JF1775: Live From Cincinnati | How To Scale A Real Estate Investing Business To 240 Units In A Competitive Market with Gaston Teran

Today’s episode was recorded at the meetup we host in Cincinnati every month (bestevercincy.com). Gaston has attended the meetup for years, and we have personally watched his growth as a real estate investor through the years. He’s scaled up to 240 units over the past few years, with no syndications or funds, all of the units are his own, acquired through traditional financing. One huge difference between Gaston’s business and most others that you’ve heard of, he buys bad properties (until he turns them around) in bad areas, which goes against the traditional advice you usually hear to “buy the worst property in the best neighborhood”. We’ll hear his story of getting to the level he’s at today, and how he plans on continuing the growth. If you enjoyed today’s episode remember to subscribe in iTunes and leave us a review!

 

Best Ever Tweet:

“It had physical occupancy of 90%, but a lot of those people weren’t paying” – Gaston Teran

 

Gaston Teran Real Estate Background:

  • President of GT Apartments
  • Started building his multifamily portfolio while working full time as a corporate controller
  • Left the accounting world to be a full time real estate investor, currently owns 240 units
  • Based in Cincinnati, OH
  • Say hi to him at gteranATyahoo.com

 


Evicting a tenant can be painful, costing as much as $10,000 in court costs and legal fees, and take as long as four weeks to complete.

TransUnion SmartMove’s online tenant screening solution can help you quickly understand if you’re getting a reliable tenant, which can help you avoid potential problems such as non-payment and evictions.  For a limited time, listeners of this podcast are invited to try SmartMove tenant screening for 25% off.

Go to tenantscreening.com and enter code FAIRLESS for 25% off your next screening.


 

JF1767: Important Lessons Learned Last Week #FollowAlongFriday with Theo And Danny

Theo did the interviews for the podcast last week, and has some lessons learned to share with us today. Danny Randazzo is joining Theo and sharing some valuable lessons he has recently learned as well. If you enjoyed today’s episode remember to subscribe in iTunes and leave us a review!

 

Best Ever Tweet:

“People are more likely to deal with you if they know you, like you, and trust you.

 

Free Document:

http://bit.ly/annualincomecalculator

 


Evicting a tenant can be painful, costing as much as $10,000 in court costs and legal fees, and take as long as four weeks to complete.

TransUnion SmartMove’s online tenant screening solution can help you quickly understand if you’re getting a reliable tenant, which can help you avoid potential problems such as non-payment and evictions.  For a limited time, listeners of this podcast are invited to try SmartMove tenant screening for 25% off.

Go to tenantscreening.com and enter code FAIRLESS for 25% off your next screening.


 

JF1760: 120 Transactions In 1 Year, Appealing To Buyers, And No Bad Deals #FollowAlongFriday with Joe and Theo

Another addition of Follow Along Friday for you today. Once again, Joe is sharing three things he learned from interviewing the Best Ever Guests from the podcast interviews last week. These three lessons today are from Logan Freeman (https://www.livefreeinvestments.com/), Caroline Carter (https://carolinecarter.com/), and H.J. Chammas (https://www.employeemillionaire.com/). If you enjoyed today’s episode remember to subscribe in iTunes and leave us a review!

 

Best Ever Tweet:

“I’ve had no bad deals, but I have lost money through bad habits and practices” – H.J. Chammas

 

Free Document:

http://bit.ly/masterthelingodoc

 


If you’re a passive investor wanting to learn more about questions to ask sponsors in order to qualify the opportunities, sponsors, and the markets opportunities are in, visit BestEverPassiveInvestor.com.

We created this site just for passive investors to have a free resource providing the questions to ask and things to think through. BestEverPassiveInvestor.com


TRANSCRIPTION

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

We’ve got Theo Hicks with us… How are you doing, Theo?

Theo Hicks: I am doing great, Joe. How are you doing today?

Joe Fairless: I’m doing well, and looking forward to this. Follow Along Friday – today it’s gonna be a recap of just three of the lessons I took away from last week’s conversations with interview guests. These interviews will be aired on a future date, probably in about three or so months, so here’s a sneak peek of some things that you’ll be learning about.

First lesson  – this comes from Logan Freeman. He’s a real estate investor, developer, he’s an agent… He completed over 120 transactions in less than one year, based in Kansas City, Missouri. That’s what I wanted to hone in on, because that’s a whole lot of transactions in a short amount of time… And he partnered up with someone who had more experience, and that person showed him the ropes… But one thing that Logan told me during the interview is they looked at 650 homes during that year, and made offers on about 450 of them… And clearly, when you’re making offers on 450 homes in that period of time – or really in life, but in this case it was over 12 months – there’s gotta be some efficiencies and some tips that he could share, that would help us during the process if we’re making offers on homes, because they’re doing it at a higher volume; so what did they learn, and what did he learn in particular?

One thing that he mentioned — he mentioned a lot of things, very helpful things, but one thing in particular, he said he would always call the listing agent. He found that when he called the listing agent prior to submitting the offer and built rapport with that listing agent, he would get those homes more often than the ones where he was not calling the listing agent, and be it a similar offer, but the only variable was the phone call. He said what he realized is that the listing agents have a lot more pull than what we give them credit for… And just that one phone call and talking to the agent about why you’re offering what you’re offering and establishing a connection with them would allow them to get more deals, and allow them to get really good deals as a result of building that rapport.

So there’s a tip for anyone who’s making an offer on a house or a property… Call the listing agent first, or have your agent call the listing agent first, whatever is the most appropriate thing, talk them through why you’re offering what you’re offering, attempt to build rapport with the listing agent, and you’ll at minimum be where you started, so you don’t lose anything; at most, you’re going to give yourself a competitive advantage and build rapport – or your agent will build rapport with them – and you’ll have a higher likelihood of getting your offer accepted at the price that you want, with the terms that you want.

Theo Hicks: Yeah, I’d imagine this kind of strategy would obviously work for any type of deal you’re buying, but I’m sure Logan might be looking at residential single-family homes, just because as you mentioned, the listing agent does have some sway over the seller, just because they’re supposed to be the expert, whereas this person selling it – it might just be their personal residence and they don’t know anything about what the value should be, what they should ask for from the buyer, things like that. So yeah, if you call them up, not only will you build rapport, not only will you might be able to get additional information about why they are listing it for that price, but you might also by explaining your offer to this listing agent – they might be able to present that to the buyer, and it might actually be the buyer who’s not necessarily changing their mind, but wanting to go with you over someone else. I don’t know specifically why, but in my mind that’s what I’m thinking makes sense.

Joe Fairless: I can tell you, when I’ve purchased a property (a single-family home) and I knew some people who the seller knew, I wrote a letter to the seller and I name-dropped the people that we both know, and just made some inside references, inside jokes about the person, because the person we both know was kind of a goofball… And I mentioned that, plus why we’re looking to buy the property etc. and they said — not directly to me, but they said to someone else who we both know, they said “That was the main reason why we’re able to get it at the price we get it at.” We still paid a fair price, but it was a very competitive situation, and they said that the letter and the correspondence is really what stood out and allowed us to get that deal.

Theo Hicks: Yeah… I’m kind of going through that right now; I just thought of this as well, as you’ve mentioned the letter… By you doing that, the person that’s selling the property is gonna trust you more; at the end of the day, when you’re selling a property, your main concern is actually closing. You can get the best offer ever, at $100,000 above the second-best offer, but then they don’t close and you’re back to square one, maybe you lost that initial second offer and [unintelligible [00:06:04].26] even lower… So by sending a letter, or by calling up the agent and actually putting a face or a voice to that offer, you’re building more trust, and they’re gonna trust that you’re gonna be able to close, as opposed to someone that just sends in an offer and doesn’t necessarily do anything else above that.

Joe Fairless: I agree. Alright, Caroline Carter – she’s the founder and CEO of Done In a Day. She’s helped more than 2,000 prepare their houses for sale, for top dollar, and avoid the chaos and stress of moving. Based in DC. She gives us five tips for how to appeal to today’s buyer. So when we’re selling a property, primarily 1-4 units we’re talking, here are five tips to appeal to today’s buyer. And before I get into those five tips, let’s talk about her approach.

Her approach is to think of our house as a marketable product that we have to package and sell. It’s not our home, it’s not about us, it’s about the buyer, and this is now their prospective home. So first think of it that way, and then think about “How do we market and package this product so that it appeals to the buyer?” That’s the thought process going into it, and now here are five tactical things you can do to appeal to today’s buyer.

One, neutralize the walls. She goes into all of this in detail during our conversation. One, neutralize the walls. Two, declutter, and making mindful decisions about what you own and what you don’t wanna own anymore, what you wanna give away… Because when you’re selling your property, then it’s much easier because you have less stuff whenever you’re moving into the new property.

Three is make fast, easy and inexpensive updates. She gives some specific examples. Upgrade hardware on cabinets… She said you can resurface appliances… There’s a sheet metal cut you can put on appliances to make it look stainless steel, so you can simply refinish appliances.

Three, have white stuff all over, like white bedding, white towels, make the room look nice and clean and airy.

Four, you want to make sure that you guide the buyer’s visual tour. As you’re going through the home prior to listing it, make sure you know what is the likely path they’re gonna go through your house, and be intentional about what you’re putting there. For example, not having pictures of your family, and instead having things that really highlight the features of the home. I know that tip isn’t as specific; she gets in more details during the conversation, and it’s not my personal strength having that fine touch… So hire someone who does have that fine touch, or find someone who does have that fine touch.

So that’s five – neutralize the walls, declutter, fast, easy, quick expenses (3), white bedding (4) and guide the buyer’s visual tour (5). And just a bonus thing – in the backyard make sure that you look as closely to the exterior as you look at the interior, because the exterior is gonna be the first impression, especially in the backyard, to make sure you’ve got nice, colorful flowers, things like that. So those are five tips, plus a bonus tip for appealing to today’s buyer.

I liked her stuff so much I bought her book. If you search on Amazon you’ll find her book, Caroline M. Carter, and her website is carolinecarter.com. I don’t have her book title in front of me, it’s downstairs – because it already arrived – but she gives some really good tips if you’re looking to sell a home.

Theo Hicks: When you said neutralize the walls, it reminds me – whenever I go home for a weekend, HDTV is always on at my parents’  house… I understand that those shows aren’t real, but they’re kind of real in a sense, and one of the consistent themes you’ll see when they walk in a new house – they’ll see really ugly color walls, and that will be something that goes in their decision of not buying the property, even though [unintelligible [00:10:12].22] but it’s like, they see it and they’re instantly turned out from the house itself. [unintelligible [00:10:17].08] it’s very true.

Joe Fairless: Yeah.

Theo Hicks: Neutral color for all of your walls. No pink, purple, crazy blues, crazy greens, things like that.

Joe Fairless: A $1,000 fix if you pay someone influences if they purchase a 300k, 500k, 700k, $1m dollar home. That’s insanity, but that’s just how it is.

Theo Hicks: It kind of goes back to the fact that people make their decisions off of emotions, not based on stone-cold facts, like “Oh, this is just $1,000.” No. You go in there and if you don’t feel right in that ugly room, you’re not gonna want to buy the house.

Joe Fairless: Yeah, it’s true. And the last tip – and such a powerful mindset tip… This is from H.J. [unintelligible [00:11:00].14] He invests all over the world. Based in Dubai, he’s got property in Asia, Europe, Dubai… He’s got two or three properties in five or six countries. I’m like “Why do you do that?” and then he talks about his thought process and why he does it.

I asked him about a bad deal that he’s done, or a deal that hasn’t gone right, and here’s what he said – this is what’s so powerful… He says “I’ve had no bad deals. But I’ve lost money through bad habits and practices.” Just powerful. Because any deal can be a good deal if approached the right way, if purchased the right way, if having the right terms, if executed properly, if getting the right financing in place, if having the right team… It’s not about the deal itself; the property is the property. It’s how you approach that transaction.

I love this thought process, because it’s really taking ownership of what we do. It’s not the deal that went wrong, it’s us that went wrong.

So he said “I’ve had no bad deals, but I’ve lost money through bad habits and practices.” I love it because it puts the ownership on us, and on us to get better. Jim Rohn talks about “Don’t wish it were easier, wish you were better.” That’s in line with this. So really focusing on our habits and practices that put us in a position to be successful, or unsuccessful, based on what those habits and practices are… Because my worst deal could be someone’s best ever deal, because they approached it much better, with better practices and habits, and I approached it vice versa.

Theo Hicks: Yeah, I 100% agree with this concept. I haven’t talked about it yet, and I won’t go into a lot of details – I still haven’t closed on my properties yet, but it was kind of the same thing. Whenever I made the decision to sell them, I didn’t necessarily lose money, but I didn’t make as much money as I wanted to, and I was like “Oh, whose fault was that? Is it the person I bought it from, who misled me on certain things? Is it my management company’s fault? Is it my real estate agent’s fault?”, blaming other people, whereas in reality, even if you can say that “Oh, the property management company made mistakes”, well, it’s my fault for allowing that to happen, or it’s my fault for being misled, or it’s my fault for whatever other excuse I make.

So you can really apply this to anything… Even if someone did something wrong to you, there’s still always a way to figure out what you did incorrectly, what you missed, what you didn’t see, what you failed to do, because at the end of the day you can’t really control what your management company is going to do; you can just control who you pick and how you manage them. And even if they are the worst property management company in the world, it was your fault for not changing them faster. I’m not saying that’s the case on my deal, I’m just using that as an example.

Joe Fairless: Yeah. I love it. When we take ownership over things, then we’ll be more successful financially certainly, because we’re not concerned about other variables we can’t control, we’re just concerned about ourselves and improving ourselves incrementally every day. I love it.

Theo Hicks: Yeah. There’s a book — I haven’t read it yet, but I’ve listened to the author’s podcasts,  and I’ve heard him on other podcasts; I’m sure you’ve heard of this guy before, his name is Jocko Willink…

Joe Fairless: Oh, yeah. The Navy SEAL.

Theo Hicks: His book is called Extreme Ownership. The dude gets up at like four o’clock in the morning and just gets after it in the gym… That’s kind of his entire philosophy as well – take ownership for everything. It’s all on you, it’s on no one else.

Joe Fairless: Yup. Cool. Good stuff.

Theo Hicks: Those are some solid lessons.

Joe Fairless: By the way, last week we closed on two deals.

Theo Hicks: There you go.

Joe Fairless: Yeah, we’ll celebrate that… But more importantly, we’ll celebrate that we have a lot of returning investors in those two deals, and they’ve seen the results that we’ve generated, and we’re continuing  to get word of mouth referrals from those investors, which is the highest compliment we could get… So we’re grateful — for everyone listening who is  in those deals, we’re grateful to be partnering up with you on them, and looking forward to successful projects together.

Theo Hicks: Absolutely. It’s your first deal in Florida as well.

Joe Fairless: Yup.

Theo Hicks: You guys followed me down here.

Joe Fairless: Yup.

Theo Hicks: Alright, so moving on to the trivia questions. This is the month of the wacky real estate laws… This is the last week of that. I’m not sure what we’ll do next month, but it’ll be some other category. So our last week’s question was what North-Eastern state has a law that states you aren’t allowed to build a fence that is taller than six feet?

Joe used his deductive reasoning and picked Rhode Island, and he was correct.

Joe Fairless: Awesome!

Theo Hicks: In Rhode Island you’re not allowed to have a fence taller than six feet. I think the other state that has a law for how high fences can go — I think it was California, and they can’t be over ten feet.

This week’s question – again, this is the last wacky real estate law trivia question… What Western state — again, I’ve gotta get more geographically specific; I can’t just do all 50 states… So what Western(ish) state has a law that has a restriction on keeping upholstered chairs, couches and mattresses in the yard or front porch? In other words, it’s not manufactured for outdoor use. I’m gonna give you an extra hint; the reason is because in this particular city a lot of people are known — it’s a party city, and a lot of people were burning their furniture and mattresses and stuff in their front yard,  so they implemented this law in order to minimize that.

Joe Fairless: So are you looking for a city or a state?

Theo Hicks: It’s gonna be a state.

Joe Fairless: Okay, but it’s only about a particular city?

Theo Hicks: Within that state, yeah.

Joe Fairless: Okay, so in the whole state you can’t have that because of a particular city within the state?

Theo Hicks: Yeah.

Joe Fairless: Got it. Well, I know this isn’t West, but in West Virginia, Morgantown, they burn couches all the time whenever good things happen… But you said it was in the West.

Theo Hicks: Yes.

Joe Fairless: I don’t know… Utah. I don’t know why. No deductive reasoning there. Just a random guess.

Theo Hicks: [laughs] Alright. Well, everyone else put their random guess either in the YouTube comments, or you can e-mail info@JoeFairless.com. The first person to get the correct state will get a free copy of our first book.

And then lastly, we’re changing up how we conclude these episodes. Rather than doing the review of the week, we are going to do the free apartment syndication resource of the week. So if you haven’t already, check out our Syndication School series; we release two episodes every Wednesday and Thursday, focused on a specific aspect of the apartment syndication investment strategy… And for most of these episodes we give away some sort of free resource/document/spreadsheet or template, and all that can be found at SyndicationSchool.com. We’re gonna start mentioning each week a free resource that is available on there, and then we’re gonna put that free resource in the show notes of this episode.

This week’s free document is going to be our Master the Lingo document. This was all the way back in series number two, where we discussed the two requirements before you’re ready to become a syndicator, and one of those was education… So if you bought our syndication book — obviously this free Master the Lingo document is not as detailed as that, because it’s not 450 pages long, but this is going to be not only a glossary that defines all of the important terminology and concepts and return factors for syndications, but we also go through a lot of examples; there’s also data tables, graphs, so you can visually see what these are. So that’s the Master the Lingo document, and you can download that by just clicking the link in the show notes, or you can go back and listen to the episodes 1499 and 1500, where we went over the Master the Lingo document.

Joe Fairless: Wonderful. What a gift… And Best Ever listeners, I enjoyed our conversation, and I hope you got a lot of value from it. We will talk to you tomorrow.

JF1753: Last Week’s Best Ever Lessons #FollowAlongFriday with Joe and Theo

Joe is sharing three of his favorite lessons learned from interviewing Michael Sjogren, Nate Palmer, and Marco Santarelli. We’ll hear about managing short term rentals, eating healthy and working out, and how to find the best real estate investing markets. If you enjoyed today’s episode remember to subscribe in iTunes and leave us a review!

 

Best Ever Tweet:

“Use a ring doorbell camera and wifi locks”

 


If you’re a passive investor wanting to learn more about questions to ask sponsors in order to qualify the opportunities, sponsors, and the markets opportunities are in, visit BestEverPassiveInvestor.com.

We created this site just for passive investors to have a free resource providing the questions to ask and things to think through. BestEverPassiveInvestor.com


TRANSCRIPTION

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

Well, Follow Along Friday, we’ve got Theo Hicks… Theo, hello sir.

Theo Hicks: How’s it going, Joe?

Joe Fairless: It’s going well, and today we’re gonna be talking about three of many lessons that I learned from last week’s interviews. As a refresher, I interview all the interview guests on Thursday, so I do a bunch of interviews on Thursdays of every week, and here are just three lessons that I learned from those conversations. Ultimately, the purpose of this episode – like all episodes – is to help you with your real estate endeavors; the purpose of this episode is to just recap some of the things I’ve found really interesting, and give you a sneak peek of what’s to come for these episodes that have yet to be released, and they will be released over the coming months.

First one, we’ve got Michael [unintelligible [00:02:01].22] He’s the guy — if you want to learn short-term rentals, he gets in the weeds of how to run a successful short-term rental business. I’ve known Michael for maybe 3-4 years or so. The interview that I did with him — this is the first time that I’ve had him on the podcast, but the interview I did with him, I knew about what he was doing going into the conversation, and I was even more delighted hearing him talk about short-term rentals than I thought I would be, and I had high expectations going into it. Very solid information if you’re looking to get in short-term rentals, or looking to enhance your income stream from short-term rentals.

Here are five tools that he gave us to manage short-term rentals from long distance. So if you have short-term rentals that aren’t close to you, or if you are planning on buying short-term rentals that are not close to you, or even better, if you have short-term rentals that are close to you, but you wanna treat them like a  business and you want to put in a process so that you don’t have to do the work yourself, then here are five tools that he gave us. He gave us a bunch of information during the interview, but here are five tools he gave us to help you manage your short-term rentals effectively.

One, ring security camera. He says he uses a ring security camera so he can see when people are leaving and entering the house. He does not put a security camera inside the house; that is creepy for a short-term rental. But outside, on the doorbell area, that’s where he’s got the ring camera, som that’s number one.

Number two, Wi-Fi locks, so he gives a code to the people renting; they have access via that code. That code expires after a certain point in time. I asked him specifically what company he uses, and he says August Home. He says it’s a little pricey, but the quality is really good.

Three, NoiseAware. It’s an app, but it’s also hardware that plugs into an electrical outlet of your short-term rental property. He said it looks like a Glade Air Freshener. So it plugs into there, somewhere in the house where you think the noise would likely get really loud, like a living room, or outside if there’s a hot tub and people are partying out there… Just so you are aware of when the noise gets to a certain level, or gets past a certain level, a threshold.

He says he’s only had to do it three times, where he’s reached out to the short-term rental residents and said “I’ve got a complaint from the neighbors, just as a reminder to please keep it down at a reasonable level.” And I asked them “How do you know what level to set it at?” and he said “This NoiseAware app has certain guidelines for how to set it.” That’s number three.

Number four, for pricing your short-term rental – you probably know about this already if you’re in the short-term rental business, but he says he uses PriceLabs.

Number five, for turnover and cleaning he uses TurnoverBnB. That’s for turnover and cleaning, which I imagine is the biggest headache. I don’t have any short-term rentals, but I imagine it’s the biggest headache – getting the unit turned over, since you’re doing it on such a frequent basis. But when you have a service that you’re using, then it sounds like it’s pretty effective in managing that process.

So those are the five tools that Michael [unintelligible [00:05:45].28] gave us. Michael’s website is OccupiedNow.com. He’s a very, very good resource for short-term rentals if you’ve got any questions, or if you’re looking to learn more.

Theo Hicks: Yeah, and just to add one thing and then we can move on to the next point… The first Best Ever debate we ever did was with a short-term rental expert, Sue Hoyuela. If you go to YouTube and type in “Best Ever debate Long-term rental vs. Short-term rental”, or I just google “Joe fairless short-term rental debate”, that will come up. It’s about one hour long, and we kind of just go back and forth based on five criteria, determining what strategy wins out long-term, long-term versus short-term rental. I learned a lot from that conversation, and I’m sure you will as well.

Joe Fairless: What’s the answer, which strategy wins out?

Theo Hicks: Like all strategies, it depends. [laughter] It depends on what your goals are, it depends on how much time you have, it depends on where you’re at in your business plan… Obviously, the biggest difference between the two is the profitability. Short-term rentals have crazy high rents. If  you buy, say, a single-family home, you could probably rent it out as a short-term rental for 3 or 4 times more in rent… But obviously, there’s also a lot more expenses. I think she was saying how management fees can get up to 20%-25%, for people that are managing your short-term rental portfolio. So it kind of just depends on what you wanna do. Short-term rentals is not something that I personally want to do, but it’s definitely a very profitable strategy… Especially if you’ve got something already. She was mentioning how she started by converting the garage or a shed in her backyard into a one-bedroom, and rented that out and made 60k/year off of that. That’s kind of how she got into it, and then grew a whole business around it.

Joe Fairless: Oh, absolutely. What a great way to create income into something that didn’t already have income, like your primary residence. A lot of people wouldn’t be okay with renting out your primary residence, and I am in that category now… But I’m in a different stage in life. Before, if I didn’t live in New York City during my single days, and if I didn’t rent an apartment in New York City, then if I was living say in Texas and I had bought a house right out of college, and I was living in it, then I’d be all for that, because it covered my mortgage, and then I would basically be having someone else pay for my mortgage, and I’d be living mortgage-free.

Theo Hicks: Yeah. It’s kind of similar to house-hacking. If you don’t like house-hacking, then you’re probably not gonna rent out a room in your house to someone, Airbnb style.

Joe Fairless: Yup. Alright, the second thing I wanna mention is a gentleman named Nate Palmer. He coaches entrepreneurs to become unstoppable by (I love this) weaponizing their nutrition and training. He’s got a podcast called “The Million Dollar Body Podcast”, and he’s the author of Passport Fitness. You can probably guess what we talked about – that is nutrition and fitness. The reason why, clearly it’s relevant to us as real estate investors and entrepreneurs – we’ve gotta have our body right in order for our mind to be right. We’ve got to have the energy to sustain all the stuff that comes at us during the day.

What we talked about is nutrition primarily. My conversation last Thursday – about a week ago – has influenced what I’ve eaten since last Thursday. Here’s what he suggested – and he goes  into it in more detail in our interview; I recommend listening to it, as well as other things… But he suggests for breakfast do a high-protein, high-fat breakfast like eggs, avocado, veggies, or a protein shake. That way you are staying full and you’re not having, say, a banana or something that peaks your sugar level and then you crash later. And again, I am summarizing it from an amateur’s vocabulary and perspective, so all you nutrition people who have studied this a lot just bear with me… But I know I have the general concept down, but I might use different words that aren’t in place, that shouldn’t be there. So that’s breakfast.

Lunch is, again, high-protein meats, eggs, lots of vegetables… He suggests eating lighter for lunch, limiting or not even having carbs, as you’ve noticed, for breakfast or lunch, because he says the carbs make you feel more full, and you can get more lethargic… So on your salad, stay away from croutons or creamy dressings, and instead get a vinaigrette or olive oil.

Then for dinner, he’s like “You know what, enjoy your dinner.” He said most people suggest not having carbs for dinner, but it can help you sleep, he says, because it makes you more lethargic, and it can actually be a sleep aid… So he suggests for dinner have a carb, a protein and a vegetable.

What I’ve changed from my diet for the last week is instead of oatmeal, which I would have for breakfast, I’ve had a protein shake. And it’s a chocolate protein shake, so it’s delicious… [laughs] And you know what, Theo – it’s in this mug, that you and your wife gave me.

Theo Hicks: That’s awesome.

Joe Fairless: I don’t drink coffee, so I was like “Well, I don’t know what I’m gonna do with this mug” whenever he gave it to me, but my wife Colleen brought in the shake with the mug, and she’s like “Well, if you’re talking to Theo today, tell him and show him the mug that you’re drinking out of.”

Theo Hicks: That’s really funny.

Joe Fairless: So thank you, Theo, for the mug, and thank you, Nate, for the insight. He also said when you first wake up, have a bunch of water; I said “I’ve got that box checked, Nate. I have a liter of water with  a scoop of wheatgrass every day when I wake up”, and he’s like “Good job, Joe”, and I pat myself on the back.

So those are his tips. Theo, you use to be really heavy in cross-fit, you used to be the golden child of cross-fit, and you’re really strong and athletic, so what are your thoughts about this?

Theo Hicks: Yeah, when I saw this in the outline, I was excited to talk about nutrition. I entirely agree with everything he said. The biggest takeaway out of this, for sure, that you want to realize – and this kind of goes against what we learned growing up, for sure – is the carb question. And again, all this really depends on how much you’re actually working out. If you’re working out a ton, then you’re going to need more carbs than someone who’s not necessarily working out, like all of their workout just consists of walking.

Back when I was doing cross-fit insanely, I did the keto diet. I don’t do it now, but I should. I think for the normal person the keto diet is amazing, especially if you’re trying to be very efficient with your time, because you don’t need to eat as much. But I’ll go into that in a second. But yeah, you don’t wanna eat carbs, definitely not for lunch. For breakfast it’s not as big of a deal, but for lunch, you’ve already been awake for a while, and most people, when they get that 1 or 2 o’clock crash, it’s because of what they ate for lunch, it’s because of all those carbs. The way carbs work is quick energy up, quick energy down, whereas protein and fat are a lot slower, so it’s more of a consistent burn, so a consistent energy. [unintelligible [00:12:47].18] For dinner, in general, you wanna avoid sugars. I was having a conversation with someone last night, how he lost 65 pounds and literally the only thing he changed was cutting out sugars. He didn’t work out… He was very overweight, but he didn’t work out at all. All he did was cut out sugars.

So if you’re overweight and you want to lose a large amount of weight, and you don’t necessarily want to have to work out for an hour a day, if you just cut out sugary drinks, desserts, things like that, you’ll be fine.

But I did want to mention the keto diet really quick. This is like a newer, fad type diet, I guess; people talk about it a lot in the news now, but essentially it’s 80% fat, 15% protein and 5% carbs. Again, as Joe mentioned, I’m not a nutritionist, neither are you, so this is just from what I’ve researched… But essentially, you convert your body from being a carb burner to a fat burner. So rather than burning carbohydrates, burning glucose, you burn fat, ketones instead.

I did this diet for a month, and again, I was working out an insane amount, so it’s not good if you’re working out for like three hours a day like I was… But I would literally drink a bulletproof coffee for breakfast, which is just coffee, some sort of oil you buy, butter, heavy cream… I would drink that and I wouldn’t eat again 2-3 o’clock in the afternoon. I’d have a lunch, and then I wouldn’t eat again until dinner. So I could literally work — I woke up, it’s two o’clock, without having to stop… And the way that you feel – you feel a lot different. You’re very energized, everything is super-clear. It’s kind of like a euphoric feeling.

Now, I got really sick because I didn’t do it properly. If you don’t completely convert your body to burning the ketones, then your body is gonna keep looking for carbs, and since you’re not eating any, you’re gonna get sick. It’s called the keto flu. Plus, the amount I was working out, I needed the actual carbs for those faster workouts… So I stopped doing it. But I’ve kind of been slowly reintroducing it now, just because I remember how good I felt and how energized I was.

I’m gonna try to find the book before we get off when you start talking again, that I read about it. That goes over exactly how it works, why you should do it, and then how to actually do it, and some things you need to buy, like [unintelligible [00:14:49].14] to make sure you’ve got ketones in your body, and things like that.

Joe Fairless: And just for the record, since this conversation did get into nutrition… My personal belief is eating more plants is always the better approach than anything else. That’s my personal belief based on other stuff I’ve read. Alkalizing your body, and having more of  a plant-based diet. So that’s my belief, and that’s what I think is the best – salad over other stuff; have more greens, and then have some meat, and then whatever else. Those are my thoughts on it, but everyone’s got different stuff, and certain things work for certain people. I’m in a territory that  I know not a whole lot about, so I’ll move on to real estate.

Alright, Marco Santarelli… He is an investor who has been on the show multiple times before. He has a company called Norada Real Estate Investments. They provide turnkey investment properties. If you’re on the West Coast, you probably heard of his company, know Marco or know of Marco. I’ve interviewed him episode #111, #1012, #1425. Those three episodes. And during the most recent conversation he talked about the three kinds of markets. I talked to him about how do you find and invest in the best real estate markets, and he talked about “Well, the best real estate market is relative to the person who is defining the word ‘best’, because it’s based on what they’re looking for and what they need in their own portfolio.”

He talked about there’s three types of markets: 1) cashflow market, 2) growth market, and 3) hybrid market. He gave some examples. He’s like “Okay, cashflow market: Memphis, Birmingham. Growth market: Atlanta, Dallas. Hybrid market: Indianapolis, Chicago, Jacksonville.” He said markets shift from one category to the other category over time, and I think it’s just important to look at our investments in that way, because even if we’re not looking at markets in that way, because even if we’re not looking to invest in a turnkey property, it is interesting to look at the way he’s categorized it. I did from the perspective of our multifamily investments, and we target growth markets with our value-add strategy; and the reason why we target growth markets with our value-add strategy is because those markets are dynamic enough that allow us to get the rent premiums that we’re achieving on the renovated units. That’s why Dallas is a  growth market, Atlanta is a growth market — we’re not in Atlanta personally, but we’re heavy in Dallas.

The cashflow markets, I would imagine – he didn’t mention this, but I would imagine Cincinnati would be a cashflow market; I know he wouldn’t put that as a growth market, and he probably wouldn’t put it as a hybrid, so it’s probably cashflow.

At Ashcroft Capital we don’t buy in Cincinnati, at least not now, even though I live in Cincinnati. The reason why is because it doesn’t have the dynamic fundamentals where Cincinnati is just getting jobs left and right; employers are not flocking to Cincinnati, and they’re also not leaving Cincinnati, but it’s just a steady as she goes market.

As apartment investors – because I know we have a lot of apartment investors who listen to this podcast – take a look at how other people in our industry are defining markets or are investing, because those lessons can certainly be applied to what you’re doing as an apartment investor… Because maybe, if you are going to invest as an apartment investor in a cashflow market like a Memphis, or Birmingham or Huntsville, it could work out; however, you’re gonna need a competitive advantage on the construction front to really make sure that your costs are lower, or some sort of overhead is lower than the competition, and that way you don’t have to get as high of rent premiums and you get a similar spread… Or you’re a long-term holder of those properties and you don’t need as high of projected returns over the short-term as you would if you were in a  different market and had a different set of investors.

So it’s interesting to think about, and I find it interesting to talk to people who are not doing exactly what we’re doing, but whose lessons they’ve learned from doing what they’re doing, in this case turnkey investment properties – it can be applicable to apartment investors.

Theo Hicks: Yeah, there are a lot of different market reports out there that do similar categorizations. One I’m looking at right now – and again, this company bases it off their own criteria, but they will categorize markets by expansion, hyper-supply, recession and recovery. This is a yearly report, and they base it off of vacancy rates, new construction absorption, employment growth and the rental growth rate.

Kind of similar, a little bit different, but that is the IRR… I think it’s Integra Realty Resources publication. If you just type in “viewpoint commercial real estate trends report IRR”, that will come up. I’m not sure if they have their 2019 one created yet or not, but I do know they have the 2018 one at least… And again, it does it based off of hyper-supply, expansion, recession, and one other category.

Joe Fairless: Cool. Good stuff. What’s that book – did you find that book?

Theo Hicks: No, I couldn’t find it…

Joe Fairless: [laughs] You sound like you lost your puppy dog.

Theo Hicks: It was a really good book… And you could just find any book on the keto diet. But as Joe mentioned, test out different diets, and whatever works for you, works for you.

Joe Fairless: Alright. What’s next?

Theo Hicks: Trivia question time. This is the month of the whacky real estate laws… Last week’s question was – in Hawaii it is actually illegal to perform yard work at your home on Sundays, so the question was “What other state has the same law?” I think you said Arkansas…

Joe Fairless: Yeah, I think I said Arkansas.

Theo Hicks: The answer was New Mexico.

Joe Fairless: Oh… It was not on my radar.

Theo Hicks: The reason why both of these states have this law is in order to reduce conflict between neighbors on Sunday. That’s the justification for that law.

This week’s question – and I’m realizing I should probably get a little more specific on these questions, so people have a chance of getting them right… What North-Eastern state – so this is again gonna be  a state question, but I’m putting it into the North-East, thus reducing it from 50 to 10 or 15… So what North-Eastern state has a law that says you are not allowed to have  a fence that is taller than six feet?

Joe Fairless: The whole state?

Theo Hicks: The whole entire state. You cannot have a fence that is taller than six feet.

Joe Fairless: I’m gonna guess a state that doesn’t have a lot of farming, because if they do have farming, they’re gonna have to keep out the wild animals… So now I’ll go with Rhode Island. Maybe there’s not a lot of farming in Rhode Island. I think it’s the smallest state… I was just talking to an investor of mine who lives in Rhode Island, and he said it takes 45 minutes to go from one side of the state to the other.

Theo Hicks: That’s definitely a very small one. So the first person to get the question correct, either in the comments of the YouTube video below, or if you email info@joefairless.com – the first person to get it correct will get a free copy of our first book.

And then lastly, the Best Ever Apartment Syndication Book review of the week – if you buy the Best Ever Apartment Syndication Book, leave a review, not only will you receive all of the free resources that come along with the book, but you’ll also have the opportunity to have your review read aloud on Follow Along Friday.

This week’s review comes from Hunterlock, who said:

“This book is overflowing with actionable information for investors. For example, some books might say ‘Do a market analysis’, leaving the reader feeling like they need to go get a degree in real estate markets to accomplish their goals. Instead, Joe and Theo’s book walks you through the process of doing that analysis for yourself. That concept of actionable advice is present in all the subject matter covered, and is the main reason I say that this book is a must-have for anyone serious about being in the game.”

Joe Fairless: Hunter, thanks for that review. I’m glad it was helpful. Best Ever listeners, I enjoyed our conversation. I hope you got a lot of value from it, and we’ll talk to you tomorrow.

JF1746: Three Lessons Joe Learned Last Week From Best Ever Guests #FollowAlongFriday with Joe and Theo

Joe did another round of interviews for the podcast last week, and again walked away with some valuable lessons to share with us. From finding off market deals to how our emotions affect our emotions, there is something in this episode for everyone. If you enjoyed today’s episode remember to subscribe in iTunes and leave us a review!

 

Best Ever Tweet:

“There is no one size fits all strategy for finding deals”

 


If you’re a passive investor wanting to learn more about questions to ask sponsors in order to qualify the opportunities, sponsors, and the markets opportunities are in, visit BestEverPassiveInvestor.com.

We created this site just for passive investors to have a free resource providing the questions to ask and things to think through. BestEverPassiveInvestor.com


 

JF1739: Getting Rewarded For Doing The Wrong Thing? #FollowAlongFriday with Joe and Theo

Joe learned a few new things last week from his interviews, two of which he’ll be sharing with us. He also has an observation from life in general that he wants to share with us today. Getting rewarded for doing the wrong thing – what is he talking about and is it good or bad? You’ll have to listen to this episode to find out. If you enjoyed today’s episode remember to subscribe in iTunes and leave us a review!

 

Best Ever Tweet:

“I believe you need a higher NOI in the smaller markets to qualify for the loan”

 


If you’re a passive investor wanting to learn more about questions to ask sponsors in order to qualify the opportunities, sponsors, and the markets opportunities are in, visit BestEverPassiveInvestor.com.

We created this site just for passive investors to have a free resource providing the questions to ask and things to think through. BestEverPassiveInvestor.com


 

JF1726: Partnering With High Level Investors To Do More Real Estate Deals with Alex Holt

Alex is an entrepreneur and real estate investor, when he’s not busy with landscaping, he’s working on his own deals. When Alex wanted to start, he didn’t have the cash to get started, his first deal he was able to trade landscaping services for a down payment on a seller financed deal. After that, Alex teamed up with an experienced investor (money partner) and has been completing deals since then. If you enjoyed today’s episode remember to subscribe in iTunes and leave us a review!

 

Best Ever Tweet:

“Every deal will test you, some worse than others” – Alex Holt

 

Alex Holt Real Estate Background:

  • Owner of Buying Cincinnati Houses
  • Has done over 10 deals with no cash out of pocket
  • Completed several land contract deals that he was able to flip with little more than sweat equity
  • Based in Cincinnati, OH
  • Say hi to him at https://www.facebook.com/alex.holt.777
  • Best Ever Book: Rich Dad Poor Dad

 


If you’re a passive investor wanting to learn more about questions to ask sponsors in order to qualify the opportunities, sponsors, and the markets opportunities are in, visit BestEverPassiveInvestor.com.

We created this site just for passive investors to have a free resource providing the questions to ask and things to think through. BestEverPassiveInvestor.com


 

JF1725: Answering Apartment Syndication Questions From Best Ever Listeners #FollowAlongFriday with Joe and Theo

We received a couple of great questions over the last week, and decided to answer them today on Follow Along Friday. Joe will answer a question about getting a potential seller to want to sell, as well as responding to a question about who controls the bank account in an apartment syndication. If you enjoyed today’s episode remember to subscribe in iTunes and leave us a review!

 

Best Ever Tweet:

“Get curious, what could be their motivation?”

 


If you’re a passive investor wanting to learn more about questions to ask sponsors in order to qualify the opportunities, sponsors, and the markets opportunities are in, visit BestEverPassiveInvestor.com.

We created this site just for passive investors to have a free resource providing the questions to ask and things to think through. BestEverPassiveInvestor.com


TRANSCRIPTION

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

With us today, Theo Hicks. We’re gonna do Follow Along Friday, where we talk about the entrepreneurial adventures – usually we talk about this – that we are doing, and more importantly, the lessons we’re learning along the way. However, today we’re gonna be answering two listener questions, and Theo Hicks is going to read the first question and we’ll dive right in.

Theo Hicks: As you said, let’s jump right in. The first question is from Michelle. She said:

“Hi, Joe. I found a potentially KILLER off-market apartment building deal near me. 99-unit, three-building portfolio, bought back in 1979, just over the 39-year expiration of the depreciation tax benefits law. The owner is in his 90s and bought these buildings when they were originally built. I just called him today, but he couldn’t hear me, so his wife took the phone. As I was trying to build rapport and ask her if they might be interested in selling, she said no and hung up.

Have you ever send a letter of intent to a seller like this [unintelligible [00:02:05].02] to entice the seller to sell?”

Joe Fairless: Well, to answer your question directly, the answer is no, I haven’t been in this situation where someone has an opportunity that I came across, I reach out to them and they hung up on me… So I haven’t been in this situation. However, the concept or the structure of the conversation that we’re about to have about this situation I have been in, and I think most real estate investors have been in a similar structure of this type of deal or situation. The structure is as follows – you want to buy a property, and in order to buy the property you have to be attractive to the seller, so that the seller realizes that you are the solution to their problems. That’s basically what’s happening. So that’s why I wanted to answer your question on the show, because your question goes much deeper than what meets the eye. It’s actually “How do we become attractive to sellers, so that we can get more deals?”

The first tip I have for you is get curious. Because when we’re curious, we tend to ask ourselves questions, and when we’re curious, we tend to ask other people questions, and we tend to uncover information that can be helpful for us to identify the answers to those questions that we’re having. So how I would approach this specific situation, and obviously this is gonna apply to the larger situation of trying to become attractive to sellers for deals, is I would reach out to this person again, whether it is through a phone call, or whether you said in your e-mail — I think you mentioned that the owner is in his 90s; I’m not sure how old his wife is, but perhaps a written note would be more appropriate for them, versus a phone call, or — probably not e-mail, but a written note to them.

It might take a little bit longer of a courting process, but just having a written note, and that way you can  put your best foot forward and you can go in with pure intentions. So number one is get curious; ask yourself some questions – what could be their motivation? What are some things I could do to help them out in a situation? What are some challenges they might be coming across?

Then when you’re curious — the first thing is to get curious; the second step is going with pure intentions. Because if you go in with pure intentions, then you’re all about serving them, and people can pick up on that. If you are just looking to get the transaction done – that may or may not work, depending on the personality on the other side of the table. But if you go in looking to help solve some challenges that they might have – holy cow. How beneficial is that for them, and then consequently how beneficial would that be for you.

So what I would do in your situation is 1) I’d get curious, I’d start asking some questions to myself, and then 2) draft a letter to them and just simply learn more about their situation while introducing yourself to them, and saying “Hey, I’m not sure where you’re at in the stage of what you’re looking to do with these properties. I can tell you that you might be worried about tax liability when you sell them; you might be looking to get a chunk of cash quickly, you might be looking to spread it out over the next ten years… I’m not sure. What I can tell you is I have experience purchasing these properties in your area, and I’d be happy to talk about some solutions to any of these challenges you might be coming across, to help you and your family out.”

That’s the approach I would take. I wouldn’t force-fit or shove an LOI over to them, because that’s just not gonna work. And Michelle, by you writing “Hey, should I do the LOI?”, I think you already kind of picked up on it that that wasn’t gonna work, and that’s probably why you reached out to us. So that’s the one-two step process, or the one-two punch I would do. 1) Get curious. 2) Go in with pure intentions. In this case, write them a letter, and then go from them.

If they don’t answer the first letter, write them another letter. Most people like getting letters. I can tell you my mom – she loves getting handwritten letters from me, and I would say at minimum it’s something that if you’re handwriting them letters, do it five, six times, maybe every two weeks, or something, at minimum it’s just something that they’re able to occupy their mind with a little bit; it helps stimulate their mind, and they’re getting letters… It’s probably not a bad thing regardless, for them, even if they don’t do a deal with you. So you’re probably helping them out anyway by just writing some handwritten letters.

Then if they write you back – or when they write you back – and obviously, you always put your phone number in the letters, but if they call you or write you back and say “Hey, not interested”, then just let it be. Let this 90-year old gentleman and his wife – let them do their thing, let them decide what they wanna do. Maybe check in six months down the road, but I personally would just let them go about their business; I wouldn’t write them any more letters if they say don’t do it.

Theo Hicks: I agree with everything you just said. Just to elaborate a little bit, and then another thing that I wanted to mention as well, that might not be an ideal fix for this particular situation, but just a new way to think about finding off-market deals in general… But when you mentioned you want to approach the person based on who they are, so someone who’s in their 90s, as you mentioned, is most likely gonna want a letter… And then the curious part – obviously, you wanna ask yourself questions about the deal, but I think based off of Michelle’s comment, it sounds like things might have been going fine until she asked to buy the property; that’s when the person hung up…

So Joe, when you were explaining what to put in the letter – obviously, the purpose of that letter is to buy that property, but you don’t wanna just come out and say “Hey, I buy properties. Can I buy your property? Are you looking to sell right now?”, because obviously that didn’t work… So position it a different way. Ask them if they’re having any challenges, present potential challenges, as Joe mentioned, and instead of saying “Do you wanna sell it to me?” or “I’ll buy your property”, just say “Would you mind speaking on the phone with me, so I can present you with some potential solutions?”

Something else I wanted to mention too, and Joe, let me know if you think this is crazy, but… I interviewed a guy – actually, twice. The last two times I did interviews I interviewed the same person; his name is Preethi. He buys multifamilies in Boston and converts them into condos, and he finds all his deals by door-knocking. Typically, in Boston, these multifamily homes are actually owner-occupied by a family who owns it and they’re living in one unit, and then they’d be renting out the rest of it… And someone who’s in their 90s, they’re gonna appreciate the letter, but who knows – you might have success actually going there in person.

Now, it could go horribly wrong as well, but people do door-knock, and people do find success with door-knocks… But of course, there’s also going to be a lot higher — I wouldn’t say risk, but a more likelihood of it turning sour, I guess, compared to just on the phone or a letter, because they’re not in front of you… But I know it does work, and it sounds like for this particular situation, if you really want this deal, and assuming that they’re close, you could just send them a letter and mention that you plan on stopping by on some day, to present these potential solutions. And if you don’t get a phone call or a message back saying “Don’t show up”, then you can show up. Just don’t do it out of the blue, I guess. Probably let them know first, just in case they don’t want you showing up, or they’re worried about meeting people in person.

Ever since I interviewed Preethi and he talked about door knocking, I’ve just thought that it’s kind of a solution to a lot of different issues people face, particularly when looking for off-market deals.

Joe Fairless: Yeah, and that’s gonna work better for single-family homes, because with large multifamily properties if you show up at my door at my house, asking to purchase my property, there might be violence. That’s so over the top, I would be furious. But with a single-family home it probably works a lot better.

I will tell you in this example, since we’re talking about a specific example – but then also how it over-arching applies to other deals – with this example what I would do is I would use that as a last resort, where in my (say) sixth letter I would write in the letter “Just in case you are not able to reply via a written letter, then I’m just gonna stop by on Saturday at 2 PM and bring you a gift basket for it being Veteran’s Day, or Memorial Day Weekend”, or something like that. Just make up a reason for giving them a gift that’s relevant. “If that time doesn’t work, then feel free to give me a call and let me know and I won’t stop by.”

That way you’re giving them a heads up – you’re coming over, but you’re also giving them a way out to call you and say “Don’t show your face on my property”, and then show up and see if it works. So yeah, I’m with you on that.

Theo Hicks: I’ll make a note to not just show up at your house out of the blue, asking to buy…

Joe Fairless: Oh, you can show up at my house any time, Theo Hicks…

Theo Hicks: [laughs]

Joe Fairless: But here’s some random person asking to buy a property of mine, and you show up at my house – that’s way too much.

Theo Hicks: Alright, so that was Michelle’s question. The next question – it’s also interesting – is from Rich. It is all about apartment syndication;

“The GP (general partnership) controls the business plan. I assume they also control the checking account associated with the project. How does one protect themselves from the general partnership embezzling funds from the operational account? Is there an auditing protocol of some kind of protect the passive investors from outright theft?”

Joe Fairless: Yes, and let’s talk about. First off, Rich, I enjoyed our conversation yesterday. Rich reached out to Ashcroft Capital, so I talked to him yesterday… But he submitted this question a week ago. We had already had this in queue to talk about on Follow Along Friday.

A little bit of context  to this question that he didn’t mention in the question, that I can add and he’s okay with me adding this, is that Rich lost $300,000 on an investment, because the woman who he was investing with – a note investor – committed fraud, and consequently she went to federal prison. I don’t know if she’s still in prison or not, but he lost $300,000 and still has not recouped that. So that is the reason why he is asking this question about checking to make sure that the general partner is not embezzling funds from the operating account.

Now, the short answer is — well, I’ll approach it in two ways. One is I’ll tell you what you can do to have some checks and balances before the deal, which quite frankly isn’t a whole lot, but then after the deal closes, you can do a whole lot more… Because there is no money for a shady general partner to take before the deal, but you can do some due diligence prior to the deal… But really, if they were gonna steal money from the entity, then they’d have to do it afterwards, because that’s when the money is in the bank account.

So here’s some things you can do before, but really we’re gonna focus our time on what you can do after the deal closes to make sure everything is on the up and up. Before the deal closes, what you can do is 1) just look at the structure of the deal, make sure that there’s an 8% preferred return, make sure that the general partner is getting paid an asset management fee only if they are actually performing and they’re returning the preferred return. Now, these are things that aren’t gonna prevent someone from stealing money, but it’s just making sure that the deal itself is set up so that you have alignment of interest.

In addition to that, you can ask them for the previous deals that they have done, and then look those deals up on sec.gov and make sure that they’re registered with the SEC. You can just go to sec.gov, look up the entity that owns the property, and it will be registered under sec.gov. Those are some things you can do before the deal. And obviously, check references, check references’ references, check references’ references’ references… If you go three degrees, three layers deep of people, you’re gonna get a good picture of what they’re all about, and then google them. But those are things you’re probably already doing, and it doesn’t directly answer the question you’re asking about how do you make sure they’re not embezzling money; but there is some prep work that needs to be done on the front-end to mitigate the risk of getting in with a group that are criminals.

So now let’s talk about once the deal closes. Once the deal closes, I have listed four things to take a look at. Well, really three, and then there’s a fourth that I’ll just mention. One is, as I mentioned earlier, making sure that the deal is registered on sec.gov. You are a limited partner in a deal; you have ownership in an entity that should own the property. You can go on sec.gov, look up the entity that you’re an owner in, and make sure that offering is registered on the website. So that’s number one.

Number two  is you can ask the general partner to send you what’s called the special warranty deed. That special warranty deed shows that the entity you are an owner in purchased the property. It’s notarized and has signatures. So that’s the second thing you can do. And then the third thing is — again, to directly address your question, you were asking about a general partner stealing money; well, looking to see if it’s registered on sec.gov – I get it, that doesn’t directly address if they’re stealing the money, but it certainly will give you an indication of if you should continue to look further or not, if they have an offering that they’ve raised money for, but it’s not actually registered with the SEC. That’s a big red flag.

The second is the special warranty deed – same thing; that’s a big problem if they don’t have a special warranty deed to show the entity that you are an owner in actually purchased the property… What the hell happened then? What did your entity actually do? So if they don’t have that, there’s a big problem.

The third is ongoing financials. Here’s where you could really check… If someone is very crooked, then there’s probably always gonna be a way that they can manipulate the profit and loss statement and the balance sheet. I’m sure they care recreate a document and make it look like something that it’s not. But when you get the profit and loss statement and the balance sheet – and this is the fourth thing – if it comes from a third-party property management company, which we use, it would have to be a major, major, major scam, where they’re also bringing in the third-party property management company into their scam. What are the chances of that actually happening…?

So I think if you look at the registration on sec.gov, number one, number two, look at the special warranty deed, number three, look at the profit & loss statement as well as the balance sheet (because that’s gonna show cash on hand), and number four, if they are working with a third-party property management company, you’ve pretty much got enough checks and balances in place to make sure that everything’s on the up and up, and you’re 99.9% of the time gonna be good. There’s always an outlier with anything in life, but I think those are four things you can do and feel pretty darn confident that everything is going how it should be going.

Theo Hicks: Alright, I have nothing to add to that. I appreciate that. Rich, Joe has already answered your question, and anyone else who is potentially facing a similar situation, or wants to know what to do to avoid Rich’s situation, now you have your solution.

