JF1888: Lifelong Entrepreneur Builds Real Estate Investing Business with Dan Gorman

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Dan had a few different business ventures before getting into real estate investing. He’s built a pretty good size business and portfolio. We’ll hear how he got into real estate, and a few different deal specifics. If you enjoyed today’s episode remember to subscribe in iTunes and leave us a review!

 

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“Banks want to see buyers with some skin in the game” – Dan Gorman

 

Dan Gorman Real Estate Background:

 


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JF1872: Our First Ever Quarterly Team Meeting #FollowAlongFriday with Theo Hicks

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We had our first quarterly team meeting earlier this week. Many of us real estate investors have teams that are spread out across the country, our team included. Joe finds it important to get everyone together to discuss the company and where we are going. Theo will cover the structure, benefits, and takeaways from our first team meeting and why you should be doing it too. If you enjoyed today’s episode remember to subscribe in iTunes and leave us a review!

 

Best Ever Tweet:

“Even if you’re the leader, a team member might have a better idea than you”

 


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TRANSCRIPTION

Theo Hicks: Hello, Best Ever listeners, and welcome to the best real estate investing advice ever show. I’m Theo Hicks, and today is Friday, which means it is a Follow Along Friday. Usually, it’s me and Joe on Follow Along Friday, going over the lessons we learned from last week’s interviews, but this week we’re gonna do something a little bit different. It’s just gonna be me today, and we are going to talk about the Best Ever quarterly team  meeting that we’ve just completed earlier this week.

Now, I know Joe mentioned this before on Follow Along Friday… He interviewed someone who has a team that is spread out across the country, and in  order to keep the team on the same page, he schedules quarterly in-person team meetings, assuming where he lives. Joe thought that was a really good idea, so he decided to quickly implement that into our business… And we just had our first in-person quarterly team meeting this week. It was on Monday.

I wanted to go over the structure of our team meeting, and then go over some lessons and some benefits that I learned along the way. Then we’ll wrap up with the standard trivia question, and we will see you then again tomorrow, for Situation Saturday.

First of all, this was the first time that we as a team have met in person. Obviously, it’s Joe, it’s me, and then we’ve got a few other team members that he’s brought on recently, that I personally hadn’t met in  person, because I live here in Florida. One of the team members lives in Dallas, one of the team members lives in Denver… So the one main benefit, I would say, to having this in-person team meeting is just putting a face and a body with a voice or with an email. Obviously, we’ve talked before, but meeting in person is a lot different… So that was one of the main benefits, and that’s essentially how the meeting started out. We all walked into the room and all saw each other, and introduced each other, and it was just really good to actually see everyone in person.

Before we had the quarterly team meeting – and again, I’m gonna try my best to go over the structure, the benefits, and also talk about it in the context of why you should be doing it as well… So if you have a team that is not all located in the same city, or if you have a team and everyone works at home and you rarely see each other in person, it would be highly beneficial to have an in-person team meeting. We’ll go over why here on Follow Along Friday.

The first thing that we did that I really liked after we all introduced ourselves to each other is we went over celebrations. So the first part of the agenda was celebrations, wins, victories and progress. Everyone shares one personal victory and everyone shares one professional victory that they are proud of. In doing so, we got to learn a little bit about what’s important to everyone, what they’ve been working on, any big projects they completed recently, things like that.

And then after that we had six specific outcomes of the meeting, and that’s what we’re gonna focus on for the remainder of Follow Along Friday.

Again, Joe is very outcome-oriented, so we went into this knowing exactly what we were going to accomplish, and what our purpose was for the meeting. So the first outcome – we’ve already gone over this – is that everyone meets in one place for the first time, also to make sure we understand what each of us does… There’s a lot of things that we do individually, collectively, going to one thing. Meeting four times a year is important for our alignment, also to talk about target audience, adding more value to their life individually and collectively… So basically we all met for the first time, and then that was kind of going into what the other outcomes were, which we’ll get into in a second. And of course, a part of that was going over those personal and professional victories.

This next part, which I think was the second most valuable thing that I personally got out of this quarterly team meeting was that everyone on the team created a PowerPoint presentation before we attended the meeting, and this PowerPoint presentation went over exactly what each person does on a daily, on a weekly, on a monthly, and then on a one-off or annual basis. Basically, what they do.

When you’re part of a team at such a big business, it’s got marketing, and social media, then you’ve got an assistant, and you’ve got investor relations, and then you’ve got me, which is kind of all over the place, you’ve got Joe, who also does a lot of different things as well – once it gets that big, it’s hard to stay on top of what everyone else is working on. Yeah, we have morning meetings a few times a week, but still, I think it’s very important for alignment, but also for efficiency to know exactly what someone else is doing.

Here’s an example. Let’s say I have a task where I do investor emails. And then once I send those investor emails out, the next step in the process is someone’s taking in questions from investors. Or maybe it’s a new deal email, and then someone else on the team is taking in the commitments. Well, maybe there’s something that I’m doing on the front-end, creating those emails, that is making it difficult for the next person to take in all those investor commitments. So by learning “Okay, well, who is actually sending me work, and who am I sending work to, and what are they doing with that work once I’ve sent it to them?” Knowing that could help you understand if there’s things that I can do better to make their lives a little bit easier, or that they can do better to make their lives a little easier. Then, of course, it’s also great just to know what’s going on.

