JF1483: Tenant Management For Small To Medium Sized Landlords with Dave Spooner

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Dave and his company have a free software they offer for landlords to help manage their properties and tenants. They really have what sounds like  a great software and program for struggling landlords, or even just a landlord that could use a little extra help as they are growing. If you enjoyed today’s episode remember to subscribe in iTunes and leave us a review!


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Dave Spooner Real Estate Background:

  • Co-founder of Innago
  • Provides simple, effective, and intuitive tenant management software for small to mid-sized landlords
  • Based in Cincinnati, OH
  • Say hi to him at https://innago.com/
  • Best Ever Book: What Every Real Estate Investor Needs to Know About Cash Flow

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Best Ever Listeners:

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

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

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


JF1473: Best Ever Apartment Syndication Book Part 4 | Execution #FollowAlongFriday with Joe and Theo

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Joe and Theo are back for the final installment of our four part series about the recently released, Best Ever Apartment Syndication Book. This part is all about securing the funds and executing on your business plan. Hear how they execute their business plans for their investments. I’m positive they will mention at least one strategy you have not heard before. If you enjoyed today’s episode remember to subscribe in iTunes and leave us a review!


Mentioned In This Episode:

The First Three Parts of This Conversation:

JF1452: Best Ever Apartment Syndication Book: Part 1 – The Experience #FollowAlongFriday with Joe and Theo

JF1459: Raising Private Money | Best Ever Apartment Syndication Book (Part 2 of 4) #FollowAlongFriday with Joe and Theo

JF1466: Finding and Underwriting Apartment Deals | Best Ever Apartment Syndication Book (Part 3 of 4) #FollowAlongFriday with Joe and Theo


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

Best Ever Listeners:

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

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

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


JF1466: Finding and Underwriting Apartment Deals | Best Ever Apartment Syndication Book (Part 3 of 4) #FollowAlongFriday with Joe and Theo

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After hearing about parts one and two of the Best Ever Apartment Syndication Book, today we’ll learn some more about part three: finding and underwriting deals. To hear what to do in competitive offer situations and more great tips from Joe and Theo, tune in today! If you enjoyed today’s episode remember to subscribe in iTunes and leave us a review!


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Mentioned in this episode:


JF1394: Increase Your Bottom Line By Creating Relationships Among Your Tenants with Pete Kelly

27 Ways to Add Value to Apartment Communities

Best Ever Show Community

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

Best Ever Listeners:

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

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

I have used him for both agency debt, help with the equity raise, and my consulting clients have successfully closed deals with Marc’s help.

See how Marc can help you by calling him at 212-897-9875 or emailing him mbelsky@easterneq.com


JF1459: Raising Private Money | Best Ever Apartment Syndication Book (Part 2 of 4) #FollowAlongFriday with Joe and Theo

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Best Real Estate Investing Crash Course Ever!

Follow Along Friday is back and we’re talkin’ the latest book release again. Joe and Theo are going to tell us about part 2 of the Best Ever Apartment Syndication Book, which is all about raising money. Get an insight to the value this book will bring you by listening in on this episode. If you enjoyed today’s episode remember to subscribe in iTunes and leave us a review!


Best Ever Tweet:


Mentioned in this episode:

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

Best Ever Listeners:

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

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

I have used him for both agency debt, help with the equity raise, and my consulting clients have successfully closed deals with Marc’s help.

See how Marc can help you by calling him at 212-897-9875 or emailing him mbelsky@easterneq.com


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

We’ve got an episode today that will help you attract private capital by aligning yourself with the right team members, especially if you have little experience and little credibility in the industry. Last week we talked about the experience component and how important that is, so this week we’re talking about the ways to attract private capital, as well as to attract the right team members who then help you attract private capital.

It’s a four-part series, and this episode is inspired by the book; it’s not out yet, but it’s available to pre-order. So you can go to ApartmentSyndicationBook.com, pre-order it… You’ve got a bunch of goodies when you pre-order it. Just e-mail the receipt to info@JoeFairless.com and you’ll get all those goodies.

Last week we talked about experience, this week we’re talking about credibility and attracting private money. Let’s get rockin’.

Theo Hicks: As Joe mentioned, last week, the first part, we talked about making sure you have the experience requirements before becoming a syndicator… So it’s having preferably both – past business experience and past real estate experience, but if you’re attempting to do your first apartment syndication, you’ve never done one before, you’re still gonna face a credibility problem in the face of potential passive investors, because if you’ve never done apartment syndication before, they’re gonna want to be confident that you’re gonna be able to return their capital.

So before you even find private money investors, you’re gonna need to address that credibility problem, and that’s where finding experienced team members comes in. That’s why one of the parts of the money part of the book is building your actual team. There’s a lot of different team members you need – you need a property management company, a real estate broker, you need attorneys, a mortgage broker, accountants…

In this episode we’re gonna focus particularly on the real estate broker, and we’re gonna go over some ways to win them over.

Joe Fairless: That is the challenge at the beginning; I know I had it at the beginning whenever I had broker conversations… I thought I was riding on my high horse with four single-family homes that I had at the time, and I thought for sure they would all just fall over and fight to talk to me, since I had these four single-family homes. Not at all… At all, at all, at all. [laughs] They were not very interested in talking to me, because I had four single-family homes, since I did not have experience with apartment communities.

So I personally came across this challenge. I wish I had this episode to listen to whenever I was going through this challenge, because it would have made it a much more seamless transition, and I would have been able to attract brokers quicker, I would have been able to grow faster, in a more effective way… But I didn’t. However, you do, so here are four tactics you can use to attract the best brokers in the market that you selected.

Theo Hicks: Yes. And the idea behind these four tactics is to put yourself in the mind of the broker and ask yourself “What do they want?” and based off what they want, how can you show them that you can get them what they want? At the end of the day, they wanna make their commission; in order to make their commission, they have to be confident that once they find a deal, the person they send it to has the ability to close. So since you’ve never closed on a deal before, you can’t leverage your past experience; instead, you can do these four things to prove to the broker that you are going to be able to close on a deal.

The first one, kind of obvious, but just pay them a consulting fee. So instead of waiting to pay them after closing on a deal, offer to pay them a couple hundred dollars an hour for their time. So if you are visiting properties with them, if you’re having conversations on the phone with them, log that time and offer to pay them a consulting fee.

Joe Fairless: I actually don’t think that’s obvious at all. I didn’t know of anyone who had offered that, and I forget the guest – maybe you remember the guest who mentioned this. He’s in the Carolinas, I believe.

Theo Hicks: Yeah, his name was T.

Joe Fairless: T, yes. He’s a broker. When he mentioned that, I’d never heard of it, and I’ve mentioned in a couple presentations when I’ve spoken at some conferences, and I hadn’t heard of anyone who had heard of it whenever I spoke about it… So I think that’s great, and it’s such a quality investment of a thousand dollars. A thousand dollars is a lot of money, but so is the rapport that you build with a top broker in the market, because you’re likely going to be making more than the thousand dollars; you’re likely gonna be making a hundred times more than that, or ten times more than that, or whatever size your deal is. So it’s a really good investment, in my opinion.

Theo Hicks: Number two is when you’re having a conversation with a broker, one thing you wanna do is ask them “How many properties have you sold in the past year?” and when they tell you that number, ask them for the actual addresses of these properties, go visit them in person, and take a look at the condition of the property, the location, the size… Anything that can let the broker know whether that specific property aligns with your business plan.

So you’ll visit the property and then you’ll follow up with your broker – either a phone call or an e-mail – and say “Hey, I went and visited your property at ABC Street. Really good deal. Here’s what I liked about it, here’s what I didn’t like about it.” Number one, it’s showing them that you’re proactively going out there and looking at deals, but two, it also gives them a better idea of the type of deal you’re looking for… Because some brokers might specialize in a specific type of deal, where other brokers might just look at any deal that comes in, no matter what the size or the asset class. So it’ll give a better understanding of the type of deals you’re looking for.

On a similar note, kind of a hybrid of this, is to do the same thing, but when they send you deals. So when they send you deals and you underwrite it, instead of just disqualifying the deal because it doesn’t meet your return goals, instead of just saying nothing, e-mail the broker and tell them what you liked about the deal and what you didn’t like about the deal, and why it was disqualified.

Essentially, look at the deals they’re sending you or the deals they previously sold, and tell them what you did and didn’t like about those deals as it relates to your business plan.

Number three is to provide them with information on how you’re going to fund the deal. Once you find your mortgage broker and you’ve had a conversation with them, reach out to your broker and say “Hey, I talked to ABC mortgage broker.” Once you fill out the personal financial statement or once they’ve told you you qualify for a deal, tell your broker that “We qualified for financing.”

Also let them know how you’re gonna actually pay for the down payment, so explain to them how you’re having conversations with passive investors, tell them how much money in verbal commitment you’ve had… Then also, since you’re probably not gonna be able to qualify for the loan yourself, let them know that you’re having a conversation with people who are verbally interested in signing on the loan and being a loan guarantor.

Essentially, anything that has to do with how you’re going to fund the deal or how you’re gonna qualify for financing, follow up with the broker and let them know and keep them updated.

Joe Fairless: And I would push this into number 1, or 1.b, because if they don’t have the confidence that you’re gonna close, none of this stuff matters unless you’re paying them the consulting fee, or by the hour.

My suggestion is to proactively address how you have access to capital or how you have capital yourself. That way it addresses the 10,000 pound gorilla in the room… Or elephant! I almost said monkey, and I was like “That’s a really heavy monkey…” Because they’re gonna be thinking about it the whole time you’re talking, “Can this person close? This is a great conversation, they’re nice, but can they close? Can they close? Can they close?” So just proactively address that one.

Theo Hicks: Exactly. I’m actually in the process of having real estate broker conversations. We actually talked to a guy yesterday, and that’s exactly what we do. When we give them our background, we mention exactly what we’ve done – not only our real estate background and our business background, but what exactly we’ve done in regards to syndications… So do we have a financing lined up? Do we have private capital lined up? Who do we have on our team so far? And just mention all that stuff up front, and then follow up with updates as you go.

As Joe mentioned, if you don’t address that from the beginning, they’re not gonna take you seriously at all, because they’re not gonna know if you have any of those things lined up.

So that’s kind of leading into number four, which is constantly follow up with your broker. You’ve got two ways – number one, drive to their properties and let them know what you liked about the properties, and number two, provide them with information on how you’re funding the deal… And any other update that you can provide to them that will show you you’re getting closer and closer to being able to close on a deal, you want to send that to them.

Every week or every two weeks make sure you’re constantly in contact with these brokers, letting them know that you’re taking action.

Joe Fairless: And there’s certainly a fine line there, with being a nuisance to being someone who’s proactively following up… And my suggestion is it’s what Theo mentioned at the beginning of our conversation – put yourself in their shoes; would you want someone e-mailing you weekly, saying “Hey, got a deal? Got a deal? Got a deal? Got a deal? Got a deal?” No, you don’t want that.

But would you want someone who you’ve told that you’ll follow up with them when you have a deal, and you also introduced them to some team members – would you want someone to follow up with you and say “By the way, thanks a lot for the recommendation, for introducing me to so-and-so. I spoke to her, and I’m likely gonna be bringing her on my team as well. Do you happen to have any recommendations for XYZ?” Maybe it’s a title company, maybe it’s something else. And the answer is yes, the broker would be usually totally good with that, because the broker knows that this is a relationship business, so when he/she is referring other team members of theirs out to potential clients, then they look good too to the title companies, to the attorneys etc. And it’s good to know their contacts are being actually contacted by the person…

So add value when you follow up. It’s important. Otherwise, it’s gonna have the opposite effect of what you’re intending.

Theo Hicks: Exactly. So these are four ways to win over the real estate broker that we’re gonna talk about today. In the book we follow a similar process and provide a similar explanation for the other team members, so how you win over the property management company, how do you find the correct accountant, and how do you talk to mortgage brokers – all that is also covered in the book. On this episode we’re touching on the real estate broker aspect.

Joe Fairless: Cool. And in ten seconds or less, what are the four things again?

Theo Hicks: Consulting fee, number one; so pay then. Number two is drive to their recent sales and tell them what you do and don’t like about that property. Number three is provide some information on how you’re going to fund the deal, and number four is constantly follow-up with new information and added value.

Joe Fairless: Cool.

Theo Hicks: So once you have the team lined up, and you have the credibility that comes from the team, now it’s time to find private capital.

Joe Fairless: Yup. And the challenge with private capital initially is your track record (or lack thereof). I’ve mentioned this multiple times, but the disclaimer one more time is I’m not suggesting that everyone should raise private capital. I am assuming at this point that you have the experience and the knowledge in order to safely navigate a deal to as what would be expected for the industry.

So if you’re just starting out, I don’t recommend raising private capital. But assuming that you’ve got some sort of knowledge, then this will help you gain that alignment of interest with team members so that you can attract the private capital.

Whenever I was starting out, that was a big challenge that I had, too; four single-family homes doesn’t amount to much from an experience standpoint, so instead, on the first deal, what I did is I had the brokers put in their commission into the deal, and they were part owners with us in the deal. What that allowed me to do is to speak to my private investors and say “Yeah, I don’t have the experience, but the brokers have four decades, five decades (or whatever it was) of experience, and they’re partnering with us on the deal because they like it so much. That went a really long way.

Essentially, what you’ll need to do is you’ll need to find some people who can address that experience challenge that you’re ultimately gonna come across when you’re starting out, and you will give up a portion of the deal – that’s just how it is – or a whole chunk of the deal, but who cares, because you’re getting that track record. So it’s important to have that mindset of “Yeah, I’m gonna give up a decent amount of the deal, but it’s gonna get me in the door.” This is a temporary challenge, and once this is addressed, after a couple deals or maybe even one deal, then I won’t have to do that, or I won’t have to do it as much as I used to.

Theo Hicks: These are all things that you can leverage when having the conversation with your passive investors, and saying “Hey, you’re investing money in the deal, I’m investing my own money in the deal, and I’ve got alignment of interest with my team members” based off of the five things that I’m going to explain right now, of how you can have alignment of interest with your team members.

These start from the lowest to the highest level of alignment of interests, and you can do this with different team members. The first level or the lowest level of alignment of interest is just bringing on the qualified team members. As you’ve mentioned before, bringing on a qualified real estate broker, bringing on a sponsor or a mentor, or bringing on a qualified property management company on your team.

Joe Fairless: Or all of them.

Theo Hicks: Of course, you need all those people… So that’s number one – bringing on a qualified team member. But that’s the lowest, because they don’t really have any skin in the game whatsoever; they’re just helping you manage the deal.

Number two is you bring on this qualified team member and then you give them a percentage of the general partnership. So you bring them on and you offer them a percentage of the general partnership; this is number two. The reason why it’s not higher is because they still actually don’t have skin in the game. Yeah, the amount of money they’ll make is based off of the success of the deal, but they’re not gonna lose any money… Which is why the next tier up, number three, is bringing on a qualified team member, giving them a percentage of the general partnership because of their investment of money in the deal. So just giving it away to them, and now they’re gonna invest their money in the deal for that chunk of the general partnership, so now they actually have skin in the game.

Joe Fairless: But the money is treated as limited partnership money… But as part of the negotiation, you say “Yeah, if you also invest in the deal, then you can be in the GP because of your track record.”

Theo Hicks: Exactly. So now they have skin in the game. The fourth level is the previous three levels, but they’re also having other people that they know bring money into the deal. So they’re having their own investors invest in the deal.

Actually, when you’re having initial conversations with your real estate broker or your property management company, that’s a question that you can ask. You can ask them “Do you have investors who would be interested in investing in apartment deals?” I’ve asked every property management company and real estate broker I’ve talked to that question, and much to my surprise, they all said they do have people who are willing to invest in these types of deals. I was actually surprised when they said that, because I didn’t know. I figured that maybe it’d be 50/50, but all of them have said it so far.

Joe Fairless: Wow, it’s interesting…

Theo Hicks: So again, number four is bring on the team member, having them invest and having someone on their team or someone that they know invest as well. And the fifth is having them actually sign on the loan, so having them be a loan guarantor. That way, they’ve got a lot of skin in the game – they’ve got their money in the game, they’ve got their personal finances in the game…

So if you tell your investors that “I’m investing in the deal. I’ve got qualified team members who are investing in the deal, they’re bringing on people to invest in the deal, and they’re signing on the loan”, that’s pretty impressive.

Joe Fairless: You just locked it up, yeah. You just locked it up, the credibility, absolutely, when you do that.

Theo Hicks: So for these five levels, as I’ve mentioned, they’re going from lowest to highest alignment of interest, but there are three team members that can do any of these five. You’ve got your real estate broker, a sponsor or a mentor, a consultant, and your property management company.

For those three, the property management company would result in the highest level of alignment of interests, because there’s not only alignment of interest through bringing on money, bringing on other people’s money, signing the loan, but they’re also involved in the day-to-day operations of the deal.

The next would be a sponsor, because they’re not gonna be involved in the day-to-day operations of the deal, but they do have experience, so you can leverage that and tell your passive investors “Hey, I’ve got this sponsor who’s got 1,500 units in this area. They’re investing in the deal and they’re gonna allow me to ask them questions if anything were to come up.”

And then the one that is the lowest is the real estate broker, just because they’re obviously signing off on the deal up front, but once they get their commission, they’re not necessarily involved in the deal any longer, besides making the money based off of which tier of alignment of interest they’ve decided to pursue.

Joe Fairless: And a bonus one, number six, would be to give the property management company a little bit less than what they were wanting on a monthly basis, but then back-load that once you achieve your metrics that are in the proforma, and give them a bonus that is twice as much as what they would have made with that whatever you lowered it by.

Let’s say you lower it by $100,000, because they were gonna make a certain percentage, but now they’re gonna make 100k less over five years as a result of the fees; however, when they help you achieve the metrics by effectively managing the property, they receive a bonus of 200k in five years, or in two years when you do a refinance, or a supplemental loan.

That will show alignment of interests with the deal, because the property management company gets a bonus, and it also does not give them any equity in it; you just have to have some sort of contract drafted up that shows those terms.

Theo Hicks: Exactly. And then also, it’s essentially a value-add opportunity, because when you underwrite the deal, if you’re lowering that property management expense, your expenses are going down, so the ongoing cash-on-cash return is going to be higher, and then instead of paying that off each year, you’re just paying off that big chunk of equity you make at the end.

Joe Fairless: Yeah. It can actually help you on the acquisition front too, because you can underwrite it a little bit differently than what other people are underwriting, because your expenses are lower than what other people’s expenses are. You just don’t have as much upside on the back-end, because you’re giving them a bonus… So as long as the numbers work on the back-end, that could be a way to get a deal that perhaps you wouldn’t have gotten otherwise, because you were underwriting it differently.

Theo Hicks: Exactly. So that’s the approach you wanna go with how to have that conversation with the property management company up front during the interview process. To quickly summarize, the six different ways to create alignment of interest with your team members, going from lowest to highest, is number one, bring on a qualified team member with a property management company resulting in the highest, followed by a sponsor or a mentor, followed by the real estate broker.

Number two is to give them a percentage of the GP. Number three is to have them invest as limited partner in the deal. Number four is to have them bring on other people to invest as limited partners in the deal. Number four, have them sign the loan, and number six, reduce their ongoing payment and double or triple it at sale.

Joe Fairless: Or some sort of capital event, if you do a refinance or supplemental loan. Great stuff. Got any updates this week?

Theo Hicks: I don’t. What about you?

Joe Fairless: I decided to sell the three homes, but there’s a wrinkle in the plan, and that is I looked at the leases. They expire this coming summer, so we’re basically 12 months away… Therefore what we’re doing is we are sharing the deals with our property management company, who said they might have investors who are interested… So there you go.

If you look at the 1% or 2% rule, they’re 0.7% across the board… So it wouldn’t be as much cashflow. I’m not sure if an investor would want it… Who knows, we’ll see. I really don’t care. If not, then I’ll just sit on them for 8, 9 months and then sell them retail next summer.

Theo Hicks: Yeah, that’s an advantage of having the single-family rentals, unless of course the lease isn’t expiring for a while.. But you can sell it to live there as a regular homeowner, or you can sell it to an investor, so you kind of have a larger market.

Joe Fairless: Yeah. The only reason I’m doing it I’ve got 349k trapped in those homes in equity, and I make like $250/month maybe, in total from those three homes, because if there’s repairs, or a tree falls on a car or something like that… And plus the liability of having those homes… It’s time to take those and put that money into our deals.

Theo Hicks: Are you allowed to 1031 into a passive investment?

Joe Fairless: Technically, yes, you are… For our group, we don’t accept 1031’s unless it’s 3 million or more, because we’ve gotta restructure the whole kit and caboodle, and it’s just not worth all that brain power from attorneys and us, and coordination, logistics… So if one of our investors asks us if they can 1031 into our deals, the answer is if it’s 3 million or more.

However, we do 1031’s from one deal to another, and we have, but we just don’t accept outside 1031’s that are not our deals. So I could not 1031 my proceeds from these homes into one of our deals, because it’s missing one zero at the end.

Theo Hicks: It makes sense. Okay, I hope you sell those puppies and get to invest that money into the next deal. If not, then I guess [unintelligible [00:26:27].03] opportunity to sell them in the next year.

Joe Fairless: Yup.

Theo Hicks: Alright, so before I conclude, make sure everyone listening, guys and girls, goes to the Best Ever Show community on Facebook. That’s BestEverCommunity.com. We’ve got over 1,000 active real estate investors asking questions, posting content and responding to our Best Ever Community questions of the week, where we will take your answers and create blog posts.

This week’s question is what year do you think the next downturn/recession/market correction will happen, and why? I’m looking forward to reading your responses and your predictions on when the next correction/recession/whatever terminology you prefer to use, is going to happen. We will take all the responses and create a blog post next week.

Joe Fairless: My favorite so far has been — I can’t remember who it was, but he said something like “I don’t know, it’s just speculation. No one knows.”

Theo Hicks: Yeah… It’s all speculation.

Joe Fairless: Yeah, and then someone said “Amen!” and I liked that, because… Who knows? More importantly, make sure that our investments, your investments are set up to handle a market correction. That’s more important. Why try to time it? It’s fun to talk about it, I guess, but why not just set it up so you’re gonna mitigate risk as much as possible along the way?

Theo Hicks: It was Julia, and she said “No one knows, and it’s a futile exercise.”

Joe Fairless: There you go, Julia… [laughs] I love Julia, she’s a character. Yup.

Theo Hicks: Everyone knows every single year, every single month, every single day there’s someone writing an article saying the crash is coming tomorrow, it’s gonna be the biggest crash of all time. People have been saying that ever since there was a market to crash, so… As she said, probably a futile exercise; make sure you’re set up for success no matter what the market is.

Joe Fairless: It’s a good conversation, and perhaps that’s why we posted it, but I agree with Julia, who knows…? But just set yourself up the right way so you mitigate risk, and we’ve talked about that – you just google “three immutable laws of real estate investing joe fairless” and that’s how you do it.

Theo Hicks: Exactly. Alright, and then lastly, everyone, guys and girls, please subscribe to the podcast on iTunes and leave a review for the opportunity to be the review of the week. This week’s review comes from Shae Carr, with the title “I’m a fan.” Their comment was:

“Informative, short and to the point. This podcast is enjoyable and truthful. Thanks for sharing your tips with the world.”

Joe Fairless: Well, thank you, Shae. I appreciate you spending some time and investing that into writing the review, and thank you for listening, and I’m glad you’re getting a lot of value from it. Please everyone leave a review; that will help us get high-quality content, and help you out ultimately.

Thanks for listening, thanks for hanging out, and we’ll talk to you tomorrow.

Best Ever Show Real Estate Advice

JF1452: Best Ever Apartment Syndication Book: Part 1 – The Experience #FollowAlongFriday with Joe and Theo

Listen to the Episode Below (37:27)
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Best Real Estate Investing Crash Course Ever!

Today’s Follow Along Friday is based on the new book Joe and Theo wrote, Best Ever Apartment Syndication Book.  The book is broken down into four parts, today they discuss part one, the experience. Hear what you can do to gain experience or find someone who has the experience to partner with for your first apartment syndication. If you enjoyed today’s episode remember to subscribe in iTunes and leave us a review!


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Best Ever Listeners:

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

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

I have used him for both agency debt, help with the equity raise, and my consulting clients have successfully closed deals with Marc’s help.

See how Marc can help you by calling him at 212-897-9875 or emailing him mbelsky@easterneq.com


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

We’ve got some information that I think is gonna be pretty helpful for you if you are looking to raise money and buy apartment communities, or even separate those two – if you’re looking to raise money and do something else real estate-related… Or you’re just looking to buy apartment communities with your own money, this is gonna be relevant. We’re gonna be talking about what you need prior to raising the money. This is inspired by the book that Theo and I wrote, and is being published September 10th, but it is available right now for pre-order. You can go to ApartmentSyndicationBook.com, and when you pre-order the book, you will receive a free eBook from Gene Trowbridge. His book is called “It’s a Whole New Business: The How-To Book of Syndicated Investment Real Estate.” That’s the eBook that you’ll get when you pre-order our book, and you’ll also get some other goodies, too. Seth Williams is providing an eBook, and you’ll get some different calculators and things that we use in our business. So go to ApartmentSyndicationBook.com.

The book is in four parts, that’s how we’ve structured it. Part one is the experience, so what do you need to know and put in place prior to raising money. Part two is finding the money or attracting the money. Three is the deal, and four is the execution. So today we’re gonna be talking about the experience.

Certainly, in the short period of time that we have, we won’t be able to go through everything that’s in the book, but we’ll touch on some important aspects, and it’s not to promote the book — well, it kind of is to promote the book, but the objective of our conversation right now is to provide you with actionable information, so regardless of if you buy the book, this conversation will still be helpful for you… So what’s the best way to approach this, Theo?

Theo Hicks: As Joe has mentioned, the book is broken into four different parts, and the idea is to show you not only what to do, but how to actually do it, as well. So there’s exercises that you’ll actually do throughout the book that will add value and will bring you one step closer to actually doing a deal… But each of the four parts are kind of broken into subparts, and they’re in order of  essentially how you go from where you are right now, to by the end doing your first deal.

In regards to the experience, that’s actually broken into four parts. It’s broken into knowledge, goals, brand building, and then market evaluation. I think the best way to approach the conversation is to kind of go through those four, the first one being knowledge. A good place to start and one of the things that we do talk about are what are the requirements you need before you even start this process? Because unfortunately, not just anyone could just automatically start up the process of learning, and then once they know what they’re doing, raise money. There’s a couple of other requirements that you’ll need beforehand… So I think that will be a good starting point.

Joe Fairless: Yeah, I agree, because we’ll see books that say “You can do deals and partner with other people without any experience and without any money, and it is possible to do that”, but there’s a caveat, and that is you’ll need knowledge. If you don’t have experience and you don’t have money, you need knowledge in order to make sure 1) that you’re structuring the deal for yourself properly, but most importantly, you’re structuring the deal with others properly.

So the two requirements to become an apartment syndicator — it’s actually an and/or… That is either real estate experience and/or business experience. I should say that it’s more than just experience with business. It should be a track record of accomplishments, because if you’re just starting out, then maybe you don’t have that real estate experience… But if you are a successful salesperson in an organization, who has been promoted 3-4 times within 3, 4, 5, 6 years, then that says something about how you’re savvy in business and how you know how to hone a craft… And that’s a requirement for what we do, and that’s a requirement for being successful in any business.

So look at your experience and give yourself an honest assessment of “Have you excelled within your current professional career?” and if so, what does that look like? What milestones have you achieved that perhaps are not typical for others in your industry who have been in that industry for that same period of time? And if you haven’t, and you also don’t have any real estate experience, it’s my opinion that apartment syndication is not for you at this moment. However, if you can start learning the process, learning the fundamentals, learning the lingo, and then get experience by interning for someone, and then build your track record that way while offering to do things for free for others, then you’ll be able to build a track record and ultimately you’ll check the box for what you need prior to becoming an apartment syndicator, and that is some sort of real estate background and/or a professional business background where you have accomplished things that are not typical for others in your professional industry.

Theo Hicks: And something else that’s important… At the end of the book, this assessment that Joe’s talking about — we actually walk you through an assessment where you analyze your real estate and business background and give yourself a rating, and then based off of where you fall on that scale, we kind of give you some advice on how to move forward. Obviously, if you have a very strong rating, then you can move forward; if not, as Joe mentioned, you’ll need to actually work on gaining experience in real estate or business. It doesn’t have to be something in apartments, or you don’t have to be a CEO of a company; the idea is you need to have some sort of background that when you’re going to people and asking them for money, they are gonna ask you “Why would I give you money? What’s your background?” and you have to be able to tell them something.

And part two, the money – another part of that, because your private investors are gonna be kind of on your team. Once you analyze and figure out what your background is and what your strengths are, you’ll wanna kind of complement those with other team members. That’s gonna be what we talk about in part two, building your core real estate team… But just as an example, if you have a really strong business background, you’ve got a lot of business contacts of high net worth individuals, that’s really good because you’ll have that money aspect covered, but… They don’t really know how to asset manage or how to operate a deal or how to underwrite a deal, so if that’s the case, then you can complement that by finding a really strong property management company, which you wanna do regardless… Maybe bring on a partner or a sponsor. And of course, vice-versa, if you have a really strong real estate background, you might not necessarily have a lot of relationships with people that have high net worths, or people in the business world that would invest with you passively… So from that standpoint, you might need to bring on a partner who raises money, and you just do all the operations.

Joe Fairless: Yeah, and everyone’s got some assets that they’re working with, and I talk about that at the beginning of the book, and I talk about it in a way that perhaps you might not have thought of before in terms of the assets that we all have… And as an exercise or preparing to launch a book and put any finishing touches on this book, I was up last night — one, I could really sleep, but then two, I was just reading reviews of other people’s books in the real estate category, and I was reading the negative reviews. A lot of the negative reviews on other people’s books – they could be grouped in certain ways, and one of the groupings was “Yeah, this works for so-and-so person, but my market’s different”, or “This person invested at the right time in 2008, but now deals are hard to come by.”

There’s always gonna be an advantage for when you jump in and do this, and there’s always gonna be disadvantages. There’s always gonna be advantages for what you can bring to the table initially, and there’s also gonna be areas that you’ve gotta shore up. And the sad thing about reviews like that, where people say “Hey, they started at the right time in 2008, or 2009, or their market is better than mine” is that the reviewer doesn’t realize that they do have assets, they’re just different assets from perhaps the author, or other investors.

For example, we all live in either a deal market, or a money market. We all live in a market that either has deals, or we live in a market that has a bunch of rich people… And it’s important to recognize if you’re in a deal market or a money market, and then approach accordingly, because you can leverage that. If you’re in a deal market, then great – you build a platform, which we talk about in the Experience section, where you attract investors… And if you live in a money market, then great, you leverage those connections that you have and you go partner up, or you go do some research and you find a market that makes sense that cash-flows.

So there’s always gonna be some challenges, but there’s also always a solution. That’s a core belief I’ve always had – there’s always a solution. We might not like the solution, but there’s always a way to work things out. I whole-heartedly believe that, and I really am proud of my resourcefulness because of that belief, and my resourcefulness comes because I believe that.

And then one thing that you mentioned, Theo, I just wanna touch on… You said find investors and ask them for money, and I just want to tweak that a little bit, and I wanna say we wanna attract investors, and we wanna offer them opportunities. I never ever, even at the beginning, have asked people for money, ever; instead — actually, I take that back. On my first deal I didn’t have the $50,000 for the earnest money, so I did ask one of the investors to put it up first, and then I wrote him a personal guarantee. But besides that, in terms of the opportunities and the deals, we have an opportunity where we offer it to other people; we don’t ask them for money. I’m not harping on you, I’m just making note of this thought process, because this is an important thought process… And it’s really for section two, but we were talking about it now, so I figured I’d bring it up.

We attract investors, we attract other team members… And in the book, we talk about how do you become attractive in order to attract those attractive partners? Because ultimately, in order to attract attractive partners, we have to be attractive, too. And when we think about raising money and our different opportunities, if an investor who reaches out through my website and he/she asks me on an introductory call “Okay, tell me why I should invest with you”, I take a step back and I say “Have you seen information on Ashcroft Capital that I sent you prior to our conversation?” Then they’d say “Yes”, and I’d say “Well, do you have any specific questions about that?” because ultimately, that would be the best approach for our conversation, versus me trying to talk about things that I’m not sure that you have or haven’t already looked at…

Theo Hicks: Exactly.

Joe Fairless: And I never will force-feed investors or anyone information about our company, but rather I will attract them into the business, and then as a result of that, the conversation is so much smoother, and that is the importance of having a thought leadership platform. This happens rarely, but yesterday I had three investor calls, and one of the three — this is the part that happens rarely, three new investor calls; they all sent submissions to the website… I have a couple at least a day.

One of them, he said “Are you affiliated with Ashferd?” I’m like “Ashferd…?” I said, “Ashcroft?” He’s like “Yeah. I came across your info I think on the internet, or something…” So he wasn’t familiar with me, didn’t know my background… And that conversation was much longer than what’s typical — which is fine; I’m just commenting on the differences between an investor who doesn’t have knowledge about your thought leadership platform and who you are, versus an investor who does, who maybe listens to this podcast or attends our conference in Denver, or any number of things; reads books, or listened to other people’s podcast and just heard me interviewed. That conversation is so much smoother, because I’ve already established some sort of track record and credibility with them prior to the conversation… And building the brand is part of part one in our book, and there are ways you can do that outside of just having a podcast, but having that conversation with someone and they already know a little bit about you is so much smoother, especially in our business… Because we’re in the business of capital preservation, and then hopefully we grow it, which we’re in real state, and if you do the  fundamentals of real estate, then you probably will.

Theo Hicks: Yes, that’s a lot of good information. From the small number of conversations I’ve had with potential investors, I could agree with exactly what you’re saying. I know we’re gonna talk about this a lot more in part two, but most of the time, it’s something that they kind of bring up, and they’re really passionate and excited about… Like, “Wait, I can do that…?” They don’t even realize that it’s something that’s possible for them to do; they just think that they can invest in stocks, or their 401k, and that’s it.

