JF1416: Real Estate Attorney & Active Investor Tells How To Structure Your Contracts with Paul Sian

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It doesn’t take much to realize the value that a conversation with a real estate attorney who is also an active investor, can have on your business. Paul and Joe cover real estate contracts extensively in this episode, a lot of great content in this episode! You’ll want to save this episode and listen again. If you enjoyed today’s episode remember to subscribe in iTunes and leave us a review!


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JF1411: Make More Money Per Deal By Being Fanatically Honest #SituationSaturday with Garth Kukla

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Garth is making his second appearance on the show today. This time he is here to update us since his last interview (see below for link), he is closing more deals and making more money by being brutally honest with sellers. If you buy anything that is negotiable, you should listen up! If you enjoyed today’s episode remember to subscribe in iTunes and leave us a review!


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JF1398: How to Make A Real Estate Meetup Worth Attendees Time #SkillSetSunday with Troy Miller

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Troy is here today to tell us all about meetups. We’ll hear what a good meetup does, vs what a bad meetup does. He ran a REIA for years, now he is able to travel while working and is talking to us today from Thailand. If you enjoyed today’s episode remember to subscribe in iTunes and leave us a review!


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Troy Miller Real Estate Background:

  • Indirectly grew up in real estate with directly over the past 14 years
  • Works with REIAs, REIA Leaders, and Local/National organization to set a new standard in our industry
  • Developing the ways Real Estate Entrepreneurs connect/learn through a “Learn, Do, Teach” Education Model
  • Started Miller Construction in 1994 in remodeling homes and then moved into New Construction
  • Based in Cincinnati, Ohio

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JF1340: Can Your First Investment Be An Apartment Community? #FollowAlongFriday

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Joe and Theo are back with weekly updates, what they learned, and how the lessons learned can apply to us. We also have a listener question asking about jumping straight into large multifamily. If you enjoyed today’s episode remember to subscribe in iTunes and leave us a review!


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Read Full Transcript

Joe Fairless: Best Ever listeners, how are you doing? Welcome to the best real estate investing advice ever show. I'm Joe Fairless, and this is the world's longest-running daily real estate investing podcast. We only talk about the best advice ever, we don't get into any of that fluffy stuff.
We're doing Facebook Live, but that's not the word I was looking for... We're doing Follow Along Friday, for everyone who is watching us now via Facebook Live, hello. Feel free to comment below. And if you're listening to us on the podcast, then hello as well. Today we're gonna be talking about things that we've learned since the last time we did Follow Along Friday - approximately a week ago - and how those lessons can be applied to what you're doing, Best Ever listeners.
So how do we wanna approach this, Theo?
Theo Hicks: Before we dive into our business updates, we had a really good question come to us from a Best Ever listener named Mike. He actually started off by praising your podcast, multiple paragraphs doing that, so I thought that was cool; we appreciate that, Mike. And his question was what your thoughts are on starting out as a single-family investor, or if you're able to jump straight into larger apartments?
I'll read his exact question first, and then I figure we could have a conversation around it and get your thoughts on this question. So Mike says "I was wondering your opinion on real estate investing - if you could go back, would you have gone into multifamily investing sooner, or do you think it was a good idea that you had a few single-family residences under your belt first? It just seems like all the successful investors end up in large multifamily eventually."
Joe Fairless: Cool. Well, I'd say I think how you paraphrased it initially is slightly different, but the slightly part is important, from what he asked. I think how you've paraphrased it was "Should people start in multifamily or single-family?" but what he asked was "If I had to go back, what would I do?" and most times when you ask someone "If you could go back and do XYZ differently, would you?", unless they murdered someone, they're probably not going to say "I'd like to do it differently", because they're probably gonna follow up with "Because if I did do it differently, then I wouldn't be where I'm at today...", unless just Armageddon happened in their business and/or personal life, and then that's another thing. But for the most part, if you ask someone "Would you do it differently?" you're gonna get an answer "Well, but then this XYZ wouldn't happen. I wouldn't have met my wife", or "I wouldn't have my child" or in my case, "I wouldn't have the portfolio that I have with our partners, because I didn't follow the same process."
So for the gentleman who asked the question, I'll answer your intention behind the question, but just a comment about the way that was phrased. So now to really how you paraphrased it, I think that's more relevant... Because I wouldn't change what I did, for the reasons I've just said.
So is it better to start with single-families versus multifamilies, or is it better to start with multifamilies over single-families? The answer is yes, and I answered yes to both... [laughs] I don't think it matters. I really don't, because I've gotten to where I'm at starting with single-families. I think it's a tactical question, and really it is side-stepping the core of what sets us up for success as investors, and that is improving ourselves on an ongoing basis, learning from what we're doing, and continuing to grow and expand. I know that sounds not vague, but esoteric, but it's just how it is. And if that's not the answer that you're looking for, then sorry. That's just what it is.
I can tell you I've gotten to this place -- yeah, I started out with single-family homes, but I was also teaching others after I bought a couple in New York City, who were asking me "How the heck are you doing this while having a full-time job?" So I started teaching others and I started learning through teaching. Everyone learns more, it reinforces the content whenever we tell others about it.
Then I grew from there, and I got this podcast - a daily podcast - learned a whole lot... Yesterday was my interview day - holy cow! Full transparency, sometimes I get annoyed and worn down on interview day. I mean, I interview 8 or 9 people a day on my interview day, but yesterday in particular I just got phenomenal lessons interview after interview.
I interviewed someone who got a 10-unit off-market through a direct mail campaign; he went through how he did that. I interviewed someone who is in Louisville and his company builds multifamily developments using tax credits. I interviewed someone who went bankrupt and now is doing over 15 million dollars worth of development, he's doing a 200+ bedroom community for student housing in Upstate New York... Tons of interviews.
The point is that if we don't have a podcast, then it's still learning. So coming full circle, to answer the question directly - either one. I don't think it matters, as long as you're learning the whole time and you're improving each step of the way. Because here's the thing - I think the reason why this question is asked - and I understand the question, why we would ask it... It's "Hey, I want to get farther faster", but the reason why it's asked is because "Is it gonna take me too long if I start at single-families to make a whole lot of money with larger stuff?" That's basically another way to rephrase the question. "Am I losing out? Is there an opportunity cost with me buying single-family homes when I could have started larger and made more money in a shorter period of time?" That's the question. And I don't think there is a disadvantage because of what I've done starting with the single-families (four single-families and no large multifamily). So those are my thoughts.
Theo Hicks: I agree. I think when I was looking at this question, I think at least from my perspective the key point is kind of where you're at right now in your life is gonna tell you -- not what you should do or you can do, but what would be the most effective. If you just learned about real estate yesterday, then you're probably not gonna be buying an apartment as your first deal, if you wanna do a deal very soon.
But if you've been listening to podcasts for months or for years, if you've been involved in real estate in some other capacity, whether you're a broker or if you're raising money for someone else... Like, the guy that hopefully you buy an apartment with, his first deal is gonna be an apartment, but that's because he's educating himself on apartments, he has a podcast about apartments, he's raised money for apartments before... So yeah, I guess technically you can say he's done a deal before because he raised money for apartments, but my point is it kind of depends on where you're at.
For me, I didn't know anything about real estate at all when I bought my first building, and everything at the time went very poorly, and I'm really glad that it happened on a small building, not a 400-unit apartment building.
And of course, I'm not necessarily sure if he's asking about doing an actual syndication deal or using his own money to buy an apartment, but that's also another issue. If you've never heard about apartments before but you're a multimillionaire through other reasons, then an apartment could be something that's on your plate, but if you've never heard of it before and you're in college and you have no money, obviously you could potentially raise money from someone else, but that takes time to build up your pipeline of investors and your credibility in general.
I think it's important, as you said, where you're at education-wise, experience-wise and money-wise, to determine what would be the best bet... Because at the end of the day - at least this is how it was for me, but my first deal went so poorly I was afraid of doing another deal for a year or two, because of how bad it went... Because I jumped right in, and it's not necessarily that I went above my capabilities... It was just kind of a shock, because I was not expecting it, because I had unrealistic expectations going on. So that's kind of my thoughts.
Of course, your first deal could be a large apartment, but it's probably not gonna be a large apartment if you've just heard about real estate yesterday and you have no experience and you don't really know anyone.
Joe Fairless: Yeah, I'm gonna assume this individual didn't hear about it yesterday. Most people who listen to the podcast didn't just hear about real estate yesterday... But I'm gonna assume they have some baseline knowledge, but they haven't pulled the trigger on anything, but they're fairly intelligent about the lay of the land...
I'd say I agree with you on the experience, money and -- I forget what was the third thing you said.
Theo Hicks: Credibility I think is what I said.
Joe Fairless: Credibility, yeah. I think most important - and this gets into the esoteric thing that I talked about earlier - is your psychology; where are you at from a psychological standpoint? How tough are you? How tough is your mind? How do you handle adversity and how have you handled it in the past? Are you really ready for it? Because I guarantee you that if you are starting larger, that's fine, but the problems that you're gonna come across from a mindset standpoint will be proportionately larger than if you started with a single-family, because you've got more money at stake, and there's different components that are needing to be addressed. Management is more of an issue, maintenance, you've got more people under your roof... So be self-aware with yourself on how you are psychologically, because Tony Robbins talks about it's 80% psychology, 20% skill. I agree with that. It might even be 90% psychology, 10% skill. Somewhere in between, or somewhere around that range.
And first off, if you're asking a question via this podcast, then you're well on your way, because you're already elevating yourself above the crowd because you're listening to this podcast. It's not because you and I say anything novel, it's just you're conditioning your mind to learn more, and that's great. So it's likely you do that in other things in your life as well, that's my hypothesis.
So do a check on your psychology, perhaps do the Perry Marshall exercise in the book 80/20 that Perry Marshall wrote. That exercise is where you ask those who are around you your unique skillset, and then they'll tell you what your uniquely good at. And if they don't mention "Hey, you do what it takes, you're resourceful, I can count on you to get things done", if it's something else like "A really nice guy/gal, really good with numbers' - that's good stuff, but if they don't mention something that is at the core of "Hey, you're just gonna get things done", then maybe start out with the smaller stuff, or maybe work on yourself first before you buy anything.
Theo Hicks: I think that's a very good point. As you say, it's kind of hard to measure how well you handle adversity, but I like how you said "How have you handled it in the past?" Because I can say right now that "Oh yeah, I'm great at handling adversity", but you'd say "Well, how do you know that, Theo?" and if I don't have any evidence in my past of me going through it, then you really don't know what's gonna happen when you face challenges.
If you would have asked me before I bought my first property how I'd face adversity, I'd be like "Oh, dude, I played sports back in school, and worked out and didn't stop", things like that; I would have been like "Oh, I faced adversity really well", and I would have been tricking myself, because once I faced real adversity at my real estate when money was on the line... I guess that's key, too - how do you face adversity when there's actually your own money on the line? How do you react to that? For me, I reacted very poorly.
Now, I went through that, I've kind of reflected on it, and now I'm self-aware of what I can handle, which is why I'm going to make sure that I'm just outside my reach for not extending so far that I have some sort of psychological meltdown... But what you said I think is very important, and I think it's hard to measure, and a good way is, yes, ask other people. Don't say "How do you think I'd handle adversity?" because they're probably gonna say "Oh, you know, you'll handle adversity great", because they're your friend... You've gotta ask them, as you've said, "What are my strengths?", so they'll be more honest.
And then also evaluating your past and see how you handled adversity in general, but also how you handled adversity when you've had money on the line in some form or fashion.
Joe Fairless: You texted me a couple days ago - we won't go into details, but you texted me and you said "Hey, I need some help with some stuff." We got on a call, and my main message was "Anything that comes up that is seemingly negative, the question we always ask ourselves is how can I use this?" How can I use this so that I am better off because it happened?
One of two approaches there - one is you use it so that you truly are able to leverage that experience and it was actually a really good thing that it happened, because it took you on a different direction or you're building on it, or another thing - it kind of sucks that it happened, but you learn from it, and now you know how to mitigate it from happening again as much as possible, and that sets you up for success in the long run, because then you attempt to not repeat the same things that transpired. If we have that mindset when stuff goes down, then that's setting us up for success and that's the approach that I always take when adversity hits.
Theo Hicks: Yeah, and in that particular situation you were talking about when I asked you for advice -- my point is when something happens, like you have some type of negative event happen in your life, the root of it is most likely not the thing that actually triggered it; it probably goes back a couple of months, a couple of years, even maybe for this particular situation there were decisions I made months or years ago, kind of like led up to the point I'm at now... So once you kind of resolve that problem, you fix all those problems from the past year, now you know like "Okay, identify where this all began... Now I'm moving forward, and if that occurs again, instead of doing it the way I did it before, I can do it differently and if nip that problem in the butt now, so that in a year from now I'm not facing the exact same problem."
I know that's very vague, because I'm not necessarily giving a specific example, but that's kind of what I did, I'm reflecting on the situation that I had [unintelligible 00:15:47.27] It was just about some relationship issues with a real estate agent and another real estate investor. But now it worked out perfectly, the issue is resolved now, and if we can transition into our updates now and I can talk about the direct mailer and things like that, if you want...
Joe Fairless: Yeah, last point and then let's move on... The decisions that were made a couple of years ago or whatever, that you decided to change - you did it in an instant, right? Tony Robbins always talks about that; you can make all these decisions years ago, and then that's led you to all this stuff that you're doing now, but you make a change in an instant; he always snaps his finger to make that point. And when you make that change in an instant, then it changed your whole trajectory.
That's something to keep in mind for all of us, myself included. We are programmed just to go through life in certain capacities, in certain areas of our life, but if we really stop and think about "Hey, when did I decide to act this way? When did I decide to think this thing?", then when we are conscious about it, we can change it in an instant. Alright, sweet. Let's roll.
Theo Hicks: Alright, so [unintelligible 00:16:53.16] The advice I had for you was on the direct mailing, and I'm going to continue to use the agent where I'm gonna give her the go-ahead today to start preparations for the second mailer. Something that I learned from evaluating these deals, and I'm actually not sure why I wasn't doing this before, but there was one deal that I was looking at that if I had done my underwriting in a way that was doing like a five-year projection or a ten-year projection, I probably would have bought the deal... But for some reason, when I was underwriting the deals, I was just looking at it as if "Will it meet my return expectations from day one?", which obviously is not what you wanna do.
Joe Fairless: Ow...!
Theo Hicks: I'm looking at deals and I'm just like "Well, this is a 2% cash-on-cash return at this purchase price and at these rents." Now, it is true that this particular property I don't think that the rents could be raised that much, but if they were raised, it would have made a little bit more sense. I think my point is I should have done further investigations. The deal is gone now, so it is what it is, but moving forward when I get these deals, I'm gonna use a new cashflow calculator, and input information so that I have obviously the day one, year one cashflow, which is what it is when I'm buying it, and then have a plan of -- whatever my business plan is, and then inputting that in there as well.
For some reason, there's a disconnect, because when I'm underwriting apartment deals - obviously, this is what I do, but there just was a disconnect between that and these smaller buildings, for some reason, in my mind... And I just realized when I was taking my dog for a walk this morning, I was like "Wait, what? What are you doing, Theo? You shouldn't be doing this." So I'm glad I learned that lesson and I'm going to apply that moving forward.
Joe Fairless: People ask about the cap rates that we're buying properties at, which is a relevant question, but the more relevant question is "What's your business plan with the properties that you're buying? Can you tell me about the business plan?" Because cap rates just show what cashflow you would get if you were to buy it all cash, based on existing financials, but it does not show the business plan results whenever it's implemented, and that's really the question.
I mentioned this at the Philadelphia conference, Dave Van Horn's conference - phenomenal conference, by the way - where I did the keynote, and I used this example where I've got an investor who invests in Manhattan, and the group he invests with there buys buildings at two caps. At first, he's like "What the heck? Two cap? I don't think so, buddy. I'm not investing with you!" But then this group has a way to generate really good returns because of the business plan, and basically the business plan is renovating units, like we do, but they purchase rent stabilized properties and [unintelligible 00:19:42.16] at the property where the rent-stabilized tenant is giving his/her lease to someone else. I think there's some type of electronic key card and some other stuff... I'm not familiar with this business model as much, but the point is that a group in New York - and I'm sure there are many groups - buying at two caps, but generating pretty healthy returns, and it's because of the business plan.
The same with your example - and you know this, but just kind of summarizing - if you're looking at what it will generate right out of the gate, well, it's necessary to know, but if we're long-term investors, and even if we're not, if we're buying for like five years, I still think we should 1031 from that... It's more important what's the annualized projected return over those five years.
Theo Hicks: Exactly. So I'm gonna take my existing cashflow calculator that's just one year, very basic, simple model, and I might just put a 30-year and have a snapshot around the 5-year, because what I was doing before made zero sense. And as you said, as investors, we're adding value to these buildings and that's kind of how we're rewarded with these rents, and if you're not taking that into account, you're gonna have a hard time finding a deal that's meeting your return expectations from day one, if your return expectations are based off of adding value. So yeah, I'm glad I figured that out when I was taking my dog for a walk this morning.
Joe Fairless: Because there's an art to underwriting, and a lot of investors don't recognize that. There is an art to how you see value and what you can create in an apartment community. I think that's one area that my company excels at - identifying where value is, and having the right team to execute on it.
If we were to just do those year one numbers - and I'm not beating a dead horse; or maybe I am, but I'm just kind of illustrating a slightly different point, but on the same subject... If we were running the numbers just on year one, then we're competing against all the other investors who are running the numbers on year one, and we're basically all arriving - or most of us arriving - at the same point... Whereas if we see a different vision for the property, then we can arrive at a slightly different location with terms and price, and make probably more money than those who were running the numbers the other way, because we've actually got a business plan that we're gonna execute.
Theo Hicks: Exactly.
Joe Fairless: Sweet.
Theo Hicks: And then another update - I've got my next meetup group tonight, and I'm really excited about that.
Joe Fairless: Alright. Is that a local town hall thing, or what?
Theo Hicks: No, it's actually funny... I made another mistake, because my last meetup I changed it to a brewery, and I mentioned how I didn't confirm with them the night before that they would be there, and so I show up and I have all these pizzas, and the doors are locked... And I basically mentioned the person, like "Hey, I'm here. What's going on?" and I don't get a response for like ten minutes and I'm just sitting there, freaking out... But of course, she ends up messaging me saying "Hey, he's inside. He's preparing, and will be there..."
Joe Fairless: Who's he? Are you talking about the person at the...
Theo Hicks: Yeah, the person that owns the brewery, yeah.
Joe Fairless: Okay, got it.
Theo Hicks: So at the end of the meetup I confirm for the next month, "Okay, we're gonna do it again on this day, and it'd be cool for you to come." They're like "Yeah, sure. It's so nice that you're doing this." So I go to confirm last night, which I should have confirmed last week or multiple weeks ago... But they're not in town for the meetup, so the venue basically canceled. And I'm sitting there, I'm like "Well, this is kind of annoying", but fortunately I did my first meetup at a restaurant, so I had a backup plan automatically and kind of changed the venue, but... Again, that was just kind of an example of -- probably a couple years ago I would run around the house in circles, but I just sat there...
Joe Fairless: A brewery is not open on a Wednesday night?
Theo Hicks: Yeah, so they're actually only open on Thursdays through Saturdays, just [unintelligible 00:23:41.25] So they weren't even open on Wednesdays; they planned on coming just for us... But they just happened to be out of town. I think it was just miscommunication.
Joe Fairless: Alright, got it.
Theo Hicks: But yeah, I messaged them and just like "Oh, no...! Of course!" So I've got 14 people signed up, we're gonna meet at a restaurant, and it's gonna go great and I'm looking forward to seeing everyone again tonight. It's just a real estate meetup, it's very similar to the one that you host in Cincinnati.
Joe Fairless: And for anyone who has not attended, which is the majority of the people who are listening, high-level what's the structure?
Theo Hicks: You show up, if it's your first time, you give an introduction, explain what you do... For both of my meetups, everyone's brand new, so it happened both times. Then you explain what your outcome is for attending this meetup; I got that question from you and I really liked it, because I want the meetup to be very outcome-oriented.
Then we'll go over any needs or wants, so if someone has a question on a deal they have, if they have a general question of "How should I get started?", we can do that, we talk about that as a group. Then if you came the previous week and you set a goal, I have a Facebook group that you're gonna post it to, and you'll give an update on your goal, and then if you have any questions or need advice on that, you can do that.
The goal is to have that be the first 15-20 minutes of the meetup, that way everyone knows exactly what everyone else does, so when we break apart into just kind of freestyle networking, people know who to go to, that they have similar interests, they're doing similar things... And that seems to work our and result in - basically, from my past two experiences - the best and most fruitful conversations... And afterwards, everyone's like "Oh, Theo, thanks for putting this together. I really appreciate it. I'm learning so much."
I'm not sure about your experience, but the majority of people that come to these things - at least starting out - there's a couple of people that have a lot of experience, but most people haven't done a deal yet, so I think it's really cool to see that, because I see myself in a lot of those people when I was first starting... And I just explained to them, hey, you're giving they advice that they just obviously don't know, and it's fun to do and I really enjoy it.
Joe Fairless: That's cool. Well, congrats on that, and looking forward to hearing how it goes.
Theo Hicks: Awesome. And then this last quick update on the rentals, my three four-units. We have two units that are vacant right now; one of them we've almost secured a tenant for... We're just kind of going back and forth with the background checks, and stuff.
We're having some issues renting the other one-bedroom unit, because we have it listed at $685, but there's another unit that's for rent - not on the same street, but close enough, for $575... And so we think that that might be one of the reasons why we're having issues getting it rented, so we're gonna lower the rent, lower the listing down to $625 to get it filled.
And there's a couple other things why I don't think it's getting rented that I will have to address with my property manager, but we're gonna be talking about that...
Joe Fairless: Real quick, can you...? Just real quick, what are they?
Theo Hicks: It's another silly mistake on my end... The unit was occupied by a heavy smoker, and we refinished the hardwood, we repainted the walls, and I was told that the cabinetry and the toilet and the other objects in the unit were fine, they weren't that dirty, and then when I looked at the listing and saw the pictures, they were all obviously--
Joe Fairless: Got the yellow?
Theo Hicks: They've got the yellow, so we need to repaint it or replace it, because no one's gonna wanna live there with them like that. So I think that's why it's not being rented out. I just noticed that a couple days ago, so I've reached out to my property manager and we're gonna get that addressed. It's not gonna be anything too expensive. We're not gonna have to replace the cabinets, we're just gonna have to paint them... Because they've been painted before.
I don't think it's a smell issue, it's just an aesthetic look issue, especially with the super pearly white walls that we just painted, and then you've got the contrast of the stained yellow cabinets, so...
Joe Fairless: [laughs] It's gross.
Theo Hicks: It's gross, yeah.
Joe Fairless: Yeah, you've gotta get that replaced or painted.
Theo Hicks: Alright, that's what I've got. What about you, Joe?
Joe Fairless: And you have 12 units, right?
Theo Hicks: Technically 13 now, because of that single-family that we have.
Joe Fairless: Okay. That single-family aside, you've got 12 in a little cluster, and two of them are vacant, right?
Theo Hicks: Two units are vacant, yeah.
Joe Fairless: So you're at 83% occupancy.
Theo Hicks: Yeah.
Joe Fairless: Are you concerned about that?
Theo Hicks: Not really...
Joe Fairless: How come?
Theo Hicks: Because I know they're gonna get rented, and I've already raised the rents on other units, and they're not necessarily making up for the loss in rent that I'm getting, but overall I'm still cashflow-positive, I'm not losing money. Of course, I'd prefer they were all rented, but it hasn't even been a month yet, and I'm very confident that they're gonna be rented by June 1st or probably by the next couple of weeks.
Joe Fairless: Cool. And you're in the middle of the business plan too, because you acquired them less than a year ago, right?
Theo Hicks: Yeah.
Joe Fairless: Cool. Alright, what we've got going on - we've got (I had to do the math) 890 units under contract right now.
Theo Hicks: Wow...
Joe Fairless: One 564-unit and one 326-unit... All of them were off-market deals through either broker relationships, or relationships that we actually had with someone who found the deal and then wasn't able to close on it, because they didn't have the ability to. So we had that relationship with them, and now we have 890 units under contract, so I'm excited about that.
We're closing -- we're in May now, so we're closing next month. As you can imagine, that's taking up my primary focus. For all those deals, all the equity is spoken for. It's actually been a little -- shocking and surprising aren't the right words, but those are the first two that came to mind, how quickly it was spoken for, the equity... I don't know if my business has reached a tipping point with investors based on our track record and this podcast growing and other things, but for both of them -- and combined it's 24 million in equity, and it took in total for that 24 million... Seven days total for 24 million dollars in equity. So I'm not sure if that's a sign of things to come, or if it was just pent-up demand, or... We did some refinances on one of our deals in particular recently, and that was a pretty good one, so we got a lot of investors rolling that into these deals, but it's a far cry from when I first got started, or even not when I first, but early days after the first deal, when I was messaging people on LinkedIn who lived in Houston, who I hadn't spoken to in ten years, that I have an apartment building, I'd love to connect with them again and talk to them about what they're up to, and "Oh, by the way, I've got a deal..." [laughs] And that didn't work at all, by the way, so don't do that. That was not effective. I literally did not get one investor from that, although they should have... They definitely should have; that project has turned out really well.
So it's gratifying to be in that position now. Again, I don't know if that's a sign of things to come for future deals, or if these deals were unique, or what, but I certainly have a lot of gratitude towards where we're at right now.
Theo Hicks: Do you have a general number, or if you can be specific - that 24 million dollars in equity was raised across how many investors?
Joe Fairless: On average I'd say investors invest $200,000 or so, whatever that is. I'd have to use a calculator, it's not my Microsoft calculator on my -- so what is it, 24 million divided by 200k?
Theo Hicks: 120.
Joe Fairless: Yeah, so approximately 120 investors.
Theo Hicks: And in your first deal, how many investors did you have?
Joe Fairless: 12.
Theo Hicks: That's awesome.
Joe Fairless: And they are part of that 120. All of them didn't invest on these last two deals, but certainly a large percent have on these last two, so it's been great.
Theo Hicks: Then you mentioned that one of the deals you got through a broker relationship obviously, but the other one you said you got it through someone who couldn't close themselves... Was that another investor, and how did they find you? How did you find them?
Joe Fairless: It was through Frank's friend. She knows someone. So follow the breadcrumbs a little bit... But Frank's friend, who he knows through (I believe) his time at Bucknell; he was a civil engineer major, and I think he knows her through that... Or maybe it's their alumni network, I can't quite remember. But anyway, she knew someone who got this property under contract, and tied it up at a ridiculous price per unit, and wasn't able to follow through on it... So we said, "Yes, please. We can do that", and ended up putting ourselves in the position that now we've got it, and moving forward.
Theo Hicks: And actually really how important it is to let people know what you do... I can't remember exactly the context that this came up. We were talking maybe on last week's Follow Along Friday about letting people know that you raise money for apartments or that you invest in apartments or that you're in apartments or in real estate - that way a year from now or a month from now or tomorrow or that exact same day someone has some sort of person or deal for you, he'll bring it up, and if they don't know, then you don't know how many opportunities you're missing out on.
Joe Fairless: Yup, absolutely.
Theo Hicks: What else have you got going on, Joe?
Joe Fairless: That's it.
Theo Hicks: Awesome.
Joe Fairless: That's my primary focus.
Theo Hicks: Well, congratulations - that's 800+ units under contract; that's impressive. Alright, so just to wrap up, make sure you guys join the Best Ever community on Facebook (BestEverCommunity.com). We have some really great questions on there, and we got a lot of great responses, and we use those responses to create a blog post, obviously to add value to other people's lives, but also to include some of you guys on the Best Ever Blog and kind of get your name out there.
The question we have this week is "Is it better as real estate investors to focus on one strategy, or more than one?" So if you go to BestEverCommunity.com, it won't be pinned to the top, but it'll be relatively close to the top of the page. You can go on there and read the comments, and then post there if you want to be featured in a blog post next week.
Joe Fairless: Yeah, really some thought-provoking stuff. I love that question, because I know some investors who focused on one market, but multiple strategies within the market, whereas my company primarily focuses on Dallas-Fort Worth, and we've got some in Houston too, but Dallas-Fort Worth has been our focus... And we only do apartments, and we only do apartment investing.
And then the others who are just value-add investors - I've interviewed value-add investors who just buy commercial, office, retail, apartments, single-family homes, larger ones, they do Airbnb...
I believe in the power of focus for sure, but after being educated and exposed to all these investors and their approaches, I believe the power of focus can be concentrated in different ways, or defined differently. I personally focused on apartment investing, that's my power of focus... And I know someone else who focuses on Charleston, South Carolina. That's his power of focus, and he does all different stuff within Charleston. Or some investors - this gets a little bit outside of the power of focus in my opinion, but others are just value-add commercial real estate investors, and they are just incredibly smart with underwriting different types of deals, and they just find value-added deals, which I believe gets a little away from focusing, but still, they've got one area that they always focus on, and that's adding value to some type of property.
Theo Hicks: I'm looking forward to reading all the responses and seeing what people are having success with, especially if they're doing multiple things. I would imagine that if they're doing -- not necessarily completely different strategies, but if they are expanding their focus, it's probably because they got really good at one thing, and then that's kind of like on autopilot, and then they're adding in something else just to expand.
So tomorrow we will be doing the first ever Best Ever debate that's not between me and Joe. It's gonna be me versus somebody else about short-term rentals versus long-term rentals. I'm really excited about that conversation...
Joe Fairless: Which side do you have?
Theo Hicks: Long-term rentals.
Joe Fairless: Oh, that's gonna be tough on the cashflow. I think you've got some good points...
Theo Hicks: Oh, yeah. I don't wanna give anything away right now.
Joe Fairless: Yeah, that's fine, that's fine.
Theo Hicks: I don't want my competition to hear what I have to say [unintelligible 00:36:09.11]
Joe Fairless: You might get destroyed with the short-term cashflow; if they go in talking about short-term cashflow, I hope you've got some good rebuttals.
Theo Hicks: I do.
Joe Fairless: [laughs]
Theo Hicks: That's tomorrow at 4 PM, and if you're watching live on Facebook now, it'll be in this exact same spot, on the Joe Fairless Facebook page. If you're listening on the podcast, then you can go to the Joe Fairless Facebook page to listen to the replay... But if you wanna listen to it live tomorrow, it will be at facebook.com/joefairless. So regardless of how you're gonna listen to it, that is where it will be, and again, that's tomorrow, which is Thursday the 3rd, at 4 PM.
And then to finish off, make sure you guys go to the podcast on iTunes and leave a review. It really helps us out to learn how we're doing. And if you do, you'll have the opportunity to be the Review of the Week and have the review read live on the podcast.
This week we've got HenryLL. He says:
"I listen to a ton of podcasts across many genres, and this is one of my favorites. Joe provides consistently high-quality content by covering a broad range of real estate strategies, whether you want to fix and flip, buy and hold single-family homes, buy notes, or syndicate apartment buildings
I also love how the Skillset Sunday discusses skills applicable to other parts of your life, like persuasion and developing great relationships." End of review.
Joe Fairless: Thank you. [laughs] End quote. Hey, Henry, thank you so much, and thanks for mentioning the Skillset Sunday episodes, too. They're actually the least listened to episodes. So we've got regular episodes, and we've got Situation Saturday and Skillet Sunday episodes - those basically have the lowest amount of listens, and I've always wondered, is it because they're on the weekend? Because not a lot of people listen as often on the weekend versus during the week, so it's good to hear your feedback on the Skillset Sundays, because I like them; I like that they're very specific about a particular skill that's relevant to us as real estate investors and entrepreneurs. So I appreciate the review, and also quite frankly the vote of confidence in that type of segment.
Everyone else, if you can leave a review -- well, you can, you're physically able to, so if you may... Is that even right, "If you may leave a review..."? Please leave a review; that will help us build the community, get better guests, or continue to get high-quality guests and have the best content possible for you.
So thanks everyone for spending some time with us, I'm grateful for that. I'm looking forward to talking to you again tomorrow.