So the format of the PowerPoints — and again, this is just what we did; you guys can do whatever you want if you have your quarterly team meeting… But I do highly recommend doing this. I’m not sure if we’ll do this each quarter, or if we’ll just do this every year, depending on how projects change… But the format was you first talk about projects that you have completed, that you are proud of. Next was to go over what you do regularly, so what you do daily, weekly, monthly etc. Next was to go over challenges that they faced… And what was nice about that – it was interactive; it was only six of us in the room, so if someone’s facing a specific challenge, someone could butt in right away and say “Well, maybe you could do X, Y and Z to make that specific aspect of your job a little bit easier.”

Next, what we enjoyed doing the most, and then projects that we are currently working on. The one thing that I added in – and I went first – was my biography/my background; so where I went to school, jobs I had before this… Just to see where people are coming from, just to see what skills you’ve acquired from previous jobs, and maybe just to give someone a little bit more personal information about yourself, so you can relate that much easier.

So once I did that, every single person that went after me also did their bio, which was also interesting to see how diverse the backgrounds were of the people on Joe’s team.

So once we did the PowerPoint presentations – again, these were prepared beforehand – the next part was one of Joe’s mentors presented to us about personality. So we all took personality tests beforehand, and then based on those personality tests, you’re assigned a letter. I was a C. A lot of people on the team were Ds, or S’es… So one of Joe’s mentors came in to talk to us about the results of our personality test and how different personalities need to be communicated to differently.

One funny tip that they had is that at one of his previous jobs they all had their personality types on their doors, so that when someone came in through their door, they would see “Oh, this person is a C, so I need to talk to them this way. This person is an S, I need to talk to them this way.” So that was interesting.

But after that, we got into what I think is the most important, and what I think that we’ll most likely do some form of this every quarterly meeting… Even if you’re by yourself you should do this, but especially if it’s you and someone else, or you and multiple people, you should 100% do this at least once a quarter… And that was doing a deep-dive into our target audience. The main outcome of this was “How can we add more value to our target audience?”

I’m not gonna go into specifics on what we talked about. I’m gonna keep it more general, so that it can be applied to you just in case your target audience aren’t passive accredited investors… But basically, what you wanna do is you wanna have a whiteboard; you want one of those big paper boards, that are kind of like big, massive post-it notes… And the first thing you wanna do is you wanna define your target audience. What we did specifically — well, not specifically, but what we did was each of us has a different interaction with the target audience, so based on that interaction with our target audience, who are they? What’s the demographic? What do they like, what don’t they like? We thought about it, again, based on our personal interaction with them and what our observations were based on that. So that was the first step – we had a big list of “Okay, here are the characteristics, here’s our observation of our target audience.”

The next one that we did was we went over challenges that our target audience faced. So what are the main challenges that your target audience is facing? Not necessarily things that you’re doing wrong, but just in general. So for a passive accredited investor, maybe one of their challenges is time management; they’re being presented too many opportunities. So creating a massive list of all of the different challenges that your target audience is facing, that’s number two.

Number three is to create  a list of – in our case – ways we can add value to our investors, or ways we can add value to our target audience. For you, it would be the ways you can add value to whoever your target audience is, or ways you can increase — more deal leads, or whatever your main goal is. And then all of us, together — again, for all of these we came with prepared answers, and we all listed out all of our answers, and then based on that we kind of had a brainstorming session and some more answers that came up… Because obviously, if I have a list of ten, maybe everyone has the same five, and the other five are different. I hear someone else’s different ideas, it generates more ideas in my mind or in their minds…

So we created a massive list of all the different ways that we can add value to our target audience. And then the last step was to go back through all of those ways to add value to the target audience and assign those to some member on the team. We had color coding, so if it was Grant, he was gonna do this color; if it was me, it was this color; if it was Joe, it was another color. After we went through all the list and assigning to people, we set dates for when those needed to be accomplished by.

Again, just to summarize – step one, create a list to define your target audience and their characteristics and your observations of them. Two, challenges they face. Three, ways to add value. Four, who’s going to actually do those ways to add value, and then lastly, what is the timeline for that.

That is how the meeting ended, so now we all have a list of action items to do for the next quarter or so to add value to our investors.

Overall, again, I think this was a really great idea. I didn’t really know what to expect, but I know it was nice meeting everyone in person, of course… But it was really powerful to go through the exercise of capturing everyone’s ideas on how to add value to our target audience… And I think others would benefit the same. Since everyone has such a diverse background, and it’s likely the same on your team as well, everyone’s gonna have different ideas; everyone interacts with your target audience differently; everyone has different skills.

So if I create a list of ten ways to add value – again, maybe some of those are on other people’s lists too, but maybe since I don’t have the same background as other members on the team, or maybe I have different skills than other members on the team, or experiences, I don’t think of the same ways to add value, and maybe one of their ways is much better than all of my ways, and it ends us 2x-ing, 3x-ing, 10x-ing our business. And the same thing can apply for you, even if you’re in charge of the team; maybe your team members have a different background that you, and they come up with a brilliant idea that helps you grow your business, and you wouldn’t have gotten that idea if you didn’t have this in-person team meeting, or if you didn’t perform this exercise remotely.

After that, we all went to Topgolf and played some golf, and ate some food, and gotten to know each other even more. Some members on our team hustled us a little bit, claiming they weren’t very good at golf, and ended up being very good… And I was bragging about how good I was at golf and didn’t do very well, and I’m actually still kind of sore today, from swinging — I think we played like 4-5 games, so it’s 100 golf ball shots, and I swing really hard, so I’m a little sore. So maybe another piece of advice is if you have a quarterly team meeting, rather than just going to dinner afterwards, do some sort of activity… So go to Topgolf, go bowling. I recommended next time we go to a batting cages. Just a little bit more fun; it gets the competitive spirit out of people, and you still get to interact with everyone, that’s not in a very formal restaurant setting.