So you mentioned the brand building, and that’s another part of part one… In reality, you can start building your brand right away. If you don’t have that experience we’ve talked about earlier, this could be one of the ways that you could work towards gaining that experience and credibility. The brand allows you to meet potential team members, or as Joe said, attract potential team members, and the amount of opportunities that would come from that are really countless, and some of them you wouldn’t even think about.

We have a large section in the book talking about exactly how you go about building your brand, and as Joe mentioned, it’s not just creating a podcast… It could be a YouTube channel, a meetup group, a newsletter, conferences… You can kind of go through all of it.

Something else that’s important for this foundation before you go into raising money is, number one, you have to understand how you actually make money, so that you can set a goal. One of the things that we talk about is the importance of focusing on the cash-on-cash return and the internal rate of return for apartment syndications.

If you haven’t invested in apartments before, you might not know what the internal rate of return is. Basically, it’s a return that’s based off of time. Of course, a dollar today is gonna be worth more than a dollar five years from now, and the internal rate of return takes time into account when it’s calculating the returns… So that’s what your investors are gonna be looking at, or what your investors will likely look at when they’re analyzing your deals, so you’re gonna let them know how that number is calculated and what it means.

You also wanna know about the cash-on-cash return, because that’s another thing your investors are gonna look at… But also for yourself, because at the end of the day you’re doing this to likely reach some sort of goal, and a part of that goal is gonna be a financial goal. So once you understand how you make money, which we go over in the book, something that you wanna do is set a 12-month or 24-month or a 5-year goal, that’s gonna be a specific number. And instead of just saying “I wanna make a million dollars this year”, and stopping there, we go through a process of figuring out exactly what you need to do to hit that goal, and the fact that we use is the amount of money that you need to raise.

So once you understand how the returns work and how you make money, you can kind of back-track and calculate exactly how much money you need to raise in order to hit your goal. That will help you lead into part two, when you start reaching out for commitments, and you’ll know how many commitments you need to have before you start actually looking for deals.

Joe Fairless: The mistake a lot of people make who are starting in the apartment syndication business is they say “I wanna make X amount passively a month.” You’re not making anything passively a month, because you’re the general partner; however, the ways you can make ongoing cashflow as an active investor in a business would be investing as a limited partner in your deals, number one. Your money is treated the same as all your other investor’s money. Two is asset management fees. However, as you grow your company, those fees will likely need to be allocated towards you building out your staff and your team to support the amount of properties that you have.

I guess the cashflow from the general partnership, too. The reason why I didn’t mention that is because we tend to keep our returns, the GP returns, from a cashflow standpoint, in a bank account, just to be conservative, and then when we do some sort of capital event – a supplemental, or a refinance, or when we exit – then we would catch up… But we like to just provide the limited partners their returns, and usually we’ll keep our cashflow from the GP split in the deal, just to be a little bit more conservative.

So because of that, the way to look at it is looking at the acquisition fee, and then reverse-engineering from there. That’s how we arrive at the number. And I suggest doing a 12-month goal over the 24-month, and holding yourself accountable to the 12-month… And then also having a vision for five to ten years later. But that’s gonna change. Assuming that you have a solid, quantifiable 12-month goal, once you get that first deal or a couple deals done to achieve that 12-month goal, things are gonna snowball, and it’s likely that that 5-year goal or the 10-year goal will need to be updated, because you’re getting a lot farther, faster than you thought you would.

Theo Hicks: Exactly. Something else – and if you’re a loyal Best Ever listeners of course you know this, but you wanna have your specific, quantifiable 12-month goal, as Joe mentioned; that’s like kind of your number, but you also wanna at least have an idea of kind of why you want to achieve that goal.

We have in the book an exercise that will walk you through how to create a long-term vision. We ask you questions about what gets you excited about real estate, how will you benefit by achieving this goal…? So kind of the positives. At the same time, we’re also driven by things that we’re afraid of, that disgust us; we also go into questions about “What happens if you don’t achieve this goal? What’s your life gonna be like?” or “How would you feel if you didn’t achieve this goal?” or “How do you currently feel about not achieving this goal and what are some consequences you faced?”

Essentially, we’re creating a vision that we can go towards, but at the same time something that we’re also running away from, and something that we don’t wanna [unintelligible [00:20:50].06] So you’ve got those two things working for you, in a combination with your actual monetary goal, and combined, that will give you the inspiration to push through when things get tough.

Joe Fairless: When I became an entrepreneur, a full-time real estate investor, I put a document together with my goals, and I was working with Tony Robbins’ coach Trevor McGregor, who I still work with today, and I wrote down what will happen when I achieve my goals – I think it was to buy an apartment community; I think that was my goal – and I said “I’ll be able to have some more financial flexibility, and I’ll be able to finally launch a business that is mine, and I won’t be relying on an employer to send me a paycheck every two weeks”, but then I also put what will happen if I don’t achieve my goal… And I wrote “I will be thoroughly embarrassed, because I’ll have to go back to my job, tail between my legs, work back in an industry (advertising) that I didn’t like anymore. I’ll be humiliated, because I told everyone, including family and friends, that I’m gone, I’m not doing this anymore and I’m now focused on real estate.” And both the pain and the pleasure of associating that to your goals is incredibly important, and I still do that today… So here’s what I want to achieve and here’s what I’ll receive and others will receive as a result of me achieving it. Here’s how their life will be better, here’s the ripple effect…

But then here are the negative consequences to not achieving it. And it’s great, because when you do goal-setting, you’re usually incredibly inspired, and rah-rah, and high fives to everyone, “I’m gonna conquer this world”, but then four, five, six months later, twelve months later or whenever, you go through a lull, and it’s important to be able to pick that up and be inspired, but perhaps you also need to be disgusted by what would happen if you don’t achieve it. We need to have both those forces working in tandem to inspire us and keep us going.

Theo Hicks: Yes, and something that’s interesting in what you said there is when you were talking about when you left your job, that one of the things that would have disgusted you is the feeling of embarrassment of having to go back… Now, what I’m going to say is not advising people to just quit their jobs right now, with no plan whatsoever, but I think there is something to the concept of burning bridges… Because if you have your full-time job while you’re trying to be a real estate investor, you might be more timid, and be like “Well, I could pursue this really hard, but I still have this paycheck coming in”, so you might not pursue it as hard… But if you don’t have a job, and the only way you’re gonna make money and put food on the table is by doing a deal, or by getting your act together and working 40-60 hours/week – I think there’s something behind that.

For me personally, when I left my full-time job, I had a plan, and of course, I had done things in the years leading up to kind of prepare myself for it, but there’s never gonna be the perfect time to leave; you kind of just have to have faith and just do it, and then trust that you have the ability to be resourceful enough to get the job done… But again, it’s important to do the assessment we talked about earlier, and make sure that you actually can, and be realistic with yourself… Kind of look in your past and be like, “Alright, so when I left something before, without a full picture, was I able to be resourceful enough to figure it out?” Because at the end of the day, you’re gonna have your plan to quit your job and to do real estate full-time, and think you know exactly what’s gonna happen 100%, but this is not how it’s gonna work out…

So again, as long as you have some sort of idea, and you’ve done an assessment and truly believe and truly know that you are resourceful enough to figure it out, and you’ve got multiple backup plans in place, then my personal philosophy is just go for it, if I’m being honest… With all those caveats, of course.

Joe Fairless: Yeah, and that’s a whole other conversation… But yeah, there’s different approaches there. You put your back against the wall, fight or flight; some people fight and they work through it, and some people fly away and bad things happen to their family and their business, and all that… So pros and cons, and that’s a whole other conversation.

Theo Hicks: Yeah. So the last part before you start to go out and raise money is to figure out where you’re actually going to invest. As Joe mentioned earlier, you’re either in a deal market or a money market. If you’re in a deal market, then that market that you live in could be your target investment market. But if it’s not, you need to know that before you start going out and raising money and looking for deals. So the last part before you actually go out and start raising money and looking for deals is to figure out what market you’re gonna target.

Another section we have in the book focuses on what to look for in a market and exactly how we evaluate potential investment markets. Then something else that Joe mentioned in the beginning was how one of the objections that he came across when looking at reviews was people saying “Oh, well this person started after 2008. The market that he was in was great. Right now the market is not as great, so I can’t find good deals”, or things like that… So we also go over the three immutable laws of real estate investing, which if you’re a Best Ever listener, you’ve heard us talk about that before. Essentially, those are the laws that apply to any market. If you follow those laws, you’ll be able to not only survive, but potentially even thrive, and in any type of real estate market, whether it’s at is peak or at its low.

Joe Fairless: And just for clarification, because you mentioned market to identify the city, but then you said market to identify the real estate cycle… So those are two separate things that we go over. One is identify the city that you’re investing in, and then separately (but related) is the real estate cycle that you’re in. If you’ve listened to this podcast, you’ve heard me interview economists before, and one of them – I asked her after she talked about what we should do (buy, sell etc.), I said “Well, what if we just buy for cashflow, have long-term debt, and have adequate cash reserves?” She’s like, “Well, yeah, then you can hold on to it. Don’t sell. You’re set up well.” So doing those three things is what we talk about, regardless of the real estate cycle.

Certainly, you’re gonna buy more during the down, and you will sell more during the high, but you can continue to buy during all parts of the real estate cycle, as long as you buy for cashflow, have long-term debt, and have adequate cash reserves.

Theo Hicks: Exactly. So just to review, we talked about part one of the four-part process/system for completing your first apartment syndication deal. Within part one there’s four subsections, and the first one is the knowledge – so we talked about the experience you need before you even start this process. Then once you have that experience, you’re gonna wanna learn more about apartment syndications; that’s understanding the lingo so you can communicate, as well as what you’re supposed to focus on.

Once you have the knowledge aspect covered, the next two parts are to set your goals, so that’s setting your 12-month financial goal, but also a long-term vision, which is something that is going to inspire you, but also something to run away from, something disgusts you at the same time, so you have both those forces working for you… As well as building your brand, and we’ve talked about how the purpose of the brand is to attract these team members, attract passive capital, and also to build up your credibility, because that’s gonna be very helpful when you’re having these conversations, if people know who you are versus not knowing who you are.

And then finally, before you start going out to raise actual capital, you wanna figure out what real estate market or what city you’re going to invest it, or what one or two cities you’re going to invest in, and also make sure that you are aware of the three immutable laws of real estate investing that Joe mentioned, which is buy for cashflow, long-term debt, and have adequate cash reserves, so that you’re able to survive and likely thrive in any part of the real estate cycle.

Joe Fairless: Awesome. Cool. And go to ApartmentSyndicationBook.com to pre-order, and you can get a bunch of free goodies, too.

Theo Hicks: So on that topic – I know something you wanted to talk about was a couple e-mails that you’ve received…

Joe Fairless: You know what, I’m gonna have a separate episode on that.

Theo Hicks: Perfect. Something else that you wanted to talk about was your single-family portfolio that you have…

Joe Fairless: Yes, I had an epiphany last night while I was up late, looking at online reviews for other people’s books to make sure we had everything covered for ours, and I realized that my three homes are worth about 170k each, and $222,000 is what I bought them for, and they’re worth, I believe, about $510,000 now. Those are the three homes.

I have $161,000 in debt on those loans – total mortgage balance for those three. So $510,000 value, $161,000 in mortgages, so that’s in equity about $349,000. Guess how much I’m making a month on these three homes?

Theo Hicks: $400.

Joe Fairless: Like, nothing. Zero. A tree just fell down and hit the tenant’s car… So I don’t even know what we’re gonna do with the insurance; I have to talk to the insurance company about that, and also to the property management company… But in terms of the tree, it was $870 to get removed. There goes all the profits for all three homes, because it’s about $250/month that I make, but that’s on a best-case month.

So I’m looking at this and I’m like “I have about 350k worth of equity in these homes and I’m making nothing every month…” I know they have sentimental value, but holy cow… I started looking at if I were to sell, and let’s just say after the dust settles I get like 250k, factoring in taxes and other stuff; this is a really, really rough math. Fees, commissions, all that. 250k, at 8%, which when I invested in our deals, which is what I would do, I would just put more into our deals, at 8%, because we do an 8% preferred return, that’s $20,000/year, divided by 12, that’s $1,666. I’d change that number just so it doesn’t have three sixes in it, so I’d figure something out… But that’s $1,600/month, and 20k a year that I could be making if I were to invest in one of my own deals this money.

Now, I already invest in our deals, but I’ve got these three homes, so I’m considering it… I haven’t decided yet. My sister is a real estate agent in Dallas, Fort Worth, so I’ve got a call with her tomorrow and we’re gonna talk about it. I might sell individually, I might sell as a portfolio… They’d cash-flow for another investor if everything goes perfectly, but I’m not a fan of single-family homes. I haven’t bought any since 2012 or 2011.

I also see this as my largest vulnerability for being sued… Because I have these residents who live there, and if I get sued — I’m covered with insurance and I’m fine with that, but I just wanna remove that variable of vulnerability from a legal standpoint, too. I get that I could put the properties in an LLC and there might be a due on sale clause that’s triggered, so… I’ve just gotta kind of work through that, but I think I might be doing something with these three homes.

Theo Hicks: Yeah, because if you have $250,000 in equity you could buy —

Joe Fairless: 349k, but then with just rough math, I’m knocking out a hundred for taxes and such…

Theo Hicks: So technically, you could also buy a 1.2 million dollar apartment…

Joe Fairless: I’m not gonna do that… I’m not gonna do that at all; no, no, no… Yeah, I could 1031 into something else and just grow from there, but I have no desire, zero, negative desire to do that. I would be investing in our deals, otherwise I would go insane with having to buy that type of property, that small of a property, on the side, while we’re doing the Ashcroft stuff.

Theo Hicks: Well, I’m looking forward to hearing what you end up doing with those properties. I know you’ve had them for a while, and as you’ve mentioned, they probably have sentimental value, but… If you’re not getting any return on them, it’s understandable that you’re gonna pull that equity out and get that 8% pref… It’s 8%. I mean, that’s a solid return.

Joe Fairless: Pretty healthy, yeah. It’s better than what I’m getting now with my homes… Cool.

Theo Hicks: Alright, so I don’t have any updates, so let’s transition into closing. Everyone make sure you go to the Best Ever Community on Facebook; that’s BestEverCommunity.com. Join the conversation with — we’re up to over 1,500 active real estate members now. Each week we post a question of the week and write a blog post based off of your responses.

This week’s question is gonna be “What was your worst deal ever?” We wanna know what year that deal was in, and then tell us a story about why it was your worst deal.

Personally, I don’t think I’ve had a worst deal yet. They’ve all been — not the best deals ever, but…

Joe Fairless: Well, we’ve gotta get you one then. Hurry up and buy something.

Theo Hicks: Yeah, I’ve gotta buy a really crappy deal, so I can answer that question on Facebook… But yeah, just go on there and tell us a story about your worst deal, why it was your worst deal, and then also what you’ve done to mitigate the risk of that happening again in the future.

Joe Fairless: Cool.

Theo Hicks: And then lastly, please go to the podcast on iTunes and subscribe and leave a review for the opportunity to be the review of the week. Another great review this week from — most people don’t put their names… I’ll just say from B. I think it’s just a random amalgamation of letters… But they said that the podcast is the perfect commute soundtrack. Their review was “The Best Ever podcast has replaced the music and talk radio I used to listen to on my way to and from work. This has become my daily soundtrack. In addition to teaching me a trove of invaluable, profitable lessons, it’s also taught me what to look for in a real estate investment opportunity, especially what a bad deal might look like. There are lots of opportunities out there to invest in, but Joe and his guest will teach you what questions to ask, the common pitfalls and oversights that some syndicators fail to recognize, and how to minimize your risk. You’d be lucky to be able to get this kind of coaching by paying for it, but here it is for free.”

Joe Fairless: Well, and you talked about the bad deals, and that’s perfect for what the question of the week is at BestEverCommunity.com. Feel free to participate there and you’ll not only get to share your worst deal, but then also hear from others, and we’ll do a blog post on that to summarize all of that. That will be available at TheBestEverBlog.com.

Well, thank you so much for writing that review, and I’m glad you got a lot of value from our podcast. Everyone, thanks so much for hanging out with us. I hope this added a lot of value to your business, and ultimately your life. We will talk to you tomorrow!

JF1451: Save Money On Your Income Property Utilities with John Tanner

Listen to the Episode Below (23:47)
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If you own income property, especially larger buildings with a lot of units, you likely have some room for improvement with your utilities. John is here today to discuss this with us, as he specializes in helping his clients save the most amount of money possible. If you enjoyed today’s episode remember to subscribe in iTunes and leave us a review!


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John Tanner Real Estate Background:

  • Director of Sales Marketing for My Utility Cabinet
  • Specializes in utilities and invoice management for commercial property owner/operators
  • Based in Cincinnati, OH
  • Say hi to him at https://myutilitycabinet.com/
  • Best Ever Book: Steve Jobs

Best Ever Listeners:

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

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

I have used him for both agency debt, help with the equity raise, and my consulting clients have successfully closed deals with Marc’s help.

See how Marc can help you by calling him at 212-897-9875 or emailing him mbelsky@easterneq.com


Joe Fairless: 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, John Tanner. How are you doing, John?

John Tanner: Good, Joe. How are you? Thanks for having me on.

Joe Fairless: I am doing well, and it’s my pleasure. A little bit about John – he is the director of Sales Marketing for My Utility Cabinet. They specialize in utilities and invoice management for commercial property owners and operators. Based in Cincinnati, Ohio, and the website is myutilitycabinet.com, which is also in the show notes page.

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

John Tanner: Yeah, absolutely. MUC and its cloud-based platform were originally created for construction and heavy industrial companies, because many of these companies had thousands of different locations and were constantly acquiring new ones, but didn’t have a uniform way of organizing or tracking the data within those bills.

Since 2011 we have evolved and now cater to basically any industry that uses energy and is looking for a better way to track it and manage it.

Over the last few years, we’ve been able to acquire clients ranging from floral shops, to breweries, and now even commercial and residential real estate companies.

One of our particular commercial real estate clients used our brilliant services to determine fair ways to build tenant allocations that didn’t have each unit individually metered. So not only did we create a fair and transparent billing system, but we also were able to analyze the rates for all of those clients’ location and reduce the utility spend by more than 15%.

Joe Fairless: Okay, so you all look at the energy that’s being used at a commercial property, and then what do you do with it?

John Tanner: We analyze the data to see if there’s any discrepancies, billing errors; we compare it to other locations that are the same size and should use the same amount of energy to see if you’re on the right rate, or if there’s something going on where you’re using too much energy and you shouldn’t be.

We dug into the numbers that are past the bills, so not just the dollar signs there, but the actual usage numbers.

Joe Fairless: Got it. So you look at a subject property and you compare subject property to other similar properties in that area, and you look at usage and determine if they’re on par for energy usage.

John Tanner: Yeah, and we also manage and process their billing as well. All of their bills are sent to our office and we process them, so it’s one easy lump sum payment, as opposed to you have a landlord sitting down and cutting open 20, 30, 40 different bills. We just make it simple for them, and it’s one easy payment.

Joe Fairless: Got it. And as far as bills go, you’re referring to the electric and water, or are you referring to cable…?

John Tanner: It can be all those. It can be just electric, gas, water, or we can add in television service, your phone service – anything that’s technically considered a utility or a bill, we can take care of it for you.

Joe Fairless: And then you consolidate the monthly bills and the owner writes one check to you, and then you all pay those bills.

John Tanner: Yeah, so we bill them one time. On our online database we give users logins and all of that, and they’re able to see all of their information on this site, and our financials are pushed to them, whether they use QuickBooks, or any other accounting software.

Joe Fairless: What about if bills are the first of the month versus the 28th of the month?

John Tanner: That’s something that a lot of property owners have voiced concerns, with the cashflow optimization, and we’re able to work with the utility companies… Say you have a mortgage that’s due on the first. We work with the utility company on our client’s behalf to try to stagger that out. If their mortgage is due the first and they wanted to pay something in the middle of the month, to have more cashflow optimization, we’d be able to do that for them.

Joe Fairless: As far as the energy usage, can you maybe give a case study or two as it relates to commercial properties?

John Tanner: Yeah, I have an example right here… Our most recent project with one of the clients directly relates to one of the articles you wrote back in April, the 27 ways to add value to apartment communities.

Joe Fairless: Yup.

John Tanner: Number seven on that is the ratio utility billing system (RUBS), but in our experience, sub-metering is basically RUBS on steroids. We ran an analysis of master metering with sub-meters versus having every unit be metered [unintelligible [00:07:47].20] building in Cincinnati, and after the initial year we projected 37% savings in utilities in the building, successfully lowering the NOI.

Joe Fairless: So what were the two variables you were comparing?

John Tanner: The two variables would have been — having a master meter for those 29 units, sub-metering that out, so they’re still being tracked, versus having a meter for each of those units.

Joe Fairless: Got it. So you’re making the distinction between sub-metering and master metering, which obviously makes sense, but then… Was there a third that you mentioned that you’re comparing?

John Tanner: No, there was really only two.

Joe Fairless: Okay, sub-meter versus master meter. Got it. And will you define both of those, just in case someone’s not aware of what those two things mean?

John Tanner: Yeah, so sub-metering would be — for instance, in this building we have 29 different units, so you’d have one master meter where all of the energy goes through, and running off of that master meter would be sub-meters, each of which would be going to a unit and you’d be able to tell exactly what that unit is using.

A regular meter is you would see driving by the apartment building – they might just have 10, 15, 20 of these master meters that are on each building, that are on a building, that go towards a unit… But for those units you have to pay a meter fee, for each and every one of those meters; it’s around $36. If you sub-meter, you pay that one meter fee, and then you still get the information for the rest of the units in the building.

Joe Fairless: So it’s cost-effective to sub-meter.

John Tanner: Yes, it’s cost-effective to sub-meter. You’re also putting some accountability on your tenants, so they have more understanding of the energy they use; it’s being split fairly.

Joe Fairless: Have you come across — and this gets more into operations, so it might be a little outside of your scope… But I’m just curious – have you come across an owner who attempts to sub-meter, but lo and behold, the residents at the property consider it a rent increase, because it’s more money out of their pocket if they’re now paying for those utilities, and then they have to back-track and discontinue the sub-metering?

John Tanner: No, we haven’t come across that, but [unintelligible [00:10:03].18] that we’re doing now is for a building that’s being gutted and newly-developed… With sub-metering, it would just basically reduce usage, and it wouldn’t particularly go straight back to the tenants and they would have to be paying more.

Joe Fairless: If it’s master-metered, then the residents still could pay, but it wouldn’t be as accurate, right?

John Tanner: Yeah, there’s a couple different instances you would have… There could just be one meter on the building, and you’re having to go in and use RUBS [unintelligible [00:10:32].15] square footage and all of that, and it would be fair to an extent, but you wouldn’t know exactly what unit was using; you would just know the exact building usage, and you’d be dividing that up.

Regularly, if you didn’t have a meter on each unit, you would also be able to tell what they were using, but you would have to pay those meter fees as well, as a tenant would. If you put up the upfront costs to install sub-meters, you’re not incurring that cost anymore, and the tenant’s not incurring that cost anymore. So that $36/month that they’re paying on their utility bill – they wouldn’t be paying that anymore.

Joe Fairless: What are some objections that you come across with owners, and after telling them “Hey, this is how it works”, then they say “Okay, cool. I’m in.”

John Tanner: There aren’t much objections, just because with sub-metering you get instant feedback on those units, so you’re able to tell… Say there’s a leak in an apartment, say there’s an anomaly in the billing system – you can set it up to where you’re able to figure this out. In 15-minute increments the data can be sent to you… So there haven’t been many objections there.

Joe Fairless: So everyone you talk to signs up… Every single client or potential customer…?

John Tanner: Well, for sub-metering this is a fairly new thing we’re rolling out, but everyone that we’ve had has at least been open to it, yes.

Joe Fairless: Okay, the ones who are open to it but then have not signed up yet, what is a reservation?

John Tanner: Just the upfront costs. There’s a lot of people that know about it but don’t know the exact cost of it, so we perform the ROI for them to be able to figure out how well the payback would be and the benefits of doing it, and the benefits usually outweigh the cons in this situation.

Joe Fairless: Let’s go through a hypothetical scenario – or if you have a specific example, that works, too. What are some typical upfront costs?

John Tanner: I don’t have exact numbers in front of me right now, and honestly, it just depends on the size of the building.

Joe Fairless: What’s the range for installation on installing sub-meters?

John Tanner: I don’t have those numbers in front of me right now. We don’t install it ourselves; we kind of work as a broker with [unintelligible [00:12:41].04] company, so we try to find the best deal out there for our clients.

Joe Fairless: So you set up the owner with a company that then installs the sub-meters, and you all act as the go-between.

John Tanner: Yes, absolutely. We’re talking with people all over the country, trying to find the best ways to do it, the best pricing, what the going rate is in certain states, and to make sure everything is compliant.

Joe Fairless: So what are the ways that you all make money?

John Tanner: Ways that we make money are processing invoices for our clients. We don’t take any of our clients’ savings, like I’d mentioned earlier, talking about one of our clients. We projected 37% savings to them in this building, and we don’t take any of that cost. Kind of an added value for them.

There’s a lot of companies out there that will come along and say “Hey, we’ll save you this much, but we take 50% for the first however many years.” All of your savings are your own. For us, we just require a payment for a user fee for our website, and then depending on the amount of bills that you have, it can range between $2,50 to $5 on how many bills that we process for you.

Joe Fairless: Got it. Okay, it makes sense. And you mentioned that’s the way you all make money on the processing side… What about the tracking data and identifying utility usage relative to comps and where there can be efficiencies?

John Tanner: Those are included in our flat rate. The same thing for having a monthly user fee – that’s all included in our flat rate. All of the information is readily available on myutilitycabinet.com. We kind of just are able to analyze that and paint pictures there that make sense to people. We have different graphs, pie charts, whatever… There’s many different ways that we’re able to come across that data and interpret it differently for different people, different visualizations.

Joe Fairless: Where are the sensors for the utility usage, so you can determine if there’s a leak or not?

John Tanner: That would be in the sub-meter itself. The meter would be the sensor. So if it’s delivering us data every 15 minutes and we have a trend, and that trend skyrockets, we’d be able to tell “Hey, what’s going on right here right now? Why is it so much higher than it has been in previous months?” That would be how we would be able to track that.

Joe Fairless: So it can be a warning detector if you’re doing sub-metering, versus if you’re doing the RUBS, where you’re billing back based on square footage, or number of residents, or something like that. There’s not that proactive nature that you’d get with RUBS that you do get with sub-metering.

John Tanner: Yeah, absolutely. If you’re doing RUBS, you might not be able to figure this out for, say, a couple months; you don’t realize that your bills are getting a little bit higher, a little bit higher… That’s why we track usage as well, because sometimes prices change, rates change… Being able to track usage gives you direct data and trends of what has been the operational mean or average and what it should be, and things stand out when they’re not.

Joe Fairless: You mentioned on sub-metering you all perform a return on investment assessment to basically show when you get your money back, after a certain period of time, when you invest in sub-metering. What’s a typical timeframe that you see, and what’s the low end and high end, just to understand the range of time?

John Tanner: Honestly, it just depends on the size of the building. If you perform this on a larger building, with hundreds of different units [unintelligible [00:16:30].26] quicker, just because you’re not paying that extra $36/month.

So usually within the first two years – I would assume that’s around the average, but it can span depending on the project, depending on the amount of units, or if you’re dealing with an office space… There’s a lot of different variables that go into it.

Joe Fairless: Is units the primary variable, and then there’s other secondary variables? Or is there something in addition to units that would be a major variable to consider?

John Tanner: Units would be the main variable there. Say you have a building and you only have five units in it; it wouldn’t make sense at that point to sub-meter, just because there’s a cut-off. There’s a start where it make sense to do it, where you’re saving money right off the get-go.

Joe Fairless: Approximately what’s that cut-off on average? You said five unit not so much… What would be?

John Tanner: If you had (I think it’s) seven or more units, it would make sense.

Joe Fairless: Okay… Assuming other variables are friendly in that scenario.

John Tanner: Yeah, exactly. You might come across a building that already has some meters set up, or something where it wouldn’t make sense to retrofit, go in there and dig all that out and start from scratch. That’s why this project that we’re working on is unique, because we already got in the building and we’re starting it from scratch… We’re being able to hit the ground running.

Joe Fairless: Yeah… Super-interesting. I’m really grateful that you’re getting into details with us. Based on your experience within this industry – so it doesn’t have to be real estate investing advice, but just within this industry based on your experience, what is your best advice ever for real estate investors?

John Tanner: My best advice ever for real estate investors would be to gather all the information and data you can before making a decision. And just because someone else did something that way or you’ve heard that’s the way it’s usually done doesn’t mean it’s the best way for your specific property or your specific operation. So make decisions based on tangible information.

What we like to say here at MUC is you can’t manage what you don’t measure.

Joe Fairless: Amen to that, that’s for darn sure. I certainly take that philosophy in my business. We’re gonna do a lightning round. Are you ready for the Best Ever Lightning Round? Alright, let’s do it. First, a quick word from our Best Ever partners.

Break: [[00:18:58].03] to [[00:19:48].15]

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

John Tanner: The Steve Jobs biography by Walter Isaacson, because it describes how an incredible personal work ethic, as well as regular self-reflection and re-evaluation of one’s choices can create success. This is applicable in real estate, because investors should constantly review their situation in order to make the right decision at the right times.

Joe Fairless: And I said “best ever book you’ve most recently read”, which is a little redundant, so I apologize for that… I should’ve said “best ever book you’ve recently read” — something like that, I don’t know… It’s a new question and I’m trying to add in the “recently” part, so I’ve gotta figure out how to word that.

What’s a favorite case study that you haven’t talked about that you’d like to talk about?

John Tanner: We have a case study from one of our different clients – due to some confidentiality agreements we aren’t able to tell you exactly who this client is… But this is something we offer in our ancillary services; in this case it’s tax code analysis. We were recently able recover over $250,000 in erroneously paid taxes, which neither the client nor the utility were aware, that they shouldn’t have been paying.

In addition to that, we also offer utility tracking management, and we’ve saved our clients millions of dollars between late fees, erroneous meter fees, peak demand and billing error tracking.

Joe Fairless: That’s great stuff. How is tax code tied into utility fees?

John Tanner: It depends on someone’s operation. It could be whether it’s on the production side, or… If you look at the tax code on a utility bill, the numbers kind of seem endless, so we have an in-house tax code analyst [unintelligible [00:21:33].03] operating across the country. Different states have different tax codes. The utility company is never gonna tell you if you’re paying money that you shouldn’t be, but if we can go in and find in the tax code, whether it’s for production purposes, if you have a business that’s making raw materials, you can figure out ways that they shouldn’t be paying those taxes.

Joe Fairless: Great stuff, thank you for sharing that. Best ever way you like to give back?

John Tanner: As a company, we volunteer often at the Freestore Foodbank in St. Bernard. Also, in our parking lot here we offer free parking to the elderly.

Joe Fairless: Are they coming to hang out with you, or is your parking lot connected to something perhaps more engaging for them?

John Tanner: Well, it depends who you’re talking to… [laughter] There’s a couple things around the area here in [unintelligible [00:22:20].17] but sometimes they’re engaging with us; I don’t know if they mean to, but… It’s all for the best, right?

Joe Fairless: It’s all for the best, yeah, exactly. What is the best way the Best Ever listeners can get in touch with you and learn more about what you guys have got going on?

John Tanner: There’s a couple ways you can reach us. We have a LinkedIn page, My Utility Cabinet. You can e-mail us at info@myutilitycabinet.com. We also have a Facebook page, and if you wanna reach out to me, I’m John Tanner on LinkedIn.

Joe Fairless: Awesome. John, thank you for being on the show, thanks for talking about RUBS versus sub-metering. To use your words, “sub-metering is RUBS on steroids”, and you talked about why – it’s more accurate, you get a  more proactive look at things, not to mention it’s something that can add value to the property in the long-run whenever you exit, because you’ve taken a lot from the expense column and put it more towards the income column. Then in addition, the processing invoices for clients that you talked about, and some of the next-level things like tax code analysis… So thanks for being on the show. I hope you have a best ever day, and we’ll talk to you soon.

John Tanner: Thank you. You too.

Best Ever Show Real Estate Advice

JF1444: Bring Your Real Estate Investments Alive! With Joe Fairless

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Joe has another special segment for us today. He’s talking to us about how he keeps death reminders around to help him focus on what’s really important in life, and how that has helped his real estate investing. If you enjoyed today’s episode remember to subscribe in iTunes and leave us a review!


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


Joe Fairless: Best Ever listeners, I’ve got a special segment for you, and every now and then I’ll be doing these special segments when I come across something that I learn in my entrepreneurial journey and I think it will be helpful for you as well… So I hope you enjoy this episode, and more importantly, I hope you get some value from it that you can then apply to your life.

The outcome of today’s episode is to show how focusing and incorporating death and death reminders into my regular life helps me be more effective as a real estate investor, as well as being more focused on the moments that are truly going to matter to me throughout my life, and ultimately what else is there that’s more important than focusing on those moments, as long as those are empowering moments for myself and others… So that’s the outcome for our conversation.

Where this is coming from is very recently I got an e-mail from the Dean of the College of Media and Communication at Texas Tech University. He said, “You’ve been nominated and voted in as outstanding alumnus for Texas Tech University College of Media and Communication.” I said, “That’s amazing!” I’ve been looking forward to this; for about 10 years I’ve been on the board and I’ve attended the ceremony at every one of those years. During the board meeting, that same weekend, there’s a ceremony for people who are being inducted into the group… And I said, “I’m very much looking forward to this!” and I said “What weekend is it again?” and he mentioned in the e-mail “November 3rd.” And I thought, “Oh, doggies…! November 12th is when Colleen, my wife, is due to give birth to our baby girl that we’re having, our first kid… And that’s kind of close, cutting it close…

We live in Cincinnati, therefore Colleen is giving birth in Cincinnati, and this award ceremony is November 3rd, nine days prior to when she’s due, in Lubbock, Texas. There’s a conflict there. But I thought I could do both. I thought “Hey, there’s a nine-day difference, and it’s okay if I need to hop back as quick as possible to get back to Cincinnati if something were to come early…” So I said, “You know what, dean, I’m likely in, but on the off-chance that Colleen is giving birth, then obviously I’m not gonna attend” and he said “Fine.”