JF1330: BRRRR 101: Real Life Example Of Scaling Using This Famous Method Of Investing with Joe Cornwell

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Joe is a police officer in the Cincinnati, Ohio area. He’s also a very savvy investor and agent who has tackled three deals in his short time being an investor, with plans and goals to do more and more. Today Joe gives us details of his first BRRRR deal, a duplex that he renovated, rented, and refinanced. He was able to use that equity created and use it to buy a 6 unit, which is the beauty of doing BRRRR deals. If you enjoyed today’s episode remember to subscribe in iTunes and leave us a review!


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Joe Cornwell Real Estate Background:

  • Police officer for 6 years, currently at the City of Deer Park
  • Realtor for 2 years, did a live in flip in 2012-2015, own two rentals 8 total units using the BRRRR method
  • Plan to start own brokerage and property management company in next 8 years
  • Wants to do 20 units in 8 years
  • Based in Cincinnati, Ohio
  • Say hi to him at jcornwell@realtyonestop.com
  • Best Ever Book: Best Real Estate Investing Advice Ever

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Joe Fairless: Best Ever listeners, how are you doing? Welcome to the best real estate investing advice ever show. I’m Joe Fairless, 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, Joe Cornwell. How are you doing, Joe?

Joe Cornwell: Good, how are you?

Joe Fairless: I’m doing well, and nice to have you on the show. A little bit about Joe – he’s been a police officer for six years; he currently lives in a suburb of Cincinnati, Ohio. He’s a realtor for two years, he’s done a live and flip, and he did that from 2012 to 2015. He also owns two rentals, a total of eight units, using the BRRRR method.

He plans to start his own brokerage and continue to grow and grow and grow. With that being said, Joe, do you wanna give the Best Ever listeners a little bit more about your background and your current focus?

Joe Cornwell: Absolutely. As you said, I’m a buy and hold investor, so my goal is to grow to at least 20 units that I hold personally. I got into real estate with the live and flip; that’s kind of what opened my eyes to the potential of real estate. Prior to that I wasn’t exactly sure what I was gonna do investing-wise for retirement, and when I started building real estate units for retirement savings, I kind of realized that this could be more of a wealth-building tool than just a retirement type saving, so that’s what initially piqued my interest into it.

Joe Fairless: With that live and flip, were you married at the time?

Joe Cornwell: I was not.

Joe Fairless: You were not. So a single guy… A peek behind the curtain, Best Ever listeners – I’ve known Joe for about three years or so. The first thing I did when I moved to Cincinnati was I started a meetup, and Joe has been one of the loyal attendees who comes every month for the last three years, so we’ve gotten to know each other fairly well. So I will attempt to ask questions that I would ask if I didn’t know you.

So you were single at the time, with the live and flip. What were the numbers on the flip? Because I know that was the foundation that kind of served for you to build and build from where you were at then to now.

Joe Cornwell: Right, that was definitely the catalyst that opened my eyes to real estate being a wealth building tool. So I purchased a home in Milford, as you said, a suburb of Cincinnati, and my initial purchase I think was 87k, which was a pretty good deal even back in 2012 when the market was still pretty down… And I’ve put about $7,500 in materials into the house, and I did most of the work myself, which was kind of a learning experience in and of itself, doing the rehab. I was fortunate to have a stepfather with a ton of rehab experience, but he’s of an age where he can’t really do the work, but he was still there to kind of coach me through the process. And through that, I was able to sell it in 2015 for 125k, and I think when I walked away it was around a $40,000 profit. Obviously, I got my down payment back, and then it was pretty close to 40k in profit as well.

Joe Fairless: So you got the profit from that deal, and then what did you do?

Joe Cornwell: I actually used that to purchase my current personal home, which was about three and a half times more expensive, and I was able to put a much more substantial down payment, which would not have been possible without that first live and flip, and I probably wouldn’t have been able to afford my home at the time without those funds being made from the flip.

Joe Fairless: How much did you put in initially? You said $7,500 into materials at that first purchase. How much was your down payment?

Joe Cornwell: I think on that one — I might have done 15%. I think the total was like 13k, so I guess all-in I was 20k into it.

Joe Fairless: About 20k all-in, okay. So 20k all-in into the first deal, you made 40k on it, and then you rolled that into your personal home. Robert Kiyosaki would slap you on the wrist for that… And then what?

Joe Cornwell: At that time this was not intentional. It wasn’t some planned out thing; I did not buy that first home with any sort of metrics in mind. I really didn’t know anything about real estate investing; I kind of just happened upon it, and I realized — upon the selling is what really piqued my interest. So this is 2015, probably — actually, pretty close to when I met you, and I really piqued my interest into learning more about real estate. At that time I had no idea what I wanted to do. Obviously, I was a police officer, as you’d mentioned; I’d been doing that for about three years at that time. The income was good, I enjoyed my career in law enforcement, but I realized “Hey, there’s a lot of potential here in real estate if I can figure out what I’m doing, and make this not only a retirement tool, but a wealth-building tool as well.”

Joe Fairless: So the money was put into the personal home, and we don’t see it anymore, correct? Or do you leverage it in some way?

Joe Cornwell: Yeah, it’s in the home.

Joe Fairless: It’s in the home, okay. So that’s gone. So then what?

Joe Cornwell: So as I started attending your meetups – as you mentioned, this was I guess maybe fall of 2015 or so – I really began learning everything I could about real estate. I started absorbing every book I could get my hands-on, online resources, podcasts such as yours, and doing everything I could to really learn about real estate, which kind of led me to going down the process of buy and hold.

I kind of knew that flipping and wholesaling was more of a job, and even though those were extremely interesting to me and still could be in the future business plan, it was more of a job and not an investment to me. So the buy and hold strategy was really what piqued my interest in what I wanted to pursue.

Joe Fairless: What was the next purchase?

Joe Cornwell: So the first actual rental purchase was a duplex in the City of Deer Park, which is where I’m a police officer… So it was kind of part of the plan there, to be somewhere I’m physically at most of the time for my first purchase; I wanted to be very hands on, I wanted to keep a good eye on my tenants. Obviously, one of my biggest fears prior to investing was “How hard is landlording really gonna be? Are my tenants gonna trash the place?”, that kind of thing. So being there physically, and obviously, being a police officer gave me a little bit of a competitive advantage to managing tenants.

Joe Fairless: What are the numbers?

Joe Cornwell: The initial purchase on the duplex was at $89,000, which was a pretty good deal even in that market at the time. The comps were like 140k+ on any duplex sold in the school district for Deer Park… So I put 25% down, so that was $22,250 down; I ended up putting a total of 38k into the rehab, so it was a very substantial rehab. This house was about 90 years old when I bought it…

Joe Fairless: 38k you say?

Joe Cornwell: 14k in materials and 24k in labor. It was a total of 38k in renovations, which was basically a rebuild on the interior for both units.

Joe Fairless: Okay. You said it was a good deal based on comps. What about the post-renovation rents?

Joe Cornwell: After it was renovated, I was able to get a total of $1,500/month, which was $850 for the downstairs, which is a 2-bedroom, and then $650 for the upstairs, which is a one-bedroom apartment.

Joe Fairless: Okay. What were they renting for before the renovations?

Joe Cornwell: I believe he was getting $500 on the upstairs; I’m honestly astonished that the previous owner was able to get $500/month because it was in complete disrepair. Half the plumbing didn’t work, the bathroom wasn’t really usable… It was honestly in horrible condition, so the fact that he was able to get any rent was pretty surprising, but I think it was just an extremely long-term tenant that didn’t really complain much and was happy to just have a place to live.

Downstairs I believe was a family member, so I don’t think he was even collecting rent on the downstairs.

Joe Fairless: Okay. And $1,500, you’re all-in at 127k, so that is a 1.1%. You nailed the 1% rule, but not 1,5% or 2%, so it doesn’t sound like it was a killer deal. It sounds like it was a really solid deal. Is that accurate?

Joe Cornwell: Yeah. It worked for the rehab; obviously, the cash-on-cash was very low… I think it was at like 13%, which is under my metric of what I would want, but for the all-in, the rent ratio was also low. However, when I was able to go for the refi, I was able to pull all of the capital from the renovations back, plus a little bit more of the down payment as well. The strategy was to do the BRRRR method, and I knew going in that it was going to be a big renovation job.

Joe Fairless: Oh, there’s the key. So I heard you correctly, you were able to pull back out the $23,000 down payment AND the $38,000 out of pocket costs?

Joe Cornwell: Not all of it. I was able to get back 41k, and that included the closing costs for the refinance… So 41k total cash back, and I was all in on the renovation for 38k, so let’s say 19k is what I still have into it.

Joe Fairless: Yeah, you got back 67%. From all-in money, you got back 67% of what you put in initially. And the property cash-flows?

Joe Cornwell: Yes, I’m still cash-flowing with the new loan at about $400/month. That’s on a 20-year amortization [unintelligible [00:09:46].07] short-term loan, and my cash-on-cash went up to 22%, which I was very happy with… So that’s above my goal, which was 20%.

Joe Fairless: The 38k and the 23k – did that just come from the piggybank from your W-2 job?

Joe Cornwell: Right, so a little bit of savings from my W-2, and one of the reasons why I ended up getting my real estate license that you mentioned before was not only to learn more the business from the inside, but predominantly so I could take my commissions… I don’t need that money to live on, to pay my bills, because obviously, I do have another full-time job. However, I wanted to accelerate my savings by having the commissions coming from another income source, so that’s why I pursued the real estate license.

So not only am I able to help other clients who are doing the same things that I’m doing, but I’m able to make extra income to accelerate my buy and hold strategy.

Joe Fairless: Then you’ve got the money back out – what did you say it was?

Joe Cornwell: 41k was what I cleared after–

Joe Fairless: 40k is what you cleared. You put in 61k in total and you got 41k back, so you’re into the property for 20k. You’ve got a cash-flowing property, and… Now what do you do?

Joe Cornwell: I took that refinance, and I knew roughly what I was gonna have back as far as the cash-out, and I started looking for another property. I was able to find a six-family property which is also just outside of Cincinnati, and in a good neighborhood. I was able to take that 41k that I got from the cash-out, with another 10k in savings from the real estate commissions, and put that down on a six-family, which has obviously increased my cashflow substantially, in addition to the $400 that I’m getting on the duplex.

Joe Fairless: And what are the numbers on the six-family?

Joe Cornwell: As it were purchased, currently – and I actually just closed on this last week…

Joe Fairless: Congrats, by the way.

Joe Cornwell: At purchase, the rents are $3,050. That’s five units at $500 and one unit at $550. My plan for the property – and what I’m already implementing – is to get all of the total rents to $600 each, which would be $3,600/month, plus coin laundry, which is roughly $75 to $100/month. That is the plan, and it should take about 12 months.

This actually has the potential to be another BRRRR strategy, because at purchase, which was at 246k, I’m actually going to be able to increase the valuation, because it’s a commercial property [unintelligible [00:12:25].27] and the cap rate, which is roughly 8% for the area, to actually bring the market value of that property up to 315k.

Joe Fairless: How long’s that plan projected to take?

Joe Cornwell: I think within 12 months I will have the rents the way they should be, at market, and that includes renovating three of the six apartments, so within 12 months I would have that at its highest current value.

Joe Fairless: And how did you select the management partner to help you with this business plan?

Joe Cornwell: Well, I’m actually managing it myself.

Joe Fairless: You’re self-managing?

Joe Cornwell: Yes.

Joe Fairless: Okay. Why are you self-managing versus a third-party?

Joe Cornwell: Well, there’s a few reasons. One, I only have eight units, so it’s manageable to manage, it’s not overwhelming at this point, even though I do have a couple careers. So that’s one.

Two, I wanted to learn to business from the inside, and I think part of learning the business is being hands-on, especially at the beginning, and leasing the tenants, doing the screening, dealing with issues as they come up, dealing with contractors – all those things that property managers do, and I think it’s important to learn that from the inside.

Now, the third reason, and specifically in my situation – I want to eventually build a property management company as part of the brokerage, and offer those services as well as brokering sales and purchases of real estate… So obviously having that experience, having units and having to manage them under my belt is gonna go a long way in building the property management company in the future.

Joe Fairless: How did you find the six-unit?

Joe Cornwell: It was actually just an MLS deal that had been on market for a little while. I had somewhat of an existing relationship with the agent and was able to talk to him at the price they listed, which was at 275k; they didn’t have a lot of interest, they hadn’t done any price drops, so I think it kind of went under the radar for a little while. Luckily, I was able to go in and negotiate and get it down to 246k, so I was very happy with that purchase price.

Joe Fairless: How did you arrive from 275k to 246k? How did that back and forth go?

Joe Cornwell: Well, the initial thing – again, because this is a commercial property, I was able to kind of demonstrate to the agent and to the seller that the rents hadn’t really been raised since he’d owned it, which was eight years. He had raised them a little bit at a time, but it wasn’t nearly where it should have been for market rents, so I was able to show them that this property is really only around a 230k-240k range, that’s the market value on it. I explained to them, “If you guys wanna renovate it and bring the rents up to market, then it may be worth close to what you’re asking for or even more, but if you’re not willing to do that, then you’re probably gonna have to lower the asking price to sell it at its current value.”

Luckily, they were able to understand that, I was able to demonstrate that, and honestly it was the truth, so… Luckily, we were able to come to an agreement after that conversation.

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

Joe Cornwell: I would say that the number one lesson I’ve learned, and looking back at the past two years that I’ve been educating myself in real estate is that you really cannot learn this business – whether that’s flipping, buy and hold, or wholesaling – unless you actually get into it and do it. I think that’s the most important thing.

I work with a lot of first-time investor clients and I have this conversation with most of them – you can learn everything you wanna learn, you can listen to every podcast, you can read every book, but until you get in and do your first deal, the opportunity cost you waste by having fear and not taking action and making decisions is gonna cost you more in the long run than even a bad or mediocre deal for your first executed deal.

Joe Fairless: 100% agree. If you were given the opportunity to approach anything that you’ve done differently, what would you do differently?

Joe Cornwell: It would definitely be my first contractor experience and relationship that would have been completely different.

Joe Fairless: What happened?

Joe Cornwell: Long story short, I basically paid a contractor about $3,000 for work that was not completed, or was completed incorrectly and had to be redone. I did have a contract with him, and they did not hold up to their end of the contract and I kind of learned the painful lesson that it was gonna cost me more in legal fees and time than I would be able to recuperate, even if I won, a civil litigation. So I learned the hard way to never pay a contractor for work that’s not completed or not completed correctly.

Joe Fairless: What checks and balances would you have in place in the future?

Joe Cornwell: I do things a little bit differently now. One, I found better contractors; I think that’s the easiest and probably most important aspect of this. I found contractors that I trust and that are reliable.

Joe Fairless: How do you screen for that trust and reliability?

Joe Cornwell: Well, the second group of contractors I was fortunate to find were actually referrals from one of my tenants who he previously worked for their company, so it’s a mix of right place, right time, but also to tell everybody you interact with what you need, because if people don’t know what you’re looking for in any aspect of your business, you’re not going to have people that are able to find those things. So just by talking to my tenants and explaining to them what I needed, they were actually luckily able to connect me with almost the perfect fit to the puzzle piece, so to speak.

But as far as me personally, what I do differently is I inspect all the work myself prior to releasing funds, and I make sure it’s done correctly. If I don’t know enough about what it is that they did, which luckily now with the experience I’ve gained, I pretty much do… But if I didn’t understand what should be done correctly, I would bring in somebody else that I do trust (or a third-party) to inspect work, again, prior to releasing those funds for things that aren’t done or not done correctly.

Joe Fairless: That’s where you bring in your stepdad, the heavy-hitter, it sounds like…

Joe Cornwell: Yeah [unintelligible [00:18:13].10] even inspection companies to come out and inspect work, so… There’s a lot of resources, even if you don’t have that advantage.

Joe Fairless: On a related note, on my very first house that I purchased for $76,000, which is actually the same amount that you put into your first one, we got the inspection report – I didn’t know what the heck I was looking at, so I immediately emailed it to my dad and my brother in law, and then they gave me their thoughts, so… We might not have the right skillset, but we just have to be resourceful to find others who care about us and our financial well-being to help us out.

Joe Cornwell: Exactly, and especially when you’re brand new. Obviously, let’s say five years total of being involved with real estate, the amount of information I’ve learned – and I tell people this a lot – I feel like I could have gotten my PhD in real estate, because I’ve spent more time studying real estate than I ever did in college, because it’s something I’m passionate about and it means more to me honestly than college classwork did, so… I feel like you don’t have to do this for 30 years to learn a lot about this business. If you put the time and the effort in, you can learn a lot in a quick amount of time.

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

Joe Cornwell: Let’s do it!

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

Break: [[00:19:24].10] to [[00:20:06].15]

Joe Fairless: Best ever book you’ve read?

Joe Cornwell: I would definitely say — can I give more than one?

Joe Fairless: Yeah, sure.

Joe Cornwell: Well, I enjoyed both volumes of your book, those were great.

Joe Fairless: Oh, you don’t have to say that, come on… [laughs]

Joe Cornwell: They were really good, they gave me great perspective from a lot of different aspects of real estate. I enjoyed the Bigger Pockets books, I’ve read all of those, and then obviously the Kiyosaki books are really good as well. That involves a few lines of books, but those are all great things for new investors.

Joe Fairless: Best ever deal you’ve done?

Joe Cornwell: I would say this second purchase here, this six-family is gonna be the best deal. It’s already on track to do really well, and the cashflow is gonna be a huge step in my long-term goals.

Joe Fairless: What’s the business plan with that in terms of getting your money back out? If there is one.

Joe Cornwell: I’m considering, depending on where I’m at in 12 months, doing another BRRRR with this building, because obviously there’s gonna be around 40k+ there in equity that I could potentially tap into, while leaving 20%-25% into the building. But it also depends on my personal finances, obviously, if I’m able to save enough for the next good deal that I come across; I may not need access to those funds right away, so it’s really gonna be deal-dependent at that point.

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

Joe Cornwell: Aside from the contractor issue on the duplex that I already mentioned, I would say the biggest mistake I made was underestimating the renovations. What I mean by that is on the duplex I had estimated about 25k in a worst-case scenario, and I quickly learned that when you start tearing walls off and basically gutting a building, especially a 90-year-old building, there is substantial risk for other issues. I found knob-and-tube wiring, I found additional structural damage from termites, and obviously electrical and structural costs added up very quickly, which ended up being almost $15,000 over my initial budget.

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

Joe Cornwell: I really enjoy giving back to the police and fire community. One of the aspects of my business is offering as discounted real estate services as I’m allowed to, and I think that police and fire and those tight-knit communities have a hard time trusting other people; obviously, there’s a lot of reasons for that, but having a real estate professional that they can trust and is also going to give them the best financial break they can is one of the aspects of my business that I enjoy doing.

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

Joe Cornwell: I would say the best way is to email me. My current e-mail is jcornwell@sibcycline.com, and if you need any real estate services in the Cincinnati market, I’d be happy to help.

Joe Fairless: Sweet. Well, Joe, thank you for being on the show and catching up with us and talking to us about how you got started and grown from the live and flip to now eight units, and recently including that six-unit property… And then the numbers. I love getting into the details of the numbers and how you approach each transaction, and as we’re going through it, it’s clear that it’s just building and building and building, and there’s not a lot of additional out-of-pocket cash that’s coming into these deals; there’s some, but there’s not a lot, and the rewards are certainly disproportionately larger relative to the amount of additional cash that’s being put into each of these deals.

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

Joe Cornwell: I appreciate it, thank you.

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JF1221: Your Guide To Evaluating An Apartment Community Before Making An Offer #FollowAlongFriday

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Follow Along Friday is back for the New Year! Today Joe and Theo tell us mistakes they have made when evaluating deals and what they do differently now. If you’re in the market for any property, especially apartment buildings or communities, this is definitely an episode you want to listen to. If you enjoyed today’s episode remember to subscribe in iTunes and leave us a review!

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Joe Fairless: Best Ever listeners, how are you doing? Welcome to the best real estate investing advice ever show. I’m Joe Fairless, 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’re doing Follow Along Friday – it is the first Follow Along Friday of 2018. Happy new year!

Theo Hicks: Happy new year to you too, Joe!

Joe Fairless: Thank you. Let’s go ahead and get rockin’.

Theo Hicks: We’ll dive right into it. We’re gonna talk about how to evaluate a property in person before making an offer. Obviously, when you’re doing your pre-offer due diligence or underwriting on a deal, you’re gonna run your market comps, but you also want to visit the property in person before making your offer, so we’re gonna talk about you and your company approach that process.

Joe Fairless: Well, I’m gonna flip the script unexpectedly on you… How did you do that on your 12-units?

Theo Hicks: I’ll say what I did, and then while I’m telling the story, I’ll say what I would have done differently, because as most people who have been following my journey know, there’s all these mistakes that I’ve made that moving forward I would do something differently, so that I would not be paying as much in maintenance costs now.

Basically, when they came on the MLS, I went and visited them in person. I kind of just walked through very high-level and looked at the overall — not necessarily the condition from a deferred maintenance standpoint, but just I wanted to see what the kitchens and the bathrooms looked like, so I could figure out what I could… Either if I needed to update them to get higher rents, or if I’d just keep them how they were and have them rented out.