So again, I hope that what I just went over added value to you and your business, because it definitely has and will in the future continue to add value to our business.

Alright, now on to the Best Ever trivia question. Each week we do the trivia question, and the first person to answer it correctly will win a free copy of our first book. To submit your answer, you either do so by emailing info@joefairless.com if you’re listening on the podcast, or you can submit your answer in the comment section of the YouTube video below.

Last week’s question was “If you need to raise one million dollars for a deal, what is the maximum amount of money a single investor could invest without having to go through the extra due diligence by the lender?” So whenever you’re raising capital for deals, typically you want to set your maximum investment to 19%… Because if an investor invests 20% or more of the capital required to close, then the lender is gonna perform extra due diligence on them, which means extra work for your investor. So just to avoid that entirely, set your maximum investment to 19%. In this case, if you’re raising one million dollars, 19% of that is $190,000, which is the answer.

This week’s question is going to be “Of the two main occupancy metrics, which one is more important in apartments?” So there’s two main occupancy metrics that you need to consider when investing in apartments. Which one is more important? Again, the first person to get that correctly will receive a free copy of our first book.

Alright, again, I really hope this episode was valuable, I really hope to see a lot of Best Ever listeners hosting their own quarterly team meetings; I’m looking forward to hearing the results of that, any feedback that you have, or maybe things you did differently, that allowed you to have a very smooth quarterly meeting, that we could implement into ours.

As always, Best Ever listeners, thanks for tuning in. Have a best ever weekend, and we will talk to you soon.

JF1851: Working With Big Investors & Who Are Accredited Investors? #FollowAlongFriday with Joe and Theo

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A couple of lessons coming at you today from Joe’s interviews for the podcast. We’ll hear his favorite two lessons he learned, which were from Bob Lachance (https://revaglobal.com/) and Shoshana Winter (https://www.iintoo.com/). If you enjoyed today’s episode remember to subscribe in iTunes and leave us a review!

 

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“They’ll get more relevant information for them”

 

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TRANSCRIPTION

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

We’ve got Theo Hicks with us. Theo, how are you doing, sir?

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

Joe Fairless: I’m doing well, just got done with the run, feeling good. Still sweating a little bit, but I showered, so I’m nice and clean for you. Looking forward to our conversation. We’ve got Follow Along Friday, and the purpose of Follow Along Friday is to talk about some things that I learned, or if you did the interviews the previous week, that you learned, and how it can help everyone hanging out with us today.

The focus of today’s conversation is gonna be about who are accredited investors, and really dissecting some information about how to think about accredited investors… Because it’s likely that, Best Ever listeners, you could benefit by bringing in more money partners into your deals, and accredited investors are the ones who have money to partner up with you. So we’re gonna talk a lot about who are accredited investors, and it is inspired by an interview that I did with Shoshana Winter, and we’ll talk about that.

First, a quick unrelated note to accredited investors, but more along the lines of just being helpful for anyone, regardless if you’re looking to partner with accredited investors – Bob Lachance; he is an active business owner and he has been a real estate investor since 2004. He’s actually an ex-professional hockey player. I really enjoyed my conversation with him. He seems like a great guy. Easy to smile, at least — I didn’t see him smile, because it’s only audio, but I could just tell he’s just an easygoing guy and he would be a cool guy to hang out with… But that’s not why I’m mentioning him. Why I’m mentioning him is when he was leaving professional hockey – he played overseas some, and he played professional for eight years; when he’s leaving professional hockey, he’s gotta create a new identity for himself, he’s gotta create a new profession, he’s gotta create a new way of making money and supporting himself and his loved ones… And he chose real estate.

The way he transitioned into real estate is he went to a real estate meetup group, and he asked everyone in the group who is the top shortsale investor in Connecticut (he lives in Connecticut). He asked a lot of people, because he wanted to get into shortsales; he’d done some research and wanted to do that… And they all mentioned one person. He then reached out to that person, and he said “Do you have any openings? Because I’d like to work for free.” Boom. And by doing that, he — of course, the gentleman (I think his name was Pat) said “Yes, I do have an opening. Here’s a list of people, and their addresses, here’s their script – go knock on some doors.” So he knocked on doors for almost one year, and that was his first job in real estate.

I mention that because there are a couple of things to take away from it, in my opinion. Maybe more, but a couple that stand out. One is when we’re transitioning into something new, it’s important to identify who is at the top of the game that you want to get into, and you identify that through word of mouth. Once you do that, then you go throw yourself into an opportunity where you can add value to their life. In this case, he offered to work for free. By offering to work for free, he was given an opportunity to actually make money by door-knocking; so he did not have to work for free, although I believe it was just commission-based… So you eat what you kill, so to speak.

But one, when we transition in something, identify who’s the top person through word of mouth, and then throw yourself in there and offer to work for free… That’s number two. And I’d say number three is, regardless of what that position is, just do it, and do it well and learn from it, and identify what you can take away from it that you can apply to future opportunities as you grow in the business… Because I’ve never — have I ever door-knocked? Not in a real estate capacity, I don’t think I have. Maybe as a young kid, but that’s completely different. So I’ll say I’ve never door-knocked before… And that’s gotta be terrifying. So props to him for taking a position that has got to be uncomfortable at minimum, and doing it for almost a year because he wanted to get into the business, and then off he went after that.