Well, last night at [1:45] AM I’m reading a book called “Not Fade Away” by Peter Barton. I highly recommend the book, and I’ll give some other recommendations on death in a little bit… I highly recommend this book. Basically, the book’s about Peter, who is a successful entrepreneur; he was diagnosed with cancer at around the age of like 45, ended up passing away at the age of 51, and he brought in someone to write about his experiences as he was leading up to his death, since he had terminal cancer…

This book is not a book on his career, but rather how he internalizes what is going on, what’s important to him, and ultimately the purpose of the book is to simply document his experiences for others who are facing that type of experience with death, or just need to have a reminder to live fully, which is what it did for me…

And in the book, the passage I was reading last night, he talks about one of his most  cherished memories – being there with his wife as she was giving birth, each of the three times that they had a kid. He would cut the umbilical cord, he had a shirt as a tradition that he wore, and he loved it. And it showed through the words that he used, and that was one of the most – if not THE most – precious moment each of those three times.

Immediately after reading that, I e-mail my assistant and I tell her “Please tell the dean, as well as all my family members, that I will not be attending the awards ceremony. It’s too close to when Colleen is supposed to give birth. I will be with her the entire time.”

That is something that absolutely would not have happened, at least that night, last night; maybe I would have eventually figured it out later, but I wouldn’t have made that decision last night if I didn’t read a book about a person dying… And ultimately, that is what I want to mention that I learned through one of the books that I read about death, and I surround myself constantly, as I mentioned earlier, with different things that remind me that my time is limited.

Steve Jobs talks about this in a commencement address to Stanford’s graduating students, and he says “Remembering you’re going to die is the best way I know to avoid the trap of thinking you have something to lose.”

There are constant reminders I have in my life that remind me to think about the importance of the moment with those around me. And how does this tie back to me as a real estate investor? Oh, it’s super simple. I don’t procrastinate. I’m guilty of it in instances, but by and large, I don’t procrastinate… Because I know that the moment is all I’ve got right now, and hopefully I can string together many more moments in time, but I don’t know. So I take advantage of the moments that I have.

One reminder that I use for this is books, videos and podcasts. A book I recommend is Not Fade Away by Peter Barton. A video I recommend is that commencement address by Steve Jobs to Stanford students; you can find it on YouTube real easy. A podcast I recommend is a podcast that Tim Ferriss did with B.J. Miller, who is a doctor who works with hospice patients. I highly recommend those three things.

Another way I constantly incorporate the living — it’s not necessarily living like today is my last day, because I think that’s kind of ridiculous… Because if I did live every day like it was the last day,  I might be running naked on the street right now. Who knows what I’d be doing…? I don’t know, I haven’t really thought about it, but I probably wouldn’t be doing this at this moment in time; I’d probably be doing something a little wackier than this. So I don’t live like every day is my last – I think that’s a  little silly – but I do live in the moment, and I do focus on being present with those who I care about and I love.

The second way is a death clock that I have. I have a clock that looks like something you’d see at a basketball arena, but instead of a countdown clock for the shot clock, it’s got days, hours, minutes and seconds on it. It’s about four feet long, one foot tall, and about six inches deep, and it’s hanging on my wall. It’s constantly counting down from my 90th birthday to now, so it’s constantly ticking seconds away, minutes away, hours away, days away. When I look at it – it’s to the left of my desk – I can see, and it’s  a constant reminder that this moment counts. Be present, do what you need to do that is important.

So having a death clock is important. You can order through Amazon just a countdown clock. I had to get mine custom because I went up to my 90th birthday, and most of them (or anyone I’ve found) didn’t have that. So if you want the company that I ordered from, you can just e-mail infor@JoeFairless.com. I make no money off this, by the way, but it is like $300, so it is an investment… And think about the amount of time that — it could save you time as a result of you paying attention to time, so certainly I think it was worth the $300 investment, but that’s up to you.

The third is I volunteer for hospice, and I meet with patients who are – as doctors say – going to die soon. Those patients, when I speak to them, they focus on the memories they have of their family and of experiences, and there’s no way that I’d intentionally put myself in jeopardy of missing the experience of the birth of  my kid; there’s no way. So even though it was nine days away – November 3rd is the awards ceremony in Lubbock, Texas, November 12th is when she’s supposed to give birth. Even though it’s a nine-day difference, absolutely no way I’m gonna put myself in the situation where I could miss that… Because it is possible that I get to Lubbock and then I immediately have to go back because she’s in labor, and then I miss it because the flight’s delayed, or something else. Who knows…? It’s possible.

I’m not gonna put myself in that situation because I know by surrounding myself with death that the important things that we’re gonna remember when we’re taking our last breaths are the time we have with those we love and the moments that we cherish with them, and the experiences that we have.

That’s why I’m so grateful that I’ve got this podcast, that we can share experiences other real estate investors have about what’s worked and what hasn’t worked, because that helps you maximize your time, it helps you get some shortcuts for achieving success, so that you can then spend your time in the way that you want to spend it. That’s why I’m so passionate about this stuff, because ultimately it’s about what you do with your time, and focusing it in the areas that you deem important… And my guess, if it’s like other people who I’ve read about, watched, studied and experienced myself, what you think is most valuable is ultimately going to have to do with some sort of companionship with others: those you love, those who you wanna serve, those in your community etc.

That is how being surrounded by death has allowed me to continually fully live my life. I slip. Of course I slip. I procrastinate. I do things where I’m not always productive or I’m not always putting family first, I’m doing other business things or I’m checking e-mail when I should be focused on a conversation, but I have some safeguards in place to pull me back in and to constantly remind me that it’s the moments with each other and it’s the relationships that I’m likely going to care about at the end, so therefore I’m gonna put more priority on right now.

Thanks for listening. I hope you got a lot of value from it. Talk to you tomorrow.

JF1438: 8 Step Process For Selling Your Apartment Community #FollowAlongFriday with Joe and Theo

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Joe and Theo are back for another edition of Follow Along Friday! Today we’ll hear about what things we should be looking at when deciding to sell an apartment community. We’ve covered this before, but today in greater detail than ever before. If you enjoyed today’s episode remember to subscribe in iTunes and leave us a review!


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8 Step Process For Selling Your Apartment Community

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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’ve got Follow Along Friday today. Today we’re gonna discuss the 8-step process for selling your apartment community. Let’s dive right in.

Theo Hicks: So this is based off of  a question received from a listener. His name is David, and he said: “I wanted to ask you if you have any suggestions or tips on the selling process. I wanna be as knowledgeable as possible going into this process. Any books, specific podcast episodes or just general tips?”

We are gonna do a specific podcast episode on this, so we’re gonna fulfill that. This is also based off of a blog post that we have with a similar title; of course, as we’re doing it live, we’re gonna go in a little bit more detail on the selling process.

As you mentioned, it’s 8 steps, and the first step is to actually identify when to sell the property, because that’s going to differ from deal to deal. High-level, Joe, how does your company determine when you’re going to sell the apartments you guys bought?

Joe Fairless: Well, there’s a short and a long answer. The short answer is we determine when we’re gonna sell based on what type of returns we can get when we sell. That’s the short answer… And if those returns are going to hit the projections, then we’re going to consider it and likely will sell; if it’s gonna exceed the projections – then again, we’ll consider it and likely will sell.

If it will not hit the projections, but there are some things on the horizon from a market standpoint – maybe we’re in a market that just lost 50% of the employer base for whatever reason, I don’t know why, but maybe that’s what happened, and we don’t see a way that that’s going to get turned around in the near future, then our job as general partners is to focus on capital preservation and mitigate risk as much as possible for our investors.

So while returns are great, losing money is worse than as good as getting a return feels or is. So we want to first and foremost protect the capital that we have on the investment, so we would look to sell if we wouldn’t hit the projected returns, but there’s a variable out there that we see is going to be present in the near and long term, then we’ll get the money back to the investors and get whatever type of return we can, and then move on with something else, and know that we have a variable we need to look out for on future deals that we didn’t see previously.

So that could be, like I mentioned, some employers, and it could be an area that we thought would continue to be as it currently was when we bought it, but instead maybe a school district got rezoned and now the property is no longer in the good school district, it’s in a bad school district, and that hurts the value of the property, so we see that as a long-term issue, not something that’s short-term. If that’s negatively impacting the property, then we’re gonna need to figure something out.

So that’s ultimately what we look for – can we hit the projected returns, can we exceed them? Okay, then we’re gonna seriously consider it. And if we can’t, but there is another variable in play that is on the horizon that we don’t see going away, then we’ll still look to sell, assuming that we can’t push through that and come out the other side.

Theo Hicks: So you buy a property and the initial business plan is to hold for five years; that’s kind of just the projected, but as you’ve mentioned, if something happened in the market that makes sense to sell it earlier, or if for example your projected sale price after five years was 20 million and after three years you can sell for 20 million, you’ll exceed your return projections by doing that if you’re selling it earlier, and the IRRs based off of the time of when you sell the property, or how long the capital is tied up for.

Joe Fairless: In your example, if we can get 18 million for the property instead of 20, even though we projected 20 in year five – many variables in play, but the IRR is likely gonna exceed what we would have achieved if we held it two more years and got an additional two million dollars on the sale… So then we’d consider selling.

As soon as we buy the property, we’re constantly assessing what we should do with it relative to the business plan, relative to the market, and we get brokers’ opinion of value at minimum on our properties, and we see “Okay, based on where we’re at with the business plan and where we projected, we can get x% of the total exit purchase price that we were projecting now – how does that look from an investor return, and what do we wanna do?”

Then you’re also considering along the way the type of debt financing you have on the property, when does that become due… Because you’re gonna need to make a decision in, say, three years, so if you have to make a decision in three years, then you need to start looking at it in year one, in year one and a half, because you don’t wanna be pushed in a corner.

Theo Hicks: Okay. You also kind of mentioned something else I was gonna talk about for this step of wanting to sell – the way that you determine the value of the property to figure out what returns am I gonna get is through that broker’s opinion of value that you’re getting every 12 months. That’s essentially a broker doing their sales comp approach to determine what the value of the property actually is, using the net operating income.

I think you mentioned they’ll give you like  a high, medium, low sales price, and from there you can determine, “Okay, based off of me selling it now, what are the returns going to be, based off of this broker’s opinion of value?” and then move forward from there.

Before we move on to step two, when you get the broker’s opinion of value, do you get them from the broker that you used to purchase the property, or do you get them from multiple brokers you’re working with? What broker do you decide to go with?

Joe Fairless: Yeah, you don’t get it from a lot of brokers. You should pick your partner or maybe have one other partner… So maybe at most get two brokers’ opinion of value… In my opinion. This is my opinion.

The reason why you don’t get multiple brokers’ opinion of value is you’ll hurt your reputation with all of them if you’re asking all of them to do it, number one. Number two, if you at this point are unsure of which broker you should go with, and you have to get five brokers’ opinion of value to see who can get the best price, or who thinks they can get the best price, then you are not doing your homework and you are not building relationships that you should be building along the way… Because by the time you’re looking to sell a property, you’d better have strong relationships with at least two brokers in your market, and those are the two brokers who you can use to get the broker’s opinion of value.

And how you select which one you go with – well, it’s either the strength of the relationship… That’s assuming that the brokers’ opinion of value are similar, by the way. If they’re drastically different, then you need to dig in and understand why are they different, and then you might uncover some things that will help you position your property or you didn’t know about your property etc.

Ultimately, it’s a combination of strength of relationship and confidence that they’ll be able to deliver on what they say they can deliver on… So you look at their track record and history; this is assuming that the brokers that you’ve selected have a track record, have a history, and you can confidently assume that they’re going to get their conservative estimate… Because as you mentioned, they’re gonna give you a conservative estimate and they’re gonna give you a more aggressive estimate for what they can sell the property for… And assuming that they have delivered on conservative estimates in the past and you can assume they’ll deliver on yours too, especially if that’s within the range of the other one, so then it’s just a matter of relationship.

Theo Hicks: Exactly. So essentially, you’re not necessarily going with the broker’s opinion of value that has the highest price; there’s other factors to take into account, so you want the best broker’s opinion of value, which comes with the best price and the best actual broker.

Joe Fairless: Doesn’t that sound so similar to how you select a buyer when you are selling? You don’t just go with the buyer who’s offering the highest price, you go with the buyer who has a high price, but also that you know will close the deal, will do what he/she says they’re gonna do.

Theo Hicks: Exactly.

Joe Fairless: We have won deals, and one recently, where I know for a fact that we were $400,000 less than the highest offer, and we got awarded the deal; it’s because of our track record. That goes the same with when you select brokers – you also go for the track record. If their aggressive estimate is a lot higher, then you’ve still gotta take into consideration who they are and will they be able to deliver?

Theo Hicks: Yeah, exactly. We’ll kind of go over what Joe has mentioned in more detail in step five, the best and final seller call.

So step one is to find when to sell, which we’ve talked about. Step two is once you’ve made a decision to sell, you need to be — of course, you’re going to be mindful of the sale, but you wanna make sure that you are setting yourself up to get the best offer on the property. If you’re buying property and you’re underwriting deals and you’re screening deals and you’re doing due diligence on deals, so you know what you’re looking for when buying a deal – you wanna make sure that certain things that you would use to disqualify a deal [unintelligible [00:10:55].26] at your property, but secondly, you want to obviously maximize your income and minimize the expenses before selling the property, because the property value is gonna be based on net operating income.

A few examples of things you can do are, for example, if you plan on selling it a month, you have to determine if it makes sense to renovate those units. Is the money you’re gonna put into those units gonna be less than the increase in value from the increase in rents from renovating those units? If not, don’t renovate them. If they do, then do renovate them.

So it’s not automatically hold off on renovations, it’s just kind of going in the details and determining what the rental premiums will be based off of those renovations and determining if it’s worth doing that.

Another example would be to increase your marketing budget. But again, if increasing your marketing budget is not gonna get rewarded more than the cost to market, then don’t do it; but if you are, you’re gonna get that extra couple of percentage points in occupancy, then increase your marketing budget.

Something else that you can do, no matter what, is to pursue your collections more aggressively. One thing that — when we are looking at deals, you don’t wanna see a high bad debt or high delinquency, so when you’re going to sell your property, you wanna make sure that you’re pursuing this bad debt and minimizing it as much as possible, because it makes the property look better, but it also increases your net operating income.

Those are just a few examples of things that you can do. Basically, just look at your T-12, look at your revenue line items, look at your expense line items and figure out what you can do to increase the former and decrease the latter. That’s step two.

Step three – Joe kind of already mentioned this… It has to do with notifying your lender that you’re gonna sell the property. For example, let’s say you’ve got a loan that has some sort of pre-payment penalty after [unintelligible [00:12:36].05] for three years. Maybe it makes sense from just a sales price perspective to sell it, but you have to take into account any type of penalties or yield maintenance, or the fees that you have to pay on the loan by selling the property earlier.

Practically,  what you do is you send your lender a notification of disposition, letting them know that you intend on selling the property, and then also you need to have an understanding of any type of penalties you’re going to pay for doing so… And then taking that into account when you’re looking at if it makes sense to sell or if you should wait until all those fees go away.

Step four – this is after you’ve got your broker, based off of your best (not the highest, but the best) broker opinion of value, and then next is for them to start a bidding war. This involves them creating their offering memorandum, marketing the property, them bringing people onto the property, showing the deal… Essentially, everything that you went through in order to buy the property, they’re gonna have people doing it at your actual property.

Joe Fairless: It might make sense to not have the property go on market. One of our properties that we sold, we did not put it on the market, and the reason why is because a local group who owner property around where our property was came in with a very, very strong offer… And we know the market, the broker knows the market, so we know that it was unlikely that the market would pay what we were getting in offer from this local group… And the local group owned property around that area, so they could operate it differently and more effectively than other groups who were coming in and just buying the property without the scale that this group had in this neighborhood.

So have a conversation with your broker and ask him/her about if they think it would make sense to do off-market as well. Listen to them, and then you make the decision. That should be after you get the broker’s opinion of value for the conservative and the aggressive range. Most likely, it will make sense for you to take it to market, most likely… But there are circumstances…

Another circumstance where we’ve sold a property off-market is a broker recently represented a seller in the same sub-market, and he had multiple buyers who didn’t get the deal; only one got the deal, and he came to us and he said “Hey, I’ve got a group, they’re willing to pay all cash, they are wanting to buy in your area, and here’s the price that they’re looking to give you for your property”, and we’re like “Okay.” Why go through the whole process…? Because they just went through the whole process in the same submarket for a similar property, so we know what the market will demand (or command) for deals… So we skipped ahead and then didn’t have to go through the whole song and dance with tours and everything else.

Theo Hicks: We have a blog post that’s entitled something along the lines of  “3 ways an owner benefits from selling off-market.” It’s written from the perspective of you being a buyer, but you can also learn about why you might potentially wanna sell your deal off-market because of those three benefits.

Step five – this is assuming you’re the deal on-market and not off-market – is to have a best and final seller call. As we were discussing when we were talking about which broker to go with, you have to have the same approach when you’re determining which offer to go with.

The highest offer is not necessarily the best offer. There are other things that need to be taken into account about the buyer before you go through the process of awarding them the deal… Because then your property is gonna be tied up for that time, and they’re backing out, that’s 1) additional money that you’re gonna be losing because you are selling the property 60-90 days later at a minimum…

So on the best and final seller call, essentially you want everyone to submit their best offer, and then you will have a conversation with the buyers to get more information on their background. You wanna know what their track record is. It’s kind of like what Joe just mentioned – they sold a property to someone off-market who had just bought a deal, so they had the confidence that they’d be able to close.

If the buyer doesn’t have a solid track record or doesn’t have a team with a solid track record, then you don’t really have any proof that they can actually close on the deal besides their word and just this offer price.

Something else you wanna know is how they’re actually gonna fund the deal. Again, if they don’t have their debt lined up, they don’t know if they’re buying it all cash, where is that money coming from, if they’re buying it with debt, where is the down payment coming from and where is the debt coming from, can they qualify for the debt…? Because obviously, if they can’t fund the deal, they can’t close on the deal.

You also wanna know what their proposed business plan is. Say, for example, you’re selling a property that is completely renovated and their plan is to do a value-add business plan and raise the rents by $100 – are they gonna be able to do that? Will they even be able to qualify for a loan based off that underwriting? Will their team be able to execute on that, and will they agree to execute on that? If not, they’re probably not gonna be able to close on the deal.

Then another thing you wanna ask is who their team members are, who is their property management company… I’m assuming most importantly will be the property management company, because they’re the one that’s going to be actually operating the property…

Joe Fairless: Debt.

Theo Hicks: And the debt, as well. These are all things that they need to have lined up in order to close on the deal. So essentially, the purpose of this best and final seller call is to confirm that they can actually close on the deal, and that involves asking about their track record, who’s on their team, what their business plan is and how they actually plan on funding the deal.

Then from there you can have a conversation with your team on what’s the best offer to accept, and it may not necessarily be the highest offer.

Step six is after you select the best offer is to negotiate a purchase sales agreement. That’s the actual sales contract, so it’s different than the letter of intent that they probably submitted prior to the best and final seller call. This is an official contract.

Joe Fairless: On the purchase and sale agreement, as a seller, make sure you use your template, and then provide that to the buyer. You’re starting with a home-court advantage if you do that.

Theo Hicks: Yeah. Don’t let the buyer send you a purchase sales agreement. Make sure that you yourself are drafting that.

Joe Fairless: Your attorneys.

Theo Hicks: Step seven – once the deal is under contract, you want to make sure you’re fulfilling your due diligence obligations for the purchase sales agreement… It’s depending on what’s in the purchase sales agreement, but 24 hours notice the can come visit the property, and you’re providing them with all the financials on a timely basis, and things like that.

Again, at this point you have gone through that process yourself, so put yourself in the shoes of the buyer and understand that they need to perform due diligence on their property in order to confirm their assumptions, so you need to be open and provide them with that information and allow them to tour the property and things like that.

Lastly is step eight, which is the close and distributing the sales proceeds to your investors. So you close on the deal and you make sure that you are taking the sales proceeds and distributing to your investor based off of how much money they invested in the deal.

Joe Fairless: That’s likely gonna happen in 2-3 different distributions, because there’s all sorts of outstanding checks and different payments you’ll have – maybe for taxes, or maybe a vendor hasn’t cashed a check yet… So you’re gonna have to keep something in the operating account, but you also want to distribute the chunk of what you’re confident you can distribute to investors.

One mistake we made on a recent sale is we sent the large chunk distribution out after the sale, and it happens like two, two and a half weeks after you close, just to get everything tidied up as much as you can… And we sent out the distribution, but we didn’t let them know that this was the first distribution of what we knew we could distribute… And when we did the distribution, because it was a large chunk of what we could do, we just made it an even number… So their profits from the sale was, say, a hundred thousand dollars and zero cents; it was exactly even. So we had one investor ask us “Hey, wait a second… This is a little weird. Why is my distribution exactly this amount with no pennies? It seems like it should be like 27 cents, or something like that…” And they asked to see the closing statements, and we sent them the closing statement, and then I finally asked “Wait, what are you asking about?” and he said, “Well, I just thought it was a little weird…” and I was like, “Got it. Well, here’s what we did…”

I should have communicated that to them in the e-mail, that we’re going to distribute a certain percent now, and then we’ll determine once all of the vendor checks are cashed and once we’re still getting some income from the city, from certain rent checks that were subsidized housing… And once all of that’s done, then we’ll give you, to the penny, the remaining distribution down the line, which can take up to 3, 4, 5 months.

Theo Hicks: So those are the 8 steps. One thing I did wanna mention is that starting in step 6, after you’ve negotiated your purchase sales agreement, that’s the point where you want to start notifying your investors and keep them updated on the process; once you’ve accepted the offer you wanna let investors know that you’re selling the property, and then you also wanna let them know when the closing date is. So if that changes, then you’ve gotta let them know when the closing date is.

Then once you actually close, you wanna send them an e-mail, letting them know about the successful close, and then kind of as Joe explained, about the distributions, explaining how that process is going to work… Because again, it’s important to keep your investors updated and communicating with them, because that’s how you build trust and relationships with them, and have them come back for future deals.

Joe Fairless: So to recap, here’s the 8-step process for selling your apartment community:

  1. You need to know when to sell. That broker’s opinion of value is helpful there; also, where is your business plan, also any other variables in play in your market.
  2. Be mindful of the sale, so position your property for a successful sale, meaning look at the renovations that you’re doing – maybe hold off on them, maybe continue… It depends. Look at the marketing budget, collections etc.
  3. Send your lender a notification of the pending sale or the upcoming sale. Know what your terms are in the loan covenant, because you might need to notify them more days than what you have under contract or they have under contract. That should not be a surprise to you, so know that in advance, prior to putting your property under contract, know how much lead time the lender needs, and then take into account pre-payment penalty and yield maintenance.
  4. Start a bidding war.
  5. The best and final call, qualify the buyer.
  6. Negotiate a purchase and sale agreement. Provide them yours.
  7. Fulfill due diligence obligations. You need a timeline; print out a timeline, put it in your wall, and also provide that to your attorney and ask them to notify you prior to any major milestones or major deadlines in the contract.
  8. Close and distribute the sales proceeds while communicating with your investors the expectations for when they should receive their distributions.

Theo Hicks: Alright, so just to wrap up, make sure you guys and girls go to the Best Ever Community page on Facebook. Each week we post a new question, you guys provide your answers, and you get included in the blog post.

This week’s question is “What is the biggest red flag for you when evaluating a potential deal?” This can be some sort of factor in your underwriting model… For me, when I saw this question, my first thought – and this is more specific to Florida… When I’m looking at deals down here, if they don’t have a concrete foundation, I don’t look at it. Apparently, termites are a huge deal in Florida, so if you have a wooden foundation, termites are attracted to wood, so it can open up a whole slew of problems in the future by having a wood foundation.

So if it doesn’t have a concrete foundation I don’t even look at it. That might be a unique approach on here… I was looking at some of the answers on the page right now, and someone said “A really low expense ratio. 30% in the proforma.” Probably not realistic… Another answer was “Accidentally miscalculating the IRR”, on the calculator, making sure that the formula is correct… So again, that’s a pretty big deal, because that’s one of the things you’re using to determine whether or not to invest in the deal.

So make sure you guys and girls go to the BestEverCommunity.com, answer that question and you will be included in a blog post next week.

Lastly, make sure you subscribe to the podcast on iTunes and leave a review for the opportunity to be the review of the week. This week’s review is by James Patrick JP. He had a short and sweet review, which was: “Great podcast, with high-quality guests, and a good mix of education and inspiration, covering a wide range of topics.”

Joe Fairless: JP, thank you so much for that review and taking time out of your day to help the community get stronger. I really appreciate it. Everyone, please do a review if you haven’t already, and we will showcase you in the review of the week.

Thanks so much for hanging out with us –  8-step process for approaching selling your apartment building – and looking forward to talking to you again tomorrow.

JF1431: 7 Factors To Consider When Raising Rents #FollowAlongFriday with Joe and Theo

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If you’re a value-add investor, raising rents is something that is near and dear to your heart. Today Joe and Theo will discuss in-depth details of what to look for when considering raising the rent prices. 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 today. We’re talking about how to determine when you should raise rents. I’m with Theo Hicks, who joins me on Fridays… And this topic, on the surface, is pretty simple – you raise rents when the market will commend a certain premium, or when you property can commend a certain premium based on the market comps.

So on the surface, you might be thinking “Okay, well I just need to know what the market is doing, and that will determine how I raise rents.” High-level – sure, that’s accurate, but there’s much more to it. There’s a 2.0 analysis that you can do and should do, especially when you’re dealing with apartment buildings, because you’ve got some large financial implications when you keep rents the same or you’re not maximizing the rents that you can be getting. And then there’s also financial implications depending on when you’re selling, where you’re at in the business plan etc.

So we’re gonna talk about that… Theo is gonna lead the charge, I’m gonna chime in along the way, and we’re ready to go.

Theo Hicks: As Joe said, the short answer to when you raise rents is you have your property management company, or you yourself will do some sort of market comp analysis on a monthly basis, weekly basis or however often you want, and then based off of that, your property management company or you will find out that “Okay, we’re under-rented by $15, so on all new leases we’re gonna raise the rent $15.” That’s the short answer, that’s one way to do it… But there are a couple of exceptions where you don’t necessarily want to just continue to raise your rent… Not necessarily exceptions, but things you wanna look at first, to make sure that those are all good before you start raising the rents, because as Joe said, of course, when you raise your rents, the rents will go up, but there’s also other implications of other expenses that might increase or things that might decrease, and that could potentially end up decreasing your overall cashflow on the property.

I’ve got a list of things here that I’m gonna go over… One of them is pretty high-level too, but it’s what’s your business plan? What was your initial plan to raise rents when you were underwriting the deal? Well, first of all, did you have a plan? …which you should; if you’re a Best Ever listener, we talk about that all the time. What was your initial plan to raise the rents? Was your plan to renovate the units and then raise the rents once they were done? Was the plan to decrease the loss to lease… So you went in there and the units were fine, but they were under-rented, so it was a plan to go in and raise the rents that way?

Also, do you have investors that you offer a certain return to, that you need to hit, and in order to achieve that return, you need to raise the rents? That’s maybe more upfront…

In the long-term, you wanna see where you actually are in your business plan compared to what you projected. Again, when you’re underwriting the deal, you’ve got your month-to-month projections, so two years down the road where are you at? Are your rents where they’re supposed to be? If not, and the market comps tell you that you can raise the rents, then that’s something that you’re gonna need to do in order to hit your target.

Joe Fairless: Something else with the business plan… It’s incredibly important that we’re aware of when the projected capital event will take place… And by capital event I mean a refinance, a supplemental loan or a sale. Because in order to get your desired amount (or even greater) for whatever you’re looking to get from that capital event, you’ll want to have the rent roll to show as high of income as possible, which then consequently will have your income be as high as possible. Theo is gonna get into this in a little bit… You can do some things to maneuver the property so that it’s put in the best light with your leasing, to get those rents as high as possible and then also to maintain the occupancy.

It’s not necessarily mutually exclusive, where you get rent premiums and high occupancy; there’s a way to get both, but you might have to do some concessions, or something like that, in order to get those leases signed at a high rate and keep that occupancy high for that capital event… Whereas if you’re not about to do a capital event or you’re not planning on doing one, then you can let occupancy dip a little bit, stay strong on concessions, meaning you don’t have any concessions, and then do it a little bit slower, in not as much of a blitz pace.

Theo Hicks: Exactly… Because the value of the property is based off of that operating income, and obviously, the majority of the actual revenue is rents, but you have to keep in mind that there is other income and there’s other things that you’re doing to get renters that costs you money. This is a concessions example.

Something else you wanna look at, since I think it’s a pretty smooth transition into talking about concessions – before you go to raise your rents, take a look at what type of concessions it is that you’re offering. If you’re offering a ton or rent concessions before raising the rents, it’s probably not a good idea to raise the rents until you are able to reduce those.

Again, concessions are things that are used, like first month is rent-free, a referral program, discounted rents… Anything that you’re conceding to the resident to get them to live in your building.

If you are already doing that at the current rents that you have, you’ll probably have to offer more concessions if you’re gonna be raising the rents. So concessions could actually be an indicator of whether or not you’re ready to raise the rents, kind of like occupancy. If the occupancy is really high, that might indicate that you’re under-rented. Having low concessions could also be an indicator that you could push your rents a little bit higher and increase that revenue.

At the same time, if you are increasing your rents by $300/month, but you have to offer $1,000 in concessions, it doesn’t really make any sense. So concessions is something else that you wanna look at and minimize before you go to raise your rents.

Something similar to concessions that’s also a revenue loss is bad debt and delinquency. This kind of also goes hand-in-hand with evictions and skips. So take a look at your eviction rate, the number of people that are skipping out in the middle of the night, and then once people skip out and they’re not up to date with their rents, then that’s bad debt. That’s money that you cannot collect.

If you’re having all these resident problems, minimize that first… Because again, if you minimize your bad debt, you minimize skips, you minimize evictions, your revenue is gonna go up without you having to even raise the rents, just with operational change. Once you’ve got all that figured out, you get the added bonus of eventually raising the rents.

Joe Fairless: And just to clarify a little bit on the bad debt… If someone skips out, you can technically collect, but you’ll likely have to go through a collections agency, and it’s gonna be a long time and you’ll just get a percentage of it, because the collections agency will take a percentage, too.

Theo Hicks: And Joe, you were talking earlier about things that you can do leading up to the sale – becoming more aggressive on your collections is one of those, as well. Of course, minimizing eviction and skips, but also if you’ve got bad debt that’s more than 3% of your gross potential rents, of course, the person that’s looking at your deal is gonna have questions about why is the bad debt so high. That’s something else too that you wanna address.

I was looking at a deal the other day where the bad debt was literally over 10% of the gross potential rent… It was just because of the resident space, but… Again, 10% of your gross potential rent… Think about how much money you’re paying for property management; it’s like 3%. So it’s three times as much as paying the property manager, money you’re just losing because you’re not aggressive enough on the collections. So that’s a way to raise the rents without actually having to raise the rents.

Another one – and this kind of goes back to what we were talking about earlier with the market comps, the competition… So what are your 2-bed and 1-bed rents compared to the similar apartment across the street? What are they offering currently? What type of concessions are they offering?

If you are wanting to raise your rents from $850 to $875 and someone across the street is at $825 and offering some concessions, it’s probably not the best idea to raise the rent, assuming that those are the exact same properties.

So the market comp analysis will take care of that… When you get your analysis back, you’ll look at your competition and see what they’re renting. But I’m not 100% sure if they have things like concessions or who pays the utilities on there… Does it, Joe?

Joe Fairless: Yeah, absolutely; a good analysis certainly does, because the good analysis will be that of a perspective resident at that property, and that perspective resident, when going through the process at the property, will come across if there’s a concession or not, or who pays what.

Theo Hicks: Okay.

Joe Fairless: And that should be done at minimum on a monthly basis for your property.

Theo Hicks: Exactly. And one of the main purposes of that is to minimize that loss to lease, which is something else that’s a loss… And if you can minimize that gap… Because loss to lease is the difference between the market rent and the actual rent, so for example — one of the deals you guys bought maybe over a year ago, I was reading through the investment summary and the owner was not aggressive on his rents, so it was 5%-10% below market rents… But they sacrificed that so they’d have a really high occupancy rate.

So it is kind of a give and take on all of these factors, and you kind of wanna just navigate them so you can have certain ones that are high, but then not have other ones go up because of that, and things like that… And that just takes experience and time.

Joe Fairless: All roads lead back to the business plan, which is why we started off talking about the business plan… Because if your business plan is to have returns that are desirable, so 17%-18% internal rate of return on a five-year project to limited partners, then it’s likely you’re doing a value-add play, so you’ll need to continue to be aggressive with income, or be focused on income… Compared to perhaps a family that purchases a property to beat inflation – they’re likely more focused on occupancy, sitting on it, paying off the debt and holding it long-term, maybe doing a cash-out refinance in the future, depending on how the economy does. It’s just different – different business plans, different perspectives on what to do based on certain circumstances.

Theo Hicks: Exactly. And with this business plan, everything that we’re talking about, you’ll want to make sure that you’re aware of this when you’re creating a business plan. This is not something that you want to do two years in, and be like, “Alright, how do I raise rents on this property?” You should know as much as possible exactly what you’re going to do after taking over the property, so that you’re not scrambling last-minute to raise the rents, or you don’t know what to do when bad debt increases, and things like that.

Joe Fairless: Yeah, you should absolutely know who is your competition prior to purchasing the property, what you need to do to compete with that property… So if you’re doing a value-add deal, it should not be other properties that are where you’re at now, it should be the properties that you can compete against once you implement your value-add plan.