What I should have done instead of just looking at kind of the aesthetics of it, I should have looked at the big-ticket items. I should have looked at the boilers, all of them, and seeing how old they were, and if they were maintained, if I saw anything weird on them like duct tape or rust spots, because all of them were kind of Jerry-rigged and put together by the previous owner, I found out later… I would have looked at motors on the garage doors to see how those — because they’re fourplexes, so they have two garage doors in the back… So this might not apply to everyone.

One of the huge things that is still an issue to this day is plumbing. I would have at least looked at the plumbing to see what type of plumbing it was, whether it was a PVC or if was the old cast iron… Because now I know that if it’s old cast iron, it’s probably gonna need to be replaced here pretty soon. That’s something I could do before having to have a plumber come in there.

What else would I have looked at…? Right now it’s obviously freezing cold outside, so I looked at the windows to see what the condition of the windows was, because one of the things I didn’t really expect was tenants to reach out and be like, “Hey, it’s freezing in here because these windows are so old, and they’re drafty.” Obviously, it’s not due to neglect, it’s just because it’s — it was like minus five degrees outside a couple days ago here… So I would have looked at that.
I would have just looked at the big-ticket maintenance items to see what their condition was, because those are very expensive to fix. And if you don’t look at those at all and you don’t at the very least put in a couple hundred bucks a month or per unit for cap-ex long-term, you’re gonna be losing money the first couple months when you get in there and you’ve got tenants reaching out about “The pipes are clogged…” Because the plumbing is so old, their toilets are clogged. Or winter time approaches and the boilers won’t fire up.
It costs like 10k-15k to replace a boiler, or at least a couple thousand dollars to replace radiators. These are all things that I didn’t even think about at all. I just focused on, “Okay, this kitchen looks pretty good. The countertops are maybe a little older and I’m gonna put $1,000 into countertops…” So I’d say just big-ticket items is what I would have done if I was doing it now.

Joe Fairless: If you were doing it now and you were looking at the garage door, you were looking at the boiler, you were looking at the plumbing, would you with your current level of knowledge and expertise be able to know if they needed to be replaced, or would you need to bring in an expert regardless of whatever you see?

Theo Hicks: I would [unintelligible [00:06:05].02] but I would be able to tell with maybe 75% certainty whether or not something at least needs to be done… Not what level of maintenance it would need, I wouldn’t know, but I can just look — for example, I’ve spent a lot of money fixing radiators; if I would have known what to look for at the time, I would just look at this little valve, and the valve is completely rusted over, then you’ve gotta replace it. You could see it with your own eyes, I just didn’t know what to look for.
Or the garage door, for example. The garage door that I had to replace, it was very obvious that it was broken. The chain was laying on a pipe, the [unintelligible [00:06:39].00] was bent… So basically now I wouldn’t necessarily have to have an expert, because whenever the boiler people came in, the garage door people came in, the plumbing people came in, I was with them and asking them a million questions, like “What do I have to look for? What do I do to maintain these things at the end of the year, and after winter what do I do to with the boilers? Do I have to bleed all the valves again? Do I have to evacuate the entire system? What do I have to do?”

That was very helpful, and I think I’d be able to at least tell, “Okay, these boilers are fine” or “Okay, we’re gonna do something to these radiators or these pipes.” Then I would bring in an expert after I put the property under contract to kind of go into more details.

Joe Fairless: Okay, that makes sense, and certainly you learned throughout the process… You actually learned a lot by not doing it the right way initially, because now you know what to look for on your future properties and you don’t necessarily have to be accompanied with an expert.

When we look at properties prior to putting it under contract, I don’t have the expertise of identifying all of the things that you mentioned. It’s not part of my skillset, or at least I don’t excel in that area. So we always have a property management partner with us, who tours it with us, so that he/she can identify any of those big-ticket items.

So let’s take a step back though… When we go to an apartment community prior to having put in an offer, or at least prior to that offer being accepted, then we look for things and we seek things out that we can’t find on Google or through the financials. So it’s a matter of some sort of intangible information, or what additional on-the-ground information can we acquire to complete the picture… Because we’ve got a picture already drawn up, but it’s incomplete because we haven’t visited the property and there might be some color or some other things we need to fill in.

When we visit the property, we first want to look for those big-ticket items, and because that’s my primary skillset – or even my secondary skillset, quite frankly; my dad is great at that, but that gene didn’t get in me – the property management partner will tour it with us and identify the big-ticket items, if they need to be replaced.

Now, usually if it’s an on-market deal, the information is fairly accurate from the broker, but you just can’t count on it. If it’s an off-market deal, then all bets are off; go in thinking you need to replace everything and be pleasantly surprised if that’s not the case when you go do the tour.

So one is the big-ticket items that you mentioned. Then two is you ideally have a tour with the property manager, and when you speak to the property manager, you’re asking questions not that you have seen on the rent roll, like not “What’s your occupancy over the last 30 days?”; that’s on the rent roll. I mean, you can ask it, but it’s not that good of a question. A good question would be “Tell me about your competition and what type of feedback are you getting from people who don’t rent from you and they end up renting at the competition? Who is the competition?” Because eventually, you’re gonna go visit that competition.

Also, the people who do rent, what are some of the reasons why they rent? Where do they work? What unit sizes are most appealing to them? What amenities, or when you show the apartment, what’s the wow factor, if there is one? What would you do different if you had a budget that was unlimited in order to attract more high-quality residents? You’ll get this feedback from the person — and you also should ask him/her how long they’ve worked at the property, because that will give you a frame of reference for their frame of reference.

Once you ask those questions, you’ll get a better idea of who’s living there, what are they looking for, where do they work, and what the competition is doing to attract them, and what you’re currently doing to attract them.

Then you start getting the lay of the land for the on-the-ground stuff. Once you do that, then you want to visit the surrounding area. It depends on your market, but we go five, seven miles out and just visit the surrounding area around the property. The property is a dot in the middle of the circle, and then go seven-mile radius around it, and just see what’s going on. Specifically, look for the closest Walmart. And again, it depends on your market. North-East people are like “Walmart? We don’t want Walmart!”

When you look for the closest Walmart or Starbucks or Chipotle, you want to look for when it was built, because that also gives you a sense of path of progress. If it’s a relatively new Chipotle or McDonald’s, then you have a sense that the smart people in Fortune 500 companies have identified this area as a path of progress and growth, and they plunked down a Starbucks or whatever right there, and maybe there’s something to it. Certainly, it’s not the end-all-be-all, but it’s definitely an indicator of some sort of potential growth, because they’ve got access to a lot more research than we do.

Theo Hicks: I think you interviewed someone on your podcast before who was [unintelligible [00:12:14].10] Starbucks strategy; one of his strategies was “I look where the new Starbucks are going and then I invest in that area because of it being a path of progress; they must know something I don’t know.”

Joe Fairless: Yeah, absolutely. And when you’re touring the property, you also want to talk to the residents. The questions you ask are “What do you like about living here?” That’s assuming they do like living here… “How do you like living here?” That’s the better question, “How do you like living here?”, and they’ll tell you, they’ll say straight up: “I hate it. Blah-blah-blah, maintenance”, or “Theo’s got these really thin windows and it makes it really cold”, or whatever it is… And you’ll get a sense of the vibe, at least for this resident. And maybe ask a couple residents whenever you’re there. That’s the type of intel you can’t get, or it’s very hard to get if you’re not there.

The last thing you’ll want to do when you visit your potential purchase is you want to visit the comps. Actually, there’s two things – you wanna visit the comps and you want to see what they’re charging in rent. You already know what they’re charging, because you’ve done your due diligence prior to arriving and you know the rents; you’re going to the properties to verify that they are charging these rents, and you get to see first-hand why they’re charging them, what type of amenities does the property have, what’s in the units, are they renovated units? What type of renovations? What level of amenities do they have? Is it clean? Is it next to an area that doesn’t look very safe? Those sorts of things.

The last thing that you want to do is you want to tour your potential property as though you’re a resident, and you want to walk in the area, which will be usually the leasing center, as though you’re a resident and you’ve gotta see things. This is what I first experience — and again, you’re probably gonna update this stuff, but just get a sense of the community as it is. There are some things that even if you update it, they’re not gonna move… For example, if it’s an apartment community and there’s a big leasing center right upfront, you’re most likely not gonna knock that down and build another leasing center somewhere else. So if there’s pros or cons about that leasing center being right there upfront, then make note of that. Or if the leasing center is in the back or maybe it’s right next to the highway, when it could be in the back, or it couldn’t be, and it’s stuck there, then those are all things to take note of. You don’t want it next to the highway, to be really loud, and it’s not very peaceful… Although there are advantages to that, too. So you just have to look at it from a case-by-case scenario.

But then when you go to tour the units, then when you go in the unit, you need to know what type of resident is going to be attracted to this unit, and is this the resident that you’re seeking to attract once you do renovations? Or if you’re not doing renovations, is this going to attract your ideal resident?

Some things I always looked for – one is the closet. That’s huge, because with some of our properties, our residents choose to spend their money on cars and clothes and other items, and they have a whole lot of stuff. And having a large, walk-in closet is a big amenity, and that’s tough to change. If you buy the property and it’s got really small closets, it’s gonna be a hard change to make. So if it already has these nice built-in closets, then that’s great.

Another is just the overall flow of the apartment and what do you see first. How many bathrooms are there? Are they convenient to the bathroom? Is it an open layout? Is it closed off and boxy? That sort of thing.

You’ll find that these newer apartments that are being built in the last two-three years, they are smaller square-footage-wise generally speaking, but they feel more open because the architects and the developers have identified, “We can do smaller apartments as long as you can make them feel more open”, and it’s more cost-effective for them to do it. So if you’re looking at a 1980’s, 1970’s apartment or older, look at how boxy and closed in it feels, or how open it feels, because it’s really about the feeling that the potential resident has when they visit the property and they can see themselves and their family living there.

So those are all the things you do when you visit a property, and we have a document that summarizes all of this stuff, and then some, and it lists out the specific questions that you should ask the different people. And if you e-mail info@JoeFairless.com, Samantha will send you the document so that you have this when you tour a property to purchase.

Theo Hicks: A couple follow-up questions… On the first step, when you’re obviously looking at the big-ticket items and you’re touring the property with you actual property management company, I’m assuming it’d be different if we’re looking at a large apartment community versus a duplex or a fourplex. From my understanding, usually for those larger apartment communities there’s like an offer period, so you have time to schedule, like “Hey, property management company, can you come in this day or this day or this day, at this time, to come to the property with me”, whereas if you’re investing in a smaller deal that just came on the market and it’s like a quick rush, and you’re [unintelligible [00:17:48].10] the next day to see it, and your property manager can’t come out there… It’d be a little bit different.

What I’m saying is it might make sense for someone who’s investing in smaller units to be better, at least, again, being able to identify if something needs to be done to these big-ticket items. Not necessarily what needs to be done, but if something needs to be done, so you can make that decision, “Okay, I might need to replace the roof” or “I might need to replace the boiler, so I’m gonna take that into account when I’m formulating my offer”, just because I’d be afraid that I’d miss out on deals if I had to schedule a plumber and a contractor and an HVAC guy to come in and look at everything, and I’ve gotta schedule that with the owner, and him having to give the tenant the schedule, so that they’re home when we come to see the property, so they approve this… That could just take too long.

I know for these 12 units that I bought, it was just so quick. It was like they were posted, I saw them the next day, we put in an offer that day without having to bring anyone in. So I can just imagine it being slightly different for the smaller units on that first step.

Joe Fairless: I don’t disagree with you, because I would never say it’s not beneficial to have an additional skillset, because that’s what you’re saying… But let me put an asterisk on this – there’s another way to do what you were seeking to accomplish without acquiring that additional skillset. Because I know myself and what I’m good at, and I’m just not a mechanical person; that’s just not in my nature. Instead, I’m really good at building relationships with people, and I enjoy it; I enjoy the heck out of it. So instead, what I would do if I were buying a two-unit, a four-unit, a twelve-unit, is I would become friends with a local inspector in town. I’d buy him/her coffee, or — I don’t drink coffee, but maybe lunch, or something, and we’d just be pals. And I would tell him/her “Hey, if I come across a deal and I need to check it out, this isn’t my skillset; would you be okay coming to the property with me?” They would say yes or no. If they say yes, then great, they’d come.

If I am terrible with people and I don’t have a mechanical skillset, then I would simply reach out to some property inspectors and I would say, “Hey, I’ll pay $100 for an hour of your time if when I have a property you come meet me and we just look at it together and you just tell me high-level thoughts, nothing official.” I would approach it that way.

That way, instead of me trying to acquire a skillset that I know I have no foundation for inherently, I would bring another expert and then team up with me and just give me their thoughts.

Theo Hicks: That’s great advice. I’ll just say that too, because now once I’ve gone through this process, I have a plumber I could call, or HVAC guy I could call. So the only time you really run into issues is if it’s your first deal and you haven’t been doing any type of teambuilding beforehand. So that’s why you should build a team beforehand, right?

Joe Fairless: Yup.

Theo Hicks: Perfect. So again, the document that this conversation is based off of, you can get that if you e-mail info@joefairless.com. Alright, so let’s move on to any updates or observations… I know you said you’ve got a couple of observations from the holiday season…

Joe Fairless: Just a couple. One is Colleen and I were at a restaurant… We always sit in the bar area because we like the action in the bar, versus sitting at a table, secluded. So we’re sitting at the bar area, and Colleen is a raging alcoholic — no, I’m kidding; we’re sitting at the bar area, and we’d never been to this restaurant before… Not Cabela, but…

Theo Hicks: [unintelligible [00:21:19].14]

Joe Fairless: I think that’s an outdoor company.

Theo Hicks: Yeah…

Joe Fairless: Anyway, some restaurant that starts with C, and there is clearly a regular who comes in, because everyone’s welcoming this guy. “Oh hey, you want your usual…?” “Sure.” Well, he sits down — and this is before Christmas. The regular comes in, sits down, and the bartender, who clearly has been there a while, because she knows everyone, she hands this regular a gift… And he’s like, “No, no, you shouldn’t have! You shouldn’t have! What are you doing? No, no, no, you shouldn’t have…!” and she’s like, “No, I wanted to get you something for the holidays.” I thought that was so smart – it ended up being just a plastic big candy cane with Skittles in it. That’s it. I think there’s a card too, but a plastic candy cane with Skittles. Probably the overall cost was $7, at most… I’m being really aggressive there on the price. Well, do you think she got more than a $7 tip for that?

Theo Hicks: Yeah.

Joe Fairless: I do, too. And it is the law of reciprocity. She was so smart — I don’t know if she consciously thought through this, but as soon as I saw that, I was like, “You’re on point, girl! That is so smart.” She proactively gave him something, and I can almost guarantee that she got her ROI and then some, not only that day, but in the future, too.

So it was just something smart that I saw a bartender do to a regular. It’s something that we can all implement in our business. Even if we’re not bartenders, we can implement the give-give-give-give-give, and in some cases – in most cases, hopefully – you’re not expecting to receive, you’re not expective a cause and effect relationship there, but the reality is you will receive. Maybe it’s not from that instance of giving, maybe it’s just from the Universe or whatever, but I guarantee you’re gonna get a lot more in return.

Then the second thing – and this is just a quick thing… I was watching the ball games, and Northwestern beat some school, I forget the school. On the half-time interview, the head coach for Northwestern was interviewed, and one of his players got kicked out of the game because of a targeting call; his defensive player allegedly hit the defenseless receiver in the head, and got kicked out of the game. Well, it was clear that he shouldn’t have been kicked out of the game, so the sideline reporter asked this coach – his name is Patt Fitzgerald – about it, and he didn’t even address whether or not the person should have been kicked out, he just said “Next man up!”

I loved his approach, because it’s something that a winner does. A winner doesn’t focus on if that person should or shouldn’t have been kicked out, a winner doesn’t focus on what may or may not have happened. It already happened, so now what do we do about it? I just loved his quick comment, because a lot of the times when head coaches for football teams are interviewed about something like that, they focus on that in particular, and they’re like “Oh, I don’t know…”, or they might say, “Well, we’ve got another person, and hopefully they’re ready to be ready.” Patt Fitzgerald said “Next man up!”, and I know that’s the approach that we need to take as real estate investors when stuff happens to us. Okay, yeah, the boiler went out, or a resident is calling about the windows – okay, now what do I do? What’s next? Versus sulking about “Well, I should have looked at this during the inspection process.”
I’ve talked about this just playing softball, my softball team, where someone drops to fly ball, then they’re pissed of about it for three innings – well, that’s just dumb. Just get over it immediately, and then don’t let that carry into other stuff. It’s pretty easy to tell basically someone’s success level as a professional – and perhaps personal, too – if they immediately move on and focus on how can that be empowering, and move forward, and “That’s the reality of what happened, so whatever, move on!” versus sulking about it, getting pissed off, and letting that affect other areas of your life, or in this particular case, the game.

Theo Hicks: That was the theme of that interview you did with Jay Williams… It’s exactly what he was talking about, how he had that car accident. I’m sure there was a time period where he was very upset about that – and obviously you would be – but then he was able to kind of reframe it as something to empower him to move past it and use that experience to become a motivational speaker, write his book, be a college basketball analyst, and things like that.

Joe Fairless: Yeah, he was playing for Chicago Bulls, and got in the accident, and then no more Chicago Bulls. That’s huge, but just keep on moving.

Theo Hicks: And also I liked the anecdote about the bartender with the gift. In real estate you’re always working with someone, whether it’s an agent, or a contractor, whatever, so there’s opportunities to do that. It’s very inexpensive, but you’re gonna be at the top of that person’s mind.

Joe Fairless: It feels good to do it. It feels really good to give, too. What have you got going on?

Theo Hicks: Well, I am closing on my house in Tampa in a week from today, and then we’ll be moving two days after that, so next Saturday… So we’re kind of just trying to figure out things here, like packing and all that fun stuff.

We did find a renter for our house, signed a lease, we got a security deposit, so that’s exciting.

Joe Fairless: That’s outstanding.

Theo Hicks: That’s gonna be paying the mortgage on the house, so now I officially have 13 rental doors, so that’s fun. Then, as I’ve mentioned before, I’ve put those 12 units under management, and I was kind of explaining to you beforehand how much better it feels to not be the person that’s actually managing the property. In my opinion, as a tactician, like actually on the ground, doing the tactical work, you can’t focus as much on strategy. And I didn’t even really know it at the time; I was just always playing catch-up, and always trying to fix this maintenance problem, or collect rent from this person…

When you’re not doing those tasks, you can focus on, “Alright, so what’s the longer-term play here?” For example, some leases that are ending… Before, I was kind of like just “Hey, are you gonna resign or are you gonna leave?”, because I was so focused on those things. But now instead of just asking them that, I can say “Okay, we’ve got two options. You can raise your rent to this [unintelligible [00:27:20].00] and move out”, because April, May, June is coming up here pretty soon, so if they do move out, that’s the best time to have someone move out, because that’s when most people are looking for renters.

I had a really good strategy call with my property. We were kind of just brainstorming how to approach signing the leases, because everyone is still on the old leases from the old owner, and a couple of ideas that we had that I thought were just kind of interesting that I wanted to share was there’s 12 units, six are one-bed and six are two-beds, and we’re trying to figure out if we’re gonna do all new leases right away. If we do that, they’re all gonna end at the exact same time, so we’ve got 12 people… Let’s say half of them wanna move out at the exact same time – that’s not gonna be good. So what if we stagger them, so we just talk to these four people this month, and then the next month we’ll talk to these four people, and then the next month we’ll talk to these four people.

Actually, what if we did all the one-bedroom units at the same time and all the two-bedroom units at the same time, or do half the one-bedroom units one month, and half the next month… Because if you’re gonna have vacancies, at least from my perspective, I almost think that you wanna have the same type of unit vacant, because if you’ve got a one-bedroom unit that’s vacant, and you’ve got it listed and you need to choose from four people who we wanted to pick for our one unit, well now we’ve got to choose from four people for two units, so we’ve already got the built-in people that are wanting a one-bedroom unit, whereas if we’ve got a one-bedroom and a two-bedroom, it’s like “Oh, I really want that one-bed. The two-bed is too big”, and now we’ve gotta find someone else for that two-bedroom.

So this is an idea that I had, and we’re gonna try that and see what happens. I wanted to bring that up to see what your thoughts were on that.

Joe Fairless: I would think the opposite, I don’t know… Because I haven’t owned a 12-unit and gone through this process.

Theo Hicks: Neither have I. [laughter]

Joe Fairless: I would think that it would be good to have a couple different options. I just know we’ll have two-bedrooms and one-bedrooms, and one-bedrooms tend to go quicker, for whatever reason, at most of our properties. If I had kept it even, then I could always plug in someone for a one, versus trying to always put people in two’s. And you might feel more inclined, if you don’t have any one-bedrooms but you have two’s, you might feel more inclined to lower the rent on the two-bedroom just to fill it with someone who wanted a one but you didn’t have a one. I don’t know, test it out… Not my money. [laughter]

Theo Hicks: Yeah… I’m very curious to see how it goes. At the time we were talking about, I was like — I just remembered when we had so many people that wanted the one-bedroom unit, and we had turned so many people away at the end that were qualified to live there. It’s just — this person right here was the best candidate, so it’ll be better to just be like, “Oh, you know, we’ve got another one-bedroom…” Because we were telling them that, that we might have another one-bedroom open up, because at the time we planned on potentially having another vacancy occur, but it just didn’t happen. So yeah, we’ll see what happens.

I guess overall, I enjoy this strategy, strategizing, and then kind of having the property manager go in and implement and then come back and tell me, “Hey, this didn’t work” or “Hey, this is going great.” And since the property manager is still small, I get to talk to him directly and we get to kind of figure it out together, which is fun. It’s kind of fun to do that, because we both don’t really know what we’re doing, so we’re just figuring it out together.

I think besides that, I was thinking of what my real estate goals were gonna be for this year. I plan on getting more details on it, but I wanna double our portfolio this year. We had 12 units last year, and we wanna get to 24 by the end of this year.

Joe Fairless: Outstanding.

Theo Hicks: I’m gonna dive in to see how many direct mailers I have to send out or how many deals I need to look at, how much money we have to bring in to do that, and figure out exactly the tactics I need to do to get there… But I think if I can just keep doubling my portfolio every year…

Joe Fairless: Cash-out refi’s… Once you start building equity in these first 12 units, then start doing cash-out refi’s and that will help you with the doubling process.

Theo Hicks: Exactly. I know that they are four units, so us raising the rents wouldn’t have a direct relationship to the value, but I know it does affect it slightly, and when I’m strategizing with the property management company, we’re gonna be raising the rents here pretty soon, so I think that’ll also have some effect on the value of the property, just because the area and the properties in it are doing really well right now.

So hopefully in a year or two we can cash-out refi on these ones probably even more… That’s more of like a couple years down the road to do, but it’s still a really good strategy. I’m looking forward to talking about that when I get there. [unintelligible [00:31:28].23] we’re progressing our way through that.

Joe Fairless: There you go.

Theo Hicks: So that’s what I’ve got for updates.

Joe Fairless: Sweet.

Theo Hicks: Miscellaneous stuff – we’ve got the Best Ever Conference coming up real soon…

Joe Fairless: Yes, in about a month. You can go to BestEverConference.com, there are all the speakers there, and there’s also a Bigger Pockets meetup. This isn’t connected — we’re not connected to Bigger Pockets in any way, but there happened to be a meetup at the Bigger Pockets headquarters on Thursday, 8th February. If 8th is a Thursday, then that’s the day, but it’s the weekend of the 9th, 10th, so I think it’s Thursday. Anyway, Thursday at the Bigger Pockets headquarters there’s a local Denver meetup, which will be really cool, and then we’ve got the conference, Friday and Saturday.

We’ve got happy hour on Friday night. Everyone’s gonna hang out who attends the conference; that will be a lot of fun. Then Saturday we’ve a good docket of speakers. More so than last year, this conference will be more networking and getting to know each other more, more like small group sessions, although there are a lot of speakers and presentations also.

Theo Hicks: [unintelligible [00:32:38].00] attending yesterday, with the speaker agenda, is that right?

Joe Fairless: Yeah. And it’s available at BestEverConference.com, the speakers and the flow of the thing.

Theo Hicks: Exactly. Also, if you might be watching live from the Best Ever Show Community right now, but make sure you go to Facebook to check that out and join the Best Ever Community.

Joe Fairless: And one benefit of that is we get a lot of questions to us, or either sent to me via e-mail, or Bigger Pockets messaging, or comments underneath this video if you’re watching this via Facebook Live, and we’re not able to get to all of those questions, so what we’re doing is we’re also posting those questions to the Best Ever Facebook Community.

Today we posted the questions, some asset management questions that someone had, and — Grant, some attorney answered them?

Grant: Yes. A multifamily syndication attorney.

Joe Fairless: A multifamily syndication attorney who is a member of the Best Ever Community answered these questions. So with all of our communities, it’s a higher-level group of investors that you’ll be a part of, and as a listener you’re obviously in that category, because that’s what I’ve found – the people who listen to this show and engage tend to be more experienced investors… So go to the Best Ever Community on Facebook and become a member, and we’re looking forward to helping add value to your life that way, too.

Theo Hicks: And to wrap things up, make sure you subscribe to the podcast on iTunes, and also subscribe to the YouTube channel for these videos, and leave a review for your opportunity to be the review of the week.

This week we’ve got Dana Dunford. The subject line was “It’s called ‘the Best’ for a reason.” She said:

“This Cincinnati guy knows his stuff. His portfolio of acquisitions is impressive and he has an unbelievable number of impressive guests on his show, from Barbara Corcoran to Robert Kiyosaki. It shows the caliber of Joe – the Best Ever.”

Joe Fairless: Thank you, Dana. Much appreciated. I actually met Dana through the podcast, because she will be a guest on the show. I’ve already interviewed her, and her episode has not aired yet. She proactively left this review, and it was so nice of her… So thank you, Dana, and much appreciated.

Best Ever listeners, if you leave a review on iTunes, then that will help us attract more high-quality guests, which will help the overall content of this show and help you be more successful, so please do so. Thanks for listening, and we’ll talk to you tomorrow.

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JF1210: Wholesaling With Integrity – The Key To Starting Out Strong with Garth Kukla

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Merry Christmas! Today we hear from a wholesaler who takes a different approach to how he deals with all potential sellers and buyers. He was in sales for 20 years, eventually leaving his full time job to pursue wholesaling full time. Now about a year into wholesaling, Garth has been averaging 2-3 deals per month. Surprisingly, he says that his real estate knowledge is not the biggest factor to his early success. Tune in to hear why Garth says that operating with integrity is the single most important thing a new wholesaler can do in order to succeed. If you enjoyed today’s episode remember to subscribe in iTunes and leave us a review!


