high school dating, but this is all me.

Joe Fairless: Because you just assumed that people will have the same type of drive and attitude as you have who you hire… It’s like “Okay, you say you can do it? Alright, you’ll do it…” and not everyone’s like that.

Jared Kott: Exactly.

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

Jared Kott: I try to mentor some men and women, mostly guys who are looking for a better way of life; I try to give them advice and spend time with them using real estate as a vehicle that can get them out to the next place that they wanna be if it’s not where they currently are.

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

Jared Kott: Check out our website, mpghousing.com. You can check us out on Facebook at Marblestone Property Group, and there’s a bunch of links where you can reach out to us. And if you’re in the Chicago area, we’d love to talk to you.

Joe Fairless: Mpghousing.com, that is also a link in the show notes page. Jared, thanks for being on the show and talking about your last five years. You $330,000 in five years, it now brings in $360,000 cashflow, and doing it through the renovation process of a home, then you refinance, take that money, put it into something else and continue to rinse and repeat… Scaling along the way, lessons learned, process approach – all good stuff.

I really appreciate you sharing some insight and your story with us. I hope you have a best ever day, my friend, and we’ll talk to you soon.

Jared Kott: Joe, thank you, man. Keep up the great work! Talk soon.

JF1253: Learn How To Deal With Contractors & Save Money with Ryan Garcilazo

Listen to the Episode Below (29:01)
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Ryan is a contractor and investor who specializes in training investors how to deal with contractors. This is huge as investors, especially flippers. With proper construction knowledge you’ll be able to save money on bids, as well as keeping yourself from being taken advantage of. If you enjoyed today’s episode remember to subscribe in iTunes and leave us a review!

 

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Ryan Garcilazo Real Estate Background:

-Owner of the Gacilazo group, who train investors, newbies, contractors and wholesalers how to rehab

-They buys, renovate, and turn—either renting or selling—an average of about 16 properties a month

-Has flipped nearly 600 homes and worked with nearly 1,000 investors

-Won top 550 contractor awards the past fours years. Earned a spot on on the INC 5000 list

-Say hi to him at https://www.thegarcilazogroup.com/  

-Based in Chicago, Illinois

-Best Ever Book: Extreme Ownership

 


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TRANSCRIPTION

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

With us today, Ryan Garcilazo. How are you doing, Ryan?

Ryan Garcilazo: I’m good. How are you, sir?

Joe Fairless: I’m doing well, and nice to have you on the show. A little bit about Ryan – he is the owner of the Garcilazo Group and he trains people who are just starting out – contractors and wholesalers – how to rehab, because he has rehabbed nearly 600 homes and worked with nearly 1,000 investors. He won the Top 550 Contractor Award the past four years and earned a top stop on the Inc. 5000 list.

As he said right before we started the interview, he said he wants investors to see the flip through the eyes of a contractor, not necessarily the investor. 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 Garcilazo: Thank you for having me on. So really quickly, my background is [unintelligible [00:02:58].29] for the past ten years. We own the Garcilazo Group, and in that company we are a general contractor that services Chicago and Florida, and over the years we basically rehabbed over 600 homes, probably closer to 700. [unintelligible [00:03:10].27] about the first hundred or so, because they were all messed up. I don’t wanna count everything that we messed up, but hey, they do count. At the end of the day, we figured out the business and we did figure out exactly how to do this business right and scale it as contractors.

One of the things we realized first and foremost is our investors simply didn’t understand how to rehab, which is common everywhere, in every state, on every coast; it doesn’t matter who you are, what program you come from, where you learned how to invest, rehabbing is a strategic game that you must master.

For example, you have investors who are learning how to real estate invest; that’s one half of the battle. If you really wanna touch a home and you wanna rehab it and you wanna do something physically to alter its appearance, you have to know how to do that, because just having a general contractor alone is not gonna get you to the promised land; as an ex-general contractor, I made money off every line item – I hit you with a GC fee, I have change orders coming up my ass, and you are gonna pay them. Why? Because you’re scared I’m gonna walk away. You didn’t know how I do my job; you didn’t understand the construction process. Because at the end of the day, like I always say, real estate is one industry, and construction is a whole separate industry. You have to know both to flip a house.

So what we decided to do after all these years, we said “You know what, there’s an opportunity here”, because I’m tired of seeing and hearing all these investors going to all these meetups worldwide, nationwide, and the first thing out of their mouth is “I need a new contractor.” Not necessarily true. What you need to start saying is “I need further education and training on rehabbing in constructions.” That’s when we opened up the Rehab Depo Inc. based out of Chicago.

What we have a is a three-month program where essentially we do one month of classroom time with an investor. We show them how to rehab through the eyes of a contractor. We teach them how contractors operate, how they think, how they work, where they’re fraudulent, where they try to scam you, where they try to pad things, how to price, how to bid, the whole nine.

The second month is all ride alongs and the third month is hands-on in our state of the art rehab facility where we’re actually gonna teach investors how to cut their own drywall and install their own drywall, how to paint properly, how to frame a wall, how to frame a window, how to frame a door. Why is that important? Because as an investor, if you can understand the time it takes to do these installs, you’ll have a better respect for your contractor. More importantly, you’ll also understand how long certain tasks take in a rehab, so you can better calculate how long a project is gonna take. So you’re in control.

The whole idea is we’re no longer the adversary, we are your advocate, and we wanna put you in the driver’s seat so you have enough leverage to negotiate and work side-by-side with your contractor, so you don’t have to wonder if he’s lying, you don’t have to wonder if this is true or not true, you’re gonna understand the permit process, you’re gonna understand how architects work, you’re gonna understand how to read blueprints… We’re gonna teach you the art of constructions, fully-focused on rehabbing. We’ve been doing that all year, and it’s an amazing, amazing turnaround, I’ll tell you that.

Joe Fairless: What are some common things that contractors do to pad their bottom line?

Ryan Garcilazo: For example, at the end of a bid usually you should have the GC fees. When we were contractors, I always had a GC fee. I wanted my clients to know what I’m making as my overhead. The GC fee in the common world can be as high as 33% if this is a consumer job. What do I mean by that? I mean, if you call me to remodel your kitchen, I could easily charge you 33% markup, and you’re gonna pay it, because that’s consumer world. In a rehab, we all know as investors – because I’m an investor as well – that you do have a budget, and usually that budget is very, very tight; in our reality, we investors always want the best quality, the best materials, with the lowest budget possible. The reality of what I’ve just said doesn’t work; it’s logic. You can’t have the best without paying for the best.

The other thing is in this business you’re never gonna get the A contractor, because the A+ contractor doesn’t rehab. They don’t need to. They’re all building Chipotles and McDonald’s and skyscrapers. Why? Because they have their market and their margin where they can make their 33%. What’s happening is a lot of contractors now are coming into this game of rehabbing, and they’re still thinking they can mark up the same price, and you just can’t do it, because the rehab budgets don’t hold 33%. You have to be able to charge 10%-30% and go after volume.

The contractor that scales his business to 100 properties a year — it’s because I was charging 10%-13% per project as my markup, but I was able to do 10-20 projects a month because of that. This is a volume game.

So that’s one area where contractors are able to pad projects, if they’re not putting in a GC fee, because they’re not being honest. For whatever reason, they don’t want the investor to see what they’re making. I don’t see why this is business.

So what they’re doing now is if the electric line item for a full gut rehab is 13,5k in Chicago, they’re gonna make it 15,5k in Chicago and they’re gonna put 2k in their pocket. Then they’re gonna put in a line item, or maybe the whole house needs to be [unintelligible [00:07:48].07] in Chicago for 16k – they’re gonna make it 18k and put another 2k in their pocket.

All they’re doing is they’re messing up their accounting, they’re messing up their books; they’re gonna have poor money management when it’s all said and done, and who suffers? The investor. Because the guy is trying to take money off every single line item, but he can’t track that; that’s an accounting nightmare. Whereas, all you have to do is put your GC fee at the end and say “I’m making (I don’t know) $6,500 of this $100,000 job. Great, more power to you. It’s very easy now to calculate your cost because you have a line item for that, and if you had a hard money loan that’s coming in from your investor, it’s easy to track that because most hard money loans have a line item on the [unintelligible [00:08:27].09] sheets for a GC fee… But contractors don’t know that, and investors don’t know enough to share that. That’s why we’re here.

Joe Fairless: When you started out doing the rehabs on homes, what were some of the mistakes you made that you referenced earlier?

Ryan Garcilazo: When I first started off, I really didn’t have a grasp on understanding what a fix and flip versus a buy and hold price points would be. I didn’t have a grasp on what a full gut, a medium gut and a cosmetic is. Really, I didn’t, until you get in there. And then all of a sudden you have the problem solved.

I like to consider rehabbing from a contractor’s level like medicine – when a doctor is in surgery, he’s got a team of nurses and another physician usually with him. Why? Because they’ve gotta problem-solve, and you have to be able to problem-solve immediately. You can’t just let the patient lay there. Well, a house is the same way – when you run into a problem, you’ve gotta have a team, and that team is supposed to work together with you cohesively so you guys can problem-solve and figure out how you’re gonna get that [unintelligible [00:09:23].00] off the wall or the ceiling, how you’re gonna get your [unintelligible [00:09:25].26] is the house is too wide? Do you need to do something else? Do you need a column? If you’re in the basement, and you realize in Chicago you need seven feet and you don’t have seven feet, okay, now you’ve gotta excavate. That  was a problem for us. I knew nothing about excavation; I didn’t understand the whole process of you have to remove the current concrete [unintelligible [00:09:43].20] you have to hope that you have footing on the exterior walls, because if not, you’re risking the house collapsing… And then it’s also about the season. We’re in Chicago, it’s cold all the time. Our winters are like Antarctica, bro. So we have to continue thinking about all the outside elements and outside variables on top of that.

I was not prepared for that in my early 20’s… I simply was not, because I wasn’t seasoned enough. So it just felt like problem after problem after problem, and then you add the contracting issues of learning, with a huge learning curve, add that to investors who also were very new, who didn’t understand a) how to rehab, b) how their lending worked, so I wasn’t getting paid on time. I didn’t even know how to submit a real draw, to be honest with you… So there’s the accumulation of a lot of issues that kind of combusted into an explosion.

So you learn very hard, and it was very financially costly on both sides. So that’s again another reason why we saw the opportunity over the years. Once we started really focusing on quality and material choices and design and how funding works, we became a powerhouse contractor and there was nobody to compete at our level, because we understood both sides of the fence – we understood real estate, we understood investing, and we understood construction. Once we figured all that out, I wanted to take all my mistakes and I wanted to start teaching investors proactively “Let’s avoid this.” Basically, “I wouldn’t go through that door, unless you wanna waste $1,000. I wouldn’t go through that door unless you wanna lose and breakeven on this million dollar venture”, because I’ve been there, and I’m just telling you; you don’t have to listen to me, but I’ve been there, and it’s not going to work. School of Hard Knocks, I believe in that.

For example, I used to work with hedge funds when we first started, and they had awarded me my first three projects. I think the rehabs were around 25k a piece, so I’m like $25,000 in. I didn’t know what I was doing, so I’m paying all this money up for labor and materials, and I forget that I need to start invoicing for draws. But what happens is we weren’t following some of the protocols and materials and spec choices of this hedge funds, so they weren’t honoring draws. Hard lesson learned right there, when I’m putting out 10k/month and I’m only getting 2,5k back to run a job. Those are the mistakes I was making, and that’s very, very real and it’s still happening today.

Joe Fairless: On the flipside, what are some mistakes that you see investors make, who you’ve come across and you were like “Oh, man… Really? That happened? You thought this?” What are some of those things?

Ryan Garcilazo: The number one mistake is investors have an expectation of a rehab, when they shouldn’t have any expectation if they’ve never done it. There’s a thing called production. In construction, for the rehab you have three phases – you have phase one, which is production phase. That’s preparation, getting prepared. The analogy I like to use is the whole world is always under construction – roads, highways, buildings, bridges… There’s always something under construction everywhere you go and no matter what city you live in. Do you think that it only took them 30 days to prepare for that, or did it take them months, if not years to prepare for a project that’s gonna take 3-4 years to complete? It takes time and preparation.

The number one problem I see with investors is they’re missing the time and preparation, because they don’t know how to prepare, they don’t know what to do first. So what we teach them is “Okay, you have pre-walk, you have contract period, then you have pre-con, and then you’re set up for day one demo.” All of that has to happen. The moment you put the house under contract, if you have a 30-day holding period before you close, there’s a lot of preparation that needs to happen in those 30 days so that your contractor can effectively start the same week you close on the house.

Joe Fairless: What did you say — you said pre-walk, contract period… What else?

Ryan Garcilazo: You have pre-walk, you have contract period, and then you have pre-con, which is preconstruction period. All of that equally takes about a week to do, and then you have your couple of days — it’s like the couple days before you go to war. You’re like, “Alright, I’m ready. We’ve done our walk.”

Pre-walk is very, very important. That’s when the real estate investor walks the home with prospective GC’s. There is no scope of work in hand. You’re sharing your vision, because you’re really trying to get feedback from a good GC, who’s gonna give you feedback. A crappy GC is not gonna tell you anything; [unintelligible [00:13:37].22] “Yeah, we can do this.” I don’t like that kind of GC. Why? Because as a former GC, I engaged with all my investors.

So pre-walk is when you’re walking in, you’re sharing your vision as an investor… “Here’s what I’d like to do – I wanna knock down this dining room wall, I wanna do an open floor concept, I wanna see the kitchen from the front door. I wanna remodel the bathroom, refinish the hardwoods, a nice chandelier with some [unintelligible [00:13:57].02] on the walls.” That’s the vision. You walk pre-walk with your contractor the whole way through… However many floors it is, so be it. Multifamily – so be it.

Then at the end of that conversation you have to get three verbal commitments to get to contract period. You’re basically asking him a question in a certain way that makes it seem like you’re basically telling him. What we do is we train you to understand how long a project takes, so one of the things you’re gonna get verbal commitment-wise is you’re gonna tell him “Alright, well I put this property under contract today. It’s the 28th. I close on it 28th December. I wanna make sure you can start that week. Is that a problem?” So you see, I’m kind of asking the question, but I’m basically telling him when I want him to start.

He’s gonna say “Yes. I have a month to think about it, shouldn’t be a problem.” Boom! Verbal commitment number one is in the bag. Next verbal commitment – “I’ve been looking at this, I’m anticipating about an eight-week project. Does that sound good to you?” “You know what? Yeah. I think I can do it in about eight weeks.” “Great. I’m gonna give you ten weeks though.” You always give your contractor an extra two weeks because of inspection periods and surprises that will always happen. You’ve got verbal commitment number two right there.

And verbal commitment number three is the most important. You’re gonna tell him your budget. The idea of this is simple – you think that project is 75k. Fine. You’re gonna tell him that you need him to do it for 62.5k; you’re gonna start low. So your next verbal commitment is basically telling him, “Alright, buddy, my budget on this is 62.5k. I’m gonna get all the contract paperwork together in the next 48 hours and send that over to you.” A good GC will say “Wait a minute, I can’t do it for 62.5k. However, I could probably do it for maybe 65k-68k.” You know you’ve already got the money in the budget for it, because you leveraged him low on purpose. So you say “You know what, I’m cool with that. How about we meet in the middle? I’ll give it to you for 67k.” You already know you have the loan for 75k, so you already have a contingency within your own loan that you’re already paying interest on. That’s a win. The contractor doesn’t need to know that. That’s how you negotiate.

You’ve just left your pre-walk with no paperwork in had, with your three most important verbal commitments that you can get from a contractor. Now you go into contract period. You draft up your [unintelligible [00:15:57].15] from the conversations you had at pre-walk, you’re gonna make sure your budget is a little bit more defined so he understands what he’s making on that 67k. Then you’re gonna have your contract, you’re gonna leave a blank schedule in there for them to fill out, and then you have a blank sublist sheet; let them fill it out. If there’s gonna be subs on this job, you wanna know who they are. Send that over to them via DocuSign, give them a couple days, they send it back – great, you’ve got everything done, you can review it, and then you set up a pre-con.

Pre-con is usually a week before day one demo. Because remember, in the contract paperwork, your contractor has just supplied you basically his project timeline – a start date, how long it’s gonna take, and an end date. So you have all that. Now you say “Cool. I close on the 28th, you’re saying you can start January 1st. Cool, no problem.” So basically, you’re gonna walk the house between Christmas and New Year’s and say “I need the agent there, I need the architect there if I have an architect on the project, and I need my GC there”, because now it’s all hands on deck, and you want everybody on the team in on any changes you may have made. Maybe you or the investor have made some changes with the architect that nobody knows about. Maybe you and the agent have made some changes that nobody knows about based on comps. Now that contractor needs to know.

So everybody meets at the property, now you go up to the project one last time; it’s more detailed and thorough than pre-walk. You address any possible change orders, you renegotiate any possible financials, and you discuss all the plans of action for this, so that come week one of demo, the plan is already set in motion, baby.

That’s how you prepare for a budget, that’s how you prepare for a rehab. And I guarantee, from my personal experience, I’ve never – with the thousands of investors I’ve worked with – gone through that with an investor who’s initiated it. I have initiated it.

Joe Fairless: So that is the production stage, correct?

Ryan Garcilazo: That is correct.

Joe Fairless: Alright, what’s the next stage?

Ryan Garcilazo: Construction. The construction stage is the next most important part of this. So you want to be able to walk hand in hand with your contractor. Your contractor is gonna know more than you – and he should, unless you’re a contractor. So we have a rehab progress book that we give to our investors. It’s a book that we created with the mindset of a contractor. He knows the stages and phases he’s going to go through to get things done, so we created a rehab progress book where we tell our investors “Always walk your property  twice a week minimum, more if necessary.”

Everytime you walk a property, you’re walking a property with a mission, there’s a purpose. You flip with intent; you’re not there to sit there and go “Oh, look at me… Here’s my pictures I’m putting on social media so that my network thinks I’m doing something”, because that stuff is all smoke and mirrors, and at the end of the day, when you don’t get the return you’re looking for, everybody will see that it was always smoke and mirrors from day one.

So you walk and you flip houses with an intent. Every progress walk you’re gonna go into the property and you’re gonna continue checking the schedule. Day one, week one, demo. How much is the demo gonna take? Ask your GC this. Great. We have the dumpster there. Was it there before day one? Yes. Great. How many dumpsters do you think you’re still gonna need on this project? Two. Awesome. Let me know if there’s anything I can do as an investor. Let me know if there’s anything I can do to help you so we can keep that timeline, because every stage matters.

Once demo stage is done, you go in with your project rehab book, you’re gonna go look at that and you’re gonna say “Okay, I’m gonna go through my first demo phase and I’m gonna ask questions. The dumpster – was it ordered on time? Yes/no. Was the dumpster removed on time? Yes/no. How many dumpsters were needed for this type of project? You make a note of that. And then you write down, were there any issues associated with demo? Maybe there were, maybe there weren’t. You write Yes/No.

Then there’s another little line item under the demo phase that says “Was there a draw associated with it? Yes/No. How much was the draw that was requested? How much was approved?”, because that’s always two different things. You’re gonna request $4,500, but the lender might see $2,000. That’s the nature of the business.

So you wanna document all that. If you have a lot more issues, then there’s a box, and that box is where you keep your notes. Make your notes on this demo phase. And then you go through all the different phases, as they happen. Your permits, your [unintelligible [00:19:41].15] the inspection period, then you’re framing, and then you’re setting and you’re moving… You’re going through all those different phases and it’s basically teaching an investor indirectly what phases should be coming up next, so that they’re learning, because they’re gonna go quality-check it themselves. So every time they do a project, walk their project, manage it. At the same time, they’re able to try to punch list as they go. They may have noticed a week before that that [unintelligible [00:20:03].15] or that base was cracked, and you made a note of it and you’ve told your GC, “Hey, don’t forget that that needs to get picked up and replaced. You installed it, it’s cracked, it happens, I get it. No big deal”, however, I notice a week later it’s still there. “I wanna make sure you don’t forget that.”

So basically, you’re punching as you go so that you’re minimizing all the list of things they’ve gotta do at the end of the project. You’re trying to create a win/win. You’re the investor, man. You’re in control. The agent works for you, the contractor works for you; the lender is working with you. They all wanna make money with you, so as an investor, we are empowering you, so that you understand how this process is supposed to work, and that’s the construction phase. Very, very detailed. There’s a lot of house walks, two weeks minimum, progress checks, checking your notebooks…

We also have a plan for our investors in projects that are $100,000 or over on the rehab. Go get yourself a [unintelligible [00:20:49].26] put it on the wall, drill it into the studs, and put all of your contracts, all your paperwork, all your scheduling, all your materials and [unintelligible [00:20:56].20] and pin it to this board, so that every time everybody walks the house, you have something to reference they are on the property. Because if it’s a $100,000 rehab, there are a lot of moving parts, and every construction project in the world, whether it’s a rehab, or a bridge, has a set of construction documents sitting somewhere near the project or on it. You have to have that.

Joe Fairless: With the construction stage, what would you say is the most overlooked aspect of it?

Ryan Garcilazo: The most overlooked aspect I think is putting too much trust in your contractor, simply because investors don’t know enough, so they trust that their contractor is gonna guide them to the promised land. And most do, trust me. Not all contractors are bad, let’s be honest… But they need direction. Contractors are blue collar guys, they’re simple. “Give me some directions, give me some directives, give me step-by-step, point me in the direction, crank me up and watch me go.” Without direction, they’re gonna start assuming you don’t know what you’re doing.

When I was a contractor, I used to see a lot of my clients – if not most – they simply just didn’t know what the hell they were doing, so I took it upon myself to make certain decisions. Some decisions I know they’ll like, some decisions I know they won’t like, and at the end of the day, that causes a problem of communication and transparency, because if I’m making decisions on your behalf because you can’t make them, because you don’t know how to make them, and then all of a sudden later I made a decision on tile because I knew it was cheaper and you’d like that but you hate the color, but it’s already installed, we’ve got a problem. Because now I’m gonna tell you “Take the initiative here, man. This is your house, not mine. I’ve been asking for tile selections for a month, they’re not here. I have to make a move, my guys need to get paid.”

The most common issue is putting this trust in your contractor because you as an investor don’t know what to do next. We kind of help you with that, obviously.

Joe Fairless: And is there a stage after the construction stage?

Ryan Garcilazo: Yeah, post-construction. Post-construction is when you wanna make sure you work with your contractor to honor a warrantee for a year, you wanna make sure that they’ve got all their final lien waivers signed, you wanna make sure you have your sub-lien waivers signed, you wanna make sure the punch list has been complete once or twice and that is signed, and then obviously I need final inspections to be done with the city’s [unintelligible [00:22:54].23] Make sure they come to the final inspection, sign up on that, that you have everything you need. Because once you have something going on and you have a buyer that’s interested, they’re naturally gonna call their buyer inspector, and the buyer inspectors, let’s be honest, some inspectors are paid to find problems, that’s what they’re supposed to do. I’ve never heard of an inspector coming out and saying “Nope, the house is perfect.” No such thing. So you wanna be prepared with your contractor.

A smart investor will hold back $500. The reason why you wanna do that is because you wanna be able to get your contractor back to the job site if there are some issues that an inspector finds. Now, at the same time, the inspector may find something pretty big, that has nothing to do with the original scope of work. That comes down to your relationship with your contractor.