Then once you close, you implement the value-add plan, you then do an assessment to determine where you’re at relative to that competition, and how you can optimize that plan… Whether you can scale down on the upgrades, because maybe it’s overkill, whether you need to scale up, or whether you’re just about right, and then you can figure out how to maneuver afterwards… But you’ve gotta have that plan going into it, you’ve gotta know who your competition is and how you plan on competing against them and how much it’s gonna cost in order to do that per unit.

Theo Hicks: Yeah. Another factor to look at is the number of canceled applicants. These are the people who apply and then disappear. You wanna see how many people are canceling or have applied to move in and then the move-in date comes and they don’t actually show up. If you’re having a high number of these, that’s another area you should probably focus on first, because that’s kind of a sign of either something’s going on with the resident, or there’s something about your property that they don’t want to move in… So that’s something that you wanna find an answer to and figure it out, because that’s wasted advertising dollars, that’s wasted time for your leasing agents… That’s a unit that could have had a resident, but now it’s vacant for another couple of weeks because that person didn’t move in.

So all those things are losses against your revenue. If you’ve got a bunch of applicants cancelling and not showing up for move-in day, figure out what’s going on and address that before you go in and raise rents.

Joe Fairless: Two comments on that. One – in addition to it being applicants who were approved, you also might have applicants who applied, but then they went AWOL and they wouldn’t have been qualified anyway. It’s important to take note of how many you have of those individuals, because that could be an indicator of the market and the submarket. So you’ll want to see the trend there of all these canceled applicants and you’re not really getting the quality that you used to, or you’re getting better quality residents based on however you qualify the potential residents. So that’s one comment.

Theo Hicks: The other comment is these are all things that you should be asking your property manager on-site to give you information on… Whereas I imagine if you didn’t hear our conversation between Theo and I, you might not have asked about all these questions prior to saying “Yeah, let’s increase the rents.” And this is just a next-level way of looking at if you should increase rents and other considerations, because each of them have a way of hurting your property and your profits if you’re not paying attention to it. Canceled applicants, the number of evictions, the competition, concessions, clearly the business plan – these are all things that you should be asking your on-site team about, so that you’re educated, and then you can start seeing trends over the course of ownership at that particular property.

Theo Hicks: Exactly. And a couple more comments, or one… A lot of the things that we’re talking about – canceled applicants, the bad debt… Well, always the bad debt, but canceled applicants, evictions, skips… If you are underwriting a deal, or you actually have your property management company already managing the property, all of these things should be listed on the rent roll, assuming you’re using a really detailed software… If not, as Joe mentioned, you need to get this information from your property management company. This should be information you’re getting on your weekly performance reviews with the management company. You should have spreadsheets, you should have a lot more than just the number of canceled applicants, evictions, skips, bad debt and concessions…

You should make sure that you’re in constant communication with your property management company and you’re knowing what’s going on on a weekly basis in regards to these different factors.

Joe Fairless: And someone who has a large apartment building might be thinking, “Well, yeah, but Joe, I have an LRO (lease rent options) system to just tell me when I should raise rents”, and that’s great, but it doesn’t necessarily factor in all of these things that we’ve discussed. So even if you have a software program that tells you what the market rent is at your competition, what their occupancy rate is and what you should do on that particular day with your unit, you still want to take all these other factors that we’ve discussed into consideration.

Theo Hicks: Exactly. The last factor is the rental season. So figure out what month you’re in right now – we’re in August – and then determine how close you are to when the rental season begins and when the rental season ends. Of course, the rental season is gonna vary from market to market.

I know back in Cincinnati it was May, June, July, August, around that time. I did some research beforehand and a lot of people say summer… I’ve read a couple e-mails from your property management company, Joe, and they talk about April and May… So it sounds like between April and September – somewhere in there is when rental season starts and ends.

Then obviously in the winter is when it’s not rental season… So if you’re in the winter, you’re probably not gonna be able to get as high of rents as you would if you wait six months to raise the rents in the spring and in the summer… So that’s something else that you wanna take into account – where are you at in time, and is this the optimal time to raise the rents, or should I wait six months before raising those rents?

Joe Fairless: Winter is the time to hold tight on occupancy. November, December not only do residents not move, and if they do move out, then good luck getting someone to replace them at that particular time, but properties don’t sell.

Now, I’m making a general statement – certainly there’s exceptions, but usually you’re not gonna have a property of yours go on the market in November, because there’s just not as much traction as in the spring and in the summer, and every single-family home investor who’s listening to this is like “Yeah, no kidding…”, because you experience the same thing with single-family homes. You would think larger dollar amount transactions might buck that trend, but they do not.

When we sell our properties, we’re looking to sell in the same timeframe that you’ve just described.

Theo Hicks: Exactly, yeah. Maybe during that time of the year, in the winter, it’s the best time to buy a deal from someone, because they’re not gonna be able to demand as high of a price, but…

Joe Fairless: Yeah, absolutely. There’s a flipside to that for sure.

Theo Hicks: [unintelligible [00:19:02].10] So just to summarize, when to raise rents at your apartment community – the short answer is run a rental comp analysis and if it tells you to raise the rents, raise them. But there are some other additional factors to look at, too.

What’s your business plan? What kind of concessions are you currently offering? Take a look at the people you’re competing with, take a look at the number of evictions and skips, take a look at your bad debt and delinquency costs, make sure you’re up to date on the number of cancelled applicants, and then finally, make sure you’re aware of what time of the year it is, and whether or not you’re in the rental season.

Joe Fairless: I think that was seven things. That’s nice and clean for the title of this episode once it goes live.

Theo Hicks: Yeah, exactly. Moving on, Joe, to the updates – I know you guys closed on a deal yesterday, so congrats on that.

Joe Fairless: Yeah, that’s a pretty big update. We closed on a 436-unit property in Dallas, and I actually just sent out an opportunity yesterday to my private investor group about another property that is in that area, South Dallas area; we think there’s gonna be some good cashflow opportunity with perhaps some appreciation in the market, although we’re not counting on it… More of a cashflow opportunity and do our value-add business plan. I’m excited about that.

Then one real estate productivity-related thing that I learned last night was I watched the documentary Truth About Alcohol (on Netflix), and I learned some things that I’d heard before, but I didn’t know it was actually science… So for any Best Ever listener who does have a drink every now and then, or multiple drinks every now and then, this is information that you might find interesting (I did). One is the more water we have in our body, the longer it takes for us to get drunk, so that’s why larger people don’t get drunk as quickly as smaller people, because the larger people have more water in their body. That’s number one.

The more muscle you have compared to fat, it will take longer for you to get drunk. So if you’re more muscular, then you don’t get drunk as quickly as if you are fat… That’s another thing I learned on the documentary.

Third thing is we probably don’t know this, but I saw an experiment, so it proved it – if we eat prior to drinking, then we get drunk slower. The blood alcohol content that is in our bloodstream is lower if we eat prior to drinking, versus if we drink on an empty stomach.

And then four is we eat more when we’re drinking. Again, most of these things I had heard of, but I didn’t know if they were actual facts or not… At least they were from this documentary. The documentary is The Truth About Alcohol. I thought that was interesting, so I wanted to share.

Theo Hicks: So now if you don’t want to get drunk, you know what to do. If you also want to maximize it, you also know what to do… [laughter] When you’re working on your real estate stuff.

Joe Fairless: There you go.

Theo Hicks: Yeah, I mean… Whenever you watch an older movie, whenever they’re doing business transactions, they’re always drinking–

Joe Fairless: Sipping on whiskey…

Theo Hicks: Sipping on whiskey, and stuff like that.

Joe Fairless: Smoking a ciggy…

Theo Hicks: Yeah. They could probably make some more open and honest [unintelligible [00:22:22].13] business negotiations.

Joe Fairless: Yes, yes. What about you? Any updates?

Theo Hicks: No updates on my end. I’ve got my three fourplexes, they’re fully occupied, so there’s cashflow… I mentioned last week I’m gonna host a barbecue event in the next couple of months. I’m not gonna tell them when it’s coming, I’m not gonna tell them when the next one’s coming, and I’m excited about that.

Joe Fairless: Well, you kind of wanna tell them a little in advance when it’s coming…

Theo Hicks: I’ll give them a week advance, yeah.

Joe Fairless: Right, right.

Theo Hicks: Then I’m also starting to work on doing my own syndication deal, so we’ll talk about that coming soon.

Joe Fairless: Fair enough.

Theo Hicks: I’m putting together a team right now and we’re gonna start looking for deals. I’m running some things, but not enough to share on this podcast just yet… But once I learn my first big lesson, I’ll definitely share it for everyone.

Joe Fairless: Well, Theo, we have some resources for you that will help you learn the process.

Theo Hicks: I’m leveraging all those resources, don’t worry, Joe…

Joe Fairless: Yes, fair enough. And for everyone else, you can go to apartmentsyndication.com, or multifamilysyndication.com (we’ve got both URL’s) and there’s all sorts of syndication tips and blog posts on raising money, and finding deals, and working with brokers, building out your team… All that good stuff.

Theo Hicks: Alright, so just to wrap up here – make sure you guys go to the BestEverCommunity.com…

Joe Fairless: You did it again…

Theo Hicks: What did I do again? Oh, guys and girls…

Joe Fairless: There you go. [laughter]

Theo Hicks: Guys and girls… [laughs] Make sure you guys go to the bestevercommunity.com, our Facebook group…

Joe Fairless: You just did it again… [laughs]

Theo Hicks: And each week we post a question of the week. If you guys and girls respond to it, you’ll be included in a blog post. This week’s question is “What is the biggest red flag for you when evaluating a market?”

I wanna add to this — I’m gonna go back and add to this and say “What’s the biggest red flag for you when you’re evaluating a market?”, but I also wanna know what the biggest red flag is when you’re evaluating a deal? Maybe that’ll be the question next week.

The biggest red flag for me when evaluating a market — of course, we talk about this all the time, which is job diversity… But something else is I wanna look at the median income, and — this is more for a deal, I guess… What the average rent is gonna be, and make sure that the median income can support that rent.

Most people spend around 30%-35% (I think that’s the high end) of their income on rent… So if the rents are below that, that’s a good sign; if the rents are 50% of the median income, then I’m probably not gonna invest in that area.

Joe Fairless: That’s a good one. Thank you for sharing that.

Theo Hicks: I got that from one of your clients, Dan.

Joe Fairless: Oh, cool.

Theo Hicks: I’d heard it before, but he articulated it in a good way, and it stuck.

Joe Fairless: Yeah, that’s good. I like that.

Theo Hicks: And lastly, make sure you guys and girls subscribe to the podcast on iTunes and leave a review, it really helps us out… And you might have the opportunity to have your review read aloud on the podcast.

This week’s review was from Hanna Bumper, and she said:

“These podcasts are extremely informative for first-time investors, through to those with [unintelligible [00:25:20].10] portfolios. I highly recommend it. Even the ones I didn’t think pertained to me had nuggets of information that were useful.”

And yeah, I agree, I’m sure most people when they go through your podcast, they look at the title and they read the bio of the person, and they see “Oh, they’re a wholesaler… I’m not  a wholesaler, so I’m not gonna listen to it…”, but real estate is so interconnected that you might learn some deal generation techniques that you could apply to your business, or some success habits that they use that is something that you’re struggling with, and once applied, could increase your productivity.

So I agree, every podcast has at least one thing that is new that you can learn and apply to whatever business, or even to your personal life. And at the very least, you’ll get a very good book recommendation at the end.

Joe Fairless: Yeah, I love your thoughts, Hanna, and also your comments, Theo. I’m the same way… One core belief I have is nothing in life has a meaning until I decide to give it meaning… So I determine what words mean to me, and it’s a fact that that’s how the world is, because everyone is interpreting our conversation slightly differently based on their own life experiences, where they’re at, their attention span etc.

So when I’m speaking to a fix and flipper or a wholesaler – I’m not doing that stuff, but I am learning about certain aspects of what they’re doing so that I can see how I can apply that to my business… And there’s always something I can learn from a conversation, so I’m grateful that we’ve got Best Ever listeners who acknowledge and embrace that. I too embrace that.

Thanks everyone for hanging out, listening, and we’ll talk to you tomorrow.

JF1427: Debate 03: Fix & Flip Vs. Buy & Hold with Eric Kottner and Mark Dolfini

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If you’ve been wondering which of these strategies are best for you, then tune in and hear what the respective experts in their field have to say about why they chose their strategy. Even if you know your strategy, these debates are extremely informative for everyone, no matter the experience level. If you enjoyed today’s episode remember to subscribe in iTunes and leave us a review! If you enjoyed today’s episode remember to subscribe in iTunes and leave us a review!


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Mark Dolfini Real Estate Background:

  • Husband, Father, and U.S. Marine Veteran
  • Currently oversees the ownership, operation, and management of $40 Million worth of Real Estate
  • Volunteers with various veteran’s causes as well as Junior Achievement
  • Based in Lafayette, Indiana
  • Best Ever Listeners can get a free pre-release version of his new book at www.LandlordCoach.com/BestEver
  • Say hi to him at https://landlordcoach.com/
  • Best Ever Book: Think and Grow Rich


Eric Kottner Real Estate Background:

  • Full time investor since 2006
  • Started flipping in 2011
  • Joined a high volume flipping company in 2015, where they did 5-7 flips per month
  • Has done 15 flips since going back on his own
  • Based in Cincinnati, OH
  • Say hi to him at:

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Joe Fairless: Best Ever listeners, welcome to another round of the Best Ever Debate. Today we’re pitting Mark Dolfini versus Eric Kottner. Mark’s gonna be representing the buy and hold approach, Eric is gonna be representing fix and flip. The purpose is not to prove which strategy is superior, but rather which strategy is best for you.

We’ve got four categories:

1) barrier to entry

2) risks

3) potential returns

4) if it’s maintainable in a downturn.

They’re gonna be talking about their approach based on those four categories, and you can go to BestEverShowCommunity.com (I think BestEverCommunity.com works too, you can just do that). That will take you to our Facebook page, where you can jump in the conversation, talk to Mark, talk to Eric and tell us which strategy is best for you based on this episode, or just ask them some questions that you have about the content and the conversation that took place… So enjoy the episode, and we’ll talk to you tomorrow.


Grant Rothenburger: Alright, it looks like we’re live. Hi, everyone. Thanks for tuning in to the third Best Ever Debate. Today I’m joined by Mark Dolfini and Eric Kottner. How are you doing today, Mark?

Mark Dolfini: I’m doing great.

Grant Rothenburger: And Mark is here to argue the buy and hold side of this debate. A little bit about Mark – he has been a previous guest on this show, and he is a  husband, father, U.S. Marine Veteran, so thank you for your service. Currently, Mark oversees the ownership, operation and management of $40 million dollars worth of real estate. He volunteers with various veteran’s causes, as well as Junior Achievement. He is based in Lafayette, Indiana, and he has a new book that has recently come out… Or is coming out, Mark?

Mark Dolfini: I’ve got two books. The Time-Wealthy Investor published last year in July, and I’ve just released The Judge a week ago, Friday.

Grant Rothenburger: Okay, cool. So LandlordCoach.com/BestEver, and you have something set up for the Best Ever listeners there.

Mark Dolfini: They can get a free copy of the download of The Judge, and also there’s some videos on there as well, explaining the VIP process outlined in the Time-Wealthy Investor.

Grant Rothenburger: Perfect. And Eric Kottner is a personal friend of mine here in Cincinnati. He’s joining us — you’re in one of your flips at the moment, aren’t you?

Eric Kottner: I am. We’re actually gonna get the professional photos done today, and hopefully get it on the market this weekend.

Grant Rothenburger: Very cool. Obviously, Eric Kottner is here to tell us about the fix and flip side of this argument. He has been a full-time real estate investor since 2006. He started flipping in 2011, and in 2015 he joined a high volume flipping company for two years. They were doing 5-7 flips per month. Since, he has gone on his own again and has done 15 flips personally.

Today, obviously you guys are debating buy and hold versus fix and flip, and we’ve got four points we’re gonna hit: barrier of entry, risk, returns and how maintainable is your strategy in a downturn.

With that, we’ll go ahead and start with you, Mark. Do you wanna tell us a little bit more about yourself? Then we’ll dive into the barrier of entry after that.

Mark Dolfini: Sure. I started in real estate back in the late ’90s. I proceeded to make every mistake you could possibly make in real estate… So if there’s one out there, I’m not sure that I haven’t made it… A couple times, because the first time wasn’t expensive enough. You learn pretty quickly that way. [laughs] But I’ve done a lot of different things. I’ve done some flips, I’ve done a lot of different things in terms of contract sales, and holding paper, and trading paper, and stuff like that… But it’s all been centered around real estate.

But my strategy which works best for me is buy and hold. I’ve always bought things with the eye towards holding onto them, and really it’s been a strategy that’s worked out well for me, and maybe it will work out for some of your listeners as well.

Grant Rothenburger: I think it already has, and hopefully we can encourage some more, unless Eric has something to say about it…

Eric Kottner: I mean, just like Mark, I’ve been in this since 2006; I actually started as a landlord, owning rental properties, along those lines… And throughout the few years I’ve been doing that, I made every mistake in the book, just as I’m sure Mark has as well, and I learned over these few years that just me being that landlord just really wasn’t what I wanted to do, it wasn’t what matched my skill sets… So down the road, I’ve hired a property manager back in 2008-2009, I got my real estate license, tried my hand at being a realtor in 2009, which was — once again, we talk about mistakes we made in real estate… That would be one of those. [laughter]

In 2011 I saw that there’s an opportunity to buy properties low, fix them up and start selling them. And actually, in 2011, when I did do my first flip, I had it under contract within three days, and it was one of those things that I learned that (as we’ll talk about later) there are things you can do in a down market that will still get you to sell your houses fast and make a good profit on them.

But yeah, I learned that I do a lot better dealing with problems that are in front of me, with construction work, or houses, along those lines, than so much dealing with emotions of other people, along those lines, and having to talk with tenants and everything along those lines… And just fitting that skillset, fix and flip is good for me, and also for making sure that when I go into a project, I do it 100% because I know I’m gonna be selling off to somebody else. So it benefits me to make sure I put an extra little bit of money into it, knowing that I’m gonna sell it to a homeowner down the road, and just only keep it for a short period of time.

Grant Rothenburger: Okay. I love how you did a little bit of foreshadowing there for the maintainable in a downturn… Okay, so let’s talk about barrier of entry, and we’re gonna grade each one of these on a scale from 1 to 5. So barrier of entry, difficulty to entry, 1 being low, 5 being high… When we get to maintainable in a downturn, 1 will be easily maintainable in a downturn, 5 is very difficult to maintain in a downturn. So with all that being said, Mark, will you kick us off with your argument for barrier of entry for buy and hold?

Mark Dolfini: Yeah, I rated that as a 4, and I’ll admit that it is hard to get into — that’s the one thing, that’s the one constant that I hear when people are saying “I wanna get into rentals, but I’m gonna start with wholesaling, and maybe do some flips, and then get some cash, and then buy some rentals.” So from that side of things, I will tell you it is difficult.

Back when I was starting out in the early 2000’s I just needed to understand how the banks were thinking, what they were looking for in the underwriting process, and that’s what I showed them. It wasn’t anything other than just learning that. Now, the banks have gotten very sophisticated in terms of what they’re looking at; they question everything, and it is a lot more difficult to even buy a property that you live in for a few years and turn that into a rental. It’s much more scrutinized than it was even just a few years ago.

So it’s not as easy as it was, but I didn’t rate it as a 5, because I didn’t wanna make it sound impossible. I rated it as a 4, just because there is significant capital that you’ll have to have to get into a decent property, and not buy a property that — if you look at the money and it’s $30,000 to get into a rental, for that $30,000 rental property you’re like “Oh, my gosh…” That’s not the type of property you really wanna be getting into in every market. In some markets it’s okay, but not every market is conducive for that. So I rated it as a 4 just because of the capital outlay, that you’ll have to almost always have cash or cash equity in a deal.

Grant Rothenburger: Alright, cool. Eric, do you have a response or a question to what Mark just said?

Eric Kottner: He made some very good points. With all of real estate, especially rentals or fix and flips, there’s gonna be a lot of capital involved, and raising capital, depending on what market you’re in, can be the easiest or the hardest to do, depending on your skillset levels, along those lines. But I completely agree with him – getting the capital, talking with the banks is probably one of the more difficult things to do right now.

But for my difficulty level on fix and flips, I actually had it a little bit lower… And the only reason I say that is because I had it at a 3. The main reason for that was mainly for the fact that in a fix and flip there’s a couple ways that — you can either come into it like I did, with a lot of capital, with your own money, to start fix and flipping… I actually refinanced my rental properties to start fixing and flipping back in 2011, and that’s how I got my start.

In this market right now though, I’ve been seeing a lot of people that [unintelligible [00:09:09].10] either joint-venturing, people that actually had done construction work, or had been a general contractor for years are not partnering with actual experienced real estate investors to get their foot in the door, to start fix and flipping properties themselves.

So if you don’t have the capital and you have the skill to be able to turn a house around – that’s one way I’ve seen a lot of people pretty much start on fix and flipping before they can build up that capital like I was talking about to actually start doing fix and flips on their own.

So I’m essentially stating that if you have the skill or the mini-skills, you can pretty much learn [unintelligible [00:09:42].22] somebody, similar to what I did with the high-volume company a couple years ago… Or you can use your own money to do fix and flips, which obviously at this point it’s a lot higher to get that money to start off with. But then after you have a couple flips under your belt, you can start easily qualifying for hard money loans, going to a bank like Springs Valley where you can put about 15% down and get a lower interest rate than hard money loans, along those lines.

But if you have the handymen skills or the money, you can relatively jump pretty quickly into fix and flips.

Grant Rothenburger: Alright, cool. Mark, do you want to rebut or have anything to say to Eric?

Mark Dolfini: Yeah, I have a question on that, because I think that you were spot on, and everything that you just said is 100% correct. The question I would ask though, because your barrier to entry that you have so far, that you’ve identified, is capital, and I think that is THE barrier that most people can’t get through… What about skillset though? Because I think that is a significant barrier, where it’s not just being able to do the thing… It’s being able to do the thing that’s appropriate to that property.

You’re in the Cincinnati market, and it’s a great market, but there’s still gonna be areas where you know what – marble is not the best use to put on this countertop… But you know that, because you’ve done that. You’re laughing because you’re thinking “Yeah, I know people who put marble in a not-marble neighborhood.” So what would you say to a skillset in terms of it being a barrier to entry in terms of what’s appropriate, so you don’t over-fix a property and remove the emotion from it to say “Okay, you know what, I need to look at this clinically” and say “You know what, this is a Formica type flip”, and you’re not fixing it to what you would like, but to what the buyer would like… So how would you address the barrier to entry there?

Eric Kottner: The barrier to entry along those lines would be essentially going to the REIA meetings and talking with actual experienced investors. When I talk to people that don’t have the skillsets to be able to go in there and do the properties, I say that their most easiest way of entry is actually partnering up with an experienced investor… And hopefully, the experienced investor is gonna tell them “This is Formica, this is granite, this is quartz.”

It’s funny that you bring that up, because this is actually the first property I’m in now that I actually used quartz in, because I’ve found it for $55 a square foot. So I went a little bit higher for my materials on this one, but you’re exactly right – am I over-improved here? Did I hit spot on? Now that we’re in a deep sellers’ market, with these upgrades on there… I’m not saying you have to go [unintelligible [00:12:06].24] level, where they spend like $40,000 more and raising the price $70,000. There’s no way that’s gonna work. But an experienced investor is gonna tell you, “Okay, if we can upgrade from granite to quartz here, if we go a little bit nicer, spend that $5,000 more, we can push this price point of 230k”, which is what I’m gonna be asking for this one, and just kind of see how the market takes it.

We’re not going too deeply up on there, so for someone starting that has the skillset of being a handyman, I would recommend that they job-shadow a reputable flipper… That way they understand the price points of what to put in for the cabinets.

For the ones that have the capital, that have the money and wanna start right away, I would say make sure they go to a REIA group, make sure they just talk around… Because then once you talk to people, it’s like “Oh, $150,000 – yeah, you know…” If it’s in a questionable neighborhood where it’s like half rentals, half flips, I might put granite just for a sparkle factor, because no one’s really doing it, but I won’t go completely all out about that. That would be my one special feature to it… Whereas if it’s a $230,000 property, I’ll put a backsplash, I’ll put quartz to try it out. If it’s doesn’t work, I’m just gonna readjust on my nest flip that’s close to it.

Mark Dolfini: Right. So what would you say to the person in terms of barrier to entry that has no skillset in terms of being able to rehab? I mean, they might be able to hold a paintbrush by the right end, but that’s about it. Because I think that’s a significant barrier, where most people are trading their time for money, and that’s the definition of a job, right? So if they’re trading their labor to do all the work themselves, what would you say to the person that does not have that skillset?

Eric Kottner: It’s essentially along those lines of just getting into corporate America; you can either do an internship, or a job-shadowing of an experienced investor. Right now investors, the ones that are pretty much picking up more properties, they need somebody to either help — if you’re good with numbers, which I learned I was really good with my accounting background of doing numbers… I could do the comps and repair estimates relatively quickly.

Now, my repair estimates – I always give a fudge factor of about 10% in homes that are 1970’s and more. If I’m dealing with a 1920 home or more, or in that range, then my fudge factor is close to 15%-20%. It also depends on the level of rehab.

So I’ve always been really good with numbers, and that was the one reason I did join up with the high volume company that I did, was because of the fact that within two or three minutes I can give you a valuation of property, I can give you an idea of what it needs for repairs… And yeah, we were pretty much within 5%-7% of the numbers I said.

So I’m not handy at all… I make the joke of it as well where every time my contractor is seeing me on the job site, they make sure no tools ever get in my hand… [laughter] So my strength was my numbers, and you could have somebody that is just wanting to evaluate the deal – “Hey, what does this look like?” and be able to job-shadow them, and then get hired on as an asset manager or acquisition manager for the title of the company, while you’re learning and fix and flipping on your own while learning under an experienced investor.

Grant Rothenburger: That makes sense, but on the same note, Mark, can someone also partner with a more experienced landlord and kind of get the same on-the-job training?

Mark Dolfini: Yeah, it’s a  little bit differently, from my perspective… I think the barrier on that side is perceived to be less, let’s just put it that way… Because a lot of times when I’m seeing people that are making mistakes in the landlording business, or even the property management business, is they don’t know what they don’t know. That’s the problem.

In this particular case, you could get someone that would go in and say “Okay, what’s it gonna take to renovate this bathroom?” and you can get three estimates and you know the number; you can interpellate the number… Based on what they see, of course; you get in and there’s termites or [unintelligible [00:15:43].06] but those are the sorts of things — that’s why you bake in 10%-15% on overage…

But in this particular case, what I’m finding most often, especially when I’m coaching or consulting other landlords, is the fact that they don’t know what they don’t know. They don’t even see the risks that they’re taking because it hasn’t been a problem yet, and they don’t see the problem where them just driving around and picking up rent – they don’t really ever value their time, so they don’t even see the few things that they’re making mistakes on. They go, “Well, if I don’t drive around, I won’t get it”, and I’m thinking “That’s a game not worth winning”, and you’re not setting up the proper infrastructure to replace themselves as quickly as possible.

So more often than not, I’m seeing mistakes of just ignorance, or just things that they just didn’t think about because there hasn’t been an issue. You could shadow another landlord, but I almost think it’s — from the tribal method, you’re learning more bad mistakes, to be honest with you.

Eric Kottner: I do have a question for Mark, if that’s okay.

Grant Rothenburger: Yeah, sure.

Eric Kottner: One of the things you might hear on this barrier of entry, people wanna talk about “What if I get a property on land contract, or I can buy it with seller financing?” – that obviously if you can find a seller that wants to sell on a land contract or their own financing… That would lower your barrier of entry. What advice would you give to somebody who would try to rebuttal you and saying “It’s easier than what you’ve previously stated, because I have these options in place”?

Mark Dolfini: Well, that’s certainly one of the things that you can do – you can buy a property on contract, but the contract is gonna have to allow you to do that, because a lot of contracts, a lot of owners may not want you to purchase the property for the purpose of renting it out. The contract may stipulate that you’re not allowed to do that. So that would be one thing that I’d be careful about.

But as long as you’re allowed to do that, you can get into the property, but you’ve gotta understand from that side you can lower your risk, but then again, I think from that side of things where if you can mitigate the risk by getting very favorable contract terms – like if you’re gonna have a balloon that’s gonna be pushed out into the future and you’re not gonna be looking at a two-year balloon or three-year balloon… Because this is the whole point – they wanna get cashed out, right? So if you can mitigate those risks by having a very favorable contract that allows you to do what you need to do, then I don’t see a problem with that whatsoever. In fact, I’ve done that a couple different times; in fact, that’s how I was able to build up a part of my portfolio back in 2006 and 2007.

There was a guy who had 20-something units that he just — he didn’t wanna be a landlord anymore, and he sold them to me on one contract. So from that side of things I think it’s great, but you have to make sure that that contract is written in a way that it allows you to do what you need to do as a landlord.

Grant Rothenburger: Easy enough… Well, easy said, anyway.

Mark Dolfini: [laughs] There’s a lot of people out there that are in pain, though. And Eric, you bring up a great point – there’s a lot of people out there that don’t wanna be landlords anymore because they’re just so emotionally spent, because they’ve never set it up as a business, they’ve never set  it up to be scalable to where they are removed as the bottleneck for all the information to pass through… And it’s their fault; they won’t admit it, but it’s their fault.

That was the problem that I had back in 2008-2009 – I was running 92 rental units all by myself, and my life was a complete, total disaster. I’ll own it, because I was the one that created that problem.

Grant Rothenburger: That sounds like a disaster, like you said

Mark Dolfini: If you can imagine a photo of the Hindenburg… That’s kind of what I looked like.

Eric Kottner: We’re getting into a great segue for risks here, so…

Grant Rothenburger: Yeah, we are… And you’re gonna start us, so go ahead, Eric.

Eric Kottner: One of the things when it comes to fix and flip is there’s a lot of great risks involved… As Mark was just talking about, dealing with headache landlords and people that just wanna sell out… The risks usually are not any less when it comes to fix and flips. You have to know what area you’re buying in, you have to know what’s on the property.

For someone starting off, on there you can mitigate those risks by hiring a professional inspector to come in, or even a general contractor to come in and point everything wrong with the house. You’re gonna spend a few hundred dollars to make sure the first few times you do it… You’re gonna spend about $400-$600 to make sure that you have everything pinpointed that’s wrong with the house… Even more if it’s a foundation inspection.

With those inspections, you can mitigate your risk on any property that you’re going into. And for people that say “I don’t wanna spend $400-$600 on the inspection”, from somebody who has made mistakes, you’re going to spend thousands and thousands more if you decide to go at it alone.

One of my current flips I have right now – there’s sump pump irrigation that pumps water to the outside, but the inspector found a sump pump on the inside and was trying to find out what’s going on with it. Now, because it had the sump pump inside, they pretty much wanted a first-time homebuyer say “We want this company specifically to fix this issue”, and instead of $4,000 it was $7,000, just to remediate that fix, to put a sump pump [unintelligible [00:20:22].22] Yeah, there’s no way I can really go against that unless I just want to back the buyer out, and then try to find another one. But for me, it’d be easier to deal with this one, because it was a strong buyer, so I went ahead and went with it and got it taken care of. But I didn’t have an inspection done on that one; that one I’ve been hurting a little bit on… But I also have two other flips where I’m gonna make good money on. The one I’m currently in right now, I should be set to make about $25,000… Which is okay in the Cincinnati market, at least in the $230,000 price point.

But yeah, with fix and flips you have to find every problem, because it’s not like a tenant is gonna move in there and they can live with the older bathtub for a little bit. An inspector is gonna come in that’s a professional, that’s hired by the buyer to find everything that’s wrong with your house, and then it’s gonna be up to you to make sure that that gets fixed.

Grant Rothenburger: Right. Mark, anything to question or add to that?

Mark Dolfini: You’re 100% right, because I ran into the same problem with people that — if you’re talking about inspection, that’s kind of your insurance policy before the transaction, right?

Eric Kottner: Yes.

Mark Dolfini: On the front-end. Well, I run into the same problem — I cannot believe the amount of people that look at credit reporting, or when you’re running an application on an applicant as a tenant… And they look at that as a commodity. You know that there’s good inspectors and there’s bad inspectors, and just like there’s good credit reporting and bad credit reporting. It’s just a commodity. They get it 30-60 days [unintelligible [00:21:46].10] and meanwhile, this person is currently being evicted today. And there’s certain of them out there that it’s just a data dump. They just, you know “Okay, pull their credit, check the box”, and that’s in. Meanwhile, that individual is getting evicted that day.

So you really have to value not just the information, but what the information represents and how you’re getting it. So I think that that’s very good in terms of risks.

I don’t know if you actually value that as a number, but one of the things in terms of the risks that I have a question for you about is what happens when you’re in — you obviously have a preferred set of subs that you use, which kind of removes you as the bottleneck from doing all the work, so that’s great, and this is something that I deal with as a property manager all the time – what happens when one of those subs gets flaky?

Everybody right now is having the same problem in terms of labor. There’s a huge labor shortage out there for just people to show up for an interview, for god’s sakes… Right? [laughs] I feel like I wanna give away a free Vespa for anybody that wants to show up for an interview. But my biggest concern–

Grant Rothenburger: Come on…

Eric Kottner: [unintelligible [00:22:48].12]

Mark Dolfini: So that’s to my point though – how do you mitigate the risk for when one of your subs gets flaky? …whether it’s them, themselves, or their guys don’t show up, or anything like that. How do you mitigate that risk?

Eric Kottner: I’m glad you brought this up, because the way how everything is going along those lines – contractors are probably very similar to tenants, where on paper they’re gonna look very good, [unintelligible [00:23:16].18] Google reviews look good, but they completely flake on you when they get a better-paying job with a retail client… They just completely go off.

So one of the things we actually do is we always have our general contractor have a — I’m trying to think of the proper terminology for it right now… But it’s a contractor contract, along those lines; it states “This is what you’re put in the job for, this is who’s providing the materials for this job. Here’s a W-9 that we also need you to fill out, so that way we can report for tax.”