Theo Hicks: You never sold any candy bars or anything when you were a kid, and going door-to-door? And magazines?

Joe Fairless: I did, but I don’t count that, because kids are cute and people give them money just for sympathy, or they’re with their parents, or something… I’m sure I did, that’s why I kind of hesitated, but as an 18+ year old person, no, I haven’t door-knocked.

Theo Hicks: It’s definitely different. The cute factor is there for sure.

Joe Fairless: Yeah, yeah.

Theo Hicks: That’s interesting, and we’ve talked about it on this show before, how to work with someone who’s top in the industry… Obviously, offer to work for free; they happened to have an opening open for him to work for free, but… Just because someone says no if you ask them to work for free doesn’t mean you just stop. We’ve talked about this before – try to find a way to proactively add value, so do some research on them beforehand, figure out what they might possibly need help with, and then just do that for them…

And then when you reach out to them, introduce yourself, mention that you’re interested in working for them, and then use whatever this thing you did for them as evidence as to why you’d be someone worth bringing on. Sprinkle in there that you’ll work for free as well is also a good way, because I know, Joe, if someone came to you right now and offered to work for free, if you don’t have a job opening, you’d probably just say no. And if that person kept pushing, maybe they figure something out in their mind, that they thought would add value to you, and they did that, even it maybe didn’t, you would just see that they put forth that effort, and might be willing to give them a chance.

So I guess my point is that if you do follow this strategy and they say no, don’t just give up. You can go to the second-best person, but you should also continue to pursue the top person; you just have to think a little bit more outside the box, to figure out how to actually get in the door with them.

Joe Fairless: Excellent point. Thank you for bringing that up. It’s one thing to ask someone, “Hey, what can I do? I’d love to help you out.” And people do that. They send emails to me, or to the Contact Us page, and they ask “Hey, I’d love to work for free”, but it’s not free, because they’re looking for me to mentor them or help them along, and that’s my time, which is the most valuable thing, and it’s the most valuable thing for you and everyone else… So it’s the opposite of free, it’s actually the most costly thing out there. We only have so much time on Earth.

So by taking your advice, Theo, if they proactively create something, that helps me get an idea of the skillset they already have, and that they can bring to the table, and the value that they can add, and then I can start seeing them positioned within the structure of the company and how they could help, and then that gets my wheels turning. And I think you did that, right? Didn’t you do that?

Theo Hicks: It was a hybrid of that strategy. I was gonna add to that and say if they ask you to do something, don’t just do exactly what they said; do that, and then go above and beyond that is another strategy as well, besides proactively adding value. I think I did more of that than just doing something beforehand. Because you did have something you needed help with already. You said “Hey, Theo, I need help with this”, whereas this situation – this is someone proactively reaching out to you and saying “Hey Joe, do you need help with anything?”

And I was gonna mention it, but you already said it – you’ve gotta remember, if you’re reaching out to Joe, if you’re reaching out to, in this case, [unintelligible [00:09:40].05] you’ve gotta remember that they don’t know who you are, they don’t know what you’re good at. They have no idea if you are an MBA-level person, or a boots-on-the-ground level person… So as Joe mentioned, by proactively adding value and creating something for them, they can look at that and they can use that to determine what skillsets you have, and then begin thinking about how you could fit into their business. That’s also another benefit of doing that – they know what you can actually do.

Joe Fairless: Yes, thank you. I completely agree. The next thing that we wanna talk about – and this is related to what I’ve mentioned earlier – is who are accredited investors? This conversation is inspired by Shoshana Winter. She is a digital media veteran; she’s got 30 years of marketing management experience, and she’s at iintoo, based in New York City… And she said they have a database of 200,000 accredited investors. And it depends on what study you look at, but she mentions there are about 13 to 15 million accredited investors in the U.S. So there’s not a whole lot… I think there’s more than that, but regardless, there’s not a whole lot of people who are qualified as accredited investors.

So as a company that is partnering with accredited investors, it’s important to know who they are. And I think a lot of the times we go to the demographic information of accredited investors. They tend to be 45+ year-old, they live in business hubs like New York City, Dallas, Miami, those types of MSAs, versus Prosper, Texas, or some random area in Ohio. And the demographic information is important to know; what level of education do they have? Well, most of them have an undergraduate degree at a minimum. That’s important to know, but I think where it gets really interesting is when we look at the psychographic information.

She is coming at it from – as I’ve mentioned earlier, she’s got 30 years of marketing experience at companies in New York City, and working with companies that have achieved some pretty tremendous things… I think she said she worked at Audible before; I think Amazon owns Audible now, so before Amazon purchased Audible. I believe that, but I might be misquoting something right there… But you get the idea.

So with psychographic information, she said she took a look at their database and she said they tend to be more progressive thinkers, because syndications aren’t something that most accredited investors know about. And quite frankly, a lot of accredited investors don’t know the term “accredited investor”, so they don’t know what they have access to by being at a certain income level or a certain net worth level.

One of the things to think about is — when we talk about they tend to be a more progressive thinker, what does that mean? Well, it means that they tend to be more of an early adopter. They are using Uber. And again, I recognize that Uber isn’t something that only early adopters are using, because a lot of people are using it now, but in the early days they were one of the first ones using Uber, and they are more on the cutting edge of technology, or at least they try things out on the earlier stage, relative to the general public.