In Chicago, we have a lot of power lines that go from the power poles from the alleys to the back of the houses. They actually are still connected to the houses. Well, now what they want contractors to do is if you’re doing a full renovation, they want you to bury that line, and that has nothing to do really with the city; it’s everything to do with the electric company. For us it’s ComEd. ComEd wants $1,000 for you to bury that line. Guess what? That wasn’t part of the scope of work. Most contractors don’t know that. The cities can do whatever the cities want. All of a sudden that’s an out of expense budget and that’s $1,000 and that the investor has to pay, and the reality is you’re probably not paying your contractor to do that. You’ve gotta pay the city to do that. Different story. Those are common scenarios.

Other common scenarios are they don’t like the way the water is draining. Maybe they might add six-foot extensions on the down spots, so that the water drains away from the house. Little stupid annoying things are very common, and most investors who are seasoned, they try to be proactive about that. But again, a home inspector’s job to find things.

Joe Fairless: And I assume – but maybe I shouldn’t – that that’s the last part of the process. You’ve got the production stage, the construction stage and the post-construction stage. Is that the final one?

Ryan Garcilazo: Those are the three main stages of a rehab.

Joe Fairless: Okay.

Ryan Garcilazo: Naturally, there’s a hell of a lot more that goes on, of course, and I’ve spoken about them.

Joe Fairless: Yeah. Well, what is your best advice ever for real estate investors as it relates to your area of expertise?

Ryan Garcilazo: My opinion is simply this – there are a lot of programs out there that are excellent. You have Fortune Builders, you’ve got the Homevestors Franchises, Rich Dad, Poor Dad, [unintelligible [00:25:01].04] You have a lot of programs out there that are teaching you how to real estate invest. All those programs are good, because you have to learn something.

My recommendation is you call a company like ours, but then again, there is no company like ours, so you call The Rehab Depot, because if you want to spend a little bit of money upfront to help you, it’s way better than losing tens of thousands later, and then that whole thing of “I told you so.” The reason why I suggest this is because we lived it.

I’ll go out and I have a lot of clients that listen to this podcast, and I have a lot of past clients I have a great relationship with who also listen to this podcast… My point is this – they’re probably not gonna like the fact that I say this, but I’ll say easily 90% of my clients over the past decade never reached the return they wanted because they didn’t know how to rehab. Don’t be that person.

If you’re new, or even if you’re a veteran and you’re still not getting the returns you’re looking for, come learn how to rehab. We have online courses, and we have Skype courses, and we also are working in different markets. Give us the call so we can help you walk through the process, man.

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

Ryan Garcilazo: Let’s do it, man. Let’s do it.

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

Break: [[00:26:06].10] to [[00:26:55].05]

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

Ryan Garcilazo: Extreme Ownership.

Joe Fairless: Best ever deal you’ve done personally, and not your first, not your last, but somewhere in between.

Ryan Garcilazo: I made 130k off of one flip.

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

Ryan Garcilazo: I under-bid a job grossly and came out of pocket to finish it.

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

Ryan Garcilazo: Oh, I do a $1,000 giveaway every Christmas. I walk around with a hundred dollars and I just randomly hand it out to people on the street.

Joe Fairless: And where will you be during Christm– no, I’m kidding. What’s the best ever way the Best Ever listeners can get in touch with you? …which you’ve mentioned, but feel free to repeat it.

Ryan Garcilazo: My phone number is simple – 847 899 5713. You can find me on social media under my name… Two names – The Rehab Depo and Ryan Garcilazo. And obviously, on my web page, www.thegarcilazogroup.com. Reach out to us, let’s get you in the program and learn to flip, baby. That’s what we’re here for.

Joe Fairless: Well, thank you for being on the show, talking about, from a GC standpoint, how to see the flip through the eyes of a contractor versus the eyes of an investor, and the three phases in the rehab process – the production phase, the construction phase and the post-construction phase.

In the production phase make sure that we identify and get the start date, the length of time that it will take in the budget, and you talked through…

Ryan Garcilazo: The biggest thing, brother, is the three verbal commitments, man. Just remember that somehow, some way, you need to learn how to get the three verbal commitments… But first, we get the property under contract.

Joe Fairless: And I’m glad that you talked through how to actually have that conversation with them, where you kind of did a role-play and went through that process… So thanks for being on the show. I hope you have a best ever day, and we’ll talk to you soon.

Ryan Garcilazo: Thank you, guys. I appreciate it. I look forward to working with anybody and everybody. Have a good day.

JF1163: How To Invest Your Extra Cash with Buck Joffrey

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A physician turned serial entrepreneur. Buck invests his extra cash in many different areas, and helps other high income earners do the same. From real estate to buying internet businesses, he’ll invest in whatever offers good returns. If you enjoyed today’s episode remember to subscribe in iTunes and leave us a review!

 

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Buck Joffrey Background:

  • Host of the Wealth Formula podcast
  • Accomplished physician turned entrepreneur and asset manager
  • Best Selling Author of the 7 Secrets of Eternal Wealth
  • Based in Chicago, Illinois
  • Say hi to him at www.WealthFormula.com
  • Best Ever Book: Cash Flow Quadrant

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TRANSCRIPTIONS

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 fluff. With us today, Buck Joffrey. How are you doing, Buck?

Buck Joffrey: I’m doing good. How are you, Joe?

Joe Fairless: I am doing really well, and I say your first name is the most fun first name I’ve pronounced in a while.

Buck Joffrey: Oh, good!

Joe Fairless: Buck, in addition to having a very cool first name, is also the host of the Wealth Formula Podcast. He is an accomplished physician turned entrepreneur and asset manager; he built an eight-figure net worth by teaching the principles of wealth and building through his website and his podcast. He is the best-selling author of Seven Secrets Of Eternal Wealth and he’s based in Chicago, Illinois. With that being said, Buck, do you wanna give the Best Ever listeners a little bit more about your background and your current focus?

Buck Joffrey: Yeah, sure. As you mentioned, I actually am a physician and I finished my training in 2008/2009. I got inspired a little bit by Kiyosaki’s Cashflow Quadrant and then instead of kind of going the direction of all my colleagues, I went into business for myself. When I say business, I mean real business; I pulled myself out of this medical practice after a few years and then started a couple other businesses, and just became a serial entrepreneur.

I started making a fair amount of money doing that, and I had to figure out how I was gonna invest it. My dad’s a scrappy real estate entrepreneur, he has been for 50 years, and then I’m reading Kiyosaki, and before you know it, I become a real estate guy, too.

Joe Fairless: Let’s talk about some specifics. Accomplished physician turned entrepreneur – what exactly have you started?

Buck Joffrey: I’ve started multiple companies; my first company was a cosmetic surgery business, and that’s still in existence, completely hands off. I’m literally moving away… I have another business in the allergy and sinus arena, I have another behavioral therapy business, I have multiple real estate assets and I’m managing some assets… What else? I’ve got internet assets, cashflowing internet sites, and the thing that I spend the most time with is my podcast and my educational platform, which I really don’t make very much money on at all, but it’s what I like doing, and when you make enough money, you can do whatever the hell you want.

Joe Fairless: With your real estate businesses, do you syndicate deals? We talked a little bit before we started recording – you said you syndicate?

Buck Joffrey: Basically, I started out buying multifamily smaller apartment buildings just on my own and had some success, and I had people asking to invest alongside me, so I effectively made a decision that “Well, let’s just do this. If they wanna invest alongside me, let’s just start doing larger assets and getting people involved.” That was the decision to make, and now it’s a little bit of a tough market; I don’t know what your experience has been, but we’re sort of at the top of the cycle, so it’s not like there’s a lot of deals going on.

There’s other things that I’m doing… Obviously, you’ve probably heard of Lee’s opportunity with the real estate guys, so I’m one of the sponsors on that, and also I’ve got a life settlement fund… I’m asset-agnostic; I love real estate, but I’m not gonna go and buy something just because I love real estate. It has to make sense.

Joe Fairless: What’s a life settlement fund?

Buck Joffrey: Whole life insurance policies. This is kind of a crazy; people buy these whole life insurance policies and most of the time they shouldn’t, although there’s exceptions to that, obviously. What happens is they pay for them for 20, 30, 40 years and the next thing you know they’re 80 years old and they can’t afford the premium anymore, because they’re expensive. So in an insurance policy you typically have the cash value in addition to the insurance with the whole life insurance policy. That’s usually not very much compared to the death benefit.

Say somebody’s 82 and they need some money, they don’t know what to do because they can’t pay for their insurance policy anymore, and they’ve got a cash value of, say, $100,000 sitting in that account. So they could turn it in to the insurance company and say “Okay, just give me my $100,000 back, even though I’ve put several hundred thousand dollars over the years”, or they could turn to a broker in life settlements and they could say “Hey, I’ll tell you what–” the broker will say “I’ll pay you five times your face value instead of that 100k, and all you have to do is sign over the insurance policy to us, and we’ll just wait for the rest of your life. You enjoy the money, and when you die, we get the death benefit.”

It sounds morbid on the surface, but I think if you look at it from the perspective of the people we’re buying from, they’re either gonna let these things expire and get nothing, get a fraction of something that’s really not nearly as much as they’ve put in, or they get 4-5 times as much as they ordinarily would.

Joe Fairless: You’ve got a lot of different ventures… Looking at your entire revenue across the board, what are the percentages of each of the revenue buckets?

Buck Joffrey: It’s tricky, because when I say real estate — probably you’re talking about investments, or you’re talking about businesses…?

Joe Fairless: Just in total – money coming into Buck Joffrey’s portfolio.

Buck Joffrey: Well, my businesses tend to be pretty high revenue, so I would say still 80% of yearly income does still tend to be from these businesses – the cosmetic, or sinus, or behavioral therapy businesses, and the internet assets. So in terms of real estate, I’d say probably maybe 15% I would say is from real estate. But the way I view real estate as an investment vehicle, and it’s something I’ve grown up with and I understand it, but the way I make my money on a day-to-day basis is as an entrepreneur. So I think of real estate as where I’m gonna put high-velocity income into, to grow it, and turn paper money into a tangible asset. That’s basically what I see it as.

Joe Fairless: With the multifamily deals that you syndicated, how many purchases have you done with multifamilies?

Buck Joffrey: Well, with multifamily I’m just getting in the game now. I’ve syndicated at least two or three different types of things, but in terms of multifamily, it’s not something that I’ve done a lot of yet. I own about seven or eight apartment buildings right now, a medical building and so on and so forth, so from the standpoint of taking investors along, it’s relatively new to me.

Joe Fairless: It’s funny, seven to eight would probably seem like a lot to most people, myself included, but you said you “only” own seven or eight… Now, only meaning you personally, or you with investors?

Buck Joffrey: I own seven or eight apartment buildings myself. My point was that — I think, Joe, that your thing is you’re the syndicator person, right? That’s what you do. Syndication for me is opportunistic and it’s like, if you thought of a guy who was buying an apartment building as an investment – that’s what I used to do before I started looking at the syndication path, and now what I look at is “Well, if there’s a large asset that we wanna acquire, I can put in the same amount of money and then investors can put in money alongside me and we can make that happen.” So I think it’s just a different way of approaching it.

Joe Fairless: Well, it’s the same way; I put my money into every deal as well, but what I was asking was just the apartment buildings – so you personally own 7-8 yourself, and then you have a medical building, and then how many on top of that have you syndicated?

Buck Joffrey: Well, I’ve syndicated two deals.

Joe Fairless: Okay, so 7-8 apartment buildings… Let’s talk about those. What was the first one that you bought?

Buck Joffrey: The first one unfortunately wasn’t a very good one. That’s where I learned from. I bought a 14-unit apartment unit on the Southern suburbs of Chicago, and basically I did everything wrong. At looked at just the numbers; it was a class D apartment building. I didn’t find good management first, and I basically just kind of looked at the numbers and I didn’t do a lot of the homework that I probably should have. I got into this thing, realized pretty quickly that some of the numbers were cooked a little bit from the previous owner because he owned a number of properties in the area and he was essentially stuffing the rent roll… And then in terms of management, I just couldn’t find a good property manager to be able to handle it, so I basically took a big loss on it. That was my first property, and it’s one of those things I guess — as an entrepreneur I’ve taken some losses, and I always see them as opportunities to learn something. There was a lot of learning there.

Joe Fairless: Absolutely. I’ve certainly learned the most on my first apartment building deal. So that one you don’t have anymore… Let’s talk about the first one that you did that’s still in your portfolio.

Buck Joffrey: I got one in 2011. I remember I finished my training in 2008-2009, so I didn’t have any money until around 2010-2011 to invest. So in 2011 I bought this building, and I got lucky on this — part of this is a theme that keeps coming up in my life, which is sort of a network-based investing. I’m around a lot of people who were in the business and who know I’ve got money to invest and sometimes things fall on my lap, and that’s what happened.

There was somebody who had rolled up a big portfolio loan, and they needed to get out, so I got a pretty sizeable discount. The cap rate to that area already were probably about 7,5% or so, and I ended up getting the sale at 9,5%-10% cap. And that particular property in that area, because it’s in a really hot area in Chicago, the equity probably doubled, because of the fact that the cap rates – and this has nothing to do with me, it’s dumb walk… We’re at top of the market right now, and it’s probably about right around six in that area… So that’s the first one.

Joe Fairless: And with the 22-unit, knowing that the cap rates are at 6% and you bought it around 9,5%, are you doing anything with that to capture that equity, or you just let it ride?

Buck Joffrey: I’ve kind of gone back and forth on that. I have this five-year one, but it’s [unintelligible [00:11:03].00] and then I just had refinanced it I think in ’15, or something like that… But what happened was that I didn’t really know which way the market was gonna go, and sometimes when a property is doing so well – you know how this goes, it’s like… If I sell this thing, we’re gonna find something that is going to do this well. I mean, this thing was an absolute cash cow. So honestly, I’d like to hold on to things. If things are performing well, I like to hold on to them.

I’m not generally the guy who — obviously, when you have [unintelligible [00:11:34].18] five-year disposition etc, I’m not the guy who’s always really excited about the five-year disposition if something’s working really well.

Joe Fairless: Do you own seven or eight apartment buildings? Just so I’m clear.

Buck Joffrey: Well, I own seven apartment buildings and one medical building.

Joe Fairless: Okay. Of the seven, which one has been your favorite?

Buck Joffrey: That first one I’ve just mentioned. It’s in one of these areas in Chicago that’s getting super hot, and again, I had no way of knowing that… It was an area that I think it was sort of a hipster area before, and now it’s becoming very yuppie, so it’s sort of the gift that keeps on giving.

Joe Fairless: And for people who are familiar with Chicago, what area of Chicago is that?

Buck Joffrey: It’s called Pilsen area.

Joe Fairless: Pilsen. And the medical building – clearly, that makes sense. Are you a tenant in your medical building?

Buck Joffrey: Yeah, one of my practices is in that building.

Joe Fairless: Got it. You’ve got a lot of things going on – how do you prioritize your day?

Buck Joffrey: Honestly, for about a half hour before I was talking to you I was playing with my two-year-old. It really comes down to — I treat everything like a business, and I’ve got management, and I’ve got a COO who’s just phenomenal, I’ve got a great marketing team… So literally, I’m moving to Santa Barbara in August. The point that I’m trying to make is that I’m very lucky in that I have a team and I’ve approached this from day one as a business; everything I’ve done is a business and I try as much as possible to be very high-level and direct the action.

Probably the thing that I spend most time on in general for my business is marketing in a high-level direction.

Joe Fairless: What has been a recent shift or big decision that you’ve had on the high-level direction of your business?

Buck Joffrey: I think the idea of starting to get more involved with investors has been a major decision for me. I take that very — as I’m sure you do, I take it very seriously. It was something that I’ve had to think about a lot, because I’ve done well for myself, and I don’t really need people’s money to do this… So the question for me was “Do I really wanna take on that responsibility to start syndicating and raising money for things?” For me, it was just — I think it’s an opportunity too in a way to give back; as you know, I’m a physician and my audience tends to be not necessarily physicians, but certainly highly educated professionals. We’re also the ones who are constantly getting screwed, right? When people see doctors, they know that they make a lot of money, and it’s like a shark tank – everybody goes around them, they want to screw them over. So that was the reason I wanted to get in the game, because I wanted to try to be somebody that people can trust.

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

Buck Joffrey: I think for me the biggest thing – this is just basic, but I think the most important thing is property management. For me, I truly believe that. I know people who have made a career out of syndication just because they found a great property manager, and that they feel comfortable that every time they get a property, the property manager can give them real information in terms of understanding what those real expenses are, what market rents are, and things like that; you can really rely on that.

I think it’s probably in my view the biggest thing that people should look at. In fact, I talk to people in my group, this investor club – it’s not just about putting together deals, but even just advice on “What should I do? I’m looking at this… I wanna go to another market, because I live in New York City.” My advice is always “Okay, well don’t look at properties first, go meet property managers first. Pick the market for a reason, then spend a lot of time interviewing property managers.” For me, that’s do or die, and it’s the same thing for all my businesses; without good management, you’re pretty much screwed.

Joe Fairless: I agree. Without good management, that is one thing that you are definitely gonna be in trouble with. Are you ready for the Best Ever Lightning Round?

Buck Joffrey: Sure.

Joe Fairless: Alright. Well, with some trepidation, we shall continue. First, a quick word from our Best Ever partners.

Break: [[00:15:44].12] to [[00:16:45].21]

Joe Fairless: Best ever book you’ve read?

Buck Joffrey: The most influential would be Cashflow Quadrant.

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

Buck Joffrey: It was not a real estate deal. I’ve taken internet businesses, bought them for pennies on the dollar and turned them into six-figure businesses.

Joe Fairless: What’s the key to turning a pennies on the dollar internet business to six figures?

Buck Joffrey: Having a great marketing and internet team.

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

Buck Joffrey: Well, a transaction means — could I be on the buy side, too?

Joe Fairless: Yeah. Do whatever, yeah.

Buck Joffrey: I think the biggest mistake I made – and this seems crazy, but I just trusted too much. When I was trying to learn syndication, I joined up with a guy who was supposed to be some kind of syndication guru, and I’ve realized he was just a crook, and the only thing he cared about was fees. I had to get out of that, but I lost money, because I had to invest with him.

Joe Fairless: What is the best ever way you like to give back from a business standpoint or just day to day?

Buck Joffrey: Well, I think with my podcast I’m giving back, since I don’t really make much money doing it. And I would say that that’s my mission right now – education for high-paid professionals. It’s definitely my least profitable business, so I would say that’s pretty much giving back.

Joe Fairless: And how can the Best Ever listeners get in touch with you and listen to the podcast or learn more about you?

Buck Joffrey: WealthFormula.com, you can go there. Lots of resources on there. Actually, you mentioned my book, Seven Secrets of Eternal Wealth. It was on Amazon, it was a number one bestseller, and then I took it off and I just put it on for free on the website as a download (pdf), so you can grab that if you want. It’s a good one to send to especially people who don’t listen to your show, because it basically talks about a lot of the paradigms that you and I already agree on, and your audience already agrees on… But we’ve got to keep people from dying broke.

There’s also a whole bunch of other downloads on that, so WealthFormula.com, and the podcast is Wealth Formula Podcast.

Joe Fairless: Well, thank you, Buck, for being on the show. Best Ever listeners, WealthFormula.com is in the show notes, and since you agree with us on the approach, go find a friend and tell them about the book too, so they can go grab that book.

Buck Joffrey: Buck, thanks for talking about your approach from a macro level, and how you build your wealth, and then touching on and talking about some specific real estate deals. The 14 units that went the opposite direction that you wanted, but it was your first one… And the lessons learned along the way in terms of the management company and just looking at the numbers, and a seller cooking the books a little bit, so the due diligence that I’m sure you do on future properties… As well as the 22-unit that went incredibly well and still is going incredibly well, and the area that you got it in, as well as the connections that you had to find out about the opportunity.
Then overall how you approach your business and the venture that you have, how you prioritize your focus, the high-level direction and the marketing, and then your recent decision to do the syndication route.

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

Buck Joffrey: Thanks, Joe.

JF1126: Bad Things Happen – Jorge Newbery Helps Families Stay In Their Homes When They Do

Listen to the Episode Below (25:36)
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If you think you’re in a tough spot, listen to Jorge’s story, or even better, read about it in his book Burn Zones. He lost it all and made a company inspired from that loss. American Homeowner Preservation buys distressed and non-performing notes, and works with the families to either stay in their homes, or get out from under them without foreclosure. If you enjoyed today’s episode remember to subscribe in iTunes and leave us a review!

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Jorge Newbery:
-Founder and CEO of American Homeowner Preservation LLC
-Utilizes Regulation A+ to crowdfund the purchase of nonperforming mortgages from banks at big discounts
-Accepts both accredited and non-accredited investors, and the minimum investment is just $100
-After natural disaster in ‘04 left him $26M in debt and now helps others to rebuild after unaffordable debt
-Regular contributor to Huffington Post and Author of Burn Zones and Debt Cleanse
-Based in Chicago, Illinois
-Say hi to him at www.ahpfund.com
-Best Ever Book: Fierce Conversations

 


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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, Jorge Newberry. How are you doing, my friend?

Jorge Newbery: Good, good. Thanks for having me, Joe.

Joe Fairless: My pleasure, nice to have you on the show. You are an interview guest by request. One of my investors/loyal listeners – he was like “Jorge Newberry is doing some amazing things and you should interview him”, and I was like “Okay, I will.” You’ve actually been on the show before, in a roundtable, probably two and a half years ago, and I’m looking forward to having a focused conversation with you.

A little bit about Jorge – he is the founder and CEO of American Homeowner Preservation. He utilizes Regulation A+ to crowdfund the purchase of non-performing mortgages from banks at big discounts. He is based in Chicago, Illinois, and you can say hi to him at his company website, AHPFund.com. With that being said, do you wanna give the Best Ever listeners a little bit more about your background and your current focus?

Jorge Newbery: Sure. My background is I’ve been in real estate for 27 years. I started out working for a mortgage company; within a couple years I started my own mortgage company and I progressed into buying properties. I eventually built a portfolio of over 4,000 apartments across the country, and then an eye storm hit my biggest complex, which was 1,100 units, and it kind of  triggered a freak series of events, which ended up with me losing everything and actually being 26 million dollars in debt, which I could not pay.

So it was going from tens of millions in net worth, 4,000 apartments, to essentially nothing, and even a negative. It was a humbling situation, but I tried to make the best of it by starting this company, which is American Homeowner Preservation. What we do is we purchase pools of defaulted mortgages from banks and hedge funds, and then we try to use my experience as a debtor overwhelmed with debt to craft novel strategies to reach out to these homeowners and achieve consensual solutions expeditiously, which do two things – we deliver financially transformative solutions to the families, as well as generate extraordinary returns financially for our investors. So it sounds cliché, but it’s a win/win/win, all around. The only loser, you could argue, is the bank or the hedge fund, but we’re basically paying what they would sell these loans for anyway. We’re executing strategies that recover faster than most of the other firms in this space.

Joe Fairless: I wanna focus the majority of our time on the American Homeowner Preservation company, but clearly, I have to ask about the eye storm, just to close the loop on that. An eye storm hits over a thousand of your units, that triggered a series of events where you lost everything… Will you elaborate?