Then one of the biggest things that we have in all of the contracts is a deadline date. So if I have a contractor that says “This is gonna take about 4 weeks to complete”, we’ll say “Okay, we’ll just put it on this contract. We’ll put the contract 6 weeks out, and then if it’s still going on after 6 weeks, we’re deducting $100/day from what your proposed quote is.” That’s one way to mitigate that… But once again, once you get into that and you get into a dispute, you have to take it to small-claims court, just as you evict a tenant, go into [unintelligible [00:24:15].07] But I have that contract going out there, and actually, the last contractors I got were referrals from other investors.

Generally, the GC that I have right now pretty much works primarily with me and the other investors that referred him to me. He’s very selective on the investors he chooses, which is good for me, and I’ve used him in four projects right now, and other than the hiccup we had with [unintelligible [00:24:40].12] everything else has gone absolutely smooth. I’m very lucky to have a good general contractor now, but yeah… He signed the contract, did the W-9, I did a [unintelligible [00:24:48].20] report on him, along those lines, just to make sure that he is what he says he is. He’s been in this business for over 6-7 years, he’s been in  construction for over 20 years, and he doesn’t have a criminal record, which to me — that was actually the question I was gonna ask you here shortly… What’s the biggest criteria you have for your tenants? Because I know for my properties on there, I care more about the formal reporting, eviction report, than so much for the credit report.

Mark Dolfini: So in  terms of risks, where I see it — I’m gonna go so far as to rate it as a 1. I think that real estate is one of those things that is absolutely completely and totally forgiving if you buy and hold. Even in your own industry, what’s the fallback? Well, I can’t sell it, so I’ll rent it. And if you hold on to that long enough, eventually the equity will catch up, and where does cashflow come from? Cashflow comes from equity. So it’s very forgiving, and that’s the one thing where even if you’re not getting — people say “Well, I’m gonna lose money every month because my mortgage payment is $800 and I’m only able to get $600/month out of this rental.” Well, okay, I get that, but you’re still getting someone paying two-thirds of your mortgage for you. And then obviously you’re gonna have other expenses, but my point is it’s very forgiving.

So if you have to contribute to this annuity on the front-end for five or maybe ten years, you’re gonna get the annuity payment at the back-end eventually… Unless you just bought something completely underwater, on the banks of Chernobyl, it’s not gonna work out that way. But realistically, real estate is very forgiving when it comes to that. That’s why I rated it 1.

But in terms of mitigating the risk for the residents, my background is in accounting as well, so this is like a nerd-fest, I love it… But you’ve gotta understand the metrics that you’re getting into. They’re climbing in the bed and they get so wrapped around other things that don’t matter, but it’s those intricacies — I don’t care if you’re looking at it cash-on-cash, or cap rate, or IRR, or however you wanna slice and dice it, you have to consider how those metrics are gonna be delivered, how is that going to happen? What’s the management, what’s the boots on the ground that’s gonna get you to those metrics? And a lot of times, especially with landlords, they say “Oh, well I can get this property and I’ll rent it for that much” and they don’t ever value their time, the time that they’re gonna put into it. So that’s the problem.

But from what I’m looking at, to answer your question, Eric, when I’m underwriting someone, I underwrite them just as if I was gonna extend them — if it’s $1,000/month, as if I’m gonna extend them $12,000 worth of credit. That’s how I underwrite it. And I look at it, and it’s not just, like you said, criminal background reporting, which is extremely important, because most drug crimes are actually happening within rental properties, and that’s a fact… You don’t want that nonsense going on in your rental property. But you wanna make sure that you’re making a calculated risk and you’re not setting anybody else up to fail.

So underwrite them just as if you would underwrite anybody else; look at their expenses, look at their credit. Maybe they’ve got a bad score, but what is the score about? What’s making up their credit report in general? Look at their payments. What payments are they making? Are they making these payments? Those are the things that are really much more important than someone coming to me with a 720. I wanna look and see what their expenses are, based on the job that they have. So I’m underwriting it just like I would any other bank loan, to be honest with you.

Eric Kottner: I completely forgot to add, I’m glad you brought up the ranks of what we’re doing – for fix and flips I would actually put it at a 4. There is a lot of risk involved with it. As you said, we have to buy it at a certain price to be able to make sure we make a profit.

Also, the fact is that once you’re out to sell it, you have people that are literally working against you to make sure that they can either get the best deal possible, or make sure the house is in the best shape possible. So if you don’t do those properly to begin with, it’s gonna hurt you when you’re trying to sell it.

Mark Dolfini: And the thing that really annoys me about people — not in your industry… But I think it’s unfair – they’re gonna look at you and they’re gonna say “Well, what did Eric pay for that property? Well, I’m not paying that… He paid $150,000 two months ago, I’m not paying $225,000. That’s ridiculous. He’s ripping me off.” They don’t look at value, they look to see what you paid for, as if that’s some metric that should matter. It doesn’t matter that you put 30k in improvements and now the house may be worth 250k, but they don’t wanna pay that 225k. It’s very unfair, but unfortunately that’s also one of the things you’re up against.

Eric Kottner: I’ve been fortunate enough where I’ve never had that issue. I’ve had people ask [unintelligible [00:29:16].00] I’ve been upfront with them too, and then I tell them exactly what I put into it. So I’ve never had that pushback, and it could be because of the market. [unintelligible [00:29:25].05] seller’s market, saying “Well, if I’m gonna back away, I have two more people that are gonna take my place.” [laughter]

But yeah, I’ve heard stories where people think exactly like that… But yeah, when you go to sell it, they are people that are gonna fight against you about the house, and that’s why to me it’s a heavier risk than a buy and hold is.

Grant Rothenburger: Great. And before we moved on, I just wanted to mention to all the Best Ever listeners and viewers watching and listening to this – you can head over to BestEverShowCommunity.com and vote on which strategy you prefer or who you thought debated better… And I’m pretty sure — didn’t we say the loser is gonna do some burpees? [laughter]

Mark Dolfini: I’m doing mine offline.

Grant Rothenburger: We’ll just take your word for it.

Eric Kottner: [unintelligible [00:30:08].29] but I don’t wanna do burpees. [laughter]

Grant Rothenburger: Okay. You guys covered everything with risks, and we’re on to returns now. Mark, we’ll head back to you. What do you have to say about returns on the buy and hold side?

Mark Dolfini: Buy and hold side – you have to buy them right. It’s the same thing with what Eric was saying, but I’m gonna do some voodoo math here, because I’m gonna rate it as a 4. And the reason why I rate that so high is because there’s one nuclear button that I can’t understand even why the IRS allows this… But the 1031 tax-free exchange that happens when you sell a property, and you can roll that into another property… If that didn’t exist, this number would be far less. But when you can get those properties — and I have to give my disclosure, because I am a  licensed broker and I can’t give tax advice and all that stuff, so definitely talk to a good tax preparer that get you into that, and get you the right information…

But when you have a property that you’ve held for a while, and again, you’ve got substantial equity in the property and the equity returns — you can get more cash that can make more returns for you, absolutely… It makes sense to roll that. But if that 1031 exchange did not occur, I’m telling you, the returns would be far, far less. And that’s a big plus, because you can take that equity that you got on that property, roll that into another property tax-free, and man, that is a huge, huge plus.

And then it resets the depreciation clock, and everything else, so there’s a lot of pluses there. I think the returns — I rated it as a 4 only because I know you can get some [unintelligible [00:31:43].23] flips out there, and you buy a great property and it makes a lot of sense to not hold it for very long, and you can turn it…

I did one this year actually, but it’s all part of a larger strategy in terms of – I take that money and put it into more buy and hold stuff. So that’s why I rated it as high as I did.

Grant Rothenburger: It makes sense. Eric, do you have a question or anything for Mark?

Eric Kottner: No, he explained it greatly. One of the biggest benefits for rentals is the fact that you can pretty much sell a few of them that are like-minded properties and be able to roll into higher properties, higher apartments at a tax advantage. Once again, I’m also a licensed agent, so I’m not disclosing CPA or legal advice.

Grant Rothenburger: We have all the disclaimers here. [laughter]

Eric Kottner: But yeah, that is one of the huge benefits, and as we talked about with fix and flips, just to give the example of the one that I’m in right now – all-in, including my closing costs for this property, I’m probably at about 195k. Because we like easier numbers here, we’ll just round it up to 200k. I had it listed for 230k.

My purchase and repairs – I bought this for 122k; I think I’m about 50k into it, so I’m at 172k. I’m a licensed realtor, so I can save about 3% on the list side as well when I list the property, so I’m saving money there as a caveat. My closing costs would only be about $15,000, and that’s at the highest end.

So at that, I’m about let’s just say 200k for easy math. So if I sell it at 230k, that nets me 30k on (let’s just say) a six-month project, because I bought this late March, it’s late June right now, and let’s just say it takes another three months for me to close it, which it definitely shouldn’t be in this market. So $30,000, six months, my own cash into this is about $40,000, so over that time I’m making over 100% return on my money, just because if you use the APR on an annualized basis, along those lines, technically I’m making off my $40,000, $60,000 off the annualized, for only holding it six months… So yeah, I’m over 100% return, just as he was talking about.

So the returns can be very high, but they can also be very low, where I’m [unintelligible [00:33:48].05] and that one I had for about four months. You can do the percentages if you really want to on there, but that return was not worth it, in my opinion. The only benefit to that one was the fact that I put out my own bandit signs that looked like realtor signs out in front, and the house I actually bought in that area was actually a lead from my bandit sign.

So I’m using a house that even though I made a horrible return on, I got another house project in the process.

So on the good ones you can usually make very high double-digit returns; I would say triple digits may be a little bit of a rarity, unless you wanna use the breakdown number I did… But it’s very common to see over 30% returns on good fix and flips that have properly been done and properly calculated.

Grant Rothenburger: So that’s kind of interesting… Mark, I’ll let you rebuttal as well. I also had a question – “I know you’re an experienced flipper and we’ve talked many times, you definitely know what you’re doing… How come McCauley turned out the way it did? The reason I ask is because, you know, you think with experience you avoid things like that happening, but apparently with experience things like that still happen.”

Eric Kottner: It’s very simple. One of the cardinal rules when it came to real estate – [unintelligible [00:35:04].03] It was an off-market property with a realtor, which as of right, realtors can provide you good off-market deals if you wanna find a way to get connection with them to do so.

So with this property I thought it would be my way in to go in there, so originally when I looked at the numbers, we did $95,000 for $30,000 into it, along those lines, and then we were gonna sell it at $150,000. So that $30,000 became $50,000, including the inspection contingencies. Then also I actually sold it for a higher price, but with my closing costs attached to that, it just became more of a wash, along those lines.

So yeah,  I was at 140k, my closing costs I think were about $12,000, so 152k, and then there’s a few other things in there that kind of negated the $8,000 return. I haven’t done the full numbers on it, so it may be more than a $1,000 what I was expecting… But I was buying it on lower margins that what I usually do, because it was an off-market realtor property, and it was on a decent road in a very hot area that I really wanted to flip more properties in, so I was willing to take the lower margin because I knew I could put one of my signs out there and get more leads on the properties. Because one of my biggest leads – and I’m thinking of a proper term… Where she will know you’re a closer; so your confidence factor… Credibility – that’s what I was looking for.

When people see that you’re already flipping a house in their area, you have that credibility factor when they call you and they wanna sell a house, knowing that down the street you’re already flipping another house. So I took a lower margin onto it, I didn’t have the inspection done, which was one of my biggest mistakes on this one, because it was a [unintelligible [00:36:36].18] and that was one of the biggest things that hurt me.

Mark Dolfini: That’s something that I wanna talk to you as well, because every time we make a mistake – in my own property management business or as a landlord, it’s almost always when we go outside of our system. That’s where I have a question for you, Eric – one of the things that I teach specifically is how to make this systematic; how can I put a system in place that you do the same thing every single time… The inspection is a perfect example. So one of the things that I do, and that’s one of the things that I teach, is “How do I build it as a business?” Because my biggest thing that I wanna do is I wanna create time-wealth for people; I wanna create the ability for them to control their calendar, and I wanna give them more life output, so they’re not beholden to doing this thing.

From the landlording side, I see that it’s actually not that difficult to do. On your side, I see it very labor-intensive. There are obviously companies that can do that and that have been very intentional about building a system around it, but I think for the individual person – and again, this is just because of my belief window… I see this being so much easier to put a system in place; yes, you’re right, you’re dealing with the human factor a lot more than in your side, but you’re still dealing with the human factor, right? You’re still dealing with subs, and you’re still dealing with inspectors, and you’re still dealing with other realtors, which is — talk about egos, right? We both know what that’s like. But that’s the side that I see to be the most challenging to make that systematic, where you just didn’t create another job for yourself.

Granted, you may have great returns sometimes, but when you look at opportunity cost on that $70,000 deal that you had, you actually lost money from an opportunity cost perspective… And I’ve done the same exact thing – whenever we make a mistake with a resident  or an owner that we bring on board, it’s almost always because we go outside of what we’re good at.

So my question to you is “How do you make that systematic?” Or do  you just have to do it to where you just get so big, then you just are able to do that? How can a small individual investor make this systematic where they’re not just creating a job for themselves?

Eric Kottner: That’s an amazing question as a rehabber, because yeah, ultimately when people talk about real estate, they say “The way you’re gonna get to true passive wealth is do landlording, buy and hold, syndications and everything along those lines”, but essentially, what they say is wholesaling and fix and flips are gonna be the steroids that boost up to what exactly you wanna do.

The way that people have built businesses throughout fix and flips was 1) it all depends on your skillsets. If you would much rather be on the field, checking out your properties each day, then you can hire out the subs, get a lower cost, get a lot better return. If you don’t wanna do that – I’m one of those people that I proudly announce of how lazy I am. So me – I interview probably 7 or 8 general contractors to make sure that they knew exactly what I was talking about… And I interviewed them just as I would a middle manager, a project manager, an asset manager, or anybody else along those lines, that I’m eventually gonna want on my team.

So I checked out their projects, I saw what they did, and the GC I have right now has their own operations manager. So the only managing I do is either through text messages… Now, because I still wanna be diligent, I always check out my properties at least twice a week, but I only stay about 10-15 minutes per house, along those lines. And if there is an issue when we go on there, we put it down in writing. I’m out within 30 minutes usually for most of the time; they have it in writing of what exactly we need to do to solve the problem, and they go and just set it in motion.

So for those who wanna kind of back off, you are gonna spend more for a general contractor than you are gonna be subbing it yourself… But like you said, your value is ultimately your time. For me, I only spend about an hour a week in each one of my properties when I’m fixing and flipping, and then the operations manager, GC take care of their own subs and everything along those lines.

Now, I do wanna add in there is a risk to that, making sure that for each job you do, make sure that you get the release of waiver from the subs as well once the project is finished; that way, if there is an issue with the general contractor not paying a sub, they can’t come after you through the property. So I will add that to the risk of something to keep a lookout for.

But yeah, ultimately when it comes to your business, you set “Here’s what I’m willing to do, here’s what I’m not willing to do.” For me, handyman skill side – it’s not my forte, so I wanted to pay more for somebody that I knew was knowledgeable and trustworthy. And just like with any other business, you’re gonna hire slow and fire fast. So I went through seven general contractors – or I interviewed seven general contractors. This is probably my third rotation on an actual team, and they’ve already lasted about four projects for me, where usually the average has been about two or three for me before I’m passed. So this one’s already at four, we’re still going strong, we still have a great communication record.

The thing that made it easier for us as well for communication was we went into a program called Buildium, which is a high-end program which pretty much outlines everything in an app format, that way there is no questions back and forth along those lines. That way I can focus either on raising money or buying new deals – the things I really wanna do.

I also recently hired an acquisition manager that meets up with the sellers, along those lines, where if I can’t, [unintelligible [00:41:48].17] they know how to lock up the contract and send it to a title company, and then I can just focus in on getting the money for it.

So yeah, as you’re building up, first and foremost it’s gonna be your crew. You want a good general contractor, you want a good insurance agent, and then just, as you say, very slowly building up; you buy from one rental property, to the next one, to the next one, then you do a 1031 to a multi-unit… You would just build up that way.

Grant Rothenburger: Did you have a number – assuming you buy right, follow the cardinal rules, what would you say the returns…?

Eric Kottner: The returns I usually [unintelligible [00:42:20].22] $150,000 house, that needs about $30,000 in work, I essentially want a $40,000 gross. So that means my all-in – I have to be at $110,000 for that 40k gross. And then with it being a 30k rehab, that means I need to buy it around $80,000. Starting at 75k for a little bit better, and then start at 80k, knowing that my top number is 80k.

But I don’t do it like percentages, really; I do that when I’m about to sell it and see what my returns are… But when I go to buy it, I do it with the minimum gross amount that I do just for the easier math as I walk through the house.

Grant Rothenburger: In terms of 1 to 5 for our debate, what would you give it?

Eric Kottner: I think if done properly, that would definitely be a 5.

Grant Rothenburger: Okay. “If done properly” is definitely a big part of it.

Eric Kottner: Yes. I think that’s a caveat for all real estate. If done properly, you can make a fortune.

Grant Rothenburger: Yes. So we’re on to our last point, which will be maintainable in a downturn, and I just wanted to point out — I know we allocated an hour, so I wanna be respectful of everyone’s time… We’re coming up on about eight minutes, so if you guys wanna move a little bit faster, or if you have a little extra time, I will leave that up to you guys. Maintainable in a downturn – I think, Mark, you started with…

Mark Dolfini: Yeah, I started with barrier…

Grant Rothenburger: Okay, so you’re up on maintainable in a downturn.

Mark Dolfini: Okay, so… Me or Eric?

Grant Rothenburger: Eric is, you’re right. Sorry. [laughter]

Eric Kottner: Thanks, Grant. So… Maintainable in a downturn – I would probably put it at about 2. Now, is this for difficulty, or is it just for maintaining? Because I have it at relatively difficult, so…

Grant Rothenburger: Yeah, 1 would be easy.

Eric Kottner: Okay, I’ll put this at a 4 then… Because essentially what this is gonna be is in the downturn you have to have a higher level of clientele that can qualify for mortgages and everything along those lines. So in a downturn, you’re gonna realize that it’s now a buyer’s market, and you’re gonna have to adjust for it. So it’s one of those things where if you see that you’re getting into a correction or a downturn, houses are currently selling for 155k – even with you putting all this work into it, you might adjust your numbers to say “This is probably gonna sell at 145k or 150k. I might be able to get 155k, but I’m gonna be paying every closing cost under the book as well”, so I would adjust downward at least 5%-10%, depending on how the market is moving, and definitely keeping a sharp eye on how the credit market is going and how the number of refinances on mortgages is being applied for… On the stock market, watching CNBC for  those numbers, because that’s gonna give you an idea of how to differentiate your percentages and how to calculate it. But yeah, for a 155k house, I would probably do 145k just to be safe…

And then one of the things we always talked about is in a seller’s market you can go for almost any level you want as long as you know the ARV. I’m doing a lot of higher end type things just to try to test the market and test really what the top is. In a down market, you’re gonna have to kind of put in these flashy features, knowing that you’re gonna have to sell it for less than what’s being sold for right now as well.

So where right now I’m testing out [unintelligible [00:45:29].17] testing out backsplash, testing out Bluetooth speakers on there, I may have to put those in any way and still readjust my price in a downturn market, knowing that it’s like “Hey, these are cool features, but now I have the upper hand.” So I’m still gonna negotiate this and find a middle ground for you. It’s gonna help your property sell faster, but in a downturn it’s not gonna really increase the value-add as to what you’re gonna see for right now.

So you would definitely have to be very careful with mixing in those [unintelligible [00:45:57].20] in the house and what it can truly sell for. So yeah, in a downturn it’s gonna be difficult to maintain, and along those lines is too where if you can’t get the number you want into it, you may have to look into selling it on a land contract or a lease option, to sell your home a few years down the road and not be completely bit. Or you might have to sell them, just take the loss and move on to the next one.

Grant Rothenburger: You could be a landlord.

Eric Kottner: Yeah, [unintelligible [00:46:19].02]

Mark Dolfini: [unintelligible [00:46:24].14] back-up plan as being a landlord. Okay… [laughter] No, but that’s absolutely right, and I think that you’re being fair to yourself in terms of risk rating. I do agree with you, I think it is a lot more risk, because we all know there’s gonna be a correction, we just don’t know when and what it’s gonna look like, and that sort of thing. Of course, the last correction was more of a labor market correction than it really was a real estate correction, even though — I mean, it was a labor market problem, right? I was having problems for eight months when the guys on CNBC started coming on and saying, “Wow, things are really starting to get bad out there.” And meanwhile, on the bellwether for the tenants that are not paying rent I had $65,000/month coming in in revenues, and that went from 65k/month to 30k/month, and that was month-over-month-over-month, and that sucked… And mostly because I was over-leveraged; not so much financially – I mean, I was overleveraged financially, but I was overleveraged in time, as well. That was a whole other issue.

So I think I’m rating this as a two in terms of being able to weather a down market, if you are appropriately leveraged. If you’re overleveraged, there’s nothing that’s gonna be able to save you. Even in an up market you’re gonna have problems. But if you’re appropriately leveraged… And I can’t tell you what that is; that doesn’t necessarily mean that — I mean, you can buy a property with 100% in, that’s fine. If you’ve got 30k in the bank that can help you weather that storm, or 50k, or whatever that is, whatever that number is for you to help you weather the storm for 12 months, then you’re okay… But I’m talking from a global portfolio of being deleveraged. So you can buy property fully leveraged, but you’ve got cash in the bank – that’s fine. If you wanna put $50,000 down on a $100,000 house, that’s fine, whatever it is… But I’m just looking at global leverage there.

From my aspect, I put it as 2, because — again, if you don’t get someone that fully pays the mortgage, even if they’re only paying 80% or 90% of it, they’re still paying a good chunk of it, and that’s gonna get you to the other side of that bridge to help build that annuity.

Eric Kottner: I do have to do a couple of remarks here, because I feel like the tables have definitely turned on me for a little bit… One of the big things you mentioned there is if the tenant is paying you, along those lines, where if we had the labor market really go in – the one main downside I know I had on there, where I had a lot of mechanics that were in some of my buildings… And when I say “a lot of buildings”, I own like 30 units, so I’m not trying to sound like a big shot here, but we had like five or six mechanics on there that got laid off, and they pretty much were living off their savings for about two years, and when they couldn’t afford to pay, those five people pretty much dropped all at the same time. Now, for a non-payment or rent issue, at the beginning of the month “pay or get out”, give a three-day notice, and two weeks later you can get them out. If you deal with any tenants that are just being unruly and you wanna get rid of them, we have to do a 30-day notice, so you’re stuck with them for 30 days knowing that they are about to be kicked out 30 days later; that might cause a little more issues to the property while it’s not being paid…

Mark Dolfini: Eric, I think you make up a good point though, because it is gonna be based on location. I know if you’re living in the People’s Republic of New York, you’re just wrong; you’re wrong for being a landlord, get used to it, that’s the way it is. I grew up in that state, so I’m sorry to all my brothers and sisters and friends out there that are living there, but you know… You chose to stay there.

In a state that’s so legislatively against you every step of the way, it’s hard for me to defend against that, so you’re right there. Indiana is a very landlord-friendly state. I think it’s reasonable; I’m not gonna say it’s all about the landlord (it’s not), but it does tend to favor the landlord compared to other states. So it is gonna matter the location in terms of the legislation and the ordinances that you’re up against as well. That’s a very valid point, and that could certainly skew the difficulty in a downturn, and the risk factor as well.

Eric Kottner: I did make those remarks as well, but as you said, there are a few states out there that could be very beneficial for a landlord, whereas for fix and flips, the inspectors in the permit departments that you’re gonna have – I like Butler County up here in the area because I can normally get permits done relatively quickly. But one of the things that could slow down in a flip is having an inspector in the city of Cincinnati, or just scheduling one to be about two weeks out, and if they find one small issue, you’re now scheduled another two weeks out to get that taken care of.

Now, granted, if you have a good crew that knows what they’re doing, they can go off to other projects around the house, but you’re still stuck those two weeks until you can get that taken care of. So yeah, just as it is for landlording laws on there, your permit inspections – and that can even vary by county as well, for good counties and bad counties, for your fix and flips to get permits and making sure you’re doing your job properly.

Grant Rothenburger: Alright. Well, thank you both very much for that. We’ll wrap it up now with some closing statements, and I do believe I have my order right this time… We’ll start with Mark…

Mark Dolfini: I think that fundamentally if it comes down to someone who really wants to be able to control their calendar and create time-wealth in their life, where you’re not looking at the number of transactions you have to do in a certain period of time, honestly, I think this strategy would be for you.

Grant Rothenburger: Eric?

Eric Kottner: The ultimate road to wealth is through passive income, like Mike said, but to get the steroid boost and everything along those lines you’ve gotta know real estate, you’ve gotta know values. The best way you’re gonna be able to do that is in the front lines, either wholesaling or fix and flipping. Once you get in a few good fix and flips, the good, bad and the ugly, you’re gonna know so much more about real estate than if you just passively invest your money, throwing into it.

So starting out with fix and flips, going from there… Keep doing them to earn another 20k, 30k, 40k per flip. If you’re gonna get over 100k/year just off of four properties, it can really help your portfolio down the road. And even at a part-time basis, four houses a year is very manageable for the experienced investors, too. So it’s definitely good to have something in your repertoire and continue doing it, because once you master it, it’s gonna be that nice income… And if you know how to adjust for the downturn, even though it is gonna be a lot more of a risk, you know exactly how to negotiate with your contractors, you know exactly what you need to do in a downturn market to continue getting those $20,000-$30,000 net checks that will help you get towards that passive wealth.

Grant Rothenburger: Alright. Well, Best Ever listeners, thank you for tuning in to the third Best Ever Debate. Again, this will be in the BestEverShowCommunity.com, which is our Facebook group. You can go on there and comment, let us know how we did today, let us know who you think won the argument.

Me, myself – I kind of like a combination of the two, with the famous BRRRR Strategy. Maybe we need to have someone come on and be the third debater here. [laughter] Anyway, I hope everyone has a best ever weekend…

Mark Dolfini: Very good. Eric, so you do seven burpees and I’ll do eight then. Does that sound like a fair compromise?

Grant Rothenburger: That sounds fine.

Eric Kottner: That’s fair, you know… [laughter] I can make that deal, so…

Mark Dolfini: Okay… [laughs]

Grant Rothenburger: Thanks, guys.

Mark Dolfini: Thank you!

Best Ever Show Real Estate Advice

JF1424: 5 Tips For Parting Ways With Your Property Management Company #FollowAlongFriday with Joe and Theo

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If you’ve been wondering why you would fire a property management company, we’ll answer that here. More importantly, you’ll know how to make it as smooth as a process as possible. Joe is telling us these tips from experience, which are definitely tips we can apply to our own investing businesses. 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.

Today we’ve got Follow Along Friday with Theo Hicks, and we’re talking about how to approach firing your property management company, and specifically we’re talking about apartment communities management company… So we are not talking about a single-family home management company, although I’m sure some of these principles could be applied to a single-family home… But this is specific to apartment community.

We will talk about five things you should keep in mind whenever you’re transitioning, and then some soft skills that I recommend that you practice while you’re transitioning from one to another.

With that being said, we’ll go ahead and get right into it.

Theo Hicks: Before we get into the five things, let’s start off by discussing when we should be parting ways with our property management company… So what are the types of things that a property manager would do that would warrant you firing them. Maybe we can talk about how long they’d have to be doing those things; maybe one time and they’re gone, for each of the ways.

Joe Fairless: There are two things that a property management company could or should be fired for; well, three really, now that I say that… The third that I just thought of is any criminal or fraudulent activity, but we’ll leave that aside. Let’s assume they’re not criminals, although I’ve interviewed guests who have had criminals or people doing criminal activity as a property management company… But let’s put that aside.

One is execution and two is communication. If they are not executing properly or they are not communicating with you along the way, then those are both fireable offences… Because even if they’re executing very well, if they’re not communicating with you or are responsive when you have your questions, then you’re not gonna know what’s going on with your investment, and you’re flying blind… And even if they are executing effectively, perhaps they won’t in the future and you won’t know about it because they’re not communicating with you. So those are the two categories for why I would fire a property management company.

My company has let go a property management company, so this isn’t conceptual; this is real stuff that we’ve gone through as a company, and these are some tips that we’ll get into for when you come across a time when you need to fire a company that’s managing your apartment building… These are some things that will help you make that transition as smooth as possible.

There will be rough patches… You’re removing one management company that is overseeing an apartment building or community, and is deeply integrated into the process of that, and you’re putting in a new one, so there’s gonna be some rough patches, but after listening to our conversation today, you’ll be able to make it a much smoother process than if you hadn’t.

Theo Hicks: Okay. So for the communication and the execution aspect, how long — because I could imagine you’d have your property management company and they would maybe not be doing exactly what you want them to do, but you’re in your mind thinking “Well, do I fire them or do I just wait a little bit longer to see if they get their act together?” So from your perspective, would you recommend giving them one warning and then after that it’s over, or would you recommend just the first time they make a mistake, finding someone else? How would you approach that?

Joe Fairless: I don’t have a direct answer. The reason why I don’t have a direct answer is because it depends on your length of relationship and your knowledge about them to begin with… Because perhaps they’ve performed on previous properties, and you have a seven-year relationship with them, and now for whatever reason they’re just not performing or not communicating with you properly on this property. In that scenario, I would give them a longer leash. What that longer leash is, I don’t exactly know.

Let’s talk about execution. If they’re not executing, so the expenses are higher, the property is not at the right occupancy, but the comps – and that’s the key, you wanna make sure it’s not the market… You wanna make sure it actually is the management company, because you need to be aware of what the market comps are doing… So is the occupancy similar to your property, or is your property performing below the market?

If it’s performing below the market, then there’s your red flag. You can find out by talking to brokers in the area, you can find out by talking to other property management companies; if you have a pre-existing relationship with them, you wanna be careful there, because if you’re talking to other property management companies and you have a current property management company, and those two talk to each other, which they probably know each other already, then you might be putting yourself in hot water unnecessarily if you’re simply trying to find information. So I recommend talking to a broker first, versus other property managers.

But find out if it truly is an execution problem or if it is a market problem. You don’t wanna put blame unnecessarily to a property management company if it’s not their problem… But then if it is an execution problem and you’re seeing your numbers go down, then also make sure it’s not a seasonality problem, or something that is wrong with your property… Because perhaps your property doesn’t have an amenity or isn’t in a particular location – even though you’ve got market comps, but maybe the market comps are on a main [unintelligible [00:06:41].15] with a lot of traffic, whereas yours is tucked away a little bit on a side-street… So you really want to identify that it is their problem, not a market– or even the place where the property is located, or certain components of it.

But once you’ve narrowed all that down, you limited those variables, then I would give it a quarter – one quarter, three months is my assessment… And again, I don’t have a direct answer, because it depends on many variables, but three months’ time where they’re just not cutting it and you’ve had conversations along the way, and the market and other competing properties are passing you by on rent premiums and occupancy and/or your expenses are higher than normal, then you need to make the switch.

From a communication standpoint, same thing… You’ll know pretty quickly if the communication just isn’t there, unless there is a new person who is your point person, because a lot of times there can be turnover in the management business, and when you have turnover, different people have different communication styles… So make sure it’s not that individual, but rather the process, because if it’s the individual, then perhaps you can have that individual replaced with a different individual that will be your point person.

Theo Hicks: Solid advice. Basically, make sure that it actually is the property management company and not another factor, and then give it about a quarter before moving on.

So that’s the reasons why you would fire a property management company. Once you’ve made that decision, obviously you need to find another property management company first, which we’re not gonna talk about right now, because we have an ultimate guide — it’s called “The Ultimate Guide to Finding a Property Management Company”, on TheBestEverBlog.com. So if you just google “Joe Fairless how to find a property management company”, that article should come up. We go in-depth on how to find them, how to interview them and how to win them over to your side.

So once you’ve made the decision, you find a new property management company, these are the five things that you need to do in order to ensure a smooth transition. The first one is to address the staffing. Do you wanna talk about the staffing, Joe.

Joe Fairless: Yeah. That’s important, because as I mentioned earlier, you’re replacing a management company and you’re putting in a new company – that’s a  big deal, and if you can smooth out that transition by looking at the staffing at that property, and perhaps you want to keep some of those staff members… That’s also a tricky proposition, because they would be switching companies, but that happens fairly frequently within the management world, where one property manager, one actual community manager changes companies as the ownership changes, and their property management company that employs them changes, whereas they might stay with that property. That happens fairly regularly in the industry. Or maybe there’s a leasing agent, or maybe there’s a maintenance person or people who you want to keep… So look to see if the new management company can vet the current staff and decide who stays and who goes; that way, if you have anyone worth keeping, you can attempt to keep them, which would smooth out that transition exponentially.

Think about a maintenance person who’s already got experience with the property, how much valuable intel he/she can provide to the new maintenance team or other maintenance members, versus if you’re going in from scratch, because there’s all sorts of nuances with every apartment community and different things that go wrong from a maintenance standpoint that it’s very helpful to be aware of. So that’s the first thing – you wanna see if you can keep any of the staff members, or if any of them are worth keeping, and have you new management company do that vetting process.

Theo Hicks: Okay. Second after staffing is the financials of the property.

Joe Fairless: That’s important, obviously. Numbers are kind of important with what we do. Your new management company should request everything that they need, and some specific documents… There’s the historical profit and loss statement, and then also the chart of accounts. That’s the list of income and expense items, plus bad debt and delinquency. So make sure that they are first asking for it, and if they’re not asking for those documents, that’s a big red flag for your new management company; you might be in the same place three months from now… So make sure that they are asking for the proper documents, which they should be, and then make sure that they’re actually getting access to those financial documents, because they’ve got to pick up where the other one left off.

The challenge with financial statements in our business is that different companies label the same thing differently. You’ve come across this many times when you were underwriting – some line items that a company calls something, they’ll call it something different. What are some examples that you’ve seen?