To wrap things up, let’s go to the trivia question. Last week’s trivia question was “In 2018 the total jobs increased by a little under 2%. How many MSAs experienced job growth of 3% or greater?” Very specific question. Obviously, I kind of reevaluated and will move away from these types of questions in the future, but for now the answer was nine. So if you were the first person to get that right, you should be receiving a free copy of our first book.

Joe Fairless: Do you know what I said?

Theo Hicks: Six.

Joe Fairless: Six. Okay. I wasn’t too far off.

Theo Hicks: With Price is Right rules, you were close. This week’s question – I thought this was interesting. The profession with the highest rate of owner occupied home ownership is 90.4%. I think the average is in the sixties. What is that profession? This isn’t a trick question, it’s not some obscure job industry… So what profession has the highest rate of home ownership?

Joe Fairless: Real estate agents?

Theo Hicks: That was number two. It was really close.

Joe Fairless: Alright, alright.

Theo Hicks: So I’ve already eliminated that one from contention. What is number one? I think real estate agent was in the mid-eighties. Like 85%. So that’s a good guess, Joe.

Joe Fairless: Well, it was pretty blatant. I wish I got it right, but I’m glad there’s something else out there that’s number one. I’m interested to hear the answer next week.

Theo Hicks: Alright. And then lastly, the Best Ever Apartment Syndication Book review of the week – this week it’s from Dylan, who said:

“From starting with minimum knowledge of apartment syndication, I can say this book dramatically increased my understanding in the apartment syndication process from A to Z. If you’re serious about using other people’s money to create a successful real estate portfolio, then don’t think twice. The book provides actionable advice, but also asks the hard questions about who you have to become to be a successful apartment syndicator.”

Joe Fairless: Dylan, you’re the man. Thank you for investing your time in writing a review. I know your time is valuable, and I appreciate it. Best Ever listeners, I hope you got a lot of value from today’s conversation. I hope you have a best ever weekend, and we’ll talk to you tomorrow.

JF1718: Why Theo Is Selling His 12 Unit Portfolio #FollowAlongFriday with Joe and Theo

Last Follow Along Friday, Theo mentioned that he has decided to sell his 12 unit portfolio. Joe was taken by surprise and wanted to really dive into the story with Theo on another episode of Follow Along Friday, rather than quickly mentioning it in last week’s episode. We’ll hear the mistakes Theo made, which is part of the reason why he’s selling now. If you enjoyed today’s episode remember to subscribe in iTunes and leave us a review!

 

Best Ever Tweet:

“Anytime I had a few months of cash flow, I’d have to spend that cash flow to fix something else” – Theo

 


Best Ever Listeners:

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We profile 1 nonprofit or cause every month that is near and dear to our heart. To help get the word out, submit a cause, or donate, visit bestevercauses.com.


TRANSCRIPTION

Joe Fairless: Best Ever listeners, how are you doing? Welcome to the best real estate  investing advice ever show. I’m Joe Fairless, and this is the world’s longest-running daily real estate investing podcast, where we only talk about the best advice ever, we don’t get into any of that fluffy stuff. With us today we have Theo Hicks, as he is usually with us on Follow Along Fridays. Theo, how are you doing, my friend?

Theo Hicks: I’m doing great, Joe. How are you doing?

Joe Fairless: I am doing well, and looking forward to diving in today… Best Ever listeners, as a refresher, the purpose of Follow Along Friday is to talk about things that we are discovering and learning along our entrepreneurial journey, so that we can share those observations with you to help you along your real estate entrepreneurial journey.

Today we’re gonna be focused on Theo’s portfolio,  that he has chosen to sell. Last Follow Along Friday he mentioned it, and it surprised me… And I was like “Well, we need to discuss this. I’d just love to learn more about the thought process”, and we didn’t have enough time last week, so we decided to dedicate today’s conversation to that.

Take it away, my friend.

Theo Hicks: I’ll just give my general thought process and then you can ask any follow-up questions that you would like. As most people know, when I first bought these properties we talked about them a lot on the podcast, and the issues that I faced and how I overcame them… But to take a step back, when I bought these properties my initial plan was to–

Joe Fairless: And taking a step back even further real quick – what is the property? How many units? Give us the lay of the land.

Theo Hicks: They’re three fourplexes, so a total of 12 units. All three fourplexes are in the same street. Two are right next to each other, and then there’s two houses in-between and then another fourplex. When I bought them, the seller was actually selling five fourplexes on that same street, that were essentially all in a row. I think there was maybe one property in-between. And I bought three of them about a little bit under what they were listed for – good thing, because I think they appraised for the list price, so I kind of had built-in equity right away with the properties.

But when I initially looked at them, based on my understanding of that area, I knew that the rents were low, even based on the condition of the units; the rents were just too low. So my plan was to go in, buy the properties obviously, and not do any value-add renovations right away, because all the leases were month-to-month leases… So I was gonna go in there and just raise the rents to market rates, and then eventually once I started to see other properties start to upgrade their units with new appliances, new floors, things like that, then I was gonna do that using the cashflow that I made during the year or two years that I was holding on to the properties after increasing the rents.

Everyone knows that’s not what happened. I thought that the properties did not have a high level of deferred maintenance because of the inspection that I received…

Joe Fairless: The boiler got you. I remember that.

Theo Hicks: And there was the boiler issue, and then there was plumbing issues… I had to replace multiple stacks, so obviously that involves breaking into the walls and replacing those cast iron stacks.

Joe Fairless: What’s a stack, for anyone who’s not familiar?

Theo Hicks: The main sewage pipe in the house. Like when you flush the toilet, when the tub drains and the sinks drain – it all pours down there. These older cast iron pipes were not only themselves corroded, but there’s all these twists and turns, and whenever there’s a turn, all of the crap literally will pile up in there, so the hole will get smaller and smaller until it gets clogged enough that it can’t go through it. So I had to replace multiple ones of those…

Essentially, every time that I would make cashflow for a few months in a row, I’d have to end up spending all that cashflow to fix something up.

So when I finally got to the point where the majority of the deferred maintenance was fixed up, I kind of had the decision of “Okay, I can either now go back and renovate these units and increase the rents by $100”, or since I have been able to raise the rents, I can liquidate, pull out the equity that I initially put in, as well as the extra equity that I have, and the money that I have saved up, to buy one property, a 20-unit, a 25-unit, or whatever.

My thought process behind that was 1) I wanna buy a property regardless, so it’s either I’m going to have these 12 units that I’m gonna have to take some of my personal money to fix up, which means that I have less money to buy another property that I will probably also wanna fix up… And it might not necessarily be right next to these properties, so I’m gonna have four or five or six fourplexes scattered across Cincinnati, as opposed to just having a 20-unit or a 25-unit in one spot, and using all that money to fix up that property. That’s my thought process behind it right now.

Joe Fairless: In terms of the numbers, can you give some concrete numbers for what option A is in terms of if you kept it and you put more money in, how much money all-in would you be? And any other relevant information there. And then option B is the option you’re choosing to do; what are the properties’ worth, what do you have into it, how much are you gonna come out with, projected?

Theo Hicks: Yeah. I bought each property for 220k, and I put 25% down. Everything that I’ve done to the property so far has just been using the cashflow from the property, so I haven’t had to dip into my personal bank account yet to actually fund any of these deferred maintenance issues.

Luckily, I had like 15k saved up, just in case something happened, and something did happen instantaneously for the boiler, so once I paid for all of that, I was able to just use cashflow to fix everything up… So from my perspective, I still consider myself in at 220k total, because I didn’t have to come out anything extra; it was just from the cashflow. Maybe I should be considering it differently, but that’s just kind of how I’m looking at it.

Joe Fairless: 220k per place?

Theo Hicks: Yeah, per property.

Joe Fairless: Alright, so 660k total.

Theo Hicks: Yeah. And then right now they’re listed at 275k, and assuming it goes around there, I would come out with between 45k, down to maybe 30k per property. Then once you take away the commissions, let’s just say 25k-30k per property so somewhere around 75k to 90k in profits.

Joe Fairless: That’s right.

Theo Hicks: But the biggest issue is that I could technically refinance and then use that capital to fix these things up, or I could use my own personal capital, invest it into this property to fix them up. Something else we wanna talk about too is the conversation we had yesterday about you selling your properties – what potential cash-on-cash return you would get with that capital by investing in something else, as opposed to investing it into your property. I haven’t done that exact analysis yet. I’m assuming it’s gonna come out to pretty much the same.

I kind of just wanna have all my units in one property and have that be my strategy moving forward. So every time I buy  a property, I can fix it up, raise the rents, increase the value in some form or fashion, and then liquidate and then upgrade to a bigger property. So with this next property I wanna do the exact same thing.

Something that I definitely wanna talk about is some of the things that I’m gonna do differently on the buy side, but assuming that I put those into place, buy this 25-unit property, increase the rents… For this 25-unit property, the value of the property will actually be dependent on the rents, which is not the case for these, because they’re residential…

Joe Fairless: Right.

Theo Hicks: Force the value there for 2-4 years, and then sell again, and buy a 50-unit property, in combination with money I’ve saved up and the money I made from the property. So it’s less of — okay, this deal that I have right now, if I invest money into it, would it be a good idea? Obviously, it is, and anyone who buys it will be able to do that… It’s more of wanting to continue to get larger and larger properties, and just have one property in one location.

Joe Fairless: Okay. A couple questions. One, with your 12 units, the three fourplexes, are you currently packaging them as one opportunity, and then pricing it based on a cap rate? Because I’ve seen people do that with a portfolio of single-family homes.

Theo Hicks: That’s essentially how I got to my list price. I figured out what the total package would be worth, and then just divided it by 3 and have that be each of the individual property listings.

Joe Fairless: You figured out what the total package would be worth, but was that based on how residential is underwritten, or using…?

Theo Hicks: Using the net operating income and the cap rate.

Joe Fairless: Oh, okay. What cap rate did you use, do you remember?

Theo Hicks: I think it was 6% or 6.5%. I can’t remember exactly what it was, but 6% or 6.5%.

Joe Fairless: It sounds like a good cap rate, for you… [laughs]

Theo Hicks: Yeah. And I based it on a few other properties that were very close, that recently sold… Based on their rent, assuming that their expenses are close enough to mine… And those ones actually sold. One sold for a little bit over 300k, and that one was a stronger NOI than mine, and one sold for (I think) 240k, and the NOI was a little bit weaker than mine. But the cap rate would be the same, because they’re all in the exact same little neighborhood in Pleasant Ridge.

And regarding the last question about the packaging – on each of the individual property listings it mentions that this is one of three properties that are sold, and you can buy all of them or individually.

Joe Fairless: Okay. Are you asking them to pay a premium for one, or can they buy one at the same price as if they bought two or three?

Theo Hicks: The same price. It’s funny, because when I was initially buying these properties I was kind of thinking the same thing – “Oh, if I’m buying all three properties, maybe I can get them at a discount.”

Joe Fairless: I was thinking the opposite. It wouldn’t be a discount if you buy all three, but there would be a premium if you just bought one or two.

Theo Hicks: No, I don’t have that.

Joe Fairless: Okay. Just as a relevant note, you should post this in our Cincinnati meetup group, the three deals.

My next question – taking a step back, your focus is on apartment syndication, yes?

Theo Hicks: Mm-hm.

Joe Fairless: Okay. Why buy a 20-unit versus keeping this cash and then using it to put into the next deal that you do when you syndicate a larger apartment community.

Theo Hicks: I will. I’m not gonna use all the money that I have to buy… Because technically I could probably buy a 30 or 40-unit. I still wanna have — and obviously, personal reasons, like six months of personal expenses saved up, just in case something were to happen… And then we’re gonna keep at least our minimum investment amount for our syndication in our bank account, so that when we find a deal, I can invest in that deal as well.

Joe Fairless: Okay.

Theo Hicks: I wouldn’t necessarily say it’s for diversification reasons (maybe it actually is), but I do want to have my own properties on the side, for — not necessarily retirement, but just kind of continuing to build that up on the side. From my experience with these 12 units, it doesn’t take as much time, as long as I’m not managing them myself. It just takes speaking with your management company every single week for half an hour to an hour, to make sure that everything is operating smoothly… Of course, this is after you actually buy the property, and since I’m only buying properties every 1-3 years, that time investment is fine. It won’t really take away from my spending time on apartment syndication… I kind of just want that to be my 401K, in a sense.

Joe Fairless: Okay. And then the third thing is what you and I talked about yesterday when I called you up and I said “Theo, I’d love to get your opinion on how to think about this.” The scenario is the three single-family homes that I own, and one of the homes is coming up for a lease renewal, and the property management company did an inspection of it and it needs some help. They’ve got a dog, and he chewed up all the outdoor wood frame area, because apparently he wanted inside, but they weren’t letting him inside… And there’s a couple other things that need some lovin’. So whatever – invest in it, fix it up, fine with me; I’m looking at it from the long-term standpoint. But is it the best approach to continue to rent those homes out when there’s trapped equity in each of those three homes? And I’ve mentioned the numbers before on this show; I’ll just quickly mention them again.

The home are about 175k each, so in total 525k, and I have 157k in debt on them, so that’s about 368k. Let’s just say fixing them up, broker fees etc, I could probably net $300,000. So I’m removing 68k off the top, so about $300,000 trapped equity in total, from those three homes. So I came to you yesterday and I was like “Hey, how would you think about this?” And you went through an interesting thought process… Can you just talk about that a little bit, what we discussed?

Theo Hicks: Yeah, so how I thought about it was you’ve got a certain amount of equity trapped in the property that you could technically pull out and invest in something else, and get some sort of return… Something to think about when you’re looking at the situation is “Okay, so I’ve got this equity… What return am I currently making on that equity right now?”, based on whatever cashflow you’re getting per month. We came to the conclusion – this would be the selling scenario, based on how much equity you’d be able to take out if you sold, and then also based on how much cashflow you’re making per month, it would be about a 3% cash-on-cash return.

Joe Fairless: Yeah, because right now the three homes, year-to-date — or actually through March, so the first quarter of the year, they made $2,300. $9,200 for the year that they’re on pace to make. So you divide that by three homes, and you divide that by 12 – they’re making $255/month, each of the homes, on average.

So you said “Okay, $9,200 a year divided by the trapped equity that you have in it, which is 300k, that’s a 3.07% return on that trapped equity. Not so good. Can you do better than that?” I was like, “Well, yes.” We can do better than that when I take that 300k and invest it into our apartment syndications that I’m doing. Then it made it crystal clear to me that “Okay, I need to make a move on these homes.”

The other option is to refinance. And when I refinance these three homes, talking to the lender, I could probably get about 100k out from the homes. But then I’ve got a bunch of paperwork, I’d have three different loans, I’d have to go through the process, and my financials are not easily understood by banks, so there’s a long process that is just a headache. And if I can just rip the band-aid off… I don’t wanna be melodramatic; this is a quality problem to have, so I guess I shouldn’t say that way… But if I want to resolve what I’m trying to resolve, then I think just sell each of the three and then take that money…

So then the question is do I 1031 into something that you’re discussing, a smaller deal? Maybe a 600k-800k property. Or do I just bite the bullet, pay the capital gains and invest the difference in one of our deals?

I’m on the opposite side of the fence from you. I never want to have a 20-unit, or a 30-unit, or a 40-unit on my own, ever, ever, ever. I want to just pump that money into our deals, because I don’t wanna be on those calls every week, discussing a 30-unit. I have no desire for that at all. So I won’t be doing a 1031 at all, I’m just gonna bite the bullet, pay the long-term capital gains, and then pump it into our own deals.

Theo Hicks: Yeah, so I did the same exercise for my properties, and the ROI that I’m making on that trapped equity is around 4% to 5%. And again, [unintelligible [00:16:50].02] “Okay, what if I put in more money and I’m able to increase the rents? Now what’s gonna be the cash-on-cash return based on the new trapped equity and the new income?” It might be a little bit higher, but it’s gonna take time, and I’m gonna be in the exact situation with those properties that I would be with just buying a brand new property.

Something else I’ve mentioned was something on the buy side that I definitely need to do, and I know I’ve talked about this before, but just to reiterate – I really need to be a lot more detailed on my due diligence on the physical condition of the property. I need to not just look on the outside, very surface-level, like “Oh, this looks fine.” Certain things that I know need to be looked at in greater detail, and I can’t just pass those up. I can’t just assume the inspector knows what he’s doing. When I’m with the inspector during the inspection, I need to be like “Alright, can you please take a deeper look at the boilers? Can you please take a deeper look at the plumbing in the basement? And let me know based on what you see in the basement how would you interpret the rest of the property’s plumbing.” Things like that I definitely need to do upfront.

It’s so funny, because I don’t think I was as involved with underwriting for apartment deals when I bought these properties. I don’t think I was, because I definitely did not have our cashflow calculator at that time. I did not use that cashflow calculator to underwrite, so my underwriting was not as detailed either. It wasn’t the 50% rule and that was it, but it was definitely not detailed enough. I was not thinking about it properly.

Now I’ve gained so much knowledge in the past 2,5 years that I’ve owned these properties in regards to the underwriting process, so I’m very confident in my ability to find a much better deal in the sense of buying a much better deal on the front end, after I actually do proper underwriting and then proper due diligence.

Joe Fairless: I think there are a lot of lessons, and I’m grateful that you brought this up and we talked about it.

Theo Hicks: Yeah. Once I actually sell the property, I’d definitely like to go into more granular detail on it. Once I sell the property, I can talk about the numbers specifically, and then talk about more lessons that I learned, and then how do I plan for moving forward.

Alright, trivia question time. I always enjoy finding these trivia questions… It’s a fun exercise.

Joe Fairless: Yeah, and I enjoy getting the answers wrong, every time except for once.

Theo Hicks: [laughs] Last week’s question was more of like a fill-in-the-blank. It was “One out of three Fortune 500 companies are headquartered in this many markets, this many MSAs specifically (metropolitan statistical areas).” I think you said three. The answer is actually six. I think it was 180 out of the 500 are in six MSAs. This is from the least to most Fortune 500 companies – San Francisco was sixth, Minneapolis was fifth, Houston was fourth, Dallas was third, Chicago was second, New York City was first.

Joe Fairless: Minneapolis… Sneaky, sneaky.

Theo Hicks: That was surprising.

Joe Fairless: I wouldn’t have put them on that list. I was just there to see Texas Tech almost beat Virginia about a month or so ago, and I had no idea they had so many Fortune 500 companies. Huh.

Theo Hicks: Keep in mind that it’s not just the city Minneapolis, it’s the MSA; that includes Saint Paul. San Francisco includes all the places surrounding it… So that was the answer to last week’s question.

This week’s question is in 2018 the total number of jobs nationwide increased by about 1.8%. The question is how many markets (MSAs again) experienced a job growth 3% or greater? With the national average being 1.79% exactly, how many MSAs experienced job growth of 3% or greater?

Joe Fairless: How many total MSAs are there in the U.S.?

Theo Hicks: That’s a good question, I do not know the answer to that.

Joe Fairless: Approximately… Like 300? Well, you don’t know, so…

Theo Hicks: I can’t even give you that guess…

Joe Fairless: [unintelligible [00:20:38].06] same question, but you’re still gonna have the same answer, right? Alright, I’m gonna say four. I don’t know even where to begin with that one.

Theo Hicks: Alright. As always, submit your answer to the question either in the comments of this YouTube video, or you can e-mail info@joefairless.com, and the first person to get it correctly will receive the signed copy of our first book.

Lastly, we’re going to do the review of the week. If you purchase the Best Ever Apartment Syndication Book on Amazon and you leave a review and send us a screenshot of that review, not only will you receive a link to download the free apartment syndication documents and resources that we have available, but you will also have the opportunity to have your review read aloud on the podcast.

This week’s review is actually submitted via Facebook. It was from Cory B, who actually took a selfie with the book, and he said: “This is a phenomenal book. Joe Fairless.” And he posted that on Facebook.

Joe Fairless: Yeah, thanks so much for posting on Facebook and tagging me in all the comments from all your friends, and the interaction. I really enjoyed it. It reminded me that I haven’t interviewed you in a while. I saw Cory at the Best Ever Conference in Denver… So I’m looking forward to that interview that we’re gonna be doing.

And then on a separate note, but related to what we were saying, there are 383 MSAs in the United States… Guess how many there are in Puerto Rico? Real quick.

Theo Hicks: Zero.

Joe Fairless: Seven. [laughs]

Theo Hicks: Seven?!

Joe Fairless: Seven MSAs in Puerto Rico, yeah. It happened to be in the same Google search, so that’s why I mentioned it. Well, Best Ever listeners, I enjoyed hanging out. I hope you got a lot of value from today’s conversation. Have a best ever day, and we’ll talk to you again tomorrow.

 

JF1711: 3 Things Joe Learned Last Week Plus An Update On Theo’s Properties #FollowAlongFriday with Joe and Theo

Joe has three more great pieces of wisdom to share with us from his interviews last week. We also get an update from Theo on his properties, which he is selling, but tune in to find out why. If you enjoyed today’s episode remember to subscribe in iTunes and leave us a review!

 

Best Ever Tweet:

“I assumed, incorrectly that he made $100,000. I need to ask about their carrying costs”

 


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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. We don’t like that fluffy stuff, so we don’t get into that fluffy stuff.

With us today — well, we’ve got Follow Along Friday, so of course, Theo Hicks. How are you doing, Theo?

Theo Hicks: I’m doing good, Joe. How are you doing?

Joe Fairless: I’m doing well, and looking forward to this. Today we have two topics of conversation. One is three lessons that I learned from interviews that I did last Thursday, and then separately you’ve got some exciting news with your real estate portfolio, and we’re gonna talk about that.

As a refresher, Best Ever listeners, Follow Along Friday – the outcome of it  is for you to learn alongside with us the lessons that we’ve learned as we’ve gone through our real estate endeavors, whether it’s me interviewing people on the podcast, where on Thursday I interview about nine people… So I interview a whole bunch of people, I extract some lessons learned, and then I talk about them on today’s episode. Or things that we’ve come across as real estate entrepreneurs or real estate investors, and Theo is gonna be talking about what he’s doing with his portfolio, and we’ll just be talking through that.

Number one, one first lesson that I documented to talk about today – Dan Plowman, I interviewed him… And again, these three people – I have one lesson per person; they’re episodes I don’t believe have aired yet. They will air in the near future, so definitely check out their episodes.

Dan Plowman, he has been in real estate for 28 years. He is from Canada, so don’t hold that against him — no, I’m kidding, Canada people… He had just really insightful things to say. His primary focus is coaching real estate agents and brokers, so I took the conversation that direction, because that’s his primary focus now. And one thing that he mentioned – he’s like “When I got started doing real estate as a real estate agent, I would go door to door and try and get people to either list their house with me, or maybe they know someone… And it wasn’t working. They saw me coming from a mile away. And what I did was I realized I needed to change the pattern. When I started the conversation, I needed to say instead of “I’d like to list your home”, “I don’t wanna list your home. I’m here because I saw a lot of homes in the area, and I see that…” — in this case if they have their home listed for sale by owner, I forgot to mention this, he goes up to the for sale by owner homes.

Those for sale by owners, they intentionally excluded a real estate agent in the transaction, and they get a lot of inquiries from real estate agents saying “Hey, I wanna list your home.” So he’d go up to them and he’d say “I don’t wanna list your home. I’m here because I saw a lot of homes in your area and I can send more clients your way, because I sell a lot of homes in your area, which will help you sell your home. You do your thing, and I’ll just send you leads.”

They’ll say, “Oh, that’s interesting. What’s the catch?”, and he’d say “Well, here’s the catch…” And I’m paraphrasing all this, but just to illustrate the point. The catch is that if I am sending people your way, I need to look at your home, just so I can get an idea of what clients of mine would be interested. So he goes in, looks at the home, and then… One more thing. He’ll say “The only other thing I ask is for anyone who looks at your home and they don’t purchase, well then just send them my direction, because I could find some places for them.”

So he would build his database by adding value to these for sale by owner people and making a deal with them that no one else was offering. He would send leads their way, and he’d also help them with the contract if needed when they find the buyer… But in exchange, he would be getting all these leads that they’re generating, and that person would be sending them his way.

So on the surface the value exchange is valuable for both parties, but in addition to that, what would end up happening a lot of the time is the for sale by owner person would not sell their home, therefore would reach out to Dan to then list the house. And I asked him, “Well, how many people did you actually send to these for sale by owners that actually worked out?” He said, “It happened multiple times…” Actually, he said three of them that he can remember in the first year, where he did send people to the for sale by owner and the for sale by owner agreed on the purchase price and they closed the deal. But by and large, what happened is he would get a listing from that for sale by owner because he established that relationship, and then also if that did not happen, he would get new leads from people who were visiting the house.

Theo Hicks: That’s a very fascinating strategy. I always love hearing these very unique strategies to leverage a no… Because if someone’s selling their house by themselves, and as a real estate agent if you’re asking for their business, they’re saying no, instead of just saying “Okay” and then passing on that… Figuring out some unique strategy to get them to say yes, or get other people that they know, or essentially find some way to turn that no into a yes. That’s a very unique way, because as you mentioned, in some instances they’re literally turning that no into a yes, but in other instances they’re thinking “Okay, well, you’re not gonna let me represent you, but let’s put together this win/win scenario where I’ll add some value to you, in this case sending you clients, but then you’re also sending me other people that I could potentially represent as well.” That’s fascinating. Great thinking.

Joe Fairless: It is. It’s an age-old problem, but here’s a solution to an age-old problem that a lot of real estate agents currently have, or even maybe wholesalers can implement this… I’m not close enough to wholesaling to know, but I’m sure there’s some things there. And even if we’re not a real estate agent or wholesaler, it’s just the thought process that is behind this solution. Okay, here’s a problem; now, what are some creative ways where I can help this person who would initially have their guard up against when I come across them, what are some solutions I can come across that it’s actually a win/win?” I absolutely love that.

Theo Hicks: And one more thing before we move on… This is more specific to this specific strategy for real estate agents – especially with all these online listing services, it’s a lot easier to list your house by yourself today, than it would have been 20 years ago. You can list it on Zillow or Craigslist or whatever, and then you can probably find  a contract you can download for free somewhere online… So this is something that is probably gonna be more and more common, [unintelligible [00:08:18].06] there are probably gonna be more and more for sale by owners in the future… So instead of just being an agent throwing their hands up in the air and being like “Oh, I guess I’ve gotta find another career path”, you can follow this exact strategy.

Joe Fairless: Yeah, great point. This is very topical with all the technology that’s coming out. This will be more and more relevant. The longer this episode is on this podcast, the more and more relevant this insight becomes… That is a testament to how strong of a thought process or a solution is.

Alright, number two… Okay, Best Ever listeners – do you have a hard time finding apartment buildings? Are you looking for apartment buildings? Are you struggling to find a good deal that is a 10 or 15+ unit apartment building? Well, here’s a solution, and it is a specific example… Antoine Antoine Martel, a 23-year-old real estate investor based in Los Angeles, California; again, his interview will be coming out shortly. He found a 20-unit property… But before I get into that, let me tell you the process for how he found it, and then I’ll tell you a little bit about the property. How he found it is what I wanna focus on – what he did is he never purchased a large property before, but he did start in college (his senior year, I believe)  finding deals that are out of state.

He ended up in Memphis, Tennessee; you’ll have to listen to the interview to hear the whole back-story, but I’m just giving you the cliff notes version right now… He negotiated with his parents, they invested the money in a property in Memphis, Tennessee, it ended up doing well, and now he’s got a turnkey business that they buy properties, fix them up, then sell them as turnkey investments… But along the way, he wanted to also buy a larger property, and he found a 20-unit property. And how he did this – this is what I wanna focus on; how he did it is a process that can be replicated by anyone listening to this episode… And when you replicate this process, it’s likely going to lead to an apartment building.

So if you want an apartment building, then this is a  process you can replicate. Here’s the process. One, he looked on LoopNet and he found the brokers who are listing properties on LoopNet, and he made a list. This assumes that you have identified markets that you’re investing in. If you haven’t identified markets you’re investing in, there’s a step before number one, and that’s figure out the markets that you’re investing in. Once you do that, number one is find the brokers on LoopNet and make a list.

Two is you call all those brokers, you introduce yourself. He has an e-mail script, he also would e-mail them, and you can listen to the interview and you can hear the e-mail script that he used. He called them, and he e-mailed them. Then every two weeks – and this is the key part of the process; every two weeks he would call or e-mail those brokers and he would follow up with them, and he would change up the wording for how he’d follow up with them. If for example he just had a property that he sold, then he’d say “Hi, broker XYZ. Just had a property that sold. I’ve got cash that I’m looking to deploy. I know we’ve talked before… Just checking in on if you have anything within this criteria”, and then he’d list out whatever he’s looking to purchase.

Or in some cases he would say “Hi, XYZ broker. Just following up… We just liquidated this property and here’s a screenshot of the funds that I’m looking to deploy.” And he at this point — he’s 23 years old now; as I mentioned, he started when he was a senior in college, so we’re talking about a very short timeframe here… But at this point he had the ability to do a screenshot of a little over a million dollars. Now, clearly, that is not something that most people have the opportunity to do when they’re starting out, but he had built his business… So he took the screenshot and then he leveraged that screenshot for all the follow-up interviews. He would say “Hey, I’m looking to deploy this money.” Whether or not he still had that in the bank account or it fluctuated I’m not sure, but he had that screenshot, so it added validity to him following up, like “Hey, I’ve got the money. I’m ready to rock and roll.”

Now, if you don’t have a million dollars in your bank account this strategy still applies, so I don’t want that to turn people off… You don’t have to use the screenshot example. The point is that he had multiple ways of following up, and he did it consistently every two weeks. I asked him “How many brokers did you have on the list?” and he said “Twenty brokers were on the list.” I said “How long did it take for you to follow up with them every two weeks?” He said “30 minutes max, because I had it down to a system.” He did this for nine months. Nine months. He did this for nine months, every two weeks.

I asked him “In month eight what were you thinking?” You can listen to the interview, you can hear what his internal dialogue was in month eight, after being turned down for eight long months. But he did this for nine months, and then in the ninth month he followed up with a broker during this two-week process that he always did, and the broker said “Well, actually I do have a deal. Here’s some information.” He said it really wasn’t much information. He said, “Make an offer and then I’ll send you the financials.” [laughs] That’s always whacky to me, but for whatever reason, that can be commonplace… So he just made some offer, and the numbers worked out, and they figured some things out, and financials aligned etc. He closed the deal.

You can listen to the interview to hear more about the property itself. But the point of this conversation today is making a list from LoopNet brokers, following up on a consistent basis every two weeks with those brokers, having something interesting to say every two weeks; just change it up slightly, and then do it over a period of time. When you do that, then it’s likely to lead to a deal. Most people — now, Best Ever listeners, you’re an exception clearly, because you’re investing your time to listen to this podcast, so you’re doing stuff that most people wouldn’t do… But most people won’t make the effort to do this consistently over a long period of time.

The key is just getting a couple deals, because when you get a couple deals, you’re in the game, and then there’s momentum that builds. But most people won’t take this methodical approach, and that’s what I wanted to share.

Theo Hicks: Yeah, I’m gonna skip my comments on this one for now, because I’m gonna come back to this one when I talk about my properties that I’m selling.

Joe Fairless: Lesson learned number three – this is Ed Hendrickson. He’s a real estate entrepreneur. He does a lot of things, and he’s right now working on his website HardMoneyProject.com, so you can go check it out… But he has experience fixing and flipping, among other things, and one thing that came to light during our conversation is I haven’t been asking the right question to get the true picture of a fix and flip project’s profitability… And what I’ve been missing in my questions is, well, one question, and I’ll tell you what that one question is in a second, but let me give you the example first.

So he said he bought a property for $280,000, he put $40,000 into it, so all-in $320,000. He sold it for $420,000. I assume, incorrectly, that he made $100,000, right? 420k minus 320k equals 100k. Easy math. What he said is — because he has experienced working with hard money lenders, he said “Well, there’s a lot of hidden fees that hard money lenders have”, and what you should also ask people is those profits that we’re talking about on this fix and flip, does that factor in your carrying costs? Because there’s an example that he gave, about his fix and flip – he bought it for 280k, he put in 40k, all-in 320k, sold it for 420k – Hallelujah, that’s $100,000 profit… But not so fast, my friend, because there’s a real estate agent fee, there’s carrying costs (about $4,000/month), there’s staging costs that are factored into those carrying costs, there’s taxes… So all-in it was about $4,000/month, plus he had the real estate agent fee, and he made about 50k-60k. Now, congratulations, that’s still a lot of money on a fix and flip, but it’s not 100k.

It’s important that I continue to educate myself, so that I can ask intelligent questions. Ask a dumb question, get a dumb answer. Ask an intelligent question and you get a better answer… So that’s a question I’m going to incorporate in my fix and flip interviews, making sure that the costs that they mention that they’re all in on factors in the carrying costs, because that can eat away a significant amount of the profit.

Theo Hicks: Yeah, I’d imagine that’s probably the biggest issue for people that wanna become fix and flippers, and really I would say any type of real estate investor  is not fully understanding all the expenses that go into it. When you hear someone say “I put in 40k”, one of the main things that people focus on are the renovation costs, and then what’s the ARV after that for rentals or for fix and flips… But as you mentioned, there’s a lot more that goes into it than just the renovations. Some of those things got listed here – staging costs, for example; who would have thought about that, unless they’ve actually either done it before, or they are working with someone who’s done it before, which goes back to the importance of if you’re gonna go into a new investment niche, you should probably be working with someone that’s done it before, so you can get the inside information, so that you make sure that you’re buying the deal at the right number.

Joe Fairless: Yeah. Tons of hidden costs in every asset class and every type of business model… It’s just being aware of what those are. In that interview he actually gave us five or six hidden costs that hard money lenders might have when you’re getting a loan from them… So anyone who is getting hard money, you must listen to that interview. And again, it’ll be coming out soon, within the next 30 days.

Theo Hicks: Yeah. Well, I think those last two lessons are pretty timely and it would be a good transition to me talking about my three fourplexes that I am listing for sale. I think they’re gonna have the “Coming soon” tomorrow, and then they’re gonna be live on Wednesday of next week.

We can probably talk about this for a long, long time, the reasons why, but I would just say the main reason why — again, I learned a lot of lessons on these deals, I’ve talked about most of them on this podcast already, but I did not do proper due diligence before I bought these properties. I got really excited when they hit the market, I went and saw them the next day, I bought them a little bit below the list price, but I didn’t know what I know now.

I didn’t fully underwrite the deal, I didn’t take the historicals and project out a five-year business plan… I kind of just said, “Okay, well the rents are this. I could probably raise them to this. 50% expenses… This deal makes sense.” And over the past year I keep running into the issue of the property is finally fully occupied, or I finally don’t have a maintenance expense for the month, and I finally am picking up momentum, and then something happens, and then I know that I’m not gonna make any money for the next three or four months. Then that 3-4 months passes, and maybe during that 3-4 months another issue happens that adds another couple months to that… Or I finally get to the end and I’m just like “Oh, yes! Cashflow!” and then something else happens.

This most recent time when something else happened, I’m just like “Alright, let’s take a look and see what these types of properties are selling for right now”, because it makes more sense — instead of putting in this much more money in the property, kind of just sell them and get my money back, make some profit out of this thing and take that money to buy one 20-unit property in Cincinnati, and actually do it right this time.

Joe Fairless: Okay, lots of questions… And I think we should focus on this next week, because we don’t have time to dive into it on this call. So I’m not gonna ask any questions, even though I have a lot of questions. How about we bring this up next week?

Theo Hicks: Perfect.

Joe Fairless: And then we’ll do a deep dive.

Theo Hicks: Yeah, because again, I could definitely talk about this for a long time.

Joe Fairless: Yeah, because it’ll be an important topic to discuss.

Theo Hicks: Yeah.

Joe Fairless: Cool.

Theo Hicks: Alright, so we’ll put a bookmark in that for now and we’ll talk about that next week. And hopefully they’re sold by next week, so it’s got a happy ending. It will have a happy ending regardless, but we’ll talk about it next week.

Joe Fairless: Okay.

Theo Hicks: So trivia question – last week’s trivia question was about the nation’s most expensive residential listing, and I listed off some of the features of the house… The answer – and this is really surprising – was 250 million dollars.

Joe Fairless: What did I say, like 90-something?

Theo Hicks: I think you said 70-something, but around there. 250 million dollars.

Joe Fairless: Where is it, Beverly Hills?

Theo Hicks: It’s in Bel Air. Apparently, this property was listed maybe a year before it was — because it has been listed for a while now… And it was listed at — I can’t remember exactly what it was, but it was at least 50% higher than this price, so they took it off the market and then reduced it to 250 million dollars.

Joe Fairless: Oh, let me go run and make an offer. This sounds like a steal.

Theo Hicks: Yeah, seriously… This week’s trivia question — so we recently wrote a blog post about the markets with the most Fortune 500 companies, and while I was doing my research for the article I found an interesting tidbit that will be the trivia question this week… So the question is “One out of three (so approximately 33%) of the Fortune 500 companies are headquartered in how many MSAs?” A third of the Fortune 500 companies are headquartered in how many metropolitan statistical areas? So not into a specific city, but–

Joe Fairless: Four.

Theo Hicks: Okay, four.

Joe Fairless: I’ll say four.

Theo Hicks: As always, either submit your answer to info@joefairless.com, or submit your answer in the comments section below this YouTube video if you’re watching this on YouTube. The first person to get it correct will receive a signed copy of our first Best Ever book.

And then lastly, the Best Ever Apartment Syndication review of the week – if you buy the book on Amazon, leave a review and send us a screenshot; not only will you receive a link to download a bunch of apartment syndication resources and documents, but you’ll also have the opportunity to have your review read aloud on the podcast.

This week’s review comes from John Fallon who says:

“This is a well-written, clear and actionable book. A great book for those just getting started on their apartment syndication journey. I’ve read several other apartment and real estate investing books, and most are two parts motivational speeches, one part content. This book, although acknowledging the importance of mindset, cuts right through the fluff and get straight to the process of apartment syndication, while layout a clear path from start to finish. A great book and resource to have in the library.”

Joe Fairless: That’s right, we don’t like that fluffy stuff, like I mentioned at the beginning of the show. Theo hates that fluffy stuff. He’s a chemical engineer…? Is that what your major is?

Theo Hicks: Yeah.

Joe Fairless: He’s a chemical engineer, and they hate the fluff. Thank you so much for sharing that, and investing your time to write that on Amazon. You could be doing other things, but instead you chose to take some time out of your day and write it, and I sincerely appreciate it.

Best Ever listeners, I hope you have a wonderful day, and we’ll talk to you tomorrow.

JF1704: Learning From Others’ Experiences & Implementing In Our Business #FollowAlongFriday with Joe and Theo

If you’ve listened to any Follow Along Friday episodes with Joe and Theo lately, you know the format. Joe and Theo will share what they learned last week from interviewing other investors for the podcast and explain how that can relate to us. Today, Theo is sharing his lessons learned from doing all the interviews last week, as Joe had to be out of town. If you enjoyed today’s episode remember to subscribe in iTunes and leave us a review!

 

Best Ever Tweet:

“He has to understand the yields of certain crops, so working with the farmers when he is underwriting is very important”

 


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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. We hate that fluffy stuff.

With us today we’ve got Theo Hicks. Like you normally do now, welcome back, Theo Hicks, once again; you were here last Friday, but we missed you over that month and a half period of time. I’m glad you’re back.

Today we’re gonna be talking about lessons that Theo learned… So Theo sat in to do some interviews for the show while I had to do some stuff… Theo, you interviewed a bunch of people…

Theo Hicks: I did.

Joe Fairless: …and you learned some things, so let’s talk about some of the lessons you learned from interviews; we’re also gonna talk about just some quick updates on our stuff, too.

Theo Hicks: Perfect. I guess how I’m gonna approach this is I’m gonna explain the specific lesson, and then discuss how I think it can apply to really any type of real estate investment strategy in general.

First, one of the people I interviewed – his name is Ryan Enk. He’s investing in a lot of different niches, but one that was specifically interesting is that he developed a two-million-dollar indoor sports arena… Those places with the indoor turf, and you can go there and play [unintelligible [00:02:41].24] or indoor soccer matches, things like that. Obviously, my first question was “How did you do that?”, because you don’t major in sports arenas in college; how do you even come across something like that and how do you figure out how to do it? And sure enough, he said he had no experience whatsoever. He explained why he did it, but I’m not gonna go into that now.

What was interesting is that essentially once he decided that’s what he was gonna do, he just googled consultants, found a consultant and paid him to create a business plan for the sports arena. I guess there’s a couple websites out there that specialize in these indoors sports arenas. So if you have a very unique investment niche you wanna get into, it sounds like there’s consultants for everything these days.

But what was also interesting about his strategy was that even though he got the consultant and had that business plan, he still was having trouble getting money from investors, because of the fact that he himself had never managed a sports arena before… So what he did which I thought was interesting – he went to an existing sports arena and essentially created a daytime sports league for (I believe it was) kids’ soccer. He managed that for a little bit, and made a business out of that, and showed proof of concept, had some income coming in… Then he took that business to his investors and said “Hey, I’ve got this consultant that helped me create this business plan. He’s gonna help me determine what kind of equipment I need, what building size to develop… And then also, once I take over the property, I’ve got this business that I’ve created for how to actually manage a daytime sports league.”

I thought that was really interesting… One, again, because of the googling the consultant, but then two, he kind of kept hitting these roadblocks, and essentially just figured it out.

Joe Fairless: You had a fascinating conversation with him. I’m looking forward to listening to that interview. How long did he have that daytime league, and how long did he do that until he then re-presented the opportunity to investors?

Theo Hicks: I can’t remember exactly how long it was, but it wasn’t something like a few weeks or a few months. I think it was six months to a year.

Joe Fairless: Good for him. That’s a freakin’ example of resourcefulness, and “I’ve got a vision. I’m gonna make the vision happen. Yeah, there’ll be some challenges along the way, but whatever. I’ll overcome them.” What determination and resolve that he had…

Theo Hicks: He goes into a lot more detail on the numbers and everything like that during the actual episode, so… It was a very interesting conversation. I enjoyed that one. So that’s number one.

Number two – it was two people, they’re a couple. It was Letizia Alto and Kenji Asakura.

Joe Fairless: Real quick – isn’t it hard to interview two people, by the way?

Theo Hicks: [laughs] Yeah, it’s different. I never know if they’re pausing and I’m supposed to talk, or if they’re pausing because they’re waiting for the other person to talk.

Joe Fairless: Especially if they’re two males or two females, because then you don’t have the voices down, so you don’t know who’s talking… That’s why I like to keep it to one. So I’m glad that you did the two-person interview.

Theo Hicks: Yes, I experienced that… This is a quick one – they were initially doing the standard, conventional rental properties, like buying the duplexes and fourplexes and renting them out. They eventually transitioned into development, and when I asked them why they did that, they said that one of the main reasons why they did that is because they wanted to come up with new content for their blog readers… [laughter] So by going through the process of developing and putting together a team, going through the challenges of a deal, not only were they obviously entering into a new investment niche, but they also had a bunch of blog posts they could share with their viewers, and their readers could see how they overcame those challenges in development, so that if they wanted to start becoming developers, they’d only be a year or two behind them. I thought that was interesting.

Joe Fairless: What’s your takeaway there?

Theo Hicks: Similar to the Ryan Enk one is that if you put your mind to it, you can really do any investment niche that you really want to, as long as you’ve got some strong why behind it. Their why was creating new content for their blog, which is a very successful blog that I’m sure generates a lot of income for them, and then Ryan Enk – his why was he wanted to do some sort of investment that people would enjoy. Obviously, people enjoy living in homes, but something that was more unique.

Joe Fairless: One thing that stands out to me on the second lesson is 50/50 goals. What are the names, Letizia and…?

Theo Hicks: Letizia and Kenji.

Joe Fairless: And Kenji. Letizia and Kenji – they said they’re gonna go into development because they wanted content for the blog, and to walk the readers through the challenges of doing a development deal (or development deals), and what they did by doing that is they set themselves up for success regardless of the outcome of the actual deals… Because when we’ve talked about 50/50 goals, we’ve talked about – okay, 50% of your goal is actually reaching the quantifiable metric, and then the other 50% is regardless of what that outcome is, what have you done that will help you in the long run so this is a success when you start, regardless of the actual quantifiable outcome.

So in this blog case, let’s say these development deals — and I haven’t listened to the interview yet, but let’s say all of these development deals just lost all their money; well, that’s a pretty compelling blog post, right? So they’re still getting traction with their readers, and they’re still getting entertaining content and lessons that people can learn from their mistakes. I’m not saying they made those mistakes, because I don’t know, I haven’t listened to the interview, but they’re setting themselves up to win regardless of the outcome, and it goes back to those 50/50 goals we’ve talked about.

Theo Hicks: Yeah. Just to add to that before moving on to the next lesson – the process of actually writing the blog post too is probably very powerful. I know that every day or every once in a while you’ll write out what good things happened to you today, what bad things happened to you today, how can you make tomorrow better than yesterday… So that process right there helps you really improve upon more of your personal life, as well as business, too… But just the process of being like “Alright, so I have to write a blog post, I have to create content, and it has to be valuable to my readers… So let’s analyze this specific aspect of this deal and figure out what we could have done better.” And maybe if they didn’t do that, they wouldn’t have learned that lesson, and it wouldn’t have helped them in the future… So kind of similar to what you’re saying about the 50/50 goals.

Joe Fairless: Yup.

Theo Hicks: The third one is another quick lesson… And it’s not even that much a lesson, it’s just very interesting. Brian Loftman – he’s a syndicator, but he doesn’t syndicate apartments, he syndicates farmland.

Joe Fairless: I think I’ve spoken to him already, too. Yeah, please continue.

Theo Hicks: Something that he said that was interesting is that for farmland — he’s not a farmer, he had never been a farmer, he doesn’t understand the yields of certain crops based on the types of soil that’s there, the weather patterns, and things like that… So for him in this particular investment niche/strategy, working with the farmers when you’re actually underwriting your deals is very important. He has a bunch of relationships with the farmers, he knows all the farmers in this area that he invests in — they were mostly in the Midwest… And sometimes farmers will actually come to him and say “Hey, there’s this deal, and if you buy it, I’ll farm it.” So from a multifamily perspective, that’d be kind of like a property management company coming to you with the deal and saying “Hey, I’ve got this deal. You buy it and I’ll actually manage it for you.”

Joe Fairless: Yeah.

Theo Hicks: And just the importance of having someone that is very knowledgeable about the area, or that specific asset class on your team, especially if you’re doing very large deals or very unique types of deals that it would be very difficult for you to understand and learn about in a short amount of time.

Joe Fairless: You had some fun interviews last week.

Theo Hicks: I did, yeah.

Joe Fairless: Those are three things I’ve never come across. I think the third one — I’ve interviewed someone in that capacity who had a fund… Was this person raising money through a fund?

Theo Hicks: No.

Joe Fairless: Okay, so a different person. I interviewed a different farm person. That’s cool stuff, thanks for sharing that.

Theo Hicks: And number four – it was Sarah [unintelligible [00:10:19].00] she’s a residential real estate agent. She was actually a stay-at-home mom, and then transitioned into residential real estate and has won a bunch of awards. She had passively invested in a 120-unit deal down in Dallas-Fort Worth, and we were talking about that… I was asking her questions about how she’s going about qualifying the deals and qualifying the actual syndicator, and the first person she had met through one of the awards that she won. It was like 30 Under 30 for that area, and a person that was also in that [unintelligible [00:10:42].12] was a syndicator, and they kind of met up and she decided to invest in one of his deals.

But the second deal was really interesting… So she is on — I’m not sure if it’s actually the board, but it’s something like the board for the local YMCA down in one of the neighborhoods in Dallas-Forth Worth; she’s heavily involved in that, and heavily involved in community projects, and she happened to come across a passive investment in an area that was at the moment a pretty rough area. I can’t remember what the actual name of the area was, but it was pretty rough, with crime, and the rents being low… But because of her involvement in the YMCA and being also on this board, she learned about a very heavy revitalization push, and a lot of major cap ex projects coming to the area over the next 5-10 years… That on top of some other due diligence she did swayed her decision to invest in that specific deal, even though if you didn’t know about that you probably wouldn’t invest because of the current crime in the area.

And I know something that we’ve talked about before is — obviously the primary objective for volunteering is to give back, but we’ve talked about before, our secondary objective is getting on the board, because those are high net worth, affluent individuals who could possibly be passive investors in your deal… But another possible outcome is you building relationships with people who are maybe developers, or they’re on City Council and they have inside information on things that are coming in the future that the general population of investors don’t have. I thought that was interesting.

Joe Fairless: Yeah, that is.

Theo Hicks: And then lastly [unintelligible [00:12:10].02] and he transitioned from doing rental properties in college to doing condo conversions… And he finds his deals by knocking on doors. He’s in Boston, and he’ll create his list of potential multifamilies that he could potentially convert into condos… And apparently in Boston a lot of these duplexes, fourplexes, six-units are owned by a family for a long time, and they actually live in one of the units; so the person actually lives at the actual property… Because I was wondering — like, “Are you talking to tenants? Who are you talking to there?” And he’ll go and knock on the door and he’ll talk to them and explain his business plan and see if he can buy the property. And like most strategies like this, not every single person says yes, and most people if they do say yes, it’s not for a long time… But what was interesting is that a lot of people talk about when you’re knocking on doors or sending out direct mail, the goal is to identify pain points; and the pain points that he identified and solved were pretty interesting.

He gave an example – he’s knocking on the door of one owner, and they weren’t interested in selling at the moment, but two months later he reached back out, said he was interested in selling, but an issue was he didn’t know where to live, and he was kind of by himself and wasn’t able to move any of his stuff out… So Freddy actually helped him move all his stuff out of the property, he increased the closing date by two months, and he actually provided him with some upfront cash to use as a down payment for another property. So essentially any issues that this guy had with selling, he just solved.

That cash part was kind of weird to me at first, until he explained how much money he’s actually gonna make on the deal… Then it’s kind of like “Okay, he definitely should have done that down payment”, because it’s gonna be like a multi-million-dollar profit on a duplex he’s converting into four condos. So I thought that was interesting, his door-knocking strategy.

And just quickly, a second thing, that’s the last lesson I learned – this is similar to the 50/50 goals… He was talking about — his best ever advice was to network, which is obvious; of course you wanna network… But for him, when he networks, he will do it before he actually needs anything. So he won’t be like “Alright, I need money to buy this deal, so I’m gonna go out and network with people, and in the back of my mind I have this need, I’m trying to convince them to invest in my deals.” No. What he does is he just networks with everyone, and then if he needs something, he’ll go back and be like “Alright, I’ve met this guy two years ago, who’s a broker in this market. I can use him to find a team member that I need”, or something like that.

Joe Fairless: If you have a vision for your business, you can be intentional about who you reach out to prior to you being at that stage in the business where you need stuff. And then you can just get to know them, build a relationship with them, and then six months down the line, a  year, three months, or two years, whatever, then you can talk to them about whatever that particular that you’re looking for them to help with is.

Theo Hicks: Yeah. It was actually tough to pick just five, because I probably could have done like ten or twenty, because they were really  good interviews… But those are kind of the five main interesting things/lessons that I learned from my lessons last week.

Joe Fairless: Well, everyone has something interesting to say. It’s just a matter of if we’re able to pull it out of them from the questions that we ask, and it sounds like you’re asking some really good questions. I firmly believe that I can learning anything from anyone on Earth, it’s just a matter of me asking the right questions… And I think that’s just a global truth.

Nice work on the interviews. I haven’t listened to any of them, but I will, and thanks for sharing those lessons learned.

Theo Hicks: Absolutely. I know you have a few things you wanted to share, some business updates…?

Joe Fairless: Yeah, one business update and one other thing I wanna get your opinion on. Business update – we sold a property yesterday. Congrats to all those investors. They did very well, and everyone’s excited. So that’s good.

And here’s what I wanna get your opinion on, Theo. Yesterday one of my friends on Facebook – he does the following post, and then it has about 30 comments… Best Ever listeners,  I wanna read you the post, and then I’m gonna tell you something about my thought process, and then I’m gonna tell you what I responded with… And I’m a little disappointed with the lack of “Oh, wow, what a great idea, Joe!” [laughs] I think it fell on deaf ears with all the people who were commenting, and I just wanna get your opinion on if it was a good response, and if not, why do you think people weren’t like “Oh, that’s an awesome idea!”

So here’s what this person posted on Facebook. He says:

“Our 5-year-old wants to do a lemonade and popcorn stand during our community yard sale this weekend. As her business consultants, we need to provide her some market research to help maximize profits, so we need your help.