Jorge Newbery: Sure. So one thing I didn’t know was that if you have a really large insurance claim, the insurance companies will do everything they can to not pay it. In fact, in this case we had to go to court to get them to pay extraordinary damages at this property. It took a lawsuit and 11 months before they settled, and when you have 1,100 units, with many home units that were barely habitable as a result of the storm (or inhabitable), resulted in the city taking action against me to try to evacuate the property and whatnot. I got a temporary restraining order against the city…

We ended up in a high profile public battle which ended up very negative. But to prevent that, first I’d started borrowing on all my buildings that were doing well. I took loans on those to try to do the rehab, but I just couldn’t borrow enough, there was so much damage. And just to give you an indication, in the end I settled for 32 million dollars, so a huge amount of money [unintelligible [00:05:07].13] “That’s great, congratulations!”, but no, it’s really the opposite, because the damages were over 45 million dollars, and I had exhausted all my resources. When I finally got the 32 million I paid back some of the contractors and what not, and even then it wasn’t enough.

By that point I was in a battle with the city, and – cliché to say, you can’t fight the city hall, and really I couldn’t. I used a lot of resources legally against the insurance company, then against the city, and in the end I lost. The city owns the property today. The city wanted the property, they got the property, and it was such a crazy series of events…

There’s a political theater. Once in a while you hear about somebody who’s just taking a beating in the press, and you’re thinking “What happened here?” In this case it was me. I was actually arrested, and it was pure political theater; I had no criminal record, but they arrested me, and it was front page in the media there, and it was all this kind of exercise to eventually get the property.

So the city owns the property today, it’s the largest property in the city of Columbus, and it was so crazy that I eventually wrote a book about it, because I couldn’t keep explaining… It’s a book called Burn Zones, which I should get you a copy, Joe. Actually, if any of your listeners want it, just let me know. Send me an e-mail and I’ll send you a free copy, a signed copy even.

It tells the story of how I made millions and how I lost millions, and now the burst of American Homeowner Preservation.

Joe Fairless: Wow. Is it available on Amazon as well?

Jorge Newbery: Absolutely.

Joe Fairless: Okay, I’m just gonna buy it on Amazon, I’ll do that. So one final question I do have to ask – 45 million dollars from an eye storm? What happened?!

Jorge Newbery: So here’s what happened – so you have three-story buildings… We had 122 three-story buildings. The eye storm knocked out power to 40% of the city, including all of our units, and temperatures were -8. So what happened is the power goes out, then the boilers that pump — we had radiant heat, so the boilers that pumped the hot water through all the units to keep them warm, power goes down, water stops pumping. And -8. So all the water that was in those pipes froze and then burst once it started heating up again, and then all the domestic water froze and also burst.

We had 1,100 units which had no electric and no water. There were thousands of families living there. The Red Cross even opened up a shelter across the street. It was the largest federally declared disaster in Ohio history, and we were probably one of the largest single point of damage. So it was a challenging situation, and we called in a international disaster remediation company that was recommended, and [unintelligible [00:07:49].27] they ended up running huge bills. They had hundreds of people there every day, they were pumping water out of the basement, they were trying to dry the units, they were providing temporary power, we had the power trucked in, because we were out of power for four days, and we had power trucked in from all over the North-East, these big generators. It was a disaster area, so almost half of that money went for mitigation.

In fairness, I kind of trusted them, and they kind of ran out of control in terms of running up these bills, and [unintelligible [00:08:18].12] because it was just so much money.

I was naive, I had never been in a situation like that. That was close to 20, and then the rebuilding was just a huge ordeal, 1,100 units. You divide 25 million by 1,100 units and then you start seeing “Well, actually, per unit it’s 22k”, and everything had mold, so they had to take it down… It was a really bad situation, let’s just say.

In the end, the property was demolished; the city owns it, it’s 54 acres. They have a high school on a part of it, and they’re doing some other development on it. The problem was it was a lower income property in one of the highest income areas of Columbus, so they really saw it as an opportunity to get rid of the tenants at this property, and that’s what happened. It’s all in the book.

Joe Fairless: I just purchased it. Burn Zones: Playing Life’s Bad Hands. I just bought it on Amazon. It’s arriving in two days from now, and I will read it probably in 24 hours. This is fascinating. Thank you for sharing your story about that, by the way, because there’s a lot of lessons learned, but then also perspective, because hey, this tremendous thing happened to you, and you’re still living and breathing and talking about it, and you’ve overcome it now. You’ve got American Homeowner Preservation, so now let’s focus on that.

Basically, from how I heard you describe it, you’re basically buying distressed notes and then trying to make them perform again – is that basically what you’re doing?

Jorge Newberry: That is exactly right. We make them perform again, or find some other resolution, preferably consensual, that resolves that note. So we reach out to the family and we give them three options. Number one, “If you wanna stay, here’s what your new payment will be.”

Let me give you an example. Someone owes $100,000. Maybe they bought the home 10 years ago, at the height of the last bubble. Then the property value dropped, so now it’s worth 50k. We can probably buy that loan for around 15k-20k. Now, with that kind of discount, we can go to that family and say “Hey, your old payment was $800. We can drop it to $500. You haven’t paid in three years (which is really common), so you owe $20,000 in delinquent payment. Give us $2,000 and we’ll forgive the difference.” If they wanna stay, if that’s a great deal for them, that’s what they’ll do. If they don’t wanna stay, we say “Hey, we’ll give you $1,000, we’ll forgive the loan, and then we’ll get a deed in lieu, and we will sell the property to a third-party.

The final one is “If you wanna do a lump sum settlement, you owe 100k, it’s worth 50k – we’ll take 45k and forgive  the difference and release the mortgage.”

Most of the people do the first two – they wanna stay, they’ll do a modification. If they don’t wanna stay, they’ll do a deed in lieu and take the cash. And we’re indifferent, we don’t push — I think a lot of people get in trouble in this business because they come in saying “Hey, I need to do one of two things. I wanna get everyone to reperform. I wanna get everybody to get kicked out of their home and sell the REO”, and you can’t really mandate to the families.

I think how we’re so successful is two ways. How we separate ourselves from the pack is that we’re indifferent. We’ll give them the options, the numbers are there, and the numbers are all formulaic. If a home is worth $50,000, then if it’s in California [unintelligible [00:11:35].17] or Kansas, everybody is gonna get the same terms.

The first day we talk to the family we’re gonna give them “Here are the real numbers in terms of what you can do, and if you wanna go ahead, you’ll have the document the next day. It’s going to go very fast. And if you’re leaving, then we’ll have a mobile notary there within a couple days with a check you signed, you get the check and it’s done.”

We try to make it very fast, very easy, and that’s what really works. It’s not aggressive, it’s not trying to squeeze the most money you can out of them; we just try and buy a lot of loans, run them through the formula and try to make it work.

Joe Fairless: I’ve got the first two written down… I was trying to capture the third solution that you offer – what was it again?

Jorge Newberry: The third one is a lump sum settlement. Sometimes someone owes 100k and the house is worth 50k. We’ll say “Hey, we’ll take 45k”, and once in a while, people between and friends and family members they cobble together the cash, or they have maybe an adult child who wasn’t on the original loan, and can now qualify for new financing to buy the home from their parents, as an example.

In today’s low rates, it’s gotta be a fantastic deal – the family stays in the home, the adult child lives there, and that has worked out really well in those circumstances online. This is all a result of — when I had 26 million dollars in debt, creditors would come to me and they’d do one of two things. I said, “Hey, I wanna work out a payment plan.” They would send me an application, I’d have to send all these documents back, tax returns, paycheck stubs and what not, and they determine based on that what they could squeeze out of me, and they’d try to get the highest payment possible that they thought I could afford without making it unaffordable. It was also a long back-and-forth.

When somebody would say “Hey, you owe us a million bucks. We know you don’t have it, but you can come up with 100k and we’ll forgive the difference.” Someone came to me with that deal. Okay, well now I know kind of what I’m working with, so let me see if I can find a way to make that work. Based on those lessons – that’s what we do here. I give them the numbers and they say “We’re going.” Sometimes people say “Hey, that payment works for me, I’ll do it”, and sometimes they say “Hey, that payment is much cheaper; I could really easily afford that. I really could afford twice.” I don’t want the extra money; save it, because the 500 is gonna make us a great return, so we’re happy with it.

So we’re trying to make it super simple, super transparent, and I think that’s what’s really working for us.

Joe Fairless: So it’s not based on their financial circumstances, it’s strictly based on what numbers make sense for you based on the acquisition price that you have.

Jorge Newberry: Yeah, which is a factor of the value of the property. Everything is a formula based on the value of the property. It’s always going to be something that the family will almost look at as being too good to be true. But despite that, it’s still gonna generate pretty extraordinary returns for us and our investors.

Joe Fairless: A big piece of the puzzle is getting the enough equity on the front-end in order to have the negotiating leeway to make it a win/win for everyone involved.

Jorge Newberry: You’re absolutely right. We make our money when we buy the loan. If we pay too much, that’s going to negatively impact our returns. If we buy right, then we made our money, we just now have to execute the strategies.

Joe Fairless: Is that your biggest challenge in this business, to get enough deals or loans that have the value there?

Jorge Newberry: At this very moment the answer is yes. The market is very heated. Just like the real estate market, it’s gotten very hot; so is the non-performing note market. There’s a lot of competition and that’s driven the prices up, so what we’ve ended up doing, and we’ve been fortunate so far this year – we have found some decent-sized pools where there’ve been a lot of extraordinary circumstances which has made it so we’ve been able to buy them without much competition, and we bought 1,300 loans in the last 90 days, which is probably double what we bought last year, and we bought them extremely cheap.

One was from a bankrupt lender, they were a bankruptcy trustee sale, and the other was the court ordered sale. That’s going to keep us busy all year, and we bought those exceptionally well. Our returns last year was 39.7%, and that’s based on an audit that’s filed with the SEC. This year we’re shooting to do even better.

Joe Fairless: Are you market-specific or does it not matter? My question was gonna be “How do you pick the market?” but does it not matter to you?

Jorge Newberry: It doesn’t matter to us, and that’s why I think sellers like us, because we’ll buy everywhere. If they have a loan — we bought in every state of the union except for Wyoming and North Dakota, and hopefully we will buy there eventually. We bought in Alaska, in Hawaii, and even in Puerto Rico. So a lender can come to us and say — the last pool was 799 loans; they can come to us and say “Hey, here are 799 loans scattered (they were in 39 different states, plus Puerto Rico) and we want you to buy them all.” For lenders lots of times it’s a hassle when people say “Oh, just give me California” or “Just give me New York.” Once they decided to sell, they wanna sell everything, and it’s much easier to just do one sale to one buyer. So we really fill that niche.

Even if the loan is some kind of crazy litigation situation or the property has been demolished by the city, we’ll still buy that loan. We may pay a dollar for it, which we buy a lot of loans for one dollar, but we’re gonna move it off their servicing platform and onto hours, and it’s gone. So we’ll buy every single loan they have. That gives us a considerable advantage over a lot of other lenders who maybe don’t have the flexibility to take on some of the stuff we do.

Joe Fairless: I understand the business model for how the overall operation makes money. You have investors who invest alongside in these opportunities, correct?

Jorge Newberry: Correct.

Joe Fairless: Okay, so how does your company make money? What fees do you charge?

Jorge Newberry: Sure. We charge a 2% annual management fee, which really basically offsets operations. Our big money is on the back-end. Here’s how the revenue flows – first, each month’s expenses are paid, management fees paid, and then we pay the first 12% to investors, basically 1%/month. Any extra money is used to buy more mortgages. The fund’s always five years, so the first 2-3 years of the fund we’ll reinvest in additional mortgages, but sometime in the third year we’ll stop doing that, and over the second half of the fund, each month the investors will receive their 1% on their outstanding investment, plus any extra money we’ll return it to them with the goal that at the end of the 5th year all investors have received their 12% plus all their capital back. Whatever is left is ours.

If we continue to do 39%, then that pie at the end will be pretty significant, and all our investors are paid back, they’re happy they have their 12%, so everyone — cliché, once again, but win/win/win, everybody’s happy. But ours is back-loaded. I don’t like Wall-Street where lots of times some of their compensation is front-loaded. We wanna earn the money, give them back their money, and if we do that and there’s a big reward and if there’s some big disruption which for whatever reason our returns sink, then we still wanna give the investors back their money and their returns, and then we just end up with a shrunken pie at the end.

Joe Fairless: Based on your experience in over 27 years of real estate, what is your best real estate investing advice ever?

Jorge Newberry: Be patient. The markets are cyclical. Never believe that you’re in a market like today, that this is going to be sustainable. At this moment in time right now there’s a lot of people who feel the money is easy, they feel compelled to buy properties or buy notes, and they lose a little bit of discipline. Then the market cycle goes the other direction, and all of a sudden they’re like “What happened? What happened?” and they’re trying to cut their losses or what not.

Right now we’re not competing in bids, and I’m okay on the sidelines more or less, and I’ll be there for the next six months or the next year, just buying opportunistically, and if that means I don’t buy that much, that’s fine. Because when there’s disruption in the market, that’s when I wanna be liquid, that’s when I wanna be nimble, and that’s where all the opportunities present themselves.

This isn’t a business where you have to do a deal a month or 20 deals. If you can do a deal that just makes a lot of money and you maximize the return on that, look for those opportunities and be ready. In any kind of competition or any kind of game, you wait, wait, wait, and when the opportunity is there, you run and you take it. But you can’t try to say “Hey, this year I’m gonna put out 50 million dollars, because I don’t know if I’m gonna have the opportunities to do so. So be patient, and when the opportunity is there and the market is disrupted and everybody is running one direction, that’s the time you wanna have the capital to be running the other direction, against the crowd, buying when everyone is selling… So I’m looking forward to that.

I think the market is still hot right now, but that downward portion of the cycle isn’t far off, and that should be a great time. I think we’ve set ourselves up. We raise money online – $100 minimum investment, you can invest in a couple of minutes. So we’ve really streamlined it [unintelligible [00:20:31].28] we have some good technology… I think we’re really primed for when this disruption happens that we can really turn this up and expand significantly. Anyone out there, that’s what I would do. It’s not just specific to this portion of the cycle… Just be there. Don’t feel you have to buy. Be disciplined, know what your strategy is, and when the opportunities present themselves, get them.

People always get bogged down with a whole bunch of stuff where there’s kind of really modest returns. Look for those big opportunities. Sometimes you have to take risk to get them. I used to buy the worst properties across the country and turn them around. So I took big risks, but I did the work to make them pay off, and generally – barring the eye storm – they did.

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

Jorge Newberry: Yeah, let’s do it.

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

Break: [[00:21:17].29] to [[00:22:22].07]

Joe Fairless: Best ever book you’ve read?

Jorge Newberry: Best ever book I’ve read… You’re stomping me, Joe… You’re stomping me. But I would say there’s a really good book that I’m reading right now which is called Fierce Conversations. I would say that’s a great book, so that’s top of my list right now.

Joe Fairless: Best ever deal you’ve done?

Jorge Newberry: Short-term memory – the 799, we stole it. Was 799 mortgages, we paid under three million dollars for it – we paid 2.875 for over 40 million dollars in debt. That was a steal. And again, odd circumstances lead to that, but it worked out. So that was my best ever deal that I can think of right now.

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

Jorge Newberry: I made a lot of mistakes, and you just try to learn from them. I’m trying to think about a specific one where I said “Oh, I really went out on a limb and that one didn’t work.”

Joe Fairless: If nothing comes to mind, we’ve thoroughly covered one of them already, so that’s okay.

Jorge Newberry: Yeah, [unintelligible [00:23:12].17] that’s my biggest mistake in my life. How I responded to it – it’s not so much the eye storm happened, but I wasn’t nimble. I had just what I described, I can get tunnel vision, “I’m gonna rebuild this.” I should have really closed the property, taken the insurance settlement and just wash my hands and walked away, and paid off all my investors, and it would have been much easier. In the end, that’s kind of settled me for the last decade. So be nimble. When chaos presents itself, take a wide view. I didn’t do that.

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

Jorge Newberry: Keep families in their homes. Really, I know what it feels to be overburdened with debt, so if anyone calls me with advice, like “I can’t afford my mortgage, I can’t afford my credit cards, I can’t afford my student loans, my kid can’t afford their student loans”, I can tell them what to do to settle that loan at a discount and get rid of that on affordable debt. That’s a huge thing for me. I think the majority of Americans are overburdened with debt, and that needs to stop.

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

Jorge Newberry: The website is AHPFun.com. You can simply e-mail info@ahpfund.com and ask me, and [unintelligible [00:24:15].27]

Joe Fairless: Well, clearly, a big lesson learned on the frontend, and then how you responded – not only immediately after what was happening, where you just talked about having the wide view, but building the company that you have now, American Homeowner Preservation, and the type of approach that you take, helping families stay in their homes because you’re purchasing these at a discount, or giving them one other  option to make things work.

I appreciate you talking about that, and also talking about how your business makes money, how you structure it with investors; that’s always a point of curiosity for the Best Ever listeners. Thanks for being on the show, thanks for having a candid conversation with us about what you’ve been through and what you’re currently focused on.

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

Jorge Newberry: Alright, thanks, Joe.

JF1105: Using a Conference to Jump Start His Investing Career with Chris Salazar

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As a 20 year old college student, Chris did his first wholesale deal and made $7,000. For the rest of college, real estate was his hobby. After attending a Sean Terry conference, he was inspired to start taking real estate seriously and has already been successful. If you enjoyed today’s episode remember to subscribe in iTunes and leave us a review!

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Chris Salazar Real Estate Background:
-Founder of Arsenal Properties, a real estate investment firm
-Done over 50 single family deals and is now looking to transition into multifamily
-Has grown Arsenal to $4.7M in assets under management in under 6 months
-In the process of repositioning a 24-unit apartment building, and publishes content on real estate Graduated college last year
-Based in Chicago, Illinois
-Say hi to him at www.arsenalpropertiesllc.com
-Best Ever Book: Tools of Titans

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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, Chris Salazar. How are you doing, Chris?

Chris Salazar: Doing well, Joe. Glad to be here.

Joe Fairless: Nice to have you on the show. A little bit about Chris, and he’ll get into it in more detail… He graduated college last year; he’s done over 50 single-family deals and is now looking to transition into multifamily. Is that true?

Chris Salazar: That’s true.

Joe Fairless: Wow, okay. I’ll keep with the bio. I just had to fact-check that… I had to make sure that’s correct. Okay – he’s grown his company, which is Arsenal Properties to 4.7 million dollars in assets under management, and under six months he’s in the process of repositioning a 24-unit apartment building and publishes content on real estate. My head is spinning… Holy cow, Chris. Tell us what is your focus right now, tell us a little bit about yourself.

Chris Salazar: Sure, so I just wanna correct one thing – we just have about 4 million, not 4.7. We have something under contract, we haven’t closed it yet, but I just wanted to be clear there.

My background – I graduated college May 2016, and when I was 20 I did my first wholesale deal. I found a duplex completely undervalued and I was able to sell it to a cash buyer within like two hours, and I made 7k in the wholesale fee. I was pretty pumped after that, and it kind of just got me going. I wholesaled houses through college, and then I got the opportunity to work with a local investor who does hundreds of deals a year in my market. My market is the quad cities, by the way.

Joe Fairless: What are the quad cities?

Chris Salazar: Davenport, Iowa and the surrounding area, Moline, Rock Island, Illinois, North Iowa… So that kind of area, that’s my main market right now.

From there, after I did my first wholesale deal, throughout college I was still wholesaling. I got to working with this investor, I learned some of the business, and I went out to a Sean Terry event in Phoenix at the end of October and I was like “You know what, I have enough knowledge, I know all the tools to do this on my own… Why not just do it right now?” So right after that I came back to the quad cities and  spoke with the guy I was doing acquisitions for and I told him that it’s time for me to go out on my own.

I found a partner, and from there we’ve built it into a pretty sizeable portfolio so far… So I’m just really excited to grow it and have the opportunity to do that.

Joe Fairless: You said you started with a duplex… Is that right?

Chris Salazar: Yeah, a duplex was my first wholesale deal.

Joe Fairless: That was your first wholesale deal. How old are you now and how old were you then?

Chris Salazar: I’m 22 now, I was 20 when I did that. That was in October 2014, my first deal.

Joe Fairless: Okay, you were 20 years old, you were in college, right?

Chris Salazar: Yeah.

Joe Fairless: Where did you go to college?

Chris Salazar: Augustana College. It’s a small liberal arts school in the quad cities.

Joe Fairless: Okay. You’re in college, you were probably a junior in college, you did a wholesale deal, and then you took that money and did what exactly with it?

Chris Salazar: That money I just plumped into more marketing. I increased the marketing, but throughout college I also was playing football, I started a real estate investment club in my college, and I was just so involved that I kind of treated real estate as a hobby at a time. It was just more so a learning experience for me to soak up as much information as I could, so that when I really was going full-time, I’d really go after it [unintelligible [00:04:29].12] process there.

Joe Fairless: Okay, so you started a real estate investment club in college, you were making money on wholesale deals and you were pumping it back into marketing… At what point did you start putting that money in your pocket so you could then invest in deals?

Chris Salazar: I never really use any of my own cash in any real estate deal, so for that money I wasn’t doing a ton of deal; I probably did six or seven throughout college. Like I said, it was a hobby… I was doing those deals, and I had to pay a lot of my own bills, so all that money wasn’t really being saved as much as it should have been. I was kind of just living a college kid’s life.

Joe Fairless: Okay, so you did 6 or 7 deal, you graduated college, then you started working with someone who was doing it at a high-level, closing on a ton of properties, and you were doing the acquisition for him. Then you went to a Sean Terry event in Phoenix less than a year ago, and after that event you came back to your area and you said “I’m gonna venture out on my own”, right?

Chris Salazar: Exactly.

Joe Fairless: Okay. What a story so far… We haven’t even gotten to the meat of it. So when you got back from the event almost a year ago, how much money did you have in the bank?

Chris Salazar: When I got back from the event – not too much; I can’t even really remember…

Joe Fairless: About 2k, 10k, 30k, 100k?

Chris Salazar: Probably 10k or so…

Joe Fairless: Okay, 10k. And did you have any properties that you owned?

Chris Salazar: No.

Joe Fairless: Okay, so you’ve got $10,000 in the bank, you don’t own any properties, you went to an event… What was it about that event — how much did that event cost and what was it about that event that you’ve decided “Hey, I want to spend my time and my money to travel to Phoenix to attend”?

Chris Salazar: I’d just been following Sean Terry, that’s how I kind of learned about wholesaling in the first place. I was listening to all his podcasts – he put out a bunch of great free information – and learning from him I just felt like I should really pay to go down there and meet him, and kind of network with all the other people that are doing big things in real estate. So that was my thought process there.

Joe Fairless: How much did it cost?

Chris Salazar: It was $500, I believe.

Joe Fairless: Okay. Not including travel.

Chris Salazar: Not including travel.

Joe Fairless: So all in you probably spent about $1,000?

Chris Salazar: Yeah. And then from there, as I said, a lot of what they key speakers were saying really resonated with me, and I went back and I found a partner and I picked up things from there. So it gave me the courage to go out on my own, finally.

Joe Fairless: Did you know your partner prior to attending the event?

Chris Salazar: I did.

Joe Fairless: How did you meet the partner and how did you pick that partner versus other partners?

Chris Salazar: This partner, I’m actually friends with his daughter; I knew him from a few years before, and I was just talking about what I was doing and he was interested in investing. He’s an investor in a lot of different things in different businesses, and he just kind of gave me the opportunity to do what I’m doing now.