Theo Hicks: Most of the time I see it with the contract services and turnkey expenses. Some property managers will have a category for turnkey, a category for repairs, a category for contract services, but then other companies will just have maintenance or repairs, and everything [unintelligible [00:12:15].22] is there.

One person might call something supplies, the other person might have it split up between pool supplies, painting supplies, carpet supplies… So most of them I see it through there, and then also sometimes they’ll have administrative expenses kind of scattered throughout the T-12. Sometimes there’ll just be a line item just floating by itself that’s supposed to be added in expense, like eviction costs, or something like that… So those are the main ones that I’ve seen, but most of the time you’ll have trouble pulling out the turnkey and contract services costs if they have them all lumped into maintenance or repairs.

Joe Fairless: We’ve gotta get those defined the same way and labeled the same way, so that when the new management company transitions, there’s not a “What the heck are these financial statements that I’m looking at?” reaction. You’ll know exactly what goes into what category.

Theo Hicks: And then for the rent rolls – do they need to get their hands on the rent rolls, or will that be something that’s available as a hard copy in the office?

Joe Fairless: Yes to both. There should be hard copies of the leases in the office, and then they need to also have the version of the rent roll.

Theo Hicks: Okay. Number three – this probably would apply to value-add properties that you’re doing renovations to. You need to address the renovations at the property with the new property management company.

Joe Fairless: Exactly. You’ll need a list of what was and wasn’t renovated, and it gets pretty darn confusing, usually. It’s not a simple list of two columns, “Was Renovated/Wasn’t Renovated.” There’s usually “Was it partially renovated? If so, what did this partial renovation entail? Was it countertops and appliances? Was it just light fixtures? Was it just carpet in the living room and hardwood flooring?”

There’s all sorts of different permutations of what a renovation might entail, and sometimes, if you’re lucky – you really notice this when you’re buying properties from people who are renovating, because then there’s always sort of different types of renovations that they do… But you also notice it when you transition, because maybe your team has partially renovated a unit, because you have a current resident and they just wanted to do the partial renovation because of whatever reason, but you got the same rent premiums or similar rent premiums relative to what you would have spent… So you need to make note of that, that way you know on the next turn what you need to do to that unit.

So getting the list of what was and wasn’t renovated and also making sure that if they just give you that list of “Hey, we renovated this”, make sure that you know exactly what they did to renovate that unit, and if that was the same as all the renovations, or if not, what did they do to that or those particular units that they didn’t do to the other renovated units, in order to determine where you’re at and where you’re standing across the whole property.

Theo Hicks: Okay. Number four is kind of related to renovations, and that’s getting the list of vendors in the hands of your new property management company.

Joe Fairless: Yeah, you need the list of vendors because if you take over the property and you don’t know who to call for certain things, then you’re gonna be in trouble, and even if you have relationships – which a property management company will have – with other vendors, it’s gonna be a lot easier at least in the near-term to work with some of those same vendors that the previous management company is working with, just to get things done the first month of operation… Otherwise you’re introducing a lot of new variables into the equation at once, and it’s better to have a smoother transition, and how you do that is you introduce fewer new variables into the equation immediately, and then over time you introduce the new variables, and one of the new variables could be new vendors.

Theo Hicks: Yeah, that’s very important, because you’ve gotta remember, this is after you’ve owned the property for a while – you’re not taking it over and then going through that transition one time; you’re doing it a second time… The less variables there, the less that could go wrong.

Joe Fairless: Yeah.

Theo Hicks: So the fifth thing that you need to do to ensure a smooth transition is to get the list of service contracts into the hands of the new property management company.

Joe Fairless: The list of them, and then also the actual contracts. That includes pest control, the pool repair person, landscape, the security company and the point person… And not only, as you said, have a list of contracts, but then the actual contracts, so that you can then make sure that you know what you’re adhering to… And you should know this already as the asset manager, it shouldn’t be a surprise, in terms of you’re in a 10-year agreement with Time Warner — wait, Spectrum now… Spectrum. They changed their name, but they’ve still got the same service, or lack thereof.

So maybe you’re in a 10-year contract with Spectrum – you should know that already, because you should have already signed off on it, or a laundry company, washing machine, dryers company… But you need the actual contract, too.

Theo Hicks: Okay, so those are the five things that you need to do to ensure a smooth transition. You said there were a couple other things you wanted to talk about on how to approach the situation?

Joe Fairless: Yeah, here’s the soft skills I was gonna mention… One is relationship management. So we just gave you five tips for when you are firing  a management company, what you need to take into account and to make sure you’ve got addressed… But the soft skill is relationship management, and it is making sure that when you’re telling the property management company that you’re firing that they are fired, that you don’t say it the way I just say it. You don’t say “You’re fired.” Instead, you say something like “Hey, this probably isn’t a surprise to you, but we’re just not performing based on the way that we all agreed that we could perform on the property. I’ve been talking to my investors and my other business partners and they’re pressuring me to make a move, and I don’t really want to, but at this point the numbers speak for themselves and I’ve gotta make the move because of all the pressure from these other people… So we need to transition from you to another group. Again, it’s them… I wish I could have more of a say here, but I’m sure you understand.”

Then what I did there – now I’m taking a step back outside of that role-play thing – is I blamed it on other people. I didn’t put me at the forefront of saying “You’re fired and I want you out”, and the reason why is because it doesn’t hurt the person’s ego as much, and it also doesn’t make me the point person they can come back to and make an argument for why they should stay.

The other thing that we’ll do is when you’re getting all those documents and the different things – the vendor list, the service contracts, the renovation list etc., your management point person should be doing that, not you. They should be getting that information – “they” meaning your new management company point person should be getting it from someone else on the old person’s team who’s not the president… Because what happens is feelings get hurt when the president of the company or your original contact is being told they’re fired, and then told to give all this information to the new kid in town.

So instead, have a regional manager contact another regional manager… And those regional managers – they’re just doing their job. It’s just business as usual; there are not the emotions involved as there would be if you’re working with the president of the company who just lost the account because their company is terrible on this property. So you’re not dealing with the emotions.

Those two tips help your transition be as smooth as possible. It will not be smooth, but I said “As smooth as possible.” One is blame other people for the change; don’t be the person saying “It was my decision, and you’re out, buddy.” Then the second is have one regional manager talk to another regional manager to get all the information we listed in steps one through five, because emotions will likely be out of the equation, feelings won’t be hurt, and it’ll just be “Hey, this is the business stuff we need to take care of”, and then they can do that in the background.

Theo Hicks: How long do you think those five things take to do after you’ve told them they’re fired, buddy, in the soft way?

Joe Fairless: It depends, but two weeks to four weeks

Theo Hicks: Yeah, that’s what I was thinking. Okay, so to summarize what we’ve talked about – the two main reasons why you’d ever fire a property management company is the lack of communication and the lack of execution…

Joe Fairless: Or fraud, or something like that.

Theo Hicks: Or if they’re criminals…

Joe Fairless: Criminal activity, yeah.

Theo Hicks: …and once you’ve come to that decision, Joe said waiting a quarter is probably a  good idea before making the decision, and making sure that the property management company is at fault, and not some other factor, like the markets, but more the property itself. Once you’ve made the decision, you need to find a new property management company first, and you can do that by reading that blog I mentioned, “The Ultimate Guide to Finding a Property Management Company.”

The five things that you need to make sure that you address to ensure a smooth transition is the staffing, getting the financials, getting the list of renovations, getting the list of vendors, and getting the list of contractors and the actual service contracts that they have.

And then the two additional things are to make sure that when you are actually talking to that property management company, don’t just tell them that they’re fired; do it in a soft way. And also, when you try to address these five things, make sure that you have a representative of the new property management company doing it and not you do it, and make sure that they’re talking to a regional manager and not the president of the company.

Joe Fairless: I’m gonna put one more thing in at the front-end, and that is make sure, before you have any conversation with any property management company, you read your contract with that property management company. There might be a clause in there that you overlooked that it’s 90 days notice, or something; there might be a clause that’s 30 days, or there might be a clause that says that regardless of if they’re fired, they represent you when you sell the deal, and there’s really nothing you can do about that. That should be marked out prior to the contract.

But you wanna be aware of what the contract says you can and can’t do, and have your attorney look at it before you start making the waves about firing them and telling them that they’re fired… Otherwise it would be very awkward at minimum, and at most, you could torpedo your investment… Because you could tell them “You’re fired”, they could say, “Um, actually I’m not. The contract gives us 90 days notice, and okay, if you’re giving me notice now, fine… But now  we’ve got three months.” How is that property gonna perform for the next three months…? [laughs] Yeah, so you wanna look at that first.

Theo Hicks: That’s good advice. So moving to the next topics – some updates and observations… I’ve got one update. I think it was maybe two podcasts ago where we talked about all the different resident appreciation even ideas, and I was thinking of it more abstractly of “Oh, you know, some apartment investor could do it”, but you said “Theo, you should do it.” So I’m gonna [[00:24:15].10] It’s not gonna be anything special, it’s just gonna be like a barbecue… So we’re gonna cater Eli’s Barbecue – I’m sure you know what that is, Joe; I love Eli’s. And I’m gonna host it once… Because I think there’s still a couple of residents that we’re kind of finalizing a new lease for. So once that’s done, everything’s set in stone – we either got the new residents in, or we’ve got the new leases signed – we’re going to throw like an end of summer barbecue bash, and we’ll have free Eli’s Barbecue for everyone to enjoy.

My property management is gonna do that, so I won’t be coming back to Cincinnati to do that… But I’m looking forward to it; I think they’re really gonna enjoy it. It’s very helpful that all the properties are right next to each other, so we can just do it in one of the nicer parking lots in the back… And I’m thinking just maybe an hour, and — because after I reached out to him, I was doing some more research on it, and a very popular thing to add to your event is to have some sort of competition or a raffle, where something that’s more than food is given away… So I’m still brainstorming ways to incorporate — it might just be something as simple as a raffle, and someone gets a $50 gift card to Eli’s Barbecue, or something…

But that’s something I wanna incorporate at my property, and maybe every quarter or every six months host some sort of event there, just to — again, the whole idea is I want them to stay, because I’ve realized that when they stay, it’s better for me than when they leave… So the hosting of these events are great ways to foster a sense of community, so that people know each other and are less likely to leave… And they also like you, because they know that “Oh, in a couple of months we’re gonna have another barbecue. If I go somewhere else, I’m not gonna have a barbecue, or have a chance to get a gift card.”

Joe Fairless: I’m gonna suggest one change to your approach, and you can decide if you wanna do it or not, but it’s based on just psychology and how we think as human beings… And that is instead of making it an end-of-summer bash, make it a barbecue to show your appreciation and gratitude for them being residents of your property. Do not set expectations for doing it every couple months; instead, just have it happen when it happens. Because when we as human beings expect something to happen, then there’s a higher degree of expectation, and then we feel like it’s something that we should receive; and if you don’t do it, then it’s taken away from us… Whereas if you do it randomly, even though (wink-wink) randomly is every six months for you, but you just don’t say it’s every six months or every two months, then it will be a wonderful surprise that their landlord does for them, and it will be something that they’re not entitled to from their perspective, but rather something that is an added benefit and is something pretty cool that their landlord does.

Theo Hicks: I think I remember us talking about this before too, the expectation versus just random giving…

Joe Fairless: Yeah, I read a book and it was in there, plus it’s clearly human nature, just through life experiences… If you just randomly give someone something, it can be much less, and equal the same amount of pleasure for that person, than if you tell them “I’m gonna give you something” and then you give them it; they won’t be as pleased, even though that might be much more in value as the one that was surprising.

Theo Hicks: Yeah, I’m definitely gonna use that approach. I thought you were gonna say that I shouldn’t call it the end of summer bash, because that’s kind of like depressing, because now it’s the end of the summer and they’re going back to school… We are changing the name for sure, but that’s not the reason why.

Joe Fairless: Yeah.

Theo Hicks: Alright, I appreciate that advice. It’s good advice. So just a couple things to wrap up… Question of the week for the Best Ever Community – this is where we post a question and everyone in the BestEverCommunity.com on Facebook gets to respond. Last week we had a question about how long it took people from initially becoming aware of real estate to actually finding their first deal, and we got a lot of great stories… On a similar note, we’re asking a question this week, which is “What is the longest time you’ve taken to go from initially finding a deal to placing it under contract? Why did it take that long?” and then of course, if you just instantaneously put that deal under contract and it’s never happened to you before, what are some of the things that can be done to avoid that?

I’m looking forward to hearing people’s stories on that. I’m definitely looking forward to hearing some developers talking about how long it takes from finding a deal to putting it under contract, because I remember when I talked to Evan Holladay on the podcast – I think he said that the longest time it’s taken him to go from finding a deal to contract might have been three years for a development deal. So I’m looking forward to hearing your guys’ and girls’ story on that.

Joe Fairless: Developers earn every penny that they make. That is such a stressful business… I don’t want any part of that, ever… EVER.

Theo Hicks: There’s never gonna be a Fairless Tower in Cincinnati?

Joe Fairless: Unless it already exists and we buy it… We absolutely will never do ground-up development.

Theo Hicks: And then lastly, please subscribe to the podcast on iTunes and leave a review. It’s very helpful to get feedback on how the podcast is doing. If you leave a review, we’re gonna read it on the podcast as the review of the week. This week the review of the week was from Rob W. (and a bunch of numbers afterwards).

Joe Fairless: What are the numbers?

Theo Hicks: 00332288.

Joe Fairless: If anyone can crack that code for why those numbers exist other than Rob, then we’ll get you a gift. Just e-mail info@joefairless.com. You can’t know him though.

Theo Hicks: Do you know what they mean?

Joe Fairless: No, I have no clue.

Theo Hicks: Okay. [laughs] Rob said:

“The number of great guests that Joe gets on a daily basis is amazing. Combine that with his direct and great questions, and this is by far the best podcast on real estate. Joe asks the questions that I want to know when listening, which usually gets into the numbers around the deals his guests do. Absolutely amazing.”

And I will say, that is one thing that I do really like about your podcast – you always ask about a deal, and then they explain their deal, and then you always go into the actual numbers on it – how much did it cost, how much did they put into it, how much did they sell it for, how much does it rent for? That’s very helpful, because you can’t really get that if you’ve never done a deal before, and the only way to get that is to hear someone else talk about it. I’m not sure how many podcasts actually do that, so… I agree with Rob.

Joe Fairless: Well, thank you Theo, and thank you Rob… And the reason why I do that is because whenever I’m talking to someone and they tell me “I got a good deal”, that’s not helpful for me or anyone listening. What is helpful is if they dissect the deal or dissect certain aspects of whatever we’re talking about, and then we can start learning how they got to the point where they got that good deal, or they made a lot of money or lost money. That way, we can learn from those experiences. So ultimately it’s just about dissecting stuff to learn from it, so that everyone listening can learn from it, I can learn from it, and we all grow together.

Please write a review if you haven’t already, and that will be helpful to — well, it’ll just make us smile, and it’ll help with the podcast, too.

Thanks everyone for hanging out with us. I hope you got a lot of value from this episode, and we will talk to you tomorrow.

JF1423: Debate 02: Value Add Syndication Vs. Affordable Housing Tax Credit Development with Evan Holladay and Theo Hicks

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Best Ever Listeners, I hope you enjoy this episode! This is my first time on the podcast, usually I’m a behind the scenes guy but I’ll be the moderator of some of these debates. Evan and Theo are both experts in their field, we’ll hear the pros and cons of what they do, and why they ultimately chose their strategy. You can let us know which strategy you prefer at bestevercommunity.com. If you enjoyed today’s episode remember to subscribe in iTunes and leave us a review!


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Joe Fairless: All you experienced Best Ever listeners who are looking at value-add multifamily syndication – well, we’re going to open up your eyes to a different type of approach, and that is affordable housing tax credit development. Evan Holladay is gonna be debating Theo Hicks on which strategy is best for you, and they’re ranking it based on four factors: barrier of entry, risk/returns and maintainable in a downturn.

Enjoy this debate with Theo Hicks representing value-add multifamily syndication, Evan Holladay representing affordable housing tax credit development, and when you identify which one is right for you, go to BestEverCommunity.com and let us know which one you’re gonna be doing, or which one you’re gonna be learning more about.


Grant Rothenburger: Hello, everyone. Thank you for tuning in to our second Best Ever Debate. We are filming live on Facebook right now, but you may also be listening on our podcast, the best real estate investing advice ever show… And I am joined by Theo Hicks and Evan Holladay. Theo, how are you doing today?

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

Grant Rothenburger: I’m doing great. Like I mentioned, I’m a little nervous to have my voice on a podcast for the first time ever.

Theo Hicks: [laughs] You’re gonna do great, Grant.

Grant Rothenburger: Thanks. Evan, how’s it going today?

Evan Holladay: I’m doing well, thank you for having me on.

Grant Rothenburger: Absolutely. Thanks for joining us. Today Theo and Evan will be debating value-add apartment syndication – that’s Theo’s side – versus affordable housing tax credit development, which is Evan’s side. A little bit about Evan – first of all, he was a Best Ever guest already on the podcast, so if you haven’t heard it, it is episode #1367, titled “Hustle leads to dream job as an affordable housing developer, with Evan Holladay.” He’s a real estate developer and investor, he is the host of Monumental Podcast, developed over 100 million in new construction multifamily at LDG Development, and they use tax credits to create affordable and mixed income communities. Based in Louisville. Say hi to him at EvanHolladay.com.

A little bit about Theo – he’s a creative project manager and investor, part of a team that has syndicated over 300 million in value-add apartments, co-author of two books – The Best Real Estate Investing Advice Ever, vol. 1 and vol. 2. Based in Tampa, Florida, and say hi to him on Facebook.

With that, guys… We’ll start with Evan – do you wanna tell us a little bit more about yourself?

Evan Holladay: Yeah. I think that you covered a lot of it, Grant, but just to add on to that a little bit… I’ve been with LDG about five years, been in real estate I guess coming on ten years. I really got started in college, got obsessed with development, started a development company in college, and took that out and got into affordable housing, new construction, multifamily development; we mainly do 200+ unit developments, and work a lot in Nashville, New Orleans, Tennessee and Louisiana. Those are my main markets… But I absolutely love it, I love real estate, and I’m glad to be here today.

Grant Rothenburger: Awesome. Theo, I think the Best Ever listeners probably know about your background, but do you wanna give us a little bit more about yourself?

Theo Hicks: Yeah, sure. So I started in real estate in February of 2015, I believe, by house-hacking a duplex. Then I kind of took a little break after that property for about a year, and then in the process of getting back into real estate I hooked up with Joe, and I’ve been working with him for the past – over two years now, approaching three years… So I’ve learned a ton about apartment syndications by just working with him and helping him out with his business.

I’ve just made this move to Tampa; I was in Cincinnati before. I planned on starting my own syndication business there, but instead, I’m starting it down here in Tampa. I’m in the process of learning the market, and I’ve met some property managers, some brokers, and now we’re just looking for a deal.

Grant Rothenburger: Awesome. I know we’ll be hearing more about that on future Follow Along Friday episodes, so I’m looking forward to that.

Alright, into the debate… So we have five categories that you guys are gonna rank 1 to 5, 1 being easy, 5 being hard, or in the case of returns and others, 1 being low and 5 being high.

The five categories are barrier of entry, risk, returns, maintainable in a downturn. That’s only four.

Theo Hicks: So four.

Grant Rothenburger: Four categories. So let’s go ahead – we’ll take turns and we’ll let Evan go first on barrier of entry. What have you got for us?

Evan Holladay: Okay, so you want us to rate each one individually, not as a whole, right?

Grant Rothenburger: Correct.

Evan Holladay: So for barrier to entry, I think the biggest things to take into account with new construction and tax credit development – they both have a high barrier to entry, and that is a good thing and a bad thing. The barriers to entry come from a lot of different things. I’m gonna go through some of the things that may not be good to get into multifamily, but it also helps you (if you’re getting into multifamily) protect against others that are trying to get into that industry of new construction or tax credit developments.

So if you’re doing new construction, you have to really work with communities and try to figure out exactly what they want. You have to make sure they’re on board, you have to make sure the city council members are on board, you have to make sure the mayor is on board, and really anybody along that process as far as the political side, or even the planning side, has a lot to say with how your development turns out, or can say yay or nay on the support of your project, and that can potentially kill your development. So that’s a big barrier to entry for new construction, but if you’re able to work with communities – our company, LDG, has done very well in working those relationships and being able to get through that zoning process, the permitting process, the design/development process… That is going to enable you to create those long-term relationships with cities that enable you to do not just one deal, but many deals with a community if you do it right.

So I think that’s a high barrier to entry, but I think that also adds a lot of value if you’re getting into it; it means that first deal is gonna be a whole heck of a lot tougher, but once you get that first deal done and you’ve done a good job and you put your all into that first deal, then that makes the next two through ten deals that much easier, because you have those relationships and you have that track record.

The other side of it is with new construction there’s also that unprovenness of the market; you’re building something that’s brand new, it has no track record… But that is a barrier to entry because it makes it harder, but it also is a good thing, because you’re building something that is brand new and is gonna add a lot more value to your investors, and it’s harder to build, but that also is good because then you don’t have as many competitors coming right behind you and just copy-pasting and doing exactly what you’re doing. It makes it harder for others to get into that neighborhood or that city and do exactly what you’re doing. So that helps protect your investment. I think that covers it on the barrier to entry.

Grant Rothenburger: Yeah, definitely. That was great. Thank you for that great explanation. What would you rate it 1 to 5 (5 being hard)?

Evan Holladay: Probably like a 4,5. It’s pretty high up there.

Grant Rothenburger: Fair enough. Alright… Theo, barrier to entry for value-add apartment syndications?

Theo Hicks: I would say I think it’s definitely lower than development, but it’s not a 1 or a 2. I’d probably give it around a 3. There’s a couple of factors for value-add that just take a couple of years… For example, experience; you need to have some sort of real estate experience prior to becoming an apartment syndicator. It can be something as simple as doing your own deals yourself, but ideally you’ve been involved in apartments in some form or fashion, whether it be as a broker or working for a property management company or working for a syndicator… So having some involvement and experience and experience in apartment syndication that you can leverage when having conversations with your team members.

This isn’t necessarily a requirement in the sense that you won’t be able to literally do an apartment syndication if you don’t have this, but you’re not gonna be able to do it successfully if you don’t have this, which is education. You need to know what you’re talking about, you need to know the terms and the terminology… I’m sure this is the same for development, but you need to know what you’re talking about, so when you’re having conversations with your team members – this includes your investors – you come across as a credible person. And of course, you need to have the education and experience to actually prove that you’re able to execute on the deal.

You also need to find private money… So depending on where you’re at in your life, depending on what job you do, the relations you have, it can be as easy as picking up the phone and calling up your friends, or it could sometimes require a more proactive effort, in the sense that you have to start to form relationships with other people and go to places where there are high net worth individuals.

Now, of course, for all of these things – you can offset them by partnering with someone, but you’ll have to have one of these things. You’ll have to have either access to private money, or the experience. If you have the experience, you can partner with someone who has access to private money but maybe doesn’t have as much experience, which is what I’m doing… Or if you have access to a bunch of private money but don’t know what you’re doing, you can find an operator that does know what they’re doing. So you can kind of offset the barrier of entry there, which is why I rank it a little bit lower, by partnering up.

I think experience and education are what you need to be a value-add apartment syndicator, and depending on where you’re at in your real estate career, you may or may not have that. So the barrier to entry – I would give it an average of 3. If you have those things, it’s gonna be a lot easier, but if you don’t, it’s gonna be more difficult, or at least take more time to get those things.

Grant Rothenburger: Right. Both strategies are pretty similar on the barrier of entry. It’s not something for a newbie investor. You at least need a good amount of education or a great team in place that has experience… So clearly, they’re pretty similar there. And Theo, we’ll go back to you now with risks. How much risk is involved with value-add apartment syndication?

Theo Hicks: I think the rest of these are pretty variable, because it depends on how you buy it, what your business plan is… Based off of our strategy, I’d give the risk a 2, because I think 1 is unrealistic… And here’s why. And I know we’ve recently recorded a video on this on YouTube, talking about these three immutable laws of real estate investing… Those are “Don’t buy for appreciation, buy for cashflow”, “Put long-term debt in place” and “Have adequate cash reserves.” As long as we have those three things, you are mitigating your risk as much as you possibly can.

When I think of risk, I think of capital preservation… So when I’m ranking this, I’m ranking it how at risk is the investors’ capital; not what they’re gonna make, but just the actual capital they gave me – how at risk is that if they were to invest in a value-add apartment deal?

I can go into more details on those three, but as long as you have those three in place, you’re mitigating the risk. For example, if you buy for cashflow and not appreciation – and by appreciation I mean natural appreciation of the market just going up… Not forced appreciation, which is kind of the key to value-add, which is making some sort of improvement to the physical or the operations of the property in order to increase revenue or decrease expenses, which in turn increases the value of the property… That is different than the appreciation I’m talking about; I’m talking about buying a property thinking that “Oh, for the past 10 years rents have gone up 10% every single year” or “For the last 10 years values have gone up 10%. That’s gonna happen for the next 10 years. After 10 years, my property will be worth this much more.” You don’t wanna do that, because again, if the market does not continue to go up, you’re gonna be in trouble.

For long-term debt – very similar. If you have a business plan that’s five years, you wanna make sure that the debt is set up for seven years. That might involve doing a refinance after a few years, but always making sure that you aren’t forced to refinance, aren’t forced to sell your property… Because if you’re forced to do anything, it’s most likely not for a beneficial reason.

And then adequate cash reserves is pretty self-explanatory. If something comes up and you don’t have the money, then you’re gonna lose the property.

Grant Rothenburger: Alright. And Evan, before you tell us the risk level with your strategy, would you give us — and Best Ever listeners, again, he was on the podcast already, talking about his strategy on episode #1367… But Evan, would you give us a quick breakdown of what your strategy is? Because it’s not just apartment community development, it’s a little bit more evolved.

Evan Holladay: Right, good point. So at LDG what we do is we do new construction and we use tax credits from the Federal Government that help cover some of the costs for building affordable housing, and then in return we’re kind of capping our rents based on whatever the average person is making in that metro area, and we’re taking that below the average to help provide a reasonable rent for people, so they’re paying no more than like 30% of their check or their monthly income on rent… So that gives them a safe, stable, quality place to call home and raise a family, and it helps provide housing for all the people that are working in the economy, that provide all of the services that we use on a day-to-day basis, but they are not reasonably being taken care of on the housing side…

Especially nowadays, you’re seeing more and more developers, or even rehab of existing, and the rents just keep skyrocketing… So these people keep getting pushed further and further out of town, and further and further away from their jobs, and that’s becoming a real issue. It always has been an issue, but now even more so… It’s also because more people are renting, so it’s just inevitably just driving up rents.

So that’s the value we add – we provide affordable housing, but yet the same quality as the market rate housing that’s just down the street, but we can provide it at a reasonable rent and help provide a good foundation for families.

Grant Rothenburger: Perfect.

Theo Hicks: Before you go any further, I’ve just got two quick follow-up questions pretty fast… Do these tax credits cover the entire cost to build? And then do you guys sell these afterwards, or do you hold on to them?

Evan Holladay: There’s two different types of tax credits. There’s one that covers 70% of the construction cost; that’s very competitive, you have to fit into a tiny little hole to score well to get those credits. We do not go after those credits, we go after the less competitive credits, the credits that are more readily available, but they don’t cover nearly as much; they cover only about 30%-40%… So you have to fill that last 60% with debt, so we leverage up to 50%-60% of the cost, and then we also fill in the last 10% with either putting in our own fee toward the deal, our own equity, or we get a tax abatement from a city that we can in turn borrow more money against, or we ask for a soft loan, payable out of cashflow type thing from the city or the state.

Theo Hicks: Okay, cool.

Evan Holladay: And then as far as owning, we develop and own all of our properties; tax credit compliance is 15 years, but our company has made it our strategy to build and hold, so we haven’t disposed of any of our properties.

Grant Rothenburger: That aligns with the wanting to provide housing for the —

Evan Holladay: Right, right, and that way we can keep it affordable long-term.

Grant Rothenburger: That makes sense. Cool. I thought that was necessary, so that we could have some context with direct categories.

Evan Holladay: Yeah, definitely.

Grant Rothenburger: So knowing that now, what would you say the risk level is for your strategy?

Evan Holladay: So for risk, with both tax credit and new construction – and I guess this applies to all real estate – you are at the whim of the financial market, you are at the whim of the total economy. So whatever you’re deciding today, by the time you’re ready to close, it may not be the case as far as interest rates or demand, or investor demand, but I think that is really amplified with new construction and tax credit development.

New construction – you’re just dealing with a longer lead time. The quickest deal I’ve ever closed – it took me a year from finding the land to getting the permits to getting the financing to starting construction; it took me  a year. That was the quickest I’ve ever closed a deal. Rehab – you can close much quicker than that, but new construction, you’re dealing with longer timeframes. I’ve closed a deal that took me three years to get across the finish line. So that is a big risk. I put that at 4, because there is a lot of inherent front-end risk with new construction development. You’re dealing with timing… In three years a lot can change, so that’s a big variable that you have to be aware of and be able to mitigate, and one of the ways to mitigate that is by having deal flow, having that pipeline of working on ten deals at once to close 2-4 deals a year type thing.

So that front-end risk – you’re putting money on the line; you’re putting money on the line for design/development, for permitting, for reports… So that’s all big risk that you’re putting up front. But on the back-end, what I would say is, especially with affordable housing development and new construction affordable housing, the risk just drops off precipitously.

Once you get to construction, construction is also a big risk, because you have to make sure you’re managing it well, you have to make sure you have a good GC… But once you’ve successfully built it, you’ve leased it up, that is when the risk just — for the most part, as long as you have a good economy in that area, you are almost… I don’t wanna say risk-free, but you’ve very much lowered your risk, because we’re dealing with affordable housing – our rents are capped, like I said a little earlier, and because of that, always our investors look for at least a 10% rent cushion basically below market rate rents…

And sometimes in cities where rents are skyrocketing, market rate rents are just out of control, Nashville being one of them, we have like a 50% to 100% rent cushion. So you can imagine when somebody needs affordable place to live and they see our place, that looks just as good as a market rate place down the street, but costs half as much, it makes their choice a lot easier, and financially it makes their choice a  lot easier. So that’s the cushion that provides much less risk on the back-side, because we’re always — at least right now, the last five years, we’ve been close to 100% on all our properties, with waitlists… So it’s that demand for affordable housing that’s kept it just being able to cash-flow the property and create good long-term real estate assets.

Grant Rothenburger: So you’re double-sided there… You’re really high on risk until it’s built, and then the risk kind of drops down considerably.

Evan Holladay: Right.

Theo Hicks: I don’t imagine that anyone could move into these buildings, right? For example, if you’re saying that in Nashville your rents are 50% to 100% lower than the regular rents, everyone that’s renting in those places that look the exact same and are paying way more – they can’t just come to your place, right? Only a certain type of person can move–

Evan Holladay: Right, right. They’re income-limited, basically. You have to make an income that is low enough that you need that type of housing. So it’s not just open to anybody, it’s open to people that are policemen, firemen, entry-level jobs, some sort of support role, paralegal, whatnot… People that are working, but are coming in at that entry-level job that need housing, but don’t have the ability to pay $1,800-$2,000/month.

Grant Rothenburger: And don’t need all the car wash, and…

Evan Holladay: Yeah, exactly, don’t need the amenities.

Grant Rothenburger: Alright. Theo, what have you got for us? You already did risk… Let’s go back to Evan now. Evan, how are the returns with the mixed-income, affordable housing tax credit developments?

Evan Holladay: The returns just in general — I would say it’s vastly different the way we look at returns for a development. We don’t have a sharing of cashflow with our investors. It’s very different. I’ll give my number first – I’d say returns, I’d probably put it at about probably a 4. It seems to be my number today.

So the returns for affordable housing development, at least the way that we’re doing it now at LDG – we’ve been able to build out our own units, so we act as our own GC… So for the returns side, we’re able to make that general contractor profit. We take that risk, but we make that profit and over the years we’ve been able to repeat, repeat, repeat, so we know what we’re doing by now.

So the returns are great, because we can not only make that profit on the construction side, but we can also go in and we get a developer fee as an incentive to do affordable housing. Each state allows a certain percentage… So we get paid that developer fee, or we can put part of that into the deal as our equity… But we can get paid part of that as early as closing, or through stabilization, and then after that we can get paid that out of cashflow. And we get paid that first, because there’s an incentive [[00:22:39].16] tax credit development put an incentive in there to make sure that’s paid off by year 15. So our investors – they’re positively motivated to push us to make sure we get that paid in time, or else we have to pay that back ourselves. That’s a big tax event, it’s not a good thing.

So we get paid first cashflow, and then really the investors just want 1) the tax credits which we get from the Federal Government who gives it to the states… So they just want the tax credits. We get the cashflow, and on the back-end, at year 15, we’ll buy the investor out for a much smaller fee than you would a typical market rate development. So we’ll buy them out and then we can have that asset just producing regular cashflow… And we get the cashflow of the 15 years because of the developer fee.

So we look at it differently where we’re getting the majority of the cashflow. The cashflow typically won’t be as high as a market rate development, but we’re able to get that front-end construction, and then we also are able to get the developer fee and the cashflow and not really have to share that as much as you would on a typical market rate development.

Grant Rothenburger: Right. And when you get most of the cashflow, it’s okay if the cashflow is a little lower; you’re getting a bigger chunk of it.

Evan Holladay: Exactly.

Grant Rothenburger: Theo, let’s go to you. First, do you have any questions for Evan on the returns?

Theo Hicks: I don’t think so. He did a really good job explaining the returns. It’s hard to say like an actual number, as a percentage, because you’re not really putting your money in there, so it’s technically infinite. But now, I figured that in apartment syndication there’s an acquisition fee you get paid at closing, so it sounds like it’s kind of what that developer’s fee is…

Evan Holladay: Right.

Theo Hicks: And then I think the biggest advantage for you is that after 15 years the whole thing is yours. You have all of it.

Evan Holladay: Right. We pay some smaller fee, but it’s much easier to take full ownership of the development in affordable.