Now, anytime we’re talking about 13 to 15 million people, anything you say about 13 million people will not apply to all 13 to 15 million people. So if you are an accredited investor and you’re listening to this, and you’re like “I don’t use Uber” or “I’m not an early adopter”, I get that; I’m just talking more in generality, because that’s what Shoshana was talking about, just more general statements of them. Because I can tell you that from my experience, I haven’t looked at this, so I don’t have the exact statistic, but I’m gonna estimate that 90% of our accredited investors own real estate besides partnering with us. So they are people who already have experience doing these types of deals, so they’re more familiar with them and more comfortable with them. And the people who have not done any real estate outside of syndications – it’s a much different conversation than if they’ve done deals, even like a small investment property.

So thinking about from a psychographic standpoint how you position your company, know that they’ve likely done real estate deals in the past, they’re likely a  progressive thinker, most likely more of an early adopter, it helps you create more relevant information for the investors. And then what you can do with that – and I have not done that; our company has not done what I’m about to say, but in the future we will… What we can do with that is we can segment our email list so that if they have invested in the last six months, then there’s a certain message.

If they have never invested in real estate at all, then we know it’s more of a long-term play with them, because we’ve gotta educate them about syndication, so we put them in a certain segment in the email list where it’s more of an education email series… Whereas if they’ve done multiple syndication deals, then it’s a different track of segmentation, so we have different messaging for them.

It’s just interesting to think about the different psychographic information and characteristics of investors, because then we can start segmenting our email list a certain way to really speak to each of the segments based on who they are and their experience, or their thought process, and their interests… And it’s a more relevant message to them, which leads to more business, for them and for us.

Theo Hicks: That’s a really good point. I’ve never even thought about that before. Obviously, you segment your email based on who’s investing in what deal, but not necessarily what type of information would resonate with them the most.

I see here you have “Have they invested recently or not?” That could be obviously one segment. But “Do  they own real estate or do they not own real estate? How much do they know about real estate?” This is more personally, but one of the hardest things is figuring out how detailed to make the content; I’ll say a word that to me I know  what it means, but maybe other people don’t know what that word means, so do I define it? Am I wasting people’s time who already know what that word means?

Now, if you break it up and just “Okay, these people have never done a deal before, so we’re gonna keep things very high-level, whereas these people have done 20 deals, they’ve invested in every single deal, so they need something more specific. Let’s dive into data, because that will be more relevant to them”, and then segmenting that out so you can send them each a different piece of content.

That’s actually a really good idea, that I hadn’t thought of before. That will be more valuable for them, for the reason I mentioned. It will likely result in more engagement in the emails, and increase the likelihood of them sharing it with people in their circle of influence.

Joe Fairless: And the key there is to have that information in the first place. That can be the challenging part. When you’re having initial conversations with your prospective investors, making sure that you’re collecting the right information, either in the conversation, and/or during the initial outreach form that the investor fills out, or however you’re doing it, but being intentional about collecting certain information.

For example, when I speak to prospective investors, in my notes – because I’m taking notes during our conversation – if they’re an entrepreneur, if they have any business at all outside of a W-2 job, then I’ll write in my notes “entrepreneur”, and then we have a snail mail newsletter called “The Best Ever Report”, that gets mailed to our accredited investors for Ashcroft Capital… And we profile one of our investors in that newsletter, and usually they’re entrepreneurs. So my team will search the notes and they’ll just search the word “entrepreneur”, and they’ll confirm that that person has invested with us – because we only profile people who have invested with us – and assuming they have, then they’ll be contacted to be highlighted in the newsletter.

So there are things that you wanna be intentional about doing when you’re getting to know your prospective investor, that way you can then use that information to then build a relationship with them even more by segmenting them in a certain email segment, and having more relevant information to them, or putting them in a report like we do.

Theo Hicks: Yeah, so one of the big takeaways here is that 1) when you’re actually talking to your investors upfront, make sure you’re asking the right questions, so you know about them. And then once you know about them, you can put them in their categories, so that when you are creating content, you can figure out which segment they should be in, so you’re sending them the correct, relevant information.

Alright, good stuff. Really quickly, trivia question – the first person to answer the trivia question correctly will receive a free copy of our first book. Last week’s question was “What large city has the most diverse economy?” This is based off of industry diversity, occupational diversity and worker class diversity, and surprisingly, the answer was Sacramento, California. And even more surprisingly, I think 4 of the top 10 were California too, which I personally did not expect. So if someone got that correctly, Sacramento, they will be getting a copy of the book.

This week’s question is “What U.S. city has had the most multifamily completions so far in 2019?” This was in a very recent study.

Joe Fairless: New York City.

Theo Hicks: Okay. So if you wanna answer this question, it’s either in the YouTube comments, if you’re watching this on video, or info@joefairless.com if you’re listening to this on the podcast.

Joe Fairless: I’m pretty confident about that one.

Theo Hicks: Okay. And then the last thing is the free apartment syndication resource of the week. As you know, Best Ever listeners, we do Syndication School every Wednesday and Thursday; the focus is on the how-to’s of apartment syndications. For the majority of these series we offer free resources: PDFs, templates, PowerPoint presentations, something to help you scale your apartment syndication business… And we’re highlighting some of those documents on the Follow Along Friday.

This week’s document is from series 15, which is how to submit an offer on an apartment syndication deal. If you wanna listen to that series, it begins at 1716, and the free document for that series are four letter of intent templates. They’re actually examples that you’d have to copy and paste and add in your own personal information… But that [unintelligible [00:20:48].03] episode explain to you everything you need to know about creating a letter of intent, which is the non-binding agreement you send to a seller, with the intent to purchase their property with your purchase terms. If you want to download that, 1716, or in the show notes of Follow Along Friday.