  1. How much would you pay for a glass of fresh lemonade?
  2. What size cup of lemonade would you like for that price?
  3. Would you prefer fresh lemonade from actual lemon juice, or the fake Country Time kind?

Any and all other advice is also welcome.”

So there’s the scenario with multiple questions that was proposed. Let me give you a little bit of context about how I think.

I went to a conference a couple years ago – and you might have done; I don’t remember if you went with me or not… It was in Cincinnati. I didn’t get a lot out of it, except for this one speaker who commanded the room very well, and he was the real estate guy. This conference was personal development and other things, but there’s this real estate guy… And one thing he said which was tied into real estate, but it’s really just business, is he has a kid; his kid would get paid $7/hour to wash a car. But when the kid went on stage with him and introduced him to the crowd, he’d give him $100.

The lesson that he was teaching his kid was there are certain things that we can do in business that’s a commodity, like washing a car, where a decent amount of people can wash cars, and you get paid a fixed price based on the market rate of washing a car. You have a cap on how much you can make. Whereas if you get in front of a room of 500 people and you introduce someone and you get those people excited, well, there’s not a lot of people who would choose to do that; it’s a skill that is valued higher than the former, so that’s why he gave his kid $100 to do that.

I really love that thought process. I love the thought process that the market will pay you the value that you bring to it. And first off, do you remember that conference? Do you remember that?

Theo Hicks: I do, yeah. I know exactly what you’re talking about.

Joe Fairless: Alright, so we did attend this together. It was a couple years ago. So that’s always stuck with me, always. Back to this question – they’re asking about “How much would you pay for a glass of fresh lemonade? What size lemonade? Do you want the real stuff, the fake stuff?” etc. Everyone who had responded (and I was like the 16th, 17th response) said something like – and I’ll read a couple – “Real lemonade. Maybe extra incentive from buyers if there’s a little sign saying she’s raising money. Or a dollar for a solo cup of Country Time. Or 20 oz. minimum with at least a dollar, unless you make it so they can get quick change. A dollar. One more, I’ll give you both Country Time and the real deal. The real deal more expensive.”

So I read those responses, but here’s what I say – I’ll just read you exactly what I wrote: “I’d say that lemonade is a commodity that can be easily priced based on market rates, which limits her upside. In addition to lemonade, I suggest adding in a bonus gift for each paying customer that isn’t a commodity, such as a piece of art she draws or colors. That gives her limitless upside in her price point.” Ain’t that great?! I got one freakin’ like. There were 15 other comments after mine, and it fell on deaf ears.

This is a great lesson you can teach a kid, or even a person – don’t do a commodity. Everyone’s got a freakin’ lemonade stand. Do something that isn’t a commodity, and it’s like “Oh, and I get this wonderful piece of art. Well, what’s this piece of art worth?” Well, limitless. What are your thoughts?

Theo Hicks: Let me tell you a story from my perspective. I actually saw this last night, and I saw the post, and I read your response, and I apologize for not liking it. I typically don’t ever click anything on Facebook. The only time I really post is when I do in our private apartment syndication group… When I read it, I smiled; I was like “This is a really good idea.” [laughter] I said “I like it.” [unintelligible [00:20:42].25] I can’t wait to say that I saw that, but I’m sorry I didn’t actually click the Like button. When I read it, I was like “This is genius.” If I saw a lemonade stand and it had a sign that said “Fresh lemonade + Free finger painting” or something, I’d be way more likely to stop. I would never stop for something like, it’s just how I am, but if I saw that, especially now having a kid… I think that’s adorable.

Joe Fairless: Yeah. And for the record, I don’t care how many likes I do or don’t get on a post. I don’t care. I just thought it was an interesting result of “Hey, I think this is the right approach, but the crowd doesn’t seem to agree.” I thought it was intellectually interesting.

What I would do is I would actually flip it – I wouldn’t say “Here’s a lemonade stand with art”, I’d say “Here’s art for sale, and you get some lemonade with that.” So you lead with the thing that isn’t a commodity, and then “Oh, you also get lemonade, too? How much would you pay for a piece of custom artwork from a five-year-old, plus a glass of lemonade?” I guarantee you she would make more than $3 per transaction, and that would be much more than whatever a glass of lemonade would be, like a dollar or whatever else.

Theo Hicks: Yeah. I wouldn’t post the art in my office somewhere, but just the experience of doing  it would be worth paying five bucks for it. Because obviously the kid put a lot of time into this, and thought into this, or someone did… And again, that’s just really adorable, if a kid was doing an art sale.

Joe Fairless: And obviously, the lesson is the market pays for value, and if you’re in a commodity business, then you’re gonna be priced out. Alright, we’ve gotta keep rolling…

Theo Hicks: Alright. I don’t have any specific updates, so let’s move into the trivia question. Last week’s trivia question was “What’s the average age of the first-time homebuyer?” The answer was 32 years old, so just kind of the top end of the millennials are the average age for the first-time homebuyer. The first person that got that correct should be receiving a signed copy of our first Best Ever book.

Joe Fairless: What did I say, do you remember?

Theo Hicks: 34 years old. You were closed.

Joe Fairless: Yeah, well… That’s light years away from the actual answer. Everyone knew the answer was gonna be somewhere in the early thirties. Okay.

Theo Hicks: This week’s question is a little different. There’s a residential home in L.A. called the Chartwell Estate. It’s 11 bedrooms, 18 bathrooms, it’s got a ballroom, it can hold 12,000 bottles of wine in the wine cellar, and a formal saloon. The exterior is 10.39 acres, there’s a 75-foot swimming pool, a tennis court and a 40-car garage. This is the nation’s most expensive residential listing of all time. What is the current list price?

Joe Fairless: Where is it located?

Theo Hicks: L.A. It’s in Bel Air.

Joe Fairless: Oh, my gosh… 10 acres in Bel Air. I can say I haven’t been shopping there recently, but I’ll go with 90 million.

Theo Hicks: 90 million. Alright. So either e-mail info@joefairless.com, or put it in the comment section below the YouTube video, with your answer. The first person to get the correct answer will receive a free signed copy of our first book.

Then lastly, the review of the week – if you leave a review for our Best Ever Apartment Syndication Book not only will you receive an e-mail with a link to download a bunch of free apartment syndication goodies, but you’ll also be able to have your review read aloud on Follow Along Friday. This week’s review comes from Dan Smith, and he said:

“This book does a great job of laying out the step-by-step path from square one to purchasing apartments via syndication. I went through four whole highlighters on my first read-through alone. This will definitely be a reference book for me moving forward.”

Joe Fairless: Oh, Dan, you’ve gotta buy some better-quality highlighters; those things run out really quickly. [laughter] Thank you so much for leaving that review. I’m glad you’re getting a lot of value from it.

Best Ever listeners, I enjoyed our conversation… Talk to you tomorrow.

JF1697: Rounding Up The Best Things Learned From Real Estate Investors Last Week #FollowAlongFriday with Joe and Theo

Joe and Theo are back at it with Follow Along Friday, telling us the best things they learned in the previous week. Joe interviews a group of real estate investors every week for the podcast, today he tells us about the best things he learned from those interviews last week. If you enjoyed today’s episode remember to subscribe in iTunes and leave us a review!

 

Best Ever Tweet:

“Are you really doing all the direct mailing that you could really be doing?”

 


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TRANSCRIPTION

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

Welcome back, Theo Hicks. Nice to have you back on the show.

Theo Hicks: It’s good to be back, Joe. Looking forward to today’s conversation.

Joe Fairless: Yeah, we missed you, and we’ve got some things that we’re gonna talk about today… Specifically, three lessons that I learned from last week’s interviews. They’re ranging – one is more setting up your business foundation; the other is just some random thing that I did learn, so I wanna mention it… It might be applicable to people; I won’t spend a lot of time on that. The third is something to reiterate to any Best Ever listener who might have a self-defeating story that they’re telling theirself about finding deals.

First, let’s dig into it… Number one – and these are lessons that… Well, taking a step back – when we do interviews for this show, they are done on Thursdays, and there’s nine, ten, eleven interviews that I do on Thursdays, or if I’m not able to do them, then you step in and you do the interviews… But the point is that we’re interviewing 9-10 people in one day, and it’s a day of learning, that’s for sure. So what we’ve started to do on these Follow Along Friday episodes is to highlight some of the lessons that have been learned from those conversations. The lessons that I’m mentioning – certainly learned a lot more from the conversations than just what I’m highlighting; I just wanna call out a couple things.

One, Terry Ogburn – he’s actually in your neck of the woods, Theo; he’s in Tampa, Florida.

Theo Hicks: Okay…

Joe Fairless: And he talked about the eight components of an operation manual for your business. This is for every real estate investor who has a business, so everyone raise your hand, we’ve all got businesses… We should have an operations manual. That’s kind of intuitive, although I guarantee probably 85%-90% of everyone listening – myself included – do not have operation manuals for our businesses… So it’s nice to hear — he not only talked about the components of it, but he went into detail during the interview; I won’t go into details of the components, but I will tell you the components, and if you wanna dig into that, then just listen to the Terry Ogburn interview. And by the way, the people who I’m talking about – those interviews will be released sometime over the next 30 days from when this episode goes live.

So the eight components to an operations manual for your business – number one, the business development plan; so how are you going to generate business, how are you going to have the business evolve over time, and getting specific there.

Two is the strategic action plan, and here is the key with the strategic action plan – grade yourself every quarter with specific numbers, and make sure that that’s in place; it’s something that we do, Theo, as you’re well aware – we track the amount of new visitors to our website, the amount of new passive accredited investors who reach out to us, the amount of visits to our blog, if we’re doing a special series, like you do (the Syndication School series), we track the visits on that particular landing page… And we have a call every Tuesday and Thursday at 8 AM in the morning. But on the Tuesday call, Theo goes over the metrics and how we’ve progressed (or lack thereof) and then we talk about that.

So having a strategic action plan in every quarter, grading yourself – we do it weekly, but perhaps the strategic action plan is more high-level; maybe focus on more of the key performance indicators that are your bottom line indicators, and then the weekly check-ins will tie into those.

For example, one key performance indicator for my business is new accredited investor leads. And now, three main lead sources for my business, for new accredited investors – one, word of mouth referrals; our current investors referring others. That’s now (I’m proud to say) number one. Two is Bigger Pockets, and then three is this podcast. So that would be more macro level that we would do every quarter when we take a look at that, and then on a weekly or more consistent basis we look at the landing page results, and the performance of certain campaigns, certain series etc. that ladder up to the other stuff. So that’s number two.

Number three is org chart. Self-explanatory, right? But here’s the thing… When I asked Terry which of these components takes the most time to come up with and think through, he actually said the org chart, because it’s writing in the people and the responsibilities and the roles that they serve, and that can take some time. I know first-hand that can really take some time to really think through that.

If you have  a business model that’s more traditional, like wholesaling or fixing and flipping, then you probably know the people you need. You need an acquisitions person, a dispositions person, maybe someone overseeing  the construction, someone handling the calls that are coming in etc. So you can probably borrow a page from someone else’s book who you know, who you know, who’s in the industry, and fill that in… But if you have an apartment syndication company, like I’ve got, then it can be a little more challenging… But nonetheless it’s important to have. So that’s number three, org chart.

Number four is a checklist for the job functions. I guess I jumped the gun on that; you’ve got the org chart, and then number four is the checklist for the job functions. That’s the part that takes the most amount of time.

Number five, a budget proforma forecasting income that you want. That’s the fun part, right? Forecasting… “Okay, here’s where we wanna be”, and then have things in place to make sure that you’re tracking against that. So that’s number five.

Number six is policies and procedures manuals… News alert, right? But you need it, because if you have a good relationship with everyone on your team now doesn’t mean you will have that in the future, so you need to make sure that there are policies and procedures in place… And then also, just setting expectations with the team. I know when I was working with organizations as a W-2 employee, if there weren’t certain rules or policies, then it’s the Wild Wild West. But if you know the parameters of “Okay, here’s my expectations, and now let me deliver on those expectations”, then it’s a lot easier for everyone involved. It’s actually for everyone’s benefit.

Number seven is a direct marketing plan. What’s your plan to reach people? I guess a business development plan is slightly different. You’ll have to listen to the interview and hear the nuances there, because I know I said number one was business development plan and I grouped in marketing there… But there is a specific, direct marketing plan.

Then number eight is a social media plan. Terry actually segments out social media in its separate bucket, as a component of the operations manual.

To recap – business development plan, number one; strategic action plan, number two; org chart, number three; checklist for job functions, number four; a proforma, forecasting income, number five; policies and procedures, number six; direct marketing plan, number seven, and social media plan, number eight. Any comments?

Theo Hicks: Yeah, so I’m sure some people, as you mentioned in the beginning, 85% to 90% of us likely don’t have all eight of these components. They maybe have a few of them, maybe they’re in their heads, but if you’re just starting out or don’t have a large business, you may be asking yourself “Well, how am I gonna have an org chart? It’s just me, and that’s it.” And I remember — it wasn’t this last year’s conference, but it was the 2018 conference… I can’t remember who it was; I think it was Scott Lewis. He was explaining the org chart and how important that is, and he was also addressing the objection of “Well, if I’m just me, why would I make an org chart? It’s just my name and then everything else…” But you wanna break out the different roles that you’re doing, and then, as Joe mentioned, take out the checklist for each of those job functions. That way, once you’re ready to bring on someone, you can be like, “Okay, right now I’m fulfilling 20 roles, so in my ideal business I’d have 20 people working for me. Here’s the first person I’m gonna bring on, and they’re gonna fulfill roles one through ten, and I’ll do eleven through twenty.”

That way, you know exactly who you need to bring on; maybe you don’t know when you’re gonna bring them on, but you know, “Okay, eventually I’m gonna need to fulfill these specific roles” and you can tackle that throughout the year, as opposed to just waiting and kind of randomly bringing on people, and not necessarily knowing who’s gonna do what, or who you need to do what. That’s one thing that stuck out with the org chart; that’s gonna take the longest. The reason it’s gonna take the longest is because you have to figure out exactly who you’re going to need… And I’m sure for you, Joe, you probably didn’t know exactly who will you be hiring when you first started out. You probably realized you’re gonna have someone that specifically helps you with social media, and then someone helps you with marketing, and someone helps you with this. Obviously, all of these things are gonna evolve, as well; they’re not gonna be set in stone and never change, either.

Joe Fairless: And I love it, because the key here is the vision and being intentional about what you’re doing… And certainly, as you said, it’s gonna evolve. But just putting it down on paper and say “Okay, here are the eight components to operations manual. Now let me put on paper what I believe them to be as of this moment in time, knowing that they’re gonna evolve.” Just putting them on paper I guarantee you will trigger some questions and some ideas to help advance your business further and a lot faster than if you hadn’t done that.

Theo Hicks: Exactly.

Joe Fairless: Alright. Second, really quick, Jason Pero – you can hear his story, it’s very impressive… The single-family home portfolio that he and his wife purchased and accumulated, and now he’s in multifamily stuff… But I wanna mention that during our conversation he said he bought a Laundromat and a car wash with the assumption that they would be passive, because with the Laundromat you put quarters into the washer dryer, and with a car wash you do the same thing… Not so much. Not passive at all. Incredibly active, and it was his least favorite investment to date. I think he ended up selling it; you can listen to the interview and hear all the details.

One is Laundromats and car washes are not passive… And I didn’t necessarily know that either; I would think, “Yeah, it’s just quarters.” But you’ve gotta collect those quarters, and you’ve gotta make sure no one’s stealing, and you have to mitigate the risk from people not stealing… Of course, I guess you could do electronic payments, but usually people who are at a Laundromat – that’s not the best form of payment for them, I imagine. It’s probably gonna be change. And there are other systems too you can look up, but just know that Laundromats and car washes are not passive. You don’t have any comments on that, do you?

Theo Hicks: I do not.

Joe Fairless: I didn’t think so. [laughs] And then Jens Nielsen, the third thing – he talked about different deals that he did starting out; he’s a multifamily investor, and he talked about an eleven-unit that he started with, and then a 16-unit… And I started asking him, “How did you find these deals?” The 16-unit he did with direct mail; he was connecting directly with owners. A 16-unit property. That’s a pretty good size property, getting direct to  owner. A $740,000 purchase price. By the way, the 11-unit, the first one that he did, it was owner-financing, so he was able to secure that… And that was actually a broker who he had a relationship with; it was the broker’s idea to do owner financing, because the numbers were not working.

I’m bringing up Jens Nielsen’s interview for two reasons. One, if you feel like there aren’t enough deals or you’re not getting the right deals, are you doing direct mail, where you’re creating your own list, looking at the assessor’s records, checking out the LLC that owns it, then mailing handwritten envelopes to them, handwritten letters to them? Are you doing that? Are you doing it consistently, and are you following up with those leads? Because if not, then you’re not maximizing your opportunities to find deals.

Then the other thing I wanna mention about Jens is that he was looking in tertiary markets, so not the Dallases, the San Antonios, the Austins; he was looking in the Tyler, Texases, or the Abilene, Texas… Not specifically those markets, but you get the idea… That’s what a tertiary market is. He actually bought in Albuquerque, New Mexico. It’s a market that not a lot of people talk  about, but he was able to get these deals.

I personally wouldn’t buy in a tertiary market, because the size of properties that we’re buying, 250+ units, there are less buyers when we exit, therefore we’re not gonna get the same type of bump whenever we exit out… But the cashflow could be really good. So it’s good for certain buyers, it’s just not good for the type of business model that we do, or not as good… But certainly good for certain buyers, depending on what their plan is for the property and their portfolio.

So if you’re having trouble finding deals – two things. One, are you really doing all the direct mail that you can possibly doing? Really? Really, really, really? And then two is maybe look at some tertiary markets – Albuquerque, New Mexico, Abilene, Tyler, markets like that.

Theo Hicks: This goes back to what we talked about the last time we did Follow Along Friday, about a month ago, when you were talking about doing things that no one else is doing, pursuing those investment strategies… The example was this guy discovered that he could buy properties with foundation issues and fix them rather inexpensively… And I guarantee you that when he’s sending out these mailers in these tertiary markets, those owners are not getting as many mailers as someone would be getting in Dallas, Texas. I’m sure it’s not as many people to mail to, but they’re also not gonna be receiving 25 letters from different investors, as well.

Joe Fairless: Yup, absolutely. My mom used to say “The squeaky wheel gets the grease” growing up.

Theo Hicks: There you go.

Joe Fairless: It’s true, in most cases. The squeaky wheel can also be incredibly annoying, so you wanna be careful with any saying like that; you wanna take it for what it’s intended for, not perhaps literally, because then you could take it to a different level that you shouldn’t go, but… Yeah, that’s a great way of getting leads. What have you got going on?

Theo Hicks: Well, I had a baby, that’s why I wasn’t here.

Joe Fairless: Congratulations again. All is well?

Theo Hicks: All is well. It wasn’t what I expected, but I really enjoyed it.

Joe Fairless: In what way wasn’t it what you expected?

Theo Hicks: Probably the sleeping. I didn’t expect to be able to sleep as much as I am now. It might change once my wife goes back to work, but… I was expecting to sleep a few hours a night, and it really hasn’t changed that much. You kind of just get up for a little bit, and then go right back to sleep. Obviously, while I was off, I could sleep a little bit more, but I was kind of preparing for coming back to work, so I actually get up earlier now than I was getting up, because obviously the baby is waking you up… But no, I love it; it’s great.

Joe Fairless: Awesome.

Theo Hicks: Besides that, just getting back in the swing of things… I haven’t worked for a month, so… Just kind of getting back into the swing of things – it feels natural again. I’m glad to be back on Follow Along Friday, and I’m actually doing the interviews today, so I get to talk about what I learned on next week’s Follow Along Friday, so that’s good, too.

Joe Fairless: Looking forward to it.

Theo Hicks: Do you wanna jump into the trivia or do you have any other updates?

Joe Fairless: No, let’s do it.

Theo Hicks: Great. So we were hoping we could do a Follow Along Friday, because the last time we did Follow Along Friday it was the first time Joe got the trivia question right, live on the air, so… All the way back in mid-March, if you don’t remember, the trivia question was “From the landlords perspective, what’s the best month of the year to lease out your unit?” That’s the month of the year that would result in the highest lease to rent. The answer was August. So if you were the first person to answer that question (that wasn’t Joe) correctly, then you receive a free signed copy of our Best Ever book.

This week’s question – I picked these questions that are gonna be relevant to us as investors. Sometimes they’re fun, but most of the time they’re gonna be things that are relevant or interesting to us as investors, in particular rental landlords, people that are buying multifamilies or rental properties.

This week’s question is “What is the average age of the first-time homebuyer?” The average age of the person when they buy their first home.

Joe Fairless: Now, in 2019?

Theo Hicks: This data was from last year, from 2018. That was the most recent data I could find.

Joe Fairless: First-time homebuyer, average age… 34.

Theo Hicks: That’s a really good guess. I’m not gonna say it’s right or wrong. But everyone listening, make sure that you also submit your answer to that question, “What is the average age of the first-time homebuyer?” You can either do that via e-mail, at info@JoeFairless.com, or in the comment section of the YouTube video. Again, the first person to answer that question correctly will receive a signed copy of our Best Ever book.

Joe Fairless: Volume one, right?

Theo Hicks: Volume one.

Joe Fairless: Alright, sweet. Are we doing a review?

Theo Hicks: We’re doing a review. Lastly, we read a review from the Best Ever Apartment Syndication Book. If you haven’t already, buy that book on Amazon, leave a review, and if you send us a screenshot of that review to info@joefairless.com, you will not only receive a link to download some free apartment syndication goodies based off of the book, but you’ll also have the opportunity to have your review read aloud on the podcast.

This week’s review is gonna come from Jack F. Jack said:

“At first glance, the content of this book is second to none. Working at an investment real estate company, consistently surrounded by experts, I can easily say that the information presented in these pages is not abundantly available, much less easy to find.

It’s a worthwhile read, not just for people specifically trying to do apartment syndication, but for anyone who wants to get serious about investing. We on the other hand have been serious about investing for some time, and now we’re excited to put this content to the test and try our hand at apartment syndication. We’ll hopefully have quite a story to tell when we edit this review next.”

Joe Fairless: Awesome. Well, thank you for those thoughts, and especially given your background and your experience level that you mentioned. That means a lot.

Best Ever listeners, I enjoyed our conversation. I hope you have a best ever day, and we’ll talk to you again tomorrow.

 

JF1692: Tenant Proofing Your Real Estate Investments #SkillSetSunday with Joe Cornwell

Joe has been building his portfolio by renovating and adding value to his properties, pulling out the equity, and reinvesting into his real estate investing business. We’ve covered that with him previously, today he is going to tell us how to “tenant proof” our investment properties. Not only does Joe tenant proof his properties, he maximizes the ROI while doing so. If you enjoyed today’s episode remember to subscribe in iTunes and leave us a review!

 

Best Ever Tweet:

“All the flooring is pretty much indestructible, no plastic plumbing or fixtures” – Joe Cornwell

 

Joe Cornwell Real Estate Background:

 


How great would It be to buy a piece of institutional-quality, income-producing commercial buildings? Now you can… with BuildingBits. It’s NOT A REIT or a fund. BuildingBITS is a new platform for non-accredited investors, where virtually anyone, regardless of income, can select a building leased to a major corporation and earn money from it!

Start investing with as little as $500 at https://www.buybits.us/


TRANSCRIPTION

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

First off, I hope you’re having a best ever weekend. Because today is Sunday, we’ve got a special segment for you called Skillset Sunday. The purpose of this episode is to help you acquire or hone a skill that will be beneficial for you as a real estate investor. Today we’re gonna be talking about tenant proofing. Do you know what tenant proofing is? I didn’t when I looked at my notes for this episode, so I asked the guest, and the guest said — first off, guest, hello! Joe Cornwell, how are you doing, my friend?

Joe Cornwell: Good, how are you?

Joe Fairless: I am doing well. What Joe told me when I asked about what is tenant proofing – he said “Well, that is making the unit look good, but durable”, so that you’re not having to constantly replace things, and it’s just a better situation for them, because it looks good, but then you, because you’re not replacing things constantly.

We’re gonna be talking about tenant proofing and ways that Joe does that with his units. He owns 16 units through the BRRRR method, and he is a realtor, as well as an investor, and he’s been both for three years now. If you recognize Joe Cornwell’s name, that’s because you’re a loyal Best Ever listener. Episode 1330, and the title of the episode is “BRRRR 101, Real-life example of scaling using this famous method of investing, with Joe Cornwell.”

With that being said, how about you give just a little refresher of how you got to the 16 units, and then let’s get into the specifics of tenant proofing.

Joe Cornwell: I started, like you said, about three years ago. I picked up a duplex after about 18 months of searching for a good deal, just outside the city of Cincinnati, in a little suburb. It was a massive renovation project, like most of my other buildings I’ve purchased. I did the entire renovation, and I was able to pull out most of my capital in that process, and that was really what opened my eyes to the value of the BRRRR method, the construction, tenant-proofing, and just the general ways you can add value by bringing units up to the top of market rents by making them better than anything that they’re in competition with.

Joe Fairless: So you are self-managing, correct?

Joe Cornwell: Yes.

Joe Fairless: You’re self-managing, you’ve got 16 units, and you have a primary residence, and then you don’t rent that out, right? You don’t house-hack that…

Joe Cornwell: Right.

Joe Fairless: …but you have the 16 units across Cincinnati, Ohio that you have tenants in.

Joe Cornwell: Yes. I have two duplexes, which – the new duplex is my current project, and then I have two six-units side by side in Eastgate, which is just East of Cincinnati.

Joe Fairless: Cool. Two six-units and two duplexes… And you do the work yourself to get the units ready to be rented…

Joe Cornwell: Some of it, yeah.

Joe Fairless: Some of it, okay. So what do you do, versus what do you hire out?

Joe Cornwell: Basically, at this point I have pretty steadily about two full-time contractors that work for me, and then a lot of the specialty stuff I’ll sub out myself. I do generally general contracting, as far as the hands-on work; there’s only a few things that I really do, and mainly it’s just because I enjoy it, or it’s high-dollar stuff that I can do myself and save quite a bit of money.

Joe Fairless: What’s in that category?

Joe Cornwell: Electrical. On this new project, the duplex, I’ve done a lot of the electrical the work, I’ve run a lot of the wire myself, because those are things you’ll typically pay an electrician $100/hour to do, but at least here in Cincinnati, Hamilton County, if you’re doing the work yourself, you can pull your own permits, and then you can do the work yourself and save yourself quite a bit of money… And again, it’s something I enjoy. I don’t really need to do it necessarily to make the deals work, but if it’s something I enjoy and it saves me a ton of money, then I’ll do it.

Joe Fairless: So let’s talk about tenant-proofing. I gave a summary of it, but I’m sure I short-changed a little bit… So how are you defining tenant proofing?

Joe Cornwell: Even to back up a little bit from that, I look for highly distressed properties, especially my duplexes, so the things under five units… I look for something that I can basically gut down to the foundation and the frame. That is the ideal property for me. Because I know, going from that point, if I get it torn all the way down to nothing but bricks and sticks, so to speak, I can do everything the way I want it done, and I know that the final product when the house is completely renovated is gonna be extremely tenant-proof, it’s gonna be extremely efficient, it’s gonna have all new mechanicals, all new plumbing, new electrical, new HVAC, and I’m not gonna have any problems for 10, 15, 20 years going forward, other than maybe minor wear and tear stuff. So that’s why I look for these properties in general, but more so as far as the tenant proofing, that is when I go through on our actual cosmetic finishes and I make everything as durable as I can, while still looking great for the tenant.

I put in tiles, I put in vinyl plank flooring, the stuff that’s scratch-resistant or scratch-proof in all of my areas, so I don’t have any carpet that’s gonna get torn up. Pretty much all my flooring is relatively indestructible, even for large dogs, and kids, and things like that, that cause more tear on a rental property… So I don’t use any of the really low-end fixtures, I don’t use anything with plastic as far as plumbing pieces… Everything is brass fittings, brass valves, so that stuff doesn’t go bad and leak. That’s typically where you’ll see your maintenance in-calls, and things like that.

Again, with replacing all the mechanicals – water heaters, HVAC – I’m not gonna be getting called out for a new water heater three months after I finish the construction project.

Joe Fairless: So you replace all the mechanicals, usually?

Joe Cornwell: Yeah. Especially on this current project.

Joe Fairless: Okay. And you don’t do plastic plumbing or any fixtures, so it’s brass fittings, brass valves…

Joe Cornwell: Yeah. Some of the really low-end plumbing fixtures, if you see chrome with the plastic handles, so to speak – I’m sure you’ve seen those in certain properties or buildings – that stuff is very cheap, and that’s why a lot of landlords choose to buy those, because they’re looking at that dollar amount… But when you have to call a plumber or a contractor out (or yourself) to fix things that are leaking constantly, I’ve kind of done the math over time, in the three years I’ve been doing it, and to me I’d rather spend $50-$75 on that plumbing fixtures – and then obviously new showers, and things like that, you may be spending $150 – but it’s gonna save me so much time and effort, and my time, in the future, when things aren’t going bad.

Joe Fairless: And in terms of the vinyl plank flooring – have you ever had any complaints about not having carpet in, say, the bedroom?

Joe Cornwell: I have not to this point, and I think it’s the market we’re in, at least here locally. A lot of people are transitioning away from carpet, not only in retail housing, but even in rental properties… So I think it’s just kind of the sign of the times, so to speak; because if I was in this business 10-15 years ago, it would have been a lot more common to have carpet, especially in the bedrooms.

Joe Fairless: Sure. Any noise complaints from people who are on the first floor, from people on the second?

Joe Cornwell: I don’t, and part of the reason why, going back to my initial point, is I actually insulate all of my common area floors. If I have a bathroom let’s say above a kitchen, I’m gonna actually insulate that entire [unintelligible [00:08:35].07] cavity because I don’t want those noise complaints. Nobody wants to be sleeping and hearing toilets and sinks running in the middle of the night, or people walking around. So anything I can insulate for sound-proofing, I will, and it’s really not that much more money to not ever have complaints for noise.

Joe Fairless: How much is it to insulate the common area flooring?

Joe Cornwell: You’re just talking the cost of your actual rolls, how big your cavity is. You’re gonna have to buy some higher R-value, which is thicker insulation… But let’s say all-in, with a 1,700 sq. ft. house that I’m working on right now, with labor, materials, maybe $1,000-$1,200. It’s really nominal when you’re looking at not having to deal with any complaints for 30 years.

Joe Fairless: And you said you also have tiles… Is that just an entryway?

Joe Cornwell: All my wet areas. Any kitchen, bathrooms, anything where there’s a sink or water, I will put down a ceramic tile.

Joe Fairless: Okay. And the cosmetic finishes that you want to look good – have you gotten any comments from potential residents about things that they thought looked good?

Joe Cornwell: Oh, yeah. I will say that almost every tenant I’ve placed in the past three years has been a renter in the past, pretty much, so they do have some experience renting from other similar landlords, and every single one of those has commented on how my units in contrast look way nicer, and they’re willing to pay that top of market rent to have a nicer, more well-kept building… Specifically, I usually put in new cabinets; it’s like a white shaker cabinet, so it’s probably you’re seeing in flips nowadays, so it’s a little bit higher-end cabinet. I put in a nice, laminate, flat top countertop, so it almost looks like a granite, but it’s not, and it’s a lot cheaper; I don’t do any formica. And then I always do a tile backsplash in all of my kitchens.

Just these little things that really aren’t that much more money, tenants look at as just an extreme value, and they’re willing to pay that little bit extra for rent to have something nicer than,  let’s say, what’s next door.

Joe Fairless: What are the rents you’re commanding? And maybe if you wanna get specific to a certain property, compared to what the competition is commanding.

Joe Cornwell: Okay, so a prime example would be the Eastgate six units that I was talking about. When I bought those on the front-end, the first building was averaging around $475, and the second units was averaging around $450. These are one-bedroom apartments. So all of my new units post-construction are being leased at $625.

Joe Fairless: Wow.

Joe Cornwell: That gives you a range of the value being added… And obviously, those are commercial, so we’re working off a cap rate. It’s a pretty extensive increase in value when it’s all said and done.

Joe Fairless: Yeah, it certainly is. And how much would you say you’re putting into the unit in order to get that increase of $150 or so?

Joe Cornwell: If we are doing a full gut, basically all the way down to the walls – leaving the drywall, but everything other than the walls, we are right around $8,000, and that’s for everything; new paint, new flooring, new fixtures, new kitchen and bathroom. If I have to replace all the appliances, we’re closer to $10,000, obviously… But it just depends on those things. As far as just the actual material and labor, it’s usually around 8k.

Joe Fairless: So let’s say you average a $150 rent increase, you multiply that by 12, that’s $1,800, and let’s say worst-case it’s $10,000. That’s 18% return on your money, and if it’s $8,000, it’s a 22.5% return on your money.

Joe Cornwell: Exactly. And as you mentioned, I’m a realtor, so I work with a lot of other investor clients, some in state, some out of state, and I kind of explain this process to them, and a lot of them don’t see the value, and saying “Well, why would I wanna spend 8k-10k to renovate a unit if the tenant is happy?”, and it’s not whether or not the tenant is happy; it’s, like you’ve just said, you can increase your ROI on that specific unit by 18% or 25%. I think that second six-unit, right now my cash-on-cash is like 27%. So you can add a lot of value, even within just maximizing the potential of your own building, and sometimes that’s actually a better return than looking for a new deal with that cash you have available.

Joe Fairless: And then if you go to exit – if you go to exit – your value, if you’re working on a commercial property and you’re working with cap rates, then that income is gonna exponentially increase the amount that you’re gonna get for the property.

Joe Cornwell: Exactly. Just on that second six-unit I bought last year, I’m all-in with my renovation loan and purchase loan at 303k, and my exit (either on a refi or a sale) would be around 440k. That would be the market value.

Joe Fairless: That’s great stuff. Anything else specific that you do to — we called it “tenant-proofing” at the beginning, and I think that it is not doing it complete justice, because not only is it tenant-proofing meaning you’re getting things in there that are durable, but you’re also maximizing the rents and your ROI on the project too, because you’re getting things that look good, but are durable, therefore you’re able to spend efficiently and get a good ROI… But anything else that we haven’t talked about that you do specifically to a unit?

Joe Cornwell: No. I think the main point to this whole system I’ve been working on here is that you wanna look for these highly-distressed buildings. And again, I work with a lot of investors, so I have a good idea of what’s going on with the market, and you have a lot of investors, especially new investors, who are terrified of buildings that are distressed; they want things that are turnkey, which is great, and there’s certainly a market for that, but you’ll never be able to generate the value that we’re talking about unless you’re finding these deals, whether they’re on or off-market, unless you can go in and actually do the value-add through the construction.

I think right now, in the current market we’re in, with values as high as they’ve been selling for, this is the only real way you can create high value with your properties – to do the construction end of it… Whether you are hiring it out, obviously, and there’s certain challenges with that of course, but I think that’s really the focus to creating a good deal, because you’re not necessarily just gonna find a good deal like you could 5-6 years ago.

Joe Fairless: Anything else you wanna mention that we haven’t talked about, as it relates to this topic?

Joe Cornwell: No, I think that’s it.

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

Joe Cornwell: Best way to get in touch with me is e-mail – jcornwell@realtyonestop.com.

Joe Fairless: Awesome. Tons of value today, thank you so much for sharing your business model — or really your business plan, which ties into your business model… And some specific ways that we can renovate our units, so that it is cost-effective and we’re maximizing the ROI through these cosmetic updates, but that are still durable and really have the wow factor for the resident, and the long-term durability for us as owners.

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

Joe Cornwell: Thanks for having me. See you.

JF1679: Going From Part Time Flipper To Full Time Real Estate Investing with Ryan Naish

Ryan was like many new real estate investors, had a good job and wanted to get into real estate. He started flipping houses part time, and did that for about 10 years before going full time as a real estate investor. Hear how he was able to leave his job, and how he’s scaling his flipping business in Cincinnati. If you enjoyed today’s episode remember to subscribe in iTunes and leave us a review!

 

Best Ever Tweet:

“Everything I made that was extra over the years, I just kept re-investing” – Ryan Naish

 

Ryan Naish Real Estate Background:

  • Real estate investor since 2006
  • Flipped 18 properties in Cincinnati since 2006, flipped 5 of them in 2018
  • Licensed Realtor and has handled 35 purchase and listing transactions
  • Based in Cincinnati, OH
  • Say hi to him at 513.535.648zero
  • Best Ever Book: Am I Being Too Subtle?

 


How great would It be to buy a piece of institutional-quality, income-producing commercial buildings? Now you can… with BuildingBits. It’s NOT A REIT or a fund. BuildingBITS is a new platform for non-accredited investors, where virtually anyone, regardless of income, can select a building leased to a major corporation and earn money from it!

Start investing with as little as $500 at https://www.buybits.us/


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 Naish. How are you doing, Ryan?

Ryan Naish: I’m well. How are you, Joe?

Joe Fairless: I’m doing well, and looking forward to our conversation. A little bit about Ryan – he is a real estate investor, and he has been one since 2006. He’s flipped 18 properties in Cincinnati, Ohio, and he flipped five of them last year. He’s a licensed realtor and he has handled 35 purchase and listing transactions. As I mentioned, he’s based in Cincinnati, Ohio. 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 Naish: Okay. Thanks for having me on here. Gosh, my background is actually a lot of sales. I was selling various forms of construction; I was always in outside sales, since 2006, and it wasn’t until 2016 that I quit my job, and got my real estate license, and started becoming a full-time property investor.

My current focus right now is just house flipping, while keeping an open mind for getting into rentals, maybe multi-unit buildings. I have the down payment for a multi-unit building, I’m just waiting for the right building… Kind of softly getting into that right now, just waiting for the right timing of the market.

Joe Fairless: So you were doing fix and flips for ten years, while you had a full-time job… How were you able to pull that off?

Ryan Naish: You know, a lot of it involved waking up extra early, and just kind of working it in. With sales, I could work in things in between appointments… But a lot of times I’d wake up at 6 AM, not get home till 9 PM. During the last stage of that period I was definitely working myself into exhaustion… So it was really nice when I got to quit the job, and finally built up the capital enough to just go on my own.

I would say the primary way I handled it was don’t try  and do everything yourself. Delegate as much as possible. I used to always try and get all the materials ready in there for guys, and… Eventually, I just started saying “My time is worth it. I’ll go ahead and pay them more for them to get it there.” Come up with some way of utilizing your time better… But primarily, delegation was how I got things done.

Joe Fairless: When you decided to quit your job and focus full-time on real estate, what was the milestone that you reached that gave you comfort to quit what you’d been doing for ten years plus, and then do full-time real estate?

Ryan Naish: I would say for me personally – and it’s not the same for everyone, because a lot of people really love financing – it was when I just had the cash to do it all. I just wanted to fund it all myself. I think that was the milestone. It also was combined with a really nice deal, that I’ll mention when you ask later probably… Unless you want me to mention it now.

Joe Fairless: Yeah, let’s talk about it. What was the deal where you were like “Okay, I’ve got the cash, and this is a deal that is really nice, so I’m gonna focus on this, and off I go.”

Joe Fairless: Well, essentially, I bought this house in Pleasant Ridge, right before Pleasant Ridge just completely exploded in property values… And I knew it was on the upswing, but I had no idea how fast it was gonna go up.

So I bought this deal, and I was planning to live in it, and just keep working. Then I fixed it up very nice – I put a lot of money into it – but I bought it for 90k and sold it for 283k.

Joe Fairless: Dang! How much did you put into it?

Ryan Naish: It was 90/90/90, actually. 90k rehab, 90k profit. It was the best deal I’ve ever had. It’s never that good. That one, because I lived in it, I didn’t flip it right away; I didn’t sell it right away, and it just kind of worked out, just because the market grew like crazy.

I was really not sure about selling it, because I wanted to live there, but I was like “You know what, I could just be confident in my own business plan, and feel comfortable doing it if I sell it.” So I sold it, and it just made sense to sell it, as much as I loved living in that house, and the location.

Joe Fairless: With the financing of the future deals, are you buying them with your own cash, or are you using a group to help you get the initial financing for them?

Ryan Naish: My very house I paid cash for, in 2006. I spent $16,000. I had a pretty good sales job and I did well that year, so I just paid cash for it.

Joe Fairless: $16,000 was the purchase price?

Ryan Naish: Yeah. [laughter] And then I just fixed it up and rented it out and got an equity line, which as you know, an equity line is a revolving credit line on a house, so you can continue to use it. It turns you into a cash buyer, because you can borrow against it whenever you want, and then pay it back down to zero, and do it again. And I did that with flips, slowly, over time, while working full-time. So I was a cash buyer because of that strategy my entire time.

I just kept using my cash only. Everything I made that was extra, I reinvested, over the years. I just kept reinvesting, reinvesting, growing the capital.

Joe Fairless: You were using your cash initially, and then you would just recycle that; you’d use a line of credit, but then you’d pay it down and then you’d just keep on using cash, or the line of credit.

Ryan Naish: Yeah. Eventually, I didn’t need that line of credit anymore; it was just on that one property. Because I just kept paying it back down to zero, and then I’d buy another house, flip that one,  pay it back down to zero, buy another house, flip that one… And that’s why it happened slowly at first… But I just wanted to grow it and see where it went.

Joe Fairless: It sounds like it went up.

Ryan Naish: It did. [laughter] I flipped five properties last year and I didn’t ask for financing from anyone. I funded it myself, and it’s just kind of nice.

Joe Fairless: And why not use funding from someone else, or a group that can provide that to you?

Ryan Naish: I’m not large enough yet… For what I can get done right now, I can do it with the cash. I definitely wanna keep an open mind for financing, especially when I start getting into bigger deals… Because that’s one of my real estate goals – one, I wanna do it at the right timing. I wanna wait for another correction. So I’m slowly flipping to keep building capital right now, and waiting for the next correction, whatever it may be; it might be small, it might be large, but I’d like to wait for another correction and start getting into buy and hold.

Will that be a commercial building, or a mixed-use building, or a 60-unit…? I’ll put a down payment down. I have the down payment for a relatively large deal right now. I wouldn’t say it’s huge, but you know… I have the down payment, and there’s financers out there that will finance a commercial loan as long as the building cash-flows; that’s really what they’re loaning on, is what I’m told… They want you to have the down payment and a building that has good numbers. [unintelligible [00:08:39].16]

Joe Fairless: That $16,000 purchase price house, the thing that started this – how much did you put into it?

Ryan Naish: Hah! I was a rookie, for sure. I put in about $60,000. [laughter]

Joe Fairless: And how did you get that money back out?

Ryan Naish: That one was a rental property that I just held on to for a long time… But it opened a lot of doors because of that credit line. It made up for itself. I didn’t make a whole heck of a lot of money on that one, but it opened doors because of that equity line and cashflow.

Joe Fairless: You were able to get a line of credit with that house as collateral?

Ryan Naish: Yeah… Essentially, you have to wait a year, because they’re always gonna use the purchase price until a year has gone by… But I slowly fixed it up over that first year, and then I got it rented… And then after that first year, the equity line – the bank said “It’s worth $64,000. We’ll give you 80%.” So they gave me a revolving credit line, basically, of $43,000, something like that. So I had access to that $43,000 at that time. And as you know, everything was cheaper right after that market crash, so you could start getting some stuff done… And plus the money I had in savings, from the sales jobs.

Joe Fairless: Yup.

Ryan Naish: So that’s what started it all.

Joe Fairless: Where did you get the line of credit from?

Ryan Naish: [unintelligible [00:09:55].06] Just who I banked with. It was really straightforward and simple for me.

Joe Fairless: You’ve done 18 flips over the last 12 years, and five of them just last year, because now relatively recently you’re full-time… Give us a horror story. Clearly, you’ve got some horror stories from all these flips.

Ryan Naish: Okay. [laughs] Some of these flips were rentals for a time, and then sold them… But I bought a house on auction once in Blue Ash, and it was just crazy; everybody was there, the owners had stuff all over in the basement… Everything was stowed away in the basement. And you can’t really get that inspected… I don’t do inspections anymore. I haven’t done inspections on houses in years. I would for different situations later, but right now for house flips I don’t do inspections; I just — cash, no inspections.

But it was this property in Blue Ash… The whole basement was filled with stuff; I went through it. We were all there, and we’re literally bidding with this auctioneer… And I was younger, and I don’t know, man — I just got carried away and I didn’t wanna lose that house. [laughter] So I completely overpaid for it… And then to top that off, when I went and acquired the property after closing, the basement was cleared, there was nothing in there, and there was structural work that needed to be done… And it was hidden by all that stuff. I was like, “Oh, man… You’ve gotta be kidding me.” Not only did I get carried away, because I wanted to win this dumb auction, I ended up having to pay a little extra for the structural work.

I fixed it up, and I got a structural engineer in there… And usually, I run for the hills when it comes to structural; but I got a structural engineer in there, and he gave me  a simple fix… And then I was very upfront and honest to people about it. I found these buyers, and of course they inspected it again, and they asked for some money off… And I broke even.

Joe Fairless: That’s good!

Ryan Naish: I was so happy that I was breakeven on that. And then another quick horror story – one of my tenants, their child was playing with a lighter and lit the place on fire.

Joe Fairless: Everyone okay?

Ryan Naish: Everyone was okay. That was the greatest thing about it, was no one was hurt. That was on Thanksgiving.

Joe Fairless: Oh, my gosh…

Ryan Naish: Yeah. All my family was in town, and I had to leave. Everybody ended up being okay; the insurance company took care of it. The tenants — I said “You guys can break lease, whatever you need to do… Just go find a place to live, because I don’t want you guys to be homeless.” So they found a place to live right away. Everybody was okay, everything worked out, the insurance company paid for it… But that was when I was working 80 hours a week with this one sales job that was pretty intense.

Joe Fairless: Wow. Yeah, any lessons from working with an insurance company when your house burns down?

Ryan Naish: [laughs] The biggest thing I would say is you have restoration companies that the immediate thing they wanna do is take control. Literally, they’ll come in and they’ll say “Oh, give me the keys. We’ll board up the house etc.” And what they’re doing is they’re taking control of your project… And what happens is you pay their markup. So what you can do is as long as you talk with your insurance adjuster — in my case, I was able to become the contractor in that scenario. So because I had experience in all that, I was like “There’s no way I’m gonna pay another contractor to do that.”

Joe Fairless: But why does it matter, if the insurance company is paying for it?

Ryan Naish: Well, what happens is these guys just kind of mark it up extra-high, because it’s insurance work… And sometimes it might not all be covered. You risk getting into a fight with the insurance company.

Joe Fairless: Okay, got it. Switching gears a little bit – you said your background is doing sales, and selling various forms of construction equipment… Did I hear that correctly?

Ryan Naish: Actually, it’s residential construction. I worked for Bath Fitter, I worked for Granite Transformations, and I worked for Kaiser Siding & Roofing.

Joe Fairless: Okay, so clearly very relevant to fixing and flipping… So perhaps my question is gonna be a bit obvious, but I’m still gonna ask what I was gonna ask – what are some things that you took away from your sales experience, that you’ve applied to what you do now?

Ryan Naish: I would say with sales you have to be adaptable, you always have to be available… It also helps with your networking, just being in sales. In sales you’re always talking to people, you’re always in front of people, so you’re constantly networking… Which I think helps in anything that you do.

Networking has been important in this business too, whether it’s for contractors, for labor, or finding deals, or being an agent for someone. I made extra money being an agent for clients; I didn’t see that coming. I mean, I did kind of see it coming, but what I meant was I never got the license to be a  full-time agent; I just got it to handle my own transactions and save money there. It turns out a lot of friends and family, when I said I became an agent, they asked me to be their realtor, so it was a nice extra income that I wasn’t planning for.

So the networking, and just being willing to talk to people really helps in many ways, in any entrepreneurial business.

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

Ryan Naish: I would say be adaptable and aware… I guess because it doesn’t always happen the way you think it will. You have a plan, which is good, but sometimes you can get one-track-minded and get yourself deeper in a hole… And sometimes it’s just better to move on, or find a different way.

The market is always changing, so what you do now isn’t always going to work. Switching gears. In my case, I used to do more involved projects; and I still will do them, the ones where you’re taking out walls, and changing floor plans, getting permits, and hiring the architects that help with the permits… I’ve done those projects, but you’ve gotta be aware of the market. Right now, labor is expensive and tough to find, so right now I’m doing the quicker flips.

You’ve just gotta be kind of aware what’s happening. You’re never gonna be perfectly right about anything that’s just nice to get. Networking. Networking helps you figure out what the word on the street is, what is everybody else experiencing. So that’s why I say be adaptable and aware… And a way to be aware is reading books, educating yourself, or being networked with other people, and then adapting to that awareness – what is the market telling you to do?

One of the ways I did that is I had a property that luckily I bought it very cheap, I bought it right, and I could not get guys to show up. I would even take whatever price they gave me, and I said “Sure, I’ll do it.” They’ll say “Okay, I’ll get started Monday”, and then the next thing you know, four tries later they’re still not starting. And it’s just dragging out, and dragging out… I was like, “You know what, I bought it decently enough; I’m just gonna mark it up and sell it to a bigger investor, who has cheaper labor and more access to labor.” And that’s what I did. I made a quick profit, and then I didn’t have the headaches to try to get all these guys to show up.

Joe Fairless: Yup. Makes sense.

Ryan Naish: I had to adapt to that, because for whatever reason — maybe it was the house being a big project, I don’t know; I could not get people to show up… So I just said, “Alright…” The group that I sold it to, they’re gonna do great with it; they’re gonna make killer numbers on it. They have everything in place to crank out a big project like that – because it was pretty big – and then everything worked out. So they were happy, I was happy, and I moved on from it.

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

Ryan Naish: I sure am.

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

Break: [00:17:56].29] to [00:19:18].27]

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

Ryan Naish: Sam Zell’s “Am I Being Too Subtle?”

Joe Fairless: That’s a great book. Very entertaining.

Ryan Naish: Yeah, it is.

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

Ryan Naish: That Pleasant Ridge deal.

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

Ryan Naish: I’ll come back to that. What’s next?

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

Ryan Naish: I like to make myself available for coffees and lunches, just for anybody interested in getting into this, and picking my brain if they want. I’m no genius in this, and there’s always more to learn, but if I can help somebody, I will. I’ve already had quite a few lunches with various investors that are trying to get into it.

At one point, earlier in my twenties, there were these older investors that I played soccer with – they had no problems talking to me about things, and I found that really helpful… So I hate to say it again, but it just ties back into networking. So that’s kind of the way I like to give back – just do what people did for me when I was younger.

Joe Fairless: What’s an area you’re working on to improve right now?

Ryan Naish: The way I’d like to improve is getting into financing more. I’ve not used it for so long; I feel like my knowledge base is not very strong there right now, and I’d like to figure out how to fund larger deals… So I think that’s an area where I need to grow.

Joe Fairless: And if you didn’t notice, I replaced the mistake on a transaction with that one; I just rephrased it for you, but with a slightly different angle. How can the Best Ever listeners learn more about you and what you’ve got going on?

Ryan Naish: Feel free to contact me. I can give out my cell phone number.

Joe Fairless: Sure, of course.

Ryan Naish: 513-535-6480.

Joe Fairless: Well, Ryan, thank you so much for being on the show, talking about your fix and flips, the stories of deals that did not go according to plan, but all is well that ends well, with the auction breaking even, and the house that burned down, and no one being injured, plus the insurance company paying for it, plus working on the GC stuff yourself… And your approach for that one house in Pleasant Ridge, which is an area within Cincinnati; you bought it for 90k, you put in 90k, and sold it for 283k, 90k profit(ish).

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

Ryan Naish: Alright, thanks a lot, Joe.

JF1676: Taking Lessons Learned & Improving Your Business #FollowAlongFriday with Lennon Lee and Joe

Another edition of Follow Along Friday! Joe is joined by Lennon Lee who is a podcast host himself and real estate investor. We’ll hear about their most recent lessons learned in the business, how they improved their business because of that lesson, and how you can do the same. If you enjoyed today’s episode remember to subscribe in iTunes and leave us a review!

 

Best Ever Tweet:

“You’re gonna have to do some things that you don’t enjoy doing” – Lennon Lee

 

Learn more about Lennon here: https://www.bldcapitalgroup.com/about-us

 


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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.

We’ve got Follow Along Friday, and we’ve got a special guest with us, Lennon Lee. He’s gonna be talking shop with me on today’s Follow Along Friday. Lennon, how are you doing, my friend?

Lennon Lee: Hey, Joe. Excited to be here, man. Thank you for having me.

Joe Fairless: Yeah, my pleasure. I’ve known Lennon for 3-4 years, he’s a great guy. He is the founder of Build Capital Group, which is a multifamily investing company. They recently purchased a large apartment community in Jacksonville, Florida. He’s also the co-host of the first real estate investing podcast in Spanish, and it’s called Se Habla Real Estate.