Joe Fairless: What do you bring and what does he bring to the partnership?

Chris Salazar: I bring all the experience, he’s solely just a cash investor. He just provides the funds for all the deals, and I do all the groundwork.

Joe Fairless: So what was the first deal you two did together?

Chris Salazar: The first deal we did was a single-family, three-bedroom; it cost about 45k, we put in about 20k, and it’s worth 105k. From there — we were doing all cash deals at the time, and we were just refi-ing everything out.

Joe Fairless: Oh, okay. So you buy it for cash, you fix it up, and then you do a cash-out refinance, you get your money back and you hold on to it?

Chris Salazar: Exactly.

Joe Fairless: And what type of ownership do you have on that deal?

Chris Salazar: On the company as a whole I’m a 50% owner.

Joe Fairless: Okay, so everything is 50/50. Cool. With the $20,000 that you put into it, did you swing the hammer?

Chris Salazar: No, I contracted everything out. That was the first deal we closed on; I think that month we closed on several others, something like five more probably… So I kind of went and took action; I didn’t really have all the necessary tools at the time to go do it. I kind of just learned as I went, and thankfully, I bought correctly, because I was doing acquisitions prior, so I kind of knew how to buy correctly, and I didn’t get hurt on that end.
But at one point I was managing like 10 rehabs. I was the general contractor on all of them, jumping around, losing a ton of sleep but learning a ton in the process.

Joe Fairless: And you were doing acquisitions for 12 months, 24 months before you created this company?

Chris Salazar: Yes, I was the acquisitions manager for the guy in the quad cities for four months.

Joe Fairless: Four months, okay. Because you said you were doing acquisitions so you knew how to do it correctly, and then I was like “Wait, he wasn’t doing it for very long…” [laughs] But four months, okay. This is good, because it will inspire Best Ever listeners who are thinking maybe they don’t have the amount of years under their belt to get done what they wanna do, but here we go, we’re talking to you and you are going lightning fast through things.

Let’s talk about the largest deal in terms of price point that you’ve bought with Arsenal Properties.

Chris Salazar: Sure. The largest deal I’ve done is a package of 27 homes. That deal – we paid about 1.37 for the package, and I think the after repair value on it is about 2.15. The properties didn’t need too much repair, but they were all under-rented for the most part, and none of them really had leases. I think a couple of them were locked into a lease. So we raised the rents, we had some repairs done to the properties, and we kind of stabilized those houses.

Joe Fairless: Was that an all-cash transaction?

Chris Salazar: Yes.

Joe Fairless: And where are you at in the business plan of that deal?

Chris Salazar: We have all the rents up to market; I think all but one of those properties is currently rented right now, just because the tenant just recently moved out, so we’re turning over that unit… But that’s all been fully stabilized.

Joe Fairless: I think the story here is – now that we’ve gotten a little bit into it – not as much about your deals, but more about how you were able to convey the confidence and expertise to a high net worth individual who’s got the checkbook to pay 1.37 million dollars for a package of 27 homes where you’re gonna be a 50/50 owner. What do you think about that statement?

Chris Salazar: I would agree. It’s definitely about mindset, at least for me… The only experience I had was doing acquisitions for that guy, and then just doing several wholesale deals, but throughout that process I learned how to do a rehab for the most part, but the biggest learning curve was when I just started buying these houses and I was thrown into all the rehabs, really managing contractors and having our property management team oversee everything. It was just completely different than what I was expecting. It was really tough and I was working 16 hour days most days. It was definitely worth it. I definitely failed, but the faster you fail, I guess the faster that you learn and can grow.

Joe Fairless: The gentleman who you’re partnering with – you said you’re friends with his daughter. How long were you friends with her? Basically, how long did you know him prior to you two partnering up?

Chris Salazar: Four years or so.

Joe Fairless: So college, basically?

Chris Salazar: Yeah, late high school.

Joe Fairless: And what was the first conversation that you had with him about business?

Chris Salazar: He always knew I was interested in real estate. He thought it was interesting that I was doing wholesale deals in college, and he thought that was pretty ambitious for being a student still… And I know he really trusts me, which is great to kind of have that relationship, and I think that’s one of the most important things, especially when you’re using other people’s money, to be a trustworthy person and be willing to do the right thing.

Our first conversation was just really explaining what I did, what I can do and what I needed. Initially in our conversation I was just hoping to maybe convince him to give me money to do one deal… But he had a bigger vision, and I’m so glad he did, because it turned into something great and we built a solid portfolio in a short period of time so far.

Joe Fairless: There had to have been some bad news along the way you’ve had to give him… So what was that bad news and how did that go?

Chris Salazar: My biggest challenge was dealing with the contractors and really putting my trust in some untrustworthy people. He is from Chicago, he wasn’t involved in any of the deals, like I said, so I was doing all the ground work… And the biggest news was that we lost money from a contractor [unintelligible [00:12:49].05] or me not vetting the contractors properly in the first place. That was the biggest–

Joe Fairless: On that one example – or multiple examples – where you lost money, how much money was lost and what would you do differently if presented the same scenario?

Chris Salazar: We probably lost 3k or 4k on that, so it wasn’t a big mistake, but I just learned from that experience to just vet everybody the same way, put them through the same interview process, and really go with my gut feeling on these guys.

I was doing so many projects and I was overwhelmed, so I was just putting guys in jobs and really wasn’t doing all my due diligence on them as I should have.

Joe Fairless: The package of homes that you mentioned – 27 homes – the ARV is a little over 2 million; you’ve got about 4 million, so what makes up the second-largest chunk of that total assets under management?

Chris Salazar: I think we have two duplexes… The others are single-families. I think we bought 50, sold off 3 of them, so we’ve got 47 properties, actually.

Joe Fairless: What’s the macro-level plan for it? Is it just continue to buy with cash, fix it up, then refinance out the cash and hold on to them?

Chris Salazar: Yeah, some of these deals we’re doing now that are off-market we’re leveraging upfront, instead of paying cash, but the deals that I’m pulling off the MLS – we’re buying those cash.

Joe Fairless: What would you tell to a Best Ever listener who wants to find a partner like the type of partner that you found and have a similar structure?

Chris Salazar: I would say networking is very important. Tell people what you do and how you can help them. Always offer something valuable, but really more importantly, just tell people what you do and really be excited about it, have the prior knowledge and have the confidence. I think confidence is very key when it comes to talking to high net worth individuals like this.

Joe Fairless: What is your best real estate investing advice ever, based on your experience so far?

Chris Salazar: Set goals and take action. If you set your goals ridiculously high and it’s a failure, you’ll fail above everyone else’s successes. That’s a huge quote I like to go back at. I’ve been writing my goals down for a couple of years… It was cool to go back in my journal and actually look at what I wanted to accomplish and what specifically I wrote down. A lot of the things I wrote down are coming true.

It’s really setting in my mind what I want to accomplish and just taking action on this. I mean, so many people listen to these podcasts or any real estate information out there, they consume everything, but then they just never go out and do it… So I would just say “Do something.”

Then another piece of advice is always be willing to give back. What I like to do also is just talk to other people that are my age – really anybody that wants to get involved in real estate deals. I like to just walk them through what I did and how they can apply the same principles and do the same thing.

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

Chris Salazar: Let’s do it.

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

Break: [[00:16:02].27] to [[00:17:00].19]

Joe Fairless: Best ever book you’ve read?

Chris Salazar: Tools of Titans, by Tim Ferriss.

Joe Fairless: Oh, I love that book. Best ever deal you’ve done?

Chris Salazar: The best ever deal would be the package of 27 properties. It was great.

Joe Fairless: What’s a mistake you’ve made that you haven’t talked about, that you’ve learned from?

Chris Salazar: I would say not doing my due diligence, whether it be on people or on a specific property. Really know your numbers, know what you’re getting into and definitely go with your gut when you’re dealing with people and putting your trust in them.

Joe Fairless: What specific aspect of knowing your numbers did you mess up on in the example you’re thinking of?

Chris Salazar: The repair costs. I got into a deal where we didn’t lose money, but we could have made a lot bigger profit on the deal, on the flip. It was just me being too novice on everything, and just not knowing my numbers in terms of repair costs.

Joe Fairless: What part of the repair costs was not accurately assessed?

Chris Salazar: There was a foundation issue. That was an additional $9,500, I believe. There was a sewage issue that was a similar cost… Those [unintelligible [00:18:02].04] right away, and I could have just come around that by just getting an inspection done on the property, instead of being lazy.

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

Chris Salazar: Like I mentioned before, I like to help people realize what I do and how they can create the same life by investing in real estate, whether it be a few properties replacing their monthly income, or if they wanna create something a lot bigger, it’s really possible.

Joe Fairless: What’s something that you would tell a Best Ever listener “Hey, this does sound good, but man, you’ve gotta watch out for XYZ”?

Chris Salazar: I guess getting into something where you don’t fully know what can go wrong. I knew what I was doing in the sense that I knew how to buy a property correctly, I knew how to mostly evaluate repair costs other than the unknowns that come up, but if you’re gonna get into something, know all the risks and kind of know exactly the efforts that you’re gonna have to put into it – or at least for the most part – before you actually get into it.

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

Chris Salazar: I have a website, it’s ChrisJSalazar.com. My cell phone number is on there as well, and my e-mail is chris@chrisjsalazar.com.

Joe Fairless: Do you currently have a meetup locally? I know you said you started an investment club while in college…

Chris Salazar: Yeah, that was just specific to my college. I still speak at that every year. But locally, there are a couple. I speak at them sometimes… But I live in Chicago now.

Joe Fairless: Well, Chris, incredibly impressive… Bravo! I’m clapping. Congratulations on what you’ve done in an incredibly short amount of time. Your story is an inspiration. This truly is a story of your determination, how you got out of the gate really quickly while working and doing wholesaling in college, you started a real estate investment club in college, and the relationships that you’ve built in a short amount of time have resulted in some lasting benefits.

When we talked about how you had a conversation with the gentleman who’s daughter you know – you knew her for four years, so indirectly you probably knew him for about four years or so, and some of the things you think that really solidified the partnership was him being interested in how active you were in college doing wholesale deals, you also started an investment club, and then the trust factor, too. You mentioned how you like to give back and talk to others, as well as having that confidence based on the stuff that you’ve been doing along the way.

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

Chris Salazar: Thanks a lot, Joe. Thanks for having me.

JF1082: Not a Management Company, Not a VA, But The Best of Both with Linda Liberatore

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Secure Pay One is an amazing solution to landlord problems. They are not a full service management company that takes over control, but rather works with you to help with your duties. Listen in to find out how Linda and her team can help you. If you enjoyed today’s episode remember to subscribe in iTunes and leave us a review!

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Linda Liberatore Real Estate Background:
-President and Founder of Secure Pay One; A quality service providing beneficial assistance for real estate investors
-Assisted more than 50 real-estate portfolios encompassing over 1000 units with 98% client retention rate Conducted 1000+ seminars on software applications, property management and desktop productivity
-Based in Chicago, Illinois
-Say hi to her at https://www.securepayone.com
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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 a show where we cut out the fluff and we only talk about the best advice that moves your real estate investing business forward.

This is the world’s longest-running daily real estate podcast, and with us today to help us keep the momentum going – Linda Liberatore. How are you doing, Linda?

Linda Liberatore: I’m good, how about you?

Joe Fairless: I’m doing good as well, and looking forward to diving in with you. Linda is the president and founder of Secure Pay One, which is a quality service providing beneficial assistance for real estate investors. We’ll get specifics as far as what that means.

She has assisted more than 50 real estate portfolios encompassing over 1,000 units, and has a 98% client retention rate. She’s conducted 1,000+ seminars on software applications for property management and desktop productivity, and she’s based in Schaumburg, Illinois, which is near Chicago. You can say hi to her and look at her company a little bit more at SecurePayOne.com. With that being said, Linda, do you wanna give the Best Ever listeners a little bit more about your background and what you’re focused on now?

Linda Liberatore: Sure, thank you for that really nice introduction, Joe. We started the business probably seven years ago, and as you know, and you dive deeper with all your guests, through that time our role has evolved; you always have the business plan, all the research you do, and then reality strikes and you have to zig and zag accordingly.

I say we are probably the number one tenant communication and payment assistance. We’re a little bit different than a management company, that’s what makes us so unique. We support people that are growing their real estate portfolio and do not want to flip over control, if you will, to a full management company. They use us as the form of a virtual assistant.

We have landlords across the nation. In fact, we have some across the big pond. They, for one reason or another — in those cases some men have gone on to Europe… They may have just a few couple investment properties, and then we have others that are out of state and they’ve selected us to be the liaison with their boots on the ground, with their maintenance team, their leasing agents, and then we handle all the servicing. We’re the main point of contact with the clients, meaning the residents.

Joe Fairless: Okay, that’s helpful. So you’re not the management company. Your ideal client would be someone who’s got a handful of rentals or more. They’ve been self-managing, and the paperwork and the time commitment that it’s taking to do all of it is becoming cumbersome, so you’re now able to work with them and you handle some of the tenant communication and then also get them paid on the rent.

Linda Liberatore: Absolutely. I love that you added a couple things to that description. So we are the main point of contact. We’re hired by somebody that no longer wants to be the main point of contact for the residents… So it’s not some, it’s everything. I guess you could say technically not everything, because we’re not the leasing agent. But once that lease is signed, it’s our phone number that’s given out, it’s our e-mail; we become their point of contact.
So the relationship really is with the landlords — when you say “a handful”, certainly they start that way, but we have ones that have gone from 3 to 60 in a couple years, so it’s for people that are realizing, identifying where the weak areas are in their system and outsourcing the lowest level tasks, but some very important tasks, like collecting the money.

Joe Fairless: What are your fees?

Linda Liberatore: We do it on a fixed income, so we don’t charge it based on the rents. Our standard fee for one month, one unit, would be $50. If your average rents are $1,000, if we say nationwide and affordable housing and the average rent is probably at $1,000, we’d be coming in at like 5%. As you know, most full-service management would be 10%.

Then one other important distinction is we don’t pay their bills. So while we coordinate with the maintenance teams — I think this is a really important distinction, Joe… I’m just gonna maybe back up that comment. So when we don’t pay the bills, it means a couple things.

To an investor it’s a very big selling point, I’d say, because those investors that aren’t looking for full-service are looking to remain in control. They want to do it all themselves. As you said, they’re finding themselves being buried, and they still want to be the one in total control, but they see that they’re losing control, right?

Joe Fairless: Yup.

Linda Liberatore: So if they bring in someone like us and they still get to pull all the strings – they get to use their favorite plumber, they get to use maybe their father-in-law as a handyman, it doesn’t matter to us. They provide us those lists of service people when we start, all their contact information; I have to be able to get a hold of someone, of course, so they give us that full list.

Then we have a full web-based application that we’ve built for us as a company, and I put it up against the big ones, Appfolio or PropertyWare; it tracks maintenance, it tracks payments… So it’s a transparent process to them, but even more so those liking to be in control. Everything we get is e-mail to them throughout the day. So it’s not somebody that’s gonna be off to  Aruba and never wants to see their properties again.

Joe Fairless: That makes sense, okay. When we’re talking about the leases, you don’t do anything with the lease and you don’t pay the bills, but you’re the main point of contact for the resident and you coordinate with the vendors if there’s a toilet that needs to be fixed; then you e-mail the bill to the owner and then they coordinate payment directly with the vendor, right?

Linda Liberatore: Absolutely, yes. That describes the process.

Joe Fairless: Okay. What are the main time-consuming aspects of your team’s job?

Linda Liberatore: [laughs] Come on, I know you know this one. Probably one of our very first clients, [unintelligible [00:08:52].29] original business plan versus now, we’d be collecting money only… ACH, to be honest; we thought it was gonna be all ACH seven years ago, which we know that’s not too right, and there’s certain markets that may never be true if they’re non-bankable. But one of our first clients is a big owner of a real estate agency that had investment property, and he looked square at me across the table and he said “Let me ask you something… Would you take those calls for me? Would you take that 30-minute call full of drama, and get it down to a concise, two-minute e-mail?” I said I could do it, which of course, I didn’t know what I was promising at that time, especially for the price I was given. If you know anything about ACH and transactions, you know that’s a pretty low-cost item, and the wholesale market, let’s say with some of the banking perspective, when you start answering calls, that’s a whole different game.

So yes, what’s the most time-consuming thing my staff is doing is giving those calls, watching for the legalities of those calls… You know the rental process is a very big legal process and we have to deliver of (I’ll call it) bad news. When people don’t pay or something isn’t going to get fixed, maybe in their lease it says they’re supposed to fix it; in single-family homes a lot of times the repair is on the resident, so we kind of have to do a lot of delivering things that people don’t necessarily wanna hear.

Joe Fairless: Do you do the eviction process?

Linda Liberatore: Let’s put it this way, we assist with it. When you talked about the couple of things when you said “You guys don’t do the lease”, well we kind of do it at the renewals time, as long as they provide that legal documents, because as you can imagine, even right here in Chicago – Chicago is different than what we refer to as Lake County; anything outside of Cook County might be a different lease.

So when it comes to the legal process with evictions, as long as they can give us their attorney to deal with, or give us (let’s say) their three-day notice, their five-day notice, they can give us a template, we can fill it in.

Now, as you know, in most counties you have to have that served, so then again, I’m looking for their boots on the ground. If they can give me the contact, we go ahead and get it to them, so that they can print it and go serve it.

We do this for a lot of people, so we do do it, but ours is a partnership, and if they’re willing to provide us the appropriate documents, we’re more than willing to do it.

Joe Fairless: Okay. What’s been a main challenge that you’ve had as you’ve scaled this company to 1,000+ units?

Linda Liberatore: Let’s just say it’s the passion of working with each landlord and trying to help them meet their goals; it’s been enlightening to see all the different approach as to how they go out there. I see it as a challenge, and it’s been somewhat of a success, because what it’s done has evolved us to more of a consultant role… Not intentionally, but just saying “Joe does it this way, and I see how successful he’s done it… Have you considered doing this?” So we do get a lot of different methods, so challenging I would say would be the training of a new employee; that has been very challenging, and yet they pick it up really quickly, but there’s no manual I can just give them, because if Joe does it different than Mary — and I’m a big process person. To me process, wherever I can reduce time on a task…

We do do a lot of texting, so that again cuts across all socio-economic levels… So that’s the best way to reach people, and we’ve found that that saves us money, of course, if we can do that. We’ve tried to add electronic forms to fill out some of the maintenance, to get them to qualify things versus just saying “There’s this big leak”, things like that.
We’ve looked at process where we can make things more repeatable to save everybody money and time, and get a more accurate assessment of what’s going on with the building.

Joe Fairless: When you take a look at your business — when you started your own company, Secure Pay One, what’s been something surprising that you’ve come across? And how long have you had your company, just for context?

Linda Liberatore: About seven years.

Joe Fairless: Okay, for seven years; you’re now at 1,000 units… What surprised you about this?

Linda Liberatore: Well, if I take it all the way back in time, I could go with — I don’t know if it’s a surprize or a mistake, or advice… One of the things I did, I did a lot of (I’ll call it) pre-exploration before I started the company, looking at other businesses, trying to look around… But the real disadvantage to me is that I was not already a property manager or already a real estate agent. I am a licensed real estate agent and I have been for years, and I had worked with some investors over the years, but what it means to somebody starting a business is I didn’t bring my book of business. So like, a lot of times somebody leaves a property management company and they spin off and go start their own down the block; let’s say you’re in a different market.

So it was really, really painful and tough when I first started to get my first clients. Actually, my first client came from a reference from the bank, so the ironic part is the bank trusted me and gave me an ACH tool that basically can take money out of anybody’s account anywhere, but I didn’t have a client that was going to give me their property to take care of. My very first referral came from there, so I’ve spent a lot of painful time — I feel like I was flown out of the gate, and I wasn’t in sales before I started; remember, as you read, my background was in training and technology and trying to simplify a data analysis… So yes, I like people, but it’s different than selling, and selling yourself and selling your own company, and that was a big struggle.

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

Linda Liberatore: I’m a big daily person. Whatever you’re going to do, you have to do it daily. You have to get out, whatever that activity is that’s gonna push you forward… You can’t do it on odd days, even days; you’ve gotta make the commitment to do it daily.

Joe Fairless: What’s an example of how you’ve played that out in your own life?

Linda Liberatore: I would say reaching out — when I first started, when I was describing that pain, I had to make many cold calls (very, very cold calls) and just couldn’t give up; I just had to keep going, keep going. I would say that one of the most successful things we find with these tenants is they’re all across the country, but our communication is consistent. We have a whole (I’ll call it) kind of a communication method of mailing, e-mail, text… So it’s that consistency, if you will, that we tried to be sure — now, we don’t do it daily… They’d be hanging up on us, right? But we do build a process that we’re going to commit to, and in our case it’s the monthly cycle… But making sure you’re consistent.

We make sure even to the point of the mail, no different than your utility bills – it gets there on the exact same dates. It’s not when I feel like mailing it. We make the commitment to a specific day, so that when they open that mail that day, they can expect it there.

Joe Fairless: What’s something now that you still do daily?

Linda Liberatore: I don’t know if you want me to say this, but I’d say I’m a podcast and a book junkie… So the education of the industry and absolutely committed to it every single day. I’m in probably 8 real estate associations here locally, and I go to those meetings. Now, that’s not daily, but to add value to those meetings, I have to do the research and the education and the self-education, and that’s every single day.

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

Linda Liberatore: I don’t know… [laughs] I think so.

Joe Fairless: Well, we’re gonna have to do it either way. [laughs]

Linda Liberatore: Alright, I’m ready.

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

Break: [[00:17:16].27] to [[00:18:16].20]

Joe Fairless: Best Ever book you’ve read?

Linda Liberatore: This is a new one and I’m a big reader, but I’m gonna go with The 10X Rule by Grant Cardone. I can relate to that.

Joe Fairless: And Best Ever listeners, I’ve had Grant on the show before, so you can go check out episode 190. He talks about using a video LOI that netted him 20 million dollars in profit (episode 190). Best ever personal growth experience and what did you learn from it?

Linda Liberatore: I probably didn’t realize it at the time, but I would say it changed my life… Back in about 2001 I was exposed to a web-based application; that was new, obviously, very new at the time. I sat down and I researched it to the point where I found the owner of that company, and went and pitched myself for a job there, because I was so impressed and awed by it. Basically, that was a startup out of New York City, and the rest is kind of history.

Joe Fairless: Best ever deal you’ve done?

Linda Liberatore: I’m going to say that I invest a little bit, but I’d say it’s how we’ve supported — and there was somebody just most recently, she’s been a new client with us probably about nine months, and she had a building coming up for a purchase… And here in the Chicago area we have some areas that are more challenging and there’s some bigger numbers to be made on it; she got us at rent roll and we helped her get out welcome letters, everything, literally the day after closing. We’ve got an increase already coming up 1st August. That was a big accomplishment for her.

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

Linda Liberatore: I’ve actually just hooked up with our local college here. They have an entrepreneurial program for young men and young women, and they run kind of small Shark Tank [unintelligible [00:20:06].12] so I have volunteered to go up there and to do some working with the students, if you will, do kind of get them psyched.

Joe Fairless: What’s the biggest mistake you’ve made so far in real estate?