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Garth Kukla Real Estate Background:

Founder of Tri-State Discount Real Estate and full time wholesaler

– Over 8+ years of real estate experience to create a real estate investment company

– Finds off-market real estate and sells deals to investors who flip or rent the property

– Has a 20-year sales background and been in real estate since 2008 as a landlord and part time flipper

– Based in Newport, Kentucky

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

– Best Ever Book: Rich Dad, Poor Dad


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

With us today, Garth Kukla. How are you doing, Garth?

Garth Kukla: I’m doing fantastic, thanks Joe.

Joe Fairless: Well, I’m doing well and I’m glad you’re doing fantastic. A little bit about Garth – he is the founder of Tri-State Discount Real Estate and he’s a full-time wholesaler. He’s been doing wholesaling full-time since July of 2016, and he is averaging about 2-3 deals a month; prior to that he was doing real estate.

He is based in Newport, Kentucky, which is just a stone’s throw away from Cincinnati, Ohio. His focus is finding off-market real estate deals, and he sells them to investors who either flip or rent the property, i.e. wholesaling. With that being said, Garth, do you wanna give the Best Ever listeners a little bit more about your background and your current focus?

Garth Kukla: Yeah, thanks, Joe. Well, my background – I’ve been in sales for about 20 years. I started as a copier sales rep in 1997. I’ve been in regional management, and just prior to starting my investment company I led a national sales team in healthcare. But like you said, I’ve also been a landlord and a part-time flipper since 2008, I flipped a couple houses, and I really think that combined experience of selling and real estate has allowed me to create the company that I have today.

As far as my focus, number one is finding deals for my investors, because it seems like I never have enough deals for my investors, but I’m also constantly looking for cash buyers, investor partners to work with. And lastly, I’m growing my team – currently, I have four people including me – because my ultimate goal is to become one of the largest real estate wholesalers in Northern Kentucky and Greater Cincinnati in the next couple years.

Joe Fairless: What would you say has brought you from zero deals to 2-3 a month?

Garth Kukla: Great question. I think a lot of it has to do with the fact that I act with integrity, I know my numbers, and I’m very creative when it comes to acquiring deals and selling those deals. Sadly, if you look at local investment groups – I’m a part of a couple of them – there’s a lot of flippers and landlords that will have one bad story to tell about  a wholesaler; for me, I always strive to be straightforward with everyone I deal with, I try to be accurate with my information, and I’m 100% transparent with what I do. I think that’s allowed me to do what I’ve done.

Joe Fairless: It’s one thing to have the intention to give accurate information, it’s another for that information to be actually accurate… So on the “know your numbers” part, what’s your approach for identifying the accurate numbers to then share with who you’re selling it to?

Garth Kukla: That’s a great question. At the beginning, when I started and I didn’t know as much as I know now – and I’ll preface that by saying I still learn every day, so I don’t feel like I know everything now – I would lean on other investors, I’ve built relationships with realtors, so I would speak to them. I’ve got a great relationship with one realtor in particular who they focus primarily on investing in real estate. So when I don’t know the numbers, I would check with them as far as values, locations… I’d even have them come with me to inspect the property to make sure that I’m looking at a proper property, that is both sellable – meaning that it’s in a proper location – but that its condition and everything is appropriate for me to move it to an investor and for them to make a profit. But since then I’ve done enough deals in multiple locations, where — I live in Newport, so I know Newport; I’ve just moved a deal literally a couple days ago. I knew the values, because I live here.

I’ve done multiple deals in other cities, and then I know those values as well as far as, again, what streets to be on, what houses, what condition, and then also what price. Price is obviously a big, important part of this business, and if the price isn’t right, then the deal is not right. So I have to make sure that’s all appropriate, while also allowing me to make a profit because I am a company.

Joe Fairless: And what type of profit do you try to make on each deal?

Garth Kukla: Right now this year I’ve been averaging about 7k/deal, but that number is growing. I’ve been able to deliver properties to investors where their upside is tremendous and I’m still able to make a good profit as well. It doesn’t necessarily mean that any one deal I make a specific profit. Sometimes it’s thinner, sometimes it’s a little better. The last deal I just spoke of, I was able to make 15k, but the investor is gonna actually live in the property, and he is inheriting 40k or 50k in equity, in almost a moving condition house. So it allows me to make a good profit while delivering good numbers for the investors, so they come back and buy more from me.

Joe Fairless: And when you mention profit per deal, does that factor in marketing expenses and any other overhead?

Garth Kukla: At the beginning it was difficult for me to explain to an investor why a wholesaler should make 5k or 10k on a deal; when they’re usually in and out, they don’t really do per se anything to the deal. My marketing, my expenses, my payroll run about $6,000/month; these deals are harder to find nowadays, so between my team, my marketing, SEO on my websites and everything, it gets expensive. So that number is before expenses.

Joe Fairless: As far as SEO – you’ve just mentioned it – who does that for you?

Garth Kukla: InvestorCarrot, and they’re tremendous.

Joe Fairless: Got it. Alright, so you’ve got SEO from a marketing standpoint; do you do anything else to get inbound leads?

Garth Kukla: Yeah, my main thing has been direct mail. I use YellowLetters.com, marketing to motivated sellers who have at least 30% equity and at least own the property for four years. I get lists from ListSource – that has been the primary way. But that has kind of shifted a little bit. Actually, one of your podcasts — I am a Skip Genie customer now, so I’m starting to skip-trace properties. I’m also doing a tremendous amount of networking; I host a group in Northern Kentucky, I attend your group in Ohio, so a lot of networking allows me to get deals as well, and I also work with newer wholesalers and help them, and they’ll bring me deals and I’ll help them. So there’s multiple ways to find deals, and you have to use that because one avenue will not give you enough deals to keep your business afloat.

Joe Fairless: And for the Best Ever listeners who are curious about the skip-tracing conversation, episode 1065, titled “How To Track Down Vacant Property Owners”, with Larry Higgins… Okay, so out of all those, which one provides you with the best ROI?

Garth Kukla: For me the best ROI?

Joe Fairless: Yeah, all those different – SEO, direct mail, and then Skip Genie.

Garth Kukla: Well, Skip Genie I’ve just started, but I’m excited about it; I think it’s gonna be tremendous. I also have somebody that just does phone calls for me, so I think that avenue I haven’t fully exploited yet.

I think that so far the deal that has been the best for me was found via direct mail, but I’ve also done some deals where people just call me up and know – because I’ve built a reputation of being able to move deals, I actually have a couple buyers who have called me up and decided to not do the deal, and they wanted to sell it just quickly, and they call me up and I’m able to move the deal quickly; that’s what happened with this last deal, and I was able to make 15k. But my best deal ever was through direct mail.

Joe Fairless: Okay. Going from 2-3 deals from wanting to be the largest wholesaler in – I think you said the Northern Kentucky area, right?

Garth Kukla: Northern Kentucky and eventually in Greater Cincinnati. But right now in Northern Kentucky.

Joe Fairless: Okay. How do you know how to go from where you’re at to where you wanna be, in terms of how do you actually get there?

Garth Kukla: It’s really about capacity. What I mean by that is when I first started, I started part-time while I was still working on corporate America before I left my last position; I did a couple of deals, and then I had a Filipino virtual assistant. She eventually went full-time with me in October of last year, and soon after that, my business grew to the point where I couldn’t manage everything myself. I couldn’t do all the marketing myself, I couldn’t answer all the e-mails, I couldn’t go to see the houses myself, and that’s where building the team comes in, and I think that’s where my sales background of managing  a team has really been helpful.

So for me to become the largest in Northern Kentucky and one of the largest in Greater Cincinnati would require a team of an acquisition manager, a transactional coordinator, a couple more virtual assistants helping me with phone calls and helping me with navigating making the phone calls necessary via Skip Genie. Right now I’m having my virtual assistant who’s making phone calls for me basically set up phone appointments for me, which allows me to just focus on getting deals and getting more cash fires. So to be able to grow that, it’s gonna basically require more people. Again, getting back to the capacity…

Joe Fairless: Any tips for the Best Ever listeners who are looking to hire a virtual assistant?

Garth Kukla: Yeah, I use UpWork, and I’ve done well with them. My first assistant is still with me. It took a little time to find my second one. Have a good job description, have a good interview process. Our interview process now is my first virtual assistant does the first interviews, another team member does the second interview and I do the third, and if all three of us love the person, then that person joins our team. That just happened the last week. But then also just understanding — I like Filipino virtual assistants because they speak really well, English is their second language; understanding good English is important, especially when most of the motivated sellers I speak to are older, and maybe they don’t have the best hearing, so you have to be very clear in what you say. But just having a good interview process and having some good questions, but also having clarity in what you’re trying to achieve, and also stability as far as there’s a lot of people that start this business thinking it’s relatively easy, so you wanna be able to show the people you hire, “Hey, I’m gonna be here tomorrow, I’m gonna be here next year, I plan on being here five years from now.” That will allow you to hire some really talented people at a tremendous value.

Joe Fairless: The process that you mentioned, it intrigues me. When you do the interviews you first have your first virtual assistant interview, then another team member, and then you… What questions do you ask that they haven’t asked?

Garth Kukla: I like to ask questions like big picture questions – where do you see yourself in one year, three years, five years? What motivates you? What makes you different from other people that we’ve spoken to? But also, I’m a big proponent of building a team, so one of the questions I asked is “What did you think of the process so far?” and “Did you like the questions and the people you spoke with?”

Lastly, I think preparation – how prepared are they? When I was a salesperson, everytime I interviewed I would over-prepare, just to show the person I was talking to that I wanted this position really badly, and I’d like to see that. So I wanna make sure that when they get on the phone with me, that they’ve spent some time preparing, looking at our websites, understanding our business, understanding the role, and then how they could add to the team. Does that answer your question?

Joe Fairless: Yeah. You’ve got a 20-year sales background prior to doing this full-time… What aspects of that background do you apply to closing more deals as a wholesaler?

Garth Kukla: Great question. First, honestly, negotiating the deal on the front end, but that’s also where the integrity comes into play. When I’m speaking to, let’s say, a 65-70 year old woman, obviously I have better negotiating skills than they may have, but making sure I can find a deal but then acting with integrity is — if the situation isn’t best for me to do a deal with them, I’ll literally tell them that.

For example, if somebody has a house that’s in great shape, and they’ve got six months to sell, I will tell them I am not their best option. I come into play when, generally speaking, the house is in rough shape, a lot of deferred maintenance hasn’t been done, and/or if they just need to sell quickly and/or if they just don’t want people going through their house [unintelligible [00:15:15].12] But if they’re okay with that and if they have time, I’ll literally tell them. That’s where I feel like I act with integrity, because that’s where I treat everybody like I want them to be treating me or treating my mother, if you will.

Sometimes I actually talk people out of doing deals with me, because it’s not in their best interest. But that action has also garnered a lot of my reputation to this point, of being somebody that’s straight with people, both from a buyer’s standpoint, as well as a seller’s standpoint. I think that’s what has allowed me to grow the company as far as it has been to this point.

Joe Fairless: I’m gonna preface by saying I totally get that the acting with integrity part isn’t to get more deals done, it’s just to be able to look at yourself in the mirror and be proud of who you are, so I get that, but now I’m gonna ask a question that I can ask because I just said that… The question is have you noticed when you, for example, talk someone, you mention points that turn the deal away from you, but it adds to your credibility in the market amongst the community, have you noticed a specific cause and effect with one of those times where it then lead to a closed transaction?

Garth Kukla: Yes. If I’m speaking to somebody and they’ve got six months to sell, and their house is in good shape, and they’re okay with the realtor, I will ask the question “Do you have a relationship with the realtor?” and if they say no, I’ll say “Since I invest in real estate every day, I have built some relationships with some very honest, trustworthy realtors. May I have one of them call you?” and I’ve literally had four different transactions where a realtor was able to list the property and sell the property for them. One of those realtors has actually taken a deal where it didn’t fit them back to me, if that makes sense. And I was able to move it quickly for them because the situation was they didn’t wanna list it, they had to sell quickly, and that realtor who I gave them a couple listings gave me back a deal as well, and to this day we’re friends, we’re gonna be having lunch next week just to continue our relationship. So that’s how that’s worked in the past.

Joe Fairless: And do you get any referral fee on those four other ones that they closed?

Garth Kukla: I do, typically, because I’ve worked out a deal with them; obviously, I’m spending thousands and thousands of dollars on marketing, so they’ll give me a small marketing fee back, which usually works out to be a couple hundred dollars. It’s nothing that I would call anything that adds to my bottom line, but it helps me defer my costs of finding that lead. Typically, I’m spending around $3,000/month in direct mail marketing, so if I find a deal from that and I transfer it to somebody, I do try to recoup or monetize a little bit to offset some of those costs.

Joe Fairless: If you’re making $7,000 a closing and you’re spending $3,000 in marketing, and assuming some of your other overhead costs aren’t extraordinary, then you’re making a good profit margin per deal.

Garth Kukla: Yeah. I’m really proud of this – from July to December of last year I was able to make a profit after expenses and after taxes of 25k, in just that short amount of time. It wasn’t a tremendous amount of money, but I was able to basically kind of replace my base salary from my company that I left.

This year obviously I’m looking to exponentially grow that, because I’m not just looking for a job, I’m looking for a company, I’m starting to build a relationship in the real estate world, where realtors have heard of me, flippers know who I am, that I deliver good deals, that I’m one of those people that just gives as accurate of information that I can possibly give.

But there’s a funny thing where sometimes people don’t like to admit they’re wholesalers to people. I had somebody that I did a deal with last year, a seller who read my contract, he wanted to review my contract for a couple days, and after we were sitting down, he actually asked me “Are you a wholesaler?” and I said “Yes, I am.” Then he says “Are you gonna wholesale my house?” and I said “Yes, I probably will. But we agreed on the price and you’re happy with the price, so let’s just do this deal.”

That’s where my selling experience comes into play, where I’m able to overcome that objection and then just close the deal, while being honest with the seller. And I say that because I’ve been called before by wholesalers who are going after one of my deals and I ask them “Are you a wholesaler?” and they say “No, I’m an investor”, when they’re actually a wholesaler.

So just always be straight with people, though your perception might be that might cause you to grow your company a little slower. If you build your reputation on integrity and just being straight with people, in the long run that will benefit you down the road. That’s what I do every day.

Joe Fairless: I 100% agree. Based on your experience, what is your best real estate investing advice ever?

Garth Kukla: Great question. Always be straight with everyone you deal with, have an abundance mindset, and make sure that you have your monthly and annual goals written out, and work every day towards those goals.

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

Garth Kukla: Ready.

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

Break: [[00:20:31].18] to [[00:21:29].06]

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

Garth Kukla: Best ever book I read – Rich Dad, Poor Dad. It changed my life. It got me thinking about real estate as a career, and it was literally the best decision I ever made.

Joe Fairless: The story of the best ever deal you’ve done.

Garth Kukla: Best ever deal I’ve done – I would say the last deal I did. I was able to sell it in a day, I made a great payday, 15k, and both my buyer and my seller were extremely happy with the transaction.

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

Garth Kukla: Great question. My fourth deal, not communicating correctly with a new buyer who is represented by a realtor, and that realtor wasn’t familiar with closing a wholesale deal.

Joe Fairless: So what happens?

Garth Kukla: Well, you have to explain that closing a wholesale deal is much different than closing an MLS deal. The inspection period, the out clauses on the contract etc. And you need to have the experience and confidence that allows you to explain that to somebody who isn’t familiar with that process.

Joe Fairless: Did you end up closing?

Garth Kukla: Yes, I did. It was difficult, and I’ve since gotten those again, and I know what to say. It’s mostly about properly explaining that somebody has just never done a wholesale deal. It is very different than closing from an MLS deal. So just having the words to say it, and the confidence and experience to back it up.

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

Garth Kukla: Since I have an abundance mindset, I’ve personally helped over five new wholesalers learn the business by sharing my experience and answering any questions they ask, and if any of your listeners wanna reach out to me with their questions, I’d be happy to do the same.

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

Garth Kukla: You can find me on Bigger Pockets, or on my investor website, www.tristatediscountrealestate.com, or you can e-mail me directly at Garth@tristatediscountrealestate.com.

Joe Fairless: That link to your website will be in the show notes page. Thank you so much, Garth, for being on the show and talking about how you have not only replaced your income that you had as a base salary in your first – what was that, six months or so? …of wholesaling, but then also now you’re focused on the next stage, which is growing the company into the largest wholesaling company in Northern Kentucky and eventually the Cincinnati area. How you’re doing that, the different ways you’re getting deals – SEO, direct mail, testing Skip Genie after listening to one of the episodes on this show, and attending meetups, and the numbers behind your business, and what you look for, payroll, overall averaging profits per deal, etc.

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

Garth Kukla: Thanks, Joe. Have a great day!

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JF1158: Syndication 101: Apartment Syndication Process Cont’d #FollowAlongFriday

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We’re back today with Joe’s and Theo’s business updates and observations from the past two weeks. They dive into listener questions, continued from the last #FAF. All of the questions are syndication questions that almost anyone who wants to syndicate a deal will have. If you enjoyed today’s episode remember to subscribe in iTunes and leave us a review!


Link to Part 1 of Syndication 101: https://joefairless.com/podcast/jf1144-how-to-work-with-3rd-party-management-companies-followalongfriday/


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Joe Fairless: Best Ever listeners, welcome to the best real estate investing advice ever show. I’m Joe Fairless, and this is the world’s longest-running daily real estate investing podcast. We only talk about the best advice ever, we don’t get into any fluff.
We’re doing Follow Along Friday today, and we are going to talk about observations that we’ve had over the last week or so, what we’re up to, and really think about throughout this conversation (as we always do), how this applies to you… Because it’s less about what we’ve got going on, it’s more about what we’ve got going on as it relates to helping you along your journey. So how do we wanna kick it off?

Theo Hicks: Well, I’d say we start with your observations. I know you’ve done some exclusive interviews lately you wanna discuss today…

Joe Fairless: Yeah, I interviewed Jay Williams… He is a former NBA basketball player. He was drafted in the first round by the Chicago Bulls in (I believe) 2002, and he’s actually the second overall pick. He was the one behind [unintelligible [00:02:05].12] so number two overall pick.

Theo Hicks: He played for Duke.

Joe Fairless: He played for Duke in college, coach K. We talked about coach K. a little bit in the interview. He was (I believe) [unintelligible [00:02:23].02] second team in his first year as an NBA player. Then he got on a motorcycle in the summer off-season – or whenever off-season is for NBA – and he ended up crashing it into a pole at 60-70 mph, and that ended his career as an NBA player. What we talked about is just overcoming adversity, number one. Number two — because I figured he’s talked about that story a lot since it happened approximately 15 years ago, so I didn’t wanna focus that much time on the story; we know what happened, and now what has transpired since then.

One of the things he mentioned is that — he’s got these different ventures… He’s an ESPN analyst for college basketball, he is involved with a talent agency to negotiate contracts with sports stars and brands, and branded content, basically. He’s got a lot of different things that he’s done really well, and he talked about how he brings in people into this team. He makes it incredibly challenging to do so, and one of the things that he mentioned that really resonated with me is a story… He said that he created an internship, and when he was seeking applicants for the internship, he got tons and tons of people [unintelligible [00:03:59].04] and the people would write these long, long e-mails and messages, and put together this bunch of stuff, but then there was no follow-up afterwards with the applicants; that was all they did  – they wrote a long e-mail or they did an application, and there was nothing else that was special about it… And he talks about the way that he looks at it – he measures hustle, and how do you consistently hustle throughout your professional life.

It’s how he got to where he was at Duke, where he was really successful, and then in one in the NBA, consistently hustling, and as a professional too, consistently hustling.

So let me just finish that story – so he got a bunch of applicants, none of them except for maybe one or two actually had some follow-up after they submitted stuff. Then the person that got the internship, Jay said “Okay, now go”, and the person’s like “Oh, well I was waiting for you to give me some stuff”, and he’s like “No, no, no… You know what I’m looking for – you go make some stuff happen and then you come back to me.” It is that sort of entrepreneurial hustle mentality that he looks for, and it’s so true… That is what’s required as successful real estate investors and entrepreneurs.

What this reminds me of so often is when I speak at a conference, and afterwards people come up and there’s this long line of people… Well, I’d say nine out of ten of them have expressed some desire to stay in touch or work with me or learn other things that we talk about, but one out of twenty probably have some sort of follow-up afterwards… And usually, none. The reason why – I’m guessing – is because generally speaking people do what is convenient for them at the time, when in reality when it’s inconvenient for you, that’s usually when you’ll make most of the difference.

For example, when people are at a conference, it’s very convenient to walk up to a speaker, because they’re already there, it’s top of mind, but when it’s not top of mind later, that’s when you really break through with the outreach to the particular speaker. It’s important to consistently hustle, and it reminded me of just the things that I see with our culture in general, wanting instant gratification and not consistently doing stuff over a long period of time. That’s something I wanted to point out.

Theo Hicks: Yeah, two things are interesting there. One, Jay Williams is such a big name, and you would think that he’s getting probably thousands and thousands of applications, and you’d expect that maybe a hundred people are following up, but the fact that only a couple followed up for someone like him is just kind of interesting and it proves your point, that it doesn’t really matter who it’s actually happening for the follow-up… Or following up when it’s inconvenient to you is difficult.

The second thing too that resonates with me, because I found myself doing it, particularly at your conference when there’s all these speakers around that are super successful real estate investors… You’re talking to them and you’re asking for advice, and in the moment you feel super jacked up and it’s like “Man, if I was like this at all times throughout the year, I would have a billion properties at that point”, but the hard part is taking that motivation or whatever that is that you have in that moment, and having it continue with you when you’re by yourself.

You can listen to a podcast, you can go to a conference, but that’s not where most of the work’s done; most of the work’s done, at least from my perspective, for my properties it’s the day-to-day grind of figuring out maintenance issues. This is for smaller properties – I’m sure it’s different for you, but figuring out maintenance issues, tenant relationships… Things that you would never even think of, because you’re used to listening the high-level stuff and you can’t really get into the day-to-day details at a conference, because you’d be talking to them ten hours to get all that information.

I feel like every time I come on Follow Along Friday I’ve got some information that happened from the past week, things I had never even thought would happen in real estate, so… I totally agree with what you’re saying.

Joe Fairless: Yeah, we’re in the moment at the time, but then what does it take to maintain that mindset? I’m actually going to Unleash the Power Within in Palm Beach this next week… I’ve done it before, and one of the things I learned the last time I went is that you control the emotions that you experience at any point, you’re in control of it. Now, it might not seem that way, but you choose to experience the emotions that you experience. Certainly, you might immediately get pissed off about something, but then if you actually think about “Okay, here’s what I’m experiencing and here’s the emotions”, then you can actually decide how you feel. I think Abraham Lincoln said that; he gets a lot of quotes attributed to him… I don’t know how many he actually said, but I think he said that you can choose to be happy, something along those lines.

You can choose to have that persistent, consistent hustle; it’s just a matter of making that conscious choice and also having enough pain associated to it for not doing it, and pleasure associated to it for doing it.

Theo Hicks: And I think momentum helps, too. It’s a lot harder to start building momentum; once you’re building momentum practicing doing what you’re talking about…

Joe Fairless: Yes, seeing the results…

Theo Hicks: So is that the main one, like the week-long seminar?

Joe Fairless: That’s Date With Destiny, this is Unleash the Power Within… This is four days, maybe three days. Date With Destiny is one week. That’s the documentary that’s [unintelligible [00:09:28].15]

Theo Hicks: I’m looking forward to hearing some — because I’m sure you’ll have a lot of insights from that.

Joe Fairless: Yes, I will. I will take notes. Cool. Let’s see, what else…? I mentioned going to Unleash the Power Within; also, tomorrow I’m headed to Lubbock, Texas, because I’m on the alumni advisory board there. I’ve been going to the advisory board meetings for almost ten years, I think… Maybe not ten, that makes me seem really old… [laughter] I don’t know, like eight or nine years I’ve been on the board, and that is something we’ve talked about before – that’s something that I have built relationships through, and over a million dollars worth of investors have come through the Texas Tech alumni advisory board. That is not something I joined in anticipation of finding investors, because I wasn’t doing this ten years ago; I was in advertising. It was just something that I feel passionate about helping students, and that’s the best approach to take – find something you’re passionate about, get involved, something you enjoy, and then the business relationships will ultimately come from that.

Theo Hicks: Is that an annual event?

Joe Fairless: It’s an annual event. I don’t think I’ve missed a year; I go every year. Colleen is coming with me for the first time. She’s gonna see dusty West Texas, red dirt cows and cotton fields, but it’s also a place that has people who are true to their word and people who mean what they say, and there’s a place in my heart for it, so I’m a big fan of going back.

Theo Hicks: Anything else going on?

Joe Fairless: I think that’s what I’ve got. What’s going on with your properties?

Theo Hicks: Since we’ve last recorded the podcast, I remember I was talking about the boiler issues I had… And I can’t remember if I mentioned this or not, but there was another issue. Originally, remember how I was telling the story about how there was some minor noise in one of the boilers and the tenants were complaining about it, and I went in there and it was nothing?

Joe Fairless: Yeah!

Theo Hicks: Well, I had another complaint from the other building about noise, and this one was an actual issue. The second I went in there I knew exactly what it was, because it was the same problem I had on the [unintelligible [00:11:42].01]

Joe Fairless: You’re getting good at boilers.

Theo Hicks: I’m getting good at diagnosing them; I don’t touch them at all, but I’m getting good at least at diagnosing what the problem is. I kept getting notifications from multiple tenants saying that there’s these loud clanking noises in the walls, and they think it’s from the radiators. One of them was even sending me Google images, screenshots of what the potential solution was…

But I went there, and for the boiler we’ve got — there’s still a motor on the boiler, and the motor wouldn’t fire up… So the boiler would turn on, the burner would turn on, and then the motor would go to kick on, and it wouldn’t work. And I guess the motor — I’m not sure if it actually cools it down, but the motor doesn’t kick on and the system overheats, and then there’s this [unintelligible [00:12:21].06] it makes a ton of noise… So that’s what was happening.

It’s actually the same thing that happened at my first home, where my boiler wouldn’t turn on, and the system would make these really weird noises because it wasn’t running properly. Anyway, so I had the guy come in and look at it, and it ended up being — luckily, he only charged me for the actual motor itself; he didn’t charge me for the labor, because I’ve been paying him so much money… But now for the past week and a half I’ve had no complaints about the boilers. We went through and tested all the–

Joe Fairless: Bravo!