Lennon Lee: That’s it.

Joe Fairless: If you put me in a Spanish-speaking country for six weeks, believe it or not, despite me tripping over, say, “habla” just a second ago, I can communicate at the level of a first-grader.

Lennon Lee: Well, that’s good enough, man.

Joe Fairless: I can talk first-grader talk if I’m embedded in a Spanish-speaking country for a little over a month. Well, Lennon, looking forward to our conversation. We’ve got some things today where, as with all Follow Along Fridays, we’re going to talk about some lessons we’ve learned, but it’s more about how we can help the Best Ever listeners through these observations.

I know you recently closed on the property in Jacksonville and you’ve got a couple things that you have learned, as well as some mindset stuff, so… Do you wanna just kick it off?

Lennon Lee: That’s right, let’s get into it, man. So yeah, like you said, we’ve just recently closed on a 138-unit property in Jacksonville, Florida. We’re very excited about this deal; we’re already implementing the business plan. Things are going very well, and there are a lot of lessons learned during the process and everything, but a few came to mind, where we’ve talked about it.

The first thing, one of the most important things is building your team and vetting every team member that you’re gonna have, especially the property management company, which is at the end of the day, aside from (I guess) the bank, your biggest partner; they’re handling the operations and the day-to-day stuff. I’m not gonna get into the vetting of the property management company and all that, because I think that’s the obvious part, but if you do a good job at selecting your property management company, you interviewed several of them in the market… I guess you definitely understand that they’re the experts in the market, so I think putting trust into these guys once you start the operations is very important, we’ve realized… Because a lot of the work that you need to do upfront or going into the deal is understanding what relationship the property management has with the vendors, all the vendors for the property, from the maintenance guys, the maintenance company, landscaping, pool servicing – every vendor.

For us, it was important to tell the property management company “Hey guys, we selected you. Let’s go and talk to all the vendors, so we understand who they are and what they do exactly, but we are gonna trust you guys. We’re not gonna come here and say “This guy goes, this guy stays etc.”, we’re gonna give you a chance to prove that you’ve built a good relationship with these guys, and if you trust them, we’re gonna trust you guys.”

They were very appreciative of that, and that allows for a seamless transition into this relationship that you’re building with this team. That was very important for us.

Joe Fairless: It seems like that would be a typical response, where the multifamily owner trusts the management company and their vendors, but  you said they were very appreciative of that, so have they come across other multifamily owners who don’t trust the relationships with the vendors, and therefore the owner tries to get into the details, and it messes the whole operation up?

Lennon Lee: Yes, that’s what they told us. They said “Well, our particular company – they recently started doing third-party management.” They’re a vertically-integrated company and they do their own management, but now they’re doing third-party; they’ve come across some clients (or potential clients) that from the get-go were trying to jump in, trying to change everything, change the vendors and do their own thing. I’m not saying that’s a bad thing, but if you do a good job, I trust in the team; you understand who these guys are and how they operate before going into the deal, then you wanna trust them, because it’s important for their relationship.

Obviously, you wanna keep them on their toes, and then if the vendor or whoever is not working, then take action, but… Placing that trust upfront, it allows for them to be more confident on the operations and what they do. That’s worked very well for us so far… So that’s a quick tip there.

Joe Fairless: Yeah. To me, with a property management company that has relations with vendors and contractors, they likely have more scale than what the owner would have… Because the property management company has multiple properties that they manage, versus the owner not having as many; usually, that’s the case.

Lennon Lee: 100%.

Joe Fairless: So the property management company has better pricing and probably more competitive rates that they receive, versus the owner. But I understand if an owner is wanting to get into certain aspects of honing a process, like maybe the website that the property has; maybe the website is archaic, or maybe there’s a process with the leasing office, where they aren’t entering into 2019, they’re still back in 1990, and doing something that could be optimized… And if you do find that as an owner, that’s a sign of some larger issues with the management company. Because if you do find that you need to optimize a lot of the process with the management company, then they’re probably not doing other things correctly or the best way, so you’re probably gonna end up switching companies… Because by the time you go to optimize all the things that are wrong or not running as efficiently, then you’re just recreating an entire company, and not only are you spending a lot of time on that, but you’re also probably upsetting the management company, because you’re messing with what they’re doing, and it’s just not a right fit.

So as an owner, if you see yourself doing that, then take a hard look at actually who you’ve hired, and they’re probably not the right fit anyway.

Lennon Lee: Exactly. That basically means you probably didn’t do a good job in selecting the property management company. And again, you can make that mistake, that’s fine, but that’s probably what it is.

Joe Fairless: So what else have you got? I think you mentioned the mindset stuff, too.

Lennon Lee: Yes. Well, this is something that I wanted to talk about, because I recently had a conversation with a potential partner, a company that works with French investors and they bring a lot of capital, and we have the same vision in terms of the asset class that we wanna focus on etc. So it has a lot of potential.

The other day he actually reached out to me and said “Hey man, we have come across a development project that we are potentially interested in. I just wanted to know if you’re interested in jumping onboard and doing something with that.” I actually said, “Well, thanks for the offer. That’s not what we do. We focus specifically on stabilized properties acquisitions, not ground-up development.” I explained why we do it, and I explained how capital preservation was at the core of our strategy, and cash-flowing properties from day one is a substantial component of that capital preservation strategy… So he actually came back and said “Well, I love the focus, the approach. I definitely understand, and I think that’s very valuable for your investors, that you’re keeping in your lane and staying true to what you preach.”

I guess the takeaway there is just that – the hyper focused approach, staying in your lane is paramount. There are a lot of shiny objects out there. As you continue to do deals and you get more in-depth in the industry and build more relationships, you’re gonna get pulled from all different directions, trying to do all different deals, in different markets even. I think that’s a dangerous game, because one of the things right now in this market being so hot is that you wanna be flexible. You have your criteria, you’re disciplined, but you need to have a level of flexibility to look at deals that might be a little bit outside of your criteria, just to improve that deal flow. But that’s a fine line there, between that and actually saying “Well, you know what, I’m gonna start doing development deals” or anything that’s outside of your realm of expertise.

So that’s a lesson learned, and it actually felt good that people appreciated that you have that approach and that you’re focused. This guy saw it, and I’m sure all of my investors definitely see it. When everyone sees it, that brings a lot of value to your business, for sure.

Joe Fairless: And it’s such a relief to be focused on one thing, and not have to assess other things, because it’s so overwhelming… It would be — I don’t know, because I’ve been laser-focused on what you said, cash-flowing apartment communities where we can add value. It is so refreshing to be laser-focused on that and not have to worry about “Oh, well this new development, or this fix and flip, or this hard money loan” or “This could be a good wholesale deal, or self-storage, or maybe we develop on this piece of land. Look, it’s close to the path of progress.” You can make money in any type of real estate investing, it’s just what do you choose to do, and then when you choose to do it, then stay focused on it. Because if you’re not having success in whatever aspect of real estate you’re choosing to do, one of two things – one is you’re going about it the wrong way; so just simply learn the process from people who have been successful doing what you’re choosing to do. Or two, that doesn’t align with what you’re naturally good at, and you need to reconfigure your role within that process, so that you’re doing what you’re naturally good at, and then bring on the right team members to help you take it to the other level… Because it’s certainly possible for you to be focused on one thing and then be bad at it, but that is because (mostly likely) you are using your talents inefficiently and ineffectively.

Say you’re really good at bringing capital to deals, but you’re trying to bring the capital, oversee the property management company, look at construction budgets, do the asset management, get the loan… But you’re terrible at all that other stuff. Well, just focus on what you’re good at, but you can still be focused within a certain asset class, as well as within a certain business plan within the asset class. I love that you mention that, because it does reinforce something that I believe strongly about.

Lennon Lee: Yeah, definitely. I know you do, and actually now that you mentioned it – you can make money on every type of real estate… I actually remember recently in Jacksonville I did a pop-up meetup event; I do monthly meetup events here in Miami where I’m local… But we’d just bought this property in Jacksonville, we were touring the property with some of our investors, meeting the property management team and doing some operational activities there, but I said “You know what, I’m gonna do a pop-up meetup, try to meet some other investors, and just network and have some fun…” One person actually asked me “Hey, I’ve seen you on different podcasts or videos, and I’ve been following you for a little bit.” This guy literally knew nothing about real estate or anything, but he was just curious; basically, his question was “So what is it that you’re so excited about? What’s that multifamily stuff? Tell me, what are you selling me? Sell me on it.”

First, I was like “I’m not selling anything. I’m an investor-first myself, so I’m basically providing opportunity for other people to join us”, blah-blah-blah… Which is all true and fine, but then I said — well, it’s a genuine question, right? At the end of the day, we’re all selling something; it’s not a bad thing, really, to be selling… So I was trying to figure out what is it really that we’re selling, what’s the product here, what’s the investment. And obviously, that’s multifamily real estate, and this and that, but really that’s not it, because you can make money on any  type of real estate, any type of anything really, but that’s just the vehicle. Where are we going? What do we want to achieve? And I think that’s freedom. Financial freedom, or whatever freedom means for you; it’s different for everyone, but it is freedom at the end, and real estate is just the vehicle. Understanding that  changes everything, because the way you communicate with investors, with partners, the way that you can build relationships with potential partnerships, if you have that same alignment of the vision or of what you’re pursuing and you have it very clear, I think that allows you to build stronger partnerships, stronger relationships for the long-term.

Joe Fairless: Yup, absolutely. It’s depending on where people are at and how they define financial freedom, financial abundance, generational wealth… Or ultimately it’s doing what you want with your time, and that’s what it boils down to.

Lennon Lee: Exactly.

Joe Fairless: I’d say 90% of what I do right now with my time is what I want with my time… But I’ve still got 10% that it’s like “Ugh, really? I have to do this? Alright, I’ll do it…” So in my opinion it’s really optimizing our life to spend time how we wanna spend it, I guess 100% of the time. I’m not sure if that’s possible. Perhaps it is, where you’re doing what you want with your time 100% of the time… But I’d say I’m at around 90% right now. And when you’re making good money and you’re at 90%, then you know what you’ve found what you should be doing, in my opinion.

Lennon Lee: Yeah, definitely. That’s the goal, right? A lot of people say, “Well, you only have to do what you love, only follow your passion, only do that”, and it sounds all good, but it’s not practical and it’s not reality; you always have to do stuff you don’t want to do and you don’t enjoy doing within that level of freedom that you’re talking about. So sometimes I think it’s good to stop and appreciate.

Right now I’m at a point that I feel like Michael Jordan was someone that actually has been successful at what they do and what they love; they’re always envious of these sports guys, that they actually get to play for a living and all that… And I’m doing what I love, and I’m doing what I enjoy and everything, but sometimes you get so caught up in the day-to-day grind and everything that it starts feeling like a job, or it starts feeling like work… Which is fine, but I think when that happens, you probably wanna step back a little bit and appreciate, “Hey, I’m actually doing what I love.” So appreciation for what you do, if you really enjoy it and love it, I think it’s also something that you wanna practice every day.

Joe Fairless: Yup. Chris Beard, the basketball coach for Texas Tech University, which is in the Final Four in Minneapolis — so I root for the Red Raiders, and if they do make the championship on Monday, Colleen (my wife; you know Colleen, but for anyone else) and I, we plan on going to Minneapolis to see the championship game, fly in Monday morning and fly out Tuesday morning, or something… So when they beat Michigan State on Saturday, we plan on doing that.

But anyway, I mentioned Chris Beard from Texas Tech because he talks about “Enjoy the process, not just the destination.” You’ve gotta enjoy the journey, because we spend so much time on the journey, and we are at the destination for a hot second, and then we’re onto more journey.

Alright, we’ve gotta keep rolling, we’ve got a little bit of time left… A couple things I have observed from some interviews I did last week – one is Michael Craig; he’s in Austin, Texas. He talked about how he paid a contractor $3,000, and then the contractor disappeared.

Lennon Lee: Ow…

Joe Fairless: And that’s not a unique story; that has happened to many people. The thing I learned from this though is the contractor was referred by his brother. He was allegedly a friend of his brother. So Mike asked his brother, “Hey, do you know a good contractor?” and Mike’s brother said, “Sure, I have a friend. His name is such-and-such. Work with this person.”

And it turns out after the contractor did a couple jobs and then just flew the coop, Mike asked his brother “Hey, how well did you know your friend?”, and his brother was like  “I didn’t know him very well.” So what that made me think of is two things. One is when getting referrals, ask that person who’s giving you the referral how well do you know that person.”

Then on the flip side, when we give referrals, mention how well we know that person we’re referring to the person who needs the referral. Because I’m certainly guilty of this. When people ask me, “Hey, do you know someone who can do such-and-such?” or “Do you know someone who is good at X, Y, Z?”, I always want to help that person, so I’m always trying to connect the dots. Judy Robinett has a book called “How to be a power connector”, and she talks about how you can connect others and be very valuable for both parties. That’s true, as long as you are connecting them with good people. And  I always think I am, but I don’t always know the people who I am giving out as referrals very well; I just know them kind of okay, in some instances.

So I’m going to start — when I give referrals in the future, I’m going to qualify that referral that I’m giving the person, I’m going to say “Hey, I recommend so-and-so because I’ve heard them on a podcast talking about it, or because I’ve worked with them once, or twice, or I’ve known them for three years, or four years.” That way I’m giving some context for my relationship with this person, so that the person who’s going to contact the referral – they know how well or not well I do or don’t know the person. I thought that was really interesting, something that can help out anyone, regardless of what you’re working on.

Lennon Lee: Yeah. I would guess that’s especially challenging in your case, since you talk and interview so many people…

Joe Fairless: A lot of people. 1,700 people.

Lennon Lee: Wow… Yeah.

Joe Fairless: Yeah. I’ve got three things and we’ll wrap up. Second thing is yesterday — I’ve got a four-month-old, about to be five-month-old daughter, and my wife Colleen was upstairs, doing some stuff, and I had Quinn (our daughter) downstairs… And I thought it’d be nice to just tidy up the kitchen while I had Quinn, because Colleen typically does that… So I tidied up the kitchen, I put all the stuff away, and then I noticed that Colleen’s phone was downstairs in the kitchen, and so was mine. And I know that Colleen loves having her phone fully charged; it’s just one of her things. And it was like at 82%. And my phone was at 22%. So I look at it and I’m like, “Hm… I’m pretty sure Colleen is gonna be happy with me for tidying up the kitchen, but what can I do to go above and beyond, so that she’s really like “Oh, wow, this is awesome.” So I plug in her phone, even though it was at 82%, and I had that puppy charging.

Sure enough, she walks down and she’s like “Oh, wow. You cleaned up. Thank you so much.” Then she walks over to her phone and she’s like “Whoa! My phone’s getting charged? Talk about royal treatment!” [laughs]

Lennon Lee: It’s the small stuff, man…

Joe Fairless: It’s the small stuff. And the point of this story is when we do renovations on properties, and we’re putting in $5,000 per unit, and we’re doing hardwood flooring, and we’re doing fixtures, and we’re putting in nice bathroom mirrors, make sure that you know what are those couple things that residents really truly care about, that can take the unit over the top, or take the living experience over the top. And it’s gonna be specific to that property and that submarket.

Sometimes it might be “Hey, we allow pets where others don’t.” Other times it might be a certain backsplash, other times it might be granite countertops. It just depends on your business plan, the submarket… But remember that you want a resident to walk into your unit or into the property and say “Wow, I’m getting the royal treatment. This is above and beyond what I was expecting.” And you can do that based on your knowledge of your target demographic. So first you need to know what they care about, and then once you know what they care about, then you can go to deliver on that.

Lennon Lee: And continuously be learning what they care about, because their needs and wants change along the way. You want to adjust for that, and understand what [unintelligible [00:22:28].24]

Joe Fairless: Absolutely. Your property manager will be letting you know that, and then there’s certain surveys you can do for ongoing evaluation of it.

Lennon Lee: Then the third thing, Danny Coleman – he’s based in Columbia, Tennessee… And by the way, the interview with Mike Craig will come out in about 30 days, and the interview with Danny Coleman will come out in about 30 days or so… So Danny Coleman, Columbia, Tennessee – his specialty is helping businesses find the right talent. I think he does more than that, but our conversation really focused on helping businesses find the right talent… And we went really deep in the interview process and how to attract the right candidates for your job that you have open… So if any Best Ever listener is looking to hire someone, or is currently hiring someone, then I’d listen up to this, because there’s some really good tips here… And listening to the whole interview, because I’m not doing it justice for what we talked about in total, but here’s some really good things I thought.

When creating a job posting, do three things. One is have specific instructions for how to apply to the job. For example, in the job description say “Write a cover letter and in the subject of your e-mail when you e-mail it to me or to the hiring manager put the name of the position, and the date that you’re sending it. And put the date in this format.” So be very specific; that way, you can initially weed out all the people who are mindlessly applying to the position or aren’t gonna pay attention to the details that you need them to pay attention to. So that’s one, be specific with how to apply.

Number two is in the job description write the reason the job exists, right out of the gate. If it’s an admin position, “This position exists so that the company’s CEO can use his/her time most effectively and is able to do whatever it is they do. This person is going to serve as the right-hand person for the CEO”, blah-blah-blah. Whatever the reason the job exists is, write that there. Then complement that right below – this is number three – with describing them as a  person. “This position exists for XYZ reasons, and this is a little bit about you”, and then you talk about the actual person, you describe them. “You’re a detail-oriented person, you do what you say you’re gonna do, you always follow through. You have a knack for taking a project and running with it with little oversight.” That way, whenever they’re reading the description, they’re shaking their head like “Yup, that’s me. That’s me.”

So those are three tips when creating the job posting, and there’s a lot of other tips that Danny talks about for actually the in-person interview. He talks about opening up and mentioning a couple things about yourself as the interviewer, so that it then lets the candidate open up a little bit more and makes them feel more comfortable… Because you don’t want to learn about the best version of the candidate’s self, you want to learn about what is the person that the candidate–

Lennon Lee: Their true version.

Joe Fairless: Who they are on an ongoing basis, right. On interviews so often it’s easy to get caught up in “Okay, this is who I want to be and I am occasionally” versus “Hey, who are you really on an ongoing basis?” So asking them about their future plans, books they’re reading; “In one word describe what motivates you, in one word describe what frustrates you”, and just really getting a sense of that.

So we’ve gotta roll, because I’ve got a call with a new investor that starts in 60 seconds, so I’ve gotta roll out of here… But Lennon, how can the Best Ever listeners get in touch with you?

Lennon Lee: Well, the best way would be to follow me on Instagram. I’m very active on Instagram and on Facebook. My Instagram handle is @TheMultifamilyInvestor. I’ll also throw out the company’s e-mail; I always check the e-mail. Contact@bldcapitalgroup.com.

Joe Fairless: Cool. Hey, Lennon, good seeing you, good hanging out with you.

Lennon Lee: Always, man.

Joe Fairless: Thanks for coming on the show, and Best Ever listeners, I hope you got a lot of value from today’s conversation we had with Lennon. I hope you have a best ever weekend, and we’ll talk to you again soon.

Joe Fairless and Theo Hicks real estate show flyer

JF1655: Here Are The Best Things I Learned Last Week #FollowAlongFriday with Joe and Theo

Joe and Theo are back for another round of Follow Along Friday. Today, Joe is sharing his best lessons learned from last week, when he interviewed nine people for the podcast. If you enjoyed today’s episode remember to subscribe in iTunes and leave us a review!

 

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These are four of Joe’s favorite takeaways from Mo Bloorian, Paige Panzarello, Jason Fudin, and Krisstina Wise.

 

Mo Bloorian Real Estate Background:

  • Founder of Grey Hill Capital
  • 25 year old real estate investor with 100 units in his portfolio
  • Him and his partner have a private equity firm and they syndicate deals
  • Based in Brooklyn, NY
  • Say hi to him at: https://www.greyhillcapitalholdings.com/
  • Best Ever Book: The One Thing by Gary Keller

 

Paige Panzarello Real Estate Background:

  • Real estate investor and entrepreneur for over 20 years
  • Founded and runs her own non-performing note company
  • Completed over $150 million in real estate transactions to date
  • Based in Simi Valley, CA
  • Say hi to her at https://www.cashflowchick.com/
  • Best Ever Book: Three Feet from Gold

 

Jason Fudin Real Estate Background:

  • CEO and Co-Founder of WhyHotel
  • WhyHotel is a platform for renting a full size apartment with a 24/7 hotel staff onsite when traveling vs staying in a hotel
  • Based in Washington D.C.
  • Say hi to him at https://whyhotel.com/
  • Best Ever Book: Hiring A Players

 

Krisstina Wise Real Estate Background:

  • Real estate investor, Millionaire coach, and creator of several multi-million dollar businesses
  • Author of the Amazon Best-Seller Falling for Money
  • Based in Austin, TX
  • Say hi to her at https://wealthywellthy.life/
  • Best Ever Book: Dollars and Sense

 


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JF1648: Top 4 Lessons Learned From A Week’s Worth Of Interviews #FollowAlongFriday with Joe and Theo

For Follow Along Friday this week, Joe is sharing some favorite lessons he learned while doing his interviews for the podcast last week. You’ll hear tips from multiple investors, all with a different skill set as it relates to real estate investing. If you enjoyed today’s episode remember to subscribe in iTunes and leave us a review!

 

Lessons Learned:

Alan Fruitman: Stay in your lane

Jake Stacy: Having proper insurance

Jason Palliser: Executing on deals

David Greene: Cash flow is the defensive mechanism in the single family space

 

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JF1634: 30 Units Owned & Doing 15 Flips Per Year | Cincinnati Investor Scaling His Business with Eric Kottner

Today we’ll hear from a Cincinnati investor who is currently doing about 15 flips per year, and growing. Eric will share a lot of his experience with us today, he’ll reveal a lot of great information about the Cincinnati market and the range of deals he likes to tackle. We’ll also learn about his Master Lease Option deal that he is still working with. If you enjoyed today’s episode remember to subscribe in iTunes and leave us a review!

 

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Eric Kottner Real Estate Background:

  • Full time investor since 2006
  • Has done 15 of his own flips and owns 30 units
  • Based in Cincinnati, OH
  • Say hi to him at https://cincyturnkey.com/
  • Best Ever Book: The Productivity Graph

 


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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, Eric Kottner. How are you doing, Eric?

Eric Kottner: I am doing pretty good, Joe. How about you?

Joe Fairless: I am doing well, and looking forward to our conversation. Eric is a full-time investor and has been a full-time investor since 2006. He’s done 16 of his own flips and owns 30 units. Based in Cincinnati, Ohio. With that being said, Eric, do you wanna give the Best Ever listeners a little bit more about your background and your current focus?

Eric Kottner: Yeah, sure thing. My current focus right now is fix and flipping. I actually got into real estate investing full-time as a property manager back in 2006, and did that for a few years. I managed about 56 units, got into some ownership of my own rental properties during that time, and over the course of a few years I realized I am horrible at property management, so in 2009 I got my real estate license. Perfect timing for that as well. I realized the headaches and challenges involved being a realtor in 2009. I decided I was gonna start a fix and flip business in 2011, and since 2011 I’ve been focusing primarily on fix and flip properties.

Joe Fairless: So what type of properties do you go after?

Eric Kottner: I like to go for the bread and butter neighborhoods. My ideal ARV areas are between 120k all the way up to 300k, and I really don’t try to go above 300k for the Cincinnati market, because the outskirts of the suburbs that I prefer, Butler and Warren County, once you go above 300k, it becomes a lot more of  a difficult remodel, because you need to have this right type of finishes done too, and the clientele during that time had certain expectations when it comes to the properties along those lines… So it’s a lot more difficult to have simple rehabs when you get above $300,000 in Cincinnati.

Joe Fairless: You’ve got 30 units that you own currently, correct?

Eric Kottner: That is correct. I am in a 50/50 partnership with a 12-unit, I do own an 18-unit that also has some commercial space with it as well, a triplex, and then also two single-family properties.

Joe Fairless: Oh wow, you’ve got a whole smorgasbord of properties. So you’ve got a 12-unit, and 18-unit with commercial… What else do you have, a triplex?

Eric Kottner: Yeah, a triplex, and then I have two single-families.

Joe Fairless: Two single-families, okay. Let’s talk about that a little bit… Which one is the best ROI?

Eric Kottner: Honestly, the best ROI right now is the 12-unit. That one we had some insider knowledge on. Essentially, what happened was – I’m gonna try to make this long story very short… This 12-unit – we had a property manager that we referred to that 12-unit a couple of years ago; they had a pipe burst, that pretty much ruined about seven of the units, and during that time the property manager was trying to report to this company that was in the state, a company down in Florida, to say “Hey, we need to do this, we need to do this, we need to do this”, and the asset management company was very difficult to work with… So what happened was all but one of the units became completely vacant during that time, and they put the insurance claim in for those units that got taken care of, so finally after a long ordeal they finally had all the units remodeled in that scenario, and they started renting them out again.

I think once they got to about ten of them rented, they decided to switch strategies and went with a different property manager. Then a few months after they went with a different property manager they called us and said “We wanna unload this 12-unit property. Do you know what anyone would buy it for?”

This 12-unit was located in Fairfield, and essentially we asked them how much they were looking to sell this property for. What they said was “Well, when we had our appraisal done, it was valued between 170k-180k.”

Keep  in mind, during this time when they told us this, they already had 11 of the 12 units rented out, as opposed to the one unit, and they already had the seven units that were destroyed during the busted pipe completely fixed… But they based it off the appraisal that they just had when they only had one unit filled out.

Joe Fairless: Got it, okay.

Eric Kottner: So essentially we got this $500,000 property under contract for $180,000.

Joe Fairless: [laughs] And who’s “we”?

Eric Kottner: This was my dad. My dad and I went 50/50 partnership on it, because my dad was a W-2 employee, very easy to get a bank loan done on that, so we kind of went into it together for the property.

Joe Fairless: And what have you done since you’ve owned it?

Eric Kottner: I’ve been collecting passive checks of $1,000 a month.

Joe Fairless: Well, that’s fun.

Eric Kottner: Yeah. Once we took back ownership again we put the property manager that I recommended to them the first time back into it, and she’s just been incredible with it.

Joe Fairless: That is the 12-unit, and you mentioned you’ve got an 18-unit with commercial space.

Eric Kottner: Yes.

Joe Fairless: Tell us about that one.

Eric Kottner: This one is actually the worst deal that I have done…

Joe Fairless: [laughs] But don’t you have a single-family home mess up–

Eric Kottner: Oh, I do, but this [unintelligible [00:07:06].13] The 18-unit on there was when I definitely got a little bit more ambitious. When I had ownership back then, I had three eight-unit apartment complexes, so what I wanted to do was I wanted to sell two of them and then upgrade into a bigger complex.

I noticed that two of my eight-units at the time were pretty much only grossing about $3,000, so two of those were only gross about $6,000, and this one, when I first saw the numbers on it, I saw that the potential of this property – I could easily reach up to $14,000/month on a gross. And when I did all my net, it was looking to about $3,500/month…

Joe Fairless: That sounds like a slam dunk.

Eric Kottner: Yeah, it sounds like a slam dunk, and the problem that happened there was I went with two eight-unit apartment-style complexes, I sold them, and then I pretty much bought this 18-unit that were townhome style. The expertise I had that made it so good with the eight-units didn’t transfer very well when it came to townhomes.

Joe Fairless: Why?

Eric Kottner: Well, because instead of A/C units I was now dealing with full HVAC systems, and also during that time, 2014, I think I maybe did four or five flips, so when I got the estimation of what it would take to turn this property around, I estimated probably close to about $90,000, when in retrospect it was probably close to $250,000…

Joe Fairless: Oh, dang…

Eric Kottner: Yeah… So I paid $500,000 for that one, and I think I had about $700,000 of my own money into it. At that point – I would say near the end of 2015, we were really close to getting above that hill; we only had two vacancies left, and then we had two dated properties out of the entire thing. Then just stuff happened and we went two vacancies back to six vacancies; one of the tenants complained about a bed bug issue, and the upstairs unit above where the bed bugs were coming from didn’t wanna do anything about it, so we pretty much had to wait till we got them evicted to take care of that issue, and then it just kind of spiraled back downhill, after being so close to it.

Joe Fairless: Oh…

Eric Kottner: And eventually – I think it was last year – I sold that on a master lease option, so I still technically own it right now, but in the next year or two I probably won’t own that property anymore.

Joe Fairless: For anyone who’s not familiar with master lease with option to purchase, can you just describe that, and then also maybe talk through the terms that you sold it on?

Eric Kottner: Yeah. The master lease option is essentially saying that I am giving this person the option to buy this property, as well as controlling the property until they decide to buy the property. A master lease option – I gave them control to turn over the units at their cost, to lease the units, and then the ability to collect rents, evict people, and all that stuff.

The terms that I had on mine were I sold it for $575,000, $60,000 down, and then anything past the current mortgage at the time, which was 469k, whatever principal they paid down, they got to keep. So when it comes time to sell the property, I should be receiving another $40,000 check back, from the 515k to the 469k portion of it. And essentially, I continue paying the mortgage and the insurance, they are paying for the property taxes, as well as the upkeep of the apartment complex… But they’re also collecting all the rents, while they just pay me one monthly amount.

Joe Fairless: And the commercial space that you mentioned – what is it?

Eric Kottner: I think as of right now it is vacant. When I took it over, it was previously a pharmacy, a CPA, and a barbershop.

Joe Fairless: Dang, was that big?

Eric Kottner: Yeah, this is probably about over 3,000 square feet on the main floor, and another 3,000 square feet on the bottom. Total, this is probably about a 6,000 square foot commercial space.

Joe Fairless: And what happened to those tenants whenever you first bought it?

Eric Kottner: When I first bought it, the pharmacy had just left the premises, so that just remained vacant and they just kind of left everything there, whereas the barbershop and the CPA essentially were still renting it out. Now, those two people were actually never on a lease; they’d been in that spot for over 25-30 years. The barbershop just retired last year, and I’m not quite sure if the CPA is still in there or not.

Joe Fairless: If you were to be presented an 18-unit with 6,000 square feet of commercial space, but a different one, in the area that you typically invest, what questions would you ask prior to doing the transaction on that new deal, that you perhaps didn’t ask or think through on this deal?

Eric Kottner: Well, on the commercial side right now it’s still really rough. The way I originally did that deal was I wanted the apartment complex to be good and cash-flowing based on my numbers, and then anything from that commercial space would have been like whipped cream or the cherry on top.

So the first thing that I would do is I would call up my buddy Osh and get his expertise on the matter of commercial complexes in that scenario, and I would pretty much ask him “How fast can this be rented out? Is it plausible to do a triple net lease to that, where I pretty much have to not worry about any of the maintenance issues?” Because I think that was one of the big hindrances as well – I treated that commercial side as you would a residential tenant, so if there were issues with HVAC, I would be the one taking care of it, and things like that. I think the only thing that I didn’t do was they paid for their own cosmetic fixes and cosmetic repairs, whereas I took over the mechanicals.

Joe Fairless: Okay. So now what’s your primary focus?

Eric Kottner: My primary focus is just continuing building up the residential fix and flips. The reason I like that is because I can use the KISS method of keeping it simple. To me it’s a lot easier to keep simple tactics on the residential side, that I haven’t quite grasped on the commercial side, to be able to take care of it.

Joe Fairless: What are some common mistakes that you see residential fix and flippers make that you’ve got that puppy down and you don’t make those mistakes?

Eric Kottner: One of the things I like to kind of pride myself on is the ability to calculate the numbers and rehab profits. I think what a lot of people get confused on is the fact that when they go and take a look at a property the first time, they wanna use the 75% rule. When you put down those numbers on there, you can calculate the 75% based on the ARV, minus the repairs, with your maximum allowable offer. One of the things that I usually do now is instead of doing a certain percentage, I just put a gross profit into what I wanna make on a property, as opposed to using a percentage. Because that way, when I’m walking through a property, while I’m talking to the seller, I’m just doing basic addition and subtraction in my head, as opposed to trying to do calculations of 5%, 6%, 2%, while talking and trying to calculate the rehab.

Joe Fairless: So you think of the gross profit you wanna make, and then…? Just walk us through your thought process when you’re looking at a property.

Eric Kottner: Okay, so if I get a seller on the phone that wants to sell me a property for $90,000, the property itself is probably worth about $150,000. When I go for $150,000 or lower, the minimum gross profit I wanna make is $40,000, so now I already know in my head 150k minus 40k – I need to be all in on this property for $110,000. So if the seller is telling me $90,000, all I need to do is walk through the property and see if it only needs $20,000, I can give them the $90,000. If it’s worse than that, say it’s $30,000, I then can immediately right away give an offer of $80,000.

Joe Fairless: Very simple and straightforward. You mentioned 40k profit on what price point?

Eric Kottner: 150k.

Joe Fairless: Okay, 40k profit on 150k ARV.

Eric Kottner: And it’s gross profit on there. I always say that it’s on the gross side, because when you’re talking with the seller and stuff like that you wanna just keep your numbers simple, and then once you get the property under contract and you’re ready to go through closing, then you can calculate more on the sale side of it, of what those hits are gonna be… Normally, because I’m a licensed realtor, what I do is kind of the catch-all in percentages on the inside. For people who are just starting out and they are probably gonna pay a retail agent and hit all the worst-case scenarios, I always tell them to calculate about 12% on the closing side.

So if it was a $150,000 house, you would wanna do $15,000 for 10%, and then add in $3,000 for the additional 2%. So 12% – you’d be looking at about $18,000 towards closing costs, where if I base it off the $40,000, I’m now looking at a net of $22,000.

Joe Fairless: And if it’s higher than $150,000 ARV, what’s the gross profit you want on those?

Eric Kottner: It ranges. Obviously, there’s other factors I kind of go in, but if we’re doing just with price point, I usually like to say for every $50,000 I increase it by $15,000. So $150,000 would be 40k, $200,000 would be 55k, and so on. So I would increase it per $50,000, 15k, or per $15,000 5k, and then just kind of range it that way.

Joe Fairless: Is that just something that you’ve seen that the market will bear, or is that something that you just really want in order to justify your time, or a combination…? Where do you get that?

Eric Kottner: For those who like to do the percentages basis, I’m buying properties at about 74% of the market, so I’m at 4% different of the people that use the 70% rule. So for me, I know that it is realistic in the marketplace to where we’re at, and I know if people who are newer wanna use the 70% rule, I know my offer is gonna be relatively higher, unless they see something where they’re only trying to say about $15,000 in repair, which is in reality about $30,000.

Joe Fairless: What’s the last deal you got under contract?

Eric Kottner: The last deal I actually got under contract was a wholesale deal I bought from a friend of mine. This was something I just kind of met over coffee, we talked about it, and he pitched it on one of the groups, and I was lucky enough to be one of the first ones to go through the property. It was a 3-bedroom, 1-bath house in Fairfield. I bought it from the wholesaler for $65,000, I did a joint venture with a general contractor on it, where we’re only in for about $26,000, and we’re actually just about to sell it at the end of February, and we’re selling it for $139,000.

Joe Fairless: You bought it for 65k, so you and the general contractor fronted the money to purchase it?

Eric Kottner: No, I got a private money lender at 11% to fund $60,000 for the purchase price. I put $5,000 of my own money to it, and the terms of the joint venture with my general contractor was he fronts all the money on the rehab side, as well as oversees the project.

Joe Fairless: Okay.

Eric Kottner: So he pays for all the repairs and what we assumed was gonna be the budget for the repair estimation, and then he also managed the projects as well. Now, I will give a caveat to new Best Ever listeners out there – I’ve done four other projects with this general contractor as just a standard general contractor, so I vetted him very thoroughly before I was looking to do a joint venture with him.

Joe Fairless: 50/50?

Eric Kottner: Yeah.

Joe Fairless: Cool. And it’s on the market now?

Eric Kottner: Well, it’s actually pending now. It should sell at the end of this month.

Joe Fairless: We don’t wanna jinx it though, do we?

Eric Kottner: Exactly.

Joe Fairless: [laughs]

Eric Kottner: The good news is we’re past the inspection.

Joe Fairless: Okay…

Eric Kottner: But we still have the appraisal side.

Joe Fairless: Cool. Good stuff. What is your best real estate investing advice ever?

Eric Kottner: My best real estate investing advice ever is, honestly, on the residential side, keep it is as simple as possible, and that goes to all aspects of it – keep it simple with your numbers… I like to do catch-alls as opposed to itemize every little item; whatever you’re more comfortable with, go right ahead.

Joe Fairless: Well, you now have the catch-alls – did you initially itemize every item to make sure that the catch-all incorporated all those items?

Eric Kottner: Yeah. One of my mentors local in the area, that does a lot of fix and flips, he used to be a CPA, so he was very into the itemize every little thing, down to the outlets, and stuff like that. He would itemize every outlet, every square foot of paint, every light switch plate, everything like that, and put it down… I tried doing that and I realized that I got upset very quickly when I learned that “Oh, I went a little over-budget on this side”, not realizing that I was a couple thousand under budget somewhere else… So for me it was just a lot easier just to have that kind of bucket there that’s saying “Okay, I have this bucket for this entire scenario.” That way, I’m not gonna worry if I go a couple hundred dollars over on electrical, or something like that.

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

Eric Kottner: Let’s do it.

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

Break: [00:19:41].00] to [00:20:42].04]

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

Eric Kottner: I actually like The Productivity Graph. One of the things they pretty much talk about there is finding out where are your areas where you work the most, and where you seem to lag behind. It’s a good time management book too, and it’s just giving you that thought process of where you can do the most productive portions of your day, and then learning where you can take a rest at, that way you can take a 25 to 30-hour workweek and make it feel like you’re working 60 hours a week, just through the productivity of listening to your body and doing proper time management in order to get the most productivity out of you.

Joe Fairless: It’s called what?

Eric Kottner: I think it’s The Productivity Chart or The Productivity Graph. It’s a blue book, that pretty much shows a graph chart with a line going up.

Joe Fairless: Cool. Best ever deal you have done?

Eric Kottner: Best ever deal that I have done… I would have to say that 12-unit.

Joe Fairless: And what’s a mistake you’ve made recently on a transaction?

Eric Kottner: A mistake I made recently on a transaction… The last flip I did – the one I did a joint venture on with the money partner – I agreed to oversee the rehab and also pay for the rehab costs. What looked like a $65,000 project turned into a $90,000 project; I just miscalculated about 500 square feet in the property. I also tried to over-improve the house, and stuff like that.

We still made money on the deal – I think we split $17,000 – but it was one of those scenarios where I caught myself where I have $90,000 of my own money into this project, and it went on for six months or so… And having that much money into one project kind of cramped my marketing budget, and it also really put a hit on my other cashflow needs for running the business.

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

Eric Kottner: I like to do donations to charity. I did recently tear my ACL, so I haven’t been able to go out and volunteer, either at Soup Kitchen, or something like that; I used to do it a few years ago… But I do like to donate monetarily, and as well as I love sitting down with people over a Starbucks coffee, just breaking down deals with them too, or trying to figure out ways that they can simplify their business… Or just listen into other people’s business, and if they want advice, I’m always happy to talk to them about it and see “Here’s what I saw in my expertise”, if I’ve gone through the same scenario, or give them a theory that might help them with a certain property or their business.

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

Eric Kottner: They could follow my company, Turnkey Renovations, on Facebook. We also have an Instagram page @cincyturnkey, where you can see what our past projects have looked like, and you can see where I went over-budget on a lot of over-improving these houses (but they look amazing). They can also reach me at eric@cincyturnkey.com, or just call or text me at 513-375-5819.

Joe Fairless: Eric, I really enjoyed our conversation about the different types of deals that you’ve done, from the 12-unit to the 18-unit, lessons learned on those, as well as your focus on just keeping it simple, and looking at, as you said, simple tactics on the residential side – calculating the gross profit and just simply backing out from there… And then how you found your recent wholesale deal – someone you had coffee with – and how you structured that deal too, with a general contractor, and the numbers behind that deal.

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

Eric Kottner: My pleasure. Thank you so much, Joe.

JF1627: Listener Questions: How To Obtain My First House Hack? #FollowAlongFriday with Joe and Theo

For this week’s Follow Along Friday, Joe and Theo are answering another list of questions from a listener. This conversation can resonate with every level of investor because some of the tips and advice they offer are things we should always be working on, even if we consider ourselves real estate professionals. If you enjoyed today’s episode remember to subscribe in iTunes and leave us a review!

 

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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.

We’ve got Follow Along Friday today, and we’re gonna be answering a Best Ever listener’s question about how to get a property acquired, and the structure that we recommend for doing so… And we’ve got a couple other miscellaneous things. We’ve got Theo Hicks with us, as always on Follow Along Friday. Theo, let’s kick it off.

Theo Hicks: Before I start, people that are listening to this won’t see this, but Joe, you look like an Olympic athlete right now, a U.S.A. Olympic athlete.

Joe Fairless: Colleen hates my tracksuit. She calls it a tracksuit. But I secretly think she loves it, because every time she says she hates it, I wear it more often. [laughs]

Theo Hicks: There you go. I think it was good. So as you mentioned, we’re gonna go over another listener question and offer our advice on what we would do if we were in that particular situation. This week’s question came from Denise, and she has a very long and thoughtful message, so we appreciate that. I’m just gonna summarize it for now.

She gave her background – she’s a single mother, she recently acquired her architectural degree, so congrats on that.

Joe Fairless: Congratulations!

Theo Hicks: She currently lives in Southern California, and she’s had a little bit of issues housing-wise over the past couple of years. She says she got evicted from the place she was renting, and was homeless for about a year… But it was kind of figure things out, and got back into a rental — she didn’t explain what happened, but right now I know that she currently rents a home.

She discovered our podcast and other real estate investors, and was interested in investing, because she never wanted to be in that tricky financial situation ever again, and be forced to not have a place to live. So she said that her goal is to buy some sort of income property – a duplex or a triplex – and implement the house-hacking strategy, so living in one unit, rent out the other unit. But the trouble areas that she had and she wanted our advice on was 1) how to afford the down payment; being in Southern California, the purchase price will probably be around half a million dollars, so how do you afford a down payment on that. And also, because of her background, she in her mind didn’t believe she’ll qualify for a loan, so she wants to know how she would also find a guarantor to help her with the loan.

She asked for any advice on what we think that she should do. I’ll let you take it, Joe, and then I’ll go after you.

Joe Fairless: Okay. Just so I’m clear, she is intending on purchasing a duplex to live in one side and rent out the other?

Theo Hicks: Yeah.

Joe Fairless: Okay. And she does not have money for a down payment, so she’s asking 1) “How do I get the money?” and then 2) since she doesn’t have the money for a down payment, then she won’t be able to qualify for the loan, so the second one is “How do I bring someone in to partner with me on that?” Is that accurate?

Theo Hicks: Yes.

Joe Fairless: Well, it’s kind of a broad question, because basically the first question is “How do I make money, so that I have enough for a down payment?” Well, you can do a Google search on that, and I’m not trivializing your question, but it’s almost too broad for me to wrap my mind around… So how about you go first?

Theo Hicks: It’s interesting, I was looking at this more through the lens of — a lot of newer investors, whether they reach out to me on Bigger Pockets, or that I read on Bigger Pockets forums, or just some people that I know personally who wanna get into real estate, that’s really what the main problem is, that they don’t have the money to buy a property at first… So they always ask “I wanna get started today. I just learned about real estate yesterday and I wanna buy my first property, but I don’t have money, so how do I do it?” As you mentioned, at the end of the day there are, of course, ways to get into real estate without actually having money. So if your goal is to turn this into a business eventually, at least personally I don’t think you should be thinking about it as “What’s the fastest way to do it?”, just because you need to have that foundation first, so you don’t make crazy mistakes and lose all the money [unintelligible [00:06:03].10] and then buying a property, you don’t know what you’re doing and you end up losing all that money… 1) You’re gonna obviously lose that money, but 2) you might not even continue to do it in the future.

So my advice would be to kind of take a big step back and first start working on your education, start going to meetup groups in your area, to meet with other investors, other agents, other real estate professionals to get an idea of the area, to figure out what it is you actually like about real estate, what part of real estate you wanna get into.

One way to make money for this down payment is to try to work with someone that meet at this meetup group within their business, or partner up and maybe wholesale a few deals first, or maybe find someone to fix and flip a deal with. Again, I know this is very vague; it’s not just “You walk into a meetup one day and meet  someone and fix and flip a property”, but I think this entire point is kind of slowing everything down, and realizing that there is no fast solution to raising money to buy a $500,000 duplex. If you can’t think of something right away, then it’s not gonna be something that’s gonna be a quick fix; it’s gonna take some time.

Joe Fairless: On that note, three paths come to mind, just riffing off of what you were saying. One is you earn the money. Two is you partner with someone who has the money. And three is owner-financing. Off the top of my head, those are the three paths for you to get the property.

One, earn the money – Theo mentioned some ways to earn money; wholesaling, or… You’ve just got your degree – congrats on that; you rent for a little while at a very low rent, in an area that you might not enjoy as much, but you do that and then you save up and you have the down payment. And there’s a whole lot of other ways to make money, obviously.

Two is you joint venture with someone. The challenge with the joint venture in this scenario is what value are you bringing to the transaction? If you don’t have money and you’re not signing on the loan or you can’t qualify for the loan, then the value will be you finding the property that’s gonna be off-market… Because if it’s an on market property represented by a broker, it’s unlikely that that’s gonna be enough value for you to make substantial profit. But perhaps you talk to someone and then you partner with them, and you find the property that they’re looking for, but then you’re really a real estate agent.

So in order to do number two, a joint venture, you’re gonna need to find off-market deals, and there’s plenty of resources on our blog… What is it – thebesteverblog.com, right?

Theo Hicks: Yeah.

Joe Fairless: Yeah, thebesteverblog.com – there are ways to find off-market deals there; there’s a little category, I’m sure, for that. And then the third way is owner financing. It is possible for you to acquire property with no money out of pocket. It is not likely, in my opinion, especially given you’re in California, where it’s a hot market. It’s always a hot market in California, so it’s gonna be challenging for you to get owner financing, but it is possible.

So that goes with the second point of finding off-market deals, and perhaps with an off-market deal that you find, so you can do that through direct mail, you can do that through phone calls, just calling the owner up. You could do it through attending the meetup that Theo mentioned; you could do it through having a local meetup that you create, and it’s just a meetup with property owners in the area, and then you start conversations there… I have interviewed plenty of people who have gotten off-market deals in that way. Then you increase your likelihood of getting owner financing, because you’re getting more deal flow.

So those are the three ways that I can think of that you can get into a deal. But touching on what Theo was mentioning, perhaps it’s just taking a step back and just looking at the lay of the land and seeing “Okay, where do I want to spend my time and my focus? Does it make more sense for me to put my head down? …I just got my degree, I got a new job, hopefully in that industry. Do I need to put my head down and focus on that, and earn money and save, or do I want to create a new venture, like a wholesaling business or something else on the side, while I’m entering into my career?” I assume you’re entering into the career, since you just got your degree.

Theo Hicks: Yeah, so while you were talking I went and calculated how much money you actually need for that $500,000 duplex, assuming a 3.5% down house-hack, and it’s around $20,000. So if you work in the architecture field for a year, two years, work on getting your credit up, get that historical W-2 income and just save up a third of your income, then in two years you could house-hack yourself and not have to worry about raising the money or having somebody else sign on the loan. But as Joe mentioned and as I’ve mentioned before, in situations where you wanna get into the industry, but you don’t know how, but you wanna do it quickly, you really have to just put yourself in as many situations as possible that could benefit you real estate-wise. So go to every meetup group in your market for a few months straight and see what happens.

In Joe’s podcast, at the end of every podcast he says “What’s the best way that the Best Ever listeners can get in touch with you?” Reach out to these people, and don’t ask them for something, but offer them something instead. If you wanna go that realtor route, get your real estate license. Maybe you meet someone there you can partner up with.

Just putting yourself in as many situations as possible; instead of just kind of staying at home and always being online, just getting yourself in front of people and just seeing what happens. Maybe nothing happens at all, and you just wait two years and buy a duplex with your money, or maybe in a few months you hit it off with someone who has a lot of money that is just willing to take a chance on someone. You never really know.

We just wrote that Best Ever Influencers article about Alex Holt and Ash Patel. That’s kind of like a perfect example – he just kept putting himself out there and ended up finding a money partner. And sure, in his mind he didn’t know exactly what was going to happen, that he’d find this money partner, do a fix and flip that wouldn’t go very well, but still have that partner afterwards, but he put himself out there and benefitted from it because of that.

I think that’d be my advice for anyone that’s in her situation, that wants to get into real estate but doesn’t exactly know how – just every day put yourself in front of at least one new person, whether it’s in-person or via e-mail. If you do that long enough, eventually something positive is gonna happen.

Joe Fairless: Good stuff.

Theo Hicks: That’s the advice I’ve got on that. Do you have anything else to add, or are we gonna move on?

Joe Fairless: No, I’ve got nothing else.

Theo Hicks: Alright. Do you have any updates that you wanna discuss?

Joe Fairless: Nope.

Theo Hicks: Cool. I just want to mention one thing… As I mentioned last week, we are expanding to multiple markets in Florida; originally it was just Tampa, and now we’re expanding to Tallahassee, Orlando and Jacksonville. The reason why [unintelligible [00:12:51].12] conversation we had on this podcast, so again, I really appreciate that… And I reached out to a lender who was nice enough to send me all this market information on those, so we’re kind of going through that right now.

Now it’s just looking at four times more deals… Actually more than that, because Tampa has been a little dry lately, and I’m just having my underwriters go through those deals, and… I think you’ll think this is funny – I did get lunch with a commercial broker and then the lender for that company…

Joe Fairless: Yeah.

Theo Hicks: And we were kind of just talking, and I mentioned you and Ashcroft, and the guy is like “Ashcroft… That sounds so familiar. I think I just talked to someone from Ashcroft recently.” He pulls out his e-mail, and sure enough, he had talked to your acquisition manager, Scott…

Joe Fairless: Scott, yeah…

Theo Hicks: [laughs] I was like, “Oh, yeah. I know Scott.” [laughs] I thought that was pretty funny. A super-small world.

Joe Fairless: We’re everywhere, Theo. [laughs]

Theo Hicks: I know. You are. I just wanted to mention that; I thought that was interesting. [unintelligible [00:13:43].22] grinding still, looking for that first deal, and definitely increasing our chances by looking at more markets, for sure.

Joe Fairless: What happened to the Jacksonville one?

Theo Hicks: Too big. It was 440 units.

Joe Fairless: Got it. Cool.

Theo Hicks: It was more of a class A property. It was a little bit too nice for us. The price per unit to purchase it, as well as the price per unit to upgrade it was just a little bit above what we’d want to do. I’m looking for more that B, C-ish type of property that we can put under 10k into. We don’t wanna do the nice, luxury, granite stuff just yet, but obviously eventually that’d be great.

Joe Fairless: Yup. Cool.

Theo Hicks: Alright, moving on to the trivia question. I don’t know why, I’m always so excited by the trivia section.

Joe Fairless: They’re fun!

Theo Hicks: I did a ton of research on the question this week; I think it’s kind of interesting. But first, last week’s question. The question that “In 2010 Apple purchased one acre of land from an elderly couple from North Carolina to build a data server. That elderly couple bought their land for 6k 34 years prior (in the 1970’s). How much did Apple pay for that land?” And I said within $100,000, and the answer was 1.7 million dollars. So that’s almost a hundred or a thousand times than what they paid for it originally, so good for them.

Joe Fairless: Yeah, good for them. I’m sure somehow it worked out financially for Apple, too.

Theo Hicks: Seriously. I do [unintelligible [00:15:00].24] and they were buying houses for four or five times as much as they were actually worth, but this is…

Joe Fairless: Who’s “they”?

Theo Hicks: Whoever the developer was, that developed the apartment building.

Joe Fairless: Oh, the apartment developer was doing that, okay.

Theo Hicks: Yeah.

Joe Fairless: I thought you were still talking about Apple.

Theo Hicks: And I think one guy didn’t wanna sell, and eventually the government stepped in and he didn’t make as much money as he would have if he had just sold. That should have been a trivia question, but that’s too specific. But this week’s question is gonna be – in 1929 it was announced that they were increasing the height of the Empire State Building from 1,050 to 1,250 feet, via that needle that’s at the top of the empire state building right now.

Joe Fairless: Sure.

Theo Hicks: So the question is “What was the original purpose of that needle on top of the Empire State Building?”

Joe Fairless: Oh, I don’t think there was a purpose. I just think they did it to be the tallest building, because I’m sure they were trying to beat another building… So they just wanted the needle there to have bragging rights. That’s my guess.