Linda Liberatore: Oh, my goodness, where would I start with that? You know, I have enough–

Joe Fairless: You and I both… [laughter]

Linda Liberatore: Thirty more minutes I need for that one! The biggest mistake… I guess I’d go back to that first story; I don’t know if it’s real estate-specific, but start a business — I really wish I had the first one signed on the dotted line before I open the door. I don’t know if it would have been just a confidence booster, but trying to get that first one was very tough.

Joe Fairless: What’s something that you’ve evolved in your business that you weren’t focused on as much when you launched it?

Linda Liberatore: I would say – this is a good learning experience – with the legal aspects of it… You never want to have a tenant be able to quote you the laws in that state. So yes, I think we’re much more sensitive to requiring having a lease. When we first started, remember we were a web-based application, so we didn’t necessarily need the lease to answer the information. Basically, if  you step back, if you’re an investor, all I needed from you was what day do I start collecting? How much do I collect? What’s the terms of the lease? What’s the phone and contact? But we didn’t realize when we took that shift with the phone calls — you would just think “Oh, that’s a simple call; they’re just gonna call in their toilet and that’s it. Next call.” But all of a sudden, you’ve got humans involved in this business and they can begin to ask things that, as I said to you before, we had to refer back to the lease to see what was covered.

I’d say that’s an area that I didn’t anticipate certainly as a risk factor, so now we’re definitely very sensitive to having that lease in hand when we get started.

Joe Fairless: What’s the best place the Best Ever listeners can reach you?

Linda Liberatore: Well, everywhere. We’re on LinkedIn, Linda Liberatore, as you said it, and Secure Pay One is the name of the company. We’re on Facebook, Twitter, we have a YouTube channel… We’re everywhere. We have an electronic newsletter that goes out once a month. One of the employees has been showing that for us for a couple of years; she does a great job, and we’re pretty much everywhere. I could give my cell number too, I guess. My cell number would be 847-436-9006.

Joe Fairless: Awesome. Well, Best Ever listeners, I recommend checking Linda’s company out if you are looking to start automating the process as a buy and hold investor but don’t wanna give up the reins entirely to a property management company. It sounds like a really interesting option.

Linda, thanks for talking about your business, because normally I like to not have it as focused on someone’s business, because I don’t want the self-promotional stuff, but you by no means did that. I was just genuinely interested in your company, because it’s a business model that I haven’t come across before, and any time I find myself in one of those conversations, I’m fascinated. I loved to dig into how you make money; you said you get $50 for every unit… At least for one unit; perhaps there’s economies of scale, we didn’t really talk about that, but just the overall “Hey, this is what we offer and this is what we get”, because as real estate investors we’re all entrepreneurs in some level. Even buy and hold investors, we’re entrepreneurs because quite frankly, when we buy a property and hold it, we’re buying a business if we’re thinking about it the right way.
So thanks so much for digging in there, talking about how you launched it, lessons you’ve learned in customer service, as well as the legal aspects and leases. I hope you have a best ever day, and we’ll talk to you soon!

Linda Liberatore: Thank you so much, Joe!

 

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JF1041: Stick to Your Process and Don’t Get Greedy #SkillSetSunday

Listen to the Episode Below (19:37)
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As an investor, it’s important to know exactly when to exit your investments. Many investors make the mistake of hitting their goals with an investment, but stay in the deal rather than exiting as they originally planned.  Jordan tells us how and why to stick to you original exit plan.

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Jordan Fishfeld Real Estate Background:
-Co-founder and CEO of CFX Markets, a venture-backed trading platform
-Assisted on implementation of the JOBS Act regulations and the intra-state crowdfunding rules
-Decade of investing, development and sales experience in the real estate industry
-Prior to he was finance attorney who assisted on more than $1 billion worth of syndicated loan transactions
-Based in Chicago, Illinois
-Say hi to him at https://cfxtrading.com/

Click here for a summary of Jordan’s Best Ever advice: When Is the Right Time to Sell Your Real Estate Asset?

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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.

Because it is Sunday, we’ve got a special segment for you called Skillset Sunday, where we talk about a specific skill that you can hone after listening to this, or perhaps adopt if you haven’t adopted it. This is an important skill; this is a skill on how to stay true to your original financial modeling. Basically, how to not get greedy and identify when it is time to exit out of an investment. With us today to talk through that – Jordan Fishfeld. How are you doing, Jordan?

Jordan Fishfeld: Good. How’s everything? Thanks for having us!

Joe Fairless: Yeah, nice to have you on the show. Jordan is the co-founder and CEO of CFX Markets, which is a venture-backed trading platform. I interviewed him on episode 558, titled How To Invest In a Secondary Market… So you can learn more about it there, as well as hear his best advice ever on a previous episode, just by searching his name on the BestEverShow.com, and that will come up. With that being said, Jordan, even though we’ve talked about it a little bit, can you give the Best Ever listeners a little bit more about your background and your company? That will add some relevancy to our conversation with the task at hand for what we’re gonna talk about.

Jordan Fishfeld: Yeah, sure. My background is obviously in real estate. I ran a capital raising platform for real estate transactions and found that investor liquidity was a really big issue and something that I wanted to support more specifically, so my partner and I developed a trading platform where minority investors and LP investors could go and sell their assets in an open, transparent but secure way.

Before that I was an attorney, which was fun… Kind of.

Joe Fairless: [laughs] Alright, so you’ve got the legal background, and then you’ve done some crowdfunding work, and now you’ve got the secondary market with CFX Markets, where people can sell their shares of companies on a secondary market if they need to exit out of it. So the skill that we’re gonna be talking about today is how to know when to stay in or when to leave an investment. How should we approach this conversation?

Jordan Fishfeld: I think there are a few different things that come to mind in deciding when it’s the appropriate time to exit. I think when you’re the sponsor, when you’re in control of the deal, that decision is actually much easier. You’ll sell it when you want to, and when you think you can get that cash back that will be supportive to your investors. Where it becomes really difficult is what if you’re one of those small investors and right now is the time that you would normally wanna sell it – what do you do?

What we’ve found is most investors – both sponsors and limited partners – kind of suffer from what’s clinically called “the endowment effect.” Basically,  when you own something, you kind of wanna keep owning it, even if it’s not in your best interest or fitting within your original model.

What I think is an unbelievably important skill is with every investment – real estate included, and probably most importantly – if you were targeting a 20%, 15% return on a specific project over a certain number of years and you’ve kind of hit your proforma, think “Would you buy it today at the price that you are looking to sell it?” and if the answer is no, then you should probably sell it, and really sticking to that proforma or that goal that you set for yourself going into the project.

I know prior to some of the new technology and new rules it was really hard if you were a limited partner to sell your asset, but that’s not the case anymore across all assets, so it really is now a skill of the investor… Not just the sponsor, but a skill that the investor has to have going into these limited partnership deals is annually reviewing your deal – is this exactly where you want it to be? Is the return that you’re expecting gonna continue? And if not, you have that opportunity to sell it and guarantee whatever return your goal was originally set for.

Joe Fairless: I’m reading a book that is titled Mistakes Millionaires Make. It is one of my favorite books of all time. I literally bought it yesterday and I’m probably gonna finish it today… It’s that good. I’d say 25% of the mistakes listed in there have to do with an entrepreneur having a company – in this case it’s not necessarily real estate, but it’s certainly relevant to real estate investors… Having a company, it’s worth 100 million bucks, but yet they stick in, stick in, they don’t sell, and then eventually (holy cow) something happens, the winds shift, the government gets into their business and all of a sudden it’s worth nothing.

Jordan Fishfeld: Or even – in a better case scenario that’s not tragic – you spend the next nine years with this business and it’s now still only worth 100 million, when you could have taken that 9 years ago  and done something better with it, right? That’s where I think a lot of value is lost, both in real estate and in other opportunities, where you end a project where you’re like “Oh, this is great, but if I could have sold it five years earlier and had the same gross return” and put that money to work in maybe some project that’s more appropriate or even gained a little bit more diversification or more safety – was that a better decision at that time?

I think that you’re right… That mistake, that endowment effect problem is something that’s really hard to overcome. This isn’t an easy thing to do, to sell something you own that’s going well for you; it’s a very hard thing, and I think that’s why it’s a great skill that is a learned skill. It is not a natural occurrence, it’s something that you have to learn and be good at and really stick to. I think people that do it well benefit tremendously from putting capital to the most efficient use possible at the most efficient time.

Joe Fairless: And on the flipside, the grass is always greener, and if we have something that’s working and we are comfortable with — in this case we’re a passive investor, we’re not the general partner with a limited partner. If we’re happy with the general partner — because so often the number one thing is “Is the general partner someone who I trust and do they qualify based on what I’m looking for in someone overseeing my investments?” Because the deal is always secondary; the people running the deal is primary, in any investment.

So if we’re comfortable with that individual, then why not hold on to what we’re doing with that individual already, versus going and taking it out and doing “the grass is greener” somewhere else?

Jordan Fishfeld: Well, I think there’s a few points there. First is there’s no reason why you can’t take that money and put it into a new project of that same manager. Most managers aren’t running one project and are not raising for one deal at any given time if they’re that good… So to say “I would like to take my cash out of this deal, which has kind of already run its course” — specifically talking about a development project… We’ve found great developers who know how to manage a construction crew, know how to put together great plans, work with the government to get approvals… And then once they get their certificate of occupancy, they kind of pass it off to a brokerage or a property manager to lease it up.

So most of your bet is on the developer, not on the property manager, so in this case, why not sell at the time of the certificate of occupancy and put money into the new developer’s project, which is what you had bet on in the first place.

So things like that where 1) a new capability, given the new rules and the new technology – this wasn’t always possible, which is why many investors I think will have a very difficult time with this process in the early days… But if you compare asset classes, so public securities – specifically people who are not traders; people who invest, say, in Apple or Facebook, not to try to sell it the next day or during a spike and then a dip, but who say “I believe in this company, I believe in the manager and I think it’s gonna grow…” They look at that stock every six months (maybe every year) and say “Do I still think this is a good company that’s gonna grow?”

If you bet on Groupon early and then two years later you said “Is it still gonna grow?” and maybe you said “No” and you sold it and you did really well. Facebook, if you look at the company a week after it IPO-ed or a month after it IPO-ed and you looked at it today, in both instances you said “I think this company still has tremendous growth potential.” That’s kind of the same analysis – “I’m gonna buy it again today. If I wanna buy it again today, then that’s what I should do.” If you wouldn’t buy it today at that same price, then you should probably sell it. I think that’s the skillset that investors are almost required to have going forward, as choices and opportunities and efficiencies become more commonplace.

Joe Fairless: That’s a really simple, boiled down way of looking at it. If I wouldn’t buy it at today’s price that I could sell it for, then I should sell, right?

Jordan Fishfeld: I think so. And there’s obviously a lot of different theories, but this is one that I think will definitely be a great skill, and the more and more investors that start thinking this way — we’re seeing it already in the financial advisor and kind of alternative asset marketplaces. When advisors now do your annual check-up, this is exactly what they do; they just haven’t been able to make that recommendation for real estate. I think that’s why this is a really powerful tool for active and passive real estate investors, that has kind of been overlooked in this market, because it hasn’t been that easy to do earlier in the history of this asset class. Now that it is much easier – again, with the new rules and new technologies – it’s something that needs to bleed over into this space, to have that same type of efficiency that we have in the public market investment decision-making process.

Joe Fairless: The one challenge that I would have with that (just thinking about it a little bit more) “if I would not buy it at this price, then I should sell it” is I bought it at a lower price — and let me use a specific example… An apartment community I have in Houston – it’s 250 units, I bought it for 14 million dollars. 16 months later it is worth 21 million dollars; we got an appraisal. We put in 2 million, so all-in we’re at 16, now it’s worth 21 million dollars. Well, it’s worth 21 million, but I would have a hard time buying it for 21 million, because we bought it for 14 million. However, that doesn’t mean it’s not a very good investment if I brought in additional capital and did even better renovations and increased the rent even more. So there’s gotta be some sort of psychology with price anchoring tied into this. Because just like store – “Buy it for 100 — no, never mind, we just slashed the price to 50.” Well, now I don’t ever wanna buy it for 100, even though it might be worth $200. So there’s gotta be that playing into that mentality as well.

Jordan Fishfeld: There’s so much psychology in this decision process, and actually part of this thesis is coming from what’s going on in Michael Lewis’ new book “The Undoing Project”, which if you haven’t read, definitely check it out. It’s all about the psychology of decision-making and financial market decisions… And you’re exactly right – price anchoring, emotional relationships with the asset class, the fact that you already own it… I mean, they have a name for what you’ve just described, which I talked about earlier – the endowment effect. You own it and you bought it cheaper, so you don’t wanna 1) sell it, or 2) buy it for a higher price than you originally paid for.

I think this is a very hard skill to learn and to implement, but at the same time very relevant. Now, the question I would have for you is similar market, similar asset class, 21 million dollar apartment project that has some renovation capability with the ability to boost rents and increase occupancy – would you buy that next door? And if you said yes, then clearly the reason why you wouldn’t wanna pay 21 for this specific project is because your basis was lower and you’ve price-anchored. But if you would buy the project next door with the exact same features for 21, then I think you’ve made the right decision to keep it and hold it and put more money into it.

You’re exactly right, the psychology around this process is very potent, and it requires a very determined and sophisticated and focused investor. With this skill, I think you’ll see some great return on your projects.

Joe Fairless: Is there anything else that we haven’t talked about as it relates to “Should I stay in longer or should I sell?” that we wanna talk about?

Jordan Fishfeld: I think it’s a multi-variable decision. I think “Should I stay in longer? Would I buy this project at this price?” I think is a great baseline. Again, everybody has their own tax burden, so you have to just ensure that selling it is the same as buying it, because when you sell it, you’re actually gonna get a tax bill; when you buy it, you don’t get a tax bill… So making sure that that’s considered…

The other thing is is there a project that you can put your money in to satisfy your same goals? I think that’s a really relevant point right now – if I sell this project where my initial target was 12% and now I’ve hit that, and I know that for the next four years I’m gonna be making 8%, so that will reduce my overall yield on the project to (let’s call it) 10%, can I find anything that has a great than 10% yield in this market right now, that has the same risk profile? If not, then you’re kind of stuck in your current project for that reason.

Where I see it being really problematic is, specifically in the development project, you create all this value, you have this great jump in IRR from year one to year two or three – whenever you get your certificate of occupancy – and then during the lease-up phase you’re kind of averaging down your IRR as the leasing effect takes place. But if you can move that money into another development project and kind of go after your 25ish, 20% return over that two year period with significant risk, and if that’s what your profile is hoping for, then you should do it.

Again, it still always depends on the investor individually and the projects individually and the opportunities available to that investor. But as opportunities explode with the online capital raising space, as information explodes all over with podcasts and papers and books, and as yields compress, there’s a lot of different reasons why you should stay in and not stay in certain investments. But I think the skill of just doing a check-up on your investments and making that decision is very powerful.

Joe Fairless: Yeah, I certainly agree. This has been a fun conversation. Jordan, where can the Best Ever listeners get in touch with you?

Jordan Fishfeld: Come to our website, it’s CFXTrading.com. They can e-mail me at Jordan@CFDTrading.com. I’m looking forward to hearing from your users, and also always looking forward to chatting again with you.

Joe Fairless: Cool. Jordan, thanks so much for being on the show, talking about if we should or shouldn’t stay in an opportunity. We should just always do a check-up on our investments, take a look at the tax consequences, the true value of it today versus when we bought it, if we still would pay that same amount for a similar or exact property, but just not that one, to try and distance ourselves from the process. If we’re reaching our goals, if we already reached our goals, and if we have a new project that will accomplish whatever we’re looking to accomplish in the development deal is a good example of that.

There’s more risk on the turning dirt into actual steel and places where people can live, but then there’s less return on the lease-up because the risk has certainly been mitigated a lot once people are starting to move in there and occupy. So maybe if you want to do something more aggressive, then you can just bounce around from development deal to development deal during the first 12-24 months.

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

Jordan Fishfeld: I appreciate it. Thanks so much. Talk to you soon, Joe.

 

 

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JF946: Learn the Secrets that took CNBC TV Star Sean Conlon From Assistant Janitor to Real Estate Mogul

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Fear and focus were two paramount tools for Sean Conlon, star of all brand new reality series, The Deed Chicago.  In this episode, Conlon shares details of journey from an assistant janitor to the fame and fortune he has amassed and now helps others achieve.  With a passion for real estate, Conlon began making evening cold calls for a brokerage after his long day job shift. He learned the streets of Chicago like the back of his hand and grew his empire by selling and eventually developing real estate.  Turn up the volume and learn how fear and focus can change your life, too.

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Sean Conlon Background:

– Star of New CNBC Television Reality Show The Deed: Chicago – a show on rescuing real estate projects.
– Owner of Conlon & Co: A Real Estate Merchant Bank. Conlon spent his nights making hundreds of cold calls until he began to make a name for himself. Today, he presides over one of the most extensive real estate businesses in the country and is a leading visionary in the field.
– Chicago real estate mogul who went from being a janitor in 1990 with to running successful real estate business The Deed on CNBC will follow him rescuing real estate projects in Chicago
– Based in Chicago, Illinois
– Best Ever book: City of Thieves

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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.

We’ve interviewed Barbara Corcoran from Shark Tank, Robert Kiyosaki, the author of Rich Dad, Poor Dad and a whole bunch of others. We’ve got a treat for you today, we’ve got the star of the new reality show The Deed: Chicago, Sean Conlon. How are you doing, my friend?

Sean Conlon: Hey, nice to meet you, and your listeners, too.

Joe Fairless: Yeah, you pumped me up right before we started recording, like “I can’t wait to talk to the Best Ever listeners.” I know they like hearing that.

A little bit about Sean – he is the owner of Conlon & Co, a real estate merchant bank. He’s also a Chicago real estate mogul who went from being a janitor in 1990 when he came to the United States, to running a successful real estate business. As I mentioned earlier, the is the star of a new reality show called The Deed on CNBC, which will follow him rescuing real estate projects in Chicago.

There’s a link in the show notes page to the trailer, go check that out, and then go to CNBC and watch the show, as well. It’s based in, obviously, Chicago, Illinois. With that being said, Sean, do you wanna give the Best Ever listeners a little bit more about your background and your current focus?

Sean Conlon: Yeah, I came to America in 1990. I actually worked as an assistant to the janitor, but I pumped my resume a little bit, as you do… I started selling real estate in 1993; it was suggested that I should give up, because I was awful, and I stuck with it, and by the end of the ’90s I’ve sold probably around 200 million dollars a year, with an average price of 350k, which was long before the million-dollar listings. [unintelligible [00:03:59].08] and then I founded a company called Sussex & Reilly, which at the time was quite cool, which sounds like I was good at Rubik’s cubes, but we were the second largest users of Blackberry’s in North America in 2000, when they were cool.  I sold that company, and bought it back and sold it again. That’s kind of the gist of it.

Joe Fairless: I wanna dig into – from 1993 (when you started) to 1999… I’ve read a couple articles where you were interviewed around that time, and you attribute it to hard work. I wanna dig in there… So if we drill down a little bit, what would you attribute the rise in your success as a real estate agent to?

Sean Conlon: Look… Obviously, there are lots of incredibly smart people out there; they’re definitely a lot more smart people than me, a lot more connected, and I think it’s somewhat inspiring, but my story is I’m an ordinary person who did some fairly extraordinary things. What would I attribute it to? It really was hard work, because I had nothing else. I had to work my day job, finish up at six at night as the assistant janitor, and then come and cold call in the brokerage office. But I ate sleep and drank real estate in a particular area, and I was so knowledgeable…

It was like learning to juggle, which seemed like a useless talent. I knew every zoning, every lot size… And then one day, when all those nights fell on top of me, I was able to juggle my way through it. I was positioned they started to build the first three condo units in the neighborhood, and I rode that wave. But I was only in the right place at the right time, because I was in that place all the time.

Joe Fairless: So you were working as an assistant janitor, and you were also painting some houses… But there were people in your brokerage – just for some comparison purposes – who were working full-time. When I hear that, it’s not about necessarily doing hard work, it’s about being effective with the work you do. Because if you’re working only nights, then you’re basically working about the same hours as the people who are working full-time, therefore you are more effective with your time. So what were you doing that was more effective with your time?

Sean Conlon: Bingo! I see why your podcast is so successful – you focus right in on the difference. I was incredibly efficient with my time, and I picked something and focused on it. America’s such a huge, huge country, economy-wise. If you pick a small part — Sussex & Reilly when I started it, two years in we were doing a billion dollars in sales a year, in a couple of neighborhoods. I focused in on understanding the teardown and the zoning in this neighborhood, [unintelligible [00:06:43].06]. That was my talent that I taught myself that was useless, until it became incredibly relevant.

So that’s exactly right, I was focused on working a lot. There were a lot of people who worked who did busy work; I would come in at night and I would need so many hours to be focused… And I would cold call, which is a horribly difficult thing to do, but it taught me rejection really isn’t rejection if you pick yourself up and go again.

Joe Fairless: How did you go into focusing on teardowns and zoning, compared to other stuff you could be focused on?

Sean Conlon: That would be some serendipity. Of course, that comes along if you’re out in the mix. I would walk the neighborhood in the evening, and I saw a guy building a three-flat, three apartments, and I asked him what if he’d sell them as condos, and he said, “Well, they don’t buy condos up in this neighborhood.” I said I’d do all the research-research, and I sold them in a week from like some really bad photocopied plans, and like “This is the future”, and I rode that wave.

Joe Fairless: So you came to the U.S. in 1990. How old were you?

Sean Conlon: I was 21. I grew up in a small village in Ireland, seven of us in a pretty small house. My dad was the most incredibly charismatic man ever, but the worst businessman ever, and my mother was hardcore, raised the five kids and she worked two jobs, so I got a little bit of both. But my dad was a dreamer, and he always believed that American was the place where you could go make it, and when I look at him – he’s dead now, and he was my inspiration – I think he’s a great example of “In the end you only regret the chances you didn’t take.”

He wanted to come to America, but he was scared to, so he put all of his faith that I was going to do it. I was 21 when I came.

Joe Fairless: What’s the reason, why are you such a hard worker, but so focused?

Sean Conlon: As lots of Best Ever listeners will probably attest to, we see all these wonderfully dramatic things, and I think one of the reasons The Deed: Chicago will appeal to people – I’m so very real; what I mean by that is I have always been driven by fear. While lots of people are driven by the things they want, a lot more of us are driven by fear: fear of being poor, fear of not being able to pay your kid’s school bills, or the car payment. That does drive a lot of us.

Ultimately, it drives you to real success, but I would be lying if I said I was driven by some great vision to be in the White House, or something like that. I was driven because I was scared, and I wanted to take care of my family, my parents and stuff, which is the greatest thing I’ve ever done.

Joe Fairless: I would think at this point you are financially stable, but you’re still achieving high-level things. Is fear still driving you, and if so, what are you fearful of?

Sean Conlon: Fear’s still in me, because in 2008 I was on top of the world, and I was not paying attention, and I was probably in a hammock when that bomb hit the beach… I was like, “Oh my god, where is everything?” At that point I had a hundred-million-dollar fund on the street; we were funding 1.2 billion dollars of developments across North America… So there’s still some fear, but I’m an ambitious fella at the same time.

Joe Fairless: Got it. So are you still doing developments right now?

Sean Conlon: I own a lot of stuff I’ve taken back in the downturn; you’d asked me about some of my funds, and it’s interesting because when I describe my mezzanine fund as a success, it was the return of investment, not return ON investment.