Theo Hicks: So for my end for returns – 5 is high returns, 1 is low… I put it at 3, right below the developer; I wouldn’t say that the returns are higher, assuming that you’re actually completing the deal.

I think it’s interesting that it takes a lot longer to do a development deal, and as you said, there’s more risk during that time period… Usually, for an apartment syndication if you close within 60 to 90 days after you’ve put a deal under contract — yeah, sure, things could potentially go wrong during that time period, but not as likely…

Something that’s different between the business model that you implement and the value-add business model is that yours is literally like a long-term hold; you’re holding on to these suckers for at least 15 years.

Evan Holladay: Right.

Theo Hicks: Whereas our business plans are five-year holds, as we usually project… So the drawback, you could say, would be that you’re not necessarily having that consistent cashflow; you have to continually do deals, but it’s a positive because you could scale it way faster. Joe has exploded in the past three years because of how quickly you can do these deals once you start having access to private capital.

So from a return perspective, why I say a 3 and not a 4 is because, as Evan said, he gets access to all that cashflow, whereas on our end we have to give the majority of that cashflow to the passive investors.

From an actual return perspective for passive investors it’s great, because they’re just giving us the money and then each month they get a preferred return, and then at the end of a year, any cashflow above that return will get distributed. Then of course there’s the forced appreciation that we do… So what’s good is that if you buy the deal right, you can cashflow from day one; you don’t have to wait to pay your investors until all your renovations are completed.

So I think that’s a huge plus, that from day one, once you identify a deal, 90 days later the deal closes, and then within the first two months, generally, they’ll get their first check. There’s also the potential for a refinance, so they can get a portion of their equity back within the first couple of years, because again, since we’re forcing appreciation, we’re gaining all that equity that we have, and that’s something that you can pull out and refinance into a new loan, especially kind of in combination with that law number two with the long-term debt – if you’ve got a five-year business plan and you’re going with a five-year loan, you’re probably gonna wanna do some sort of refinance year two or three, so that that new five-year loan pushes you out to eight years; that way, if the market is not where it needs to be at five years, you’re not forced to sell it; you’ll refinance at that point.

And of course, since we are actually selling the property, that’s when the passive investors and the apartment syndicator makes the most money, because again, you bought it at 10 million dollars, you have forced appreciation of 7 million dollars, and so take away some fees and taxes, you’re making 7 million dollars that get split between you and your investors…

And of course, returns also vary depending on how you structure your syndication. The most common is an 8% preferred return, and some sort of split afterwards, like a 70/30 split. But then sometimes they might cap that – they might cap the investor returns at a certain IRR, like a 16% IRR or something. Then once that gets hit, which is not gonna happen until sale, then that split will be reduced and the syndicator themselves will make even more money.

So again, I’ll give it a 3. I don’t 100% understand the development, but just from my understanding, the returns are definitely higher, because you’ve got a much higher risk, of course, so that’s what offsets the risk, is the benefits at the end.

I wanna say that it is really interesting, for your specific business model, and the risk – there’s all that risk up front, but once you get past there, it’s like “Phew! Alright, we’re here.”

Evan Holladay: Yeah. “We made it!”

Theo Hicks: Then it just like drops below everything else, because as you said, you’re gonna have access to — the supply of renters that you have are always going to be really high.

Evan Holladay: I just wanted to say that I’m very envious of anybody that can close in 60-90 days.

Theo Hicks: Yeah, one year being your shortest… [laughter]

Grant Rothenburger: Yeah, and it’s nice that you guys actually own the whole thing after the 15 years. With the value-add syndication, at least if you’re doing an equity raise, a syndicator never really owns the whole property if the investors stay in it. Of course, you can do a debt raise, but I think the equity raise is the more popular, for obvious reasons.

Evan Holladay: Right. I wanted to ask Theo if — you said you’re mainly targeting like a five-year hold, add-value, and then after year five you either refinance or flip… Are you guys looking at holding onto or buying out any of your investors on any of your deals?

Theo Hicks: No. The investors stay in the entire time. That’s one of the selling points for them, is that they’re in the whole time. That’s kind of what Grant was saying – there’s the equity versus debt. With equity, you’re raising money and then you’re paying them a  preferred return, like a bank. In that case, if you refinance, you can give them all their money back and maybe like a 12% profit on top of that… And then yeah, you own the entire deal.

Some syndicators do that, but we do the equity, which means that the investors stay in the whole time.

The only time a buyout would maybe happen is if the investor needs to get out, for some reason… But it wouldn’t be something that we would come to them and offer it or force him to do it, or something.

Evan Holladay: Right. Yeah, I think the five-year model seems to be the point of very good returns, but it can definitely add more — you’re constantly having to go out and find the next deal…

Theo Hicks: Exactly.

Evan Holladay: …which is the same in any real estate, it’s the same in new construction. We’re constantly having to fill our pipeline, so we can start with ten to close two… But yeah, it was just interesting to hear the other side of it.

Theo Hicks: My personal strategy is to syndicate until I have enough money where I can passive invest in syndications, that way I’m kind of reducing my time commitment. I still have to analyze deals and I still have to actually do some work, but it’s obviously gonna be drastically reduced.

Evan Holladay: Right.

Grant Rothenburger: Cool. So let’s move on to how maintainable it is in a downturn, and we are back to Theo again. So 1 being very maintainable in a downturn, 5 being not very maintainable in a  downturn – what have you got?

Theo Hicks: So I got ahead of myself and I addressed this when I was talking about those three laws… And again, this is one of those things that’s highly dependent on your business plan. It’s highly dependent on how you buy the property and how you set up your business plan.

I said the three laws are buy for cashflow, long-term debt, have adequate reserves. If you ignore those when you buy the property, then it’s not gonna be maintainable at all during a downturn. If you buy for appreciation – of course, the downturn is the reverse of that, so you’re not gonna get your depreciation… So if you’re not cash-flowing when you buy it, then how are you gonna make money on the deal?

If you don’t have long-term debt, if you’ve put some sort of short-term two-year bridge loan that doesn’t have the option to buy another year or two, and then the market takes a dip at year 1.5, then you’re in trouble, because you either have to sell teh property at a loss… I don’t think you’ll even be able to refinance at that point, so you’re gonna be in trouble.

So the reason why I give it a 2 is because for our strategy, we take all those things into account and we wanna make sure that we’re able to preserve our investors’ capital in the event of a downturn. And how we actually do that is when we’re actually underwriting a deal, we run a lot of sensitivity analysis. So we say “Okay, so what would happen…?” For example, let’s say we put a loan on a property that is a floating rate. So what we’ll do is we’ll buy a cap to that, so it can’t go any higher than that cap, and then we’ll run a sensitivity analysis like “Alright, so what happens if it stays at the same rate for all five years? Okay, what happens if it goes up 0.5%, or 1%, or 1.5%?” That way we can see, alright, worst-case scenario, if it hits the cap, will we still be able to cash-flow?

We also do sensitivity analysis for the rent premiums. So if the market rates have been increasing by 10%, we do the rental comps, we find out that we can raise the rents by $100, but what happens if we can only raise it by $50? What happens if we can only raise it by $25? What if we can’t raise the rents at all for a couple of years? Will it still actually cash-flow?

So those are the types of things that we actually do to — because you can just say “These are the three laws”, but what we actually do to make sure that it’s gonna be maintainable in the downturn is on that front-end making sure that we’re underwriting the deal properly, and that we have the proper debt in place… And then the cash reserves is kind of self-explanatory. It’s making sure that you’re raising additional money or getting additional money from a loan to cover any unexpected maintenance issues, like ten boilers going out at once. If you don’t have an operating fund, what are you gonna do at that point? What happens if that happens and then the market goes down? So you’ve got the cashflow to cover it, but then the market goes down and you lose that cashflow – what are you gonna do?

So it’s making sure that you kind of think of all these worst-case scenarios and underwrite — don’t base your entire underwriting model on that, but make sure you’re at least looking at that, so you know that “Hey, if something happens, I’m not gonna be -20% cashflow”, or something.

So to summarize, as long as you’re following those three laws, then — again, you can’t completely eliminate risk, because you never know how big the downturn would actually be, but as long as you do that, then you’re at least mitigating those risk areas of not cash-flowing, having to give the property back to the bank, and all of those horror stories from ’08.

Grant Rothenburger: Yeah, and I’m obviously working on the same team as you – I obviously agree with all three of those points. I know how maintainable in a downturn Evan’s is gonna be… Let’s hear from you. Do you have any questions for Theo, first?

Evan Holladay: I don’t think so. The only think I would add is the adequate reserves – I 100% agree. I think that’s very important. And then we’ve seen our investors since 2008 have made us put very significant reserves in. The interesting thing is with new construction we typically don’t need them as much, at least from a capital improvements or capital maintaining the property, because we build long-term… But sometimes there is that occasional — like you say, you aren’t getting the rents that you need, and having that reserve has helped us cover certain gaps… But we’ve seen a requirement of those reserves from a lot of our investors.

But as far as maintainable in a downturn, I would say like a 1… It’s not easy for new construction, in general. Financing dries up, investors dry up… Our investors buy the tax credits and they’re usually motivated for — they get a community reinvestment act; it’s kind of like a grade that is given to them (I think) each year by the Federal Government. So the Federal Government says “Okay, are you investing in all parts of the neighborhood that you’re wanting to go into and do banking in?”, basically to combat redlining.

So we have this pool of required bank investors that need our tax credits to get a good score, but even with that need for that score, they still sometimes are like “No, we’re good. We don’t want any tax credits right now. We can barely keep our doors open…”, or whatever it is, they’re trying to just maintain their own liquidity and they’re not so much worried about buying tax credits when there’s a downturn in the economy.

So that’s a huge negative, and the other side is just new construction in general – nobody wants to finance it and take that risk. So that’s the downside.

The other downside is affordable housing, as much as we have that inherent, skyrocketing demand, you also have to look at people’s income levels. When there’s a downturn in the economy, usually the people that get hit the hardest – and it’s unfortunate, but they’re typically families that aren’t making as much money to begin with.

So our rent base – yeah, it’s there, but you have to look at how much money they’re making to be able to afford the rent. So if they’ve gone from being able to pay our rent previously to losing a job or going down to part-time and now they’re below what we can qualify as a qualified resident, because they’re making too little income and they can’t pay the full rent. So it’s a double-edged sword where you would think there’s always demand for affordable housing, which is completely true, but it’s just what rent levels, what income levels are you targeting?

So there’s always that inherent demand for affordable housing, and that’s where you can get — in those downturns, if you can get the cities or the states to financially step up and say “This issue is a big enough problem for our city, and even with the downturn in the economy, we’re gonna help fill the gap that was taken away from your investors not putting in as much money, or your construction lending not putting in as much money. We’ll help fill that gap.”

So I’d say it’s infinitely harder, but it can be done though… But it’s just that much harder.

Grant Rothenburger: And just to clarify – you said a 1…

Theo Hicks: I think it’s a 5.

Grant Rothenburger: I think we just might have been backwards on the scales…

Evan Holladay: A 5, definitely.

Theo Hicks: There’s something, I guess, that could mitigate risk slightly, and that’s by what you’re doing, which is investing in those markets that have that huge 50%-100% cushion… Because I imagine what would happen is that you’ve got your cap in affordable housing here, and if your competition is only 10% higher and the rents drop by 10%, then you’re in big trouble. But if their rents are 100% higher and it drops 50%, then the demand is gonna be still a little bit stronger… But I do understand what you mean by the fact that when there is a downturn, your property would see the reduction, or be affected most by the downturn.

Evan Holladay: Right.

Theo Hicks: Something else I wanted to quickly mention about mine that I don’t think I said – because I didn’t say specifically what you do…

Grant Rothenburger: That’s how Theo wins debates…

Theo Hicks: [laughs] No, it’s just something I forgot… If a downturn happens and you’re doing a value-add deal, as long as you follow those three rules you just keep the property; you don’t do anything. You just keep the property, you’re gonna cash-flow… You don’t have to refinance, you don’t have to sell.

The reason I brought this up is I’d imagine for you, for the deals that you actually have that are already finished, the risk is a lot lower for the deals that you’re actually working on at the moment, where you’re in the middle of construction, or in the middle of that up front, front-end due diligence aspect.

Evan Holladay: Yeah, I would agree to an extent, but I think you kind of hit it on the head – if there’s not enough cushion between us and market rate, and the market rate drops low enough… In 2008 we’ve had to lower our rents because we were having to compete directly with market rate product, and we typically can’t win against directly with market rates… So we have to inevitably lower our rents.

Grant Rothenburger: Alright, cool. I actually have a surprise question… We’ll start with Evan. If you could take one aspect of Theo’s strategy and put it in your development strategy, what would it be?

Evan Holladay: Closing in 60-90 days. [laughter] No, honestly, that’s a big part of it – I think doing affordable housing new construction has taught me a valuable lesson, and that is patience. But the flipside of it is I want to do more deals, I wanna be involved in more development, but it gets harder to get that in new construction… So that’s one thing I would want – an ability to close more quickly and create a bigger, more actionable development pipeline.

Grant Rothenburger: Okay. Theo, what about you? What would you steal from the development aspect?

Theo Hicks: I’d probably say Evan’s ability to own the property outright. Again, there’s ways to do it in apartment syndication, but it’s inherent in your strategy that you own it outright, and then you have all the cashflow, too.

Evan Holladay: The grass is always greener on the other side… [laughter]

Grant Rothenburger: Some aspects anyway…

Theo Hicks: I’d totally be interested in doing a development in the future, at some point. It’d be cool just to do it, to see what it’s like… But not now.

Evan Holladay: You know, another thing I didn’t touch on is just the — I guess you could call it the ego side of it. It’s really cool to [[00:39:46].00] something out of the ground where nothing existed before. That’s really cool. That’s what got me into it. There was a development going on on my campus in college, and I was like, “I need to be a part of that. I need to go learn from that guy, I need to figure out how he’s doing that. That’s so cool, just building something out of nothing, and having that permanent value to that community, wherever it is, for the next 50 to 100 years.”

Grant Rothenburger: That would be really cool to be a part of, for sure.

Theo Hicks: That would be the fifth category, Cool Factor. [laughter]

Grant Rothenburger: Development definitely has [[00:40:16].24] So I added up everyone’s numbers and I made up a little scale just now… My made-up scale. Let’s see… Evan was a total of 17.5 out of a possible 20.

Evan Holladay: Seventeen… And a half!

Grant Rothenburger: Yeah… [laughs] Because you threw in that half [[00:40:33].09] But the returns factor into that nets high as well, so let’s take that out… Now we’re down to 12.5, which on my made-up scale, you need some experience or education or a team mate that has a lot of that. You probably shouldn’t be a newbie trying to get into development deals, but you don’t have to be super-experienced and flipped 100 houses or own 100 multifamily units already. If you’re resourceful enough, you could definitely find that and get things done.

And same thing with Theo’s – if you take out returns, three, then he’s a 7, which on my made-up scale… I don’t like my made-up scale anymore, because that means that a novice could do it, and I think you should be more like — same with the development, you should be definitely more than a novice to be doing syndications.

So with that, I’m gonna go ahead and wrap this up, unless you guys have anything to add. Or we’re gonna do rebuttals – Theo, what do you have for Evan on the rebuttal aspect?

Theo Hicks: I think for both of us we got that in when we were going over each of the categories.

Grant Rothenburger: I thought so, too. Alright, so for me personally – and I’m a little biased, but after hearing you guys’ arguments, I’d go with the syndication side, mostly because of the risk of the front-end… But that risk drops off after it’s built, so it’s kind of double-sided there. And I do really like that you guys will own it outright, without having to share in the profits of your investors forever; that’s really nice.

But obviously, I’m biased, so listeners and viewers, go to the BestEverShowCommunity.com and give us your opinion, and tell us which one you would prefer, or which one you do prefer.

With that, guys, Evan – thank you for joining us today. Theo, I’ll probably talk to you later today… [laughter] Everyone, have a best ever day!

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Best Ever listeners, I’ve got a special segment for you, and every now and then I’ll be doing these special segments when I come across something that I learn in my entrepreneurial journey, and I think it will be helpful for you as well… So I hope you enjoy this episode, and more importantly, I hope you get some value from it that you can then apply to your life.

This episode is gonna be focused on what I call the Overachiever’s Guide to BLAH Days. I think we all have those days where you’re just feeling like… BLAH. You’re just feeling like you don’t wanna do stuff, you’re tired, or you’re hungover. In my case, last night I had two glasses of wine, I had five hours of sleep, and on top of that, yesterday we closed on a large apartment deal, so there’s certainly a little bit of sense of accomplishment, although my main focus on the apartment deals and when I celebrate is when we do the first investor distribution, and I’ve wired my mind that way… So there’s not a whole lot of celebration when we close a deal, but still there’s a little bit when we close the deal. So that was yesterday.

Today there’s a little residual hangover from the two glasses of wine, there’s sleep that I wish I got more of, and I also haven’t really exercised today, so that’s another variable… Plus, I have a slight sense of accomplishment from closing on a deal yesterday. So there’s a perfect storm of stuff that today I have just felt BLAH. I felt like a lazy bum. Now, I’ve done some stuff – I’ve had a Follow Along Friday with Theo earlier, I have had an investor conversation, I have gone for a walk with Colleen, my wife, and Jack, our 12-pound Yorkie with tons of attitude… Actually, he’s got a great temperament, unless you’re another dog while we’re walking, and he’s on his leash – then he’s got a lot of attitude. Besides that, he’s a great dog.

So I’ve done some things today, and… What time is it? It is [1:37] PM when I’m recording this… But I haven’t gotten just a lot of momentum yet, so I’ve started thinking, I wonder if any Best Ever listeners out there have come across this, where you are typically an over-achiever; I like to believe my identity is that of an overachiever. Normally, every day I’m “BAM, BAM, BAM!”, but today I just feel blah… So I thought, “What can I do to shake out of this and turn this around?” and then also what can I do to help others who might come across this situation turn it around for theirself as well.

I’ve figured out a three-step process, and I’m implementing right now, so it’s not just theory-based; I’m actually doing it. The intention of mentioning this is to help you out if you are an over-achiever, which I imagine you are, because you’re a Best Ever listener, so you’re crazy like I am, and you’re into this real estate thing and you’re consuming a lot of content about real estate on a consistent basis… So I imagine you’re an overachiever, and I also imagine that some days you have kind of a blah day, so here’s a three-step process for your guide to getting through, overcoming and transforming your blah days into productive days.

Step one, get excited. Why do I say get excited? I say get excited because you’re an overachiever and you’re having a blah day; well, that means that other days of the week are not blah, otherwise you wouldn’t recognize it being different. Also get excited because when we do achieve great things, it’s so easy to get caught up in the moment when you’re totally motivated. When you attend a Tony Robbins conference everyone’s pumped up. When you attend a real estate conference, everyone’s connected and BFFs. When you’re attending a local meetup, everyone’s talking “Oh yeah, I’ll do this, I’ll follow up with you, I’ll give you a call, I’ll e-mail you.” Everyone’s all about it.

But then something interesting happens – people don’t follow up, and people don’t do things that they say they’re gonna do when they’re not in the moment, and that’s what separates you and I from other investors, because when we’re not in the moment, we’re still making progress. So that’s why I say get excited, because when we do come across a blah day, that’s when we get the muscle built even bigger.

Tony Robbins talks about which rep builds the most muscle when you’re on a set of ten? The first one, the second, third, all the way to the tenth…? Which one? What would you say? It’s actually the 11th. The 11th rep gets you the most muscle, because then you’re really pushing your muscle. Same thing with what I’m describing right now – when we have a blah day, that means that we’ve had a bunch of good days up until this point, and then we want to push through which builds the muscle even stronger when we have the greatest resistance… Because on that 11th rep, what is there? There is the greatest resistance, and when we push through that, the muscle gets bigger.

So that’s why I say get excited – we’re pushing through the resistance, and we’re getting stronger as a result of it. Number one.

Number two, after you get excited, then get moving and create something. My suggestion is on the blah days to focus on creating something that is of interest to you, and that way you’ll get momentum. There is fulfillment in creation, there is not fulfillment in maintenance. When we create something, then we’re going to get really excited. That’s what I’m doing right now – I mentioned I’m following this process, I’m creating a podcast episode, so I’m following this process because I believe in this process.

So when you are having a blah day, first get excited, because you’re gonna push through the resistance and you’re gonna get stronger, and second, get moving by creating something.

And third, reflect back and give yourself some props. “Nice work on this!” It’s tough, and it’s something that most investors, most entrepreneurs, most businesspeople, most people in general don’t do. Generally, when they’re having these challenges after they’ve had some good, over-achieving days, they just don’t do anything, and that’s what separates you and I from other investors… Not in a bad way – I’m not saying “us versus them”, I’m simply making an observation, that when we push against resistance and we create something by moving and creating something, then we are separating ourself from what other people do.

And then third, like I mentioned, reflect back on what you just did, pat yourself on the back and get excited, and perhaps write it down. That’s where my daily journal comes into play. I’ve mentioned on the show multiple times before, but I’ll mention it again – I do a daily journal, every single day. Out of the calendar year (365 days) I probably only miss six or seven days total. Pretty much every single day I’m writing in that journal.

I’m writing “Hey, today was a blah day, but I’m an over-achiever and I follow the three-step process of getting excited, because I’m gonna have resistance, and I’m gonna grow my mental muscle, my entrepreneurial muscle, whatever muscle because of that, because there’s gonna be a lot of resistance. Two, I got moving and I created X, or XY, or XYZ, and three, now I’m reflecting back, because darn it, it feels good that I was able to push through this…”

And it was pretty cool, because I worked on a project that I wanted to work on. And you know what, I cut myself some slack, because I realized that there are some days where I’m not gonna have as much sleep, and I’m gonna be cranky, or I’m gonna have a couple glasses of wine, or beer, or whatever you drink – or maybe you don’t drink; maybe too much sugar, or whatever it is – and I’m not gonna feel the best the next day… Or I’m gonna accomplish something pretty darn big the previous day, and then the next day I’m gonna feel like I have a little bit of complacency, even though I know inherently that’s a terrible thing to have in business…

So I’m gonna cut myself some slack and I’m simply going to follow this three-step process of getting excited, getting moving and creating something, and then I’m gonna reflect back.

Those are the three steps to your guide to making a blah day a productive day for all of you over-achievers. I hope this is helpful, and thank you for being a listener to the Best Ever Podcast. This is a special segment that I haven’t done before, but you know what, I might start doing these more often, because there are some messages that as I’m going along through my entrepreneurial journey, as I’m building a company, there are lessons that I’m coming across, and who cares about what I learn – it’s more about what I learned that can be helpful for you, and if I have something that can be helpful for you, I feel like we should have a special segment to mention that, so that you can benefit from the stuff I’m learning along the way, too.

I hope you’re having a best ever day, and we’ll talk to you tomorrow.

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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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, Paul Sian. How are you doing, Paul?

Paul Sian: Good. How are you doing, Joe?

Joe Fairless: I am doing well, nice to have you on the show. A little bit about Paul – he is a licensed attorney in Ohio and Michigan, and a licensed real estate agent in Ohio and Kentucky. He’s worked in real estate for 12 years while owning rental property; he helps buyers and sellers in Cincinnati and Northern Kentucky areas buy investment and personal real estate. He is based in Cincinnati, Ohio. With that being said, Paul, do you wanna give the Best Ever listeners a little bit more about your background and your current focus?

Paul Sian: Yeah, definitely. Like you mentioned, I’ve been in real estate for 12 years. Actually, I originally started off licensed in Michigan for about 8-9 years, and then when I moved down to Ohio for a career change, I was doing real estate part-time there in Michigan, and then let my license go and then got my licenses back.

I was in the Army reserve for a while, and once I got out of that I needed to keep myself busy, so I got my real estate licenses again. I’ve got Ohio and Kentucky; I got both in the 2014 timeframe, and in around 2016 – that’s when I started getting back into real estate investment. We actually owned a single-family ourselves. That became a rental when I was called to active duty with the military… So rather than selling it — it was a brand new development with new construction… I would have sold it at a loss if I tried to sell it. We just rented it out and kind of became remote investors in that sense.

When we came back about a year later, I ended up selling it; development was finished, and the tenants [unintelligible [00:02:28].21] causing some issues, and it was too far away from where we currently lived, so I sold that.

In 2016 I got a fourplex, which I got at a good time. As you probably know if you’re looking in Cincinnati, we’ve kind of seen the prices starting to run up since then.

Joe Fairless: Absolutely. Are you still a licensed attorney and are you still practicing?

Paul Sian: Yes. I do real estate [unintelligible [00:02:49].19] and then I also do my real estate work as well too, helping buyers and sellers, both investors and for people buying their personal home.

Joe Fairless: So what’s a typical transaction as an attorney look like for you, in terms of your involvement?

Paul Sian: If I’m doing a real estate transaction [unintelligible [00:03:06].25] I don’t necessarily have to step in as a real estate agent; if they have a deal they’re buying, either like in a wholesale process or buying directly from for sale by owner, they can just come to me, we can work out a contract review fee, a document review fee, and then if they need, we can go through my work law firm – I work with a local law firm here in Cincinnati. They own a title company, and we can just process everything through there.

So I can help save them some money… It doesn’t have to be through the real estate license sign, but I can work with people as an attorney as well, and I do work with a lot of wholesalers, helping them with their contracts in terms of purchasing, as well as turning around and selling to others who are interested in holding the property, rather than wholesaling.

Joe Fairless: What are some areas of the contract that you believe add a lot of value to the contract? It’s kind of a dumb way of phrasing the question, but basically what I’m trying to find out is what are some areas that you focus in on on real estate contracts that perhaps if an investor wasn’t working with you, that wouldn’t be as buttoned up?

Paul Sian: Yeah, definitely… Especially if they’re not using even some of the state standard contract forms, or some of the ones you can get online, they might be missing appraisal terms, and they’re required to meet a certain appraisal… Which if you’re buying with borrowing money, like through a mortgage, then usually those contracts are required and your lender is not gonna bless that anyways… But if it’s a cash deal and you’re purchasing it for 100k and they wanna make sure it’s worth 100k, they can always get an appraisal if they want. But if that language is not in their contract, then they get the appraisal and the appraisal is low, without that language there they have no escape clause from that contract. They’re stuck buying it for $100,000, regardless of how much the house is worth.

Inspection calls is another important thing, too. Most people think “Yeah, home inspector… We wanna get our home inspected”, but when it comes to the investor buyers, a lot of times – especially now with a seller’s market – there can be an eagerness to go in and waive the inspection clause, which in my opinion is a big mistake.

You have waived that and you suddenly find that your foundation is sinking and it’s gonna cost 50k-60k just for that, to shore it up. Your whole investment strategy could be thrown out the door there, in one little misstep.

Joe Fairless: Within the inspection clause, what are some things that you always include in there?

Paul Sian: Generally, we look at the timeframe, the initial inspection, and then we also will address the post-inspection negotiation, and basically what the terms would be; if you can’t come to agreement on repairs, what are the options for the buyer and the seller…

And then mainly for the timeframes that everybody needs to pay attention to. You can’t just leave it in there and say “Hey, we will inspect within ten days” and then leave it at that. Okay, you inspect, but then what? You found that there’s a big issue with the electrical system – what’s your timeframe for resolving that? The seller and the buyer don’t agree, it becomes the “he said/she said” type of thing, and ultimately to resolve it you have to go to court… But if it’s something that’s already spelled out in there, if it does go to court, it makes your case easier.

Joe Fairless: We’ve got appraisal terms, so making sure that they’re in there… This is when we’re buying a property. We’ve got inspection clauses, the timeframes, and both of the initial inspection, of also the post-inspection… Anything else that you can think of as you think of the contract that would be good to know?

Paul Sian: Yeah, definitely a lot of contracts should have language in there regarding deed terms, the type of deed you’re getting… If it’s a bank deed, you’re generally gonna get a special warranty deed, because the banks don’t wanna guarantee, they’re not able to guarantee the deeds, so they’ll guarantee you to the point that they can.

If you can get general warranty deed – that’s the best kind. That basically steps in there and says “Hey, this deed is good.” If there’s an issue later, you can go back against the seller, or if you have title insurance on the property, then the title insurance will cover you under the general warranty deed. A special warranty deed limits it to what kind of ownership interest they’re transferring.

Joe Fairless: Will you elaborate on the general warranty deed and special warranty deed, and the distinction between the two, and if we have a choice on which one we receive?

Paul Sian: Definitely. The special warranty deed – those are generally gonna be on foreclosed properties. Banks generally are only gonna give you a special warranty deed. It’s rare that they have a general warranty deed. They don’t have all the information, and they’re kind of trying to do a quick sale and get rid of it as easy and as quick as possible.

Generally, if it’s closed through a proper title company who does all the title search, they should be able to come up with the full research on the property and kind of protect you on it.

When it’s a normal deed, when you’re [unintelligible [00:07:45].00] individual, if they’re giving you anything less than a general warranty deed, like if you’re getting a quitclaim deed, which is almost like “You can have whatever ownership interest I have in this property, if I have it.”

So it may be the case, you know, I’m selling you the corporate headquarters downtown Cincinnati; I’ll give you a quitclaim deed. It’s worth the paper that it’s written on. Obviously, I don’t own it… I can give you a quitclaim deed, but it doesn’t give you any right to it either.

The general warranty deed is the best, and your special warranty deed – the bank is only gonna give you that. Then a quitclaim deed – it’s rare to find those in a transaction, but if you do, if somebody wants to offer you a quitclaim deed, I’d be pretty skeptical and I would definitely talk with an attorney and a title company to make sure what’s going on with that.

Joe Fairless: What does the bank and the special warranty deed on the foreclosed property – what is the bank not agreeing to, that they would be agreeing to on a general warranty deed?

Paul Sian: With that, they’re basically — they’re in a sense excluding their ability to guarantee the deed, to give you a general warranty deed that says “Hey, our property is good. We bought it at a good title.” Basically, they got it usually through like a sheriff’s auction or foreclosure process, so they are just getting the deed as is, and that’s their way of selling the deed, as is.

So they’ll guarantee it to you to that point, and you can borrow against that, too. If a lender comes and you’re purchasing the property and you need to borrow off of that, you can generally borrow on it, assuming the property itself meets the appraisal criteria… But it still gives you pretty much a good guarantee, but the bank is just not willing to step out there and say “Yeah, we’ll guarantee you against any and every claim possible.”

Joe Fairless: What’s an example of a challenging contract that you’ve worked on?

Paul Sian: A challenging contract… I guess a lot of it just involves the back and forth negotiation before you even get to the contract… Just getting to the terms, especially when you’re in the investment realm.

I’ve just seen a contract that fell apart because the buyer wanted the seller to leave all the raw materials left in the apartment so he could refinish it, and the seller said no, so the buyer in that case walked for that.

Or they probably use something else, they probably use something in the inspection clause… For something as simple as “I’m not leaving you the drywall, I’m not leaving you the screws [unintelligible [00:09:58].19]” So a lot of it is just the negotiation and getting past egos. Once the language is there, once everybody understands the language and they kind of see the purpose behind it, they’re ready to go for it… It’s more how do you get those emotions at times that get in the way.

Joe Fairless: How long have you been working on real estate contracts with clients?

Paul Sian: I’ve been working on that for at least about ten years.

Joe Fairless: From year one to now year ten, I’m sure you’ve evolved your language to enhance the contracts and the value that you offer to your clients… If that assumption is correct, what are some of the things you do now that you weren’t doing before?

Paul Sian: In the past I would use often times the standard draft contracts you would get from a lot of these companies, primarily service attorneys, and sell you blank legal contracts, and they might be state-specific… [unintelligible [00:11:00].15] Now, especially at my law firm, we kind of start from a base our law firm designed, and we design it more based on the locality, like in my case, Cincinnati and Northern Kentucky… Whereas those form contracts by certain companies are generally state-wide. Sometimes they’re city-provisioned, sometimes there’s something in the city, either the tax or the Building Department requirements that are unique, that those contracts don’t cover, so we have contracts — it’s a multiple-page document, then we kind of go through it and based on the particular situation knock out language that we don’t need and make sure the language that we need is in there and it makes sense when it’s put in there.

Joe Fairless: What are some examples or an example of tax and building requirements that are unique to a city, that wouldn’t be in a state templated contract?

Paul Sian: In Hamilton County – this actually more follows upon the owners of the property, but the requirement to register your property with the auditor. And there’s no fees or costs with that, there’s no requirement at the state level… But then you go to a city like Cleveland, or a few other Northern Ohio states, and they actually have rent taxes as well, or unit taxes basically, and they’re charging that, so then you get prorations with some of that, if the prior seller — it’s almost like your regular taxes, when you’re buying and selling a property you prorate based on how much they’ve already paid when their ownership ends, and then how much does the buyer owe based on that.

So they’ve got similar concepts like that that state-wide doesn’t necessarily apply. Cincinnati doesn’t have any rental unit taxes, but we do have registration requirements… And on the opposite end you have those taxes, so you have to account for those.

Joe Fairless: What’s the most challenging part of your job?

Paul Sian: The challenging part – a lot of it too is just making sure people are on the right page, explaining… Not only am I working with the buyers, as I’m working with a buyer or a seller – if I’m working with the other side too, they don’t have their representative… It’s kind of like, I am representing my client, I’m in a contract with them, so they’re the ones I’m representing, and then kind of explaining to the other side, “Hey, if you don’t have your own counsel, then here’s the extent I can advise you. I can’t go further than that, unless I — if I start revealing my client’s privilege information and whatnot, then I run the risk of facing liability lawsuits or giving away information that I shouldn’t be giving.”

Joe Fairless: Based on your experience as a real estate contract law attorney — what is the best way to phrase that…? Real estate attorney in contract law, is that basically it?

Paul Sian: Yeah, real estate attorney/contract attorney, or acquisitions attorney…

Joe Fairless: Cool. Alright, based on your experience within that capacity, what is your best advice ever for real estate investors?