Theo Hicks: Okay. Submit your answer to either info@JoeFairless.com, or you can comment on the YouTube video with your answer, and the winner will receive a copy of the Best Real Estate Investing Advice Ever book that we wrote.

Joe Fairless: Volume 1, right?

Theo Hicks: Yeah. It’s the first person to get the answer correct. But moving on, the recording is on Thursday, this will be live on Friday; a week from when this goes live is the Best Ever Conference. That is in Denver, next week, and I wanted to ask you, Joe, since obviously you’re putting the conference on, you’re gonna be a speaker, do you wanna give us a little sneak peek on what you’re gonna be talking about in your keynote?

Joe Fairless: Yeah, sure. I am actually finalizing it now; it’s on my desktop. I’m gonna be talking about lessons learned after acquiring 500 million dollars worth of apartment communities… And they’re applicable to apartment investors, but then also entrepreneurs and real estate investors and business people. There will be lessons that I have not talked about before, because I recently did an assessment of just the business after we closed on this deal, which we closed a week ago today… Therefore it’s new stuff, it’s all new stuff; some new concepts… It’s gonna be a lot of fun to talk about some things that are recent observations that I’ve come across. So that’s gonna be my keynote. That will be Friday around 11 AM or so.

The agenda is on our website, BestEverConference.com. We’ve got about 40 or so tickets that are left, otherwise we’re all booked up. We’re gonna meet that allotment, for sure, so if you wanna go, come on over, come hang out with us. We’ll be having fun, too. On Thursday night there’s a Bigger Pockets event. We’re not officially affiliated with it, but Thursday night there’s a Bigger Pockets event, and then Friday night we’re renting out a bar, and all hanging out there, and then Saturday night I think it’s whatever you wanna do. But then Sunday there’s an Assisted Living Academy that everyone can attend for free as a result of being a paid attendee at the conference; that’s Sunday.

So we’ve got a lot of miscellaneous stuff going on before and after the conference. Then, obviously, the conference is a lot of good content. I’m looking forward to meeting everyone there, or seeing you there. BestEverConference.com.

Theo Hicks: Alright. And lastly, the review of the week. So make sure you guys and girls pick up a copy of the Best Ever Apartment Syndication Book on Amazon, leave a review and send us a screenshot in order to have the opportunity to be the review of the week, read aloud on the podcast.

This week’s review comes from Arthur, and I really like reviews like this one; it makes me feel good, if I’m being honest. Arthur said:

“Having been in the apartment development and syndication business for the last 15 years, I’ve never found a  book like this one. Very useful information. I’m actually surprised that he shares such detailed trade secrets. Following his book will give you a ten-year headstart.”

Joe Fairless: Thank you for that. It means a lot, especially coming from you, with the background that you have.

Theo Hicks: Exactly.

Joe Fairless: Thanks again. Best Ever listeners, I enjoyed our conversation. I hope you got a lot of value from this, and we’ll talk to you tomorrow.

JF1620: How Important Is A Social Media Presence For Real Estate Investors #FollowAlongFriday with Joe and Theo

Social media. It consumes a lot of people at all times of the day. Today, Joe and Theo are answering a question sent in from a listener asking about social media and it’s importance for real estate investors, especially just starting out in apartment syndications. If you enjoyed today’s episode remember to subscribe in iTunes and leave us a review!

 

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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. We don’t like that fluffy stuff; we only like the best advice that helps you out.

Today we’ve got Follow Along Friday. The purpose of Follow Along Friday is to talk about what we’ve learned, or answer questions from you, Best Ever listeners, to help you along with your real estate endeavors… And today we’re gonna do the latter – we’re gonna be answering some questions from a Best Ever listener.

Theo Hicks is with us, as always, on Follow Along Fridays. Theo, what have we got?

Theo Hicks: We had a question submitted from Rebecca, and it’s actually really cool. She’s doing a research project for schooling, and it’s related to real estate, so she kind of asked us if we have any data that we can provide her to help her with her research… And the main research question was “How important is a social media presence in establishing credibility as a real estate investor, in the real estate industry?”

Joe Fairless: Well, I don’t have any data for it, so if she’s looking for data points, then sorry… But I can answer the question. Was she looking for data points?

Theo Hicks: In a sense. Some of her questions were asking for specific data, but some of them were more general. For example, “The two things you really wanna know about how social media marketing in general helps you out, as well as how did writing on Bigger Pockets help you out with your syndication business, particularly when you were first starting out?”

Joe Fairless: Okay. This question will be helpful for anyone who is bringing capital to their deals, or anyone who is entering into real estate investing from some other career path, and they need to get customers or clients or investors and attract them to their business. This could be relevant for real estate agents, this could be relevant for apartment syndicators, this could be relevant for fix and flip people, and it could even be relevant for wholesalers who are looking to attract people on their buyers list and people on their sellers list.

So the question is “How important is social media when you’re starting out?” Well, I imagine most of us – and even Rebecca, I’m sure you’re are, or else you probably wouldn’t be asking the question – realize that it is important to have a presence on social media. The choice that we should make though is what platform should we focus on, and what is our role, and what’s the purpose of us being on the platform? Because some of us – I’ll raise my hand – don’t enjoy being on social media sites as much as others.

So first off, one mandatory in my opinion – but it’s a fact – is if you’re in real estate investing and you are attracting some sort of client or customer, then you’ve got to be on social media. And specifically within social media, you have to pick which platform or platforms that you want to be on. Then, once you pick that – let’s say you pick Facebook, for example – then you’ve got to find out “Okay, within Facebook as the platform that I’ve chosen, now what is my role and what will I be doing within that platform?”

I can tell you that when I was starting out with Facebook, my focus was simply promoting the episodes that I was doing from the podcast. In the early days I was doing everything for the podcast: finding the guests, interviewing the guests, doing the show notes, promoting the episode, letting the guests know that the episode went live, all of that stuff. And the important part of this is you’ve got to identify what you want to accomplish as a result of being on the platform. At a bare minimum, what you need to accomplish is when someone searches for you on a major platform like Facebook, for example, they’re going to see that you have a presence, because they’re going to be skeptical if you do not.

And in fact, I had one investor about a year and a half ago say “I looked you up on Facebook, Joe, and I couldn’t find that you posted anything for the last three years.” I was like, “What? What are you talking about?” What he was looking at – back in my advertising days when we were testing… So I was working on the social media account for Fortune 500 companies like Microsoft, and we were specifically on the Bing search engine, the Bing account – I had to create a test account for my profile to test out certain apps that we were launching; so I had like a dummy test account for Joe Fairless, and this investor was looking up my name and he found that one, and he saw I hadn’t posted in many years… And I said “I think you’re looking at the wrong one.” Then I told him the right one and he was like, “Okay, cool.” But that was a red flag for him, that he thought that I hadn’t been posting. I was kind of secretive about it.

At this point in time in our culture, you’re not allowed to be closed off. It’s just not acceptable… And for better or worse, because the downside to that, I believe, is when something catches fire on social media, whether it’s true or not true, it just takes off, because we’re all so super-connected. So that’s a downside, in my opinion, if it’s not true… But on the plus side, since we are so connected, it allows us to go in with eyes wide open into partnerships, because we have more of a sense of who that individual is and what they’re like; you get a more personal glimpse into their life. And that’s not something that should be surprising to anyone, but what we should focus on as business professionals, and especially in real estate investing, is we have to have a presence and we have to know what the outcome of that presence is.

So if you are not interested in social media, but you know from this conversation you need to have a presence, then simply have a Facebook page, and you can have things auto-populate on your page from your website, or from your blog post, where you’re simply auto-populating your Facebook page with content. And at least every now and then check in on it and make sure that your account is staying active. So it’s really a check-the-box thing.

In terms of how important it was whenever I got started – well, I don’t know how much growth being on social media, and specifically Facebook, because I’m not on Instagram; I think I have an account, but I don’t even have that on my phone… Basically, Facebook. I deleted Twitter, because that’s just a lot of noise; I know it’s very helpful for emergency situations, because you can see exactly what’s happening at every second, but… I only have Facebook on my phone, and I recently took off the notifications from Facebook on my phone, so I don’t get notified whenever I get an alert, because I personally don’t enjoy social media. But I do have a team who posts on the page as the brand page. And I jump in there every now and then, but it’s just not something that I personally enjoy.

So the takeaway is you must be on social media, but pick a platform and have a consistent presence at minimum, and at maximum, you can really grow your business.

I know that we have ads on Facebook that promote our local meetup every month, and we’re getting people from Indianapolis, Tennessee, Cleveland, Detroit, Dayton (it’s pretty close, but…) all over come to the meetup that we have in Cincinnati, and same goes for the annual conference that we have in Denver.

Theo Hicks: That’s some really solid advice. Just to add a few things, going back to what you said in the beginning about picking a platform – again, I don’t have any evidence for this, but it feels like each platform fits better based on what you do as a real estate professional. I know a lot of syndicators on Facebook because of the ability to do Facebook live; you can do Facebook live whenever, more informally, or you can do a formal webinar. That’s a good way to put information across.

It sounds like Snapchat and then Instagram are really good for agents, and fix and flippers, too. Anyone that’s doing these faster projects, that they’re trying to turn around quickly, they can quickly do before and after types of pictures. I know we’ve got a few blog posts under the “Branding and thought leadership” category on our blog that has different agents, wholesalers and fix and flippers talking about their Instagram and Snapchat strategies… But it sounds like Facebook is kind of the go-to one for what we do, just because it kind of has everything on there. You can do image-based stuff, you can do text-based stuff…

Twitter – just like you, I don’t know any investors that use Twitter, so I’m not exactly sure what that strategy would be, but I do know that the hashtag tool is very powerful if you’re trying to grow your brand and grow your thought leadership platform, and you want to find out who is creating or sharing similar content… You can type in #apartmentsynidcation and find the biggest accounts, and then share content that way.

And of course, Bigger Pockets… Do you consider Bigger Pockets social media, or something different?

Joe Fairless: No, I don’t consider it a social media platform. I don’t think it is. It’s a forum. It’s the most valuable forum you can be on as real estate investors, but yeah, it’s a forum.

Theo Hicks: I do remember you saying a while ago that you weren’t a fan of Facebook ads. Is that true, and what changed your mind about that? Because I remember you didn’t like them before.

Joe Fairless: Well, you’re bringing up something that I don’t remember saying, but I trust you, because you’re a lot smarter than I am, and probably have a better memory. I don’t remember saying I don’t like Facebook ads, so I’m not sure why I said it, but if I did, then I’ve changed my mind. I am a fan of Facebook ads because you can determine how much you’re paying, and if you’re not getting a good cost per click, then you maneuver or you reconfigure some things, or you discontinue. So I’m fine with Facebook ads.

Perhaps what I said, if what you’re remembering isn’t entirely accurate – which I’m not sure it is or isn’t – is I’m not a fan of doing Facebook ads when you’re paying cost-per-impression; I’d wanna pay cost-per-click, because cost-per-impression – no real ROI there, but with cost-per-click you’re sending people somewhere. But thank you for mentioning the different platform value propositions. It’s such a very important point, that’s very helpful, because Instagram visual stuff, which — I could have more visual stuff, and perhaps I will, like on the unit renovations we’re doing, and other things like that… Right now I don’t have a team capturing all that on-site, but I just I hired a director of marketing and he lives in Dallas, and most of our properties are in Dallas, so maybe we do some of that stuff in the future… But for me and our company Facebook is the way to go, because not only does it have it all, but I enjoy the conversation and I feel like it’s a deeper level of connection with people, because you’ve got that back and forth; we’re not confined with a certain amount of characters that you can write, and it’s really a platform that is conducive to conversations, versus checking in and checking out and doing a fly-by-night thing.

Twitter is good for content sharing. I’m not a fan of it, but that’s how that is. Snapchat – I have no idea, I’ve never even been on Snapchat, and I don’t ever wanna be on Snapchat.

Theo Hicks: I was gonna say it’s probably generationally — like, people that are a lot younger than us, they’re definitely using Snapchat, because it came out in 2011, I think… It’s just one of those newer social media platforms.

There was one more question I wanted to ask you before we moved on about social media; it’s kind of related, but you were mentioning how in the beginning you had that test accounts that you were using for your previous job, and how it kind of went dormant, and someone looked that up and was like “Oh, you’re never really posting anything on here…” – would you recommend that people create a separate business page for themselves, or should they just post everything on their personal profile?

Joe Fairless: Good question. We could have a debate on this, and there would be excellent arguments for both sides. So the debate for the pro motion, where you have two separate accounts would be you don’t want to inundate people with a bunch of business stuff whenever they added you as a friend, because they were your friend before you had this business, and so now you’re blasting them with all this business stuff, so you’re really wearing out that friendship, which could in turn hurt your business in the long run, because you’re being so loud about it.

But the motion on the flipside would be, well, yeah, but if you’re posting valuable information, like you’re supposed to, and you’re adding value every time you post some content, it’s like “Oh, this is something interesting I learned today. When I do drywall, I’ve got to install it this way, or that way… Otherwise you could run into this problem”, and it’s just a helpful tip for homeowners” – well, okay, I feel you there. Then that just might mean you need a personal page. But I think if you only have a personal page, your individual page, you’re limiting your business growth to just local period, or at least you’re limiting your business, period, because Facebook only allows you to have a certain amount of friends, and you’re not able to scale it.

Think about if Coca-Cola just had a Mrs. Coca-Cola page and it was just one female who was talking about Coca-Cola and they didn’t have a product page. Well, they’d be missing out on a lot of engagement there. So to answer your question directly, my side of the fence, the side I choose to be on on that answer is you should have a business page plus a personal, and focus your business stuff on the business page, that way you can scale your business, and occasionally, if relevant, post business stuff on your personal page, but only when it adds a whole lot of value to the people who are connected to you in a non-real estate way; so homeowners would be a good thing, because while there are less and less homeowners – thankfully, since we’re multifamily investors – there are less and less homeowners, but there’s still a lot of homeowners out there that could find some helpful tips.

Theo Hicks: I was thinking the same thing, and you sold me when you mentioned the friend limit. I forgot about that. I think you can only have like five thousand friends, or a thousand friends, or something.

Joe Fairless: I never want to hit that mark. That sounds like insanity. I don’t accept friendships on Facebook unless I actually know the person off of Facebook, and that’s when I accept that friendship.

Theo Hicks: Yeah, I do the same thing. I got really excited because I got so many friend requests from being on this podcast, and then it kind of got too much, and my page had a bunch of random people on there.

Yeah, so if you’ve got a business page, you can post 10, 20, 30, however many times you want to per day, and then anything that’s relevant to people that are on your personal Facebook page, you could share maybe one thing per day on your personal Facebook page, just to kind of push people who are your personal friends that would be interested in learning more about your business to your page, but people who aren’t don’t have to see it every single day… So I agree with you.

Joe Fairless: Cool.

Theo Hicks: Alright, good stuff. I just had one quick update I wanted to mention before I moved on to the trivia question. Last week I was talking about that deal in Jacksonville, and how Jacksonville is too far away, and all these different reasons why I couldn’t look at that deal… And you challenged me, and I really appreciated that, so I reached out to that broker, I got the information on the deal, my underwriters are underwriting it now… And I talked to my business partner about what you said about investing outside of Tampa, so we’re gonna start targeting Orlando, Tallahassee and Jacksonville.

We’re very grateful — someone reached out to me on Bigger Pockets who’s a lender, who asked me if I needed any help, and I was like “Well, yeah. Do you wanna send me some market information?”, so he sent me these super-detailed market reports on Tampa. I’m gonna do the same thing for Tallahassee, Orlando and Jacksonville, and then we are going to – either my business partner and I, or my wife and I are gonna schedule trips to those locations just for a weekend, because I’ve never been to any of those places before, so I have no idea what they even look like.

Hopefully I’ve got a couple of deals that I can look at as well, and then I’m also gonna be getting lunch with a broker and another on Tuesday who cover all of Florida, just so I can get a better idea of what areas in Tallahassee, Jacksonville and Orlando are good and which I should avoid, as well as to ask them for property management contacts.

So thank you, Joe, for challenging me. I just wanna let everyone know that I’m acting on Joe’s advice. Now I’ll be able to look at four times more deals, because I’ve got ten underwriters now, so I’ve got plenty of people to underwrite deals.

Joe Fairless: Well, I’m glad to hear that, and… As long as these episodes are helpful for you and no one else, that’s what’s most important. We’ll just continue on that. I’m sure all the Best Ever listeners will be totally fine with that, where you and I just have like a little coaching session…

Theo Hicks: Seriously. They probably would…

Joe Fairless: Who cares about everyone else…? [laughter] But I’m glad to hear that, and I’m sure we’re all looking forward to hearing how it progresses.

Theo Hicks: Do you have anything to share?

Joe Fairless: Oh, yeah, well, today we’re closing on a deal. It’s a deal in Richardson, Texas, and that’s gonna put us over the 500 million dollar mark on properties that we have under management, and we’ve got part ownership in on along with our investors… So congratulations to all the investors who are in the deal with us in Richardson.

We’re airing this episode – so there’s no confusion for investors who are listening to this… This episode airs on Friday, but we record it on Thursday, and we’re scheduled to close on Thursday. So if you hear this episode on Friday and you’re saying “Wait a second, we closed yesterday”, well that’s because we recorded a day before. So congrats to everyone, and… I don’t know if there’s any lessons learned on this deal. If there is something that comes up, then I’ll mention it, but I just kind of wanted to celebrate that note, and let’s move on to the trivia stuff.

Theo Hicks: Congratulations to you, half-way to a billion dollars.

Joe Fairless: Yup.

Theo Hicks: That’s awesome. Alright, trivia questions. Last week’s trivia question was “What U.S. city had the largest increase in rent from 2014 to 2017?”, so those past three years data was available for, percentage-wise. The answer was surprising to both of us – Detroit. It actually increased by 9.8%. It was a $340 increase in rents. The person that got that correct will be getting their free signed copy of the Best Real Estate Investing Advice Ever Book.

This week’s question is gonna be a little different than usual, but I think it’s a very interesting and unique question. In 2010 Apple, the iPhone company – and they do more than that, but the iPhone company… I’ve got my iPhone in front of me that made me say that… It purchased one acre of land from an elderly couple in North Carolina in order to build a data server. So this elderly couple bought that land for $6,000 34 years prior. The question is “How much did Apple pay for that land?” And I’m gonna let you be within $100,000.

Joe Fairless: Alright, how much did they buy it for originally?

Theo Hicks: $6,000.

Joe Fairless: They bought it for 6k. And what year did they buy it?

Theo Hicks: 34 years before 2010, so was that ’76?

Joe Fairless: They bought it for how much?

Theo Hicks: $6,000.

Joe Fairless: They bought it for $6,000 in 1976, and how much did they sell it to Apple for… There’s only one acre?

Theo Hicks: One acre.

Joe Fairless: One acre in North Carolina?

Theo Hicks: Mm-hm.

Joe Fairless: What city? Or I guess it was a little outside of a city, I imagine, since it’s a data center…

Theo Hicks: Yeah. I don’t know.

Joe Fairless: Well, that’s hard with not knowing how close it is to civilization. I imagine it’s kind of close… So this is — who knows…? I’m not even gonna guess. I don’t even know.

Theo Hicks: You’ve gotta guess, Joe.

Joe Fairless: I’m gonna say — one acre? I’ll tell you, the nicest area of Cincinnati, or the most expensive area of Cincinnati (Indian Hill is that area), they sell per acre around $200,000, so I’m gonna say $250,000 for one acre.

Theo Hicks: Okay. Well, anyone else who has a guess, make sure that you comment either on the YouTube video, or send us an e-mail at info@joefairless.com, and if you are within $100,000, then you will receive a signed copy of the Best Real Estate Investing Advice Ever book.

Joe Fairless: The first one to respond who’s within 100k.

Theo Hicks: The first one, yes. Correct.

Joe Fairless: Yeah. Sweet.

Theo Hicks: Alright, so what’s the date today? The seventh. So we are very close to the Best Ever Conference 2019 in Denver, Colorado, 22nd of February and 23rd. The last scheduled event right now is going to be The Worst Deal Spotlight and Competition. It looks like it’s going to have a Price is Right game show theme to it… I thought that was interesting, because I used to love that show when I was in college. I’d watch it every single day at my fraternity house.

Joe Fairless: Really?

Theo Hicks: Yeah.

Joe Fairless: On the couch, eating Cheetos?

Theo Hicks: No, we had like a meal plan there, so I’d go there for lunch, and I’d watch Price is Right with everyone, and we’d all scream at the TV…

Joe Fairless: That’s some whacky stuff. Alright, college kids, huh?

Theo Hicks: College kids. So make sure you guys aren’t screaming at anyone during this Price is Right game, but… I think that was kind of a fun activity, but you also kind of learn about some mistakes people made on their worst deals.

Joe Fairless: Yeah, we learn a lot from our successes, and we also learn a lot from our failures, and it’s even better if we learn — well, sometimes it’s better if we learn from other people’s failures, not our own… Because otherwise we’d be failing a whole lot if we had to learn from only our own failures to be where we wanna be.

Cool, good stuff. And review of the week?

Theo Hicks: Yeah, review of the week – guys and girls, make sure you guys pick up a copy of The Best Ever Apartment Syndication Book on Amazon, and leave a review and send a screenshot to info@joefairless.com in order to be the review of the week.

This week’s review is from Charles. Charles said:

“The only bad thing I can say about this book is I wish it was available in hardcover, because the amount of times I’ve referred to this book has made the cover flimsy. Whether you are brand new, or experienced, or in-between, the book has many great tips to follow.”

Joe Fairless: Well, thank you for that, and interesting idea on hardcover. I’m not sure how easy it would be or hard it would be to do that. We might look into that. Most importantly, thank you so much for taking time out of your day to leave a review, and I’m grateful that, most importantly, you got value from the book.

Well, everyone, have a best ever weekend, and I’m looking forward to talking to you tomorrow.

JF1613: Top Apartment Syndication Questions We Get #FollowAlongFriday with Joe & Theo

Joe received an email with a lot of apartment syndication questions recently. He decided to make an entire episode answering the questions. The questions Joe will be answering are:

 

I was curious about syndication deal structure. I’m curious what types of deal structures are typical as far as preferred return vs equity split?

For instance, if you offer a 6% preferred return, what kind of equity split is reasonable? How does that split change if you move to an 8% preferred return?

Also, length of investment. What’s your experience with how fast investors are generally looking to get their money back? 3-5 years? 10 years?

Lastly, refinancing. Does Ashcroft capital keep investors in the deal after refinancing and paying back initial capital? If so, does the equity split change at that point?

 

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JF1606: 5 Biggest Takeaways From 1 Week Of Real Estate Interviews #FollowAlongFriday with Joe and Theo

For today’s Follow Along Friday, Joe is sharing his biggest lessons learned from doing his podcast interviews last week. From shelf corporations to learning about underground storage tanks and the problems they can cause. We’ll also receive the usual business updates that we as investors can learn from. If you enjoyed today’s episode remember to subscribe in iTunes and leave us a review!

 

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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.

We’ve got Follow Along Friday today. The purpose of Follow Along Friday is to talk about what we have learned, or certain things that we’ve come across in our real estate endeavors, so that we can share those lessons with you, ultimately to help you on your journey; that’s the whole point of Follow Along Friday.

With us, Theo Hicks, as always. Theo, how should we get going?

Theo Hicks: Well, this week we’re gonna talk about some of the things that you learned from your podcast interviews last week. We’ve got five particular people – these are interviews where you learned something new, basically, and since these interviews are not gonna come up for a while, and since we’re on Follow Along Friday and the purpose of Follow Along Friday is to teach people about things that we’ve learned, we figured we could have a conversation around that today. So I guess we could just go straight through these five interviews, starting with Jerry Detweiler…? Did I pronounce that correctly?

Joe Fairless: Yeah, I think so. I think it’s Detweiler. But for additional context, and thanks for setting the stage – just for a little bit more context… So every Thursday I do interviews for this show; that is the day I do interviews. Most of you Best Ever listeners know this, but I don’t do interviews every single day for this daily podcast, otherwise I’d go bonkers and I wouldn’t be able to be effective with the primary way that I make money, and that is Ashcroft Capital, overseeing that company along with my business partner, Frank.

So the way I slice up my time is on Thursdays I do interview day. Today, for example, I am interviewing nine people, and I’m starting to interview at [11:30] AM, and they’re 30-minute blocks, so I’ve got three interviews from [11:30] all the way to 1 PM. Then I have a call with a potential new investor who reached out to us. That’s usually my break period after the three interviews, but my team booked a new investor call, so I’m speaking to a new investor. Then I’ve got three more interviews. Then there is a break at 3 PM, to [3:30]. Then from [3:30] to 5 PM I have  three more interviews. So I’m doing nine interviews today. It’s a pretty quick day for me, because it’s so active… And then we do this Follow Along Friday on Thursday, so that it can air on Fridays, and the ads, and whatever else can be added in there the day before.

So Thursdays are interview day, and I am inundated with a whole lot of information… And I thought it would be interesting for me to be intentional about the information that I’m learning and coming across last week, so I can really determine what am I taking away from these interviews… And these five things that I’m about to talk about – some of them might seem a little silly, because, like, “Really? That’s the thing you chose to take away from the interview?” and what I was really focused on is something brand new that I hadn’t heard of before from the interviews, or it was just something that was good to reinforce in my mind.

So while I was talking to the individuals who I interviewed last week on the interview day, if there was something that stood out like that, I put it in all caps and I said “Thing I learned”, and then I said “This would be cool to share with the Best Ever listeners next week.” And I believe you can learn something from anyone; it’s your responsibility, should you choose to undertake this, to find out what that something is. Everyone has something that they can teach us; whether or not we discover what that is, that’s up to us. That takes us first wanting to learn from that individual, and then also being able to ask the right questions.

I can interview someone who has no real estate experience – I usually don’t – and I could learn something from them about what they have done so far, and if it’s nothing at all, well, there’s something to be learned there… We would dig into why they haven’t done anything, and we can learn some aspects of their psychology and perhaps apply that or reinforce some things in our own mind. So there is the setup for this.

One thing from Jerry Detweiler that I learned is she mentioned shelf corporations. I’d never heard of a shelf corporation before, had you?

Theo Hicks: No.

Joe Fairless: No?

Theo Hicks: I’ve heard of Shell Corporation, but shelf…

Joe Fairless: Right, this would be shelf corporation… I too have heard of Shell Corporation, but not shelf corporation. Jerry works at Nav.com, and their business model is essentially helping businesses get lines of credit, and they help businesses determine what their credit score is and how to build that credit score, so they can get more and more lines of credit for funding. And we talked about she and her team approach that, and she also talked about some scams that are out there to try and trick people into paying them money so that they can build their credit, but it doesn’t actually work.

One scam she said to look out for – it’s not always a scam, but one thing to look out for and be very eyes wide open about if you choose to pursue it is a shelf corporation. The concept behind the shelf corporation from a line of credit standpoint is the corporation has been established for a long period of time, but they’ve putting it (metaphorically) essentially on a shelf, so it doesn’t have activity, but it’s been building this credit, because it’s been around for so long, so people sell their shelf corporations to individuals who want a business that’s been around a while, so it can be approved for a larger line of credit. Makes sense?

Theo Hicks: It makes sense, yeah.

Joe Fairless: So conceptually it makes sense, but she said “Not necessarily the case most of the time, because there’s a lot of things that go into actually getting approved for a line of credit.” Actually, there’s a couple things, and you will have to listen to the interview with her to learn those things, because I didn’t write that down, and I’m not necessarily looking for  a business line of credit, so… That’s something in my notes, but not on the notes in front of me. But that was one takeaway that I got from the day, is the shelf corporations. It was a new term, I hadn’t heard of it… And just something to look out for, not necessarily to jump on board if you are looking for a line of credit. I thought it would be interesting for the Best Ever listeners.

Theo Hicks: That is interesting. We can kind of apply this to real estate, too… Kind of, not exactly, but… I’m thinking of shelf properties – these are properties that have obviously been rented out for a long time, but the owner themselves have kind of put it on the shelf and haven’t really addressed any of the deferred maintenance or any of the issues, and you need to watch out for those kinds of properties too, because you’ll find a lot of hidden things that you didn’t expect.

I think my fourplexes could probably be considered shelf properties; they’ve been ignored for a while, so… That’s the first thing that came to my mind when you said that.

Joe Fairless: I like that, yeah. Way to bring that full circle. Nice work. The second is a conversation I had with Steve [unintelligible [00:08:55].16] First off, he’s from Detroit; I was born in Flint, Michigan, grew up in Texas, and there’s something about talking to people who are from Detroit and Flint area… I just enjoy blue collar, say-it-how-it-is type of people, and I just really like having the conversations with people like that.

Anyway, he talked about a 20-unit apartment complex, a 1920’s property, all-brick, and what I wrote down as something that I liked during our conversation – and it’s not anything about the deal, but it was how he was describing the deal, because he’s a great storyteller… But in my opinion he wasn’t intending to be a great storyteller, he’s just someone who you like to hear talk about what they’re working on, because it’s really interesting, because he makes it sound really interesting… But he unintentionally makes it sounds interesting, it’s just how he has a conversation. He said “Imagine this… “, and then he talked about the deal. And when he said “Imagine this”, I was like, “Well, I’m imagining exactly what he’s talking about.” And it was that command of “Imagine this…” I wrote it down, I was like, “I like that phrase”, because it immediately made me think of exactly what he was talking about, because he told me to imagine it… And I thought, “Well, that’s an interesting phrase that I can incorporate whenever I’m talking about stuff and I want people to imagine it, and be there with me in the journey as I tell the story”, so I wrote that down.

Clearly, that has  nothing really to do with the real estate deals that he was working on, which are — it’s really interesting to hear his story, so I obviously recommend listening to his podcast when it comes out, in 30-45 days, but the “Imagine this” phrase is what caught my attention.

Theo Hicks: Yeah, seriously. My goal is gonna be to use that phrase at least once on this podcast. I’m gonna drop it out of nowhere, Joe, so… You’re never gonna know when it’s gonna come. [laughter]

Joe Fairless: I have so much anticipation for when that will happen. The next one is Chandler David Smith. He started in sales, knocking on doors… And I wish I wouldn’t have sent you the outline that I was gonna talk about, Theo, because I would have asked you what you think he was selling door-to-door, but… You see the outline in front of you – he was selling pest control products/services. Door-to-door, incredibly hard. Pest control services – I imagine that’s gotta be pretty hard, too… And he ended up being a top salesperson doing door-to-door sales, and clearly that translates into real estate, because you’ve got to be able to sell yourself, sell the deal, sell yourself to team members to attract the right team members, the most qualified team members… And so I asked him “How did you do that?” Because he made $90,000 in a summer, and he signed up 459 accounts during a summer. He signed up 459 accounts for pest control. He said it was like a $300 or $500 service that he was signing people up… And one out of every seven or so that he went to ended up buying the pest control, and I said “Well, how did you do it?” and he said, “Well, I worked harder than others.” I said, “Okay, elaborate on that, please, because we wanna get underneath the surface there.” He said, “Well, it wasn’t that I was working many hours more than other people. What I was doing – I was working at least one hour more; and in that extra hour more I was getting a disproportionate amount of results from working that extra hour.”

So he was doing one hour more a day, and he was getting a disproportionate amount of results because of that. And I told him during the conversation – it reminded me of when Tony Robbins talks about when you do a set of ten reps in a weight room, when you’re doing bench press, a set of ten, what rep leads you to the greatest growth, and it’s rep eleven. It’s the eleventh rep where — okay, you did ten; great, ten was tough… Okay, now do one more. You can do one more. And that eleventh one is the one that leads to the greatest growth. I do that when I’m working out. If I’m gonna do a certain set, I always do one or two extra ones… And those types of things have compounding effects on the business, because when you do that consistently, well, now you’ve got some greater results than if you were just doing exactly what everyone else is doing.

And think about paying off mortgages  – anyone who looks at paying off their mortgage early, whether or not that’s a good thing (that’s debatable), but just the sheer facts of if you do an extra mortgage payment once a year, or a little bit extra each month, then that’s gonna save you a lot of money in interest, and that’s gonna pay it off much faster over a period of time.

Theo Hicks: Yeah, I think there was another athlete – it might have been Mohammad Ali, but I’m not 100% sure, but he also had a similar philosophy, which is he didn’t even count the reps until it started to hurt. It was him, or [unintelligible [00:13:56].12] one of those super-athletes.

I totally agree, because if you think about it, if you work an extra hour every day of the month, each month you’re nearly getting an extra full workweek of time that others aren’t getting in… So that obviously, for sure compounds, because over a 12-month period you’re almost getting 12 extra workweeks worth of time in each year than someone else. If you compound that over time, that kind of puts you way ahead of everyone else.

Joe Fairless: Yeah, I like that. I hadn’t heard of “start counting the reps once you start feeling the burn.” The fourth thing is Steve Pesavento. He’s flipping properties in a couple different cities in the U.S. that he does not live in, and we talked about challenges, and things him and his team have had to overcome as a result of their remote flipping… And one of the things he mentioned is he’s flipping in Raleigh, North Carolina; I asked him about deals that didn’t go well, and he mentioned this one deal where in Raleigh there was an underground oil storage tank, and he hadn’t ever come across that; I personally have not come across that either… And he said it can be common in that area, and he said the cost to have them removed was 15k-20k, which was something that he hadn’t expected… And on a single-family home fix and flip, that can severely hurt your margins/take you to the other direction.

Theo Hicks: I think one of your earliest podcast episodes someone had mentioned that they bought land — they didn’t know it used to be  a gas station, and they had the same issue with the underwater gas tanks, that cost a ton of money to remove.

Joe Fairless: And then lastly, Edwin Kelly – he heads up a self-directed IRA company, and they’ve recently evolved so that they… Apparently, self-directed IRA companies have to have some sort of trust charter connection — and again, I’m getting outside of my comfort zone, because I don’t know a whole lot about this… But I believe a trust charter company or a trust charter has to sponsor a self-directed IRA company. So Edwin’s company, as they’ve grown they went ahead and established a trust charter, so they don’t have to be sponsored by a trust company.

So I learned from this conversation, which is pretty esoteric knowledge, but still, it’s something I learned – the two states in the United States that are most favorable and flexible for trust charters from a regulatory standpoint are New Mexico and South Dakota. So I was writing down things I learned — I don’t think I’ll ever apply that information anywhere, but it’s an interesting trivia question, so I wrote it down.

Theo Hicks: We should have just used that for the trivia question of the week.

Joe Fairless: Well, I know, yeah… Yeah, we should have. So there you go, those are five things, and… Best Ever listeners, if you found this interesting, then let us know and I’ll attempt to do this more often than not, whenever I do the interview marathon days.

Theo Hicks: Awesome. Well, speaking of the trivia question, let’s move into that. Last week, the question was “In 2016 a record number of companies left California. What state did the large portion of those companies move to?” and unfortunately I kind of gave it away when I mentioned that your investors would know…

Joe Fairless: You definitely gave it away.

Theo Hicks: I did give it away. The answer was Texas.

Joe Fairless: That was a weak trivia question. Most people knew that even if you didn’t give it away though.

Theo Hicks: Well, I think this week’s question is a little bit stronger…

Joe Fairless: Okay…

Theo Hicks: So what city – it has to have a population greater than 200,000, so it can’t be a really small city with five people in it – has the largest percentage of the population renting? So what city has the largest percentage of the population renting? Now, the percentage is actually over 70%, keep that in mind… Which was shocking to me, because I think the U.S. average is in the 30% range, I think, around there.

Joe, what city do you think has the largest percent renter population?

Joe Fairless: I’m gonna go with New York City, because it’s expensive to live there, and it’s  a place that a lot of young professionals go out of school, for jobs, and they don’t buy, they just rent; for those two reasons I’m gonna go with New York City.

Theo Hicks: Okay.

Joe Fairless: Although I feel like if it was New York City at 70%, I would have read that somewhere already. I am not confident in my answer, but logically, that’s what I’m saying. I believe  I’m wrong, but that’s my best guess.

Theo Hicks: Okay. Just to make you feel a little bit better, New York is definitely in the top five.

Joe Fairless: Alright, cool.

Theo Hicks: So your logic was definitely sound.

Joe Fairless: Okay, fair enough.

Theo Hicks: So if you guys either reply to the YouTube video that we post, or send us an e-mail at info@joefairless.com, the first person to get the correct answer will receive a signed copy of our first book, Best Real Estate Investing Advice Ever Vol.1… Which we’re actually in the process of revising right now for a second edition. That should be coming out in the next couple months as well.

Joe Fairless: Yeah, we’re just cleaning up grammar and spelling and punctuation stuff. We’re not putting any bells and whistles in it, we’re just doing a better job of what we should have done in the first place, basically.

Theo Hicks: Also, this episode comes out Friday the 25th, which is exactly four weeks before the Best Ever Conference 2019 in Denver, Colorado, so make sure you guys go to BestEverConference.com, and check out the line-up that we have. We’ve got most of the presentations/panels filled out on that schedule; some of them are still to be determined… But also, buy your ticket to make sure you get the best price, because ticket prices go up each week.

And then of course, on the podcast we’re going to mention something that will be discussed at the conference that will definitely add value to your business – there’s going to be a two-person panel that will talk about the intricacies of SEC law. This will be for people who are interested in putting together syndications.

I think this is gonna be a powerful panel because I would probably say one out of ten posts that I see in the multifamily real estate forum on Bigger Pockets is related to SEC law, and asking questions about securities, and how to make sure they’re doing things by the book, and structuring partnerships correctly, and the differences between the different types of syndications… So during that panel, if you attend the Best Ever Conference, you’re gonna get most of the answers to the questions that you need, and if you have any extra questions, what’s great about the Best Ever Conference is that it’s got a networking time, so you can actually talk to them afterwards, or beforehand, or at one of the nightly events, to kind of ask more specific questions based on your current situation.

Joe Fairless: Yeah, and one of the attorneys that’s gonna be there – his name is Roland, and his information is on the BestEverConference.com website… He’s our securities attorney, so I personally can vouch for him as being someone who is gonna add a lot of value to the conversation. And if you have any deals at all that are going to qualify for a security, then why not go to the conference, learn, but then also have a conversation with him? His rate is north of $300/hour, so you talk to him at the conference, at the bar, or something, where we’re all hanging out, and you’re saving — hopefully he doesn’t hear me say this, but you’re saving the money when you’re talking to him at the bar, hanging out, and you’re getting some of the questions answered.

I’m sure there’s a line in the sand that if you’re not a client of his, then he can’t answer until you officially engage him, but still, it could be a really good opportunity and it actually could save you money as a result of attending.

Theo Hicks: Absolutely. So that’s BestEverConference.com. And then lastly, make sure (if you haven’t already) to pick up a copy of the Best Ever Apartment Syndication Book. If you leave a review on Amazon and send us a screenshot, we will send you a package of free apartment syndication resources, as well as you’ll have the opportunity to have your review read aloud on the Follow Along Friday Podcast.

This week’s review of the week comes from Alec Liskov. Alec left a regular Amazon review, but he went above and beyond and actually left a video review which was pretty cool, and I didn’t realize he could even do that on Amazon… I’ll summarize the review that he provided in the video:

“Joe’s book is one of the best resources on apartment syndications I’ve seen out there. There are three reasons why I love this book. Number one, his approach and guidance are designed for anyone to follow, from inexperienced to experienced investors. Two, he doesn’t just provide information, but rather a step-by-step guide of how to actually get started (and he mentions how he went back to the book to go over the different processes and step-by-step systems that we provided in the book). And number three, finally, he sets expectations and tells it like it is. He shares both his success stories, as well as his failures, which is really helpful in setting the right expectation for long-term success.”

Joe Fairless: Well, thank you for leaving that video review. I think it’s only a video review, right? That’s pretty cool. I didn’t realize you could do video reviews either, so thanks for doing that. I really appreciate it and I’m glad you got value from the book.

Theo, I called you yesterday, and your voice mailbox is full, so I didn’t leave you a message because I couldn’t. But I called you because I had a conversation with someone who I met yesterday and he said he bought our syndication book and he read it in one day.

Theo Hicks: Oh, man…

Joe Fairless: He called it a fun read. I was like, “Well, fun? Okay… I’ll go with that.” He’s a software engineer, and he said he loved that we got into the details, but he literally read it in one day. I thought I held the record, because I read it in one day when we were doing the final walkthrough of the book, so I read it from start to finish one last time, in one day… But he tied the world record for quickest read for the book. I thought you’d find that interesting, too.

Theo Hicks: That’s interesting.

Joe Fairless: Well, everyone, thanks for hanging out with us. I hope you got value from the conversation. Have a best ever day and we’ll talk to you tomorrow.

JF1599: How To Become A Top Contributor On BiggerPockets In 10 Days #FollowAlongFriday with Joe and Theo

We know by now how beneficial BiggerPockets can be for our real estate investing business. Theo is often a top contributor in BiggerPockets and is telling us how he does it. We’ll also touch on why it is important to hit the top contributor status. If you enjoyed today’s episode remember to subscribe in iTunes and leave us a review!

 

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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.

We’ve got Follow Along Friday today. The purpose of Follow Along Friday is to talk about what we’ve got going on, so that we can help you with whatever you’ve got going on in real estate. Theo Hicks is with us… Theo, let’s kick it off.

Theo Hicks: Let’s do it, Joe. I recently became a top contributor on Bigger Pockets again, and I know we’ve discussed this on the podcast before, but I wanted to just reiterate the strategy and tell you exactly how I did it. Obviously, recently we’ve had the Christmas break, so I wasn’t posting to Bigger Pockets for a few weeks, so I lost my top contributor status… And when I got back on the 2nd…

Joe Fairless: Before you talk about how you did it, with does top contributor status mean?

Theo Hicks: Okay, I’ll get a little bit into that. Essentially, for each of the forums on Bigger Pockets, when you click on Posts, for example, whatever forum that’s under, it’ll have a top contributor list on the right-hand side. It’ll be the top five contributors to that forum, and it’ll have a score. The highest score I’ve gotten is around like a 9 or a 10. I’m not exactly sure what the score means, but I’m pretty sure it’s a combination of number of posts within a certain timeframe, plus the number of interactions you’re getting on that post.

Joe Fairless: You mean votes?

Theo Hicks: Yeah, votes… So it’s a combination of votes and number of posts.

Joe Fairless: Before we go down the path of how do it, let’s take a step back and talk about why we’re on Bigger Pockets first… And this is gonna be really quick, because Best Ever listeners, you know the importance of Bigger Pockets, but one thing I just want to reiterate and just shine a light on a little bit is when you’re partnering up with other people in real estate, especially if you’re bringing on investors, but even other people, whether it’s a business partner who brings a skillset that you don’t have, or even perhaps vendors, and certainly investors in your deals, you need to have trust… And the two types of trust you must have – you have to have both with them – is one, they have to trust you as an individual, and then two, they have to trust you as a business person.

So they have to trust you as a person, number one, and then number two, they have to trust you as a business person who is an expert in whatever your focus is. If you’re a fix and flipper, you must be a trusted individual who they know is an expert at fixing and flipping, or wholesaling, or buying apartments. And what Bigger Pockets allows us to do is to establish the trust as a business person who is an expert within our area of focus… And it’s incredibly scalable, because you post once and it lives forever. I know this because a long time ago I offered to give people a developer template that I came across randomly – I don’t develop deals – and people are still asking me for it… And I’m like, “Oh, man, another one…?!” [laughs] And then I send them to Samantha on my team and she gets them this developer template. Please don’t ask for it, by the way; it’s not that good of a template, I just randomly ran across it… [laughs] But it’s a way that you can accomplish the objective of creating that trust in a scalable way, that shows you’re an expert on the particular area that you’re focused on, and the outcome of that is developing long-term relationships with people, who could be business partners, who could be passive investors, or who could be vendors who are like, “Hey, that guy or gal knows what they are talking about. I wanna work with them…” Perhaps give them some sort of exclusive discount, or some sort of rate or partnership that they don’t offer anywhere else, so that they can ride your coattails as you’re growing.

So trust is the foundation of what we do. Bigger Pockets is one platform that we use to grow our business, in addition to others, like this podcast, and meetup groups, my conference etc. And all those platforms – it’s all about scalable trust that’s relevant. So that’s why we’re talking about how to become a top contributor within ten days on this episode, because regardless of you raising money or doing other stuff in real estate, you need to be attractive to those you’re looking to attract, and Bigger Pockets is a way to do that.

Theo Hicks: Exactly, and you’ve hit on all the benefits of getting this top contributor status. Something else I was thinking about last night – I can’t remember what website I was on, but on most website they have ads, and they’re usually on the right-hand bar, so they’ll have that picture ad or whatever, and obviously you’re paying a ton of money for that, so I’m pretty sure with Bigger Pockets it’s the same thing, they’ve got their ads… So if you think about it, if you follow this strategy and you become a top contributor, you’re essentially getting a free ad on Bigger Pockets, but it’s even better, because you’re not paying for it; you’ve actually earned it through adding value to other people, and people will see that and rather than be like “Oh, he paid for that ad spot” – which obviously is still great, but this is another way to promote yourself, in a sense, without having to pay, but also people will know automatically that you’ve got that credibility, because you didn’t just give money to get that spot, you actually had to put forth effort, frequently, for an extended period of time, in order to earn that spot.

Then one more thing before I actually go on to the strategy, because you might be thinking “It’s different for you guys, because you guys have the podcast, and YouTube channel, and everything like that, so more people will recognize you and therefore vote on your posts”, but it’s not necessarily the case, because I get a ton of messages on Bigger Pockets, but there were a lot of times where I’ve gotten messages on Bigger Pockets where all they said is “Hey, I saw you posting on the forums…”, and whatever else they wanted to say. They didn’t say “Hey, I saw you posting on the forums and I recognized you from Joe’s podcast and I wanted to reach out.” I do get those messages, but I would say the majority of them are just people saying “I saw you posting on the forums a ton. You seem like you know what you’re talking about… I wanted to reach out and ask you some more questions.”

From this, I’m telling you, I keep getting people offering to underwrite my deals. I’m up to seven or eight now, just from Bigger Pockets; they’re all coming from Bigger Pockets. Obviously, they’ve heard me talk about it on this podcast, but that’s how they’re finding me, through Bigger Pockets. “I heard you talking on the podcast about underwriting, and I happen to see you posting a bunch a bunch on the forums, so I decided to reach out.”

Joe Fairless: Awesome.

Theo Hicks: Now on to the strategy, and I know we’ve talked about this before, but this is, again, exactly what I do every single week. I obviously go to BiggerPockets.com, and I’m gonna talk about specifically for the multifamily forum, but this can be applied to any other forum that they have on the website.

So you go to the top, you go to Forums… Typically, when click on Forums, it’ll bring you to the main forum page, where you’ll have every single forum post in chronological order, so usually the ones posted a couple of minutes ago. Now, you wanna make sure that you’re posting in the forum that you want to be a top contributor in. Obviously, for Bigger Pockets there’s notifications that you’ll get, if people vote on your posts, or if they reply to one of your posts, so you definitely wanna do those first.

So go to that top right of your screen, it’s got that little bell – click on that, and it’ll just say Notifications, Keyword Alerts, Inbox. You wanna do Notifications first, and anyone who’s replied to your comment or mentioned you, make sure you upvote their comment and then reply, even if it’s something as simple as “I appreciate the kind words. Feel free to send me a DM if you have any other questions.” As simple as that.

Now you actually move on to keyword alerts. Keyword alerts are not as relevant to this strategy, because what I’ve noticed is I’ve got my keyword alerts for “apartment syndication”, “accredited investors”, things like that, but if you actually click on those keyword alerts, you wanna make sure that that post is within your multifamily category, or your fix and flip category, or whatever your category is… Because again, it’s based on the top contributors per forum category, not for the overall forum.

I’ll reply to those regardless anyways, just because people are still asking questions, and I still have pretty solid answers to those questions… But [unintelligible [00:09:15].14] make sure that it’s actually on that forum, or at least you know that it’s on that forum, so when you’re keeping track of how many posts you’re doing, if you’re posting on a keyword alert that’s not on your multifamily forum, you just keep that in mind and make sure that you do an extra post on the multifamily forum.

After that, once you’ve exhausted the notifications and the keyword alerts, that’s when you wanna go to your forum. So you’ll go to Forums, it’ll be Commercial Real Estate, and then there’s two categories in there – there’s Commercial Real Estate and there’s Multifamily Investing. Click on Multifamily Investing, and if it’s Tuesday, through Friday, I will go to the posts within the last 24 hours. If it’s Monday, I’ll do the posts within the last three days. And I literally just go through every single post and I read the title, and if it’s something that I know I could have an answer to, or I might potentially have an answer to, I just open it up in a new tab. So by the time I’ve gone through the posts, I’ve got 5, 10, 15 tabs open.

Then you just go through, you read the thread, and you reply to it, making sure that you mention the person who asked the question, so that they see it. It’s really as simple as that.

The next day you come back, you’re most likely going to have notifications from the posts from the day before, new keyword alerts, plus 24 hours’ worth of new multifamily posts. I do that again, so I do that for obviously the first five days. For me, I did it for five days, and I did it for a few more days the next week, and then I got that number five spot on the top contributors.

Typically, I’m higher up, and I think I’ll work my way back up that list over the coming weeks, but yesterday was the first time I was back up on that list. The only reason why it might not work is two reasons – number one, if you’re in a forum that has a lot more people involved than in multifamily. Multifamily is probably one of their top forum posts, so it shouldn’t be that big of a problem, but I think they have some that are more general, like literally general real estate investing advice, so I’m sure that would be a little bit more difficult to become a top contributor on.

Also, I’ve been posting for three months prior, every single day, and I took a two or three-week break, so that might have given me a head start… So this might take you a little bit longer than ten days, but regardless, if you just follow this strategy five days a week, you will become a top contributor in your category, at some point with a month, I would bet.

This strategy literally takes me between half an hour or 45 minutes every single day, that’s it. So it’s not like I’m spending hours and hours on there. Once you get your system in place and you get used to clicking through the forum, it shouldn’t take any more than half an hour to 45 minutes, and everyone’s got half an hour to 45 minutes in their day to spend on something like this, especially, as Joe said, with all the benefits.

Heck, I’ve gotten so many people interested in underwriting my deals, I’ve gotten coffee with so many people, I’ve gotten so many kind words, so many people talking about our book, talking about the podcast and how helpful it’s been… Overall, it’s been an amazing experience on there.

Joe Fairless: And you mentioned you’ve been doing it daily for a long period of time, then you took a break for the holidays… But you are consistent with it, and I wanted to ask you a question, Theo – what does the number 6,702 represent?

Theo Hicks: I don’t know.

Joe Fairless: Yeah, it’s an impossible question to answer. [laughter] It represents the number of Bigger Pockets members who have the addict award awarded to them. You know how you get awards on Bigger Pockets for your first post, first vote, 100 votes, 1,000 posts… A bunch of different things. And if you go to BiggerPockets.com/awards, you’ll see all the awards that they give.

There’s no ceremony or anything, but it’s a recognition of what your contributing on Bigger Pockets. They’ve got a Genius award, and some other stuff, where a bunch of people — if you have a certain amount of votes on your posts, you get a Genius award. But 6,702 people have been awarded the Addict award. I am one of those people, and I don’t do it every single day now, because I’m at a different stage in my business. But I go on Bigger Pockets frequently, and — I’m still building myb business, but when my business was in a different stage earlier on, I went on Bigger Pockets every single day. The Addict award is defined by posting every single day for one month. Just posting every single day for one month. 6,702 people – as of yesterday when I looked at it, because they should you how many people have been awarded it on that page I mentioned… 1,200,000 people according to Bigger Pockets are on the website. 1,200,000 people are members of Bigger Pockets. 6,702 people are crazy enough to get that Addict award, where they’re on Bigger Pockets every single day for one month. That is half of a percent of Bigger Pockets members do that.

My theory is that if you do posting every single day for a month and you get that award, and you become in the top half of a percent of Bigger Pockets users who are all-in on it, your income will increase dramatically, assuming that you’re adding value during your posts.

It’s something that I was looking and I was like “Wait a second…”, because my income is top half of a percent for America, my net worth is that, and the top half of a percent of Bigger Pockets members do the Addict thing. So a challenge I have for the Best Ever listeners is to do that and get that award; get that Addict award on Bigger Pockets. You follow Theo’s approach that he mentioned, and you do it consistently, and get that Addict award that I’m mentioning, and  good things are gonna happen for you.

Theo Hicks: Oh yeah, I totally agree. I actually don’t have the Addict award yet, because I don’t post on weekends, but I’m gonna actually start doing one extra post on the weekends, so I can get that award. Clearly, that’d be powerful.