Joe Fairless: And still have an attorney look over any type of legal document. Any template we ever share with you that would be considered a contract with a buyer or a seller, have an attorney look over it, just to be on the safe side.

I hope you enjoyed our conversation, got some value from it. We will tlak to you tomorrow.

JF1844: Negotiating Labor Prices, Getting To The Truth, & Finding Deals #FollowAlongFriday with Joe and Theo

Listen to the Episode Below (00:20:05)
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Best Real Estate Investing Crash Course Ever!

More Best Ever Lessons coming at you today from Joe’s interviews. Today’s lessons are coming from William Robison (https://www.kansascityinvestmentrealestate.com/), DJ Scruggs (https://realbluespruce.com/), and Jens Nielsen (https://opendoorscapital.com/). If you enjoyed today’s episode remember to subscribe in iTunes and leave us a review!

 

Best Ever Tweet:

“You can still find deals if you are resourceful enough”

 

Free Document:

Rental Comparable Analysis: a template for completing Step 6 to 8 of the underwriting process: http://bit.ly/besteverrentalcomps

 

Referenced in this show:

https://joefairless.com/8-step-process-for-finding-the-owner-of-an-llc/

 


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

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

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


TRANSCRIPION

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

We’ve got Follow Along Friday today, talking about some insights that I learned from the interviews that I did last week. This is just a handful of insights; these interviews have not gone live, they’ll go live in 3-4 months, so I wanna give you a sneak preview – and more than a preview, I wanna give you some things that will help you out, since it’ll be a little while before they air… And then you can listen to them in detail whenever they come out.

First off, Theo Hicks, hi.

Theo Hicks: Hey, Joe. How’s it going?

Joe Fairless: It’s going well. We’ve got Theo Hicks with us, and we’re gonna talk about these insights… So let’s go ahead and dive right into it. First one is if you are looking to come up with a deal with contractors where you get economies of scale, basically, you get a discount for having a high volume of work with them, you might think that you just go to them and say “Hey, I’m gonna bring you X amount of work. It’s gonna be more than what someone who doesn’t have a business will bring you, so  let’s negotiate some sort of discount.” You might think that by bringing them a high volume of work, it’s a no-brainer that they would accept that… And the reality is that the trades are in high demand – plumbers, electricians etc. They’re in high demand, and a lot of times they can pick and choose who they work with, and can be more selective… Because those industries, generally speaking, people aren’t growing up and saying “I want to be a plumber, I want to be an electrician”, although those are very good professions to be in, and there’s a lot of business and a lot of money you can make as a result of having those types of companies.

So the interview I did with William Robison, who’s been in real estate for 15 years… I actually interview him in episode nine, the ninth interview I’ve ever done; episode nine, “One critical component of building a real estate business.” He works with a lot of contractors, and he gets volume pricing from contractors and suppliers, and he said “Well, I’ve got the volume pricing now because I’ve formed these relationships.” And I said “Well, how many phone calls did it take to different plumbers in order to get this type of agreement?” and he said “Dozens.” That’s important to take note of, because it’s not like you work with a plumber and you say “Hey, I want a volume discount because I’m gonna bring you X amount of business.” He or she might not be as interested, because they’ve already got business, and retail pricing is better than volume pricing. However, here are three selling points, talking points, three things you can mention to the potential partner about how to convince them that you should get volume pricing.

One is having more consistent work. So yes, you might have a lot of work, but is it consistent? Is it very reliable? I can provide you with more consistent work, too. How much are you spending on advertising right now? Because whatever you’re spending now, you don’t need to spend nearly as much, if at all, because now you’ll save that money by having more consistent work with me. And number three, my work tends to be within the hours that you want to work – 8 AM to 5 PM, Monday through Friday. You won’t get the type of calls from me — for the most part; there will be exceptions, but for the most part you won’t get the type of calls from me that are emergency jobs in the evening. My work can be done during the time you wanna work.

So those are the three selling points should you want to approach tradespeople for volume pricing. One, more consistent work, two, less advertising budget, and three, we’re working within the timeframe that you actually want to work.

Theo Hicks: And based on my interactions – with plumbers in particular, and probably electricians, too – I think that third point is probably gonna be the biggest selling point… Because I just had a leak in my personal house, and the plumber had to come out on an emergency call. He didn’t get here until late; he just kept complaining about how “Yeah, I can fix the problem, but it’s getting late, and it’s Friday, and I kind of wanna get back to my family.” I’m like “No problem, but you’re probably gonna have to come tomorrow, and it’s Saturday.” He’s like “Well, I don’t wanna come on Saturday, because it’s the weekend…”

So while you were explaining this, I was kind of thinking — these are obviously the three best ways to convince them, but it’s really just kind of listening to them… Because from my experience, working with plumbers, electricians, contractors – they’re very honest, and they’ll tell you exactly what they’re thinking. So if they say that they want more consistent work, they’re saying they’re spending too much money on advertising, they’re saying they wanna work between certain hours, just listen and they typically will tell you what they want, and you can use that to, in a sense, convince them to give you those bulk discounts.

Joe Fairless: Yeah, identify what their pain points are initially – consistent work, the hours, profitability, whatever it is. They might not get into profitability of their business, but identify that, just like you would if you were approaching a seller and you’re looking to buy their property. You wanna learn what the pain points are, if any, so you can structure the deal accordingly.