Paul Sian: If you’re going alone, make sure you have your teams in place. That will include an attorney, or if you’re working with a real estate agent, but have your contractor in place, have your property manager in place… A lot of times, especially in this market, when the deals and the offers are flying left and right, you might find yourself in contract with a building that’s ready to go, if you don’t have a contractor there who needs to service something, or you don’t have a property manager in place, especially if you’re a remote buyer and you’re not within the state, you’re gonna be in a tough situation between managing your tenants remotely… If your tenants figure that out, that you’re not local, then that kind of gives them a run of the place, and who knows what could happen then…?

So definitely have your team fully in place before you even start considering making your offer that within the next 20-30 minutes you could  find accepted, because the deals are going like crazy.

Joe Fairless: What are some of the best ways to find those qualified team members?

Paul Sian: Networking is one of the best, and with my out-of-state clients too – what happens is they’ll connect with me based on reading my blog, or seeing some of my posts on certain websites, and they’ll come back and say… We’ll chat, we’ll do an initial phone conversation, and then usually I recommend to any of my buyers that if you have the ability, by all means, come and visit Cincinnati. I’m happy to drive you around, show you around. You need to get an understanding of where you’re investing and the neighborhoods you’re gonna invest in, because everything varies based on which neighborhood you’re in, and the same type of thing if you’re buying in New York – it’s always good to have your boots on the ground and understand what the lay of the land, where everything is.

Joe Fairless: What’s the most popular blog post that you’ve done?

Paul Sian: Active blog posts that I’ve recently done  — I’ve got one that gets pretty good traction, it’s “Financing your investment properties.” I mention different ways that you can finance investment properties, and I get a lot of feedback.

Another blog post I’ve got for investors is my 1031 exchange blog post. I do get a lot — both on the law side as well too, asking for what they call the QFI, the qualified intermediary, who basically arranges the deals, who holds the money while you’re selling one property; you transfer the cash to them and then you purchase the other property. So the money has to be held in a trust, it can’t be just put into your bank account… So I get a lot of questions on those as well.

Joe Fairless: We’re gonna do a lightning round… Let’s do it. First, a quick word from our Best Ever partners.

Break: [[00:16:03].16] to [[00:17:07].09]

Joe Fairless: Best ever book you’ve read?

Paul Sian: Best ever book, Think and Grow Rich. It gives you a great mindset. It’s not specific to anything, but it kind of gives you the mindset to pursue anything.

Joe Fairless: Any books come to mind as it relates to real estate law or contracts that you would recommend to the Best Ever listeners?

Paul Sian: Not in terms of law… The ones I read are strictly for attorneys and they’ll put you to sleep. If you’re looking for some good bedtime material, those kind of books are good. But most of mine are strictly from a legal, theoretical perspective, and law books that discuss local laws, local statutes and codes.

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

Paul Sian: That was a recent purchase of a four-family. It was a good deal at the time, right before we had the run-ups here in the Cincinnati area. I’ve got a reliable lender, but he had some issues with his own company and I kind of had to work with the seller, because it ended up being rather than a 30-day close, it ended up being almost like a 90-100-day close.

I just kept in touch with the seller, and kept in touch with my lender, and we ultimately got it closed. [unintelligible [00:18:07].13]

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

Paul Sian: [unintelligible [00:18:12].29] Sometimes it’s not fully screening the tenants, not fully vetting the tenants… I kind of use my own process, do my own research, and I’ve slowly come to learn that hey, there’s a lot more to look at, a lot more to look through before you accept just to get a rent check falling into the door.

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

Paul Sian: Just sharing knowledge. I blog, I’m usually publishing once a week on my blog, on my website. I share my knowledge there, and I’m more than happy to answer questions. Anybody is welcome to call me or e-mail me and I’ll try and do my best to give you an answer.

Joe Fairless: Speaking of that blog, what’s the best ever way the Best Ever listeners can read more about what you’ve got going on?

Paul Sian: Definitely the blog. It’s at cincinkyrealestate.com. My contact information is on the page there, so feel free to e-mail me, call, or text me. I’m happy to chat.

Joe Fairless: Thank you so much for being on the show, educating us on the different types of deeds – quitclaims, special warranty and general warranty. Quitclaim – you’ve really gotta stay away from those. Special warranty deeds, and then the best, the general warranty deed… Why each of those three exist, and also talking about other things from a contract standpoint we should be looking out for.

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

Paul Sian: Thank you as well, Joe.

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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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, Garth Kukla. How are you doing, Garth?

Garth Kukla: I’m doing fantastic, Joe. How are you?

Joe Fairless: I’m doing fantastic, nice to have you back on the show. Best Ever listeners, episode 1210, that’s where we first interviewed Garth on wholesaling. He’s a full-time wholesaler in Northern Kentucky, greater Cincinnati area. He’s been doing it since July 2016, completed almost 50 transactions, and has four other team members.

Today, because it is Saturday, first off, I hope you’re having a best ever weekend… Because it’s Saturday, we’ve got a special segment, Situation Saturday. This is for the wholesalers out there, but it can certainly be applied, as with all of our episodes, to other types of real estate investing. We can take something away from every episode, regardless if they’re focused exactly on what we do, but especially wholesalers today… If you find yourself needing to do more deals or trying to close out more deals as a wholesaler, then this episode’s for you.

By the end of our conversation, you will have an approach that is working for Garth, who as I mentioned, has closed almost 50 transactions since he’s been doing it full-time, which is less than two years. It’s been working for him, so maybe it can work for you.

First, Garth, do you wanna give the Best Ever listeners a little bit of a refresher on your background, and then we’ll dig into it?

Garth Kukla: Yeah. My background is, I think, one of the things that led to my success or my growth – I was a sales rep for about 19 years. I sold copiers and then office supplies. I got into medical sales, and my last position was managing a team in healthcare sales… So I think from a background, that really helped me… But I also had some real estate experience, I wouldn’t say a lot. I remodeled my first home, I remodeled my mother in law’s house, so I felt like I had a little bit more than normal real estate experience… So I combined that with my selling ability, or my skills that I’ve developed over 19 years, and I basically combined that into what I do every day now. Does that make sense?

Joe Fairless: That makes sense. So what you do every day now is… What?

Garth Kukla: Well, I just had an acquisition manager join my team. He is full-time looking for deals. Prior to him, I was the main person to find properties, get them under contract and sell the properties to our cash buyers. Now I’m finding that I’m working more on my business than in my business, and I’m able to make my systems for disposition more efficient. I’m working on coaching and training my acquisitions person; he’s an absolute superstar, and I’m blessed that he’s a part of my team. I’m learning how to be a better leader in an organization, and that’s leading to even more growth, if that makes sense.

Joe Fairless: What’s your tagline, by the way, for your business?

Garth Kukla: Well, I think you put it in the last podcast, “Wholesaling with integrity”, because I feel like that’s what we do. When we talk to motivated sellers, we’re very almost in-your-face, up-front. My acquisition manager calls me fanatically honest. First off, we’ll tell them that most of the time we’re not gonna be the one buying their house, that we work with investment partners. We don’t necessarily go down the road of telling them that we’re wholesalers per se, because most people wouldn’t even know what that is… But if one of our cash buyers shows up at closing, that’s never a surprise to the seller.

I think the other approach that you’re wanting me to get at is an approach that we’ve kind of refined these last six months… Let me say it this way – we try to talk people out of doing deals with us, because we tell them there’s other options that are better than selling to an investor. We’ll say things like “If you list your house with a realtor, you’ll get probably a lot more money”, and then what we do is then we shut up, and we let them talk.

Sometimes they say, “Okay, I’ll do that.” A lot of times they say, “Well, I don’t wanna use a realtor”, and then we start the discussions further… But we always are presenting them with what’s the best option for them, and most of the time we are not always gonna be the highest offer. In fact, we’re never the highest offer, but the deals we do and the growth that we’ve experienced is because we’re transparent with the sellers and we literally tell them “If you fix the house up yourself or if you rent it, or if you list it with a realtor, you’ll get more money.” While we do that, we build rapport with the sellers and that allows us to get more deals, because when somebody trusts somebody, they wanna do business with them. So we build trust with the sellers literally just over the phone, and that then leads to more deals.

Joe Fairless: So you tell them that you’re not the right approach initially, if they’re looking to get the best price; you say that right up-front.

Garth Kukla: Yeah. I mean, literally, we just closed this deal yesterday, and the seller said they were listing it with a realtor for $50,000, and we said “Well, our offer will probably be half that, so it will be better if you just listed it with another realtor. Do you need a referral?”, and then we shut up.

They’re like, “I don’t wanna list it with another realtor, I just need this house gone”, and then we continue the conversation… But  the whole time we’re listening to the sellers, we’re identifying what their needs are, what they’re trying to do, and then we make our best  decision based on our experience and our integrity, what’s best for them, and we present them with that offer.

What I mean by that is, hypothetically, if you’re a seller and I’m talking to you, and your house is in good shape, and you’ve got six months to sell, your hair is not of fire per se, you don’t need to sell it tomorrow, I’m gonna say “You really should list it. You’ll get a lot more money.” Sometimes they take me up on that offer. Other times they trust us because we’re being honest and upfront and straight with everybody we deal with; we find that we do more deals because we gain that rapport faster by just being straight with everybody we deal with.

Joe Fairless: What is a way you can determine if that approach gets you more or less business?

Garth Kukla: Well, we’ve been doing it probably the last eight months or so. I’ve always carried myself with integrity, per the last podcast we did; I wholesale with integrity. I’m always straight with everybody I deal with. Now I’m a little more — I wanna use the word in-your-face, and I don’t know if that’s the right word, but let me give you an example.

I was going through a house with a seller. I like to inspect the house to make sure that the house is something that I can move to one of my investors. I’m looking at the condition, trying to figure out how much it’s gonna take to rehab it, because that’s part of the evaluation process of my cash buyers… And then the seller says to me, “Well, are your crews going to come in here, and how much do you think it’s gonna cost to fix this kitchen/living room/floor?” I literally turned to them and said, “We’ll probably just buy and resell it, and not touch it at all.” And then I’m quiet.

When you’re that in-your-face with them, you’re listening for a sigh… And the sigh is “Finally, I’m talking to somebody that is just being brutally straight with me”, and you just build really fast rapport, you get people to trust you, and you do more deals. Where I’m going with this – you asked the question “How can I quantify that approach?”, well, I’m a numbers guy, I’m a goals guy, and we ended the first quarter six times ahead of our revenue from that first quarter of last year. I think six times growth is pretty good, and I would attribute a lot of that growth to this in-your-face-approach, if you wanna say it that way.

Joe Fairless: I like the “fanatically honest” approach that was coined by your team member, I’m gonna go with that. So you’ve mentioned two specific ways that you bring the fanatically honest approach to your business. One is you tell them if it does make sense, based on your experience as an investor, for them to list with an agent, you tell them. If you list with an agent, you’ll probably get more money. Two is you tell them “We’ll probably just buy the deal and resell it.” Any other ways that you bring that fanatically honest approach to your deals?

Garth Kukla: Good question. I know this last deal that we just signed up is gonna be a great deal for the investment partner that we’re working with; they wanted to know how much their house would be worth if it was all fixed up, and we told them that at the kitchen table. It was almost uncomfortable, because we were telling them that their house is probably worth 165k as is, and we were offering them 120k. At the table, again, we just kind of referenced that number and said “Are you sure you don’t wanna list?” and they literally said, “No, we wanna sell. We need this gone”, and they literally hugged us as we were walking out the door.

So I think the approach of — if somebody ever asks us a number, we’re not gonna shy away from that. So if they ask us how much their house is worth, “How much do you think you’re gonna sell it for?”, for the most part, we’ll tell them, because I feel like that’s just the right way to do.

And that deal, even though it was a little uncomfortable – like I said, we left with the house being under contract for 120k, and then as we were leaving… I wish I had a video camera, because the lady gave us a hug and said “Thank you so much for buying our house.” It makes you feel good that you’re doing the right thing, and like I said, part of the reason why I do what I do, in the way that I do it, is because I also wanna be able to sleep at night. Because if you google “We buy houses companies”, you can read articles about people taking advantage of people. That is not my goal. I wanna make a fair profit, I wanna grow my business, but by being 100% straight and honest with everybody I deal with, and they accept my numbers and I tell them I’m not their best option and I’m not just a good salesperson and I’m talking them into signing a contract, but then I’m positioning it in a way where this isn’t the best option for them because they don’t wanna sell it.

The deal we closed yesterday, they just wanted it gone as quickly as possible. But on that field, to answer your question even further, some deals are very straightforward. I know that our purchase price is a price where we can move it. The house is either in a good shape or in a good neighborhood, it’s very straightforward… Sometimes houses are a little peculiar. This house had a good foundation, but it had a lean to it, so you could tell that there was a slight unlevelness of the house… So we were very straight with them and said “Look, we’re not 100% sure if we can do this deal because of the lean.” I believed in my gut we could. We negotiated the price and we said, “Look, if your inspections and our investors come through and they are happy with the deal and we’re able to do better than we can…”, on this example we actually gave the seller another $2,500 even though we didn’t have to. That gets back to one of our company’s principles, and that’s just treating everybody fairly.

So on a deal where I wasn’t 100% sure we were able to do a deal, we were able to do a deal; we made a good profit ourselves, and then we actually raised the sales price by about 20% for the seller, and that was just giving them more money, because that’s the right thing to do.

So to answer your question about other ways of how we’re fanatically honest, I think that might fit, if that makes sense.

Joe Fairless: You mentioned earlier on the “$165,000 list, but we’re only going to offer you 120k”, you said “For the most part, we’ll tell them that…” – so are there circumstances where you won’t?

Garth Kukla: Well, if they don’t ask, we don’t always volunteer everything. For example, I don’t tell people that I’m a wholesaler, because they wouldn’t understand it. If somebody asks me a question, I’m always gonna answer it honestly. For example, I did a deal in ’16 where they’ve reviewed my contract and I guess they googled some terms and they figured out I was a wholesaler, so the guy said “Are you a wholesaler?” and I will always answer that question honestly. I said “Yes, I am.” Then I say, “Well, we agreed on a price. You wanna sell your house, you need to sell your house. Let’s just move on to do this deal”, and I closed the deal, we sold it, and everybody was happy.

If somebody asks me specific numbers, like “What do you think my house would sell for?”, I’m gonna answer it. I don’t always volunteer all those numbers, because sometimes throwing everything at somebody might confuse them, and if they get confused, then they might not do anything, if that makes sense.

It’s just kind of like, if you don’t give somebody options, there’s an expression that I learned long ago and I hope you’ll understand it when I say this… Sometimes people like to be told what to do. So when I go into a seller meeting, I’ve already identified what I feel like is the best option, and I present that one option. I don’t say “Well, you could sell it to us or you could list it with a realtor”, because if you give them options, then sometimes people just freeze, and they don’t make any decision at all, and that’s not good for anybody.

It’s not that I’m withholding information, but if somebody doesn’t ask me “What are you gonna sell the house for? What do you think my house is worth?”, I’m not always gonna necessarily volunteer that information, if that makes sense.

Joe Fairless: Yeah, it does. That’s an interesting part you’ve just mentioned – when you go into a seller meeting, you only provide one option, and that’s based on the information that you know about their situation prior to that meeting? Is that accurate?

Garth Kukla: Yeah, I use my selling ability, which a lot of it has to do with just listening… Part of what makes you a tremendous interviewer is you really listen to people like myself, and you ask really good questions… I take a lot of notes; I often will restate phrases that are exactly used by the seller, which will help show them that I’m listening, and then I take that information to them and I present an offer.

Let me say another example – there was a house that the lady owed too much money on it, so I could do a deal, so we were listing it with one of my realtor partners; she didn’t know all the good realtors, so I recommended one. We’re sitting in her living room, it’s a Friday, the realtor is there, I’m there, the seller is there, and they’re talking about listing it and she’s like “Well, give me the weekend and let me think about it, and maybe we’ll sign the papers on Monday.” I said “Carrie, you need to sell your house quickly, correct?” She said, “Yes.” “And you don’t wanna live here, correct?” and she said “Yes.” “And it’s stressing you out because the bills are expensive and it’s affecting your health, correct?” She said, “Yeah.” So I told the realtor, “Just get the paperwork, let’s get you listed today. The sooner your house is listed, the sooner your house will get sold”, and then we left with a listing contract.

That’s an example of me kind of listening to what they need, and then helping them make the decision that’s best for them based on what they tell me.

Joe Fairless: Got it. Lots of good tips. Anything else as it relates to the fanatically honest approach that we haven’t discussed that you wanna mention?

Garth Kukla: Well, there’s a term that I’ve kind of adopted in the last probably six months or so, it’s called being a truth-teller and a truth-seeker.

The truth-teller is all of what I’m talking about being 100% transparent. I’m not gonna buy your house, or if I am gonna buy your house, I’m just gonna resell it, I’m not gonna fix it up. But then there’s the side of being a truth-seeker. When you’re a truth-seeker – let’s say I’m talking to a seller and they’re saying, “Well, I need to downsize.” Well, downsizing isn’t a big enough reason to do a deal with an investor, so I have to seek out the truth. And often, for somebody to become comfortable enough to share the true reason, you have to build rapport. After you build rapport and you ask further questions, you can kind of drill down and find out “Well, they’re not really downsizing, they’re wanting to move because of medical reasons, or  a divorce, or their unemployment, or they’re $25,000 back on taxes and they’re about to get foreclosed on.”

Once you find those true reasons, then often you can also put deals together that maybe you would have passed on in the past, because you felt like the person wasn’t truly motivated. That’s a way where you can expand or grow your business or find more deals, because if solely you get off the phone with somebody because somebody says “I’m just downsizing” and you say to yourself “Oh, well they’re not motivated”, well, as a service provider you haven’t done them your service, because you haven’t found out exactly why they are downsizing.

Now, sometimes it is solely just downsizing, but more times than not it’s another reason, so being a truth-seeker allows you to find more deals, and also find better deals, and that’s important.

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

Garth Kukla: My website, www.tristatediscountrealestate.com. My e-mail is garth@tristatediscountrealestate.com, and my phone communication is on the website.

Joe Fairless: I really enjoyed learning about your approach, and if a  Best Ever listener is in a situation where they’re trying to close more deals as a wholesaler, or perhaps just in general as a real estate investor, just the approach of being truthful certainly is number one and we should all do that, but in addition, more tactically speaking, some things to do, like you mentioned – one, going into the meeting knowing information about them and providing one option based on what makes the most sense.

Two is just saying, “Yeah, we’ll probably just buy your house and then resell it”, and you mentioned it builds rapport really fast, because it breaks down the walls.

And then three is if you list with a realtor, you’ll probably get more money, and that cuts through all the BS. It’s like, “Okay, what do they really wanna do?” because then there’s no back and forth game on “Well, my house is worth this, it’s worth that” — yeah, it’s worth that, but you’ll have to do XYZ, or you work with us. And then the truth-teller and the truth-seeker…

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

Garth Kukla: Thanks, Joe.

Best Ever Show Real Estate Advice

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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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, Troy Miller. How are you doing, Troy?

Troy Miller: Doing excellent, Joe. How are you today?

Joe Fairless: I’m doing excellent, and nice to have you on the show. A little bit about Troy – well, he indirectly grew up in real estate and has been in real estate for the past 14 years. He has a consulting company that works with real estate investment associations and real estate investment association leaders, and national and local organizations to set a new standard in how to engage their customers in a meaningful way… So our conversation is gonna be about engaging our customers – engaging whether it’s investor or whether it’s attendees at our meetup, or whether it’s people who are selling their house if we’re a real estate agent… Engaging our customers in a meaningful way, and also as attendees of meetups, being able to look at how we should evaluate if we should attend a meetup, because we’re gonna look at it from the other side of the spectrum. We’re gonna be looking at it from the people who are putting on the meetup. So a couple things we’re gonna be talking about today…

Troy is based in Fort Collins, Colorado, but he is not there right now. Troy, where are you?

Troy Miller: I am in Chiang Mai, Thailand, currently.

Joe Fairless: And what are you doing over there?

Troy Miller: Everybody talks about that lifestyle design stuff… If you are a Tim Ferriss fan — I stepped away from running a local real estate investor association in Colorado because I wanted to acquire that desired lifestyle, and have been able to take my consulting business on the road with me… So that’s what I’m doing.

Joe Fairless: Outstanding. So you’re basically doing it because why not, why wouldn’t you be doing it, right?

Troy Miller: Absolutely.

Joe Fairless: The question is why aren’t you doing it, Joe? Not why am I doing what am I doing… [laughs] Well, Troy, how about you give us a little more background on how you got to this point and what you’re focused on right now?

Troy Miller: Well, as you said, I’ve sort of indirectly been involved in this industry all of my life. My mother was a property manager and my father was a GC, both in Kentucky and Cincinnati area, similar to yourself currently… And from that, my background was in Arts Administration, and I worked with theatre companies around the country for several years; then I became a meeting and event planner for a [unintelligible [00:03:29].26] in Southern California, and that’s what sort of got me into the meetings and events industry… And I took a position with a national real estate organization doing planning and development for that, and I came across this wonderful place called [unintelligible [00:03:46].09] and I was sort of caught off-guard by it, because I had worked in some organizations that worked for the Cincinnati Apartment Association, I worked for the Kentucky chapter of CCIM [unintelligible [00:04:00].23] and then when I got involved with the real estate investor association, it was a completely different animal.  I just sort of sat back and absorbed most of that for a long period of time, and I was like “You know what, I really think that there’s some opportunity here”, and I sort of developed my professional development – I became a member of the American Society of Association Executives, and then also the Professional Convention Management Association. Those are organizations for other trade associations in other industries where you come and share best practices and talk about how to assist the end user…

And most organizations out there I feel are either for advocacy or to create a gold standard for their industry… And I sort of began to take that information back to real estate investor associations, and everybody, for the most part – and this may be just my own perception, but it just felt like everything was sort of status quo… And when I worked with organizations, they said “This is the way that we’ve always done it”, and I’ve always been somebody that sort of sits out there on the fringe, saying “Well, how can we make this better?”

Joe Fairless: Okay. As far as most organizations focus on advocacy or adhering to or helping reach the gold standard, how is that not like the real estate organizations? Because you’re saying other organizations, not real estate related did that, and then you were involved with some real estate organizations and they weren’t… Did I hear that correctly?

Troy Miller: Yeah, and when I started working with real estate investor associations, most of the organizations I worked with were not for profit organizations – 501(c)(3)s, 501(c)(6), and most of the REIAs that I came across were more for-profit organizations. So the people that were creating these organizations were generally product and service providers in the industry that were creating a lead generation for themselves… So then I began to understand that there was some intent or there was an intention behind just exactly why they were providing this service for their tribe or their group of people surrounding them.

Joe Fairless: Okay… So other organizations not trying to make money on the people, real estate organizations trying to make money on the people who attend, and that’s a main complaint that a lot of people have who attend real estate meetups – it’s just a pitch fest and/or they don’t focus on what is relevant to me as an attendee… So you identified that issue…

Troy Miller: And I would say that another complaint that I hear with real estate investor associations is that there are products and sales at most turns, and there are two sides to that… I think that, for one, a friend of mine in Knoxville, Tennessee told me, he said “Nothing in this industry is free” and he said that “Education without action is nothing more than entertainment” and he said “It takes $25 to go as a guest to your local meetup, on average, and if you’re not gonna do anything with that, 1) you should take that $25 and go to a movie and get yourself a ticket and some popcorn and be entertained…” But there are a great deal of people in the industry that aren’t going to take the action necessary to do that.

So what I’m saying here is that good information is worth the price that you’re going to pay for it… However, I think that there’s  another side to that, that with the education, especially now, I think that you really have to understand what the end user is looking for, and for the most part, I think a lot of the information out there is very general, and mass appeal to people. I call it sort of like “the box store approach”, like your Walmart or Target – you’re simply just gonna put all of your wares out there and let people pick and choose.

But I think that we have evolved as, for example, the adult learning model. When you go to an education platform or go to a meeting, you’ve got different generations of people in the room, and you’ve also got different learning styles… And then on top of that, in our industry you’ve got people investing at all different types, so what they’re really looking for is not necessarily just the education, but they’re also looking for some sort of consultancy. So I think that there is an opportunity to begin to change the way we deliver and present information so that it’s not just blanket presentations, it’s not just the sage from the stage, but it’s a conversation.

For example, look what’s happening in social media – the way that we engage and interact with each other has changed dramatically with social media… So when you got an event, you’re often called an attendee, and I would rather call you a participant, and I would like the person from the front of the room to be guiding the conversation and then we as a room or we as a community having a conversation around that to bring up 1) the quality, bring up the delivery of information and create these best practices, and then begin to hone in on what are the needs of the room versus simply delivering information because you think that is what is needed.

Joe Fairless: I certainly agree, and the challenge – and this is probably why companies or individuals who are putting something on hire you – is to be able to structure that in a way that generates engagement while it also doesn’t create madness… Because what I heard you say is — and by the way, as we’re flowing through our conversation, it really sounds like people who are putting on events, we’re talking about ways to maximize engagement and get the best experience for the attendees… So really, that’s the primary person that we’re talking about. Anyone who has a meetup or puts on a large conference or wants to put on a large conference, or maybe can have suggestions for the meetup they attend, then this is really who we’re talking to.

Now, as far as what I heard you say is that it shouldn’t be a presentation, it should be a conversation. Instead of having mass appeal, it should be specific to those in the audience… How do you plan for that as a meetup organizer?

Troy Miller: Well, I think that there is a substantial amount of vetting that should take place before the event even starts. An event that I’m working on right now, we’re about two months out from the event and we’re already doing a substantial amount of vetting and creating criteria, not only just for the speakers on the stage, but also attendees, as well.

We have criteria that we have created around what we need our speakers, our experts to be knowledgeable on, what we want their background to be, and we’re also having them go through a criminal background check because we feel that it sets a precedent that has not existed up until this point. And the same thing from the attendee. And with this vetting, we feel everyone will be on the same page in terms of the playing field.

Joe Fairless: Criminal background check for attendees?

Troy Miller: Correct.

Joe Fairless: Wow, I like it. Okay. What if you have a misdemeanor?

Troy Miller: They’re all criminal.

Joe Fairless: Wow, alright…

Troy Miller: And we feel that that’s going to really step up and change the way that we do business. As a participant coming into this and knowing this, it should make you comfortable that there has been a substantial amount of due diligence done, knowing that the people that you’re gonna receive information from and also the people that you’re going to be participating and networking with have all been through the same screening that you have.

Joe Fairless: Okay. So you’re doing planning. One is just a background check, but that’s probably a bullet point of the overall thing… In terms of the planning, what are you exactly doing to make it not madness?

Troy Miller: Well, from there we have identified a pain point… What is a pain point that the participant is currently dealing with in their local market, and one that happens to be is that the event will be in L.A., and a lot of investors are having a hard time investment opportunities that make sense for them. So we have identified five key markets within the United States that make sense, that are becoming emerging markets, and we’re going into those emerging markets and identifying with our criteria in mind market experts, who not only know the market by the numbers, but also either have clients or are investing themselves actively in those marketplaces, doing our own due diligence on them, and then bringing them to the stage.

Then before they even make it to the stage, we’re doing  a slow drip of content and information to prime the participant so that they’re not coming into the event itself cold. They’re being warmed up with information and engaging with the speaker ahead of time, so that the conversation begins even before the event. About 5-6 weeks out they’ll begin to have that conversation. Then when they come to the meeting, there’s an expectation that this event is a business place, it’s a marketplace… So while they have time to sit and listen to presentations and participate in discussions, there will be time for face-to-face meetings between the participants and the speakers as well. So you’ll get one on one time with every single speaker that happens to be across the stage.

There you get to talk about what your strategy is in terms of investing and how the informations they provided connects to you and creates that relationship so that they can come back to after the event… And then following the event, the attendee will have a chance to, in this instance, since it is an out of state investing summit, the attendee will get to either participate in a webinar or be invited to the local market where the attendee will get a live property tour of some of the information… So they’ll see the information in action should they choose to.

Another thing about this is that it’s sort of a salad bar approach, so that the attendee can pick and choose what they choose to engage in. They can either listen to the presentations, they can just directly to the meetings, they can also take advantage of the call to action at the end and participate in the local marketplace… So not only will there be multimedia, but you’ll learn a little bit, you’ll do a little bit, and you’ll actually be able to walk away and do this on your own, which for the most part I feel doesn’t truly exist in the marketplace because there’s always the up sell to the next level, either to the home study, the course, the mentorship. Here it’s about giving you the information and vetting that information, doing the due diligence up until the point to get to you, then letting you decide what’s important to you and letting you take action on the things that make sense to your business.

Joe Fairless: And you mentioned not a presentation, it should be a conversation, earlier… It sounds like that’s really in reference to the macro-level approach to the event, because as you mentioned, there’s a lot of different ways you can have that dialogue with the speakers, but then also there is a presentation by the speaker… So just so I’m clear – they are actually presenting something at a certain point in time, but then you can also have a conversation with them before or after… Is that right?

Troy Miller: Well, the conversation before, but at the actual event there has to be some sort of priming to set the stage, to begin the conversation, and after that is done, then you can sort of format it so that the attendee is taking that information and digesting it by either going through case studies and having them go through case studies, so it’s real-time, so that they’re either working in groups, so that not only are they just processing information themselves, but they’re having a conversation with like-minded individuals who are also participating in this around the information, and then they’re taking that information back to the front of the stage… So it’s a nice ebb and flow of participant to presenter, back to the participant.

Joe Fairless: Got it. And that comes in the form of the information that is sent out prior to the event. But just so we’re speaking apples to apples, there are speakers at the event and they present – true or false?

Troy Miller: True.

Joe Fairless: Okay, got it. So there are presentations, but then it’s packaged around conversations and kind of an evolving dialogue – is that accurate?

Troy Miller: Absolutely.

Joe Fairless: Okay, I’m with you now.  I was like, “Well, there has to be presentations…” – okay, there are. It sounds like the selling from stage – there is not selling from stage; instead, it is participate in a webinar or do a live property tour in that particular market afterwards.

Troy Miller: Yes, absolutely. I think the level at which I’m developing content, – I would say not for the beginner investor; this is focused at more of an intermediate to experienced investor that actually has or is in the trenches and has a few deals under their belt and they’re wanting to elevate their business to the next level, or they’re simply wanting a trusted and safe platform where some due diligence has been done, in this particular instance – and I keep going back to this, because this is the project that I’m currently working on… But at this out of state investing summit, the participant – if they were to do this legwork on their own, they would literally have to go out to the marketplace, travel there, and then try to attempt to find all these resources… And what we’re doing is by doing the legwork for them and bringing all of these resources in one centralized location to save them both time and money, and more importantly, the time… Because I think most seasoned investors, the most important resource that we have, far beyond money, is time.

Joe Fairless: I agree. Absolutely, 100%. For an investor who is putting together a meetup and they are looking to replicate this approach, what are some tactical suggestions you have for him or her?

Troy Miller: Well, I recall there was a pretty well-known national podcast that did an event on how to start a REIA for a lead generation. I saw it on social media, and I commented and I said “Let me tell you 100 reasons why I think this is the most affordable idea possible.”

Joe Fairless: Huh!

Troy Miller: [laughs] …because it is the most over-saturated thing that’s currently happening out there across the country. I see this both in Colorado, and I see this across the country – it’s all just lead generation, and if you are going to start a real estate investor’s association, I think there has to be a little bit of altruism, a little bit of holistic sense that what you’re trying to do is make things better for the community, not just for yourself… And there has to be, obviously, a leader that is gonna take the time to do the vetting.

And this is a really good point as well –  I often hear people wanting to make recommendations or put people in front of the stage, because somebody did something for them and they’re simply returning the favor… And I think that it is paramount that if we’re going to make a recommendation, that we literally have to sit down and understand what the end user’s wants and needs are.

For example, I was looking for a speaker for an event, and I asked a colleague of mine and he gave me  a list, and when I started to do my due diligence, it was clear that he had absolutely no clue what I was looking for, and simply because these people that he recommended to me had done a favor or had done some business with him, he wanted to help them out… But the thing was I was asking for the recommendation, and he wasn’t nearly as interested in what I needed versus how he could help them out… And I think if you’re going to start this type of organization, I think yu have to sit down and put your interest and your intentions to the side and say “Do I really wanna help people, or do I simply wanna build a business and create a lead generation tool for that business?”

Joe Fairless: Absolutely. Thank you for sharing that; it’s a powerful point, and it’s a point that will have major impact for everyone who has a meetup or is going to create one, because “Service to many leads to greatness” – I think it’s a Zig Ziglar quote, or someone like him, and I whole-heartedly believe that. How can the Best Ever listeners get  in touch with you?

Troy Miller: My e-mail is tmiller@reiaconsulting.com.

Joe Fairless: Good stuff. Well, as real estate investors, as you mentioned, prior to starting a community, a meetup, we need to make sure that, well, it’s recommended, that we have some altruism there quite frankly at the forefront to make things better for the community, put the community’s interest at the forefront, and then we will benefit in the long run. Tim Ferriss talks about playing the long game.

Some tactical things that you’re doing with the event that you’re working on to deliver on that is a criminal background check – no one can have any crime whatsoever; by the way, for the record, I’ve never been arrested, I don’t have a crime, I was just curious about that.

Secondly is solve a pain point – you have structured that event to solve a pain point that people in Los Angeles have, and then approaching it accordingly with the speakers and the flow of the content. Give them content leading up to the event, that way they don’t come into the event cold, and during the event have time for face to face meetings… And ultimately, have it be a conversation, a dialogue, not just a static talking to them; you’re talking WITH them, and however you can structure that that best suits your format, then go ahead and do it.

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

Troy Miller: Alright, thanks, Joe. Have a great day.

Best Ever Show Real Estate Advice

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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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

Listen to the Episode Below (32:00)
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Joe and Theo are back answering YOUR questions that have been sent in throughout the week! Get the weekly update on their businesses right now. If you enjoyed today’s episode remember to subscribe in iTunes and leave us a review!

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Made Possible Because of Our Best Ever Sponsors:

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

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


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.

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Joe Fairless real estate advice


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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Joe Fairless's real estate podcast

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!

Best Ever Tweet:

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

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

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

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

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real estate pro advice

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:

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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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.

Best Ever Tweet:

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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