Joe Fairless: There’s power in momentum. People are generally inconsistent, and generally don’t do what they say they’re gonna do – I don’t know why, that’s just how it is – so those of us who are consistent and do what we say we’re gonna do, we’re gonna stand out, and we’re gonna be rewarded for it.

Theo Hicks: Yeah, it really is all about momentum, and if you’re trying to start a new habit, it’s gonna suck, it’ll be hard to do it for first 10, 20, 30 days, but… Just think about anything that you’re doing right now consistently that you have been doing for a long time – maybe you started doing it a couple years ago – think about it’s just everyday nature now, whereas before it was more like, “Oh, this is so difficult.”

Working out is the perfect example – it’s really difficult to start a workout routine, but once you’ve been doing it, you don’t even think about it; you’re just naturally like, “Alright, it’s time to go to the gym.” Your body says “It’s 2 o’clock, it’s gym time.” The same thing for things like this.

Maybe post four days this week, and then next week you do five days, but it was really hard, and you didn’t wanna do it that fifth day, but you did it anyways – it’s gonna be that much easier the next time you try to do it, because you realize “It was half an hour or 45 minutes of just moving my fingers and just thinking a little bit. It’s not that difficult to do.” And as you’ve said, think about all the benefits that you will get from doing it.

So yeah, how to become a top contributor on the multifamily forum – or any forum on Bigger Pockets – in ten days is to essentially post to the forums every day. It’s pretty simple.

Joe Fairless: A little more complicated than that, but yes. [laughter] Everyone’s like, “Man, this episode could have been seven seconds… What the hell, guys?”

Theo Hicks: [laughs]

Joe Fairless: Alright, cool. Let’s move on.

Theo Hicks: Alright, trivia question time… So last week’s trivia question was “What MSA had the largest projected population growth in 2018?”

Joe Fairless: I said Fort Worth, right?

Theo Hicks: You said Fort Worth, which I believe was in the top five, for sure… The answer was actually Cape Coral – Fort Myers, Florida MSA.

Joe Fairless: Oh, get out of here, alright…

Theo Hicks: With like a 3.38% population growth, I believe.

Joe Fairless: Fort Myers, Florida…

Theo Hicks: Yup.

Joe Fairless: Huh.

Theo Hicks: So remember, this is a percentage-based growth, not overall number growth.

Joe Fairless: You’ve got some tricky questions, Theo.

Theo Hicks: Well, this one’s gonna be tricky, too – you know the answer to this one – but trivia is supposed to be pretty tricky. I’m trying to make it more complex this week, but I think this is an interesting statistic…

Joe Fairless: I wonder what’s driving that population growth there. You’re in Florida… Any idea?

Theo Hicks: I wonder if it’s just more snowbirds moving there… Because the majority of people, at least that live here, maybe 50% are from here, but the other 50% have moved here because of the weather. I’m not necessarily sure exactly what’s driving that… Especially that Fort Myers is literally just a vacation town… So it’s most likely that, more people moving here for vacation homes.

Joe Fairless: Yeah. Aging population, people from California — well, people from New York move to Florida, and then everyone else moves to Texas, it seems like.

Theo Hicks: Exactly. So  this week’s question – I know Joe knows the answer to this, and all of his investors know the answer to this, so I guess you guys aren’t necessarily allowed to answer this one…

Joe Fairless: [unintelligible [00:18:23].27] hint then…?

Theo Hicks: It could be.

Joe Fairless: So what’s the question?

Theo Hicks: In 2016 – this is the most recent year’s worth of data – a record number of companies left California. 1,800 to be exact, which is a record high since 2008. What state did the largest proportion of those companies move to?

Joe Fairless: Oh, come on. Alright…

Theo Hicks: What state did the largest proportion of those companies move to? If this is super-easy, then whoever answers the fastest is gonna get the free book this week.

Joe Fairless: Okay, it’s an easy one. Someone’s get the book real quick. By the way, everyone who’s won, sorry for delaying mailing the books out; we messed up on our side, but we will send those out on Wednesday of next week. They’re being mailed out, signed copies, so they’re all coming for everyone who’s won so far.

Theo Hicks: Perfect. Moving on, the Best Ever Conference is very close. Today is the 17th, this will be airing on the 18th, so a little over a month away… Make sure to check out our thread on Bigger Pockets. I’m updating that daily now. I just did a post Friday about the venue; we’re upgrading to the big house this year… The venue looks really sweet. We’re actually in the Opera House this time, so in that actual theater… So it’s gonna be an upgrade from last year, where we were in another room in that venue. So we’re moving up to the Opera House, the Ellie Caulkins Opera House I believe it’s called.

If you go to the BestEverConference.com and you scroll down to the BEC 2019 Line-Up, we’ve got the majority of the panels, the discussions, the presentations – those topics are on that schedule. Last week we told you about one of the first keynotes, which is gonna be a discussion on the state of the commercial real estate market in general… One of the next presentations is going to be a panel about niche asset classes. These are gonna be people who invest in things like marinas… I know all about marinas now, since I live in Florida, because we’ve got a lot of those down here. Those are basically those big buildings that hold people’s boats…

Joe Fairless: Everyone knows what a marina is…

Theo Hicks: As was land banking, which I’m not necessarily sure what land banking means… And then RV parks. So it’s gonna be a panel discussion on those three niche asset classes. Do you know what land banks are?

Joe Fairless: I should… I’ve certainly interviewed someone on it. I’m not gonna pretend — my thought is that it’s just buying raw land and then using that as cashflow to doing a joint venture with someone who leases it from you… Or you do a lease option on the land. That’s my thought, but I could be off.

Theo Hicks: I think it’s when you buy undeveloped land, and then sell it to a developer who is going to develop it for a profit.

Joe Fairless: Okay, yeah, and you do a JV with them where you’re in on the deal, or something like that. Okay, cool. Yeah, so I was 90% accurate.

Theo Hicks: There you go. And then one of the last things is, of course, the Best Ever APartment Syndication Book on Amazon. I think yesterday we were up to 120 reviews. Buy that book, leave a review on Amazon, send us a screenshot to info@joefairless.com and receive a package of free apartment syndication goodies, plus the opportunity to have your review read aloud on the podcast.

This week’s review is from Paul, and… Wow, Paul left an eight-paragraph review, so it was very long. Obviously, I’m not gonna read the whole thing… [laughs]

Joe Fairless: Thank you, Paul, but… We’ll summarize this one, right?

Theo Hicks: I’m just gonna read his last two paragraphs. Paul said:

“There are many tools, sites, reports and spreadsheets that are shared throughout the book. They’re kind of scattered, however, so you many want to mark them down as you find them. I was curious about him, so I visited his website. I think it would be a great value-add (see what I did there?) to have these available in his Resources section.” Paul, if you go to apartmentsyndication.com, some of these documents are there; the other ones – yeah, you do have to receive an e-mail. Continuing:

“Go ahead and pick up this book if you’re still interested. As I said it is DENSE, it will be your first key advisor in your Apartment Syndication journey. Keep your eyes open, your wits about you, and build some great relationships, trust Joe and I’m confident you won’t find a better system.”

Joe Fairless: Paul, thank you my friend for writing that, and Theo, thank you for only reading the last two paragraphs. The Best Ever listeners would be like, “Dude, come on…”

Theo Hicks: I do talk really fast, I’m sure I could have gotten through it pretty quick.

Joe Fairless: Yeah, well… Thank you, Paul, sincerely, for that, and most importantly, I’m glad that it added value to your life. One thing I do wanna mention before we sign off is I wanna honor Linda Liberatore and her life. She passed away, as some of you all might know. She was a guest on episode #1082 and episode #714. She was the founder of Secure Pay One, which was also a sponsor of the show.

Linda was such a warm person, someone who didn’t meet someone who she wouldn’t help out. I’ve met her multiple times in person, at our conference and other places, and just a kind-hearted individual… So I just want to pause for a moment, honor her… We will be donating towards a charity that she supported; I’m not sure which one that is yet, but we’re finding that out. So I just wanna give her a moment of reflection, and then we’ll sign off.

Okay, we’ll talk to you tomorrow, everyone.

JF1592: The Implications of Increasing Rentership in a Booming Economy #FollowAlongFriday with Joe and Theo

Joe and Theo are back for another episode of Follow-Along Friday to discuss a few fascinating economic metrics and what they mean for apartment investors if/when the next economic correction occurs. If you enjoyed today’s episode remember to subscribe in iTunes and leave us a review!

 

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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.

We’ve got Follow Along Friday today. I hope you’re having a best ever Friday. Like we normally do on Follow Along Friday, we will be talking about what we’ve learned, as well as some observations – and by “we”, I mean Theo Hicks and I. It’s all about what we can do to help you on your real estate journey.

We’re gonna kick it off… Theo, how do we wanna start it off?

Theo Hicks: Today we wanna have a little conversation about the commercial real estate economy. We’ve got a couple of statistics that we’re gonna go through, and kind if just have a conversation about that and see where it goes. Do you wanna lead that, Joe?

Joe Fairless: Yeah, so I have fairly recently been a subscriber to the Wall Street Journal and I’m really digging it. Lots of good content. I’ve always subscribed to the Dallas Morning News; most of our portfolio is in Dallas-Fort Worth, so I’d better have some intel on DFW through that newspaper… And there were a couple articles and data points that I’ve come across recently that I just wanted to point out… And if for nothing else, it’s important that we take note of them, and whatever we want to do with them, it’s up to us, just like any data or really any piece of information in life – it’s up to us to interpret it how we choose to.

One thing that I read — and this really surprised me… That mortgage defaults in the United States are the lowest they have been in 18 years. This is as of this past November. So over the last 18 years – we’ve now set a record for the fewest or the least amount of people defaulting on their mortgages. And fun fact – I looked at the chart and it looks like San Francisco has the lowest default rate, so props to you, San Francisco people.

What I find interesting is, well, what does that mean? Because a stat is a stat, but what are the implications and why is that the case? We always have to ask that question, why. And one consideration I think that we should take into account is that people are better qualified now for their loans, because the lending requirements did get more strict, as they should have since 2008… But we’re 11 years now past 2008, so surely it’s more than that.

Well, then there’s something else, when we combine this information with another article I came across, and that is that the percent of renters have increased 20% since 2008. That’s probably not as surprising to Best Ever listeners, but what I found surprising is from 2005 to today renters have increased by approximately 2%.

Theo Hicks: 2015.

Joe Fairless: Thank you, 2015 to today. So I think we can all agree that the economy has been humming along quite nicely since 2015. And for the percent of renters to increase — not total number of renters, but percent of total households who rent, has increased since 2015 to today, while the economy has been humming along nicely… Well, that says something about our approach as Americans for renting versus owning. And when you combine how we’re at the lowest amount of defaults for over the last 18 years, with that we’re renting more, that leads me to believe that 1) people who are qualifying for the mortgages are truly qualified, and 2) that we’re continuing to be a nation of renters. And Theo, you and I are in the right business.

Theo Hicks: When you had initially told me that statistic about we hit the lowest point in 18 years in regards to the mortgage defaults, I didn’t really know how to think about that… But once you mentioned that it likely has to do with more qualified people actually renting – that completely makes sense, because obviously we’re talking over an 18-year point, and back in 2008, in that time period, there were probably people that were not as qualified, that were owning a home, and once they experienced 2008, they were like “Okay, now let’s just rent instead.” You have to qualify for rentals, but the qualification is streamlined and simpler than it is to qualify for a loan… So I’d be curious to see — we’re at the lowest point of those mortgage defaults in 18 years, but over those 18 years what was the growth, or I guess reduction in the actual number of mortgages? And if it is indeed going down, that kind of proves your point that less people are getting those mortgages, because they’re likely not qualifying for them; banks aren’t doing those crazy loans anymore, they’re sticking to their strict standards, because they don’t wanna get punched in the face again like in the 2008 recession.

And when you hear the fact that since 2015 – and I guess a little earlier than that – the economy has been doing so well, during that time people are making a ton of money, you’d expect them to go out and buy a house, and some people obviously are, but if renting is going up, that means that home ownership has to be going down, because there’s really only two options. So if renting is going up when the economy is really good, what do you think is gonna happen if something bad happens to the economy?

And it’s been going well for so long, so a lot of people — you see this on Facebook, Bigger Pockets, people doing blog posts with their predictions of when the market is going to take a turn again…

I just saw an article today, all these economists are saying that we’re headed for another recession. For some real estate professionals, that might scare them, but as a multifamily investor in general that shouldn’t scare you, because you know that people are gonna have to rent. But then when you see the fact that since 2015 the stock market has gone up a ton, and renting is increasing, that number is just gonna have to go up even higher if a recession were to happen. Now, the only consideration of why it wouldn’t go up even more is the fact that those mortgage defaults are so low… So it’s gonna continue to increase by that percentage, most likely; this is just my opinion. But it’s probably not gonna be as large of an influx of renters if there were a recession because of the fact that the people that are not renting, that are buying and owning aren’t defaulting on their loans right now.

Joe Fairless: Right, they’re gonna stay put with their ownership, and then the renters are gonna stay put with renting. Yeah, you mentioned the elephant in the room – there is likely a recession coming; I don’t know when… Or at least a correction. But when the times have been very good from an economic standpoint, and the renter percentages are increasing, then it’s highly likely that when the times are worse than they are today from an economic standpoint, that the renters are going to at least remain flat, but probably gonna increase slightly.

As landlords, I wonder — and this is something I don’t know… I wonder for all the other economic cycles in our history, if percent rentership has increased during the good times. I wonder if that’s ever taken place before. That’d be something interesting to look at, if this is the first time when the economy has just been flourishing, and the percent of households had actually increased for renters. Because I would think typically when the economy is flourishing, people historically have been purchasing more homes… But that’s what caught my eye – since 2015 it’s actually increased 2% according to that Wall Street Journal article.

Theo Hicks: Yeah. I’ve gotta note to look that up, because we definitely wanna write a blog post  going into a lot more detail on the conversation we’re talking about today, and kind of just historically seeing “Okay, has this ever happened before, that the economy is doing really well while the rentership is also increasing?”

Joe Fairless: Yeah.

Theo Hicks: Something else too that’s interesting, that I was thinking about as well, is that — obviously, I’m looking for apartments in Tampa, but I’m also still looking to invest personally in Cincinnati, and I’d probably say for the past maybe year, a year and a half, the majority of the deals, or actually all of the deals that I get… And I just do the MLS, so I get those automated e-mails, and then I’m still doing the direct mailing, but even on those deals, and I’m not getting many of those, but still even if ones come through, the price that they’re asking for is just so insanely high… And the MLS – I know those deals are selling close to list price, and from someone who’s looking for cashflow, the deals make no sense whatsoever. These are duplexes and fourplexes; I’m not talking large multifamily.

I’m just curious to see what a strategy is of the people who are buying them, because there’s no way for them to actually cash-flow… So I’m just curious to see what’s going to happen if there were to be a correction, what’s gonna happen with those types of properties specifically. Even if it’s just 5% of them that can no longer hang on to their property, they’re gonna sell them at a reduced price. I’m not saying that I’m looking forward to this happening, but when it does happen, I wanna make sure that I’m ready to buy, because I really like the Cincinnati market, those duplexes and fourplexes. Right now, even in Norwood – if you’re not from Cincinnati you don’t know that area, but it’s probably a C area… It’s got some low-income people, there’s a couple of businesses that move in there every once in a while, it’s technically not even a part of the city of Cincinnati, so the taxes are a little bit higher… And  just a year and a half ago you could buy a duplex for 120k-140k, that rented for $1,400-$1,600, and now the past couple of weeks I see those same types of duplexes going for over $200,000, at the same current rents. Some of them are renting for $550/unit, so they’ve got $1,100 in rent, selling for $200,000. I don’t understand how that could cash-flow, because you’re not gonna be pushing those rents any higher than a couple hundred bucks.

Joe Fairless: That’s the thing, yeah – the only way I can think of is if they have a value-add play, where they’re renovating the interiors and pushing rents. But if you’re saying that’s not feasible…

Theo Hicks: It’s really not in that market, at least for right now. I guess the whole point is I’m curious to see what happens to those types of properties. We know what’s likely gonna happen to single-family and we know what’s likely gonna happen on a larger scale, but kind of the middle of the road… And another thing too is that’s where people who aren’t as experienced — I guess there’s a higher proportion of people that aren’t as experienced pursuing those types of deals, because duplexes and fourplexes are perceived to be easier than 8-unit, 10-unit, 20-unit, and they’re less expensive to get into. So I’m just assuming that some of the people that are buying these properties aren’t as experienced as they would like to be.

Joe Fairless: Yeah. And it’s likely those individuals have full-time jobs, which might get affected during a correction, an economic downturn. So then you’ve got a perfect storm of bad stuff, unfortunately for them, where they could get a hit on their salary or lose their salary with the job that goes away, and they’ve got a  negative cash-flowing property, and now you’ve got some trouble.

Adhere to the three immutable laws of real estate investing. If you don’t know what those are, just google “Joe Fairless three immutable laws of real estate investing” and then you should be alright when a correction takes place.

Theo Hicks: That’s funny, that’s exactly what I was gonna say, too. I was on Bigger Pockets yesterday, and someone was asking all these questions about the economy, and I saw a really good response that was saying [unintelligible [00:13:34].19] millions of factors that go into the economy, so it’s impossible to predict what factor is going to affect something else, that could lead to this, so instead just make sure you’re conservatively underwriting deals… My response was “The three immutable laws of real estate investing.”

Joe Fairless: Yeah, there you go. That came from interviewing thousands of real estate investors and hearing their stories, and I was like “Wait a second… Some common things here. What are some common denominators…?”

The second thing, real quick, separate from that conversation, the second interesting thing that I thought would be of interest to everyone listening – and while it is Dallas-Fort Worth-specific, it is interesting for any investor who is investing in any market. The thing I read, in DFW there are about 700k apartments, and they range from efficiency to four-bedrooms; maybe four-bedrooms… I haven’t come across four-bedrooms, but I’m sure there are. And of the percent rent growth last year for each unit size – so efficiency, one-bedroom, two-bedroom, three-bedroom, and I’ll throw in four, just in case there’s a couple – well, the highest percent rent growth was an efficiency apartment. They had the highest percent increase in rent the last year. But there are only 19,000 of those in all of DFW. So if you do that percentage, it’s about 2.6%, because I round it down… There’s 714,000 apartments in DFW, 19,000 of them are efficiencies, so 2.6%.

What I find interesting is — well, first off, it kind of makes sense, because you have smaller unit sizes, so the lowest amount of rent, so when you’ve got a lot of renters, well, you’re gonna have a significant demand, and if that’s the cheapest option, then a lot of people will want the cheapest option. But what I find interesting about it is when I started in apartment investing, I used to only want one and two-bedroom apartments, and predominantly two-bedroom apartments, because they were easier to rent – or so I thought – because with the two-bedroom when the times get tough you can always rent to someone who’s looking for one, and just fill your two with that person who’s looking for the one-bedroom. The person who’s looking for the one, they’ll rent a two-bedroom, if the price is right, or a concession, or something. It’s fine. Or it’s what they’re looking for. But if you have all one-bedrooms and someone needs a two-bedroom, they’ve got a significant other and  a kid or two – well, they can’t have a one-bedroom; it doesn’t make sense. So there’s less flexibility. So you have more flexibility with two-bedrooms.

But what this article was saying is there’s such a small percent of efficiencies, at least in DFW, but likely other markets, that they go like crazy, and the rent just increases more so than any other unit size. And that’s because of recent college graduates, they need a place to live, and they’re for the most part not moving in with someone. And young professionals too, who are out of college for 3-4 years, they still might be living in an efficiency.

So the takeaway here is when you’re looking at an apartment community and you see just efficiency units, don’t necessarily dismiss that as an opportunity, because it might be an opportunity for you to have greater rent increases relative to if it was all two-bedrooms. Now, you’ll want to make sure you look at what the vacancy rate is for that unit type within your market, so you wanna make sure that there’s demand, and you want to logically know where those renters are coming from. Is there a college close by, or is that an area where young professionals like to reside? Knowing those variables, you could very well come across an opportunity that’s all efficiency, where you initially would have dismissed it,  but now after hearing this perhaps you’ll take a second look at it.

Theo Hicks: Yeah, I’ve been seeing something similar in Florida. There’s not many efficiencies here; I’m not sure what the number is… I haven’t seen that many on the rent rolls. But for the one-bedrooms compared to the two-bedrooms, the rent per square foot is 10, 20, some even 30 cents higher for the one-bedrooms and for the large two-bedrooms… And when doing rent comps across two-bedrooms, it’s more like “two-bedrooms rent for this, no matter what size they are”, because you have a massive two-bedroom renting at $900, and then a smaller two-bedroom renting at $875, and the dollars per square foot are way off, because they’re renting for the exact same. I’ve seen something similar in Florida.

Joe Fairless: So two things to consider, both from an economy standpoint, and also from selecting the assets that you wanna underwrite and perhaps pursue to purchase.

Theo Hicks: Great. I wanna talk about one more thing before we move into the trivia question… That is about a book called Traction by Gino Wickman. My business partner read that over a break. We kind of took a two-week break from having our meetings, and then when we had our meetings, he had our apartment syndication to-do list, a shared Google document… And he began to fill it out with information he learned in the book, because I haven’t read the book yet… But essentially, it kind of falls in the concept of if you’re trying to fill up a jar completely, you put the rocks in first, and then the sand, and then the water… So the rocks are kind of like the priority. So your priority items are called rocks, and you wanna make your one-year rock and then your quarterly rocks… So we’ve got a list of what are the main things we wanna accomplish this quarter.

Based on that, we created a scorecard, which is very similar to the accredited investor engagement tracker that we have in our client program… And I don’t think we’ve given that away for Syndication School yet, but I’m pretty sure we will in future episodes. Essentially, it’s a document where you can track all the different duties that you’re doing that are bringing you closer to attracting passive investors – posting on Bigger Pockets, recording podcasts, things like that. We have a list of all those, and then we have a goal, and then for each week we fill in how many we’ve done. For example, “Theo – Bigger Pockets posts – 50”, so how many have I done this week?

Then we have an overall to-do list, so when we have our meetings we can type in “Okay, by next week we’re gonna have these things completed.” I just wanted to mention that really quick; I know I went over that really quickly, but one of the things that we have at the top of our Rocks sheet is “No deal is better than a bad deal”, just because one of the things that [unintelligible [00:19:59].26] was we’ve been looking at deals for around 4-5 months and haven’t closed on one yet, so we don’t want to push ourselves and be like “Alright, we haven’t done a deal in five months. We have to do the next deal that we get, even though it’s a bad deal; we fudge the numbers and make it make sense.” No. Having no deal at all at the moment is much better than doing a bad deal and completely screwing ourselves forever with those investors.

So if you wanna check out that book Traction, I’m sure it’s a pretty quick read. It’s kind of just turning your business into doing what corporations do. When I worked for [unintelligible [00:20:32].29] this is essentially exactly what we did as well.

Joe Fairless: Yeah, that’s great. I have not read it, so I don’t know if it’s good, but I like the concept that you’re talking about. What is your quarterly goal that you have?

Theo Hicks: I’m filling it out tomorrow, but right now my three goals are to underwrite two deals a week, meet in person with broker relationships, so meet in person with each of them at least once this quarter, and then train five underwriters… Which is funny, because I had three, and then I wrote this down, I went to Bigger Pockets and I had two messages from people who were interested in underwriting. Five, right there.

Joe Fairless: Cool, alright. Nice.

Theo Hicks: I wish I had brought this up last week, on our goal-setting talk, but fair enough. Alrighty, to the trivia question. Last week’s trivia question was “What MSA had the largest population growth in 2017?” I think Joe guessed Dallas-Fort Worth, and that was in the top five for sure. The answer was actually Boise City, Idaho. That was the MSA with the largest population growth percentage-wise… So not overall, percentage-wise.

This week’s question is going to be similar to last week’s question, but it’s going to be “What MSA had the largest projected population growth in 2018?”

Obviously, 2018 data isn’t out yet, but they did their projections, so what MSA had the largest projected population growth in 2018?

Joe Fairless: The question before that was ’17?

Theo Hicks: Yes.

Joe Fairless: Okay, and this is the same question, but for ’18…

Theo Hicks: Yeah. Before it was actual, because they had the data. This was the projections.

Joe Fairless: Okay. And it’s percent increase, not total number increase…

Theo Hicks: Percent increase.

Joe Fairless: Argh! I’m going Fort Worth. I’ll just stick to my guns.

Theo Hicks: Okay. I’m pretty sure Fort Worth was two or three.

Joe Fairless: Arghh!

Theo Hicks: So those who guessed Fort Worth… I think people will get this one. I was surprised, but I think people will get this one, because it’s not a Boise City, Idaho; it’s more of a well-known area. Submit that question to either info@JoeFairless.com, or comment on the YouTube video that we post. If you get the correct answer, we’ll send you a signed copy of the first book.

Joe Fairless: If you’re the first person to get the correct answer, then we’ll send you a signed copy of the Best Real Estate Investing Advice Ever Vol.1. Sweet.

Theo Hicks: The Best Ever Conference, in February 22-23. A little over a month away. This week the featured speaker we’re gonna talk about is John Chang. It’s very relevant to the conversation we had earlier about the economy, because he is going to do a talk on his take on the commercial real estate economic outlook. From what I’ve seen, I think it’s just gonna be him doing it. There’s not gonna be  a panel.

Joe Fairless: What’s his title?

Theo Hicks: John Chang.

Joe Fairless: No, that’s his name. What’s his title? He’s with Marcus & Millichap; I don’t know his title, maybe you can find it, but… I know what he does, and he is responsible for…

Theo Hicks: Senior Vice-President.

Joe Fairless: Senior Vice-President, but his focus is on forecasting where the economy is headed for Marcus & Millichap. He’s phenomenal, and it will be a dynamic talk, with a lot of value. Our whole conference is focused on commercial real estate, and he’s actually gonna kick it off on Friday morning.

Theo Hicks: Tickets go up weekly, so you can secure a ticket now at BestEverConference.com. And then lastly, we’re gonna do our review of the week. If you submit a review on Amazon for the Best Ever Apartment Syndication Book… We’re up to 117 when I checked this morning… And send us a screenshot at info@joefairless.com, we will send you a package of the free content that the people who pre-ordered the book received.

This week’s review is from Paul…

Joe Fairless: Oh, wait, it’s not the exact content people who pre-ordered the book received… We updated it some. And the reason why is because we want to reward the people who pre-ordered the book something extra-special, so it’s a little bit different. But it’s still good stuff.

Theo Hicks: So Paul said “I consider myself a multifamily real estate professional, having financed apartments for 25 years. But moving from a provider of financing to being a sponsor encompassed much more. This book really helps to organize each step necessary to achieve your goals. Along the way, it goes beyond the mechanics and digs into the mindset necessary to achieve each step. When you combine this with the regular interviews contained in the Best Ever podcasts, the amount of useful information is abundant. I have not attended, but have also heard that the Best Ever conferences are also top notch. That’s on my list of things to do. Thanks to Joe and Theo for the excellent work and continued stream of content. I highly recommend this book.”

Joe Fairless: Paul, I hope to see you at the conference in February, and thank you for that review. Most importantly, I’m glad that it is helpful for you as you evolve your focus in commercial real estate.

I enjoyed our conversation, everyone. Theo, great catching up with you again, and we will talk to you tomorrow.

JF1585: 3 Tips to Make Your 2019 Real Estate Business Better Than 2018 #FollowAlongFriday with Joe and Theo

Happy New Year! Joe and Theo are back for the first Follow-Along Friday of 2019 to talk about how they approach setting goals.We’ll hear three strategies to make your real estate business better in 2019 than it was in 2018. If you enjoyed today’s episode remember to subscribe in iTunes and leave us a review!

 

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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.

We’ve got Follow Along Friday. Happy new year if you’re listening to this episode when we publish this episode. If you’re listening to it three months later, then hey, it’s always nice to hear “Happy new year” whether or not it actually is or not. It puts a smile on your face, right?

Today we’re doing Follow Along Friday, we’ve got Theo Hicks with us like we normally do. The purpose of Follow Along Friday is to talk about things that we’ve noticed through our entrepreneurial journey in real estate, that can be beneficial for you as the Best Ever listener. That’s the whole point of doing Follow Along Friday.

Today we’re gonna be talking about goal-setting. Isn’t that relevant, with the new year…? And if you’re not listening to this episode around the new year, then that’s fine, you don’t have to wait until the calendar flips over to January to set a goal, right? It’s all about setting it whenever you identify the goal, and then tracking progress and optimizing along the way.

First off, Theo Hicks, happy new year! How are you doing, my friend?

Theo Hicks: Thanks, Joe. Happy new year to you, too. It’s great to be back on the podcast. I think we’ve taken two weeks off from Follow Along Friday, so it’s good to be back, good to see you, and looking forward to talking about goal-setting today.

Joe Fairless: Yup, looking forward to it, and good to see you, too. So here are three things that I’ve identified, that can help you enhance your goal-setting process. The three things that I’ve identified – it’s based on my experience setting goals, so to give you an idea of how I approach my goal setting… I do do it every calendar year, just because it’s convenient to do so, but last year I did a second-half goal-setting session, and I believe I spoke about that on one of our Follow Along Fridays, where I set second-half goals and just updated my status of all the goals that I had… So it was a good check-in.

What I do every year is I create a vision board. It’s a three feet tall by four feet long poster that I put on my wall, in my office, and I also saved that image — I’ve put it in a PowerPoint, that’s where it’s created; I save that as a JPEG, so that I get it printed out at a local spot. It used to be VistaPrint, but the resolution on the images isn’t good enough for VistaPrint; they changed something on their website… So now we get it printed locally.

Anyway, I print out that poster on my wall, I then take that image, I save it as a JPEG, and then I use that image, the vision board, as my desktop background on my laptop, and then I use that same image, I save it as a picture on my phone, and then I use it as a wallpaper for my phone, both on the locked screen, as well as whenever I’m actually accessing apps, or lo and behold calling people on my phone. So it’s constantly in front of my face, is the point. Constantly.

That is one of the suggestions I have – when you’re doing goals, have them all around you, all the time. Immerse yourself in them. That’s number one.

Number two – this comes from when I was doing my vision board, I asked the Best Ever listeners who are part of our Facebook community, which is BestEverCommunity.com… Is that right, Theo?

Theo Hicks: Yeah, BestEverCommunity.com.

Joe Fairless: Yeah, BestEverCommunity.com. So you can go there, it is our Facebook group; you can go join, and join the conversation. I asked everyone on there “What is your mantra for 2019?” My mantra is “What can I do today to be better than yesterday?”

My second thing is “Ask an empowering or a quality question.” Ask a quality question. When you ask a quality question, as Tony Robbins says, you get quality answers… Or you tend to get better answers than if you ask a poor question. “Why can’t I do well in real estate?” Well, then “I’m not smart” or “I don’t have enough xyz” etc. That’s not an empowering question… Versus “What are other people doing who are achieving success, that I can do better?” Well, that makes me think, “Okay, other people are networking more, and building relationships, or they have a thought leadership platform, or they’re underwriting deals better”, or whatever it is.

So my quality question that is printed on my vision board, that constantly will trigger something in my mind to think about how to improve is “What can I do today to be better than yesterday?” That also comes from a Jordan Peterson I attended when he was touring in Cincinnati, where he talks about “Compete with yourself, and focus on improving yourself better than yesterday, versus how someone else is today.” I think that’s such a powerful thing, to continually improve on yourself, and that’s what I’ve noticed with this podcast, too… Daily consistent action, so a daily freakin’ podcast, every day… I don’t know how many – 1,600-1,700 episodes, or wherever we’re at today – that has compounding results on my business, and I’m sure on your business too, Theo.

The more you’ve participated in these episodes, the more you’ve been on stage, so to speak, on this podcast, had Syndication School episodes, you’ve seen some traction from doing so… And then I’m telling you, my friend, and you probably know this – the more you do it, the more traction you’ll receive and the more you’ll benefit. So it’s just that daily action, that daily stuff… So I really wanna focus this year on  what can I do today that will make me better than yesterday, and that covers a variety of things, from my physical body, from  my mind, to personal development, to professional stuff, to relationship stuff, spiritual stuff – all that.

That’s the second thing that I would suggest – to ask quality questions, that will trigger your mind to think of ways to improve yourself on a consistent basis… And if you wanna use the question I have on my vision board, then use that. You don’t have to recreate the wheel.

And then the third thing I’ll say, and then I’d love to get your thoughts on this, Theo, is when you create goals, or a mantra – let’s talk about a mantra… When you create a mantra for yourself — I remember attending a Rich Dad, Poor Dad seminar, and they gave out wristbands, and the wristband said “Never fail, always succeed.” People tend to have a mantra that they follow. My suggestion to you is when you create a mantra, use positive, empowering words; because the words that we surround ourselves with tend to be the emotions that we experience, and the emotions that we experience tend to be the results that we achieve, and quite frankly, the quality of life that we have.

So when you have a mantra such as “Never fail, only succeed”, then the thought immediately goes to fail. Sure, “never” is in front of it, but still the word “fail” is incorporated in a mantra that you’re living by. My suggestion, and based on my experience, is to only include positive, empowering words in a mantra. Why I’m bringing this up is because when I posted in our Facebook group “What’s your motto/phrase you’re keeping top of mind for 2019?”, I saw a lot of people who had negative words in the phrase that they’re keeping in mind in 2019, for example “Never settle.” That was one. Another is “Don’t give up.” “Continue to make progress, however small it may be.” Another that falls into this category is “Continuous progression, not immediate perfection.” I like that one, because you’re focused more on the progression, and “Done is better than perfect” type thing. One good one is “Lead with love.” I love that. Tamar Mar, props to you. I love her motto there.

So what I noticed is there were some that had those negative words. This also ties back to — when I was in advertising, I attended a conference where a woman who worked with many presidents of the past – I don’t remember which ones – she was a PR or a spokesperson for them, and she said one of the rules that she and her team had when addressing questions from the press was to never repeat a negative word. So if they said “Why did the president raise the taxes and hurt these people?” or “Why did the president do something else…?”, she would never repeat “Well, they didn’t raise the taxes and hurt these people…” – she would never say that. She would say, “Oh, well, they did such and such…” and it would be an empowering thing that they did, whether or not that was the right or wrong thing to do in terms of the actual policy move – that’s not the point. The point is they would never repeat a negative word, because the press is also fairly savvy, in that they’re looking for clicks and eyeballs on their stories.

So they know if they can get that word repeated in a response, then that would help get more traction for their stories… And the same thing with what we do when we’re thinking about our goals and our vision board and our mantras – if we remove the negative words in there and we don’t say that we’re not gonna do stuff, but instead we say “We’re going to do things”, then it tends to lead to greater results because of the positive emotions and the positive feelings, as well as more progress, because you’re going towards things that are attracting you to them.

So in summary, one, surrounding yourself with your vision board and your goals; if you don’t have a vision board, get one. Two, ask quality questions that trigger consistent, daily improvement. Three, use positive, empowering words when you’re thinking through your mantras for 2019, and beyond.

Theo Hicks: Yeah, those are three amazing tips. I’ll work backwards on my comments, starting from three, two, to one. So for the positive word in your mantra, and not using negative words – another spin on that, the cartoonist and persuasion expert Scott Adams always talks about that; he’s talking about this in the context of persuasion, but in reality, when you’re setting your goals, you’re essentially persuading yourself to actually do what you’re setting out to do, so kind of the same logic applies. But if you say to don’t do something, like “Don’t smoke cigarettes”, for example, like “I’m gonna stop smoking cigarettes”, you have the smoking cigarettes part. If you repeat to yourself over and over again “Don’t smoke cigarettes”, you’re more likely to actually smoke the cigarettes, as opposed to saying “I’m going to exercise –” kind of what you’re going to do, instead of what you’re not going to do.

Joe Fairless: One thing we don’t do in our household is say “Don’t forget.” We say “Please remember.” It’s just a shift in wording, and that’s low-hanging fruit if you wanna practice this; just say “Please remember” instead of “Don’t forget”, and then that will trigger other things for what I suggest you say versus not say, because of what you’ve just said there.

Theo Hicks: Yeah. Me and you were joking about this before, but I’ve drinking a lot of pop lately, so instead of my goal being to stop drinking pop, my goal will be to drink more water. This will be my goal. I’ll get a vision board with a big glass of water on it, and that’s it.

Joe Fairless: Boy, you have quite the ambitious 2019. [laughter] That ties into how we create habits. If you’ve read the book The Power of Habit — I haven’t read through all of it, because I got the gist after the first couple chapters, because Tony Robbins broke this down for me in seminars and YouTube videos I watched for free way before that book was published… And basically, he says (and the book says) if you have a habit you wanna break, you have to replace it with something else; you can’t just remove it and then there’s a void, you actually have to replace it. So I love how if you’re looking to drink less soda, then you replace it with something else, in this case water, that way you have something that fills that void once there is a void that’s created.

Theo Hicks: Another way is for me personally — I’ve analyzed in the past how I’ve broken bad habits… Doing it for the new year’s is very helpful, because you see a lot of posts right now saying how useless new year’s resolutions are – I completely disagree, and the main reason why is because typically you’ve got your Christmas break, and then you’re off for new year’s, so you’ve got about seven days where you’ve completely halted whatever routine you had for the past 11,5 months technically, because in most people’s routine’s there’s a certain amount of work, so they’ve got their pre-work and their post-work stuff… But when you’re off all day, then your routine completely goes away and you either just don’t do much, or you just get a new routine… But then when you’re put back into work, you’ve got this opportunity to kind of have a blank slate and start a brand new routine from scratch.

And yeah, you could possibly fall back into the old routine, but for me personally, it really helps when I halt an old routine for like a week or two, that way I can start completely fresh and be like “Alright, what exactly do I wanna do over the next month?” and then each week — say I wanna do four new things, so each week I’ll introduce one new thing. Week one, I’ll start drinking more water. Week two, I’ll start working out more before I’ll start doing something else. That’s my main thought around why I actually like new year’s resolutions. Again, I understand why people don’t like them, but it’s just more of a personal opinion, and things that I’ve seen from the past for me.

Joe Fairless: I agree. I think the reason why people say new year’s resolutions are useless – if people do say that – is because generally people who have new year’s resolutions won’t follow through with them… But it has nothing to do with the new year’s resolution and it has everything to do with that individual following or not following through with what they say they’re gonna do on an ongoing basis throughout life. So the new year’s resolutions just gets attached to the poor follow-through of that individual, but it has nothing to do with the resolution, it has everything to do with how that individual accomplishes or does not accomplish what they say they’re gonna do and what they’re committed to doing if they are actually committed.

What I mentioned earlier, those three ways, will be helpful… And I love what you said with the cartoonist. That was from the Tim Ferriss interview, right?

Theo Hicks: I’ve listened to his Periscopes, and he talks about it a lot.

Joe Fairless: Periscope is still around?

Theo Hicks: Yeah, it is.

Joe Fairless: Huh. Okay.

Theo Hicks: I’ve listened to a few of his Periscopes in the past, and some of his tweets, and he’s kind of broken down other people’s tweets and saying how “This is why it’s very powerful persuasion, because they focused on this word, and the only thing to think about when you’re — it’s basically painting a picture in your mind when you’re saying some things.” Saying “Don’t smoke cigarettes”, the first thing you think about is smoking cigarettes.

Joe Fairless: Yup.

Theo Hicks: I have two more comments I wanted to make, some quick ones.

Joe Fairless: Yeah, please.

Theo Hicks: Your second one, about asking quality, empowering questions, so that your question is “What can I do today to be better than yesterday?” – I really like that question, and that you offered that up to other people to use… I think they should, because you’ve got your 12-month goal, your vision for the year, but if your secondary aspect of that is a mantra that is essentially you reviewing each day, figuring out what you did that made you better than the day before, you’ve kind of got both your bases covered, so you’ve got that grand vision for the year, but then also you’ve got it broken down to essentially every single day.

You can kind of even put a twist on the question, saying “What did I do today that got me closer to my annual goal?” And overall, I really like the daily aspect of it.

Joe Fairless: When I married Colleen, at our wedding, I got up and I had a little speech… And the thing I talked about was when she and I are together a week from that time, when all of the guests will have gone, cousins back to Michigan, Texas, California, all the activities have subsided and it’s going to be us, and all the pageantry – which, I didn’t have a fancy wedding at all – of getting married is gone, then what? And my commitment to her at that time (and it still is) is to every day treat it like it’s the beginning and show her that I love her every day. That is tied directly into what we’re talking about today, which is “What can I do today to be better than yesterday?” Because if there’s that focus on just that daily stuff, that daily commitment, then 99% of the time it’s gonna be from powerful freakin’ stuff in your life across all aspects, all categories, whenever you just put your head down and just do simple things every single day.

Theo Hicks: The only hard part about the daily action is at the end of the day you’re not gonna see your massive results. As Joe mentioned, it’s a long-term thing, but it’s exponential. At first it’s nothing for a long-time, and then all of a sudden it just explodes out of nowhere.

Joe Fairless: Yeah, and just asking that question – if you forget about it, and then the next day you’re like “Oh man, what did I learn yesterday?”, just the exercise of thinking about what did you learn yesterday improves you from where you were. Just the exercise of “What did I learn? Let me think about yesterday – what takeaways can I have from yesterday?”, even if you forget about it that day, then you’re much better off than you were before.

Theo Hicks: And then transitioning into the last point, point number one, you won’t forget about it if it’s on your vision board, that you’re surrounded by all the time. I actually just put a really tiny TV up there – I bought a bigger one just for gaming, and so I’m gonna make a vision board, buy an HDMI cord and kind of hook it up to my computer, because I only have a screen here… And I’ll just put it on there, and have my vision board on my TV. I’m in my office all day, so I’ll see it all the time; it’ll be very easy to put it on my phone… But I don’t really look at my phone that much, so it won’t be as relevant, but definitely on the TV — because I was thinking, I don’t really have anywhere in my office to put it, but the TV is perfect.

Joe Fairless: Yeah. So you’re gonna put it as the backdrop on the TV itself, or actually taping it over the screen?

Theo Hicks: No, I’ll figure out a way to make it on the TV. It might mean making my desktop background the vision board, and then plugging in an HDMI cord and putting it up there.

Joe Fairless: Oh, right, right.

Theo Hicks: I feel like there’s gotta be a way to put it on there without having to hook it up to my laptop… So I’ll figure it out.

Joe Fairless: Yeah, good stuff.

Theo Hicks: I always enjoy these conversations around goals and learning new ways to set goals, so  I think those three tips are very powerful, and if you just do those and that’s it, you’ll definitely be way ahead of everyone else in 2019.

Joe Fairless: And most importantly, you’ll be way ahead of where you were from 2018.

Theo Hicks: There you go, exactly.

Joe Fairless: That’s the key. There’s fulfillment in progress, there’s not a lot of fulfillment in maintenance.

Theo Hicks: Great. Moving on to the trivia question… It wasn’t the last week – I guess it was 2-3 weeks ago we had a trivia question, and I think you asked me was the population over 10,000… Is that what it was, for the city?

Joe Fairless: I don’t remember.

Theo Hicks: Well, the answer was yes. So the question was “What is the city with the lowest crime rate?” And I’ve never heard of this one before, but maybe you have, Joe, since you were in New York for a while… It’s called Lewisboro, New York.

Joe Fairless: No, I haven’t heard about it.

Theo Hicks: It has a population of about 12,000 people, and it had zero violent crime, and 0.16/1000 in property crime.

Joe Fairless: Wow. Alright… Well, so New York was the answer.

Theo Hicks: New York was the answer, yeah.

Joe Fairless: Alright. What are we giving away? The book, volume one… Right?

Theo Hicks: Yup, a Best Real Estate Investing Advice Vol. 1 copy.

Joe Fairless: Cool. Congrats to the winner there. New York… Huh. What did I say, do you remember?

Theo Hicks: I don’t remember now.

Joe Fairless: I don’t, either. It wasn’t New York, though. I wouldn’t have guessed it.

Theo Hicks: Ohio.

Joe Fairless: No, I wouldn’t have guessed Ohio.

Theo Hicks: So this week’s question is going to be “What is the MSA (metropolitan statistical area) or city that had the largest population growth percentage-wise in 2017?” Data is not out for 2018 yet. That will probably come out around April or May. For the year 2017, what city had the largest population growth percentage-wise?

Joe Fairless: I’m gonna go with Fort Worth.

Theo Hicks: Okay. So if you reply to this YouTube video, or send an e-mail to info@joefairless.com, the first person to get that city correct will get their free copy of the Best Real Estate Investing Advice Ever Book. I actually don’t remember what the answer was, because I don’t have it in our outline.

Joe Fairless: So then what’s your guess?

Theo Hicks: I’m actually not gonna guess, I remember it right now. The other thing is the Best Ever Conference. It’s next month.

Joe Fairless: Yeah, next month…

Theo Hicks: Next month, 22nd-23rd, Denver, Colorado. In the podcast we’re gonna continue to talk about the speakers that are there… And honestly, this was one of my favorite speakers from the first conference, or at least the speaker that had a lasting impact on me – that was Jeremy Roll, of Roll Investment Group. He’s actually a passive investor, so essentially he just passively invests in apartment syndications and in other real estate investments.

When I was listening to him, number one, he provided a lot of good links and resources to websites that talk about the economy, and real estate, and kind of just the world as a whole, that I really appreciate, and kind of gives me a different point of view than what you read on the CNNs and Forbes and things like that… But also, he, again — it’s crazy how much I’ve changed since that first conference, because I really didn’t know anything about real estate… But I didn’t understand how it is possible for someone who’s not  a massive hedge fund to be strictly a passive investor; just kind of accumulate enough wealth that you’re able to passively invest and live off of the interest. That way you’ve got a ton of time on your hands to pursue other interests. So that was one of the things that I came away with from his talk.  Jeremy Roll, Roll Investment Group. He’s very knowledgeable, so if you do come to the conference and have an opportunity to talk to him one-on-one, I’d highly recommend doing that, because he’s very knowledgeable about a  wide range of real estate investments, just because he spends all day researching those to decide which to passively invest in.

Joe Fairless: Cool. And then there’s a code on the conference website, I believe it’s “TAKE5”, to get an additional 5% off, and ticket prices go up weekly, so if you haven’t got a ticket now, go grab one.

Theo Hicks: And then lastly, to wrap up, we’re going to do the review of the week. If you’ve bought The Best Ever Apartment Syndication Book, and if you leave a review on Amazon and send us a screenshot at info@joefairless.com, we will 1) provide you with a link to a bunch of additional apartment syndication goodies, as well as read your review on the podcast, on Follow Along Friday.

This review of the week came from [unintelligible [00:26:23].05] They said:

“I really appreciate that Joe put this book out. My business partners and I treat this as our real estate investment bible. We really can’t believe that this guy divulged all this information. We absolutely love this book.”

Joe Fairless: Well, I’m glad you love it… And I’ve heard that a lot, how people are astonished at the level of detail that you and I provided in that book. That was the whole point, “Here’s how to do it, and here’s a step-by-step process”, and it was really focused on the how-to part of things. We wanted to get detailed, because there was not anything and still is not anything out there that does this… So apartment syndication people, or even passive investors – it’d be a good book for you to have… Apartment syndication people, and just people looking to raise capital – it’s a necessary book to have.

I enjoyed our conversation, Theo. Happy new year, my friend, happy new year, Best Ever listeners, and we’ll talk to you tomorrow.

 

JF1564: How to Fund The Earnest Deposit In A Hot Apartment Market #FollowAlongFriday with Joe and Theo

Joe and Theo are back to discuss the apartment syndication lessons they learned over the past week.

Theo provides an update on two Tampa apartment deals he is analyzing, which includes a tip for how to find new team members when looking into a new deal.

Joe provides strategies on how to fund the earnest deposit for an apartment deal in a hot market.

 

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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. We hate that fluffy stuff, so because of that, today we’re doing Follow Along Friday, where we’re talking about things we’ve learned, or questions that you Best Ever listeners have, and we are addressing those questions and the things we learned; we talked about what we learned, but then how that can be applied to what you’ve got going on… Because most importantly, we wanna make sure that we’re helping you out with whatever you’ve got going on.

Theo Hicks, how do we wanna do today’s call?

Theo Hicks: I’ll hop right into my updates. As I’ve mentioned last week, I am currently looking at two apartments in the Tampa Area. One I’ve already toured and I had underwritten it, and I mentioned last week that NOI that the broker mentioned and that’s on the T-12 were different, and I mentioned that I was going to reach out to a lender to get a quote for debt. Unfortunately, I do not see how I could purchase this property with this specific lender, because the lender said that based off of the NOI that they calculated, which was about $40,000 below what the OM states as the in-place NOI, and they’re only willing to lend up to 3.6 million dollars. So if I wanted to do 80% LTV loan, it’d be 4.25 million… And based on my underwriting, the most I would be willing to pay with these new debt terms would be 4.75 million.

The reason why that’s a problem is because I know that the owner wants 6.5 million. And it’s kind of funny, because when the deal first listed, I looked it up on LoopNet and it said 6.5 million, and then when I went back to look at the price again, it wasn’t there anymore… I asked the broker, I’m like “Was that a mistake, that it was listed? Was that the right price?” He goes, “Yeah, from my understanding I think it was a mistake of them putting it up there. They weren’t supposed to.” But the owner wants 6.5 million for that property. As of now, obviously, if I use the lender that quoted the 3.6 million, it’s gonna be around 55% LTV, and we have to raise 45% in addition to the actual renovation budget.

The broker mentioned that he knows a lender who has some other financing options that I can look at. I’d say right now I’m probably like 10% that we’ll submit an offer on this deal, but I did want to reach out to that mortgage broker and see what options he has… Number one, just to see if maybe he’s got some financing that can make the deal make sense, but also just another relationship to have in the Tampa Bay market, so for future deals, if we hit it off and it seems like he’s a good fit for our business plan, I can continue to reach out to him and get a quote from him, as well as a quote from my broker.

I guess the lesson is that when you’re working on a deal with a broker and you are interested in still continuing to build relationships or have backup team members, just ask them, “Do you know of a mortgage broker? Do you know of a property management company?” and attempt to get something out of the deal… Kind of going back to 50/50 goals – if I don’t end up buying this deal and my goal was just to buy deals, then I would be kind of upset about this process… But I’ve toured this property, I’ve basically formally underwritten the entire deal, with assumptions and renovation costs, I’ve been back and forth with this broker, and now I’ve got a new mortgage broker contact that I’m speaking with this afternoon.

Joe Fairless: What is the alleged reason why the owner is selling?

Theo Hicks: The alleged reason is that they are trying to focus on retail. This is the only apartment that they own.

Joe Fairless: The thriving world of retail, huh? Okay…

Theo Hicks: Yeah…

Joe Fairless: And [unintelligible [00:06:00].02] If it was posted on LoopNet, but then taken down and posted again… It seems like they’re trying to get as many people to be aware of it as possible, right?

Theo Hicks: Yeah.

Joe Fairless: And how long have they been marketing it?

Theo Hicks: For the past three weeks, I’d say.

Joe Fairless: Okay. Well, my guess is — this one, just give it time, and stay in touch with the broker. You know this, but… Stay in touch with the broker, have your price, and then tell them what your price is, and then just let the market show them that the value that they have in their head is not what they’re gonna get. It’s happened multiple times with us, where we have a deal that we’re shown, and in those cases it’s not on the market, and we say “No, thank you. Your price is crazy.” Then they go to the market, and the market knocks the price down, because the initial whisper price was way out of whack.

Theo Hicks: Yeah, that’s how I’m gonna approach it as well. I’ll just stay in touch with the broker, see what’s going on with the deal, [unintelligible [00:07:00].04] and if they sell it for 6.5 million, then maybe I could buy it and make that owner realize that that probably wasn’t the best idea… [laughter] So that’s that deal. I’ll give an update on how that conversation goes with the lender next Follow Along Friday.

The other deal that I mentioned briefly last week – I’ve got a little bit more information on that. It’s a 73-unit in St. Pete. It is the largest apartment building in regards to units on St. Pete Beach. I reached out to do a tour, and the broker responded and said that the owner wants to know if I’m able to pay the price that he wants before touring the property. He wants essentially about 230k-250k per unit for the property.

It’s gonna be a heavy value-add, because in order for the deal to make sense we’d have to probably spend about 10k-12k per unit in interior upgrades. So the plan for that one is I’m gonna underwrite it this weekend to see if we can even get close to 17 million, and then reach back out to the broker if we can be close to that number and tour it next week. If you remember, this is the one that the OM claims you can raise the rent by about $750.

Joe Fairless: Yeah. Well, hey, if you can, then those numbers might work.