Theo Hicks: So they all work. After — I calculated this morning, it was $8,400 to get all three boilers up and running, which I believe is less than the cost of placing one full boiler.

Joe Fairless: What was the down payment for one of those properties?

Theo Hicks: I don’t know, like 55k…

Joe Fairless: Okay, alright… So not quite up there. There’s still room though, there’s still hope. You can try and match your boiler expense to your down payment, because that’d be a good story.

Theo Hicks: I don’t want that happening, but it would be a good story in a couple years from now. But luckily, the rents are high enough at the properties… That’s like two-and-a-half, three months’ profit that’s lost, which obviously sucks, but it’s not like a whole year is wiped out. If it was like a single-family and the boiler went out, a year or two years might have been wiped out, so that’s kind of the positive of coming forward in this.

Joe Fairless: That’s a great point. We always talk about economies of scale, but getting into a specific example like that is helpful to illustrate the point of economies of scale with multifamily properties versus single-family. Because when my tenant moves out from one of my homes and we repair a bunch of stuff – $5,000, and there’s profit for $250, so whatever that is… More than one year, I’ll tell you that. You’ve got $8,400 worth of expenses for a boiler, and then you recoup that in about three months.

Theo Hicks: Yeah, which would be nice. I didn’t put in any personal funds, which is nice; it’s all from collecting the rent the first month, and then basically having to pay a mortgage payment with basically what — because we got to keep all the rent, minus water bills and stuff like that. So that basically covered all these boiler expenses.

It’s so interesting, because I bought the duplex… I was at a similar online price for my first duplex that I was for each of these individual properties…

Joe Fairless: And each of these individual properties are four units, right? So you bought your first, you’re talking about…

Theo Hicks: Yeah. The rents are higher for the fourplex, even though each of the individual units are lower than the two duplex units…

Joe Fairless: Oh, different area?

Theo Hicks: Different area, for sure… Because the duplex was in Oakley, which is a lot nicer area than the area I’m living in, but based off of the rents that I’ve been seeing, I’m gonna be able to increase the rents on this one and get even more. And if you look at it strictly from strictly the rent-to-purchase price ratio, it’s well above 1% for sure, and it’s gonna go even higher here soon.

I’m gonna go look at a duplex tomorrow that’s off-market, that I got through my real estate agent… But I don’t even know if I want to buy duplexes anymore, because I can get a fourplex for the same price as a duplex and have more units…

Joe Fairless: For the same price?

Theo Hicks: Yeah, so I can a four-unit for 220k – this is what I bought this fourplex for – or I get a duplex for 220k. So I was like, “Why would I even buy  a duplex, unless the rents are twice as high as each of the individual four-units?” Obviously, there’s higher expenses for the four-unit, and you have more contact with your residents, but that has been very surprising, how much more smoother the four-units run compared to the two-unit. Because I’ve got six times as many units as I did before, and I feel like I’m spending the same amount of time…

Joe Fairless: Really?

Theo Hicks: Yeah.

Joe Fairless: Even after all the boiler stuff you feel like you’re spending the same amount of time on 12 units as you were two?

Theo Hicks: Yeah, I’m comparing apples to apples… Because right from the beginning of my two-unit, I was there all the time, getting everything fixed up, turned and ready to go for the new resident. So time will tell; if things continue to fall apart at this property, then yeah, I’ll spend a lot more time there.

Joe Fairless: You were doing unit turns to get them prepared on the duplex, but you haven’t done a unit turn yet on this…

Theo Hicks: There was one that was vacant.

Joe Fairless: Okay, so you got in there and you got some rubber gloves on and scrubbed things…?

Theo Hicks: It was all done. I guess what I’m saying is after the two units, once they were actually done, I still had to go in there all the time, because these small things would happen; there would be leaks here, or an issue with the plumbing… So I felt like the first couple months I was spending a lot of time there, just like with the four-unit. But what’s even nicer with the four-unit is that I can tie it all up, so if I’ve got something to do here, here and here, I can go once instead of three separate times.

The economy of scale [unintelligible [00:16:54].18] two issues in three different units, or three issues in three different units, you can go there at once, versus having to go to different locations, different times of the day. I just think it’s overall a lot more convenient to have four units, compared to the duplex, from my three months experience so far.

Joe Fairless: But you have more experience with the duplex, so… You said you’ve got an off-market deal – how did you obtain this off-market opportunity?

Theo Hicks: My realtor just texted me and was like “Hey Theo, I’ve got this deal. Do you wanna come take a look at it?”

Joe Fairless: They haven’t posted it publicly…

Theo Hicks: No, not yet. It was funny, because we get breakfast every once in a while, and she always tells me she looks at me like at her son…

Joe Fairless: Okay… [unintelligible [00:17:35].23]

Theo Hicks: We’ll get breakfast, and then — she’s really nice, and whenever she gets any sort of off-market deal (usually they’re two units)… That’s kind of my main off-market lead source.

Joe Fairless: You just need one. Ideally, you have three sources that are bringing you deals, but if you’ve got one… You’re only gonna close on one at a time usually, so that’s great.

Theo Hicks: And she also offered to do direct mailing for me. I was sending her a spreadsheet of what I want, and then she’ll pay for —

Joe Fairless: And how did you get the professional relationship with her?

Theo Hicks: One of my good friends bought a property… Going back in time, back in 2013-2014, I met a guy at work – my best friend now – and he bought a duplex maybe three or four years prior at this time, and that’s who he used as an agent.

Joe Fairless: Does she send him the off-market deals?

Theo Hicks: Not anymore. [laughter] [unintelligible [00:18:34].23] It’s not like I had to consciously try to hold the relationship, it’s just kind of like a normal friendly relationship, and he ruined it. It was a little silly, but he just didn’t use her on a deal, and she kind of felt betrayed, and then they had a weird falling out, and then I was like “Well, this works for me then.”

Joe Fairless: Alright, there you go.

Theo Hicks: So the third thing that I just — kind of an observation, not really any sort of lesson I can think of, but… Something I didn’t really think about as much when I was listening to podcasts is doing strictly research, as opposed to doing it first-hand, is kind of like the relationship you have with tenants, especially if you’re gonna be managing the properties.

If I could go back, a couple things I would do differently is 1) definitely have a Google number and not give my personal number… But 2) I would set expectations for how I want to approach maintenance issues.

For example, something I didn’t do when I initially reached out – I didn’t follow up after I asked them to provide me with a list of issues that they had… And then also telling them “If you have any maintenance issues whatsoever, no matter how big or small, let me know and I’ll decide what we’ll do about it.” Because I keep finding all these problems, but they’re not telling me; I’m having to find them myself. I just happen to be in their unit doing something else, and I see that their sink is leaking. Or I go in the garage because the garage is having problems, and I see there’s water leaking from the ceiling. Or someone tells me that their drain is clogged, so I go over there and then [unintelligible [00:19:59].18]

So it’s kind of just figuring out how to have the tenants communicate to you all these issues upfront, so you can just address them within a week, instead of thinking you’re done and then something else if popping up.

So I think what I would have done differently is obviously the Google number, because things keep popping up and I get a phone call on my personal phone and I don’t know who it is at all; I don’t know if it’s someone from work, someone that I just don’t have the number saved if it’s a resident… But then also kind of [unintelligible [00:20:30].04] or maybe even doing some sort of walkthrough in each individual unit when I first get there…

Joe Fairless: Yeah, with the resident…

Theo Hicks: And just asking them, “What issues do you have? Do you have any leaks? Are your radiators not working?”, just so I can kind of proactively get ahead of things, instead of being reactive. Because mentally, it feels a lot differently. When I’m proactively addressing things I feel like I’m doing something, whereas if I’m reactive I’m just like “Oh, my god…”, it’s like a headache.

Joe Fairless: Yeah, especially if you go with the drain thing and they don’t have it, but then next door they do, or both of them have it. It’s like, “Oh, wait… What?!” I can see that…

I’m speculating now, so take that for what it’s worth, but it might be a couple things – one is they are still getting used to the maintenance being addressed when they say something. And two, it could be ease of sending that information to you, if there’s a really quick and easy way of doing that, versus them thinking they have to write an e-mail, or pick up the phone and call… If they just maybe [unintelligible [00:21:34].13] take a picture and text it to a number, and then you have all these pictures in your Dropbox, or something… [unintelligible [00:21:42].00] Then you just log in and see if there’s any pictures, and see who [unintelligible [00:21:47].29] those might be a couple reasons.

At the end of the day though, if it’s bad enough, hopefully they’ll start communicating. But if you do a walkthrough, then certainly that will cover anything that’s present at that time.

Theo Hicks: I think the first point you made, about them getting used to the maintenance – I think something else that is important… We’ve kind of talked about this before, but having a conversation with at least a couple of the residents during the due diligence period, just to ask them (either directly or indirectly) how the current owner is approaching maintenance requests… Like, “Do you have maintenance requests that are outstanding that the owner hasn’t addressed for a while?”, because that’s one of the biggest issues in this particular situation, that the owner didn’t address any of the maintenance. So from the tenant’s perspective, once they have one issue addressed, like “Oh wow, this guy is on top of it”, so they keep sending more and more in… Which I guess is fine, but it gets overwhelming sometimes. But it is what it is.

Your idea of somehow — because some of them do send pictures, which is very helpful… But somehow automating it, so it’s all coming to one thing, versus one’s an e-mail, one’s a text and one a phone call. So those are my three major updates. I’m gonna talk about how my showing went the next week.

Joe Fairless: Cool, alright. Yeah, next week I’ll be in Florida for Unleash the Power Within, so we’ll pick up Follow Along Friday in two weeks.

For the Best Ever Conference, Terrell Fletcher is going to be speaking… One of our new speakers. You can go to BestEverConference.com and see all of the speakers. Terrell, for anyone who isn’t an NFL fan, then I will let you know he is a former NFL player. Typically, you see bigger guys make the NFL – and Terrell can kick my butt, but relative to other NFL players, he is smaller, especially for his position, which was running back. He basically had to create a niche for himself as an NFL player, and he did a great job of it for the San Diego Chargers.

He is now retired and he’s very inspirational when he talks. I don’t know if the interview I did with him has aired…

Theo Hicks: It did, it aired.

Joe Fairless: Okay, so you’re familiar with him then, Best Ever listeners. He’s gonna be speaking at the conference, and many others. If you haven’t got your tickets yet, then go to BestEverConference.com, or at least go there and check out all the speakers.

Theo Hicks: The last thing, we writing on a book… Do you wanna mention that today?

Joe Fairless: Yeah, we’re doing an apartment syndication book. Basically, a how-to guide from start to finish for how to do apartment syndication. That will be going live either this December or in January – to give us some buffer, right? We’ve got the outline, we’re writing the chapters, and we’re going to have a book that is much needed for everyone who is doing apartment syndication, because I know there’s not one out there that specifically addresses how to do an apartment syndication in the way that it allows you to pick it up and then actually follow the process.

Now, no book will cover all aspects of doing apartment syndication, and ours won’t either, because there’s always gonna be a grey area in every single deal… But whenever I was studying apartment syndication and I was looking for a book, basically a how-to guide, I didn’t find one. There’s some that nibble at the corners, but there is not one in my opinion that covers it from start to finish how it should… So that’s coming out.

To learn more about it, I guess you can go to ApartmentSyndication.com. Make sure you’re subscribed to the newsletter there, and you’ll be notified once the book goes live.

Theo Hicks: And finally, we’re gonna do our review of the week, so make sure you subscribe to this show on iTunes and leave a review. This week we’ve got James K. He said:

“I’ve been listening to Joe’s podcast for a while now, along with a bunch of others. The thing I would say about this podcast is that it’s absolutely filled with gold mines in terms of really good ideas about how you should be operating your real estate investing business. And if you’re not treating real estate investment as a business, then you should be. I listen to the concepts he exposes in the podcasts carefully, and even write some of them down. You can tell that doing monster deals and operating huge complexes are second nature to him, so he might very casually give you a checklist or advice on what you should be doing, but some of them could make or save you hundreds of thousands of dollars, so make sure you don’t miss them.”

Joe Fairless: Any of these tips that we talk about today or on other episodes, they could save you or make you a whole lot of money, that’s true; it’s just a matter of what you do with them, right? Nothing in life has meaning until you decide what meaning you give it. Our conversation is only interpreted based on how you choose to interpret it… So thank you, James, for that review.

Those reviews help because it allows us to continually get high-quality guests on the show, because they’ll go look at the reviews, see that we’ve got a loyal audience of Best Ever listeners, and then they’ll say “Yup, thumbs up. I’m in.” So thanks for listening. Theo, you’ve got anything else?

Theo Hicks: No, that’s it.

Joe Fairless: Thanks for listening, talk to you tomorrow.

Best Real Estate Investing Advice Ever Show Podcast

JF1144: How To Work With 3rd Party Management Companies #FollowAlongFriday

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

Today is Follow Along Friday, and we’re actually officially recording it today, on a Friday. It’s the first time ever we’ve actually recorded the episode on the day it airs; that was due to some technical difficulties we had yesterday… But here we are, and we’re looking forward to bringing this to you.

We have some listener questions on third-party management companies, how we work with them as apartment investors, and we also have some updates… So how do we wanna approach it?

Theo Hicks: I’d say we dive right into the questions today. As you said, we’ve got — we actually were submitted a long list of apartment syndication questions from a gentleman named Tim. He has recently transitioned to syndication; he’s done a 102-unit and a 145-unit deal.

Joe Fairless: Congrats, Tim.

Theo Hicks: Yeah, that’s awesome.

Joe Fairless: Tim from Wisconsin.
Theo Hicks: Tim from Wisconsin, yes.

Joe Fairless: Okay.

Theo Hicks: And he sent this 13, very detail, great syndication questions, and we’re gonna try to break them up into categories and tackle them that way. Today we’re gonna answer four questions, most of them being related to how to work with third-party management companies.

His first question isn’t related to that, but he asks, “How do syndicators deal with investors’ questions regarding payouts, since each payout will be different and it is rather  a complicated calculation?”

Joe Fairless: I think the payouts aren’t different every month, assuming that you take the same approach that we take. Let’s talk about the approach that we take. We have an 8% preferred return on all of our deals, and we pay monthly distribution. Some do quarterly, some do annually, we do monthly. So we do monthly distributions on an 8% preferred return, otherwise known as a pref; so 8% pref, and we do that for most of our projects for 11 months, and then in the 12th month of that project, that’s where we identify how much additional cash can be distributed above and beyond the 8%.

That allows us to be incredibly conservative and make sure we have a healthy operating account should something unexpected take place with our properties in months one through eleven. Now, some properties we’re able to do distributions above and beyond that, and when that takes place, we simply notify investors and everyone’s really happy about that.

So the distributions in that scenario where it’s simply the 8% on track for 11 months, and in the 12th month you take a look at what can you do above and beyond. Let’s say the total equity was a million dollars in the deal, then 8% of that is $80,000, divide that by 11, and that’s the monthly distribution that is sent out to all the investors, proportionate to whatever they put in. If one person put in 100k, then they get one-tenth of that distribution.

That’s who we do it, and certain investors don’t get different return percentage than others, everyone gets the same percent return, but the amounts are different based on how much they invested. If one person invested a dollar and another person invested $20, then obviously the $20 investment person would get a higher chunk of money, but it would be the same percent of their month.

Theo Hicks: Okay. And at each month is that calculation done by you guys, or the property management company does that calculation?

Joe Fairless: The property management company does the calculation after the first month, because we just tell them “Hey, this is our plan for months one through eleven”, and then in the 12th month then we take a look at it… But it’s really just a simple calculation – a million dollars, “Okay, we can distribute X% more. Okay, what is that percent applied to all the investors in the 12 months?”

Theo Hicks: And even in your underwriting process you’re kind of already starting to understand that projected returns and how the 8% preferred return is gonna work, and then if you’re projecting above and beyond that, how that split is gonna work… And even planning out your exit strategies in five years, you’re planning out how much money you’re projecting to make at exit and how much of that may go to investors [unintelligible [00:05:38].14] somewhere else. So you’re doing the calculations upfront, too.

Joe Fairless: Yeah. Ultimately, we buy the property, we have projections, but it’s how is it performing today and where do we see the market headed. But all roads lead back to capital preservation, and that’s the most important thing with any investment (ask Warren Buffet). So we want to err on the side of caution when we do deals, and this is one component of that, where we err on the side of caution, but then end the 12th month, we’ll distribute the excess above and beyond 8%. Because in reality, our deals have a higher projection in year one than 8%, so all of them have been able to hit or exceed that.

Theo Hicks: Okay. Let’s move to the next question. He asked “Do syndicators use third-party management, or do they have their own management companies?”

Joe Fairless: Both, because it’s a general question. This is a question of scale and desirability… Because with single-families — let’s talk about single-families real quick. With single-family property management companies if you ask a single-family property management company that has less than 500 homes that they oversee how is business, they might say it’s okay, they might say it’s good, but they won’t say it’s incredibly profitable. And until you get to approximately 500 doors as a single-family property management company, you’re not gonna achieve the level of scale that you need.

Well, the same principle applies for apartment third-party property management companies. However, instead of 500, it’s 3,000. As a property management company you don’t have 3,000 doors (for apartments), then you’re really not making much money. You might be making some, but you’re not gonna be able to take your kids on vacation and be okay with splurging on some all-exclusive or all VIP Disney passes. I know you like Disney.

Theo Hicks: I like Disney.

Joe Fairless: So the question with third-party or your own is if it’s your own, you’re not gonna be making any money, and it’s gonna detract you from doing deals as an apartment syndicator, until you get to scale of about 3,000 units.

However, as with any generalization, there’s some caveats, and one of them is maybe your skillset is getting your hands dirty or GC-ing projects, being the general contractor on projects. Maybe that’s how you differentiate yourself from the competition; you know the ins and outs, you know when you go look at a boiler room exactly what to look for. You know when you look at the different mechanicals of a property, you know what to look for and you have the current team in place to do the work. Well, in that case, it makes more sense for you to have your own management company, because that’s part of your special sauce, that’s part of what differentiates you and your company, and I believe you must be local in that scenario. If you are local and you have that skillset, then it makes more sense.

However, for most apartment syndicators and most apartment investors, it is not a primary skillset, so that’s why third-party management companies make more sense, and that’s why we have a phenomenal third-party management company in Dallas-Fort Worth that we work with.

To summarize, when you look at if you should hire a third-party or you should create your own – because believe me, when I had my first deal, I thought about creating my own. I was interviewing people, and thank goodness I didn’t.

Take a look at what is your skillset and are you ready to develop a separate business – because it is a separate company – from what you’re looking to do with asset management and acquiring properties, working with investors etc. We haven’t found that that makes sense for us at Ashcroft Capital, therefore we continue to work with a third-party, even though in about a month we’ll be approaching 3,000 units.

Theo Hicks: The next question – a two-part question… I just realized I’ve asked the second part of the question, so let’s stick with the first one… “If a syndicator is using a third-party management, what is a monthly fee and is that fee negotiable?”

Joe Fairless: Everything’s negotiable. It depends on the amount of units that you have, and where they’re at in proximity to each other, because that allows scalability from a property management side if they’re all close together. The fee ranges between 2,5% to 5,5%… I think I’ve seen 6%, but I’ve certainly seen 5,5%, so 2,5% to 5,5%. It depends on the age of the property too, so that’s another variable; what is the business plan with the property, so much heavy lifting is there, literally and figuratively… Those are variables that go into the fee, and when I say the percent, I mean the percent of collected income. It’s 2,5% to 5,5%, maybe even 6% of collected monthly income, that is the property management company’s fee.

Please make the distinction between their fee, the payroll, the insurance and the healthcare or other aspects that the property management company will have on your balance sheet for that property, because they have employees who are being deployed at your property. Coming from my single-family home background, I thought (incorrectly) that the fee was inclusive of having people there, staffing the property, but it’s separate. You’ve got to pay payroll, you’ve got to pay for the people to be at the property, you’ve gotta pay for the maintenance people, and you’ve got to pay the related costs to having those people on the staff of the property management company, and that needs to be taken into account.

On top of that, you pay a fee, which is 2,5% to 5,5%, maybe 6%. So it is negotiable, and those are the variables that are involved.

Theo Hicks: Those expenses on top of property management are important, because again, I thought incorrectly too that “Oh, I just pay someone 5% and they just take care of everything. Maintenance costs are in the 5% and all that stuff”, but obviously, that’s not true.

Joe Fairless: And with single-family homes I believe – I have three, and I believe I pay 8%; it’s been a long time since I revisited that, like 3-4 years. They do a phenomenal job, but with single-family homes you might see anywhere between 7% upwards to 10%. The thing you wanna watch out for there is what additional fees are they charging? Are they charging a lease fee to lease the unit, and what is that fee? Are they charging maintenance costs to handle the maintenance costs? Are they padding those numbers? But everything is negotiable.

Theo Hicks: Would the fee be different if that property management company had equity in the deal?

Joe Fairless: It could, certainly. Everything’s negotiable. They might choose to have a lower fee. It’s unlikely they’re going to have a fee that loses money or even breaks even; they’re probably gonna make some money on it, as I would as a businessperson, even if I was in the deal, because otherwise it’s a pass-through and I’ve got my staff working on stuff that they could be working on in other places that would actually make my company money. But anything’s negotiable, it’s certainly something that — it wouldn’t be unacceptable to at least ask that to a management company. They could say “Heck no!”, but you could still ask.

Theo Hicks: Okay. And then a final question is “How do syndicators work with a third-party management on being proactive versus reactive on things like property upkeep, updates, remodeling the units and direction for achieving specific goals?”

Joe Fairless: Well, let’s take it into two parts – proactive and reactive. We’ll start with reactive. Reactive would be making sure that you have a weekly status call at minimum with your management company. That is to go over all the items that you need to be aware of; how are the cap-ex projects going? Are you still on budget with each of those projects? How does your business plan look? In particular, are you getting the renovated amounts for the units that you are renovating, or is that above what you projected? Is it below what you projected? Why or why not? How are you doing on the one-bedrooms, the two-bedrooms, the three-bedrooms? What are we leasing more? What are we leasing less? What are some differentiating features of your property that you should be highlighting? Are they highlighting it? For example, no other property in the area has garages – we’re highlighting that.

With your property it’s important to identify how are you differentiated from the competition and then making sure the management company is highlighting that. How many down units, if any, do you have? When are they going to be live and ready to be rented out? How many leads came in? How many applications came in this week? All these things and about 50 more are metrics that need to be tracked on a weekly basis, and if the management company does not have a software program that easily allows you to track this and you have access to, then you need to create your own spreadsheet, and have a spreadsheet that they fill out on a weekly basis with those things I mentioned, and then a whole lot more. So that’s more reactive.

From a proactive standpoint, before you even buy the deal, it’s important to provide your management company with your proforma and your business plan so that they’re aware and aligned with you on what the expectations are for the performance of the property. That’s where they would either push back or shake their head in agreement that “Yes, we’re onboard with this plan and we are confident we can hit these projections based on our expertise in the area.” So before you even have the deal, you need to be lock-step with them.

Then once you have the deal, it’s important to secret shop the property. A Best Ever listener reached out to me. He’s in Dallas, and he said “I’d like to help you out. I don’t know what I can do”, I said “I’m not sure either. Actually, yes, there’s one thing… You can go secret shop our nine properties in Dallas-Fort Worth and write up what you saw, what you experienced.” That primarily helped us have reassurance that things are handled incredibly well. But then there’s also opportunities for improvement. So that helps us stay on top of things that we can improve, and then consistently improve by doing that secret shopping on a consistent basis, whether it’s you call up the properties, how many times does the phone ring, how is the demeanor of the people answering? What type of questions they ask? Do they get your contact information so that they can build a database for future outreach or don’t they?

Then also have people on the ground if you’re not local do that and experience the walkthrough. Additionally, from a more reactive standpoint, we visit the market, we visit Dallas-Fort Worth. My business partner and I visit at least once a month, between the two of us. We might not overlap or we might not go at the same time, but one of us is there at least once a month. So we’re touring the properties ourselves and being with the staff.

Theo Hicks: Here’s one thing to add about that weekly performance template or checking in with the property management company once a week is very important, especially early on, if you have some sort of renovations planned or develop the rents, because the longer it takes to bump those rents up or the longer it takes to actually rehab the project, the lower your bottom line or project returns are going to be. So you wanna make sure that — as you said, be proactive in the beginning to create that project plan, but then make sure you’re also being proactive and once a week making sure they’re on track and you’re meeting your projections.

Joe Fairless: Yeah, that’s one thing that’s mission critical for sure in the first 12 to 24 months, and even more specific in the first six months, to make sure that there wasn’t any major assumption that has gone sideways. When you do that and they’re aligned at the beginning, then likely you will have things covered. It’s just when you surprise the management company or they lie to you and you’re totally missing something major going into it, too. So you’ve got your safety net of the management company looking at it and you messed up – when both of those things combine, then it’s a perfect storm of disaster.

I’d say with your management company – Frank and I were visiting our properties I think two weeks ago, and we were touring it with our largest investor, a couple of our properties, and we asked the management company “Hey, where are we at with this budget item in terms of expenditure?” and they knew it. That’s a level of attention and expertise that is needed for a value-add deal, especially in the 6 to 12 month range, but just in general.

You’ve gotta have on the ground management partners who know it at that moment in time. We knew it the previous week, but where are we at at that moment in time?

Theo Hicks: Yeah. So that conclude Tim from Wisconsin’s first batch of questions. We’ve got 13 of them, and we’re gonna be addressing them in the Follow Along Fridays moving forwards, so thanks again for sending us that really detailed list of questions.

Moving on to business updates and observations… I know you just got back from Baltimore, and then you also had something about protesting taxes you wanted to discuss as well…

Joe Fairless: Yeah, one tip for everyone who has an opportunity to protest taxes on a property – this is on the acquisition side. When you have it under contract, make sure that you have something in the contract — so I guess right before you put it under contract, make sure you have something in the contract that allows you to protest taxes if you’re within that timeframe for protesting the taxes in your particular county. Because that’s what we have done on properties, and I’ll give you a specific example…

It cost us approximately $8,000 to protest taxes while we had a property under contract, and the result was a savings of $28,000, so we netted $20,000. That’s good. The big win though is that lowers the tax basis for future years, and that helps us basically save more money for future years, plus perhaps it sets us up for an opportunity to protest in future years, too. So make sure that that’s something that you have in your contract before you sign on the dotted line, because that has potential to save you a whole lot of money.

Theo Hicks: Good advice.