Another thing that William mentioned is he doesn’t usually provide multiple bids on jobs to his clients, and a lot of his clients know that… But on occasion, some new clients might say “Well, I wanna get multiple bids on this job”, and that’s fine to do… But he said one thing to keep in mind is if someone has a business where they do a high volume of work, then they likely have already gone through the vetting process with their vendors, and they’ve negotiated the rates down to a certain points, and they also are combining that information with the service that they received from those vendors… Because it’s not always about, as we all know, the lowest price; it’s also about “Will they get the job done, and will they do what they say they’re gonna do? Will it be done right?”

So he said he’s not against multiple bids, but something to keep in mind if you are working with someone who has volume discounts from other vendors is just maybe initially give them the benefit of the doubt of saying “Hey, maybe they did already do their due diligence to make sure that this is the best price, combined with the best service.” And if you don’t want to go with that assumption, then just perhaps ask the person, “Hey, did you already negotiate the rates down to a competitive level, and are you confident in the service that this vendor is gonna provide if you do have questions?”

Theo Hicks: Yeah, I think one of the better contractors I worked with already had everything pre-negotiated, and whenever you asked him to do something, he would send you a very detailed document that had the quantity of what you’re doing and then his predetermined price already, very clean… Whereas the other contractors are like “It’s $500.” It’s like, “Well, how are you getting $500? Where is that coming from? Is that coming from materials, services…? I don’t understand.” A little bit different than what you’re talking about here, but it is nice when you’re working with contractors to have already negotiated prices, and you can see exactly how much you’re spending on labor, how much you’re spending on the actual materials that they’re using.

Joe Fairless: Another interview I did, DJ Scruggs. I love DJ’s first and last name. I think that flows really well. He is the CEO of Blue Spruce Holdings. Based in Denver, Colorado. Entrepreneur, started in the customer service software for email industry, sold his company in 1999. He talked about some lessons learned there… And what I wanna mention here is when he works with other businesspeople and he feels like someone is trying to pull one over on him, then he says one thing he’s learned is that you don’t have to be a jerk, but you can always ask the question “Why?”

So if someone is trying to tell you something that you know is not right, or you don’t think is right, you don’t have to be a jerk about it; you can instead just keep asking the question  “Why?”, and obviously you need to craft it a little bit better than just saying “Well, why is that? Why is that? Why is that?” You can continue to just be curious and ask questions about it, and then that will help get you to the answer of what you’re looking for, to identify if it is legitimate what they’re saying or not.

I thought that was just an interesting approach if something like that is taking place, to build on the relationship should you end up having a relationship with this person, versus kind of attacking them and tearing it down and not having any opportunity  to have a relationship.

Theo Hicks: Yeah. It just says here, “How to figure out when someone is BS-ing you” – it reminds me of something related to what you’re talking about here… It reminds me of a show where there’s a character and they’re asking him why something isn’t happening [unintelligible [00:10:45].11] and he says a line, and they go “Well, it doesn’t make any sense. Why isn’t this happening?” and he literally says the exact same thing again, but slower. So the way they reply to the why – you can tell if they’re pulling one over on you, or if there’s something going on underneath what they’re actually saying. In this case, this person had no control and was just saying whatever he was told to say…

But yeah, if you can’t naturally read someone and tell if they’re lying to you or if they’re pulling one over on you, BS-ing you, asking why and asking them to explain why I should invest in this deal, why I should buy this deal, and see what they say, and if they don’t really have a specific answer, or they kind of say very high-level, generic things, then you can kind of dig deeper into that. If they don’t have any answers, again, you don’t have to be a jerk about it; you can just say “Okay, I don’t think I’m interested in investing in that deal…” Just because they might be new, they might not know what they’re doing, they might not have the information because the seller didn’t give it to them… But maybe in the future they do actually come up with a deal that you can buy, or invest in, or whatever. And if you’re a jerk, then they’re not gonna bring that deal to you ever again. It’s basically keeping as many doors open as possible.

Joe Fairless: Exactly, that’s a great way to put it. It’s just having an opportunity to build a relationship with that person, should your initial perception be off about them trying to pull one over on you.

Then DJ also mentions since he hasn’t been in the real estate industry as long as he’s been in other industries, he still needs to demonstrate competency in real estate… And he said ideally he would have a 20-year track record of performance in real estate, but since he does not, he demonstrates it in other ways, like being respectful and respectable, he talks about.

So by being respectful to others, but then being respectable – that’s where it comes into play where he is establishing a thought leadership and being an authority figure, which is one of the reasons why he was wanting to be interviewed on the podcast; and his company has multifamily holdings, so we talked about that… But it goes back to what you and I have talked about extensively, so we won’t get into it in detail here; the thought leadership platform – if you don’t’ have that type of track record, then interview people who do have that, and then as a result of interviewing them, you learn more, you build your relationships, and then you’re associated with those people who do have that track record, and then you can build from that, in addition to bringing on the right team members on your team, who have that skillset… Even though it might not be in partnership with you, but at least they have that skillset and that track record so that you can then build off of that.

Theo Hicks: And really a big thing too is just more people are aware of who you are. They know who you are. I can’t tell you how many people that I knew before I started working for you, that will call me or text and be like “Oh my god, I realized you know Joe Fairless, you’re on Joe’s podcast.” Obviously, that’s a really massive one, but it’s just interesting to see how many of them are getting into real estate and know who I am, and they always say how this can be very powerful for my brand, and very powerful for when I start doing deals again… So yeah, 100% – a thought leadership platform is super-important; not just for the expertise and what you talked about, but also just people knowing who you are. The more people that know you, hopefully saying good things about you, whatever investment strategy you’re implementing, you’re gonna be more successful, because people are gonna wanna work with people because they know who you are.