Theo Hicks: Seriously, yeah. It’s a really neat property, too. The way that it’s built – I could tell that there’s not a lot of deferred maintenance, and the ongoing maintenance… It just seems like it’s a very solid property, that would be pretty inexpensive to operate. It’s just getting it at the right price, as always.

Those are the two deals I’m looking at, and those will probably be the last two deals that I look at for 2018, unless something else pops up… Because things have been a little slow lately; I haven’t seen a new deal for at least two weeks.

Joe Fairless: And real quick, how’s your Cincinnati portfolio performing? And remind us what you’ve got in Cincinnati.

Theo Hicks: I have 13 units. One is a single-family house that we used to live in, and then we’ve got three fourplexes, and I think we’ve probably turned about 5 or 6 units. On all of them except for one we were able to get higher rents than we were getting before. For one of them, it was vacant for about a month and no one wanted to rent it, and we ended up reducing the rate to below what it was before. But if you include the utility fee that we’re asking for, it’s still technically above what it was before, but the actual rent that’s listed is below what it was before. We’re attributing that to seasonality, because we’re not getting much traffic at all for that unit that was vacant.

And then something else interesting happened a few weeks ago… Do you remember that big ice storm that came through Cincinnati?

Joe Fairless: Big time, yeah.

Theo Hicks: It knocked down one of the trees, and the tree fell on top of the power line, so the power was out a few days at that property. We got a quote from a tree-trimming company to fix the trees at all three properties. Obviously, that was interesting, because I got a bunch of texts from the tenants, asking me what’s going on, so I called my property management company and he talked to every single tenant about it.

Luckily, everything worked out okay. Electricity is back on, he’s working fine… But that was an interesting dilemma, that my property management company solved pretty quickly, so I was pretty happy with how they handled it.

Joe Fairless: Good stuff. As far as my updates – I want to address a question that commonly comes up frequently… And that is “How do I do non-refundable earnest money if I don’t have that money?” This question is really related to how competitive it is in a lot of the markets that you might be looking at to purchase property, and due to that competition, there tends to be non-refundable earnest money day one offers that need to be placed in order to be in the running for a deal, let alone winning a deal.

There are a couple options here, and I’ll tell you how I did it at the beginning, my first deal, which was not non-refundable; it was refundable on my first deal. However, this same approach can be applied to non-refundable earnest money, because either way, refundable/non-refundable, you’ve gotta have the money.

I had spoken to a couple investors who were interested in partnering up with me — and this was before my first syndicated deal, but after I bought four single-family homes… And one of the investors who had expressed interest – I reached out to him and I said, “Well, I’ve got this deal, and it’s $50,000 refundable deposit. I’ve got 30 days before it becomes non-refundable. Will you put that up as the deposit?” He had said he was gonna invest $50,000, so I said then we can just roll that into the deal should we close, and if we don’t close, then he’ll get it right back.

He said, after thinking about it for a little while – and when I say “little while”, maybe a day or so – he said “Yeah, sure, but can you put something down in writing that says if this does become lost, for whatever reason, that you’ll pay me back?” I said, “Absolutely.” Because I’d mentioned I’d pay him back in the conversation… I said, “Yes, absolutely. I’ll put something down in writing.” In that case it was just an e-mail, where I promised to pay him back if I lost the $50,000.

Depending on your relationship with the investor, or how much they want to have it documented, you might need to do a promissory note, or something like that… But I just sent him an e-mail, and that was it. So he put up the 50k, and that allowed me to get the property in due diligence, and then I proceeded.

If it was non-refundable, then it’s the same conversation. You’re simply telling the investor it’s non-refundable day one, so when you put it up, you’ll be investing in the deal that amount. Maybe it’s not the same, but it’s a similar conversation, I should say. If they are wanting to invest in the deal, then that can simply be their investment. If they’re not wanting to invest in the deal and they loan you that money, then it’s basically a  loan, and you’re going to need to have some sort of agreement drafted with them, and then they simply put it up and you pay a certain rate or a certain amount to compensate them.

If you end up closing on the deal, great; you can easily refund that money, plus interest. If you don’t, well then you’re in a tight spot… So borrower, beware here, because it’s non-refundable, you lose the money and you have to pay him back, plus interest, and you don’t have a property. So be careful, and proceed with caution if you do non-refundable day one and you work with someone who you’re borrowing that money from, because you could lose a lot of money… But on the flipside, there are solutions to address this challenge, and that is the solution that I did when I got going.

Theo Hicks: And if they’re going to be an investor in that deal and they put up the earnest money deposit, is there any sort of interest they earn on that, or is it just that rolls over into the deal and they’re like a regular investor?

Joe Fairless: In my case there was not, because I didn’t think of it and he didn’t ask… But if there is a scenario where they ask or you think of it, then yeah, you could pay whatever interest is being generated from the checking or savings account or escrow account that that’s in. We implemented a new policy effective this last deal that we closed, Northern Cross in Fort Worth, where if the investor funded 30 days or earlier than when we’re closing — so if we close on the 30th of January, then if they fund it by December 30th or earlier, then we would pay them interest on their dollars while they’re waiting for those dollars to be put to work in the deal… And it’s just whatever the bank interest is. What was it, 0.4%?

Theo Hicks: 4% annually, yeah.

Joe Fairless: 0.4%, right?

Theo Hicks: Yeah.

Joe Fairless: Yeah, so let’s put that into perspective here – if you invested $100,000, that was $40.

Theo Hicks: Yeah, $33,30 for 30 days.

Joe Fairless: $33,30 for 30 days. We’re not making any money on it really, except for that $33,30 cents, so we’re just passing it along to the investors. And then if any investor funded within that 30-day period where we’re about to close the deal, then we don’t pay interest on that, because ideally we have all the funds in 30 days prior, so we want to reward that for taking place.

Theo Hicks: Another interesting strategy about the earnest deposit that I saw on a Bigger Pockets thread by someone who had just done their first apartment deal – they wanted to make their offer competitive, but they didn’t wanna do the non-refundable earnest deposit from day one… So instead their terms were that it would go non-refundable once the due diligence period was over.

Joe Fairless: That’s pretty typical.

Theo Hicks: Oh, is it really?

Joe Fairless: Yeah.

Theo Hicks: Okay, I didn’t know that. Because I was like, “Well, I don’t wanna do it from day one, so I can just say after due diligence”, but okay, if that’s typical, then I guess it’s not gonna make your offer any more competitive.

Joe Fairless: Maybe… It will make it more competitive than if it wasn’t, but that’s pretty standard, if it’s not non-refundable day one to have it non-refundable after the due diligence period.

Theo Hicks: Okay. Any other updates?

Joe Fairless: Nope.

Theo Hicks: Alrighty. Moving on to the trivia question… The answer to last week’s questions, which — just as a reminder, the question was “What is the city with the highest total share of high-end apartment buildings?” That’s class B+ or higher, and that was per 2017 and the first half of 2018. The answer was Charlotte, North Carolina, with a proportion of 50%.

Joe Fairless: Wow. I would not have guessed that. Well, I knew the answer so I wouldn’t have guessed anyway, because we had it in the Word document, but I wouldn’t have guessed Charlotte.

Theo Hicks: And if you go to our blog and you read “The top 10 US cities with the largest proportion of high-end apartment buildings”, you can see what the top 10 cities are. There’s a link to the actual data and you can see the top 30 or 50 cities, if you’re interested.

This week’s question – and Joe does not have the answer to this one, so he gets to guess – is going to be “What state has the city with the lowest crime rate?” I didn’t wanna do the city, because that’s gonna be impossible to guess…

Joe Fairless: Is it a city of 500,000 or more?

Theo Hicks: No, no, no.

Joe Fairless: Oh, alright… I mean, come on. It’s tough. I’m gonna go with California.

Theo Hicks: Okay. So Joe guessed it’s California. If you comment on the YouTube below or send us an e-mail at info@JoeFairless.com with what state has the city with the lowest crime rate, you will win a signed copy of our first Best Ever book.

Joe Fairless: And let’s see… I’m just trying to determine the definition of a city, versus a town… The population of a city is between 100k and 300k, a large town is a town of 20k to 100k, according to Wikipedia, my quick search… So this city has at least 100,000 people?

Theo Hicks: Yes.

Joe Fairless: Okay, alright. Well, I’ll still say California.

Theo Hicks: Okay. Moving on, obviously the Best Ever Conference is going to happen in February, so we’re a few months away, and each week we’re going to discuss a speaker or a panelist discussion that will happen. This week we are gonna discuss two of your clients, actually, who did their first deals in 2018, their first syndicated deal, Bill Zahller and Kent Piotrkowski. They will be speaking about their first deal on a panel. I’m really looking forward to that one, obviously, because they’re about six months to a year ahead of me… So I’m looking forward to listening to that panel, as well as having a conversation with them after the panel.

Anyone who is interested in becoming an apartment syndicator and wants to know exactly how someone did their first deal, that will be a panel and those are two people you’ll definitely want to hook up with when you’re at the conference.

Go to BestEverConference.com to buy your ticket. Ticket prices go up each week.

Joe Fairless: And then there’s “TAKE5” for a 5% discount whenever you buy your ticket, so make sure to put that in and get your discount.

Theo Hicks: And then lastly, the review of the week for the Best Ever Apartment Syndication Book – if you leave a review on Amazon and send us a screenshot to info@joefairless.com, we will send you the free apartment syndication documents.

This week’s review comes from ReadingFan, and they said:

“So if you bought a house or two as investments or as a flip, and are thinking about upping your game, you NEED to read this book. Chapter 5 will open your eyes as to how much money is on the table, and the rest of the book just takes your hand and walks you step-by-step through the process. I found a lot of material to dog-ear and come back to later (and there’s a picture of that in the review).

Am I confident that I can buy an apartment complex right now? No. I need to get a little more experience under my belt first, but now I feel like I know where I’m going, what I want to do when I get there, and the mysterious path from here to there is now eliminated. That is invaluable.”

Joe Fairless: What a wonderful review. Thank you so much. I’m glad you got the value out of the book and you’re continuing to propel yourself forward to getting a deal done. Thank you for that review. Who was it, what was their name?

Theo Hicks: ReadingFan.

Joe Fairless: Thank you, ReadingFan. Clearly, you’re into self-development based on your name, so I appreciate it. Best Ever listeners, I enjoyed our conversation, good catching up with you. I’m looking forward to talking to you again tomorrow, and between now and then, I hope you have a best ever day.

 

JF1557: How to Tour An Apartment Community Without Your Property Management Company #FollowAlongFriday with Joe and Theo

Joe and Theo are back for another round of business updates in today’s Follow-Along Friday.

Theo outlines the process he followed when touring an apartment without your property management company and what you need to send your management company in order for them to help you with your underwriting assumptions.

Joe had a new investment offering call last night and offers tips he’s learned from doing over 20 calls.

 

Best Ever Tweet:

 


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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.

Today is Friday, we’ve got Follow Along Friday. Joining us is Theo Hicks, like he normally does on Follow Along Friday. The purpose of Follow Along Friday is to talk about what we’ve got going on as real estate entrepreneurs and investors, and how that can be helpful to you as a real estate entrepreneur and investor.

We’ll kick things off with updates, and we’ve got some announcements on some conferences that I recommend, as well as we’ve got a Best Ever Trivia Question, where we’re giving away a copy of the first book that we wrote.

With that being said, Theo, do you wanna kick it off?

Theo Hicks: Yeah, so last week I toured that 80-unit in Tampa that I was talking about… I didn’t give much information on it the last time, because I hadn’t visited it yet, but today I just wanted to talk about the process that I used, and that you can use too, when touring a property and your property management company cannot come. Because we’ve talked about this a lot, that you want your property management company to help you out with your underwriting assumptions, with your rehab assumptions, and to confirm that, because obviously, they’re gonna be the ones that are managing the property.

A challenge I’ve come across in the beginning is obviously lack of credibility, and your property management company is not going to go see every single property you want to see until you’ve actually done a deal. I’m sure for you guys, if you find a deal, your property management company jumps on it because of how many deals you’ve done, whereas for someone who hasn’t done a deal before it’s a little bit different.

So what do you do? Do you just keep them out of the loop completely until the deal is under contract? Well, that’s not what I did. When I toured the property I went with my business partner this time; it’s actually the first deal that he toured with me… And going into it, my plan was to take as many pictures as possible, specifically of anything that I knew we would need to do some sort of rehab to.

For example, during the tour we saw three different units; one of them had just been updated and turned, so someone was actually in there cleaning it. Another unit was already completely rehabbed, and they were renting it at the moment, so… Those units were basically the same. Then there’s a one-unit that was kind of their standard unit.

At this property they’ve got their base unit, and then they’ve done a few minor upgrades to about ten of the units – new appliances, new floors, new cabinet doors… Well, actually they did a lot. The only thing they didn’t do were new lights, and backsplash, and kind of smaller things.

So I obviously needed my management company there to see the conditions and give me an idea of what it would cost to turn around… So I took pictures of the kitchens, the bathrooms, the floors, ceiling fans, ceilings – because they actually have popcorn ceilings… Essentially, everything that I thought that we would need to address, and then the same with the exteriors.

I took a picture of the monument sign, because we plan on doing a new monument sign if we buy this property. I took a picture of the actual stucco, because we if were gonna paint it… There’s an area for a dog park… So essentially anything on the exterior that I also would wanna touch.

And I went home and I uploaded all those pictures to my computer, and then I essentially created a PowerPoint presentation with side-by-side pictures of the kitchens, the before & after, the bathrooms before & after, the floor before & after, and then exactly what I wanted to do to those. For example, the kitchen – I wanted to put in new cabinets, do new counters, new floors, new hardware, things like that… And then below that a list of everything I needed to do, plus a price.

I repeated the same thing for the exteriors as well, and then sent it over to my management company, where they looked at it and said “All this looks good, except maybe this price is a little bit low, and this price looks a little bit high…”

Joe Fairless: What were those items that they were different from you?

Theo Hicks: One of them was the popcorn ceilings, actually. I had no idea how much that would cost to fix. That’s when you’ve got that weird stuff kind of [unintelligible [00:06:10].01] and repaint it… That was one thing that was a lot cheaper than I thought it was gonna be. They said it’d be about $150/unit, and I thought it’d be like $500/unit.

Joe Fairless: One thing I’ve noticed is residents don’t mind the popcorn ceiling, but owners hate it.

Theo Hicks: Good to know. $150 is not that bad, and if we were to remove it, it’s not gonna change our numbers that much… But that’s still good to know. When you’re done sanding it, it looks really nice.

So I think that is for now the best approach to essentially giving your property management company a virtual tour of the property. Of course, it’s way better for them to come, because you’re only taking pictures of things that you see, whereas they’re gonna see things that I wouldn’t have even noticed.

The first property I toured with them they saw that the railings were too low and they were [unintelligible [00:06:57].19] But this property is a little bit different, because it’s really maintained.

Now, going away from — the problem with this property…

Joe Fairless: Real quick before you get into the problem with the property… Is your management team local to Tampa?

Theo Hicks: Yeah.

Joe Fairless: And do they have units that are in this area already, that they manage?

Theo Hicks: Yeah, they know the area very well.

Joe Fairless: My question is how come they are not already familiar with the property? I wouldn’t think that you’d need to take pictures of, say, the monument sign, and the stucco, and even the interiors, because I would think that they would have already been familiar with the property and had been secret-shopping the property just for market rent comps already.

Theo Hicks: I don’t think this property. The last one they looked at, the 292-unit, they knew all about it. This is a little bit smaller, it’s 80 units, and they knew it was for sale… They know what it should sell at, but I don’t think they’ve actually been to this property before. Now, I know that I’m defending them a little bit, but there are a ton of apartments in this area… Like, a TON of apartments. I’ve never seen anything like it before. So I’m sure if I ask them “Hey, have you heard of this property before?” they’d say yeah, but I’m not sure if they’ve actually been there before.

Joe Fairless: Pros and cons of buying a property with a ton of apartments close by, what would you say?

Theo Hicks: Well, it depends on the actual type of apartments. If it was in an area that had a ton of luxury apartments, I’d be a lot more excited about a property of this size… As we’ve mentioned a few Follow Along Fridays back, you can offer that luxury experience without the luxury cost. But in a low-income area it kind of scares me a little bit, because at the end of the day — and this is something I was gonna get into, that I noticed, and again, this could just be a coincidence and a one-time thing… But when I was looking at the comps in this area, there’s so many apartments that it seems like the rents aren’t based on the square footage, they’re just based on a one-bed versus a two-bed… Because I did six comps, and five of them were essentially exactly what our property is gonna be like once it’s done, and the sixth comp is basically like a market leader, so it’s the nicest property in the area… And all the rents were basically the same, the one-beds and the two-beds, even though the really nice one – the units were way bigger.

So when you look at the dollar-per-square-foot, I think the average for the one-bedrooms ended up being $1.30-something, but for this property, the really nice one, since the units were 200 square feet bigger than all the other ones, the dollar-per-square-foot was something along the lines of $1.10, or maybe even lower. I didn’t know what to even think about that, and I still really don’t know what to think about that.

Joe Fairless: Yeah, pros and cons with being in an area that has a lot of apartments in it already, and people go to an area just to shop a lot of different apartments – a pro is you get more drive-by traffic and walk-ins, because they’re shopping other apartment communities that are next door to you, and then they just go shop yours as well… And then the con is the pricing, because you’re competing with a bunch of other apartments in that immediate area, and that could drive your price down because it’s so competitive.

One solution is to offer a look-and-lease special when you have an apartment community in an area that has a lot of other competition. The look-and-lease special works in the following way – you offer a special to someone who comes in and looks at the property and leases it that day. Assuming that you’re able to get their approval done within that period of time, then if they sign the lease or if they sign a commitment to lease at that time whenever they’re there, then you give them some sort of concession, whether it’s half off the first month’s rent, or something else that you and your team come up with… But you really need to be focused — I’m not saying you, Theo, but just as investors in general, we need to be focused on converting the walk-ins to become residents… Because that’s your advantage, so you wanna play up your advantage as much as possible, so really the key is on that conversion, an increase in that conversion rate. Because then, if you’re increasing the conversion rate, then you’re enjoying all the pros of living in that area, or having an apartment community in that area with other large apartment communities, and you’re mitigating the downside of that.

Theo Hicks: Yeah, and that’s something we would definitely have to implement

at this property if we were to buy it, because there are just so many apartments that, as you mentioned, they’re gonna come and they’re gonna look at ten different apartments, and who knows what they’re gonna do to choose one which one they’re gonna pick. That’s great advice.

Now, the problem with this property is that it’s owned by one of those owner-operators, so something–

Joe Fairless: The management fees…

Theo Hicks: A lot of problems… No management fees, very disorganized T-12, they’ve lumped in cap-ex with maintenance and repairs, so it took a while to pull all those out and actually figure out what the actual maintenance and costs were them renovating units… But usually, for apartments there’s not a price set, it’s just dictated by the market, whereas as this is a smaller 80-unit — not necessarily smaller, but in the grand scheme of things, you know, apartments are 150-200 units, and it’s an owner-operator, so they have a number in mind of what they want, and it’s got a list price… And I know cap rates — I’m not basing the purchase price off of the cap rate, but I was just curious to see what the cap rate would be based off of their purchase price and the in-place net operating income, and it’s 4.75%, in a market that’s 6.5% cap rate. So that’s 6.5 million versus 4.75 million dollar purchase price, and for our underwriting the deal makes sense around a 5.25 million… So the last thing I need to do is hear back from our lender, which — they actually called me right before we went live, so I’m going to call him back to see what the debt quote is gonna be, just a ballpark estimate…

Joe Fairless: What mortgage broker are you going with? Mark Belsky?

Theo Hicks: Yeah. And once I get that, I’ll plug that in my cashflow calculator and get the final number, and if they want 6.5 million and we can only pay 5.25 million, we’re gonna offer 5.25 million and see what happens.

Joe Fairless: You’re gonna offer your best and final price at the beginning?

Theo Hicks: Yeah, sorry, I’m gonna probably start at five. 5.25 is the highest we can go.

Joe Fairless: Hopefully they don’t listen to this episode.

Theo Hicks: They won’t.

Joe Fairless: Like, “Wait a second, you offered 5, Theo? I heard on Follow Along Friday that you’re good for 5.25.”

Theo Hicks: The deal still makes sense.

Joe Fairless: Cool.

Theo Hicks: So that’s that deal, and then I quickly wanna talk about another deal we’re looking at, which is the opposite end of the spectrum of this one. It’s similar size, about 70 units, but it’s in an area where it’s the largest apartment in that area. It’s in St. Pete, which is —

Joe Fairless: Sorry, I’m confused. You said it’s 70 units?

Theo Hicks: It’s around 76 units.

Joe Fairless: Okay. But you said it’s the largest apartment? What do you mean by that? Largest building, largest apartment community?

Theo Hicks: Yeah, number of units.

Joe Fairless: Okay, got it. I thought there was some massive apartment unit that you were referring to. Okay.

Theo Hicks: Sorry, the building with the most number of units in St. Pete Beach. This is an area where there’s no construction whatsoever ever. This is obviously [00:14:17].12] property, but… I’m gonna underwrite it; I haven’t underwritten it yet, I’m gonna do it this weekend, but I wanted to mention it because in the offering memorandum – I’ve never seen this before… They said that the rents can be raised by over $700.

Joe Fairless: Oh, wow… That’s New York City style right there, from a [unintelligible [00:14:33].13] to market rate… Huh.

Theo Hicks: Yes, I’m curious to see where they’re getting that from.

Joe Fairless: Yeah, looking forward to hearing more about that one.

Theo Hicks: I will talk about that one next week.

Joe Fairless: Cool. As far as stuff I’ve got going on, we just had our conference call last night on a deal that we’re buying, and one thing I noticed — so it’s like the 22nd syndicated deal we’ve done, somewhere around there, low twenties… I think I finally figured out the way to prepare for these calls, and I believe this will help everyone listening who also has similar conversations or does similar calls… It might be specific to me, but I’m pretty sure it’ll be helpful for others.

What I did is I have an outline for what I’m gonna talk about, I type it out in detail in a Word document, and then I do research, I find different articles etc, so I’m creating the foundation, and then I think about the flow of the conversation and then I write it down in my notebook, the bullet points, so that I just have talking points, versus me looking at a long Word document that is detailed.

That way, whenever I actually do the presentation during the conference call, it’s more conversational versus robotic. The call went really well last night. I’m looking forward to closing out on that deal. So that’s one thing I thought would be helpful for others who are raising capital for deals, or speaking to investors – just take the approach that I’ve just mentioned.

Theo Hicks: What did you use to do?

Joe Fairless: The part that was missing was writing it down in a notebook, the bullet points. And similar to when I interviewed Tony Hawk – I thought I did a terrible job interviewing Tony Hawk, because I was overly prepared (so I thought), but I think you can be overly prepared as long as you don’t follow all that information to a tee whenever you’re having the presentation or that conversation. I think you can have as much information as you can consume to be prepared, but then go in being focused on the engagement that’s taking place at that moment in time and just trust that you’ve written down the bullet points and you know the things you need to mention… And if you don’t mention it at all, then that’s fine, because it’s more about the engagement and getting out most of the stuff that you need to, versus getting out all of it and being more of in an awkward conversation, or sounding like  a robot.

Theo Hicks: It’s something that people that have never done an investment call before, I bet they don’t understand – it is way different when you’re doing a recording talking to someone like we do right now, as opposed to when you’re just talking to yourself. Obviously, the people are on the phone, but they can’t talk back to you, so you’re talking the entire time… So just the flow is way different. When you’re interviewing someone, they can say something and you can build off of that, or [unintelligible [00:17:36].23] whereas when you’re just talking, you miss something and you don’t really know, because no one can tell you, and if  you’re not making sense you don’t really know, because no one can tell you until later… So that’s good, you make the bullet points and make sure that you’re not doing a script, because people can tell when you’re doing a script. If you just do bullet points and then you speak on that bullet point for a couple of minutes, it’ll flow a lot better and it’ll be a lot more conversational, as opposed to you having a 10,000 word script written out and you read everything out straight from it.

Joe Fairless: Yeah, I believe we have stuff in our Best Ever Apartment Syndication Book about conference calls too, and how to prepare for those conversations.

Theo Hicks: Yeah, we do.

Joe Fairless: Yeah, more information on that… If you wanna dig in there, just look in that section of the book.

Theo Hicks: Good stuff. Moving on, we’re going to mention one of your client’s conferences today on the podcast…

Joe Fairless: Yeah, Dan Handford. He’s got a virtual summit, 40+ speakers; I’m gonna be one of them, I think I’m doing the keynote… It’s a virtual conference, so you can attend from your living room, or your office. There’s also several in-person meetup events surrounding the summit, like watch parties, pre-event meetups, things like that. You can sign up for the virtual summit; it’s Dan Handford’s Multifamily Investor Nation Summit, January 17th and 19th, at apartmentevent.com… Super-easy to remember, apartmentevent.com. But wait to get your discount code, which I’m about to give you, and that is “BESTEVER”. You get $100 off. You can go to apartmentevent.com and sign up for that summit.

Theo Hicks: That’s great that he got that URL, apartmentevent.com.

Joe Fairless: Yeah, smart.

Theo Hicks: Alright, so on to the trivia question. Last week’s question was “What is the cheapest state to live in based off of cost of living factors?” The answer was Mississippi. If you were the first person, you’ll be getting a signed copy of the first book that we wrote.

You’ll also want to answer this week’s question in order to get your book… I’m not sure if we’ll do repeat, but definitely continue to answer these questions in order to receive that signed book.

The question is going to be “What is the city with the highest total share of high-end apartment buildings?” These are B+ and higher apartment buildings, and this covers all of 2017 and all of 2019 through October. So what is the city with the highest total share of high-end luxury, class B+ or higher apartment buildings?

Joe Fairless: So it’s the percent of apartment buildings that are B+? What city has the highest percentage of B+ apartment buildings?

Theo Hicks: Exactly.

Joe Fairless: Is it buildings or units?

Theo Hicks: It was buildings.

Joe Fairless: Buildings, okay. Well, you have the answer again, in this document I have in front of me — I definitely would not have guessed it. Next week we won’t have the answer in here, so I’ll give my guess for future questions. Good luck, Best Ever listeners, on this one… It’s definitely surprising.

For the winners of previous questions – we will be sending those books out in the next week or two. Samantha, my right-hand person on my team – she’ll be mailing them out; we’ve gotta get some copies in our office first. Then I’ll sign them and we’ll get them out to you. So if you won already – it’s coming, we’re on top of it.

And then February 22nd-23rd – you know what’s going on, don’t you, Theo?

Theo Hicks: Best Ever Conference 2019.

Joe Fairless: That’s right, Best Ever Conference 2019. It’s in Denver, Colorado. Go to BestEverConference.com. A speaker that I wanna mention is gonna be there is Julie Lam of GoodEgg Investments. She is going to be on a panel that I will be moderating, about taking the leap from smaller stuff to larger stuff, and how she has done that, with some specific case studies, and some other people on the panel will be speaking about that topic as well.

It was one of the highest-rated panels that we did last year, and we usually don’t repeat panels, but we are going to have the same focus for a panel this year; different people on the panel, but the same focus, because it’s not only inspiring, but it’s a how-to panel for how others got from point A to point B in scaling their business… So it will be beneficial for you to attend and hear that panel, as well as the others that we’ve got going on.

You get a discount of 5% when you enter the code — I forget the code, but when you go to besteverconference.com, right before you click the Buy Now button, there’s a code in that little section there, so you can simply enter that code and you get 5% off your ticket.

Theo Hicks: Yes, I’m looking forward to that panel, because I’m kind of going into the same thing right now. Lastly, if you buy the Best Ever Apartment Syndication Book on Amazon and leave a review, you have the opportunity to be the Review of the Week, read aloud on the podcast. This week’s review is from Chad Eisenhart. It’s a little bit longer, but I really wanted to read it, because he had reached out on Bigger Pockets and was talking about how grateful he was for the book, and I asked him to leave a review on Amazon, and he did, so I’m gonna read his review right now. He said:

“The Best Ever Apartment Syndication Book tells you the exact steps to work on to buy apartments with investor money. As you can see from the attached photos, (he attached a photo of a bunch of post-it notes in his book) I found plenty of actionable steps to implement.

Apartment syndication is a team sport and they do not give you a bunch of fluff telling you it will be easy or quick. They tell you exactly what to do today, and tomorrow, and the next day, and at the sale. I am in the process of reviewing my notes and making my list of what to start on today.

Add this in with their podcast (free) and syndicationschool.com (free) and if I do not hit my apartment syndication goals I laid out for myself, the only person to blame is me. I joined a mentoring program for $5,000 a few months back; not to insult that group, but Joe and Theo’s content deserved my $5,000, not just the $43 I spent on the book.”

Joe Fairless: He posted about that in the Facebook group. Did you see my comment about that?

Theo Hicks: Yeah, “I hope the check is on the way…”

Joe Fairless: Yeah, I mentioned to him in our Facebook group, which is BestEverCommunity.com – free to join and hang out with us and chat… Theo was wanting you to send us the $5,000, but I said “That’s ridiculous, Theo. He already paid $43 for the book, so he can just send us $4,957.”

Theo Hicks: There you go… [laughter]

Joe Fairless: But in all seriousness, thank you so much for taking time to write the review, and I’m glad it’s been helpful. Most importantly, I’m glad it’s been helpful. And that code for the Best Ever Conference is “take5”. That’s also on the website, BestEverConference.com.

Well, good hanging out with you, Theo, as always. Best Ever listeners, nice hanging out with you, too. I hope you got some value from this – I’m confident that you did – and looking forward to talking to you again tomorrow.

 

JF1550: Best Ever Apartment Syndication Book Q&A #1 FollowAlongFriday with Joe and Theo

In this episode of Follow-Along Friday, Joe and Theo answer a list of 6 questions submitted by readers of the Best Ever Apartment Syndication Book. 

The questions answered are:

1) Do I need to visit every property from the 200-property analysis?

2) If I want to do a deal in the Bay Area, CA, should my mentor be local?

3) Where can I find the data to evaluate a market?

4) Who should review my underwriting on my first syndication deal?

5) How do I approach a broker to get them to send out direct mailers for me?

6) What’s the difference between a joint venture and a syndication?

 

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

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

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


TRANSCRIPTION

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

Today is Friday, we’ve got Follow Along Friday. We’re going to be answering questions that you have submitted about the Best Ever Apartment Syndication Book. We’ve got a handful of questions that we have received, that we’ve selected — we’ve got a lot of questions we’ve received, but we’ve selected some and we’re gonna be going through it.

If you are focused on apartment syndication or raising money, or even investing passively in deals, then this will be of interest to you. If not, then stop listening right now and go listen to another episode where we interview someone who isn’t related to that stuff.

Theo Hicks, how do you want to approach it? Do you wanna go ahead and just read the first question?

Theo Hicks: Yeah. So we’re gonna go over six questions. The first question is from David. He said that “In the book, Joe mentions evaluating 200 properties. Does that mean that I need to visit each and every one in person?”

Joe Fairless: Anytime there’s a question about what degree should I do something, I always start out with the ideal scenario, and most of the time, anytime I come across a challenge I always start out with “What’s the ideal scenario?” and then what does reality look like and what’s really practical. What David is referring to is in the book we talk about evaluating 200 properties in the market that you select, that you want to focus on to purchase properties in.

Ideally, you visit all the properties in that market, you go and secret-shop them… So you go in, you pretend you’re renting from them, and you get to know the management process, the customer service, the rents, what’s included in the rent, how they qualify residents, what type of income is required, do they take criminals or not, do they take pets, if so, what are the pet fees…? Ideally, you do all of that in-person for every single property that is a potential purchase for you in that selected market. Not necessarily reality and not necessarily practical, because time is limited, and it would take you a very long time, and it’s not necessarily the best and highest use of your time.

So instead of visiting all the properties in person, although that is ideal, because you definitely would learn the most that way, my suggestion is to visit a sample set of those properties. So if you’re doing 200 properties, then perhaps visit 10%, so 20 or so properties. Visit them in-person, do all the things I just mentioned, and then have a database for you to look at, and hire the web scraper, which we talk about in the book how to do, and look at the numbers and look at the different variables that we’ve outlined in the book, and you’re gonna be able to get good information and good insight based on your personal experience, as well as your secondary research that you put together.

Theo Hicks: The only thing I would add is to — again, the idea is to go and basically in-person evaluate 200 properties… So you’re gonna make your initial list of 200 properties, but keep in mind that once you start reaching out to real estate brokers, for example, one of the ways to win them over is to visit some of their recent sales… So they’ll send you a list of five to ten properties; if you have five to seven brokers, that’s almost 50 properties right there. If you repeat the same exercise with your property management company, that’s another five properties… So you’re already a quarter of the way there with those properties, and as long as you — you know, if you’re gonna do a sample study, then that will be enough, but if you wanna do a combination of both, then you can view 10-20 properties on that list, and then view those properties from your broker and your property management company.

Again, there’s a lot of reasons why you’re doing this, but one of them is for these to be potential deals in the future, that you reach out to the owners… So when you go to these properties, you’re gonna look for something noteworthy, that you can mention when you’re talking to them, and also just kind of give yourself the other benefit of this exercise – it gives you the best understanding of the market you could possibly get, because you’re literally driving around to 200 apartments, as you’re probably hitting a decent amount of the apartments that are actually in that neighborhood. It’s one of the best ways to be an expert.

As Joe mentioned, this could take a while to do, but… In Tampa, I’ve probably looked at at least 75 properties so far, and I spend all day Saturday just looking at properties, basically… Which maybe you can’t do, but it’s kind of just prioritizing your time and figuring out how you can get out there and look at these properties, because… I didn’t know the Tampa market at all, and the whole reason why I know it is because of that exercise that I’ve performed.

Joe Fairless: Yeah. Ultimately, as you said, it’s prioritizing your time. One suggestion would be if you know that your six months away from really getting serious about this stuff – and when I say “this stuff”, apartment syndication, so putting together your own deal… But you’re interested right now; so you’re not serious, but you’re interested – then go do the tours in-person, because you’re able to learn significantly more when you do it in-person, versus just looking at it on a spreadsheet.

So use that time, if you’re not quite ready to do syndication – maybe you don’t have time during the week, but you have time on the weekends, so you need more time to focus on this stuff, maybe you don’t have the money lined up, maybe you don’t have the right team members, or maybe it’s just not a right time for you, then spend the time you do have and go visit these properties, because it will be incredibly valuable for you.

Theo Hicks: That’s a really good point. A lot of people I see on Bigger Pockets, or just in general, when they first become interested in the idea of syndication, they’re not ready to do a deal for at least six months, because they have to work on their education/experience. You can visit 200 properties in six months pretty easily. You’re not gonna be doing much else, besides listening to podcasts, reading books, maybe working with a mentor and working on your business experience… But in the meantime, before things start really picking up, take the time to do this exercise then, rather than waiting until you are actually looking at deals to do that. So yeah, that’s a good point, Joe.

Joe Fairless: Number two.

Theo Hicks: Number two is from Cordell. They say that they’re from California and they want their first deal to be in the Bay Area, so they wanna know if their mentor needs to be located near them, or if they can be remote.

Joe Fairless: Either one. They can be near or remote, and I’m reading this question — Cordell is in Oakland, California… And you want to do a deal in your backyard, basically, in the Bay Area. My suggestion to you is to have a mentor who has purchased in the Bay Area. It’s its own beast; a different type of business model to buy in the Bay Area versus what I do, and most apartment syndicators do buying in the South, South-East, South-West, Mid-West… But not where you’re at; or not the North-East… For the most part. I’m making sweeping generalizations, but for the most part.

And the reason why is because of the type of value-add plays that are available in the areas where most people buy, versus the Bay Area or New York City. So in order for this mentor to be very relevant to you, my suggestion is to have someone who knows the ins and outs of investing in the Bay Area.

Ultimately, before you even approach the mentor, or seek out a mentor, define what you want from the mentor, so that you know what success looks like, and now that you have a plan for what you want out of the relationship, then go seek it out. It will be much easier for you to do it that way, versus not knowing exactly what you want to and have the outcome be with your relationship with the mentor, and you won’t be able to have as good of a relationship or partnership with them.

Theo Hicks: Yeah, but then also just a couple other things about the mentor – make sure that they’re an apartment syndicator, obviously, and that they’re still active, and that they’re successful, which means that they’ve been able to at least meet the return projections on their deals. Then also what to expect from a mentor is that they should be someone who connects you with people that you need for your team, and also should be an ally you can call upon whenever you need help with anything real estate-related or personal-related.

What you should not expect is for them to be your knight in shiny armor who basically does everything for you and you’re magically becoming a multi-million-dollar apartment syndicator in a couple of months. So make sure you set the proper expectations with yourself upfront, too.

Question number three is from John. This will be a quick one that I can answer… He says that “I have a few markets that I’m looking at, and using Joe’s six-step process, which we outlined in chapter 15 of the book for evaluating the market; I am struggling to get to the right areas on the census.gov website, wondering if the site locations have changed since they wrote it. Can you provide actual web links to each of these six areas?”

As of last week – and we are recording this November 29th, 2018 – those links have not changed. I actually did a Syndication School series – series number five, if you go to SyndicationSchoo.com – on that six-step process, I explain how to approach it from a different angle… And one of the free documents you get with that Syndication School episode is the market evaluation template, which also includes the guide  to how to fill it out, and that guide includes a link to each of those six factors.

So if you go to SyndicationSchool.com, scroll down to series number five, one of those free documents will include all the links that you’ll need in order to get that data.

But the census.gov website – it depends on your experience with pulling data. I had a job where I pulled a lot of data from things that were a lot more complicated than census.gov, so I was able to navigate the site pretty easily. If you don’t have that experience, it might be a little bit more difficult. I would just go check out that document, series number five, at SyndicationSchool.com, to download that guide.

Joe Fairless: Number four.

Theo Hicks: Number four is from Scott. He asks “When you underwrite a deal,  do you have a third-party look at it as well? Yourself, a bank and a third-party. On my first deal, I would like someone to verify my underwriting.”

Joe Fairless: Yeah, good thought process, because I completely agree with you, you should have someone verify your underwriting on your first deal. So your question was when you underwrite a deal, do you have a third-party — so you’re asking about me and our process…? I’m gonna answer the question that you asked, which is what do I do, and then I’m gonna answer the question based on what I suggest you do, since it’s your first deal.

What I do now – and we’re on deal 21 or 22 at this point, syndicated deal number 21 or 22 – we have a team of underwriters, and then my business partner Frank, he created our underwriting document from scratch… He is phenomenal at underwriting, but even with the strength that we have on the team, we always share our underwriting with our property management company prior to getting a deal accepted, because we want them to verify that our assumptions are in line with their assumptions… And then you asked about sharing underwriting with the bank – yeah, the lender always sees the underwriting, but not necessarily prior to making an offer on a property… But it depends on your relationship with your mortgage broker, because you do wanna get a good sense of what the debt will look like on the deal, so you want to share that information with them… But it just depends on how your process unfolds, and how detailed and in-depth you get with the lender, and what stage.

So for you, on your first deal, the minimum amount of people that I recommend looking at it would be three: you, your property management company, and then someone else who you know and trust and is in the business, and you talk to about the deal, who has no vested interest in you closing or not closing the deal. That’s important, because it ties back to alignment of interests. You want them to have no interest at all if you do or don’t do the deal, that way they can look at it from an objective standpoint. If you have to compensate them, compensate them. What do you compensate them – I don’t know; ask them. It might be a lunch, it might $1,000, it might be $200, it might be more, it might be less… I’m not sure. But get at least the management company and an objective third-party who doesn’t care if you close on the deal or not, but has the experience to take a look at our underwriting.

Theo Hicks: That’s solid advice. And then once you actually have the deal under contract, as Joe mentioned, kind of depending on how your process is set up, that’s when the mortgage broker will come into play, but… You will also have other third-parties — not necessarily look at your actual model, but they’ll verify the outputs of your model.

If you go to our blog, thebesteverblog.com, and you look at the Ultimate Guide to Performing Due Diligence on an Apartment Building, you’ll see the ten different reports that will be generated, or that you should have generated, and most of those involve verifying the information that you have in your underwriting models… So those are also third-parties that are looking at at least a portion of your underwriting, and will send you back information that can confirm your budget, confirm your rent premiums, things like that.

Number five is from Barry. Barry said “In the book…” – I think this is actually on the podcast, because he said “or maybe I heard it on the podcast… There are agents that send mailers to find potential sellers. Is this understanding true? How would you approach a broker about doing this?” I’ll answer this question, since he’s asking me…

Joe Fairless: Yup.

Theo Hicks: The agents that send mailers — well, I’m assuming that most real estate brokers are sending mailers for themselves, to get deals that they can list… But for them to send mailers for you – yes, this is true, but it’s not something that is gonna happen instantaneously. I knew the agent for at least 2-3 years before I’ve entertained the idea — we had a really solid personal relationships; I had already done a couple deals with her, so… We do have a few blogs about winning over a broker to your side, but at the end of the day, in my opinion, in order for this strategy to work, you’re gonna have to do at least a deal with them first, as well as have a personal connection where you call them on the phone and talk about your day before you ask them to do such a thing, because it’s gonna be expensive for them to do.

Now, I’m sure they would do it if you paid them, and I’m assuming you’re asking how you can get it done for free… So how do  you approach a broker about doing this? Time, and build a personal connection with them, and do a deal with them first.

Joe Fairless: Good stuff.

Theo Hicks: And then lastly, number six is from Richard, and he asks “What is the difference between a joint venture and a syndication?”

Joe Fairless: A security that’s registered with the SEC and a partnership among your business partners, and it is not registered with the SEC. So a syndication is a security, a joint venture is not. A syndication requires a securities attorney, a joint venture does not. A syndication is where you raise money from one investor – I believe it can be even one investor – and there is an expectation that based on your expertise they will make money, and they will not be active in the deal, they will be passive. A joint venture is the opposite of what I’ve just said.

Joe Fairless: Exactly. So if you’re essentially doing a deal where you’re raising money from one or multiple people who that’s all they’re doing, then it’s gonna be a syndication. But if you and someone are teaming up and you’re gonna do half the work, they’re gonna do half the work, and you’re gonna both bring half the money, that’d be a JV.

So those are the six  questions. If you’ve read the book and have any other questions, submit them to info@joefairless.com, and once we have 5-6 we’ll do another podcast like this and answer them.

Let’s move on to the trivia question… Last week’s question was “What is the best city to live in for career-focused single women?” We mentioned that it was a city that we would not expect… The answer is Buffalo, New York.

If you are a career-focused single woman, then Buffalo, New York would be a good place to live. I guess if you’re a career-focused single man too, you’d head over to Buffalo. I think Baltimore was also on that list; I think those are the top two, but Buffalo, New York was the answer.

This week’s trivia question is going to be “What is the cheapest state to live in based off of the cost of living?” I know the answer, but Joe doesn’t know the answer, so Joe, what do you think?

Joe Fairless: I see the answer in our document here…

Theo Hicks: Aww… [laughter]

Joe Fairless: I know, that would have been a fun one to guess…

Theo Hicks: Mistake on my part…

Joe Fairless: I’ve been influenced, so I can’t pretend I don’t know and then try and guess what I was going to guess. I’ll  have to stay mute on this one.

Theo Hicks: If you submit the answer either on the YouTube video, below, or to info@joefairless, the first person to get it right will get a signed copy of the first Best Real Estate Investing Advice Ever Book, vol.1.

Also, we’ve got the Best Ever conference coming up. I think we’re less than three months away now. That’ll be in Denver, Colorado. In order to purchase your ticket, go to BestEverConference.com. Each week those ticket prices go up, so the sooner you secure your ticket, the less expensive it will be.

This week’s featured speaker is going to be Gene Guarino, who is an assisted living facility expert. He’s actually going to be speaking at the conference, but he’s also going to be hosting a workshop that Sunday as well. His talk and his workshop is gonna be all about how to increase your cashflow by converting a single-family home into an assisted living facility.

Joe Fairless: I think as an attendee of the Best Ever Conference you get in free…?

Theo Hicks: Yeah, yeah.

Joe Fairless: Okay. So you get in free to that workshop on Sunday. One thing when you go to besteverconference.com, when you purchase the ticket, put in the code “take5”, and you’ll get 5% off. As Theo mentioned, ticket prices go up weekly, so buy it today and lock in the cheapest price available right now.

Theo Hicks: And then lastly, we’re gonna do our review of the week, so make sure you pick up a copy of the Best Ever Apartment Syndication Book on Amazon. Leave a review, send us a screenshot to info@joefairless.com and we will send you some apartment syndication goodies, as well as read your review live on the podcast. This week’s review comes from Derek W. Peterson. He said “I’m an active multifamily investor and I have a bookcase full of excellent references on investing in real estate. Many of them  are excellent in changing mindset and giving general advice on turning real estate investing into a full-time endeavor, but Joe’s book by far is the most specific in giving detailed instructions. I have read the book in full, and am now following the actionable steps and conducting the market analysis. I love it and highly recommend!”

Joe Fairless: Thank you for that feedback, and everyone, looking forward to continuing the conversation tomorrow. If you have read the Best Ever Apartment Syndication Book, then we’d appreciate a review on Amazon, and we’ll continue to read more reviews from the book.

I hope you have a best ever weekend, and we will talk to you tomorrow.

JF1536: Growing From SFR To Multifamily & Private Lending Live Interview with Kay Battle

We have a treat for you today with a live interview that took place at our Cincinnati meetup. Kay is a local Cincinnati investor who has been investing in real estate for about 10 years. She started with REO’s and short sales, grew into multifamily, and then became a private lender. Hear more about her story and how she has been able to grow to the level she is at. If you enjoyed today’s episode remember to subscribe in iTunes and leave us a review!

 

Best Ever Tweet:

 

Kay Battle Real Estate Background:

  • Successful real estate investor who owns 35 units in Cincinnati
  • As her company and experience grew, she started a commercial lending company, Common Sense Capital Solutions
  • Based in Cincinnati, OH
  • Say hi to her at https://cscapitalsolutions.com/

To attend this meetup live in Cincinnati:

BestEverCincy.com


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


Best Ever Listeners:

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

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

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


TRANSCRIPTION

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

We’ve got a special episode today, doing it live, and we’ve got a bunch of people hanging out with us at our Cincinnati meetup. If you ever want to come to Cincinnati and hang out with us and attend this meetup, go to bestevercincy.com.

We’re gonna be jumping right into it. With us today we’ve got Kay Battle. Kay, how are you doing?

Kay Battle: I’m doing great, how are you doing?

Joe Fairless: I’m doing well, and good evening; I’m looking forward to our conversation.

Kay Battle: Same here.

Joe Fairless: A little bit about Kay – she is a real estate investor who owns 35 units in Cincinnati. As her company and experience grew, she started a commercial lending company called Common Sense Capital Solutions, and she is based in Cincinnati, Ohio.

With that being said, do you wanna give the Best Ever listeners and everyone hanging out with us  a little bit more about your background?

Kay Battle: Sure. First of all, thank you for having me; I really appreciate it and I’m excited to be here, talking to the Best Ever listeners. I started my real estate investing experience in 2008, right after the market crashed; I was actually still in college at the time, but I saw a huge opportunity to jump in feet first and just see what happens. It went really well, so since then I’ve been really focused on acquiring as many properties as I can. When the market was slow, I really focused on REOs and foreclosures.

I started with single-families, and then eventually got into small multi-units, so now the largest property that I have is 9 units. And like you were saying, as my experience grew, I really wanted to branch into some other areas, so I got into commercial lending. Now my company provides financing options for real estate investors and also small businesses nationwide.

Joe Fairless: Why do the shift in focus from being an active investor to lending?

Kay Battle: I’m still an active investor, but I wanted to go into lending because earlier this year I decided to take the leap of faith to become a full-time investor and entrepreneur. So I left my job — by trade I’m an engineer, so I left a really great paycheck to jump into something a little unknown and a little scary; I wanted to have another source of income outside of just the properties that I had. I’m still actively investing, growing and managing my portfolio, and then also doing the commercial lending.

Joe Fairless: In 2008 you got started.

Kay Battle: Yes.

Joe Fairless: It was a challenging time…

Kay Battle: Definitely.

Joe Fairless: You focused on REO…

Kay Battle: Yes.

Joe Fairless: Tell us about the first couple deals.

Kay Battle: The first that I’ve purchased was a single-family; it was not too far from my parents, so I was really comfortable with the area. A standard 3-bedroom/2-bathroom house. I think I paid $43,000 for it. It only needed some minor cosmetic repair work. I probably put $5,000 into the property to get it rent-ready, and the lady that moved in is actually still in the property. She’s been there for almost ten years, and she’s been an excellent tenant. She maintains the property really well.

So it was a great success, and I was lucky to have early success in that time period, because it really propelled me to want to continue to go and continue to grow… Because I know a lot of people hit hurdles or run into issues when they first begin, and then they kind of stay away from real estate… But I’m really passionate about investing and I think it’s a great vehicle for you to get to the point where you can be financially independent.

Joe Fairless: Where did you get the money to buy that first one?

Kay Battle: I got a loan. I had been working and I had a little bit of money saved up, so I was able to have a down payment. The down payment wasn’t very much, it was 10% or so… At the time, banks weren’t lending, so I was looking into some private options, and that’s another reason why I wanted to get into the commercial lending business, because I kind of understand the struggle of not being able to go to the bank and get a loan.

Joe Fairless: So who gave you the loan? Was it a bank, or a private individual?

Kay Battle: It was actually a small local community bank…

Joe Fairless: Which one?

Kay Battle: New Foundation. Are you familiar with it? They’re on Colerain Avenue.

Joe Fairless: Okay.

Kay Battle: They were able to work with me… And like I said, I had a little bit of money saved up, and I was able to get the loan, and then put the tenant in, and it was great. So it cash-flowed really well… I rented the property out for $850. The tenant paid all the utilities, and it was great.

Joe Fairless: Do you have that same loan on the property today?

Kay Battle: Yes.

Joe Fairless: You bought some properties from the bank, early on…

Kay Battle: Yeah.

Joe Fairless: And then what was the next phase of your investing?

Kay Battle: Eventually, as I grew — again, this was when the market was pretty low. I have some properties that I’ve purchased with cash that were free and clear, but they were very low — I think one of my best deals was a property that I purchased for $14,000, and I put about $10,000 into the property. It has three bedrooms, two bathrooms, it rents for $900…

Joe Fairless: Where is it at?

Kay Battle: It’s in Westwood, on a nice, little, quiet street. The tenant pays all the utilities, so it cashflows really well. So I have deals like that that were pretty low in cost and I was able to pay cash for. Then I have other properties that I do have loans on, and mortgages, so… But I ensure when I purchase that the property is gonna cash-flow appropriately and it makes sense.

Joe Fairless: Are you managing them?

Kay Battle: I do. I self-manage with the help of my father, because he loves me… [laughs] We use Buildium as a management software.

Joe Fairless: Some lessons learned on that?

Kay Battle: A lesson that I’ve learned is that it’s super-important for me as a buy and hold investor to properly screen and select tenants. It’s super-important because it can definitely save you some headaches, some turnover costs, and to maximize your profits.

I personally use a point system. Buildium has a service where they do the screening, the actual check – so they’ll do the background check, the credit check and all of that, but then I use a point system as I’m evaluating the actual application to make an objective determination of whether or not the tenant should be in the property.

Joe Fairless: What’s a story of something that has not gone right from the management side?

Kay Battle: Oh, a lot of things… [laughs] One thing that I learned early on is collecting rent can be difficult. Initially, when we were self-managing (myself and my father), we were allowing tenants to mail in checks, or we would go pick up rent, and that just got too hectic; things would get lost in the mail, people were saying they were mailing things and we didn’t get them… So now I only accept electronic payment, and that was something that I learned and that I’ve implemented, and it’s going really well.

Joe Fairless: If someone says they don’t have a bank account, what’s your response?

Kay Battle: If they don’t have a bank account, I require them to deposit their rent into my bank account. I do have tenants that don’t have bank accounts; I try to stay away from that, because I prefer people to pay electronically,  but I have some older tenants who don’t do well with technology, so I have them go to the bank and deposit their rent into my account… So I have an account specifically for that, nothing else is in the account, and they’re able to put their money into the account. The onus is not on me to ensure that I collect their rent.

Joe Fairless: What’s been the most challenging deal that you’ve worked on?

Kay Battle: The most challenging deal that I’ve worked on… I would say that one of the most costly challenges that I’ve had is working with a contractor that I didn’t properly vet. That’s one thing that I’ll always encourage investors, to properly vet your contractors.

Joe Fairless: What happened?