Joe Fairless: And separately, I was in Baltimore last weekend with Colleen, I met up with a couple people in my consulting program, as well as an investor who was in Baltimore. It was the most impressive experience I’ve ever had based on my expectations of the city. I didn’t have as high of expectations of Baltimore, but holy cow, I’m in love with that city. A top five city to visit in the U.S., by far. It’s a combination of Boston, because it’s got a beautiful harbor; it’s a combination of New Orleans because of the row houses, and it’s a combination of Cincinnati, because everything’s really old, but they keep it up really nice… At least in certain areas in Baltimore, areas we were at.

I was just really impressed, so if you haven’t visited Baltimore, I recommend taking a weekend trip to Baltimore. We also went to DC, it’s 45 minutes away Uber. We went to the Holocaust Museum, which is very powerful, and went to a couple other places. So a Baltimore trip is kind of a fun fact for the week. I recommend that everyone go.

Theo Hicks: Awesome. What about business-related updates?

Joe Fairless: Do I have another…? We did this yesterday, and that’s why we’re doing it again, because there were technical difficulties. Did I mentioned the…?

Theo Hicks: I don’t think so.

Joe Fairless: Okay, then we’re good. What about you?

Theo Hicks: So again, I’ve got three four-unit properties and I’ve been having some issues with the boilers, and yesterday I had them repairing the radiators and the boiler in the other two buildings, and unfortunately the cost for the two buildings was lower than the cost for the one building that was in really rough shape… [unintelligible [00:23:14].12] they have these self-bleeding valves, so if air gets in the system, it will automatically squirt the air out, because we have a closed system with all water in there… But what will happen is it will squirt out some water with it too, and the water will get on the metal and if you don’t look at it, it will completely rust and corrode. So they were all rusted, so they all had to be replaced.

Luckily, only one radiator had to be replaced this time though… And again, that’s $1,200 I think, or something like that.

And I have a funny story about one of the boilers in one property that I’m not even gonna talk about, but I guess the lessons that I’ve learned…

Joe Fairless: You can’t ever say “I have a funny story” and then say “I’m not gonna talk about it…”

Theo Hicks: Well, I’ll mention it briefly, because I kind of want to. So one of the boilers had never worked before apparently, because all the tenants were saying how their windows would frost up in the winter… So that was the one I was very worried about. I thought I’m gonna replace the entire boiler, and they had to rebuild a lot of portions of the actual boiler. But it was funny, because once it finally was on and running hot, they were saying how that water temperature was like 50 degrees higher than what it was when they initially turned it on, after repairing all the radiators and doing all the other repairs.

We finally turned it on, and I got a call saying that the boiler is just making insanely loud noise, and I’m just like “Oh man, I spent all this money on this boiler, I had it replaced and it’s not gonna work.” So I’m expecting like a [unintelligible [00:24:32].02]…”

Joe Fairless: Yeah, I’ve heard those.

Theo Hicks: …that type of noise. I call the guy who owns the boiler company that was fixing it and I tell him about it, and he’s worried, too. He’s like “I’ll go over there right now [unintelligible [00:24:44].16].

So I’m driving over there – it’s like a ten-minute drive – and I’m just like panicking the entire time. And I get there and he’s sitting on the front porch. I walk up to him and I’m like “So what’s the deal? Are we gonna do something?” He goes, “Just wait until you hear this…” I’m like “Oh, this could be loud…” So we go down there, and literally the boiler sounds like [unintelligible [00:25:03].01]

Joe Fairless: Barely audible?

Theo Hicks: Barely audible. We’re standing right next to it, leaning on it, having a normal conversation… So I thought that was kind of funny. It was like “Man, now they finally have heat, and now the noise of the boiler is an issue.” So that’s just a funny story, but lessons moving forward – number one…

Joe Fairless: So it was just…

Theo Hicks: No, it wasn’t loud at all.

Joe Fairless: It wasn’t loud at all, okay.

Theo Hicks: I think it was just because it had never been on before, that they just weren’t used to it. And it’s always gonna be on, and all the other boilers are actually louder than this one. None of the other residents complained. The boiler is even quieter than the [unintelligible [00:25:32].14] where I live, in my personal residence. So I just think it was an unexpected thing that they’ll just have to be used to, unfortunately. But the lessons learned – I think I’ve mentioned before that if you have boiler on the property or radiators, the inspector most likely will not inspect them if he doesn’t know how to inspect the radiators or boilers. So if you’re getting the inspection and you’re with the inspector, ask him if he knows how to inspect the boiler or radiator.

My inspector told me he didn’t upfront, so I should have obviously had someone else come look at it. But moving forward, whenever I buy a property with a boiler I’m gonna have some people come through and look at [unintelligible [00:26:05].20] There’s probably four or five radiators per unit, depending on how many rooms are in there. Then look at all of them and get an estimate of what it will cost to get it up and running.
I also wanted to actually test the system too, because another problem that we had is that one of the boilers was leaking, so I asked to have it fixed in the inspection contract, and they started making the fixes but they didn’t fix it all the way, and it didn’t get fixed until after I actually bought the property, which is another really bad mistake. And once they actually fixed that portion, they realized all the other problems that there were, which I would have caught upfront…

It’s mostly just inspecting the units, more because again, even while I was doing these radiator repairs, I’d walk through the units and they’ll seem to be leaking that I didn’t see before… One of the tubs was leaking and was leaking water down the wall, into the garage, into the basement… So I’ve gotta address all those issues, too.

So just spending more time on the inspection when you’re buying a property, especially one that’s a little older. I think ours were built in the ’50s or ’60s. Focusing on the inspection period upfront, not kind of just ignoring it like “Oh, it’s fine, I’ll just deal with it when I buy the property”, because those things add up very quickly – a hundred bucks here, a thousand bucks here add up quickly and the next thing you know you’re not making any money for the year.

Joe Fairless: And also casually asking residents that you see during the inspection process, “Oh, do you enjoy living here? Have you got any maintenance requests that I should tell the owner about?”, just a couple questions like that. If they say “No, no”, “Okay, do you know anyone who might? Because I can let the owner know…” Because you will. You will let the owner know during the process of renegotiating the contract.

Theo Hicks: And they will tell you, too. At least my residents. I remember when I was doing the inspections I saw a couple of them, and they were more curious what’s happening, who’s buying the property, who are you…?

Joe Fairless: I thought they didn’t tell you.

Theo Hicks: No, they didn’t tell me initially. When I was first looking at the property I met a couple of them. They were just asking me questions about myself, and “Are you buying the property? Do you represent the owners?”, things like that. And then once I actually bought them and I went in there, they’re like “This is messed up. You need to fix this and this…”

Joe Fairless: But it’s getting that information before you buy.

Theo Hicks: Yeah. I think a great question is “Is there any upsetting maintenance that I need to tell the owner about?” It lets them know that you’re probably proactive, because — again, it’s really strange, because the conversations I’ve had with residents now, they make it… I mean, [unintelligible [00:28:21].11] I need to address that, but they’ll say things like “I told you to fix this months ago.” I’m just like, “Wait, I bought this property a couple weeks ago, so tell me what your issue is and who did you talk to and what did they do? Did they patch it up? Did they say anything? What’s going on here?” Because they totally understand they’re living there, and if they’ve got leaks and issues all the time, they’re gonna be mad, and I’ll just take it.

Joe Fairless: Yeah, the number one reason people move out – maintenance issues. Cool.

Theo Hicks: And then I’m getting married this weekend, too.

Joe Fairless: Oh yeah, you’re getting married on Sunday. Early congratulations. You’re already wearing your ring…

Theo Hicks: I am already wearing my ring.

Joe Fairless: …bucking the trend. Congrats!

Theo Hicks: Thank you. So that’s all I’ve got. There’s a couple of other miscellaneous things – Best Ever Conference, you can still get $100 off your ticket probably for about a week or two, by Halloween… So make sure you go to BestEverConference.com to get your ticket for that.

Joe Fairless: And check out all the speakers who are gonna speaking there. You’re gonna be impressed by the speakers. This will be an even larger conference than the last year, but the quality of attendees will be just as high. What I mean by that is last year I’d say 90% of people there had purchased multiple deals, and it was a more high-level conversation, not necessarily “How do you fix and flip?”, it’s the step above that – “How do you scale your business? How do you do asset protection?”, that sort of thing.

Theo Hicks: I don’t remember meeting anyone who hadn’t done at least a single deal.

Joe Fairless: Yeah.

Theo Hicks: And then finally, this week we’re gonna do another review of the week. Make sure you subscribe to the podcast on iTunes and leave a review for your opportunity to be mentioned on our next Follow Along Friday.

This week we’ve got Carl Meyers Jr., and he said that he’s been involved in real estate for 30 years, and he learns something new from the podcast every day. Great source of information.

Joe Fairless: Well, that means a lot, certainly coming from you, Carl, based on your 30 years of experience. I think we could all learn something from you based on your 30 years of experience, so I would love to interview you and learn more about your journey and lessons learned along the way. If you wanna reach out to our team, we’ll set up that interview.

Thanks, everyone! Theo, enjoy yourself this weekend! Theo is gonna be doing his honeymoon thing next week, we won’t be doing Follow Along Friday because of that. Damn you and your weddings, and honeymoons…! [laughter] But we’ll be back on Follow Along Friday two weeks from now. Of course, we’ll be doing daily episodes every day, and we’ll keep on doing it, so talk to you tomorrow.

Best Real Estate Investing Advice Ever Show Podcast

JF1086 Have you Ever Bought a House Full of Stuff? Jacquie Denny Can Help Turn That Stuff Into Money

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When a family member passed away, Jacquie and her family were left with their good sized estate and all the “stuff” that came with it. They hired a company to help get sell of the stuff, only to find out the company was making more money than them. A need was found and Jacquie set out to fulfill that need. Now her company works across the country helping people empty their houses. If you enjoyed today’s episode remember to subscribe in iTunes and leave us a review!

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Jacquie Denny Background:
-Founder & Chief Development Officer of ‎EVERYTHING BUT THE HOUSE (EBTH)
-Launched EBTH in 2008 with Brian Graves, after 20 years at the helm of a Cincinnati-based estate sale business, Sorting It Out
-Identified a need for a white-glove service that could help families during life transitions by selling all of their items at true market value.
-Based in Cincinnati, Ohio
-Say hi to her at www.ebth.com
-Best Ever Book: Man’s Search for Meaning

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

With us today, Jacquie Denny. How are you doing, Jacquie?

Jacquie Denny: Fine, Joe. Thanks for having me on.

Joe Fairless: Well, great, nice to have you on the show. This is gonna be an interesting conversation, because you’re coming at it from a different angle than a lot of the guests. Best Ever listeners, let me fill you in on Jacquie’s background a little bit. She is the founder and chief development officer of Everything But The House. She launched Everything But The House in 2008 with a business partner, after 20 years at the helm of a Cincinnati-based real estate sale business, Sorting It Out.

She has identified a need for white-glove service that could help families during their life transitions by selling all of their items at true market value. Basically, she’s selling everything but the house, so all the items inside it. She sold a tour bus before, because a family owned a tour bus etc. So think about this from a couple perspectives and then I’ll introduce Jacquie and let her introduce herself in more detail.

Think about it from the perspective of if you’re a real estate agent or a wholesaler and you’ve had the challenge of “Oh, my goodness, I’ve got this house full of stuff. How do I get rid of it? Do I have a garage sale? Do I find other methods? Do I just put it in a dumpster?” Here’s a solution.
And then also, Jacquie and her team – they’re doing 450 houses a month across I believe 29 states, so she’s got access and insight into markets that are hot right now, and then perhaps some markets that according to her might be prime for the picking. So we’re gonna talk through all that. With that being said, Jacquie, do you wanna give the Best Ever listeners a little bit more about your background and your current focus?

Jacquie Denny: Background is I went to Xavier University in Cincinnati, and I’ve done business and marketing. I came out with working for Avon Corporate; I had the experience of a family member who had passed away with a sizeable estate – very nice things: paintings, rugs, jewelry… I hired the local guy that the attorney suggested, and in his defense, the internet was not around at that time – this was back in the early ’70s -but the problem was when it went in the front yard, the people that bought it that day made more than the family who was selling it. So from a marketing perspective, that just didn’t feel right.

So it started a long journey… I did an estate tag sale company called Sorting It Out, and then when we realized what was happening was because of the size of the generations who were now emptying their homes everybody’s contents made it more than a local audience, Brian Graves and myself established Everything But The House in 2007, and we’ve grown double digits every year since.

Joe Fairless: Can real estate investors make money by making Everything But The House?

Jacquie Denny: Absolutely, especially real estate investors. A lot of the investors will go in and buy the house lock, stock and barrel, with contents, simply because it’s usually a family who’s [unintelligible [00:05:34].28] they don’t see value in the contents at all. They know the house has some value; they’ll come through and take out personal papers and pictures, but then they’ll leave the basement full, the attic full, the garage full. And for most guys that buy real estate, they’ll pull up a dumpster and they’ll dump their stuff.

With those groups who started using it in the last ten years, there are times when I’m turning the contents into $60,000-$70,000, and that’s a lot of money to offset your project.

Joe Fairless: That’s a whole bunch of money. That could be much more than the project itself.

Jacquie Denny: Absolutely. There are times where we go in a house and the contents are worth more than the house that you just bought to rehab. So it only takes a few key items found in an inventory that can really make that happen for you.

Joe Fairless: What are the most common key items that are left behind that are sold for a whole bunch of money?

Jacquie Denny: One of the areas is books – antique books or first edition books; a lot of people don’t think of books as value, but even the books from the ’50s, from the authors like Steinbeck and Hemingway, a first edition of those can go for 2k-3k. And that’s most of the things that are still sitting on the bookshelf for mom and dad, because they read those as classics and they saved them.

Old tools can be another area of things left behind. Most people that are 60+ years either touched the depression or their parents did, so you’ll be amazed at how many times we find Queen collections hidden in houses that were left behind. Those turn into a lot of money.

Joe Fairless: So coin collections, old tools, first edition of books… How does it work? Let’s just go through a hypothetical scenario that your team comes across all the time, I imagine, and that is I just bought a house, it’s got a bunch of stuff in it. What do I do and what can I expect after I call you?

Jacquie Denny: When you call us, we do a free consultation. That first consultation is about a half hour to 45 minutes. It gets us both an opportunity to walk the property. We’ll point out what the whole process is going to be, because every process is a big puzzle we take up and then put together in the best way we can. So there will be saleable items, there’ll be donatable items, and then there’ll be plain trash. But the nice thing from an investment point of view, instead of having four dumpsters, if we turn even half of that into saleable, 20% into donatable that’s facilitated by somebody else picking it up, you’re now down to maybe one dumpster, and that’s probably $400 in all the labor that went with it.

So it can continually be an added value as our process goes along for somebody who’s buying houses and flipping them.

Joe Fairless: I’m sure your team has some screening questions prior to doing the initial free consultation, so that you can qualify your leads better. What are some screening questions, or how do you screen them?

Jacquie Denny: Well, probably the biggest screening questions we ask are “Has there been water damage in the home?” and “Has it sat without electricity for 2-3 years?” “Was this a house where 22 cats lived?” Because those are the most difficult houses to really make any money out of in the end.

Basically, if they’re water damaged and there’s mold and mildew on everything… But other than that, we really don’t do a heavy screening because if I do that, Joe, than I’m asking you to decide what is the value there, and I promise you, most people focus on antique furniture right now, and antique furniture is very soft because of the size of the generation that’s downsizing at the same time, and they’re not thinking of those old baseball cards, or the 1940s red [unintelligible [00:09:35].05] that’s hanging on the wall.

So those are the things that are driving value now, so if I ask an investor and he says “You know, there’s a bunch of furniture, and then the attic and the basement is full of boxes full of stuff”, well I wanna see the boxes full of stuff, because that’s where I’m gonna find all the interesting, unique things that have been put away for years and forgotten about.

Joe Fairless: After the free consultation, does that individual who’s representing your side look through all those boxes of stuff and then identify what will be in each of the three categories – the trash, you keep it or you are donating it?

Jacquie Denny: I would say that would be impossible to do on that half hour or 45 minutes, because I went in houses that may have 800 boxes in the basement and the attic. So what we’re gonna do from our point of view is we open up a sampling of the boxes, and it is just an idea of “Is this stuff from the ’40s, from the ’50s? Is most of it disintegrated and full of mouse residue, or is the stuff in good shape?” So at that point we can say “Yes, this is a viable sale for you. We’re looking at about 50%-60% of this being saleable.” But when we come in to do what we call the discovery and the sort, that’s usually a two or three-day project. There’s a lot of things to get through on a property if you’re going to do it the right way.

Joe Fairless: And then the other question I know you come across, with investors in particular, especially if you’re flipping a house, how quickly is the entire process, from the free consultation to – okay, you sold whatever you can sell and now you’re out of here, so I can move on with the next stage in the flip?

Jacquie Denny: Generally we can have a house from full to empty within a week.

Joe Fairless: That’s incredible.

Jacquie Denny: Yeah, and that’s if your schedule works and you don’t have to sit there and hold our hand the whole time. I always tell people — because people say “Well, what if you find something I think I’d rather keep than sell?”, I’m like “Well, the whole process is us finding things to sell for you and for us to offset our labor”, so I always tell them, depending on how involved or how much they’re gonna try to manage what I do will be how quickly I can work on their behalf.

Joe Fairless: And what’s something that an investor would find surprising about the process, that we haven’t discussed already?

Jacquie Denny: Well, I think they find that they can have a check in their hands usually within 15-20 business days if we get it done quickly, and usually, at the most, 30-45. And that’s a quick turnaround.

Let’s say you do self-discovery. You’re an investor and you find a bunch of neat things, you send them off to a local auction house; generally, they’ll work some in when they can work some in. With us, it’s focus on that client, at that time, and meet their needs.

It can be a really big value add when you don’t have to work out of your pocket because we’ve just created $10,000-$12,000 for you to work with.

Joe Fairless: And how do you make money, what percentage do you take, and are there other fees?

Jacquie Denny: We do a 40% commission rate, and we get paid after everything sells, so you’re not working out of pocket… Depending on how the investor wants to work. If they’ve got dumpsters of their own and crews of their own and they wanna do the dumpster under our guidance, that’s fine. We partner nationally with Junk King, and they give us incredible rates for our clients, so that will come out of your proceeds; I’m not a trash service, I just facilitate the trash, and I give you the labor to decide what is trash, which is the best part, because a lot of times you go in there and — people walk past stuff and say “Oh, that’s just trash” and I’ll say “Well, then I’ll just take that.” They’ll say “Oh, it must be good then”, and in fact it is good. [laughter]

I will promise you that most of us always overvalue the things we like and undervalue the things we have no appreciation for. It’s those stories you hear where somebody finds a painting at Goodwill and sells it for $20,000 because some kid was cleaning out mom and dad’s house and thought it was ugly.

So you just want a very knowledgeable eye… It’s just like I would try to go in and rehab a house – I’m just not that person. But I can tell you, if there’s anything in there worth money, I can find it and turn it into money for you.

Joe Fairless: Now let’s switch gears a little bit, but on the same topic, obviously, and that is to markets that you’re finding a lot of your new clients in. What are some of the markets? And the reason why I ask is because we’ll know based on your level of business and activity in a certain market perhaps these are markets that there tends to be a lot of opportunities, and maybe if the Best Ever listeners can jump on those opportunities in those markets… And then we’ll talk about some markets that maybe aren’t as hot, but you see coming up or getting hotter to try and be ahead of the curve.

Jacquie Denny: Well, I will tell you that we’re in almost every hot market, and inventory is just — I hear from realtors all over the United States that inventory is low… But the biggest opportunities I see in the real estate market right now is everywhere from Nashville to Charlotte to let’s say Denver… These other cities where people are going in and buying the small, early, (let’s say) blue collar, fringe homes on these up and coming areas and turning them into Airbnb. It is the hottest thing going on in most of our major cities, and most of the kids that are handling mom and dad’s estate, it was mom and dad’s original home, because you know, at that time — when my parents bought their home in ’59, we didn’t sell it until my mom passed away in ’90. So people stayed in their homes. They didn’t continually go bigger, better.

So these small homes that are fairly near really exciting downtown areas are being scooped up by investors for really pennies on the dollar for what they eventually turn them into, and most are turned into these really awesome Airbnb properties, and people love it because they’re close to downtown areas, it’s better than a hotel, you feel like you’re in a nicer environment. So that’s really the hot trend we’re seeing in real estate in all your big cities, plain and simple.

We just were in Chicago, and I was staying in kind of an offbeat area of Chicago where just all these little blue collar, brownstone homes are being bought up one after another for the same purpose. So it’s a trend, of course.

And then I think the other real estate trend that no one has really figured out yet, and because I’m a baby boomer and I’m part of the largest part of the baby boomer group, is that all of us are going from big four-bedroom homes and we’re all looking for that open floor plan, ranch style, and if somebody figures out how to penetrate and create that market, I will tell you me and every one of my 240 friends is looking to do the same thing in the next five years.

You take that times my age group nationally, and there’s an opportunity for someone to capitalize on that market.

Joe Fairless: And just so I’m clear, you’re talking about taking that house and doing what with it?

Jacquie Denny: Well, we’re all going from big homes; we all have four bedrooms plus homes. But what we’re all looking for is the homes that were being built in the ’50s, if you remember the gold medallion homes by [unintelligible [00:17:23].06]

Joe Fairless: Yeah.

Jacquie Denny: So we’re looking for that home again because it’s the right size, just about 2,000 square feet, but we’re looking for open floor plan, for ambulatory [unintelligible [00:17:33].14] reasons. So there’s a few builders and really pockets that have started building that. But if someone builds that on a large scale to accommodate this generation downsizing the next ten years, they’re gonna be able to name their price, because in Cincinnati if a one-floor plan goes on the market, it’s generally sold within 48 hours, without exception, and it doesn’t even matter what the condition was, because we’re willing to turn it into what we want.

So a big market opportunity there. Two good market opportunities.

Joe Fairless: Well, thank you for that. That is some great information on both fronts, for new business plans, or at least opportunities, in addition to your business model, and it’s something that I think a lot of the Best Ever listeners weren’t aware of.

Based on your experience, what is your best advice ever for real estate investors, as it relates to what you do?

Jacquie Denny: As it relates to what I do, I just think to learn the value in contents as well as the value in the real property, because there’s so much wasting done by dumpster after dumpster going to landfills, in a hurry to get to the property and get it flipped and resold. But people can just take a two or three-day window and address the contents in the right way. It’s gonna diminish the cost of the project for them, and speed it up, really… Because it takes us less time than somebody who’s hiring two 18-year-olds at $20/hour to do it.

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

Jacquie Denny: I’ll do my best!

Joe Fairless: Okay, I know you will. [laughter] First, we’ll hear from our Best Ever partners.

Break: [[00:19:24].19] to [[00:20:26].13]

Joe Fairless: Okay, Jacquie, what’s the best ever book you’ve read?

Jacquie Denny: Man’s Search For Meaning, by Viktor Frankl.

Joe Fairless: Powerful, powerful book. Best ever deal you’ve done from a business standpoint?

Jacquie Denny: Building Everything But The House.

Joe Fairless: What’s a mistake you’ve made in business?

Jacquie Denny: Not taking enough risk, being too conservative. Another book that I love is “Who Moved My Cheese?” That’s a small book about my [unintelligible [00:20:49].00] looking for the same cheese. I think most of us live in that moment way too long… So not being a big enough risk taker. And I just learned that I came into this world with nothing; if I end with nothing, I’ve broken even. It helped me with that mentality… [laughter]

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

Jacquie Denny: My big giveback is every client that I serve, because I bring to the table a very transparent, honest process to help move them forward out of very emotional transitions, and instead of it costing them an arm and a leg to now get a house empty, I give them money to do the upgrades on their house to sell it at a better price. So that’s our giveback.

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

Jacquie Denny: www.EBTH.com.

Joe Fairless: Outstanding. Well, Jacquie, thank you for being on the show. Thanks for talking about what you do, which is probably second nature to you, but it’s not for a lot of the listeners, myself included. I did not know about this business model and I did not know about this option. I guarantee there will be Best Ever listeners who have been thinking about missed opportunities from previous homes, especially with the quick turnaround (a week period) – that’s very important with investors… And just the additional revenue stream. I mean, quite frankly, I don’t care what you charge, as long as it’s more money than I would have made if I had thrown it out… Which it would be more money than I would have made if you weren’t present.

It’s a really interesting business model and it can help us as real estate investors. I’m grateful we had a conversation about this, as well as what you’re seeing from a more macro level, from a non-real estate investor standpoint, but just from someone who is a business owner and has access to different markets and just intelligence within a certain demographic.

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

Jacquie Denny: Thanks, Joe.


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JF955: How to PREPARE for a Conference Call with a BIG MONEY PARTNER, Trip to Texas, and Your Questions Answered #FollowAlongFriday

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Ever felt nervous preparing to talk to a big money partner in a potential deal you would like him to be a part of? Well, Joe and Theo are going to cover how to prepare for that phone call and what message you should convey. Hear about Joe’s recent trip to Texas and some questions from our best ever listeners are answered.

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Joe Fairless: Best Ever listeners, how are you doing? Welcome to the best real estate investing advice ever show. I’m Joe Fairless, 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, as usual, to do Follow Along Friday, Theo Hicks. How are you doing?

Theo Hicks: I’m doing good, Joe. Glad to be back.

Joe Fairless: Nice to have you back, nice hanging out again. Today we are going to talk about a couple things. Do you want to take it away and give us an overview?

Theo Hicks: Yeah, we’re gonna talk about a couple things. First, you had a trip to Texas this past weekend to look at some of your apartment complexes you already own, as well as potentially some new ones, so we’re gonna talk about that. Then we’re gonna talk, secondly, about how to prepare for a conference call with an investor when you’re presenting a new opportunity… Because that’s what we did last night.

Joe Fairless: Yeah, it’s fresh in our minds.

Theo Hicks: Fresh in our minds. Then, finally, we have a question from a listener about raising money for a deal and how to structure the partnership based off of his specific situation. So we’re gonna start off and maybe give a brief overview of how your trip went this weekend.

Joe Fairless: Yeah, absolutely. And by the way, Best Ever Listeners, if you’re listening via the podcast, then you can also watch the video of this on YouTube. What is our YouTube channel?

Theo Hicks: It’s YouTube.com/c/bestevershow.

Joe Fairless: Or just search “Joe Fairless” on YouTube and you can see the video. Or, if you like the Facebook page that we have, then you’ll see it live and you can comment live, next week or whenever.

So the trip to Texas. This past weekend was actually a trip to Texas, and then a trip to New Orleans for my bachelor party. Those were two completely different trips. The trip to Texas – that was business related, and it went really well. Specifically what I did was I met with 10 or 11 investors. Also, most people are in my consulting program, so they met me at the property we have under contract; it’s a 202-unit in Fort Worth, Texas.