A lot of that real estate – like hundreds of acres in North Carolina – I still have, but I’m not out there balls to the wall developing, because that’s not a part-time gig, as I tell people on the show.

Joe Fairless: Right. Outside of the show, what are you focused on from a real estate standpoint? What are your main responsibilities right now?

Sean Conlon: I’m the chairman of Conlon & Co. We have a residential brokerage that probably [unintelligible [00:10:51].25] that will do about a billion dollars in sales this year. We have a commercial division which I really like to dip in and out of, where we do commercial deals around the country, and that’s probably a three, four hundred million dollar business, and then the really cool one is the capital markets aspect of my merchant bank. That’s where we structure about three-quarters of a billion dollars of loans a year for developers, guys refinancing storage facilities, senior housing, apartment buildings… They’re my main business. I’m kind of the rainmaker.

Joe Fairless: You’ve got agents for both residential/commercial, and you’re also making loans to people who want to buy real estate – primarily commercial, I imagine.

Sean Conlon: Yeah, and they’re bigger loans, CMBS loans. I do buy my own opportunistic things; I bought a high-rise site last year, a hotel in downtown Chicago. So I’m not afraid to be in that, I just find that market is quite heated right now.

Joe Fairless: Can we talk about that high-rise in Chicago for a second? Can you tell us the numbers on it and what appealed to you and how you found it?

Sean Conlon: Absolutely. Firstly, sometimes some of the best deals are hiding in plain sight. I say that just to state the acid obvious… There is a giant frog on it – it’s the Rainforest Cafe in downtown Chicago; the ugliest building ever, and there was a giant gorilla outside. I’d driven by it every day, all of my real estate life. I hear there was a play, there’s seven owners, they’re all in their 80s, they won’t talk to each other. That in itself is something [unintelligible [00:12:24].20] but I got involved talking to them all; a lot of people passed on it because they were like “There’s only a five year on the lease, and it’s $830,000 in income, and then what happens when it ends?” Well, nobody stopped to think it’s the land play where you get $800,000+ of income, because you can put 20 storeys on top.

So I bought it for just under 14 million dollars, with the air rights from which you can build above it. In five years — of course there will be dips in the market, but if you average it out, in 5-7 years, that’s a 40-50 million dollar site. It was sitting in front of everybody in the business who was much smarter than I am… But I drive around and I look at everything, and I look at it twice.

Joe Fairless: I wanna make sure I understand that, and sometimes I ask people to speak very slowly to me, so I can make sure… You explained it perfectly, but I wanna make sure I’m understanding this right. You bought it for 14 million, and included the air rights so that you can build above it and develop above. After developing that, you’ll have an asset that’s worth a lot more than what you’ve bought it for, right?

Sean Conlon: I will elaborate and be a little more specific. Right now, the Rainforest Cafe is in the bottom.

Joe Fairless: Okay…

Sean Conlon: When I redevelop it, I will have two storeys of retail, and then probably 15-20 storeys of apartment buildings or a hotel. I’m saying the land is worth 40-50 million in 5-7 years.

Joe Fairless: Oh, the land will be worth it just because of appreciation, or…?

Sean Conlon: You can build the building on top of the reason right now; the value wasn’t there, nobody was willing to buy it and sit on it. They wanted it to be shovel-ready. One piece of advice I would give to your listeners is nobody thinks long-term on anything, because we’re so used to instant gratification. If you can take a long view, as I believe you do in your investments in real estate, time is always your friend in real estate if you finance it properly.

Joe Fairless: Right, that’s they key, too – financing it properly. Does the property for you cash flow in those years leading up to…?

Sean Conlon: We had to put 50% down; I bought it with one other partner. We put 50% down, so it was a real cash commitment; we put seven million dollars down. But it covers everything, cash flows, it’s a real nice hold, and then in four years time it’s an incredible location. It’s the corner of [unintelligible [00:14:54].08], opposite the Rock ‘n Roll McDonald’s, for those of you who’ve been through Chicago. It’s fantastic real estate.

Joe Fairless: So you’re saying you bought it for 14, you put seven into it, you’re cash flowing, and then in five years you are going to develop it?

Sean Conlon: Well, I will probably have somebody who’s much more competent than me develop it. I will [unintelligible [00:15:16].01] it and roll it in at its new value.

Joe Fairless: And you’re projecting it will appreciate from 14 to – just the land – 50 million because of… Why?

Sean Conlon: Well, because once a tenant is out of there and it’s unencumbered, you have a high-rise site in downtown Chicago. I’ve already received offers of 25-30 million. It’s amazing how short-term people are; two years ago they wouldn’t buy it, because the tenant was in there for six years. Now they’re like “Oh my god, we should have bought that.”

Joe Fairless: I’m with you, I completely understand now. Thank you for walking me through it. So because the tenant lease will be gone in five years, then you’ll have a high-rise — it’s like a blank canvas, and it does cash flow along the way. That, from my experience, is where people get into trouble with development – and fix and flips in particular – when the music stops on the landing and the home values and you don’t have something that cash flows and you can’t cover your expenses… That’s where you can get into trouble.

Sean Conlon: I’ve gotten burnt like that. When you’ll see The Deed: Chicago on CNBC — I made those mistakes in the past, so when I’m teaching people now, it’s not that I’m that smart, I’ve made all those mistakes. I’ve had lots of land, I had thousands of acres of land that was great, until it wasn’t; no cash flow, and when the banks wanted it paid off, I had to.

Joe Fairless: Would you still buy land, knowing that’s the case, knowing it’s open to risk like that?

Sean Conlon: When I bought the land I had no focus; I was focused on 20 different things, which is advice I would give to your listeners also… Because I suspect if they’re the Best Ever listeners, they’ll hear these things. I would never rule land out. If you’re thinking long-term, and it’s agricultural land or it really is development land, properly financed, and you can manage a couple of ups and downs on it, you’ll still be okay… But having cash flowing assets is such a safe way to go.

Joe Fairless: You’ve mentioned “properly financed” a couple of times… I wanna make sure I understand – what does that mean?

Sean Conlon: It generally means – and I’m gonna make it very basic; I’m not going into all sorts of complicated stuff, because I’m not that complicated. You can’t have the thing levered like where you take out a 90% loan on it. Most of my real estate always had about 50% equity in it anyway. Now, in the world [unintelligible [00:17:37].10] that nearly wasn’t enough. So don’t pull a load of money out, don’t have it levered up to 90% of the value. Leave the equity in there, because you’ll come to a point otherwise where you’re going to be writing checks, which will freak you out.

Joe Fairless: Do you have your own rule of thumb for a property or some land that if you were to buy it, the type of leverage that you would do now?

Sean Conlon: Listen, I still think 50% is really safe. That was always my rule of thumb. I think what we didn’t expect in 2008 was that the banks would fail in front of us and you would have predatory hedge funds buying the loans and coming after you. Nobody accounted for that.

Joe Fairless: Yeah, that makes sense. One thing that I personally have so much respect for are immigrants who come to the country, and… You knew English, but sometimes they don’t know English and yet they excel to a much higher level than those around them born in the United States, who have seemingly so many opportunities right in front of them and have a competitive advantage over people who don’t even know the language, or in your case, don’t have the network established within a community, whereas you had to create it. Do you believe there’s any excuse for not reaching as high of a level as you’ve reached for others?

Sean Conlon: None. I grew up in a world that everybody wanted to come to America. Heads up, it hasn’t changed. The most talented and ambitious people in the world want to come here. It wouldn’t be a bad thing… It would keep some of us locals — because obviously our kids will be Americans, it will keep them on their toes a little bit, sharpen the competition.

I would go to the library in our village — obviously, had your podcast been around at the time, I would have been one of your Best Ever listeners also… But we didn’t have a phone when I was 14. I would go to the library and I read about Carnegie, Vanderbilt, Rockefeller. This was the America I wanted to come to, so I came with an outside attitude to a place that I felt comfortable with in my head, because we all grew up in it: John Wayne, Clint Eastwood… The world grew up in Americanism; it shouldn’t be turned into a negative thing.

There’s still no greater place than America to be what you want to be. It is unbelievable, and people need to shake themselves off. There’s nothing like it in the world for business opportunity, nothing. It hasn’t changed.

Joe Fairless: You mentioned earlier something about instant gratification and how really we should take the long view with our investments. Is there a way that you teach people so that it resonates, maybe showing them what you do, or just giving them examples of your past investments?

Sean Conlon: It’s so hard. You can’t teach experience, you really can’t. I wish I knew 20 years ago what I know today. I know you have a lot of apartment buildings. I sold some incredible real estate, because I wanted to take the hit now… It’s hard to teach that, but if people would take a breath — I’m an overnight success in 25 years. Seriously. I slog along, I got knocked down… I tell people, you only fail when you stop trying. You should see how many times I went “Oh my god, I didn’t just do that…” But I only do it once.

I tell people, “There’s very little to be learned from the second kick from a mule.” [laughter] So I’ve been kicked a lot, but once. I preach patience, but it’s something people have to learn.

Joe Fairless: What do you do consistently, ideally every day, but if not every day then every week or on a regular basis, that gets you to where you wanna be professionally?

Sean Conlon: So what has, because my life now is a little bit like a pinball ball, I bounce from place to place and thing to thing. But when I was focused on the acquisition of real estate, every day I would walk the neighborhood, drive around the neighborhood, get a feel for what’s going, if something new is going on… I would talk to everybody. There’s a reason during wars spies got in talks with the local population. It’s amazing the information you can gather on the street. I would talk to everybody in the neighborhood you wanna work in.

Joe Fairless: When you have those conversations, what information are you looking for and what type of questions do you ask?

Sean Conlon: Well, first you have to be kind of polite and subtle about it; it should be conversational. “What’s going on down the street with Mr. Jones’ house? Oh, I see they’re doing some work in there… What’s going on?” and people invariably tell you. I bought a 260-room hotel, which subsequently became my worst deal ever, because the doorman mentioned that there was a grouping from New York running valuations on it… Because I used to chat with him every day to see what was going on in the neighborhood. That’s a bit of information I didn’t need, in hindsight. [laughter]

Joe Fairless: Let’s talk about that hotel for a second, and then I want to talk about some fix and flip stuff, that this show revolves around. That hotel – can you elaborate on the deal?

Sean Conlon: Yeah, it’s a perfect example of — I had an incredible trajectory upwards. I went from being assistant janitor to probably being the top broker in North America in like a six-year period. So I’m running around, I get the heads up on this deal, buy a 260-room hotel in downtown Chicago. Now, they say in Latin “Nihil admirari” – be surprised by nothing; don’t get too confident, there’s always something that might come out of the blue and sucker-punch you.

Well, 11th September happened a couple of weeks before we closed, so we were hard on the money. We turned down a flip on it; we bought it for 17 million and we turned down a flip on it. Now in hindsight, I had gotten out of my lane. I used to run cross country high school, and the guy who used to coach me always said “You run your own race.” I was like, “That’s a stupid statement. Of course I run my own race. Who else is running it?” But what he meant was I looked at the finish line; I didn’t look behind me, I didn’t look left of right… If you compare yourself to other people, and if you look back – which there are no lookbacks in life – you will perpetually be unhappy. There’s always somebody with a bigger boat, a bigger jet.

So I stopped running my own race and I was looking around at all these guys who were in hotels and funds, not realizing I was incredibly successful in my own arena. I decided I was going to be a financier/hotel guy, and I knew nothing about hotels. It was a nightmare, and it nearly strangled me. But I got up every day and went back at it until I got out of it.

Joe Fairless: You bought it for 17 million… What did you turn down the flip for? How much did they want to pay?

Sean Conlon: Well, we probably would have made three or four million on a quick flip, which is an amazing amount of money, but I’m only telling you a little part of it… I was also on the hook at that stage because had started a construction for a 70-million-dollar loan.

Joe Fairless: Yeah, that’s a big number.

Sean Conlon: That’ll do it. And my partners had decided they didn’t like being on that loan, so they would not go with me; I mean, “Yikes!” You’ll see it on my show, it’s something like “No, you cannot be on the loan… You are!”

Joe Fairless: What ended up happening with the hotel? What did you sell it for?

Sean Conlon: I ended up – it’s quite interesting… Two years of hell, and there was a partner who really wanted the deal, so he bought me out from my equity. He was an incredibly wealthy person… I think he subsequently lost tens of millions on it, but he could afford it, and he wanted it.

Joe Fairless: It helps with taxes.

Sean Conlon: Yeah, so I escaped, but the lesson for your listeners is stick to what you know, and be the best at what you do. Don’t try and be good at lots of things, that was my big father.

Joe Fairless: What aspect of real estate do you know the best, and within that what are you best in class doing?

Sean Conlon: Here’s what I would tell you I do: I connect the dots on a deal like nobody, so opportunistic acquisition, commercial or residential, I do. But my real skill is people. I can read people, I know who to connect to who, and that’s what a real merchant bank does. I get paid for putting together funding, I get paid for putting together deals, and I take a piece of them.

So what am I best in class at? I can connect people from one end of the globe to the other; with a couple of thoughts, I can connect all the dots. That’s what I do. Actually, to go back to when I was a broker, what set me apart from everybody, by ’96 let’s say you were coming home from your accountancy job, and you’re like “I wanna be a developer.” People say, “Go see Sean Conlon”, so you would come in the door, I would have a set of plans for you, I would have a piece of land that I tied up, because [unintelligible [00:26:35].24] I would have a GC for you, I would have the bank that would fund it, and obviously the brokerage that would sell it. I was one-stop shopping.

So you’re walking home, coming home to your wife, “Hey honey, I got a puppy.” “Hi honey, I dropped in to see Sean Conlon and I’m a developer.” Hundreds of people I made developers in Chicago. You can come in the door and leave with everything.

Joe Fairless: For better or worse… [laughter]

Sean Conlon: Well, listen, the great thing about it is there was an incredible upsurge at the time, so anyone who did business with me from ’96 – and I retired from selling in 2000 – everybody who did this with me (except the complete idiots) made it.

Joe Fairless: [laughs] I wanna ask one more question about the hotel thing, and then I wanna talk about fix and flips. You said that the lesson there is stick to what you know…

Sean Conlon: Yes.

Joe Fairless: That leads me to believe that you weren’t an expert in hotels at that time. The purchase price was 17 million dollars – was that all your money, or did you bring in partners?

Sean Conlon: We financed that, myself and one other partner.

Joe Fairless: Okay, so you financed it, that’s what I thought; you financed it yourself and one other partner. And I’m not asking this question for Best Ever listeners to go out and convince people to invest in things they don’t have experience in, I’m gonna ask this question because it’s going to be interesting to hear how you were able to basically sell in a project where you weren’t an expert in that category. So how did you sell in the project to your other partner, even though you didn’t have an expertise in hotels?

Sean Conlon: My other partner had done some deals. Secondly, the real estate was incredible real estate. Thirdly, the plan was actually not to be a hotel, we were going to convert it to condos, and I was best in class there.

Joe Fairless: Got it.

Sean Conlon: Being the genius 30-year-olds that we were, we were like “Let’s run it as a hotel for a year, what could go wrong?” We were losing 800-900k/month. Does that explain it?

Joe Fairless: Yeah, I’m hyperventilating a little bit by you saying that, but… [laughs]

Sean Conlon: Look, I got rid of all that hair up there.

Joe Fairless: Yeah, that’s good. Alright, so now let’s talk about fix and flips… That’s what the show is focused on, right? Fix and flips.

Sean Conlon: The show is basically The Deed: Chicago, and it’s on this Wednesday on CNBC, so I’d love your listeners to check in and see it. It’s basically people who go out and think they can do flips, and get over their ski tips and pitch me to borrow money off me… But not just money, my expertise to get them out of the bind. That’s what we do.

It’s a lot of fun, this show. People really enjoyed the first episode last week. It’s quite lively.

Joe Fairless: And it’s Wednesdays at what time?

Sean Conlon: 9 CET.

Joe Fairless: 9 PM CET, so 10 PM Eastern on CNBC, Wednesday night. We will tune in for that, we’ll even have a little watching party. What’s the most ignorant thing – it doesn’t have to be on the show, but just in general – that you’ve seen a fix and flipper do, that you’re like “What the heck are you talking about?”

Sean Conlon: Oh my god… They’re too numerous to list. People never cease to amaze me with how stupid they are. If you look at YouTube and you’re thinking “That’s the most stupidest thing ever”, then you get into property flipping and you’re like “You’ve got to be kidding me!”

This week – to give an example, and it’s an interesting story… I actually turned out to really like the guys, but they bought a property at auction — this is not the most ignorant, but it’s fascinating… They bought a property at auction, and they were driving by admiring the property, and then eventually a woman appeared and said, “Get off my lawn, this is not the house you bought!” They bought the wrong house, it was the one across the street. [laughter] It’s hilarious, and I love the guys… You should see me on the show, I’m like “Are you joking me?” I was gobsmacked. They bought the wrong house.

Joe Fairless: They were fixing up her house, even though…

Sean Conlon: No, they were staying in front of it, admiring it, getting ready for the closing and everything, and it was only too late they realized that that was not the house… It was the ugly coffin across the street. [laughter]

Joe Fairless: That’s great. So I watched Shark Tank…

Sean Conlon: It’s great you can watch Shark Tank on Wednesday, and it leads right into me.

Joe Fairless: Yeah, I’ve seen your ads where I guess it was advertising this one particular thing; you would tell the back-story on that, so I’m glad that you did.

Sean Conlon: Yeah, but I’ve seen just so much stuff… Listen, I still think flipping is the greatest path for your average American to build an empire, there’s no question about it. I say this all the time, so I don’t need to be repetitive – the odds of you or I becoming Zuckerberg or Michael Dell… We have a better chance of getting hit by a meteorite right now, than Giselle coming and picking me up and bringing me home. It just doesn’t happen. That’s a 0,0001%. We could go out and make it flipping, but we will make mistakes.

Joe Fairless: What do we have to have as a skill set to make it in flipping? Because I personally think I would be disastrous at flipping homes… Just disastrous. What do we have to have as a skill set to be excellent at flipping?

Sean Conlon: I suspect you’re being modest. First things first, as Johnny Cash used to say, you need some growl in your belly, because flipping is a scary rollercoaster of an experience. But it helps — let’s say you have a partner, or you have some construction skill (maybe you’re a carpenter). But don’t be a designer! Nobody cares about your Versace wallpaper. You’re not an interior designer.
This is what I tell people all the time – you’re fixing a home as generic and beautiful as possible to flip it. It’s good to have an understanding of maybe a construction trade, and if not, a fantastic GC. The GC is so important, and I talk about that all the time, because that’s where most people fail. They get ripped off by the GC.

I would also say you have to have a real attention to time management, as you touched on earlier about my work ethic. Don’t do busy work; you’re gonna give schedules. Remember, a flip will kill you because it’s time-sensitive. Investment time is your friend, a long-term investment. They’re very different.

Joe Fairless: You mentioned earlier “Think long-term” and you just mentioned it again, have a long view with your investments, but a flip is not a long-term investment…

Sean Conlon: No, a flip is how somebody like me got my initial equity to do these deals. I would love to have rocked into the marketplace and bought apartment buildings with a long-term view; that’s the dream, retails rentals. But I needed the equity initially, so I did some flips because I understood the arbitrage; I was between the land and people who needed it. That’s where I got the initial equity. I did fix up houses; that was how I got my equity.

Then when I had enough, I would buy some apartment buildings and some retail, because that is what you will retire on.

Joe Fairless: Sean, I’ve got a page of notes already… What’s your best real estate investing advice ever?

Sean Conlon: Think long-term. Take your time, stop looking at what everybody else is doing, run your own race.

Joe Fairless: I’m gonna use that quote from your cross country coach many times, I like that. Are you ready for the Best Ever Lightning Round?

Sean Conlon: Yeah, I think I am.

Joe Fairless: Alright, I think we’ll do it then. First, a quick word from our Best Ever partners.

Break: [[00:34:01].03] to [[00:34:43].08]

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

Sean Conlon: I love City of Thieves, because it’s ironic, it’s fabulous and it’s short, but one other I have to mention – The Wright Brothers, because it’s America. These two guys in Ohio said “Hey, we’re going at the field tonight to learn to fly.” [unintelligible [00:34:56].07] said “These guys are complete lunatics.” They learn to fly. Love it! So American!

Joe Fairless: What’s the best ever personal growth experience and what did you learn from it?

Sean Conlon: It’s my saddest and it’s also the best ever… My father dying at 56 in 2000. He was the reason I did everything I did, and it taught me that we’re here for a nanosecond, so try and enjoy your life also.

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

Sean Conlon: The best ever deal I’ve done are the two deals I didn’t do in 2007. I was going to build two high-rises. I had everything lined up, the hundred million dollars in financing, and for some reason I didn’t do them. I’m not going to say I saw it coming, because I got dinged in a way, but those two – I’m like “This is too much. It scares me. I’m not smart enough to do it.” They were the best deal I ever didn’t do.

Joe Fairless: Have you done a project of that size since?

Sean Conlon: I’ve taken back projects of that size. I know you’re from Texas… We took back a 22-storey tower in Austin, which ended up being a great deal for us. I took back 350 units in the hills in Austin, Texas, which turned out to be great. So yes, I’ve not built them, I’ve taken them back.

Joe Fairless: And taking them back you’re referring to you’re the lender, they didn’t pay their debt service so you get the property. Got it. When you take it back, what’s your business plan with it?

Sean Conlon: Pray. [laughs] We took these back after the crisis. We had no plan on them. Like I said earlier, our business plan was like a pinball ball, we bounce from crisis to crisis, but we took back assets we believe in, and subsequently then had to start over, roll our sleeves up and get them finished, and they all worked out really well. But time… It was a six-year process.

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

Sean Conlon: A couple of things. I obviously was very good to my father; the first cool thing I ever did was buy him a Mercedes for Christmas, because when we were young he used to bring us up and look in the dealership window and point out that that was for some rich guy… So on Christmas when I was about 25, 26 we went up there and I bought it from the one that was sitting in the window.

I have a Wildlife Foundation, and while this might sound slightly self-promoty, I think The Deeds: Chicago – I give back knowledge I’ve learned to people all over the country, which is great… But my Wildlife Foundation is my passion, animals.

Joe Fairless: What would you say – and we’ve talked about some – is a mistake you’ve made on a particular deal?

Sean Conlon: A mistake I made on a particular deal is — there’s an expression I use quite regularly, “Trust, but verify.” I was told the zoning was such, and the guy told me it with such a sense of belief, I forgot the fact might have been a sociopath, so I bought something that was not zoned appropriately. Yikes! I thought I could put 25 units on it, and they could put four or five.

Joe Fairless: That’s a big difference.

Sean Conlon: That’s quite a big difference. Even someone with my positive nature… I’m like, “Houston, we have a problem.” [laughter]

Joe Fairless: Lastly before we wrap up, is there anything else that we haven’t talked about that you wanted to mention to the Best Ever listeners?

Sean Conlon: I would just say to the Best Ever listeners, first thing in real estate is invest long-term. Listen you to your podcast, because I can tell you have figured a lot of this stuff out. You’re obviously quite modest about it. B) Don’t panic, because when you panic, you lose complete control. Take a breath and step back. In the First World War there was a great expression – “Stay alive till the morning, because some day maybe the war will end and you’ll be fine.”

Don’t panic. If you’re having a terrible day, go home to bed and get up; it won’t seem as bad, and you’ll work through the bits and pieces… Put it into little chunks. Don’t panic. Real estate in America is still the greatest way to become a multi-millionaire, no question.