Kay Battle: In this situation I ended up losing about $20,000, so it was super-painful and not a fun experience. I hired a contractor; I was planning to actually hold the property, but it needed kind of a major renovation… And he was suggested to me from another contractor, and since he was suggested, I just didn’t think to really do any search, but he was totally a scam. He half-way did the job, the work that he did was sketchy, and then he ended up running off and I never heard from him again.

Joe Fairless: What did the first contractor say about him whenever you [unintelligible [00:10:56].25]

Kay Battle: You know, it’s funny, because the first contractor was recommended for me from someone who I trusted, and then he was too busy, so he said “I have one of my guys, he can do the job.” So when I came back to the first contractor, he told me that he basically found the guy on Craigslist, and that he had just hired him because he needed someone to help facilitate his jobs that he was doing. So he didn’t even know the guy personally… So that was just a huge learning experience, and now I ensure that I vet contractors, I get references, I search them on Google to make sure they don’t have any judgments against them, I look at reviews and just make sure that they’re totally legit…

And then I also try to work with contractors that don’t require money upfront. I know a lot of contractors aren’t willing to do this, but some are, and that really shows that they’re only interested in getting paid on the work that they’ve already completed, and work that’s up to your standards. So I try to work with contractors that don’t require that, and if I must pay, I only do a third up front.

Joe Fairless: I believe you mentioned earlier – switching gears a little bit – that the largest deal you have is a 9-unit, correct?

Kay Battle: Yes.

Joe Fairless: What are the numbers on that one?

Kay Battle: In terms of…

Joe Fairless: Bought it for, what have you done with the property, when did you buy it…

Kay Battle: So I bought the property in 2016. I paid $215,000 for it. All of the units are one-units. The property was really well maintained. I probably had to put maybe about $10,000 in. I had to update some of the electrical for the insurance company, and then do some other things around the property, but for the most part, it was pretty great.

The tenants are mostly older tenants, which is nice, because it keeps the building quiet, and they usually pay their rent on time; a lot of them have assistants… The units rent for a range of $500 and $575, and it’s going well. The utilities – I pay the water and the heat for the common areas, and then everything else is managed by the tenants.

Joe Fairless: Is there an opportunity to do RUBS on that?

Kay Battle: I’m looking into that. It seems to be something that would definitely help from an expense standpoint, because the water bill can get pretty intensive with a 9-unit…

Joe Fairless: About how much is that?

Kay Battle: I feel like now that they’ve gone to monthly bills, it’s going up pretty significantly… But I usually pay about close to $1,000/month for the water.

Joe Fairless: What’s an expense ratio for a 9-unit whenever you’re looking at a deals’ expense-to-income ratio?

Kay Battle: Typically, I like to keep it about 40%. For this one — like I said, the maintenance on it is pretty low; it’s really just the utilities that are consistently an expense… So it’s not that high.

Joe Fairless: What type of financing do you have on it?

Kay Battle: I just have a 30-year mortgage on it. I put down 25% to purchase is, so the rest has been finance.

Joe Fairless: What’s it worth now, would you guess, two years later?

Kay Battle: Honestly, I don’t know, but I feel like with the market the way it is now, what I paid for it was a steal; I paid 215k for the nine units. I don’t know what it would be worth now, but I’m assuming that it’s probably gone up significantly in value.

Joe Fairless: Is there a plan to do a refinance, or are you keeping it long-term?

Kay Battle: I wanna keep it long-term, but I am in the process of refinancing just to cash out some of the equity in it… But I’m very early in the process. We haven’t done the appraisal yet, but I’m assuming there’s quite a bit of equity.

Joe Fairless: Common Sense Capital Solutions, commercial lending company… How much have you lent so far?

Kay Battle: We’re close to two million. We’re about 1.7.

Joe Fairless: And within that 1.7, who’s been your sweet spot client?

Kay Battle: We do real estate and then we also do business loans, so I have sweet spots in both… But for real estate, it seems to be the fix and flip client that seems to be one of the ones that we do quite often.

Joe Fairless: When you take a look at your portfolio – you’ve got 35 units – what property takes up the most amount of your time, since you self-manage?

Kay Battle: You mean a particular property, or the type of property?

Joe Fairless: A specific property.

Kay Battle: I have a property, it’s a 5-unit, and it takes up the most amount of my time. I think it’s because of the location. Also, the state of the  property… So I purchased the property also in 2016, and I paid I think 115k for it, somewhere around there, and it’s five units, but it had been on the market for almost two years when I bought it…

Joe Fairless: Wow… We’re about to find out…

Kay Battle: Yeah… [laughter] Well, the owner of the property was out of state, and they had a management company managing it, and the management company really wasn’t doing a great job… So the property was kind of ran down, but the owner wasn’t willing to budge on the price at all, so I’m assuming that they got several offers, but they were below what they were asking, because it did have a lot of deferred maintenance… So I ended up paying full price for the property, which I think was still a great deal, but it just needed a lot of maintenance to get it up and going. There were already tenants in it, so… It’s just been a constant “This needs to be fixed, this needs to be fixed.” But we’re getting to a point where it’s pretty stable.

Joe Fairless: And the first thing you said about it was the area… So what about the area is challenging?

Kay Battle: It is off of Westwood Northern Boulevard, and it’s a great rental area, but the caliber of tenant is a little on the lower end. Like I said, I screen my tenants really well, so I get good people in there, but a lot of good tenants don’t wanna live in that area. It’s kind of hard to find good tenants willing to live there.

Joe Fairless: Since we are switching up the Lightning Round for this conversation, we’ll take questions from the audience… I’m gonna ask you a couple questions from the Lightning Round, just because I’m curious… What’s your best ever deal?

Kay Battle: My best ever deal is actually the one that I mentioned previously, the one that I paid $14,000 for. It’s really low maintenance, it cash-flows really well, and it was definitely a steal for what I paid for it.

Joe Fairless: How did you find it?

Kay Battle: MLS. At the time there were just so many REOs and foreclosures and properties on the MLS that you could go to the MLS and find whatever you wanted. It’s much different now. [laughs]

Joe Fairless: How long ago did you purchase the last property?

Kay Battle: 2016?

Joe Fairless: You shut it down…

Kay Battle: Well, let me take that back. So 2016 was the last property that I purchased to hold. In 2017 I did two flips, which I haven’t done a lot of – my primary source is buy and hold, but I did do two flips in 2017. I’ve been trying to find more property, it’s just been really difficult, so I decided to focus on the lending side until the market makes another adjustment and I can kind of jump in again.

Joe Fairless: What’s a mistake you’ve made on a transaction, other than the contractor?

Kay Battle: A mistake that I’ve made on a transaction… I would say improperly evaluating value. One thing that I’ve learned through this process is how to assess the market and see what I believe something should be valued at, but I have made mistakes, particularly when I’ve done a flip that I thought something would sell for X, and really it didn’t warrant that price, so maybe I put too much money into it to get all of my money back.

Joe Fairless: What aspect of the valuation did you look at incorrectly or differently than what you would in the future?

Kay Battle: It’s hard to properly value when you don’t have proper comps. Looking at the comps, I just misjudged what I could get for the property, and I was putting in higher-end finishes than I probably should have for the area that I was in, so… Definitely a learning experience.

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

Kay Battle: My best real estate investing advice ever – action. I know a lot of people educate, educate, learn, learn, learn, but my philosophy is learn as you go, so you have to take action. Wherever you are in your journey in investing, and whatever goals you have, just work towards your goals, don’t stay stagnant; just take action, just do something.

Joe Fairless: What kind of engineer are you?

Kay Battle: Chemical.

Joe Fairless: How have you applied that to your investing?

Kay Battle: As an engineer I’m very process-oriented, so everything that I do, even in my investing, I try to create some type of system or process to follow, so it makes everything very strategic.

Joe Fairless: For example…

Kay Battle: Even with the tenant screening, how I was saying that I have a point system – the point system is very detailed, and it encompasses a lot of different things, and everything is assigned a point amount. That’s kind of just the system that I go through.

In the property management, everything that I do has a flow to it, and I attribute that to my mind as an engineer.

Joe Fairless: We’re gonna do questions from the audience. First, a quick word from our Best Ever partners.

Break: [00:20:38].07] to [00:21:23].00]

Audience Member: You mentioned you make your tenants pay online… Do  you use the Buildium portal, or is there another online payment system?

Joe Fairless: Can you restate the question maybe?

Kay Battle: Okay, so the question was how do I make my tenants pay online – do I make them use the Buildium portal, or is there another vehicle that I use? I use the Buildium portal; that’s part of the package. Each tenant has a separate login where they can access their information, and then they pay online. If they use a credit card, they’re charged the 2.75% fee. If they have it directly deposited from a checking or a savings account, there is no fee. Then like I said, if they don’t have that option, I require that they actually physically take it to the bank.

Audience Member: [unintelligible [00:22:06].12]

Kay Battle: The question was “How do I handle tenants wanting to make partial payments through the Buildium system?” With Buildium there’s a setting that allows you to not accept partial payments, and I believe that’s true for a lot of the other platforms that accept payments as well. So if yo don’t wanna allow tenants to accept partial payments, you can select that within the settings. I typically accept partial payments, but a late fee is associated. So if they don’t pay the entire balance they then have to pay a late fee.

Audience Member: [unintelligible [00:22:54].29]

Joe Fairless: When they’re depositing it in the bank, do you just give them your account number?

Kay Battle: Yeah, so give them my account number for the bank…

Joe Fairless: Yeah, not the Buildium.

Kay Battle: Not the Buildium. And like I said, the account that I use is specifically for that, so they can’t withdraw any money, they can only deposit, and there’s really nothing else in the account; it’s specifically for them to deposit their rent.

Audience Member: [unintelligible [00:23:25].01]

Kay Battle: The question was was it an easy decision for me to leave my career to become a full-time investor and entrepreneur. It was easy in the sense that I always knew that this was what I was gonna do. I always had a plan, even from the beginning when I purchased my first property, that I wanted to get to the point where I could leave my job.

I was working at P&G, and I really loved my job, but I knew that that wasn’t what I wanted to do. I never intended to climb the corporate ladder; I knew that I wanted to be an investor and a full-time entrepreneur… So it was easy in that sense. It was hard because I was leaving a paycheck, so it was scary in that sense. I really tried to prepare myself and set myself up for success. I had a decent amount of money saved up, I had a plan, and once the time came, I was ready to go and there was no looking back.

Joe Fairless: How do you know how much money should be saved up?

Kay Battle: I always encourage people to have an emergency fund of at least six months’ worth of savings, and then anything beyond that is up to your comfort level. I wanted to be comfortable for what I felt like was a decent amount of time, so I needed to have a year to two years saved. So it’s really up to the person, it’s a personal reference, but I suggest at least six months.

Audience Member: Understanding that you bought your rentals in a more investor-friendly market, and that you’re not really desperate to buy them now, if you were going to buy a rental property now, what kind of numbers or what kind of return would you have to get to be willing to buy it?

Joe Fairless: You don’t have to repeat that…

Kay Battle: Okay… [laughter] That’s a great question. I will have to think about that, but one thing that I will say is that I won’t purchase anything less than five units at the moment, and probably moving forward I wanna focus on multi-units, larger… And then in terms of a return – it’s really hard to say, because I don’t wanna be unrealistic  given the market, and I know what I got into the market in, and it’s just so different, it’s just so hard… I have a chip on my shoulder and a different perspective because I’m like, “You want me to pay what for what…?”, and “I could have bought this back then at this amount of money”, so it’s just difficult to wrap my head around what’s to expect.

Joe Fairless: You’re squirreling away cash, waiting for something to happen in the economy, right?

Kay Battle: Yes.

Joe Fairless: Why not just hold on to that cash — so you’re selling at the top of the market, hold on to the cash and then buy at the bottom?

Kay Battle: That’s a good strategy, too. I just feel like at this moment the cashflow that I’m making from the properties is sustaining my living as well. So if I was to sell everything and get a lump sum of money… I’m dwindling this money down, waiting for the market to change again, and who knows that’s gonna be; we think it’s gonna be soon, but at that point I don’t know how much money I’m gonna have left. I’m trying to be strategic about playing this game long-term and what it looks like for me, and at the moment I’m considering doing some refinances, some cash-outs, and then jumping back in once the market shifts again.

Joe Fairless: And we’ll do one more question… Yes, sir.

Audience Member: I guess mine is kind of two-part… Where about is that property you said was on Westwood Northern, that was your biggest time [unintelligible [00:27:02].23]

Kay Battle: It’s on [unintelligible [00:27:04].19]

Audience Member: Okay. So just  kind of in the Westwood area?

Kay Battle: Yes.

Audience Member: Did you purchase that because the numbers just really made a ton of sense at the time, or did you expect there to be kind of like a revitalization, more people investing in that area?

Kay Battle: At the time, the numbers made sense. Typically, when I buy, that’s what I look at, and then anything extra beyond that is icing on the cake. The numbers made sense – I only purchased the property for a little over $100,000 and it was five units… And like I said, at the time all of the units were rented, so it was cash-flowing… It just was kind of ran down a little bit.

Joe Fairless: Okay, thank you so much for talking to us… The first ever time we’ve done this in front of a bunch of people. I enjoyed learning about your career after you left the cushy job, and went on as an entrepreneur, and what you’ve done – the 35 units, the contractor lessons… That’s a question that we’re going to work with some contractors first in things that I’m doing personally, and that’s something I hadn’t thought of to ask… If someone recommended someone that I was working with, “Okay, great. You’re a friend of so-and-so.” But the next question is “How do you know that person again?” and still qualify them like they came from a Google search, even though they came from a trusted source.

Kay Battle: Yes, exactly.

Joe Fairless: Thanks for being on this show, hanging out with us, and we’ll talk to you soon.

Kay Battle: Thank you very much.

Joe Fairless and Ash Patel

JF1531: Why Commercial Real Estate Investing Is More Lucrative For Him with Ash Patel

Ash is a returning guest and a friend of Joe’s. He has a ton of experience and real estate knowledge, especially on the commercial side of the business. Hear why he laid low for a while when the market was hot and how to have more fun with real estate investing. If you enjoyed today’s episode remember to subscribe in iTunes and leave us a review!

 

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Ash Patel Real Estate Background:

  • First property was a mixed use property and saw both residential and commercial real estate pros/cons
  • Previously had a 15 year career in IT but left to pursue startups and IT consulting
  • Total value of properties he owns is $6,000,000 and owns 7 properties
  • Listen to his previous episode: JF477: You Should Have Bought This Mixed-Use Property!
  • Based in Cincinnati, Ohio
  • Say hi to him at ashbpatel@gmail.com

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


Best Ever Listeners:

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

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

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


TRANSCRIPTION

Joe Fairless: Best Ever listeners, how are you doing? Welcome to the best real estate investing advice ever show. I’m Joe Fairless, and this is the world’s longest-running daily real estate investing podcast. We only talk about the best advice ever, we don’t get into any of that fluffy stuff. With us today, Ash Patel. If you recognize Ash’s name, that’s because you’re a loyal listener and you’ve been listening since episode 477 at least; that’s where I interviewed him. The episode is titled “You should have bought this mixed-use property.”

Ash is a good friend of mine. I got to know him actually by — I believe I reached out to you on Bigger Pockets to interview you, and that’s how we initially got connected. Ash is a successful commercial real estate investor. His first property was a mixed-use property, so he’s seen both residential and commercial. He is adamantly for commercial real estate versus residential.

He previously was in IT for 15 years, and now he’s a full-time commercial real estate investor. He owns property with a total value of over six million dollars, and he has seven commercial properties that that comprises of. Based in Cincinnati, Ohio. With that being said, Ash, do you wanna give the Best Ever listeners a little bit more about your background, just to catch everyone up? It’s been a little over a thousand days since we’ve talked on the show… And then also, that will lead into our topic today.

Ash Patel: So it’s been a thousand podcasts since we last spoke?

Joe Fairless: That’s right, yeah. A little over a thousand.

Ash Patel: I’m from New Jersey originally. I went to school in Indiana. I got an IT job in Cincinnati after college. I had a 15 or so year career in IT. I got into real estate because I thought there were some good tax benefits. I didn’t really know what I was doing, I got into it, I fell in love with it… The first building, like you said, was a mixed-use building, and I was able to see the residential side and the commercial side of real estate.

I fell even more in love with the commercial side, and since then, I focused on becoming a commercial real estate investor. So it’s been about six years now since I’ve been doing that.

Joe Fairless: And real quick, why did you gravitate towards commercial, versus residential?

Ash Patel: My first property was an apartment building over a grocery store, and I was able to see issues and benefits of residential and commercial. Residential tenants require a lot more effort; toilets clogging in the middle of the night… Just normal residential issues. The commercial tenant I would never hear from, and even when there were issues, they would resolve them on their own. They would call in their own plumber, they’d call in their own HVAC guys, and it was just a lot more effortless in managing commercial tenants. Subsequently, I acquired additional residential and commercial properties, but in the end I gravitated towards probably 90% commercial.

Joe Fairless: On that first deal, were the residential rents that you were receiving more than the commercial rent to make up for the extra time that it took you to manage?

Ash Patel: They were not. It was all market rents, but the commercial rents were a lot higher. The commercial side of it was just more profitable.

Joe Fairless: Got it. And with our conversation today – you’re one of my good friends, so we obviously talk a lot outside of the interview, and one of the things that you’ve mentioned to me a couple years ago is that you saw the market being really hot, so you kind of went on the sidelines a little bit. Can you talk a little bit more about that?

Ash Patel: Yes. My first deal was in 2012. It was when the economy was still rebounding. From 2012 through 2016 it was relatively easy compared to today to find deals. In 2016, things were getting a little bit more competitive, so I assumed we were near a market peak, and I started selling a number of properties and putting the profits into multifamily syndications through a company called Ashcroft. I’m sure you know them.

Joe Fairless: I know them, yes. I’m familiar with Ashcroft Capital. [laughs]

Ash Patel: So I assumed the economy was somewhere near a peak, and really I was just making excuses, because it became harder  to find deals, and I wasn’t putting in more effort compared to ’12 through ’16. I just figured I’d lay back, go passive, and wait for the next downturn in the economy before I got back in the game. Then things were kind of on autopilot, and I realized it’s not as much fun just maintaining properties as it is chasing deals, buying some properties, acquiring tenants, and just hustling and getting out there.

So I started marketing myself a little bit, letting people know what I do; I started networking a lot more than other real estate professionals, and not surprisingly, the deals started flowing again. And it was all just letting people know what I do, Facebook posts, lunches with other people… And today, just a year after I started marketing, I’ve got a handful of investors that wanna partner on deal, I’ve got other real estate professionals bringing deals to me, or wanting to joint venture on deals. I’ve got a couple great brokers that see me being active and start throwing me a lot more deals, and the result is I’m closing and buying more properties.

So I got back in the game, stopped making excuses when things got difficult; just got out there, hustled, and got back after it.

Joe Fairless: So 2012 to 2016 – it was more challenging to find deals… I guess when you look at new deals now, compared to 2012, 2013, 2014 and 2015 when you were finding deals more regularly or easier, are the deals similar to what you were finding then?

Ash Patel: They are not. ’12 through ’16 – I often acquired property that was either vacant or partially vacant, so there was a lot of value-add upside in stabilizing the properties. Today I’m finding mostly fully-rented spaces. Maybe the rents are below market. Or I’m still finding a few partially vacant buildings where you can still add value, but the returns are not as high; the upside is not as high, but the returns are still adequate to keep doing this.

Joe Fairless: And what type of returns do you look for?

Ash Patel: In the past I wouldn’t have done anything without at least being a 20% cash-on-cash annualized return, and today 16%-18% with no capital appreciation, so just pure cashflow; 16%-18% cash-on-cash returns.

Joe Fairless: And does that include when you sell the property, annualizing it, or after stabilization, or…?

Ash Patel: It does not. After stabilization yes.

Joe Fairless: Okay.

Ash Patel: Sometimes stabilization may be getting rents closer to market, or filling vacant spots, but it does not take into account the sale, or any property appreciation.

Joe Fairless: Since you had this new concerted effort in 2016, you’ve closed on one deal and you’ve got another closing tomorrow, right?

Ash Patel: As far as commercial properties, yes. I’ve done a few joint ventures with residential folks, but yes, commercial – I had a broker… This was an interesting story; one of the things that I put out there on Facebook was willing to mentor people that want to transition from residential to commercial, willing to mentor people that just wanna learn more about what I do, or willing to talk to somebody who wants to partner on a deal… Anything. Just get out there and network. If you have any interest in doing something or learning something, I’ll sit with you; we’ll figure out if there’s something we can do together.

I had a very successful residential flipper who had been doing residential flips for over ten years reach out to me because he wanted to learn more about commercial real estate. When I have these meetings, I’m often more interested in what they’re doing than sharing what I’m doing. So most of our lunch was spent learning about his business, and in the end we touched on some commercial. But it turns out he was looking for investors to continue flipping. I’ve gotten in on one of his deals, which — he should be listing it soon. When that sells, we’ll do another one and we’ll keep going.

That same person introduced me to a commercial broker, who was relatively new and hungry to find buyers, sellers, deals. Him and I got together… He presented a deal, and it ended up being a great property. We closed on it two months ago. The person I had lunch with got a nice finder’s fee for the introduction, and this broker subsequently has brought me several more deals, one of which we’re closing on tomorrow.

Joe Fairless: Wow. The deal that you closed on – what is it, what was the purchase price, business plan, that sort of thing?

Ash Patel: Sure. The first deal was a building that had been vacant for two years. It’s a bar on the first floor that’s empty. It was a salon that’s been rented for a number of years, and the second floor is vacant. It’s connected to the bar. The broker also had a friend of his who operated a coffee shop/bookstore, and they were looking to expand. So not only did he present the building to me, he presented a potential tenant, and before the closing we were able to sign the tenant to a lease. They’re going to convert the bar and the second floor to a coffee shop/bookstore/craft cocktails. So it should be a really neat concept… They’ve signed a 10-year lease, so a total win/win.

Interesting also about this deal was — just before the due diligence period was up, I was triple-checking my numbers and I realized the property taxes went from $7,000/year to $16,000/year, and I couldn’t figure why that happened, but that was gonna throw this deal out. There was no way to make these numbers work.

I did some more research, I found out that there was a tax abatement that was expiring. I called the broker and I said “Listen, there’s no way these numbers are gonna work.” He came back and said “Listen, we’ve gotta find a way to make this deal work” so we both got back in the trenches, brainstormed, arranged a meeting with the city council and told them where our dilemma was, and that this deal was not gonna happen… And they came back and offered a partial rebate on taxes.

We called the bank and told them the same thing – “Listen, the numbers don’t work on this.” The bank, who I’ve been exclusively banking with since my very first deal, they came back and modified the loan significantly to make this deal work, and finally all the pieces came together. We got a tax abatement, a tax rebate, and my loan is heavy-handed on the back-end, interest-only for the first year…

Joe Fairless: Okay. Is that what they did that they didn’t have before, interest-only?

Ash Patel: They did. Interest-only for the first year. I think they extended the amortization period. 20% down, instead of the typical 30%. Everything fell into place and we got it to work.

Joe Fairless: And what are the high-level numbers on the deal?

Ash Patel: Sorry, $550,000 was the purchase price, and this was attractive because this was the same price that the building sold for in 2013 to the previous owner. The lease numbers – I think the total revenue will be around $5,500; both commercial leases. So roughly a  16%-17% cash-on-cash return, but the tenant who’s gonna operate the coffee shop has an option to purchase the building in year three or in year five. So if he ends up executing either of those options, the annualized cash-on-cash return goes up to 25%.

Joe Fairless: Would you be able to 1031 if that happens?

Ash Patel: I would. It’d be a fair market sale, so to speak.

Joe Fairless: Okay. And would you plan on doing that?

Ash Patel: Depending on the market. I see a lot of people out there that get in 1031’s and they end up settling for properties just to avoid the taxes… And I think I’m still young enough in my career where I can afford to pay some taxes now, and maybe the next ten years the 1031 will be more important to can down the road… But as of now, rather than jumping into a mediocre deal, I’d rather pay the taxes.

Joe Fairless: You mentioned the tenant is doing a coffee shop/bookstore; you said earlier the second floor was vacant… Who pays for the bookstore and the coffee shop, to get it up and ready?

Ash Patel: Part of the deal was I would give them a $50,000 tenant improvement allowance, and the bank will essentially [unintelligible [00:16:40].04] So I’m putting in $50,000 to building improvements, and the tenant is putting in $80,000 of his own money into operating costs and further improvements. So it’s another win… There’s roughly $100,000 of improvements going into this building.

Joe Fairless: And then the deal that you are closing on tomorrow – how did you find that one?

Ash Patel: The same broker presented a deal; it didn’t look all that appealing on paper. We went to the location… It’s a small strip center, just three retail businesses operating out of there, and the place was just immaculate. It’s a block away from the other building that I bought. This is in a downtown suburb that’s got a lot of positive momentum. There’s some great businesses coming into this area.

The numbers on this one were a 6,8% cash-on-cash return as it is now. The leases are all expiring at the end of this year, so if we bring them up closer to market, the cash-on-cash return will be around 17%.

Joe Fairless: And is this deal a buy and hold long-term? Because the last one you gave the tenants an option to buy it.

Ash Patel: I gave the tenant the option to buy on that building just to make it more attractive for him. It’s one of those things where if he’s gonna put a bunch of money into this building and it’s somebody else’s building, you don’t get a great feeling about sinking a bunch of your own money into someone else’s property… So if he has that option to purchase, he would feel better about making improvements to the building, knowing he could potentially buy in the future.

Now, the purchase price is set with a nice return for me. He will definitely be purchasing it above market value. But he now has a building that he no longer pays rent on, and collects rent from the neighboring business that’s also in the building. So the exit would be a win/win on that.

To your question on this property – yeah, the tenants have been there for a number of years, they all plan on staying, so this is a simple, low-maintenance, low-overhead deal where I just resigned the tenants to slightly higher leases, and there’s very little landlord responsibility.

Joe Fairless: What’s the biggest challenge when managing a commercial building like a small strip center?

Ash Patel: Vacancies. If a tenant leaves and the space was specifically set up for them, you either have to find a tenant that can move into a space and take it as is, or you’re paying for tenant improvements, which will eat into your profits for a couple years.

I had a strip mall on the West side of Cincinnati where it was the corporate headquarters of a local eye care company, and it was very specific to them; there was retail in the front, and 80% of the space was office cubicles. Well, if they had left, it would be very difficult to find somebody to take over that footprint… So you wanna make sure that they’re stable, they’re happy, they’re willing to sign a long-term lease… So the turnover is the biggest challenge.

Joe Fairless: Do you have a property from your portfolio – or maybe it used to be in your portfolio – where the tenant left and it just wiped out all the profits if you were to do the tenant improvement, so you just decided to sell and you didn’t make nearly as much as what you thought you would because of that vacancy?

Ash Patel: No. And I think one of the ways that I avoid that is I’m a very hands-on landlord.

Joe Fairless: Yes, you are. I can attest to that.

Ash Patel: A tenant, whether it’s commercial or residential, has my cell phone number. I’m their first point of contact if there’s ever any issues. I’m on site quite often, just to see how everything’s going. I host happy hours, either at my house, or out somewhere, for all of my commercial tenants. It’s a meet-and-greet, networking, and kind of a business improvement type event, where I try to get our commercial tenants together and see if we can share ideas in improving businesses, share marketing ideas, gain economies of scale by sharing vendors… So they’re productive meetings, but they’re also very social, fun events.

I think every interaction that you have is an opportunity to make a positive impression. If your tenants know that you’re always there for them, willing to go the extra mile, take care of all their requests, they’re more likely to renew their lease.

Joe Fairless: What’s an example of when you did all of that, but then the relationship went sour? And maybe it hasn’t happened. You don’t have to get into specifics of who did this, but just as much detail as you can, if that happened, why did that happen? Because I know you are very hands-on.

Ash Patel: Yes. So on the East side of Cincinnati I had a 12,000 square foot single-tenant retail building. I had a tenant that signed a five-year lease. I believe in year three of his lease started slow-paying rent, and gave me the typical sob story – “I promise next month I’ll have it, next month I’ll have it”, and finally I show up one day to pick up rent that he told me he was gonna have, and the entire 12,000 square foot store was empty. My jaw just dropped.

He thought he was doing me a favor by clearing out all his inventory and giving me the building back in spotless condition. So when I asked him what happened, he said “Listen, you’ve been very good to me. I wanted to make sure that I gave you this place back better than you gave it to me.” In hindsight, that was a huge disservice, because now I had to market an empty 12,000 square foot building for lease or sale.

Had he stayed there and just told me his business wasn’t working, “I can’t make it work. I can’t pay you rent”, I would have let him stay there for free, as long as he lets me market it to another tenant or market it for sale. An empty building just is not very appealing.

Joe Fairless: It makes that big of  a difference if he’s got his stuff in this box, versus just being the box?

Ash Patel: It makes a huge difference, yeah.

Joe Fairless: Why?

Ash Patel: If you walk into an empty space, especially a 12,000 square foot box, it’s hard to envision what the space could be… But when he had isles and isles of merchandise, and clothes, and racks, and things mounted on the walls, signs everywhere, people in there, a good energy in the building, people can see what that building could be. They can envision their own business in that spot. But a vast empty space is just not very appealing.

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

Ash Patel: Facebook, Ash Patel Cincinnati, Bigger Pockets, Ash Patel.

Joe Fairless: Ash, thanks so much for telling me these stories, and many others outside of this conversation, because I learn a whole lot from you… And then I also wanted to jump on this call and have this interview so that the Best Ever listeners can learn more about the commercial real estate strategies and just the overall approach that we talked about at the very beginning of the conversation, where there were deals that were easier to find… But then your mindset shifted and now you’re closing on deals, but marketing yourself more to get those deals and seeing results.

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

Ash Patel: Thanks, Joe. This was fun.

Theo Hicks and Joe Fairless banner

JF1515: Lessons Learned From Visiting a 292-Unit Apartment & The Power of Learning Something New Daily #FollowAlongFriday with Joe and Theo

Joe and Theo are back for another Follow-Along Friday, where they provide updates from their businesses with the purpose of offering real world lessons to aspiring real estate and apartment investors. First, Theo discusses the lessons he learned from visiting a 292-unit apartment community, and its comps, in Tampa, FL. Next, Joe explains a new personal development strategy he is implementing – writing down something that he has learned at the end of each day.

 

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


Best Ever Listeners:

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

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

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


 

Joe Fairless and Theo Hicks

JF1508: Getting Better Everyday & Tips For Your Next Comp Visit #FollowAlongFriday with Joe and Theo

Joe and Theo are back to give another update on their apartment syndication businesses. First, Theo provided three lessons he learned when visiting apartment rental comparables last weekend, and he talks about a report he discovered that offers the market rates for multifamily income and operating expenses. Next, Joe outlines his new vision for personal development and how he is striving to be better today than he was yesterday. If you enjoyed today’s episode remember to subscribe in iTunes and leave us a review!

Best Ever Tweet:


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


Best Ever Listeners:

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

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

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


TRANSCRIPTION

Joe Fairless: Best Ever listeners, how are you doing? Welcome to the best ever 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.

It’s Follow Along Friday, and with Follow Along Friday, as you probably already know, because you’re a loyal Best Ever listener, we talk about what we’ve got going on so that we can apply those lessons we’ve learned to help you out; that’s the whole name of the game, helping you out in whatever you’re doing as a real estate entrepreneur.

We’ve got with us Theo Hicks, like we always do on Fridays… How are you doing, my friend?

Theo Hicks: I’m doing good, Joe. How are you doing?

Joe Fairless: I’m doing well, and looking forward to our talk, our catch-up, and ultimately helping out the listeners… Do you wanna give some updates?

Theo Hicks: Yup. Last week I underwrote my first apartment syndication deal…

Joe Fairless: Really? Your first? I thought you’ve been underwriting deals…

Theo Hicks: For my particular business… I’ve underwritten other deals before–

Joe Fairless: What about that one you were talking about before, when you’ve visited it, and it was local, it was uglier than you thought it was…

Theo Hicks: Yeah, you’re right. This is the second one then.

Joe Fairless: So you officially just lied to everyone.

Theo Hicks: I officially misremembered everyone, yeah.

Joe Fairless: [laughs] Okay.

Theo Hicks: So this is the second deal I fully underwrote… And what I mean by fully underwrite, I mean I actually do the financial model and then I actually visit the properties in person, and I visit all of the comps, too. So it was a property — it wasn’t actually in Tampa, technically; it was in St. Petersburg, which is an island off of Tampa… And I just wanted to go over a couple takeaways that I had when I visited the comps, because again, I was really excited about this property, because the pictures looked great, and the property looked really nice, the numbers made sense based off of the comps that they’ve used, but I actually had to confirm that they were actually comps… In my opinion I don’t think they were, and I’ll go over why I think that, and you can let me know if you think otherwise, but… I’m pretty sure you’ll be in agreement.

The three categories that I broke it down to was the surrounding area – that was number one. Number two would be the actual demographic on site, walking within and around the community, because I went on a Saturday, so everyone’s home, everyone’s walking around, and the streets surrounding the property are busy… Then also the property type — I’ll go over all of those in a second.

The areas were different. We drove to all the comps first, just because that’s kind of how our trip took us…

Joe Fairless: Who’s “we”?

Theo Hicks: Me and my wife.

Joe Fairless: Okay, got it.

Theo Hicks: And we drove to the first comp; it’s got this really nice, brand new office building surrounding it, and multiple low-rise apartment communities that are a similar level to this comp. Then we drive into it and it really looked like a resort. I felt like I was at Disney. And that’s kind of the similar experience I’ve had for all of the — I think we went to four or five comps in total, and they all had that same feel to it. They were all 5-6 stories tall, built in the 2000’s, the surrounding area had a lot of new retail… So not even just the existence of retail, but newer buildings with retail in it, so an area that was developed… Actually, two of them had a dog racing track in front of it, so Marcella didn’t really like that that much.

Then we go to the subject property, and it’s right off the highway, which is good, but then we drove in the back and you can literally see the highway from the back of the property, and it was really, really loud… So that kind of needed to be addressed. But it was surrounded by hotels, and the only retail I could find within a mile radius was a Cracker Barrel. So that was a little different than I expected.

In my opinion, the areas were not similar enough for those comps that we looked at to be comps. The area was too dissimilar. There wasn’t enough retail and businesses in place for the residents to go surrounding the area.

Joe Fairless: How close were they to the subject property?

Theo Hicks: 4-5 miles.

Joe Fairless: Okay.

Theo Hicks: There were no apartments of this size. It was between [unintelligible [00:06:35].19] There was no apartment of that size within a four-mile radius of this property, which is why we went out that far.

So the area was like “Okay, these areas are a little bit different.” The demographics, similarly; the people that were walking around the comp properties looked more like young professionals that just graduated college… Not really any families. It looked like people our age. It was maybe white-collar, whereas at the other property the demographic was blue-collar… Which I’m sure if you actually update the units you could attract that, but I was just concerned about the actual demographic of the area, and are there enough of the white collar workers for that property to attract? So that’s something I needed to look into.

The third category is why I disqualified them, because all the comps were low-rise, five or six-story apartment buildings, and then they subject property was a garden style, so it was just a regular two-story apartment building. So the expenses are gonna be different, the type of tenant you attract is gonna be different… They’re just two completely different property types.

So I guess the lessons that I learned was number one, those were some things to look out for when you’re driving to the comps… Just to reiterate, don’t just trust the broker’s comps; actually go to the properties, or at least as Joe mentioned in last week’s episode, look at them on Google Maps just to at least give you an idea… But then also they need to be the same property type, which is something I could have noticed when I was actually looking at the comp pictures, but I didn’t really investigate it that much because I wanted to drive the market anyways… So I realized that if you’re looking at a garden style apartment, which is the one, two, or three-story buildings, you should probably be comping other garden-style apartments, and not the low-rise or high-rise buildings.

Joe Fairless: And when you’re looking at comps, you’re looking at it from a rent standpoint, how much rent you can command relative to other comps, is that correct?

Theo Hicks: Yeah.

Joe Fairless: So why does it matter if it’s garden-style versus low-rise or mid-rise buildings?

Theo Hicks: Well, the reason why I even discovered that distinction is because I was trying to figure out a way to have a better understanding of what the expenses would be for the Tampa area… And I was kind of doing some investigations, and they actually have this report – this is another update I was gonna give, but I’ll go over it now; it’s called IRET, and they basically survey apartment owners, property management companies and all the major MSAs (they do like 140 MSAs), and they ask them essentially what their income and expenses are, line item by line item – what’s your rental income? What’s the vacancy loss to lease concessions? All those line items. Then for operating expenses, what’s your maintenance and repairs taxes, insurance, contract services, things like that… And then at the end of that, they break it apart by the low rise, and the garden style, and then I think the other one was high rise.

All the numbers were different for those three, so that’s why I was thinking, maybe that’s because there’s a different demand for the low-rise versus garden style… I understand the expenses part, but I was confused or taken aback by the rental income, because I assumed the same thing as you, but when I was comparing the incomes on that report, they were different, which made me assume that the rents were different; [unintelligible [00:09:51].10] dollar per square foot basis, and then all the other things were a percentage of the gross potential income… But aside from my comp thing, that was the update I wanted to give – if you’re looking to figure out what the market rates are for the high and the low and the median range for your market, that’s a good report to download. It’s not free, it’s like $500, but I think it’s gonna be very helpful.

Joe Fairless: What do you google for that?

Theo Hicks: I googled “IRET income and expense reports”, but the website is IREM.org.

Joe Fairless: Cool.

Theo Hicks: So it’s actually IREM, not IRET. So IREM.org, and you’ll find those income and expense for all the different commercial types – office, retail, everything. That’s why I figured there’d be a difference, but I wanted to bring it up on Follow Along Friday to see if you had a different opinion, and if you thought what does it matter if it’s a low-rise, high-rise… It just matters what amenities are offered and what the [unintelligible [00:10:44].03] look like… In the area, of course.

Joe Fairless: Yeah, I haven’t bought anything other than garden style, so I don’t know, so I’m glad that you talked about this… As Ashcroft Capital continues to evolve, we might start buying some low-rise, mid-rise buildings.

I think it depends on the area, too. Dallas-Fort Worth there’s not a whole lot of those, relative to garden style… But I feel like in the coastal cities there are. So if we expand to more coastal cities, then we might come across more of those.

Theo Hicks: Yeah. So those are a few of the things I looked at. I’m gonna do the same thing this week. I’m actually underwriting three deals right now. I need to pick two to visit, one of Saturday, one on Sunday. Maybe we’ll hit two on Saturday, I’m not sure… One of the, again, is in St. Petersburg, and then another one is in Northern Tampa; another is by that property I talked about last week, that I misremembered… So that’ll be good, because I’ll get to double-hit that area again.

One of the main things I’m trying to do is get a better feel for the markets… Just driving around, and on the way there, while you’re kind of driving around the area, you get a really good understanding of the vibe and the feel of it that you can’t get otherwise… And it’s kind of just good to [unintelligible [00:11:56].02]

Joe Fairless: And you already have a head start with one of the properties, because it’s near the property that you already looked at, so you’ve got a sense of that area. Cool.

Theo Hicks: One other thing too that I just learned yesterday… As I mentioned maybe a couple episodes ago, me and my business partner kind of separated our duties a lot more. I’m focusing on finding the deals, underwriting the deals and I’ll be doing the asset management, whereas he’s focusing fully on raising capital, so building a brand, talking to investors… His goal is to talk to a handful of investors every day.

Yesterday he talked to an investor who had a net worth above 50 million dollars, and the ability to raise  five million dollars in capital for deals… I did a follow up and said “Did he say that he’s willing to do that, or is that what he’s able to do?” Because those are two different things… But regardless, that was some good news, because the types of properties we’re looking at are the 100 units or more, so it’s gonna be a five million dollars or more equity raise… So that was really good news.

Now it feels a lot different underwriting these deals, because now it’s real, whereas before I’m just like “Well, I’m practicing on these bigger ones until we either get the capital, so that in the future when we have the capital, I can be prepared.” But now it’s looking like we’re gonna be able to take down a deal over 100 units, so that’s really exciting.

Joe Fairless: You’re growing into your vision, that’s the key. You had the vision, and you were taking action on it, and lo and behold, now you all are speaking to people who can help you realize that vision. But if you didn’t have that vision to begin with, then you likely wouldn’t have put yourself in that position to have those relationships and conversations about what you’re doing.

It brings up an interesting point, because I know some people who have a very small portfolio, but they talk about partnering with hedge funds and family offices, and people with 500 million dollars net worth, on 50 million dollar deals… And I believe sometimes the vision, if it’s (quite frankly) unrealistic, or not likely, it can be a hindrance to your progression, because people can be so focused on getting the one big deal, and fast-forwarding from a very small portfolio to a 50-60 million-dollar project… There’s usually a couple steps in between at minimum, and sometimes having that big, big vision, with that big, big vision, if you just focus on that, you’re missing out on the steps in between, that can get you there, and then you don’t end up doing anything.

So I believe with your vision it is a very realistic vision. Hey, we’ve got a small portfolio – or large portfolio, depending on how you think about it… How many units you’ve got? 12, 13?

Theo Hicks: I’ve got 13, yeah.

Joe Fairless: 13, okay. So you have a 13-unit portfolio, I’ll just call it that, and now I want to get into larger stuff, and I will get into larger stuff, with a 250-unit property, one property. That’s doable, and that’s a good segue from a 13-unit portfolio, versus if you said “Hey, I wanna go find a 50-60 million dollar property”, which by the way, a 250-unit could be a 60 million dollar property, but that’s not what you’re looking for.

It’s a good way to think about things, and I do know people who have the grander vision… It’s good to have the grander vision, but at the same time, it can make you miss out on opportunities that can actually get you there faster if you did take those smaller opportunities.

Theo Hicks: Yeah, actually I was talking about this — I recorded the Syndication School episodes airing next week, so if you’re listening to this now, they’re not out yet; they’ll be coming out next week. But if was kind of about that – it was about having that grand vision, but you can’t just have that. At the same time, you just can’t have a one-year goal and that’s it. You need to bring those together, have your grand vision and be like, “Alright, what can I do this year to get me one step closer to that grand vision?” Not “What can I do this year to get that grand vision?” it’s “What can I do to get myself closer to that grand vision?”, to put it really succinctly.

Of course, I’ve got a vision of owning a ton of apartments, but I realize that I’m not gonna have 2,000 units within six months; it starts with one deal first, so I’m focusing on that one deal, but at the same time making sure that I’m also creating skills and learning things that will help me get to that grand vision, so making sure that I’m covering both at once… But I totally agree – if I was focusing on buying only a 50-60 million dollar 400-unit property, then I’d probably be underwriting deals for a while… Whereas now, if I find a 100-unit property that meets my criteria, I’ll take it down for sure.

Joe Fairless: Yeah. Also, one way that it manifests itself with having a much larger vision than that where it becomes actually a hindrance is thinking about that 12-month goal that you mentioned – how much you wanna make within those 12 months. A lot of times when I talk to people, they list out an amount that they wanna make within 12 months when they’re getting started in syndication as the same amount or greater than what they’re making currently in their full-time job… And it’s a little unfair to apartment syndication to have that goal. It’s possible, by the way, but it’s also a little unfair to apartment syndication to have the goal that in one year you’re gonna replace the income of your full-time job, because how many years in your life have you spent honing skills to earn the salary that you’re currently making in the full-time job? Probably longer than a year is my guess; probably five years, ten years, maybe even longer. And when we have goals that “Okay, I wanna replace the income in 12 months” – I love the ambition, but perhaps that ambition will be a negative, or perhaps the grand vision will be a negative, because if you don’t achieve the replacement of the income, then perhaps you won’t have the motivation and inspiration to continue… And I can tell you, if you do continue, you do consistent action, you do things, like you talk about in Syndication School and on this podcast, and in our book, and all that other stuff, you’re gonna replace your income in multiples.

About five, five and a half years ago I was leaving my full-time job in advertising… And I don’t know how many times, I haven’t even done the math, but a whole lot more in multiples than what I was making at my full-time job, but it didn’t happen in 12 months. And it usually doesn’t happen when you want it to happen, in the timeframe you want it to happen… So it’s just important — the take away is have  a vision, but know that it needs to be as realistic as possible so that you don’t get discouraged when you don’t achieve it and you don’t miss out on opportunities that can incrementally get you there actually faster if you take those opportunities than if you pass on those opportunities, waiting for the golden goose.

Theo Hicks: And I think using the example of quitting the job is perfect, because I bet the most common post on Bigger Pockets is someone who’s just starting out in real estate and they wanna replace their income at their  full-time job, and [unintelligible [00:19:28].09] it’s totally possible, and if you put your mind to it it’s gonna happen, but it’s not gonna happen as fast as you want it to happen. And if you’re already discontent in your full-time job, understand that you’re gonna be there for at least 12 months before you’re even able to entertain the idea of leaving… So just kind of understand that.

I don’t say that to sap people’s motivation, but to hopefully inspire them and have them think longer-term, and think in terms of decades, as we say, instead of a couple of a months. So yeah, those are all great points, Joe.

Joe Fairless: It is possible to do it within 12 months, but if that’s what you’re banking, then it can be a letdown… And that goes back to 50/50 goals that we’ve talked about before – 50% of the goal is achieving the goal, and then 50% is actually understanding the skills that you acquired during that period of time where you’ve been attempting to achieve the goal, and regardless if you did or didn’t, at least you have those new skills that you’ve honed and/or acquired, so you can apply that to future stuff.

Theo Hicks: Yeah, exactly. Alright, so those are my updates… What about you, Joe?

Joe Fairless: I’ve been focused on personal development, and some specific tings I’m doing, real quick… One, Colleen (my wife) and I went to a CPR class, so if you start choking, I can do the Heimlich, and if you have some sort of cardiac arrest, I can do CPR… So that’s important, especially since we’re gonna have a kid in about — I don’t know, between today and 2-3 weeks from now… So I know baby CPR, too; basically, the same thing, but you use two little fingers instead of your whole hand… Plus, you cover their nose and mouth with your mouth whenever you’re giving the two breaths. Certainly, if you’re interested in CPR, go Google it, don’t just do exactly what I’ve just said.

So one, we did CPR, learned that. And this was all this past week, by the way. Two, I finally solved the riddle that is waking up with inspirational speeches. I couldn’t figure out how to do it through Sons until I looked at Spotify, which is connected to my Sono speakers, and Spotify has Jim Rohn tracks… So now I simply set the alarm to wake up to Jim Rohn, and there’s probably others, too… But one cool thing about what I’ve found on Spotify when I searched Jim Rohn is that some people have mixed his speeches with music, so it’s waking up to like a jazzy Jim Rohn speech, which is pretty interesting… And Colleen approves, which is important, too. So we can wake up to that, and did this morning. That’s two.

Three – to date, I’ve completed 12 books for the year, which is kind of weak sauce, so I’m gonna put a more concerted effort into reading. I completed a book this past week; it was a fun book, “Leverage in Death” by J.D. Robb. It’s like a spy thriller, so not necessarily work-related… But Tim Ferriss would say it is actually more beneficial to read fiction books than non-fiction from a business standpoint, because it expands your mind, helps you think about different things, gets your creative juices flowing, that sort of stuff. So nonetheless, I finished that book.

Now I’m reading a book that I won’t tell you about yet, because I’m going to actually apply the principles in the book for at least a month – I’ve already started – and then we’ll talk in a month or two about the results of that book.

Theo Hicks: Before we move on, what part of the day do you read? I’m just curious.

Joe Fairless: It varies. If I wish I wanted something, I would just schedule it and I’d figure it out, so I guess I shouldn’t say “I wish I did it…”, but it would be more ideal if I did it in the morning every time… But sometimes in the morning, and usually at night I read something before going to bed. That’s a pretty good solution or thing for helping me fall immediately asleep if I open up a book, so… Reading at night.

And then lastly, I took that Playstation 3 Civilization and put it in the trash, and instead of actually doing that in some of my spare time, I am committed to being more connected with Colleen and just being more present. It wasn’t a problem, I wasn’t playing too much, but the time I was playing there was no interaction with anyone… So instead, last night we played a board game. I love board games, I love games, and she does, too. We played a board game called Qwixx, and it’s just a fun game. And lastly, I’m working out more.

I mentioned last week that I was doing the cash value insurance. I don’t have a specific update on that, because I’m still doing the paperwork and things, but I did take a physical for it earlier this week, and I don’t remember what my blood pressure was, but it was very good, and my pulse was 54, so it all checked out good… I bring that up just because I’ve been working out more, been mixing in weights and running… Yesterday I ran a mile, and then did sprints, and then did another mile after that.

One suggestion I have is if you have a lot of calls, then find a way where you can exercise during the calls. It’s kind of unusual to do at first, but what I do mostly now is when I have a call, I’ll do it on my treadmill, and I’ll have just a piece of wood that I put over my treadmill, and then I can prop my laptop on top of that, so I can walk while I’m doing my calls. I did that yesterday… I had six, seven hours’ worth of calls on different things yesterday, back to back to back, and I would be afterwards very upset and just cranky if I was sitting down doing all the calls, because I’m not getting exercise… But from that, I actually have more energy on the calls and afterwards. It was pretty good. So finding a way to incorporate exercise into the day-to-day stuff is helpful.

I mentioned all this, again, not to say “Hey, this is all the cool stuff I’m doing”, it’s just little changes that I’m making that will make incremental differences initially, and then over time will make larger differences. Some of these are forever skills, like CPR, so I acquired a forever skill, and some of these are more temporary, and you’d better keep it up, buddy, and that’s working out and other things.

Theo Hicks: A couple things to add… If you want a good board game recommendation, I recommend Settlers of Catan.

Joe Fairless: I don’t think she’d dig that, but I would.

Theo Hicks: [laughs] Me and Marcella play Settlers of Catan all the time. And then yeah, incorporating the working out into your daily work life… It’s simple – whenever I’m on the phone, I just put on my headphones and just kind of pace around the house, and that’s how I’d get my walking in. I actually got so bad at working out that I just put a gym in my garage. I’ve got no excuse. Because we were getting up so early in the morning  to go to the gym; I think we were going at 5 AM, and that was just too intense for me. Now I just go in my garage and pump some iron whenever I want. So it’s kind of figuring out your weak points and then finding a solution to them.

Joe Fairless: Awesome. Yeah, that’s a way to do it. We all have weak points or areas that we can hone, so it’s just identifying where they are and keeping on improving. That’s the key incremental improvement. Alright, let’s wrap it up.

Theo Hicks: Alright, so we’ve got the Best Ever Conference 2019 – it’s officially live.

Joe Fairless: Oh, that’s right.

Theo Hicks: You guys can buy your ticket at besteverconference.com.

Joe Fairless: It has been live for quite some time, but we are starting to put in the guests who are speaking at the conference, and at besteverconference.com the tickets today will be a lot cheaper than they are at the end of the year. I think they’re $799 now, but at the end of the year they’re gonna go to $1,000/ticket. So if you’re planning on going to Denver, and hanging out and attending the two-day conference late February, then I suggest you get your tickets between now and the end of the year.

Theo Hicks: Exactly. That’s besteverconference.com. And lastly, we’re going to do the book review of the week. If you’ve purchased the Best Ever Apartment Syndication Book, make sure you leave a review on Amazon, take a screenshot and send it to info@JoeFairless.com, and we will send you a whole bunch of free apartment syndication goodies.

This week’s review is from DallasInvestor. They said:

“Admittedly, I have not finished the book. I am through with chapter three. However, it is more than enough sample size to draw conclusions. First of all, I can’t wait to finish it. That is the most powerful endorsement that I can provide. It is very well written. Fairless and Hicks pack a tremendous amount of knowledge into each chapter and page, and present it in a very simple, intuitive and easy to digest format. If you are a beginning investor, it is not only highly recommended, but it should be considered a must-read.”

Joe Fairless: Thank you so much for that feedback and taking the time to do the review. I really appreciate it. Best Ever listeners, thanks for hanging out with us. I hope you got a lot of value from today’s conversation. I hope you have a best ever day, and we’ll talk to you tomorrow.

Joe Fairless and Theo Hicks 1014X487

JF1501: 4 Syndication Lessons Learned From Visiting A Broker’s Recent Sales #FollowAlongFriday with Joe and Theo

Theo recently went to a broker’s recent apartment sales, comparing the actual property to the OM. He found some very surprising and sneaky tactics the broker had done to make the property seem better than it actually was. Hear what lessons there are to earn from his experience. If you enjoyed today’s episode remember to subscribe in iTunes and leave us a review!

 

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

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

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


 

Joe Fairless and John Lenhart

JF1498: Build & Scale A Huge Cash-Flowing Portfolio While Working Full Time with John Lenhart