We did a tour of the property, a walkthrough… What you wanna do when you do a tour – it depends on your business model on the property I guess, but our business model is we renovate the units, increase rents, and provide the main value add that way. There’s also some additional things like optimizing expenses, [unintelligible [00:04:46].13] and then doing some other income things like putting fencing around ground floor units and things like that.

But primarily it’s renovating units and increasing rents. What we always wanna do if that is our business plan is see what a nonrenovated unit looks like, and if they have done any renovations – which would be ideal, if they’ve done a very small percentage of renovations – see what a renovated unit looks like, and then determine if that renovated unit is comparable to other renovated units in the area based on what they’re getting in rent and what the others are getting in rent.

Basically, you want to validate your assumptions on the renovation premiums and your rent comps. That’s where all roads lead back to. You wanna make sure you get the rent premiums and you wanna make sure you have the correct rent comps. Those were the two primary areas of focus.

In addition, doing other things that you can’t do on paper, you have to do in person – getting a feel for the resident profile that lives there, the type of cars in the parking lot… I mean, there were Lexuses and Mercedes; this is a nice property, built in 1998, in a very, very nice area. So that was the primary focus for the trip.

In addition, I visited two other deals that we are close to getting. Both of them would be off-market deals. More to come on those if and when we do get them. I don’t know for sure, nothing’s under contract, but they are off-market deals that came to us via a broker that we have a really good relationship with and we’ve closed other deals with.

If you’re looking for off-market deal, then broker relationships have been the primary way we’ve gotten off-market deals. Yes, you still pay a broker’s commission in that scenario, but you don’t go through the competitive bidding process that you normally would. You might wonder, “Well, what the heck is the benefit for the seller to do that?”, and that is it’s a much faster, more streamlined process.

For example, the property that we have under contract right now – I was told there were 37 tours, because it was a competitive bidding process. So there was 37 groups that went and toured the property. Can you imagine how many questions they all have for the brokers and the owners? Because the brokers certainly weren’t able to answer all of the questions. And those were just 37 groups that physically toured the property. So if you’re wondering what’s the motivation for a seller to do an off-market deal, that’s a primary motivating factor.

Then also, they wanna make sure that they’re getting a good price, so we’re by no means stealing these deals at 50 cents on the dollar, but we are getting a little bit below market price with the property that we like.

Anyway, so we visited those two, plus the first one that we have under contract – so that’s three, and then we closed on two deals, over 500 units, over the last couple of weeks. I visited those, as well.

And lastly – so I guess I visited six properties. Lastly, I visited another property that we own in the same submarket as these other ones, because I was in the area. It was a very busy trip, it was a very productive trip, and that’s the focus when I go to visit a property.

Theo Hicks: Something you said there that was interesting is about the cars in the parking lot. I remember that was in our new book, Best Real Estate Investing Advice Vol. 2, Grant Cardone’s chapter… He was talking about – obviously, he does more due diligence, but he’s saying that he can do a quick judge on a property based off of a lot of different reasons, but one of them was cars they saw on the street. I thought that was interesting that you brought that up.

Secondly, when you were talking about the two primary things that you focused on during a tour are to prove the rents premium that you’re gonna get from renovations, as well as the comps. For the comps, [unintelligible [00:09:05].20] what do you do to get those? Do you actually go to the property, pose as a tenant? How do you go about understanding the rental comps?

Joe Fairless: Three ways. One is if there’s a broker, then he’ll provide rent comps. That’s just the first way, and you do all three. So there are three ways to do it, and you must do all three. First is the broker and the rent comps they’ve provided. The second is doing your own research and making sure that those rent comps are actually the correct rent comps by simply doing a Google search and seeing what other apartment communities are within driving distance. It depends on the area… Five miles – a five-mile radius is usually acceptable, but again… In New York City it wouldn’t be a five-mile radius, because the island is like seven miles wide, or something. I might be off on that, but only by a couple miles.

Then the third way is you get your butt into those apartments. I’m glad you mentioned that, because I told the group I met with – my investors and some of my clients when we visited – to dress like a B-class apartment community resident, because we’re gonna be doing rent comps. You go in and you ask him about the apartment, and you go look at the renovated unit and you get a first-hand look. So those are the three ways that we validate the rent comps.

What I will mention on the car thing, one additional tip is when you visit the property, if it’s during the work hours, are there a lot of cars in the parking lot? Because if so, do you have a lot of successful, working from home entrepreneurs living in your apartment community? Probably not. Are they unemployed? That’s the more likely scenario if you have a whole bunch of cars in the parking lot during work hours.

Now, of course, there’s second shift and third shift, which I was introduced to when I moved to Cincinnati… I didn’t know what third shift was, I thought it was a restaurant… So there are exceptions, but if there are a lot of cars in the parking lot during the work day, then that’s at least a signal to continue to do more due diligence into that, and specifically do due diligence into the economic occupancy, versus the physical occupancy. Economic is the people who are paying to live there, physical is people who actually live in there. And how you do that is I recommend doing a financial lease audit with a professional – either a management company (they would do that) or you hire a third-party. But ultimately, you wanna juxtapose the bank statements with the P&L that they’re reporting and make sure that it all matches up with the rent roll. So bank statements, rent roll and the P&L – make sure that all matches up.

Theo Hicks: I’ve got a great Follow Along Friday… We’re gonna shove a camera to our chest and we’re gonna do one of those rental comps, so you can see what it’s actually like to do it, because we did that when we went to Columbus.

Joe Fairless: We did that.

Theo Hicks: It was interesting. Out of the six you went to, one of those was the property that we did the conference call in last night.

Joe Fairless: Yes… Smooth segue…

Theo Hicks: That was a good segue, wasn’t it? [laughter]

Joe Fairless: Smooth segue.

Theo Hicks: The idea is to talk about how to prepare for that investor call, because this is my first time actually listening in on one of your calls, and I was on the e-mails when you and your partner were preparing for it, and I thought it would be good for the Best Ever listeners to see what you do to prepare for these things.

Joe Fairless: Yeah, this is important, and it’s fresh on my mind because we just had the call last night… And I think we do it the right way, because I’ve been on other calls before, and I like our format. I’ll share with you how we do it, so that if you’re raising money you can do the same thing.
First is you have to get your part right. What I mean by that is why are you presenting this opportunity to investors? I have a Word document outline that I use during the call, and at the top I mention in bold “I’m here to serve, I’m here to help my investors retire, do what they want with their money, and ultimately do what they want with their time. When they get the returns that we’re projecting, then they’re going to be able to spend their time the way they wanna spend it”, which I believe will help everybody out, because I think when you spend your time how you wanna spend it, I think people naturally gravitate towards doing more altruistic things (that’s just my personal belief).

So starting out with the right mindset, as well as coming from the heart and knowing that you’re there to serve – that’s the first and foremost thing.

After that, as long as you know what you’re talking about, everything else just falls into place. I’ll give you the template. The most important point that I wanna focus on is capital preservation, because when we do our underwriting we’re conservative in the underwriting. I’ve interviewed a lot of people, and my own personal experience, and every psychological study proves us out, that you’d rather not make a dollar than lose a dollar. When people lose money, that’s much more of a hit than it is a gain when you make money, therefore capital preservation needs to be present and discussed throughout the conversation, assuming that it is a conservative investment in your projections. That’s another point.

Then the next part is the introduction – I just write a simple intro of my background, and then I structure my conversation with investors in three categories – one is the deal details, two is the market details, three are the team details. Those are the three categories.

I know what the main highlights are for that particular deal, therefore before I go into those three categories – the deal, the market and the team – I tell them from a high level, “Here are the main couple reasons why I like the deal”, because I wanna focus and continue to reiterate the main points. I don’t want to discuss all these data points and get everyone’s minds swimming in numbers; I wanna make sure that the points I wanna make about the deal are clearly and consistently reiterated and communicated.

Therefore, with this deal, the main two points that I have are exceptional location and proven business model with a proven team. I lead off with that, and that was the theme throughout each of the categories. Then I went into each of the three categories – the deal, the market and the team, and just talking through the highlights… It’s important if you say something like “It’s an exceptional area” – you follow it up with “…and here’s why”, versus just throwing out hyperbole.

You always want to have stats, but then even better will be when you have the stats and you start telling your story. So for example, our deal was in Fort Worth, and I mentioned that it’s an exceptional area, the population is growing, and as a reference point, the U.S. Census Bureau named it the number one fastest growing city in the United States, because they grew 47% in population from 2000 to 2015. And you could leave it there, but then you say, “…and here’s why.” So you wanna discuss they why behind it, and I mentioned the job growth, job diversity, and I gave some specific employers. That was the macro level for that market.

Then I went into the micro level for the submarket. I talked about the school district and the specific employers within that 3-5 mile radius. It’s important during your investor conversations – and this was a conference call with a lot of investors on it – to first off know what you’re talking about (duuh!), but mention the numbers and mention the reason why behind the numbers, not just state the numbers. Tell a story, and then make sure that you are hitting the points that you need to hit, that you’ve predetermined are the most important selling points or desirable attributes for this particular opportunity.

We go through that, I talk for 15 minutes or so, and then Frank, my business partner talks for, say, 20 minutes. He goes into the deal and more detail from an underwriting standpoint. He talks about the business model in detail, he talks about the financing we’re getting etc., and then we go into a Q&A session. Investors e-mail me questions; I mention my e-mail on the call, and then they’ll e-mail in questions, and then I’ll be receiving the questions. Some of them I just reply via e-mail right back to, most of them we field on the call. It’s recorded by FreeConferenceCall.com, super simple, and then we send out the link to the recording afterwards to everyone, because probably about 40% of the investors aren’t able to attend the call, because everyone’s got stuff going on, so we send it out to them.

That’s how I prepare, that’s how it’s structured. I’m gonna summarize in 30 seconds or less the document. Know your why – know why you’re doing it, know the main one or two selling points of the property that you want to reiterate, and structure it: deal, market and team. When you do that, then it’s a very concise conversation and you’re able to have an effective call.

Theo Hicks: You said that perfectly. One quick follow-up question… Obviously, when you’re creating this document, you kind of summarized the why and then one or two unique selling points that you’re gonna use throughout the document – all of this stuff is all written out, and I guess my point is a couple of them are kind of like mindset ways to prepare  yourself before going into it… Was that something that you literally have written at the top of the document, that says “This is my mindset going into it – giving – and I focus on capital preservation (that’s next), and then here are my two or three selling points”, and then you type out market, deal, team, and you type out all the things below that. Is that how it works?

Joe Fairless: Yeah, I literally wrote out on my document yesterday before the call the reason why; I’m here to serve, help them retire faster, and a couple other bullet points. Because it could be nerve-wracking to be on a call with a lot of investors, but it’s only nerve-wracking if you’re inside your own head. It’s not nerve-wracking if you’re there to serve others… Because if you’re there to serve others, then you’ll get out of your own way to go help.

So that helps, and completely remedies any nervous feelings that I have prior or during the call, because I know I’m just here to help them, and they need this information, so I’ve gotta present it to them.

Theo Hicks: I think I remember something else you said, too… I think you said something about podcasting. Before you go on a podcast, you smile really big to kind of get your body [unintelligible [00:21:02].24] something else that I do, too… Because the goal is to get outside of your head, so I’ll try to just be very mindful of the situation. I’ll literally say out loud, “Here’s my microphone. It’s got a little blue, shiny light on it.”[laughter] Right now I’d be looking at — “Here’s a microphone with an orange on it.” It kind of just prepares you and makes you mindful, in the present, because you’re not stuck in your own head and thinking about, “Oh, what am I gonna say? What exactly am I gonna say for the next 30 minutes?”, which is obviously impossible. I think those are all kind of the same thing. It’s all about getting outside yourself, and not just being stuck in your own head.

Joe Fairless: Yeah, exactly. I like that.

Theo Hicks: Anything else about preparing for an investor conference call before we get into the last section, which is a Best Ever listener’s question?

Joe Fairless: No, let’s go straight to the question.

Theo Hicks: Okay. Kevin submitted a question, and he says:

“I have a deal, and I’m an experienced investor. My buddy wants to invest in it, but I’ll be managing the deal with the property managers, so having him – I believe his friend – be the limited partner and supplying the down payment, and then me coming in with 0% down and being the general partner. The cash-on-cash return for the deal…”

Joe Fairless: Let me just pause to make sure I… Experienced investor, he’s not putting any money in, his buddy is putting the money in, and his buddy is managing it?

Theo Hicks: I think the situation is it’s Kevin, it’s his friend, and then a property management company.

Joe Fairless: Okay, got it. So a property management company – third-party, they’re managing it. He’s not putting money in, his buddy is putting all the money in.

Theo Hicks: Yeah.

Joe Fairless: Okay.

Theo Hicks: He says: “The cash-on-cash return for the deal is about 14%. The question is how would I structure the percentage for myself?”

Joe Fairless: However you CAN structure the percentage for yourself. The beauty of multifamily syndication is that you’re only limited by your creativity and what the market commands. In this so far – and I know there’s a couple more sentences… So far I don’t know what he’s bringing to the table. He’s an experienced investor… If it’s experience and that’s it and he’s not putting any of his own money in the deal, I don’t find that very valuable, because there’s not alignment of interest, and I don’t care how much experience someone has, if they don’t have their own money in the deal, then there’s not as much incentive for them to help out and use that experience. It’s likely that they would use their experience to go work on projects that they have their own money tied to. But maybe he’s got something new for us in the last couple sentences.

Theo Hicks: He says that “The business plan is holding and refinancing in five years. I was looking for a percentage of income plus money at the end. So I guess this is a second question, but the loan would be under my name, correct? Or would it be under the LLP…” – I’m not sure if he means LLC or Limited Partner – “…with him guaranteeing the loan?” So I guess not more information on what he’s gonna bring to the deal, but more of what he wants…

Joe Fairless: He’s implying that he’s signing on the loan, so that is adding some value, so now I’m seeing a little bit more… The short answer is in this scenario get what you can get. If I’m him, I’ll give you some specific benchmarks for a loan — I’m pretty sure we did a YouTube video on this…

Theo Hicks: Yeah. We’ll put it in the show notes, and I’ll put a link in the YouTube video, as well.

Joe Fairless: Okay. And you can go to MultiFamilySyndication.com and the video will be there as well, along with all the other videos that we’ve done. But we did a video on what the individuals who sign on loans with you on a deal get compensated, and one example is a quarter of a percent of the loan balance paid annually, and then maybe a small ownership interest in the deal, like 5% or something… I mean, that’s pretty generous right there, I believe. Maybe too generous. You could just be 0.25% on the loan balance.

If it’s a recourse loan versus a nonrecourse loan, then I would crank that up more, because you have more personal exposure. But if you’re not putting any money in the deal, you’re just bringing your experience and balance sheet, and you have a third-party management company, somebody’s putting all the money up – you’re providing value for the deal, but it’s certainly not the majority of the value, because it’s just signing on the loan and giving some tips during the asset management phase. If you’re also doing asset management, then perhaps have a fee for that, and that’s your compensation; 2% of the collected income every month.

So I will give you the summary of what I suggest based on this information. One is if you are doing the asset management – which makes sense if you’re the experienced investor in this group – then 2% of the collected income paid every month. So if the property collects $100,000, then you’d get $2,000 every month.

The second is the loan sponsor guarantee of a quarter of a percent. If it’s ten million dollars, I think that would be $25,000 paid annually, if that math works… But 0.25% if that math doesn’t work.

Then the third would be maybe get a small ownership percentage in the deal. I think that’s stretching it, based on the role that you describe. But if your role is greater than what I believe it to be based on the information we’ve read, then up to 5% of the general partnership or of the deal. And as far as signing on the loan, the loan fee is based on your signing on the loan.

Theo Hicks: When I heard this question – let me know if you think I’m wrong – I kind of interpreted it as besides him signing on the loan, that he’s gonna have maybe some kind of a mentorship role to this guy who’s doing the deal. But I guess he said that he himself has the deal, so that wouldn’t be the case.

Joe Fairless: Oh, he’s bringing the deal, too?

Theo Hicks: He says, “I have a deal”, so he’s the one that’s bringing the deal, so I guess the value he’s adding is he has a deal and he’s signing on the loan, and then…

Joe Fairless: He’s doing the asset management. Yeah, so 5%-10% if you have the deal… But you’re not putting any money into it. That would be probably 10% if you have the deal, but if you co-invest alongside them, then I think you can increase that to 30% of the deal.

Theo Hicks: Awesome.

Joe Fairless: Cool. Well, Theo, where can the Best Ever listeners get in touch with you?

Theo Hicks: TheoHicks.org or the Unplugged Podcast on iTunes.

Joe Fairless: Alright. Best Ever listeners, I enjoyed our conversation today. I hope you have a best ever day. We’ll talk to you soon.


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JF948: NEW DEAL CLOSED, and a New Show Feature You’ll LOVE! #FollowAlongFriday

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Joe recently closed on another apartment community which he hinted in a previous episode, hear how he grabbed this one and why it was the best deal against his competition. Joe and Theo answer questions from the best ever listeners regarding financing large multi family Communities, single-family homes, and small residential multi families.

Hear about the new feature the show has released, you’ll be glad as it will be an amazing tool!

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

With us today to do Follow Along Friday, like we usually do, Theo Hicks. How are you doing?

Theo Hicks: How’s it going, Joe?

Joe Fairless: It’s going well. We’ve got some exciting stuff happening. We’re recording it on Monday, because we wanna get the show edited and everything, ready to go for the podcast listeners on Friday. So today is Monday when we’re recording it, and we’re closing on a 314-unit property today, so we’re gonna talk a little bit about that, as well as another deal we’ve got going on, and answer a couple questions that have been submitted by the Best Ever community, as well as an exciting announcement about a feature of the show that you’re gonna love; it’s gonna be really beneficial to you. How do you wanna kick things off?

Theo Hicks: Last week we talked about your one deal, and I know this deal is actually across the street, and we’ve actually talked about how you went out finding that deal, about how to find deals in a hot market and how you essentially reached out to the broker who knew the person that owned the property across the street and was able to work a deal out. And not only were you able to purchase the off market property, but it also allowed you to purchase the on-market deal at a little bit of a higher price, still made sense though financially, but due to the scale and everything we talked about last week, you were able to do that.

Obviously, you’re closing on that one today, so maybe you just wanna talk about the numbers or the plan for that deal…?

Joe Fairless: Yeah, and you summarized it perfectly, so I won’t go into the back-story. If you’re curious about the back-story, about how we found this property and matched it up with the property across the street to close on an off market deal which is below market price, with an on market deal which is right at the market rate, but because we’re combining the two, it’s a below market overall purchase acquisition price, then watch the video “How to find deals in a hot market”. Go to multifamilysyndication.com, and the video will be there. The podcast episode was a week ago, the last Follow Along Friday.

This property – 314 units, and it’s 90% one-bedrooms, but across the street it’s primary two and three-bedrooms. This 314-unit is like a concrete jungle. There’s pavement, and there are buildings, and that’s basically it. It’s really tight quarters. There’s some green space, but as big as New York City one-bedroom apartment green space; there’s not a lot of green space.

Across the street, it’s the exact opposite (which we closed on a week and a half ago). This property – the business plan is to continue to do the renovations on the one-bedrooms — well, all the units have yet to be renovated, which are primarily one-bedrooms, and increase rents through the renovations.

The owner has already done that on a percentage of them, and we’re gonna simply carry it out to the rest. We’ve got a management company that has been working with us on our other deals in Dallas-Fort Worth, and they’re gonna be taking over today once we close. This is actually going to be the third property that we have in Richardson, Texas, which is a submarket of Dallas, and we are closing in on almost a thousand units in the submarket, which allows us to certainly have economies of scale with the operations, but then also, as we’re improving the properties, we’re starting to be able to dictate what the rents can be in the submarket, because we’re starting to own more and more in the submarket.

Chad Carson – I interviewed him a while ago; you can search his name and my name… The title of the episode was “Stay local and dominate”, and while I’m not local, because I live in a different state from Richardson, Texas, I am seeing how that strategy is playing out by investing in an area. Perhaps instead of “stay local and dominate”, if you’re not investing locally, then perhaps it is “stay focused and dominate”, and that can be applied in many ways. In this scenario, stay focused on a particular submarket and dominate that submarket. I’m seeing that we’re able to get a lot more traction as a result of getting more and more properties in this smaller area.

Theo Hicks: I know, because I’m obviously working with your partner and you, and learning a lot more about multi-family… And something I learned is that when you’re underwriting a deal, you’re either going through the renovation process, or you plan doing the additional rehabs, you look at what the previous owner has done renovation-wise and see if the rent increase is based off of that.

I guess a question going off when you’re talking about how you’re focusing on that one submarket you’ve got over 1,000 units in, are you able to use your own properties as comps now?

Joe Fairless: Yes.

Theo Hicks: And if you happen to buy a property that you have not renovated yet and you don’t necessarily know what rents they’re going to demand, you know you’ve got a property down the road that you did these upgrades to, and you’ve got a hundred-dollar rent premium, therefore you know that — maybe you could buy properties that other people maybe couldn’t buy, because they don’t necessarily know what the rent premiums would be based, off of previous projects… I just think of more benefits of that strategy we were just discussing.

Joe Fairless: That’s a good thought process. Yes, we can and we haven’t yet used our properties as rent comps for the acquisitions. It’s certainly something to keep in mind, because we know what we’re doing down the road with our property. You mention an interesting thing, where having a seller who has already proven the business plan of renovations and rent premiums – well, I know we have apartment owners who are listening… If you are thinking of selling, then think about renovating a small percentage, say 10% of your units; renovate them, get that rent premium, that way you prove the business plan of being able to command those rent premiums, and that will allow you to sell to someone like me, who wants that plan proven because it mitigates the risk for whenever I go in and I buy the property.

That will allow owners to get a premium for their property too, and rightfully so, because it shows the business plan has been tested… Maybe not proven, if it’s only 10%, but at least it’s been tested and you’ve received it. So there’s the flipside to that that I wanted to mention, as well.

Theo Hicks: That’s a good point. That definitely made the deal a lot more attractive. Something else you mentioned when you were talking about the differences between the two deals – because again, as we talked about in the last podcast, the [unintelligible [00:09:30].20] the bedroom sizes, the amenities… And one of the amenities you were talking about was a green space, and I was just thinking, how important is that when you’re looking at a deal? Is that something very important? People want green space, or does it depend on the area or the tenant?

Joe Fairless: It depends on everything you’ve just said. I lived in New York City for ten years, so I’m picturing the building I lived in on 9th Street and First Avenue, for nine of those ten years. There was no green space at all. I walk up, five-floor building and I was on the fourth floor, and my apartment was the size of a shoebox, and I was paying two and a half times more than what my residents pay in Dallas at a much nicer place. So it depends on your market, certainly.

Also, it depends on the type of resident profile that you have. If you have a lot of, say, students, and you’re doing student housing, then that’s a completely different amenity set than you would want, compared to a property that is more family-focused. And again, you rent to everyone, right? But if you have a primary target audience and you need to cater to that audience… So really it depends on who’s your audience. All roads lead back to the customer first; thinking about the customer first, and then making sure that your customer is fine with what you have there, and if not, what can you incorporate to make it a little bit better?

In our property we have a lot of students because it’s close to a local college. Then we also have a lot of day laborers and people who are in construction, and people who recently got divorced and are moving in — because this is primarily a one-bedroom apartment community. So really it’s more of a transitional place, where they’re likely not gonna be staying for ten years, probably more at most four, five, six years (at most, best case scenario).

We wanna make sure that the interiors are really top notch, and that’s why we’re doing the renovations. There is a pool on-site. There’s a tiny little area for kids to play, which when I was there, they were; it’s a very tiny area. There’s not a whole lot we can do with it on the outside, other than maybe help with some landscaping, which we’ll plan on doing. But really, it’s on the interior – that’s where we’re gonna focus our budget for the capital improvement dollars.

Theo Hicks: Okay. I’m really curious to see how this plays out, because you’ve got the one-bedrooms where you don’t expect people to stay in there for ten years. Technically, a deal where they move into the one-bedroom, and then — I guess I’m wondering what percentage of people are moving into the one-bedrooms and then end up moving across the street in the two or three-bedrooms, maybe find a family or whatever, they’re upgrading to a multi-unit… I wonder how many people will transition into that…

Joe Fairless: Yeah, and then as they continue to progress, maybe we’ll change the apartments and the condos, and we’ll have them buy their own condo. I ended two to three-bedrooms across the street that we closed on a week and a half ago, that is tons of landscaping, tons of area to roam… it’s on 14 acres — I forgot the acreage, but it’s expansive, completely different from across the street. So that’s the deal we’re closing on today, and I”m excited about that one, that’s for sure.

Theo Hicks: Anything else about the deals, or do you wanna dive into the questions?

Joe Fairless: One other thing for investors who are also putting multi-family syndications deals, or really any type of syndication together – we have been awarded one deal, and I wanna talk to you about the process that I go through real quick for working with my investors and how I approach it… Because it will be beneficial for you to learn from my process and either replicate it or enhance it, do it better than I’m doing, or take aspects of it.

So we have a new deal we got awarded… This is in Fort Worth, Texas – a very nice area of Fort Worth, Texas. That’s my hometown; I was raised in Fort Worth, Texas in Aledo, West Fort Worth. The property is not in Aledo, but it’s in a very nice area. How I approach it is I send out an e-mail to my investor list, who I have a pre-existing relationship with, I’ve talked to them, I’ve corresponded with them… I send out the e-mail, and it’s an e-mail with about four pictures of the property, and two bullet points: why I like it, along with a two or three-sentence paragraph of just introducing them to the property, and then I mention the minimum investment, the maximum investment… And by the way, the reason why there’s a maximum investment is if they have more than 20% ownership of the limited partnership, then it triggers a know-your-borrower clause by the lender, and they’d be exposed to a pretty exhaustive and detailed financial audit by the lender. 99.9% of limited partners, passive investors don’t wanna go through that, therefore there’s a cap on how much they can invest.

Theo Hicks: I didn’t know that.

Joe Fairless: $50,000 minimum, I think 1.1 maximum for individual investors. So I send that out, in addition to the close date and the funding deadline. I send that out, and in the e-mail I also mention there’s a conference call, and I give the calling details and “If you’d like more information on it, then reply back via e-mail and I’ll send you the investor package.” That’s my initial e-mail to my investors.