Joe Fairless: Where can the Best Ever listeners get in touch with you and learn more about your show?

Sean Conlon: I have a website, seanconlon.com, and I have an e-mail there and phone number and stuff…

Joe Fairless: Outstanding.

Sean Conlon: And I’d love them to watch the show on Wednesday night, The Deed: Chicago on CNBC.

Joe Fairless: When we watch the show and we’re enjoying it, is there anything you’d like for us to do? Should we tweet CNBC, should we…?

Sean Conlon: Absolutely. I’m understanding anything like tweeting, I was very flattered that the Rancics tweeted on this show, and all sorts of people like that. I met Bill in ’96, before he began the apprentice, when he warming to real estate and he came to sit with me, and he became my tenant. So that was exciting… He understands this show, and lots of other people, so tweeting CNBC, getting the vibe, and share it with other people. Say “Hey, check this out!”

I spoke on CNBC in the morning, on the morning/breakfast show there, about glass hammers, which is a joke… We used to send people out to buy glass hammers. Well, you obviously don’t get glass hammers, so it was a fun interview that you will be able to dig out, too.

Joe Fairless: Sean, I thoroughly enjoyed our conversation. This was a conversation about being focused and being effective with our time. You talked about how you were the not janitor, but assistant janitor, and you were also at night doing the real estate agent stuff, and ultimately you were able to get some deals done, being focused on teardown and zoning as your area of expertise… Having conversations in the neighborhood, talking to them about what’s going on in the neighborhood, every day walking/driving in the neighborhood, and then evolving from there, becoming right around 1999-2000 200 million dollars in sales, and then going from these large projects – most recently buying the high-rise site in downtown Chicago…

I love the story of how you approached it with the seven different owners that wouldn’t talk to each other, and the tenant that’s got this five-year lease, and your approach to be conservative too, putting down 50% of the 14 million. Seven million – that’s a large chunk and great leverage for you that cash flows while you wait and do your long-term play with it.

And then the cautionary tales too, of the 260-room hotel in Chicago, along with some of the other things we talked about. I’m really grateful… As I mentioned earlier, I don’t think anything inspires any more than immigrants who come to the U.S. and just do phenomenal things, and you certainly are at the top of the class.

Thanks for being on the show, thank you for having this conversation!

Sean Conlon: Thank you for having me on this show. Obviously, this show is fantastic, I read all about it now. I’m now a new follower. And thank you for appreciating immigrants. I love America, I’m an American citizen now, and I’m talking to you today from my beach house in Malibu that I bought with commissions I saved 15 years ago, and that was as an immigrant. I had an account with my commissions saved in it. That’s America

Joe Fairless: That’s America, baby. Thank you so much! I hope you have a best ever day. We’ll talk to you soon.

Sean Conlon: Bye, Best Ever listeners!

 

 

 

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JF933: Your FORMULA to Buy 5 Rentals in 2 Years and Payoff in 7!

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Purchase, rehab, rapid pay-down and refinance 5 properties in 7 Years! Whew! Before you think it’s impossible, turn up the volume and listen to our guest. He’s extremely motivated and driven to find the right lender and the right properties, it is possible.

Best Ever Tweet:

Andrew Holmes Real Estate Background:

– Real Estate Investor & Founder of Chicagocashflow.com
– Chicago’s # 1 Flipping Team
– Radio show host of Real Estate Live with Andrew Holmes on AM560
– Have over 160+ rental properties
– Idea of investing is based on 2-5-7 Cash Flow For Life; In 2 years 5 properties and 7 year payoff
– Based in Chicago, Illinois
– Say hi to him at http://www.chicagocashflow.com/
– Best Ever Book: Rich Dad, Poor Dad by Robert Kiyosaki

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Read Full Transcript

Complete Episode

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 fluffy stuff.

We spoke to Barbara Corcoran from Shark Tank, Robert Kiyosaki, the author of Rich Dad, Poor Dad, Jay Papasan, the co-author of The ONE Thing with Gary Keller, and a whole bunch of other best-selling books.

With us today – Andrew Holmes. How are you doing, Andrew?

Andrew Holmes: Doing great, how about you?

Joe Fairless: I’m doing well, nice to have you on the show. A little bit about Andrew: he is a real estate invest and founder of ChicagoCashflow.com, which is Chicago’s number one flipping team. He’s the radio show host of Real Estate Live With Andrew Holmes. He has over 160 rental properties and based in Chicago, Illinois.

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

Andrew Holmes: Sure, so my background was a real estate agent since I was 19 years old until about 33-34. In 2008 it was the first time I started with flips. For a couple of years I had done well as a real estate agent, but I kind of found myself on a treadmill, so I switched to flips, which worked out quite well in 2008, 2009, 2010, but what I found was I had traded it in for a bigger treadmill. It was kind of a rational sort of a business, and I didn’t want transactions, I wanted investing.

In 2011 is when the focus shifted to about 60%-70% of all properties that we touch today go into a rental portfolio. The key is that it needs to be paid off in 7 years or less. That’s basically what we focus on today.

Joe Fairless: Did I hear that right, you pay the properties off in seven years or less?

Andrew Holmes: That’s correct.

Joe Fairless: So you own your properties free and clear within seven years, that’s the goal…?

Andrew Holmes: That’s the goal. We use a formula we call 2-5-7 – that’s kind of where it started. In two years how do you accumulate a minimum of 5 properties and get them all paid off in 7? You can do that 2-10-7, 2-20-7… The formula doesn’t change, it’s just the number of properties, how much cash flow do you wanna create a month; you scale based on that.

Joe Fairless: And please educate us – how do you in two years get five properties and have them paid off in seven?

Andrew Holmes: Most people, whenever they own rental properties, they tend to buy rental properties in areas that are rather challenging. We have a different philosophy, which is we tend to buy in bread and butter areas, right next to what we would call premium areas. Basically, if premium areas are A, we tend to buy B- or C+ category areas.

The other requirement is whenever we’re buying a property, after rehab it must have a minimum of 25% equity. Also, it must have [unintelligible [spp-timestamp time="00:05:04"].03] We focus on buying small three-bedroom, one and one-and-a-half bath ranches. They must cash flow to the tune of 400-450 dollars/property after all expenses, including management.

The biggest challenge people have is that they try to invest in properties with residential loans, and the scale at which they can grow is hampered, because you need seasoning on those, you need all those types of issues. What we always do is we buy them with commercial loans. Basically, a five-year balloon with a 25-year amortization type of a loan; it’s a commercial loan at five, five and a half percent. The speed at which you can scale and grow is much faster, and the seasoning requirements [unintelligible [spp-timestamp time="00:05:52"].01] so you’re borrowing money to buy the property, you’re borrowing money to do the rehab, and then you’re going to a commercial lender, refinancing it and then putting the money back to do the second one, the third one, the fourth one and the fifth one.

Joe Fairless: There’s a couple keys here: one is finding the properties that meet the criteria that you just mentioned, the other is having the lender lined up that works with you on that. Let’s talk about the lender real quick; who do you use for the commercial loan?

Andrew Holmes: For commercial loans we typically tend to go to the small banks that are in town. Every town has like a small X, Y, X bank or trust type of a bank. Typically, they have anywhere from one to five, ten, fifteen, twenty ranches. That said, we’re not gonna go to Chase Bank and we’re not gonna go to the big lenders, because they don’t really offer these programs for small investors. So typically, we tend to go to them.

B2R – your listeners might have heard of them… That’s another place. Their rates are a bit high compared to local banks that we can find, but typically they’re local, small banks. Every community in America has those.

Joe Fairless: Let’s say we know a community bank or credit union in our area – we definitely do. When we walk in the door, who do we ask for and what questions do we ask.

Andrew Holmes: That’s a great question, because you always wanna go and directly talk to the VP. Typically, at these small banks the VP is pretty much the main guy there, and that’s the person you wanna approach. You do not wanna talk to a residential loan officer, because that’s where the teller or somebody at the front is going to try to push you to, because that’s really what they’re familiar with. But you really wanna go directly to the VP of the bank.

What you wanna tell them is that we’re looking for properties that are purchased, rehabbed and they already have a tenant in them. So they’re stabilized properties when we go to these types of lenders, and there’s cash flow that comes in. As you know, that covers a ratio of about 1.25, but our minimum standard is that every property that we take to them has a minimum debt coverage ratio of at least 1.5, 1.6, 1.7, so we’re well above their thresholds.

First they have a hard time believing that you can even do these numbers, but once they look at them and they see you have a nice equity position, they will tend to give you 70-75% (in some cases 80%) of appraised value.

If it’s okay, can I give out some numbers, so that listeners will get a little bit better idea?

Joe Fairless: Yeah, I love it.

Andrew Holmes: Okay, great. Basically, let’s say you’re buying a bread and butter property, three-bedroom, one bath ranch for $65.000. You’re gonna put $20.000-$25,000 into rehabbing the property. You have another carrying cost of another $5.000-$6.000, so you’re all in cost into the property is somewhere around $90.000. This is the most critical part, which to me is investing, versus what most people do, and that is the property needs to appraise on a conservative refinance appraisal for $120.000-$125.000-$130.000. That’s the key thing – that’s the only way you’re gonna be able to get all the capital that you put into the property out, so that you can efficiently recycle the same money over and over and over.

So the property appraises for about $125.000. The lender is gonna give you about 75% of appraised value. We can get more technical with it, but for starting out purposes, that’s the key thing. That’s the benchmark people have to look at. If the property appraises for $120.000-$125.000-$130.000-$135.000, now they’ll give the $90.000-$95.000 refinanced.
So you put that loan, you pay your first lender off – the lender you used to buy the property and to do the rehab – and then you just recycle the same funds. Or if it’s your own money, that’s fine also, but you just repeat that process over and over and over, goal being you need to get to a minimum of five. Obviously, 10 is better, 15 is even better, but five is the critical number.

Joe Fairless: With the questions… Going back to walking into the bank, and we are in front of the vice-president, and we are asking the questions about the minimum debt coverage ratio that they look for and what we’re anticipating… You went into some of the business plan, which is great, and it helped clear things up a little bit – or at least, not clear things up, but paint the picture… What specific questions would you ask of him or her as the vice-president so that you get the answers to what you’re looking for?

Andrew Holmes: What we’ve always done is when we walk in, we tend to describe them really briefly (in two minutes or less), kind of an elevator pitch as to what we do. What I typically say is “Hey, we’re buying foreclosure type of properties or investment properties that are rentals. When we come to you, they’re gonna be purchased, they’re gonna be already stabilized – they like that word – there’s already an existing tenant. We do two-year to three-year (minimum) leases only; we don’t do short-term leases” and we explain to them why and what the philosophy is and how we wanna aggressively pay down properties.

First, they’re kind of shocked, like “You actually do this?”, and then their head starts nodding as you start getting into more technical issues, which is “I know typically most banks look for 1.2/1.25 debt coverage ratios. Any property we bring to you is gonna have 1.5/1.6 debt coverage ratios”, and we’ll show them a couple of actual examples. If you’re brand new, just show them a property of two maybe that you have in the works, that you plan to do.

The key thing to understand is a lot of these small banks will have a footprint in an area. Let’s say in X, Y, Z community – they wanna lend in a community that is typically around that area. They’re not going to go in a big city like Chicago — if a bank in the Southern part of Chicago, typically they’re not familiar with the North Side. They might say, “Yeah, that’s a market, but that’s really in our footprint.” That is key to understand – where you ask them to lend is also a very critical piece whenever you talk to these lenders. A lot of times, they’ll be able to tell you yes, that is something that they would be willing to look at.

Now, some banks, when you go to them they’ll say, “Well, we won’t do the rental part of it, but we’ll do the purchase. We’ll help you on that end.” Or “We don’t really wanna do onesie-twosie loans, we want a minimum of 5-7 properties at a time.” So it just depends on what the appetite of that bank is.

Back in 2011, literally, I had to go to about 30 or 40 banks to find one. Today almost every bank that I walk into, they’re more than happy, they jump up and down, because the mood of the market has changed quite a bit, obviously, around the country.

Joe Fairless: One thing that you mentioned as far as the bank’s footprint – maybe it’s too far out, even if they’re within the same city… Would you recommend identifying your submarket and then looking at the community banks and credit unions within that submarket and going to them first?

Andrew Holmes: I think you hit the nail right on the head. There’s a site that people might be familiar with that they can go to, which is called Bauer Financial. Any state that they live in, they can go to that particular website and look up which are all the small banks in that area.
Whatever community you live in, I would just draw a 10-15-mile radius around it, and then start with the ones that are closest to wherever you’re going to buy properties. Especially if it’s in a B market, a C+ type of market, then the banks that are local in that area, they have depositors from that particular area and they need to make a certain amount of loans in that particular market. So that’s the first place you start.

As you start developing relations, as you start having credibility with a particular bank, they’ll scratch their arms a little bit for you, but in general, the place to start always is the community banks – they wanna have a relationship; it’s a relationship sort of a lending, and they really like that word. If you go in and say, “Hey, we wanna develop a relationship with you” and you tell them that you’re gonna put your rental deposits in their bank, they’re all over that, because that’s really what in the long run they’re looking for. It’s not a one-way street. Especially, we’ve had lenders that have developed relations with us for a long time now.

In 2010 or 2011 when we started accumulating these, they’ve literally in Chicago helped hundreds and hundreds of lenders. They don’t have a [[spp-timestamp time="00:14:38"].10] stringent criteria. For people who may not have a W-2 income, they’ll work with 1099. If somebody doesn’t have a W-2 or 1099, but has retirement income, they’ll work with it. If somebody doesn’t even have that but has some assets, a good portfolio in the stock market or just cash – they’re much more forgiving and they’re not as sensitive, even in the department of credit scores.
They’re not gonna analyze everything to that debt, and they’re not gonna ask you where did the forefathers come from. We like a traditional, residential bank; every single thing you have to explain. They tend to be very willing to work with you.

Other advantages… As you work with these commercial banks, you can buy properties in your LLCs, you can buy properties in your S Corps, you can buy companies under a trust… Let’s say you bought a property with a partner – at the time of closing, you can [unintelligible [spp-timestamp time="00:15:30"].19] over to whatever company you want… There’s a ton of flexibility if you really understand how to work that niche.
That’s been a godsend to us when we found these commercial banks, and there’s tons of them. There’s always a pro and a con to it, and the only con to these is typically these institutions tend to have a limit. They’ll do 3-4 loans for you initially, then they’ll say “Okay, let’s stop. You need to bring in your tax returns and then after February we’ll again start doing more.” Next year they’ll do 7-8, and once you reach a threshold typically of about a million dollars or so (850-900), they’ll kind of put the brakes on, and a lot of times they have a lot of sister banks that they do business with, and if you develop good relations with them, they’ll be happy to refer to you, and your business becomes easier and easier to grow.

Joe Fairless: Outstanding information. Best Ever listeners, the Bauer Financial can be found at BauerFinancial.com. I had not heard of that. I went there, and it’s great. You can search for credit unions in your area. I’m sure you’ve heard me mention this before about what we’re talking about, which are portfolio lenders – community banks and credit unions. They keep the loan in their portfolio, therefore they can be more flexible with the terms, and they don’t sell it on the secondary market like the Bank of America, Wells Fargo, Chase do, typically. It is their own loan, and that’s why they can be more flexible.

You mentioned talking to them about providing a stabilized property, with a tenant. That assumes that you already have the money to buy the property in the first place. What about someone starting out, wanting to implement this strategy? How would you get finance initially? Or do you just need to save up the cash to do so?

Andrew Holmes: No, absolutely not. I’ve never – even today, even though we happen to have obviously a significant amount of accumulated cash, still it can be done three different ways. Number one, you can partner with somebody that has the capital and do a 50/50 joint venture. They buy the property, they put up the money for capital – that’s one way of doing it. Obviously, you’re the driving force, you’re doing all the work, but you’re giving up 50% if the returns. That’s where I started initially.

The second way to do it is the traditional route, which is you borrow money from a hard money lender, and put some of your own money. The third route, which we tend to use the most, and that is understanding — I’m sure on the podcast you’ve talked about private money. Probably that is the biggest bonanza for real estate investors, which is join your local REIOs, join the local groups; whichever town you’re in, there are tons of them. There are people that are willing to make loans out of their IRAs, they have personal money, and you end up paying anywhere from 8% to 12%, and that’s what we tend to do and that’s what we always try to get people to understand – there’s a lot of money out there where people are willing to loan for the front end of the transaction. So that’s a great, great way to start.

Either partner for it, go to a hard money lender… The rates can be rather high there, but my first choice always is private investors.

Joe Fairless: Best Ever listeners, if you are doing a flip, which is not what we’re talking about, or talking about improving it and then holding on to it for the long run – which I like much better than flipping it… But if you are doing a flip and you’re needing cash, then FundThatFlip is a sponsor of the show, and they have opportunities for you on that.

What is your best real estate investing advice ever, Andrew?

Andrew Holmes: I would say this… If you take care of real estate for the first five years, it will take care of you for the rest of your life. Most people screw that up because they don’t build it on the right foundation. Whenever you look at long-term building wealth, you have to learn how to take care of the foundation, which is the first five years. If you take care of that, the rest of your life you’re pretty much set, as long as the first foundation is made properly.

Joe Fairless: I love that philosophy. I love how you started out by talking about the transactional nature initially, and then more of a long-term approach. One other follow-up question about the business model… I mentioned it requires a great lending partner, but then also your ability to find these deals that qualify, so that you do have the ability to take your money back out and roll it into the next one because of that equity. How do you find those deals?

Andrew Holmes: We find the deals in three places. In Chicago about 15% of the market is still just sales. That’s down from about 40% if the market, so obviously it’s going in the right direction, stabilizing the market. The last transactions we find with auctions, the Sheriff Sales type of places… We’re still buying quite a bit on the online auctions. Obviously, the MLS, and still in today’s market when there’s multiple bids going on, there’s not as much competition for buy and hold type of properties.

Most people are in the rat race of trying to do a flip, which god bless them, but that’s just not a strategy that we — we do some of those still if there’s a wide margin and it doesn’t fit our rental criteria, we’ll still do a flip, but that’s basically just additional income. That’s not our main focus.

The last place, which is probably the most ignored one, which is probates, free foreclosures… Some sort of distress; a lot of villages have issued fines, out of town homeowners… We have started doing a lot of direct marketing directly to sellers, to find properties that way. We’re looking to do about 80-100 transactions a year, and we have another group of people in Chicago that buys another 200, kind of onesies or twosies, and we’re able to find about 200 deals no problem. Our market is so large, that still that exists as long as you know what your back end numbers are.

The key is to know the numbers, to know the neighborhoods like the back of your hand.

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

Andrew Holmes: Absolutely.

Joe Fairless: Alright, let’s do it.

Break: [[spp-timestamp time="00:22:00"].19] to [[spp-timestamp time="00:22:55"].08]

Joe Fairless: Best ever book you’ve read?

Andrew Holmes: Rich Dad, Poor Dad.

Joe Fairless: Best ever deal you’ve done?

Andrew Holmes: Bought it for $12,000, and we keep it, and it’s worth over $150,000.

Joe Fairless: Where did you get the lead?

Andrew Holmes: Actually I got while driving for DOMs.

Joe Fairless: You’re driving around and you see a distressed property, and then you look up the owner and you call the owner? Or how did it work?

Andrew Holmes: I was driving around, I saw a really bad driveway, windows were all messed up; it looked like a house that clearly was distressed, so I called the owner and he said, “Well, it’s going to auction, and I want nothing to do with the property.” We approached the owner and we paid him 2,000, paid off the $10,000 mortgage and that was the end of the story.

Joe Fairless: What would be the incentive for him to sell it for $2,000 out of pocket?

Andrew Holmes: He had already moved out of town. The village had put a whole bunch of [unintelligible [spp-timestamp time="00:23:52"].28] on the property, so they would not negotiate with them. When we went to them, they were like “As long as you can give us an affidavit and a $10,000 deposit, the property would be brought up to code as per our requirements. We will renegotiate all the liens, all the things that they had put on it. It was only a $900 ticket. In Chicago in some places the charge is $7,000/day for violations, because they don’t want boarded up properties.

So we negotiated with the village. He just thought that it was an impossible thing to solve. He should have hired an attorney and rework the whole thing, but he just didn’t know what he didn’t know, and he was out of town.

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

Andrew Holmes: I think the best ever way I like to give back is share what we know, because the more that I share, the more openly information is shared, the more we get to grow; a lot of times people hold this belief, “Why would you share so openly?” I’ve always laughed, that every time I share, I get back so many more folds, because people give back in ways they don’t even know. The best way of learning is to teach others to do it.

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

Andrew Holmes: Getting greedy and not trusting your gut instinct when it says no. It doesn’t matter how good it sounds, pass.

Joe Fairless: And lastly, what’s the best place that Best Ever listeners can get in touch with you?

Andrew Holmes: They can reach us at info@ChicagoCashflow.com.

Joe Fairless: And Best Ever listeners, the .com URL is in the show notes page. You can just click through and go check out the website and get in touch with Andrew and his team.

Andrew, thanks for being on the show, talking about how you and your company are buying 200 properties a year in Chicago. The long-term approach — not transactional, the long-term buy and hold approach of finding a property that is distressed or undervalued, increasing the value by forcing appreciation through renovations or talking to the city, getting the liens dismissed or paying a nominal fee to get certain things taken care of, and then going to a portfolio lender, putting that loan under the portfolio, and then recycling that money into the next deal and then paying that off over the term with the cash out proceeds from these new deals.

One question I have – to pay off the deal on the five-year balloon, are you simply paying that off from money from a previous deal? Is that how you do it?

Andrew Holmes: No, so the deal is that you accumulate fives. On an average, if you accumulate five, with the numbers that we do, you’re gonna have about $3,000 cash flow a month. So you start attacking the mortgage number one. Let’s say it takes you a year to accumulate five properties; you wait for about three months, build a reserve, and then after the fourth month you take the cash flow income from all five properties, attack property number one. That’s gonna take about two, two-and-a-half years (with our numbers) to pay off. The second property is gonna take about 19 months, the third property is gonna take about 13 months, and so on and so forth, depending on how quick you pick them.

That’s the reason why the five number is critical. If you do a proper rehab, appropriate for the next 5-7 years, put tenants on a 2-3 year lease minimum. It won’t work if you sign one-year leases, because you want stability for the long term, you don’t want tenant turnover at all. It’s okay to get a little bit less rent, but what you’re really looking for is a high-quality tenant so that you don’t have any downtime as much as possible.

Then you’re using property cash flow from five properties to pay off number one, then it builds, then you pay number two, number three, so on and so forth.

Joe Fairless: That makes sense. Thank you so much for being on the show, Andrew. I hope you have a best ever day. We’ll talk to you soon.

Andrew Holmes: Joe, I love your podcast. Thank you so much for having me on.

 

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JF889: You Have NEVER Made an Offer Like This!

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Stop everything and press play, you are about to hear a method of making offers with a slight contingency, but it’s all about the numbers. Our guest house hacked his way to freedom and has never done an off market deal, hear how he did it!