For people who are syndicating deals, that’s my initial e-mail to investors, and then they reply back – those who are interested, therefore I know who is interested; I write them down in my spreadsheet, so I’m tracking that, and I send them the package. Then we’ll have a call in about a week and a half. Some people have already committed tentatively, pending review of the information, just because they’ve been investing with me for a while now. After we do the call, then we’ll send out the PPM. We’re working on the PPM right now. Once that gets sent out, then I have in my tracker – which by the way, if you haven’t got the investor tracker yet, e-mail info@joefairless.com and Samantha will send you the tracker that I use for my investor database. It doesn’t have my investors’ names in it, obviously, but it’s the template that you can use for your own people.

After the PPM gets sent out, during that time we’re also gonna have a video… We’ve got a videographer with a drone going on-site, and he’ll be there this week. The video will probably be done in about 7-10 days from now. So I send that out, just to give them a better idea of the property, and then I’ll start getting the PPMs back, getting the commitments back, and then funding is shortly thereafter.

So that’s the process for how I approach it, and that will be helpful for anyone who’s also going to raise money, or currently raising money.

Theo Hicks: Awesome.

Joe Fairless: Cool. Questions – we’ve got a couple questions that we want to address from the Best Ever listeners. What are they?

Theo Hicks: I’m gonna test my vision, see if I can get them from [unintelligible [00:17:24].04] The first question is from Neil Patel.

Joe Fairless: Neil…

Theo Hicks: Neil. Actually, you didn’t hear that last name… So he says, “Thank you for creating such a great real estate community. I listen to your podcast while commuting an hour every day. I’m a newbie to the real estate business, and I’m thinking about buying a quadplex in my area. I was wondering if I need to have a real estate license…”

Joe Fairless: No, you don’t need a real estate license to buy an investment property.

Theo Hicks: And then he finishes off the question by saying “It would be nice if you do a podcast about how you calculate numbers for a property you’re thinking about buying, like a 1% rule or something of the sorts.”

Joe Fairless: Yeah, real simple… We’re talking one to four-unit properties, really simple… This is how I did it whenever I was buying properties. First off there’s a document that I’ve mentioned on my story, part one, two and three; I’d be happy to give that to everyone – just e-mail info@joefairless.com. It’s how I ran the numbers on my single-family purchase, when I purchased them… Characteristics that ruled out certain properties. So e-mail info@joefairless.com and you’ll get that document.

Now I just do the 1% rule and see where it falls on the 1%. What that is is you take the monthly rent, divided by the all-in price (the purchase price + any rehab that needs to be done), and is that 1%? Is that 1.5%? Is that less than 1%? If it’s at 1%, then I consider that the bare minimum. Everyone’s got their own opinion on it… It depends on the area, it depends on what your business plan is, it depends on your goals… But I personally consider 1% the bare minimum. All of my homes, when I bought them, it was between 1.4% and 1.6%.

I just looked on Zillow the other day and they’ve at least doubled in value, but I don’t care, because I am not selling them. The only reason I would care is if I was doing cash-out refinances, which I’m not gonna do right now; I don’t want to. But that’s the general rule.

There’s a document I’m referring to list out the three things I look for at the time, for single family homes. That is “Is it move-in ready, or does it cost at least $1,000 or less to be move-in ready?” Two is “Do I have at least $10,000 in equity based on the valuation of sales comps at closing?” So at closing I want at least $10,000 worth of equity in it. And three, “Does is make me at least $100/month in rent?” and that’s based on the calculator that I use (there’s a link to it in that PDF document).

Knowing what I know now, after interviewing 1,000 people and evolving my business and being in the business longer, I would have purchased deals with more equity in them… Because I was basically buying turnkey properties. But I was just starting out, and I’m glad that I did buy more turnkey properties. Knowing what I know now, I know that the value is created when you improve the property and put some sweat equity in it. That’s what I would do now if I was buying single family homes (but I’m not). So if you wanna know what I was doing before, then there you go, Neil.

Theo Hicks: I’m not sure what the answer to this is, but the 1% rule – how high up in unit size would that apply to before it no longer works? Is that all unit sizes, or just for single families?

Joe Fairless: I would just do it for one to four units, because after that you’re dealing with technically commercial properties – or at least commercial loans – different structure, and there is different considerations for that.

Theo Hicks: Okay.

Joe Fairless: It is interesting, because I’ve done this before on my apartment deals. It is interesting to do that on, say, a 200-unit apartment community. Okay, I’m buying it at $70,000/unit; what’s the average rent? But there’s too many variables in play for a larger apartment community to use that as a rule of thumb.

Theo Hicks: So one to four units.

Joe Fairless: Yeah.

Theo Hicks: Alright, Neil… We’ve got you, and thanks for being a Best Ever listener. Our next questions – a couple of questions, and one is from Ale. He says, “If you don’t mind me asking – we don’t mind – how were you intending to finance your initial attempt at purchasing a multi-family unit in Tulsa?” This is based off of him listening to your part 1, 2, 3 series, and how you mentioned you were first looking in Tulsa for your properties. He’s asking how did you plan on financing that deal? “I believe you had already left your W-2 job by then, so wouldn’t it have been easy to secure a mortgage? Did you already have –”

Joe Fairless: Oh, I thought you were gonna pause. [laughs]

Theo Hicks: Yeah, I’m gonna pause.

Joe Fairless: Alright, the first question is how did I plan on financing my first property (my multi-family property) in Tulsa? I had left my job and I was planning on financing it by partnering with a high net worth individual; they would get approved for the mortgage and I would also be on it, but they were gonna be the balance sheet and the borrower primarily.

Theo Hicks: So you had one person do it?

Joe Fairless: Yeah. Again, this is when I first got going, I was wet behind the ears… But yes, I was going to, and we ended up looking for properties around the 30-unit range, but did not find anything, and then moved on. Are there other questions on that first deal?

Theo Hicks: Yeah. He says, “Did you already have reliable funding from potential partners?”

Joe Fairless: The financing was gonna come from a community bank. I was working with a community bank in Tulsa, Oklahoma.

Theo Hicks: Okay. A different question, still about your initial search for deals… “What was the price range – or let’s say unit range, as well – of the properties you were looking at?”

Joe Fairless: A million dollars, around 30 units.

Theo Hicks: Is there a reason you selected that number?

Joe Fairless: Because I thought that I could raise about 200-300k. It turns out I ended up raising over a million dollars, and it was over 150 units on my first multi-family deal. So I had exceeded the level that I thought I could play at, but that’s what I was originally going for.

Theo Hicks: Which is awesome, because some of the people [unintelligible [00:24:08].17] talk about the Grant Cardone 10x rule, like setting a goal 10x higher than – not necessarily what you plan on hitting, but if you wanna get 30 units and you say “I wanna get 300 units”… But you can’t say you’re gonna get 30 units, but you [unintelligible [00:24:21].19] It’s interesting.

Joe Fairless: Yeah.

Theo Hicks: Next question – “Do you approach multi-family units mainly as private equity syndication with or without bank loans? Are you the sole owner of some of them?”

Joe Fairless: They’re all syndicated. We have bank loans on all of them, and I am a part owner in all of them, but not a sole owner in all of them, because they are syndicated.

Theo Hicks: Okay. And he asks, essentially, would your approach criteria be different for duplexes and units up to four dwellings, versus single family homes.

Joe Fairless: I would give more leeway to the area, being a little worse on 2-4 units, compared to single family homes. Because I think with 2-4 units, if you were to sell, you’re dealing with more of an investor type, whereas a single family home – you would like be dealing with investors or people who want that as their primary residence, therefore the area will be a little more important. But 2-4 units, primarily investors, so it’s not as much about the area as it is the cash flow of the property… Otherwise I run the numbers the same way.

Theo Hicks: You’re talking about the 1% rule up to four units, so that’s kind of somewhere there…?

Joe Fairless: Yeah.

Theo Hicks: So those were all the questions, so we got those out of the way.

Joe Fairless: Awesome.

Theo Hicks: And the last thing we wanna talk about is the new feature.

Joe Fairless: New feature! You love this!

Theo Hicks: I do love this feature!

Joe Fairless: You love this feature! Alright, Best Ever listeners, here you go… We have every episode from this point forward being transcribed, so if you’re wondering “Hey, I heard so-and-so, or someone mentions this particular thing on a podcast today or last week, but I don’t remember which podcast it was…”, all you’ve gotta do is go to the BestEverShow.com and search for whatever you remember, and it will come up. Before, you’d have to have a good memory and take notes on every episode – which you still should do – but at least now we’ve got something to assist you in your searching.

This is only available at our website, so you have to go to the website and check it out, and read the transcriptions. We didn’t wanna put it in the show notes on your mobile device because it would be an intense amount of text to go through, so it’s only available on our website, BestEverShow.com. You can go there and read the transcription. It’s beautifully formatted; it’s like “Joe Fairless: blah-blah-blah” (what I say) then “Theo Hicks: blah-blah-blah” (what he says), nice and bold. So if you want to simply read through the episode in addition to listening, or if you just wanna read through episodes from this point forward, go to BestEverShow.com and click on the actual episode, and below you’ll see the transcription.

Theo Hicks: Yes, I like that feature a lot. I know some people learn very well through reading and some people learn very well through listening, so we kind of get that dual approach… But for me personally, I like to do both. I like to read something AND listen to it, because I just absorb it so much more. So yeah, it’s an amazing service, amazing idea… And again, it’s listed very beautifully down, list by list, all of it is in there.

It’s even nice for the Lightning Round too, at the end. You can kind of go quickly read through the Best Ever Lightning Round for the deals, and their mistakes… Or you can go straight to the Best Ever Advice, instead of having to scroll through the podcast, that bar, back and forth, to find exactly where it started. So it’s helpful for a lot of reasons.

Joe Fairless: Excellent. Best Ever listeners, that’s all we’ve got today. I hope you have a best ever weekend, and we’ll talk to you soon!



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JF909: Why He DOESN’T “Cherry Pick” Good Deals

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Real Wholesaling done right is rare, and only a few people in every market really do it. What do we mean? Being direct to the seller and assigning the contract or double closing on the property to an end buyer who really gets a lot of meat on the bone… That’s a great business! Hear how our guest adds tons of value to other rehabbers and why he doesn’t rehab the best deals!

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Sean Cole Real Estate Background:

– Owner at Craftsman Properties
– Been investing and wholesaling houses since 2012, have completed over 350 deals, generating over $2.5M gross profit
– BA from the University of Cincinnati and an MBA from Xavier University with a focus in Finance
– Based in Cincinnati, Ohio
– Say hi to him at http://craftsmanproperties.net/
– Best Ever Book: A Man in Full by Tom Wolf

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JF869: How to Jump into a PARTNERSHIP with NO MONEY

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Napoleon Hill spoke of partnerships in his book Think and Grow Rich, and today we hear about another incredible partnership that took place utilizing the same principles. Our guest brought hard work and hustle to the table without a dime in his pocket and eventually became a partner. It took many hours, learning, and extreme hustle to accomplish this, but it can be done. Hear how he did it and how you can sit side-by-side by your next millionaire partner.

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Coleman Nelson Real Estate Background:

– Co-Founder and Director of Finance and Administration of SNS Capital Group
– In 2 years went from 0 to 65 rental units, worth $3.6 million, with no money, while working a full-time job
– Previously worked for a big 4 accounting firm, with majority of his time working with one of its Fortune 25 clients
– Based in Cincinnati, Ohio
– Say hi to him at https://snscapitalgroup.com
– Best Ever Book: Cash Flow Quadrant by Robert Kiyosaki

Made Possible Because of Our Best Ever Sponsors:

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real estate pro advice

JF849: How to Leverage Brokers to Hustle for Deals

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Brokers are gatekeepers to many deals whether they be single-family or multi family. Our guest love the multi family sector and has found clever ways to incentivize brokers, organize leads, and convert them over time. Hear how he did it and what he’s doing now!

Best Ever Tweet:

Stash Geleszinski Real Estate Background:

– Managing Director at Capstone Apartment Partners
– Certified Commercial Investment Member
– Specializes in multi-family investment real estate in Cincinnati, Dayton, Columbus and Kentucky
– Involved in the syndication and disposition of thousands of apartment units worth more than $100M
– Based in Cincinnati, Ohio
– Say hi to him at www.capstoneapts.com
– Best Ever Book: Think and Grow Rich by Napolean Hill

Click here for a summary of Stash’s Best Ever Advice: http://bit.ly/2iJyYOO

Made Possible Because of Our Best Ever Sponsors:

You find the deals. We’ll fund them. Yes, it’s that simple. Fund That Flip is an online lender that provides fast and affordable capital to real estate investors. We make funding your projects easy so you can focus on what you do best…rehabilitating homes.

Download your free copy at http://www.fundthatflip.com/bestever


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JF804: Ex NFL Jets Player Shares How Lucrative Mobile Home Park Investing Really Is

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Mobile home parks are a different animal…yet do is our guest! Ex NFL athlete Bob Crable shares his successes and failures in his niche, and how he increased the occupancies of many of the parks. Hear how he is doing it and start your mobile home investing venture.

Best Ever Tweet:

Bob Crable Real Estate Background:

– Sales Agent at Capital Real Estate Partners LLC

– Owned and been involved in managing personal investments for 20-plus years

– Responsible for developing sales of commercial real estate in Cincinnati

– Drafted by New York Jets in the first round of 1982 NFL draft and played seven seasons in the NFL

– Based in Cincinnati, Ohio

– Say hi to him at http://www.capitalrealestate.org

– Best Ever Book: The 7 Habits of Highly Effective People

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Best Ever Show Real Estate Advice

JF613: Should You Hire Employees or Independent Contractors to Grow Your Business? #situationsaturday

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A most important decision you will make when it’s time to expand the business is whether to hire an employee or an independent contractor. They are both very different in terms of pay, taxes, and legal safety. Hear this episode to prepare for your business’s future expansion plans.

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Randall S. Kuvin real estate background:

  • Is managing partner at Flagel Huber Flagel and been there for 31 years
  • Call him at 513.583.4041 or visit website at http://www.fhf-cpa.com/
  • Based in Cincinnati, Ohio

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JF514: Raise Private Money through DATING WEBSITES and 3 Other Tips #followalongfriday

Joe shares what he has learned from his mastermind in Cincinnati, and we bet you haven t heard of tip number one! Follow along!

Best Ever Tweet:

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Are you committed to transforming your life through Real Estate this year? If so, then go to http://www.CoachWithTrevor.Com and claim your FREE Coaching Session.  Trevor is my personal real estate coach and I’ve been working with him for years. Spots are limited, so be sure to do it now before all the spots are gone.

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JF477: You Should Have Bought This Mixed-Use Property!

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He purchased a beat up, mixed-use, multiplex that is worth well over $150,000 more than what he initially paid. Inside? Well, he had a commercial tenant and two other residential tenants…and immediately raised the rents! He offered a rent discount in the first year for his rentals to add value and quickly occupy the property. Hear his specific advice for tenant retention and finding great deals!

Best Ever Tweet:

Ash Patel’s real estate background:

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Made Possible Because of Our Best Ever Sponsors:

You find the deals. We’ll fund them. Yes, it’s that simple. Fund That Flip is an online lender that provides fast and affordable capital to real estate investors. We make funding your projects easy so you can focus on what you do best…rehabilitating homes. Learn more at http://www.fundthatflip.com/bestever.

What’s the Best Ever health plan for YOU?

Go to http://www.stridehealth.com/bestever and find a better health plan in 10 minutes or less. On average you’ll save $418 on coverage and care.

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JF 441: How Appraisers REALLY Create Their Numbers

Curious how an appraiser comes up with the numbers on your newly purchased multi family? Today’s Best Ever guest has been appraising homes for over a decade on the commercial and residential side of real estate. He’s an investor himself, and he’s open to share his trade secrets including tips to “play your cards well” with the lender on the purchase and sale end of a transaction. Hear you’re “ah ha!” moment today!

Best Ever Tweet:

Phil Crawford’s real estate background:

  • Host of the radio show Voice of Appraisal in Cincinnati
  • President of Appraisal Stream and is a Certified General Appraiser in Ohio for 16 years
  • Adjunct professor at Cincinnati State for 6 years
  • Say hi to him at voiceofappraisal.com

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Made Possible Because of Our Best Ever Sponsors:

You find the deals. We’ll fund them. Yes, it’s that simple. Fund That Flip is an online lender that provides fast and affordable capital to real estate investors. We make funding your projects easy so you can focus on what you do best…rehabilitating homes. Learn more at http://www.fundthatflip.com/bestever.

What’s the Best Ever health plan for YOU?

Go to http://www.stridehealth.com/bestever and find a better health plan in 10 minutes or less. On average you’ll save $418 on coverage and care.

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JF416: Stop Worrying About Your Goals! Do What Needs to Be Done Every Day! #followalongfriday

New sponsors and updates!!! Stride Health and Fund That Flip have joined the Best Real Estate Investing Advice Ever show and are ready for our Best Ever listeners to reap the benefits! Our host shares an update on his Cincinnati property which should be under contract and in the due-diligence period soon. Joe offers some advice to start a local mastermind, meetup, blog, podcast, or any real estate collaboration which will bring you more and diverse deals. He shares some tips on consistency and how the day to day tasks are more important than the prize at the end.

Best Ever Tweet:


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Made Possible Because of Our Best Ever Sponsors:

You find the deals. We’ll fund them. Yes, it’s that simple. Fund That Flip is an online lender that provides fast and affordable capital to real estate investors. We make funding your projects easy so you can focus on what you do best…rehabilitating homes. Learn more at http://www.fundthatflip.com/bestever.

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JF375: How Do You Close a CLEAN Deal? Here’s How! #situationsaturday

“We’ve been in houses that looked like murder scenes,” shares our Best Ever guest…she gets into the nitty gritty of extensive house cleaning. Starting as a REALTOR in a foreclosure rich market, she saw the potential of large scale “haul outs” and “clean outs”. Hear her worst house that her crew tackled and what methods they used to renew the home from top to bottom.



 Best Ever Tweet:






Sasha Allen’s background:



  • Founder of Swept Away Property Clean Outs
  • Based in Cincinnati, Ohio
  • Been in business for 3.5 years
  • http://www.Sweptawaycleanouts.vpweb.com  
  • Loves photography and takes pictures of people in everyday situations
  • Cleaning and real estate investing



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Patch of Land – Could you do more deals if you had more money? Let the crowdfunding platform, Patch of Land, find investors for you and fund your next deal…and your next deal…and your next deal…and…well, just go find out more at http://www.PatchOfLand.com

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JF374: CHALLENGE! Stick to it for 90 Days #followalongfriday

Excited for a new goal, idea, or inspiring concept? Take Joe’s advice to go a step further than “eureka!”…create an action plan! Joe shares his experience developing the Best Ever show; from a few downloads, to now over 500,000, he expresses the importance of a well-constructed plan. You too can create and build anything from square one, and as a matter of fact, Joe wants to hear about it! Pull out a pen and 90 page notepad…Joe has a challenge for you, and we all want to know your results!



 Best Ever Tweet:





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Made Possible Because of Our Best Ever Sponsors:


Patch of Land – Could you do more deals if you had more money? Let the crowdfunding platform, Patch of Land, find investors for you and fund your next deal…and your next deal…and your next deal…and…well, just go find out more at http://www.PatchOfLand.com

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JF370: 2,900 Units Later, He Knows EVERYTHING about Management

He knows his numbers! Our Best Ever guest has mastered apartment property management, over 2,900 units to be exact. He even sheds light about tenant behavior patterns often seen in high scale residency including how do determine turnover before it happens! Lend an ear to this seasoned investor and property manager.




Best Ever Tweet:







Don Brunner’s real estate background:

  • Chief Operating Officer at BRG Apartments based in Cincinnati, Ohio
  • Previously has been a district manager overseeing 14,000 units between apartments and condos
  • Started his own management company in 2012 and grew it to oversee 24 properties totaling 2,900 units
  • Regional VP of the National Apartment Association
  • Say hi to him at www.brgapartments.com
  • President of a charity called Miami Valley Sports Foundation, which provides athletic and education opportunities ages 8 – 18 in a nine county area



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Patch of Land – Could you do more deals if you had more money? Let the crowdfunding platform, Patch of Land, find investors for you and fund your next deal…and your next deal…and your next deal…and…well, just go find out more at http://www.PatchOfLand.com

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JF367: Don’t Buy the Worst House in the Best Neighborhood, Do This Instead #followalongfriday

Zillow is all over home buyer data, and Joe breaks down an unpredictable excerpt of one of the firm’s latest publication, The New Rules of Real Estate. Hear how the authors are able to predict an area’s appreciation, and which home renovation will land you the most value…can you guess? Hint, it’s not the living room!


Best Ever Tweet:





Two other lessons I learned from The New Rules of Real Estate by Spencer Rascoff and Stan Humphries:
1. The better the Walkability the more your house will appreciate.
2. Owning a home isn’t for everyone
a. Plus, more walkable homes are more resilient when recessions hit
a. Encouraging low-income families to invest in underperforming communities further
traps them because the extent of house gains or losses tie back to the affluence of the
neighborhood in which it’s located (quote from book)
Buy the book here: The New Rules of Real Estate


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Patch of Land – Could you do more deals if you had more money? Let the crowdfunding platform, Patch of Land, find investors for you and fund your next deal…and your next deal…and your next deal…and…well, just go find out more at http://www.PatchOfLand.com

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JF332: Don’t Buy A House Simply Because It’s Cheap for THESE Reasons

Today’s Best Ever guest shares with us exactly how he rehabs and flips properties. Also, if you’ve ever come across a property that is cheap maybe you shouldn’t buy it for THESE reasons.

Best Ever Tweet:

Andy Sturm’s real estate background:

·       Co-owner of Sturm Home Renovation based in Cincinnati, Ohio

·       Been investing in single family home flips since 2012

·       Been working on home renovations for about 8 years

·       Say hi to him at http://www.facebook.com/sturmhomerenovation

·       Loves exotic cars and used to own a Honda S 2000

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Made Possible Because of Our Best Ever Sponsor:

Patch of Land – Could you do more deals if you had more money? Let the crowdfunding platform, Patch of Land, find investors for you and fund your next deal…and your next deal…and your next deal…and…well, just go find out more at http://www.PatchOfLand.com

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JF317: 20 Units By 25 Years Old. Here’s How…

Today’s Best Ever guest is only 25 years old, but has amassed an incredible portfolio beginning when he was 18 years old. He shares with us how to get out of a Freddie Mac owner-occupant contract, and all you need to know about house hacking.

Best Ever Tweet:

Jared Strum’s real estate background:

–          Real estate investor based in Cincinnati, OH but moving to Georgia soon

–          Bought his first property at 18 years old

–          25 years old and has a 20 rental unit portfolio

–          Co-founder of Sturm Properties

–          Part of the only Candlepin Bowling League in Ohio

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Made Possible Because of Our Best Ever Sponsors:

Patch of Land – Want to learn more about crowdfunding? Let the leading expert in the crowdfunding space, Patch of Land, give you all the info you need to get started. Grab your FREE copy of Top Ten Answers to the Top Ten Crowdfunding Questions athttp://www.PatchOfLand.com/bestever

Real Estate Finance HQ – Do you want to get around the 80% loan to value rule and get line of credit for your business? Well, Jimmy Moncrief has the answer! Go to http://www.realestatefinancehq.com/bestever for your free negotiating guide.

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JF264: Have a Big Decision to Make In Your Future? Well, Here’s Your Step By Step Guide to Make the Right One #skillset Sunday

Today, we discuss how to make a decision for something that you continue to question. I have had a lot of big decisions to make recently, and have developed a step by step guide that has helped me come to the best decision for MY life. Apply this to your life today, to be sure you can stand by your decision.

Best Ever Tweet:

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Patch of Land – Want to learn more about crowdfunding? Let the leading expert in the crowdfunding space, Patch of Land, give you all the info you need to get started. Grab your FREE copy of Top Ten Answers to the Top Ten Crowdfunding Questions athttp://www.PatchOfLand.com/bestever

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JF 66: The Four Qualifying Questions Brokers Have When Qualifying Investors

Real estate investing is a team game. And having an All Star broker on your team is stacking the odds in your favor for finding deals and making money. How do All Star brokers qualify YOU as a potential business partner? Listen to today’s Best Ever guest as he shares the four qualifying questions he asks.

Tweetable quote:


 Kurt Shoemaker’s real estate background:

–        Focused on multifamily and this year only has closed on $55,000,000 of deals

–        Associate Vice President at Cassidy Turley based in Cincinnati, OH office

–        Recognized Cassidy Turley Rising Star for 2014

–        Been in business for about 6 years

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Sponsored by: Door Devil – visit  http://www.doordevil.com  and enter “bestever” to get an exclusive 20% discount on your purchase.

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JF 29: Questions You Need Answers to Prior to Your 1st Convo with Commercial Broker

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First impressions go a long way. When you first meet a commercial broker it’s important to make a good impression so that you can build a good relationship with him or her over time. That increases the amount of deals you see and close on.

So, how do you make a good first impression? Bart Weprin shares the questions you should have answers to prior to speaking with a broker.

Bart Weprin’s real estate background:

–        90 transactions valued at nearly 300MM over last 3 years

–        Received award as #1 ranked Eastern Region broker for Sperry Van Ness

–        Over 20 years experience in commercial real estate

–        Managing Director at Sperry Van Ness and focused on multifamily

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Sponsored by: Door Devil – visit www.doordevil.com and enter “bestever” to get an exclusive 20% discount on your purchase.

JF 18: Sneaky Small Stuff that Leads to Big Revelations

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What do window tracks, outlet covers and the sides of dishwashers have in common? Well, Mark Ahern is about to tell you and, more importantly, why knowing the answer will help you initially evaluate the condition of a property faster.

He’s seen plenty of properties in his 25 years of property management experience and is ready to share his findings with you.

Listen to the show to hear his Best Real Estate Investing Advice Ever!

Mark Ahern’s background:

  • Over 25 years in property management mainly focused on multifamily properties
  • Currently oversees management of 1,600 units
  • District Manager at Sundance Property Management located in Cincinnati, Ohio (http://www.sundancemanagement.com/)

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JF 08: Insurance Expert Talks about Risky Investments

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The term “risky” can be a bit vague when it comes to investing but not when you speak to an insurance expert. They underwrite based on historical performance of properties and the characteristics the property has. 

Brian Huwel’s real estate background:

  • Over 15 years of experience in the insurance industry
  • Purchased investment property so see things from both perspectives – the investor & the insurance company
  • Recently created his own company, Huwel Insurance Agency, based in Cincinnati, OH

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JF 01: Lending Advice from a Billion Dollar Lender

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Want to hear from a billion dollar lender? Thought so.

Mic Ginnever’s real estate background:

  • Principal at BlueMark Capital headquartered in Cincinnati, OH
  • Originated over $1,000,000,000 (yes, billion) worth of loans on commercial real estate
  • Been in the lending business over 25 years

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