Best Ever Tweet:

Mark Hafeli Real Estate Background:

– Real Estate Broker & Investor at Dreamtown Realty
– Focus is on 2-20 unit residential and mixed-use properties
– Worked with owner-occupants, first time and seasoned investors and deal syndication on deals large and small
– Master’s Degree in Accounting
– Based in Chicago, Illinois
– Say hi to him at http://www.chicagoREinvestment.com
– Best Ever Book: The Four Hour Work Week by Tim Ferriss

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JF886: How Equity Loans on Your Property can Move You Along to the Next Project

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Have equity? Pull it out! Of course do your best to mitigate your risk, as our guest did. You can find equity partners who will land on your equity so you have cash to move to the next project.

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Ben Walhood Real Estate Background:

–        President of Apex Renovations
–        President of Chicago Area Real Estate Investors Association
–        Buy-and-hold investor with over a decade of experience in residential properties
–        Bought his first house while still in school
–        Prior to full time investing, he used to sell brain surgery equipment
–        Based in Chicago, Illinois
–        Say hi to him at http://www.GoApexRenovations.com
–        Best Ever Book: The One Thing by Gary Keller

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.

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JF844: How to Trade Real Estate Experience for Business Development and GROW!

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His mentor, a previous guest on the show, reached out to him and made a deal to trade his real estate experience for today’s guest’s business development skills and attributes. They make a great team building a creative lease-option real estate portfolio and have big plans for 2017, hear what they are!

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John Matthews Real Estate Background:

– President of Operations of PCI LLC, a real estate investing company
– After college, bought a ticket to NYC and for 9 years rose through the ranks in Financial Services
– Started foreign language school in NYC and grew to top 5 foreign language schools, still active today
– ‎Specializing in rehabs, rent to own and wholesaling
– Born and raised in Colorado
– Based in Chicago, Illinois
– Say hi to him at http://pcirei.com
– Best Ever Book: The One Thing by Gary Keller

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.

Download your free copy at http://www.fundthatflip.com/bestever

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JF778: She Was Laid Off and Then SCORED $80k on Her FIRST Deal!

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Sounds too good to be true, but with a positive attitude and open mind it’s possible for anybody to turn lemons into lemonade! That’s right, she was laid off and then right after made $80,000 in a deal, hear how she did it!

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Lori Wetzel Real Estate Background:

– President of The Wetzel Group, Inc.; A real estate consulting group
– An accomplished real estate investor, mentor, coach, trainer and national speaker
– An International Certified Coach for John C. Maxwell
– Her first real estate deal received a net profit of over $80,000
– Launched a talk radio show on the Voice America business channel called “Keepin’ It REAL with Lori Wetzel”
– Based in Chicago, Illinois
– Say hi to her at http://www.thewetzelgroup.com
– Best Ever Book: Grit: The Power of Passion and Perseverance

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JF777: He’s Closing a MONSTER $300MM+ Deal This Month!

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If you had 42 years in the business you would really have it dialed in. You’re going to hear from someone who has been in the big apartment complex, condominium, and large real estate industry for over 40 years. Hear how he negotiates for his buyers and sellers and what he’s offering!

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Mel M. Kaplan Real Estate Background:

– President at Melvin M Kaplan Realty Inc
– Over 42 years in real estate business with 20 years of banking experience
– Main specialty is multi family portfolios and 5 star hotels
– Based in Chicago, Illinois
– Say hi to him at melmkaplan@aol.com
– Best Ever Book: Exodus

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JF748: How a Construction Experienced Investor Keeps Contractors Proactive, Lease Options, and Wholesale Deals!

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Today’s guest is an expert in all things real estate including developments, creative transactions, and wholesale deals. He has completed over 200 lease-option deals and shares a few tips on how to keep contractors proactive!
Tom Olson’s Real Estate Background:
– Wholesales 350 homes a year
– 15 years in construction
– Based in Chicago, IL
– Say hi at tolson@goodsuccess.com
– Best Ever Book: The Holy Bible

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Get a FREE strategy session with Dan Barrett who is the only certified Google partner that exclusively works with real estate investors like us.

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JF739: An Upscale Land Development Deal Gone WRONG #situationsaturday

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It didn’t go completely wrong, but you need to listen to this episode to find out what our guest’s first intentions were and how it ended up.

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Dan Breslin Real Estate Background:

– Host of REI Diamonds podcast (http://www.reidiamonds.com)
– Founder of Diamond Equity Investments, a fix and flip company operating in Philadelphia, Chicago, and Tampa Bay
– Since 2006 he had closed more than 300 deals except for one has been Off Market purchases
– Based in Chicago, Illinois
– Say hi to him at http://www.diamondequityinvestments.com/

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.

Go to http://www.adwordsnerds.com strategy to schedule the appointment.

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JF 734: How He Bought a Money Maker Mobile Home Park Working 75 Hours a Week in Construction

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Today’s guest is like any average Joe, but this Joe is not average, he took massive action and ignored the noise. He purchased a mobile home park which is now making money and allowing him to eventually leave his full-time job and invest in more real estate. Hear how he did it.

Best Ever Tweet:

Paul Stout Real Estate Background:

– Owner of KP Assets
– $100,000 down on the mobile home park
– Based in Chicago, Illinois
– Say hi at paul@kpassets.com
– Best Ever Book: Outliers by Malcolm Gladwell

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.

Go to http://www.adwordsnerds.com strategy to schedule the appointment.

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JF583: How He Bought 19 Properties Since 2012

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He admits that he lacked a true focus…until 2012. He was approved for a large line of credit which he would use to buy an eight unit building. From there the momentum built and didn’t stop! Hear this investor’s story and how he eventually wants to end up.

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Nick Patterson real estate background:

  • Owner of Kale Realty Chicago and has 375 agents doing residential sales and rentals
  • Also with a partner they own around 200 rental properties from 4 to 24 units
  • Say hi to him at joinkale.com and http://www.wpcproperties.com
  • Based Chicago, Illinois

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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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JF558: How to Invest in a Secondary Market Using this Platform #SkillSetSunday

Ready to jump into the deals that are less picked? Our guest today will instruct you how to use his platform to find passive investment opportunities through over 20 portals, and we are talking about secondary markets and not just the average single-family home. You can’t miss this one!

Best Ever Tweet:

Jordan Fishfeld real estate background:

  • Founder of PeerRealty which is crowdfunding platform focused on opportunities in the Midwest
  • Say hi to him at https://peerrealty.com/ and http://cfxinvesting.com/
  • Former commercial finance attorney and active real estate investor
  • Has a JD and MBA from the University of Miami and is based in Chicago, Illinois

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

Are you committed to transforming your life through Real Estate this year? If so, then go to http://www.CoachWithTrevor.Com and claim your FREE Coaching Session.  Trevor is my personal real estate coach and I’ve been working with him for years. Spots are limited, so be sure to do it now before all the spots are gone.

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JF557: How Making a Tough Decision Elevated Her Rental Company

Need to make a change in the business due to underperforming partners? It may be better to do it now and do it quickly. Our Best Ever guest shares with us her property management underachievers and how letting one go was the best decision.

Best Ever Tweet:

Brie Schmidt real estate background:

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

Are you committed to transforming your life through Real Estate this year? If so, then go to http://www.CoachWithTrevor.Com and claim your FREE Coaching Session.  Trevor is my personal real estate coach and I’ve been working with him for years. Spots are limited, so be sure to do it now before all the spots are gone.

Subscribe to Joe’s YouTube Channel here to learn multifamily and raising money tips:https://www.youtube.com/channel/UCwTzctSEMu4L0tKN2b_esfg

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JF506: His Firm Buys in 22 Student/Multiunit MARKETS Nationwide!

He saw value in the student housing market, and took it to the next level! Chicago based investor appeals to the millennial tenant in many different states, while he speaks at universities regarding entrepreneurship and business. Hear how he grew and selected his multiunit niche!

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Rajen Shastri’s real estate background:

  • Over 12 years of experience in senior management roles across spectrum of commercial real estate
  • Founder and CEO of Akara Partners based in Chicago, Illinois
  • Prior to founding Akara Partners in 2013, Rajen was a principle of Campus Acquisitions, a developer and operator of student housing where he led the capitalization and monetization of over $1 billion in student housing assets across the US including the sale of a $627 million portfolio
  • Say hi to him at http://www.akarapartners.com

Made Possible Because of Our Best Ever Sponsors

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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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Listen to all episodes and get a FREE crash course on real estate investing at: http://www.joefairless.com

 

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JF489: How a Mortgage Investor Makes Money Helping Lenders and Borrowers

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You think you’ve heard all the ways you can earn a profit in real estate…but how about being a matchmaker? Today’s guest marries lenders (hard money) and borrowers together and collects a humble spread–and does it over and over again! Hear how this seemingly difficult process is earning him a fortune.

Best Ever Tweet:

Fernando Angelucci’s Real Estate Background:

Listen to all episodes and get a FREE crash course on real estate investing at:http://www.joefairless.com

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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.

What’s the Best Ever health plan for YOU?

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JF478: From Live-In Duplex to 13 Rentals ($1.5 MM)—In Three Years!

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Our Best Ever guest was smart when he began investing in real estate. He purchased a duplexed via FHA financing and rented the other half while living in one side. He was able to pull funds from the equity in his property and purchase more rental properties in Chicago. You need to hear how did it so quickly! Tune in!

Best Ever Tweet:

John Casmon’s real estate background:

Listen to all episodes and get a FREE crash course on real estate investing at: http://www.joefairless.com

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.

What’s the Best Ever health plan for YOU?

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JF449: Why You Should Pretend that Every Deal You Set Up Will be a Fix and Flip

He’s an expert in the wholesale space. He’s able to do more quality deals by assuming each property under contract will be a fix and flip. He’s able to put himself in the buyer’s shoes, whether that’s an investor or end buying consumer. With very little back in 2006, our Best Ever guest had faith in himself and hustled for a check a little over $5000…his wholesale empire began! He now continues to focus on wholesale deals, but he also organizes meet ups and runs a podcast, hear his inspiring story now!

Best Ever Tweet:

Dan Breslin’s real estate background:

  • Host of REI Diamonds podcast (http://www.reidiamonds.com)
  • Founder of Diamond Equity Investments, a fix and flip company operating in Philadelphia, Chicago, and Tampa Bay
  • Since 2006 he had closed more than 300 deals except for one has been Off Market purchases
  • Based in Chicago, Illinois
  • Say hi to him at http://www.diamondequityinvestments.com/

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.

What’s the Best Ever health plan for YOU?

Go to http://www.stridehealth.com/bestever and find a better health plan in 10 minutes or less. On average you’ll save $418 on coverage and care.

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JF336: Your SEVEN Step Guide To Using A Renovation Loan For A Successful Purchase

Today’s Best Ever guest is the best in the business when it comes to loans, mortgages and finance. We discuss how to use a renovation loan for a successful purchase, how to find the right property for the right price.

 Best Ever Tweet:

Perry Farella’s real estate background:

  • ·        Mortgage and finance expert based in Chicago, Illinois
  • ·        AmeriFirst Home Mortgage and say hi to him at http://www.perryfarella.com or http://www.renoloanexpert.com
  • ·        Has licenses in Illinois, Indiana and Wisconsin
  • ·        Been in the business since 2002 and done loans totaling over 150MM
  • ·        Has a degree in software and computer scienc

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Made Possible Because of Our Best Ever Sponsor:

Patch of Land – Could you do more deals if you had more money? Let the crowdfunding platform, Patch of Land, find investors for you and fund your next deal…and your next deal…and your next deal…and…well, just go find out more at http://www.PatchOfLand.com

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JF301: The Questions YOU Need to Ask Yourself Before Investing in Single-Family Homes

Ever feel a gut feeling that you should or shouldn’t make an investment? Well, HERE are the questions you need to ask yourself about your potential investment. We discuss how to stay focused on what you’re trying to achieve and everything you need to know about buying single-family homes.

Best Ever Tweet:

John Gutman’s real estate background:

–          VP of Sales and Acquisitions for MACK Companies

–          Responsible for the strategic purchase of all residential properties as well as mgmt. of the sales and acquisition staff

–          Headquartered about 20 minutes from downtown Chicago

–          Sold over $315M worth of real estate

–          Say hi to him at johng@ibuymack.com

–          Went to boarding school in Connecticut and went to University of Oregon for college

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Made Possible Because of Our Best Ever Sponsor:

Patch of Land – Want to learn more about crowdfunding? Let the leading expert in the crowdfunding space, Patch of Land, give you all the info you need to get started. Grab your FREE copy of Top Ten Answers to the Top Ten Crowdfunding Questions athttp://www.PatchOfLand.com/bestever

Wela – Get clarity and insight on your money by using Wela. See all your accounts in one place, and get all the answers to your questions from a real financial advisor ANYTIME.  Go to yourwela.com to learn more.

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JF286: The ONE Thing You Need to Structure Your Wholesaling Business Around

Today’s Best Ever guest, shares with us why you should NEVER stop investing, some of his best ever keys to generating more leads, and how to study a deal in order to be sure if it makes sense. Today’s episode is so full of great wholesaling tips, so listen up!

Best Ever Tweet:

Aaron Lockhart’s real estate background:

–          Over 10 years of experience as real estate investor and 2 years as a full-time investor

–          Bought first property at 21 years old and has purchased properties in several states

–          Primarily is a wholesaler and has done over 20 deals in the last year

–          Plays keyboard and bass guitar in a band called Functional Groove

–          Founder of First Integrity Group based in Chicago, Illinois

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

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Made Possible Because of Our Best Ever Sponsor:

Patch of Land – Want to learn more about crowdfunding? Let the leading expert in the crowdfunding space, Patch of Land, give you all the info you need to get started. Grab your FREE copy of Top Ten Answers to the Top Ten Crowdfunding Questions athttp://www.PatchOfLand.com/bestever

The Land Geek – Do you want to build monthly real estate cash flow without the typical headaches? Start learning about investing without all the typical headaches at  http://www.thelandgeek.com/best

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JF267: How to Close Your Loan In Five Days Or LESS

Blue 42, Blue 42…Set…Hut! Today’s Best Ever guest, shares with us the ups and downs he has experienced in business, and what HE does to close his loans in 5 days or less, and his MOST successful marketing tactic. We just moved the chains, and it’s 1st & 10 for us to drive down the field to investing success.

Best Ever Tweet:

Wayne Gerenstein’s real estate background:

–          Founder of Stateside Private Capital based in Chicago, Illinois

–          Been in the lending industry since 1990

–          Former defensive coordinator for high school football teams that played in several state championships

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Made Possible Because of Our Best Ever Sponsors:

Patch of LandWant to learn more about crowdfunding? Let the leading expert in the crowdfunding space, Patch of Land, give you all the info you need to get started. Grab your FREE copy of Top Ten Answers to the Top Ten Crowdfunding Questions at http://www.PatchOfLand.com/bestever

The Book On Flipping Houses – Are you looking for a step by step guide for starting your flipping career? Head on over to Amazon to pick up The Book On Flipping Houses by professional house flipper J Scott.

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JF259: How to Use the Internet to Skyrocket Your Business to the Next Level

Now, I know all of the Best Ever listeners know just how important the internet is in growing their business, however today’s Best Ever guest shares with us how to ensure that the internet is used to our MAXIMUM advantage. We also discuss some very necessary things that investors forget when purchasing single-family and multi-family units. So listen up, because we cover all the bases today!

Best Ever Tweet:

The best way to learn how to do something, is to start doing it.

Gary Lucido’s real estate background:

–          Licensed realtor for almost 10 years based in Chicago, Illinois

–          President of Lucid Realty

–          Focuses on single and multifamily units

–          Worked most of his life in the corporate world, did an internet start-up in 6 years then did real estate

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Made Possible Because of Our Best Ever Sponsors:

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JF252: How to Change Your Direct Mail Campaign to Get More Leads

Lions and tigers and bears – OH MY! Oh my is right, because today’s Best Ever guest has the solution to getting more leads through direct mail. We discuss Section 8 housing, how to keep tenants and some super creative financing he used for his first property. We are walking down the yellow brick road to investing success!

Best Ever tweet:

Joshua Inglis’s real estate background:

–          President of Midwest Real Estate Solutions  and Acquisitions Manager for Olivia Homes LLC based out of Chicago, Illinois

–          Specializes in flipping houses, short sales, auctions, rentals lending, seller financing, wholesaling and internet marketing

–          He has done over 50 flips over the last four years and been investing in real estate for 9 years

–          Founder of Redevelop University and is a coach for Fortune Builders

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

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Norada Real Estate Investments – Having a hard time finding great investment properties?  Unfortunately, the best deals are rarely found locally. Norada Real Estate’s simple proven system provides you with the best deals across the U.S. to create wealth and cash-flow.  Get your FREE copy of The Ultimate Guide to Out-of-State Real Estate Investing

Patch of LandWant to learn more about crowdfunding? Let the leading expert in the crowdfunding space, Patch of Land, give you all the info you need to get started. Grab your FREE copy of Top Ten Answers to the Top Ten Crowdfunding Questions athttp://www.PatchOfLand.com/bestever

The Art of Commercial Real Estate Leasing– You’ve heard him here before, and now he’s back with a book you must read. Buy Craig Coppola’s book, The Art of Commercial Real Estate Leasing and learn the 19 things to look for in a lease.

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JF246: The Tortoise DOESN’T Beat the Hare in this Rehabber’s Business

Quick, quick, quick. Get in and get out. That is what has led our Best Ever Guest today, to incredible real estate success. We discuss his Best Ever ways to rehab properties, but he has experience in every area of real estate investing so, listen up!

Best Ever tweet:

Michael Kevorkian’s real estate background:

–          Real estate broker, rehabber, property manager and investor specializing in commercial and residential real estate in the Chicago, Illinois area

–          Founder of New Market Realty and has been in the business for 15 years and done over 800 transactions

–          Been a Chicago native all his life, but lived in Tennessee for 1 year to get his driver’s license as a 16 year old

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Made Possible Because of Our Best Ever Sponsors:

Norada Real Estate Investments – Having a hard time finding great investment properties?  Unfortunately, the best deals are rarely found locally. Norada Real Estate’s simple proven system provides you with the best deals across the U.S. to create wealth and cash-flow.  Get your FREE copy of The Ultimate Guide to Out-of-State Real Estate Investing

Patch of LandWant to learn more about crowdfunding? Let the leading expert in the crowdfunding space, Patch of Land, give you all the info you need to get started. Grab your FREE copy of Top Ten Answers to the Top Ten Crowdfunding Questions athttp://www.PatchOfLand.com/bestever

Youth Nation – How much do you really know about your clients? With milenials taking over the real estate market place, YOU need to learn about them. Read Youth Nation by Matt Britton to learn all you need to know.

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JF220: If You Scratch My Back, I’ll Scratch Yours – With a Top Lender

Go ahead and bring the corners of your mouth to your ears. Has your business grown yet? If not, listen up because enthusiasm is one of today’s Best Ever guest’s keys to growing your business and real estate success.

Best Ever Tweet:

Cornelius Camp’s real estate background:

–          Real estate agent based in Chicago, Illinois

–          School counselor for a Chicago public school

–          Closed on a couple rental properties

–          He works with first time home buyers

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

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 Made Possible Because of Our Best Ever Sponsors:

 Norada Real Estate Investments – Having a hard time finding great investment properties?  Unfortunately, the best deals are rarely found locally. Norada Real Estate’s simple proven system provides you with the best deals across the U.S. to create wealth and cash-flow.  Get your FREE copy of The Ultimate Guide to Out-of-State Real Estate Investing

Patch of Land – Want to learn more about crowdfunding? Let the leading expert in the crowdfunding space, Patch of Land, give you all the info you need to get started. Grab your FREE copy of Top Ten Answers to the Top Ten Crowdfunding Questions at http://www.PatchOfLand.com/bestever

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JF199: What EXACTLY is an Institutional Deal?

When someone says “institutional” what exactly does that mean in regards to real estate investments? Today’s Best Ever guest shares it with you and then some!

Best Ever Tweet:

Jordan Fishfeld’s real estate background:

–        Founder of PeerRealty which is crowdfunding platform focused on opportunities in the Midwest

–        Say hi to him at https://peerrealty.com/

–        He is based in Chicago, Illinois

–        Former commercial finance attorney and active real estate investor

–        Has a JD and MBA from the University of Miami

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Sponsored by Patch of Land – Could you do more deals if you had more money? Let the crowdfunding platform, Patch of Land, find investors for you and fund your next deal…and your next deal…and your next deal…and…well, just go find out more at http://www.PatchOfLand.com

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JF 165: Hey Baby, Wanna Lease Option? Or Get Crazy with a Subject To?

Happy Valentine’s Day! Want to know when to use “subject to” and “lease option” strategies? Well…what are you waiting for?? Let’s go hot stuff!

Best Ever Tweet:

Wendell De Guzman’s real estate background:

–        Acquired over $15,000,000 worth of real estate in Illinois, Ohio and Florida

–        Investing in real estate for over 10 years and has done lease options, wholesaling, subject to’s, rehabbing and multifamily investing

–        Currently buying 3 homes a month in Chicago, Illinois and Ft Myers, Florida

–        He is based in Chicago and is an engineer by background

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Sponsored by Patch of Land – Could you do more deals if you had more money? Let the crowdfunding platform, Patch of Land, find investors for you and fund your next deal…and your next deal…and your next deal…and…well, just go find out more at http://www.PatchOfLand.com

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JF70: Over 40 Years of Real Estate Investing Lessons in Under 30 Minutes

A life’s worth of lessons is jam-packed in today’s episode with our Best Ever guest. From crashing in burning to building a business back up again with only a couple thousand dollars. Deal syndication, overcoming paralyzing terror, flipping, urban rehab projects, deal structure with investors and so much more is discussed. Let’s go!

Tweetable quote:

 Phillip Elmes’s real estate background:

–        Founder of NDP (Neighborhood Development Partners)

o   Buying, improving and reselling homes in Chicago’s south side inner city neighborhoods

–        Licensed broker since 1973 – been in real estate over 40 years

–        Active in real estate since then as both a broker and developer of residential and commercial real estate

–        Say hi to him at http://urbanrehabber.com/

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Sponsored by: Door Devil – visit  http://www.doordevil.com  and enter “bestever” to get an exclusive 20% discount on your purchase.

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JF 48: But It’s Sooo Shiny! Nope. Stick to Your Criteria.

The longer you’re in the game the more opportunities you’ll be exposed to. Listen to Today’s Best Ever Guest as she shares how sticking to her criteria has helped her build a multimillion dollar portfolio in three short years.

Tweetable quote:

Brie Schmidt’s real estate background:

–        Owns and operates 27 units in Chicago and Milwaukee

–        Started investing in 2011 and has built a multimillion dollar portfolio in less than three years

–        Real estate broker for 10 years

–        Founder of BBS Apartments (http://chicagobrie.com/)

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Sponsored by: Door Devil – visit http://www.doordevil.comand enter “bestever” to get an exclusive 20% discount on your purchase.

 

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JF 17: Focused on Numbers? Fugget About It!

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Raise your hand if you are guilty of looking at the numbers on a property before learning how the property should be operated. You are not alone. Ok, I’ll put my hand down now too.

Chris Winterhalter shares priceless advice on the importance of fully understanding the operations as well as other incredibly valuable tips from investing overseas to hotel construction and everything in between.

Listen to the show to hear his Best Real Estate Investing Advice Ever!

Chris Winterhalter’s background:

  • His company has completed 9 major hotel construction projects totaling over 1,500 guestrooms
  • He and his partner own 118 units with no outside investors
  • Co-founder and managing member of KGC Partners
  • Focused on multifamily acquisition and hotel construction

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