Joe Fairless: Yeah, absolutely. It all is connected together, and that is the right way to approach. And lastly, [unintelligible [00:14:23].27] Nielsen… I just wanna give a quick reminder that you can still find deals if you’re resourceful enough and you put in the work. [unintelligible [00:14:32].04] Nielsen closed on a 16-unit; it was him and his wife. They found it through direct mail. How did he direct the direct mail? He did not buy a list, he created his own list; went to Apartments.com, got the information from Apartments.com. He said they could see the unit size on the rental site. Then he went to the assessor’s office to see who the owner was, then he went to the State Business Registration to see who the owner of that was; if it was an entity, then he mailed out the direct mail pieces.

It was just basically saying “Mr. & Mrs. So-and-so, I like your property and I’d like to buy it. Here’s a picture of me and my wife”, and he mailed out 200-300 letters. He did that every 2-3 months for about one year, and then he got a 16-unit as a result of that.

Theo Hicks: One thing I did wanna mentioned based on this strategy – obviously, he hustled and found the deal, but if for example he pulled his list, and then on that list half of those properties are owned by LLCs, and he just mailed it to whatever address the LLC said, which is most likely a PO box at a UPS somewhere, or a post office somewhere, he might not have gotten this deal.

I thought there was a blog post, but there’s not, so I’m gonna post this as a blog post – how to find the owner of the LLC. You mentioned about going to the State Business Registration,  but specifically what you do is whatever state that you’re in, you go to the Secretary of State, and then somewhere on that website you have the ability to search the entities, search the corporations. They’re gonna call it corporations or entities; you type in whatever the LLC name is, and then the LLC will come up. Then, depending on the Secretary of State site, it will have the information you need right there – owner’s name, owner’s address. If not, there should be some area on there to download the articles of the organization and then on the articles of the organization you’ll find the actual owner of the LLC’s name and their address.

So you wanna make sure you’re mailing to that address, not the PO box that’s listed on the assessor’s site, if it’s owned by an LLC.

Joe Fairless: Great information. Detailed, as always, and helpful nuances, because it’s one thing to know the concept, and it’s another to know the actual process. You said we’re gonna do a blog post on that…

Theo Hicks: Yeah, I’ll post this today, and then we’ll put it in the show notes and release it on Friday.

Joe Fairless: Wonderful. Alright, cool. So those are the insights I wanted to talk about, and that I thought would be helpful.

Theo Hicks: Alright, trivia question time. Last week’s question was “According to the most recent census data, what city grew its millennial population more than any other city?” The answer was Seattle. I think you said the answer right, and then you changed it to something else, like Dallas maybe. You said “Seattle”, and then “No, wait… Dallas.”

Joe Fairless: I don’t know if I said Seattle, we’ll have to listen to that again. I know I ended up with Dallas, so… Oh, well.

Theo Hicks: Yeah. This week’s question — and again, as a reminder, the first person to get this question correctly will receive a copy of our book. Submit your answer either to info@JoeFairless.com, or in the comments of the YouTube video below. “What large city has the most diverse economy?” This is based on industry diversity, occupational diversity and worker class diversity?

Joe Fairless: Well, I know it’s not Vegas…

Theo Hicks: It’s not Vegas, correct.

Joe Fairless: I hate to use Dallas-Fort Worth as all my answers… So if I had to put money on it, I’d say DFW, or I guess if they’d make me be more specific, I’d say Dallas. But since I don’t wanna use that as my answer for everyone, I’ll go with Atlanta.

Theo Hicks: Atlanta. Alright, so we’ll have that next week, as well as another trivia question for you to have the opportunity to win a free copy of our book.

Lastly, the apartment syndication resource of the week… We do Syndication School every Wednesday and Thursday on the podcast, as well as on YouTube. For most of these series we offer a free resource or document for you to download, that helps you learn how to do apartment syndications.

Last week we talked about series number 14, how to underwrite a value-add apartment deal, starting at episode 1653. One of those free documents was the simplified cashflow calculator, which you can download in the show notes of last week’s episode.

The other free document that we gave away for that episode was the rental comp analysis calculator. On one hand, you need to underwrite the deal, and you also want to do a rental comp analysis in order to determine what your rental premiums are going to be. This template helps you input the properties that you’re using as comps, the square footage and the rents of those comps, and then it will automatically calculate an average dollar per square foot, which you can then use to determine what the rent will be at your subject property based on the square footage. So that is gonna be available for download, again, in that series 14, which is episode 1653, or in the show notes of this Follow Along Friday.

Joe Fairless: I enjoyed our conversation, Theo. Best Ever listeners, I hope you got some value from this, and we’ll talk to you tomorrow.

JF1837: Investment Spreadsheet Mistakes, Monetizing Hotels, & BRRRR Key Models #FollowAlongFriday

Listen to the Episode Below (00:18:01)
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Joe has another round of Best Ever Lessons to share with us today from doing the podcast interviews last week. Theo has another trivia question, be the first to answer correctly and receive a free copy of their first book. The lessons this week are coming from Peter Knobloch (http://www.pknobloch.com/), Nicole Stohler (https://www.therichergeek.com/), and Ali Boone (https://www.hipsterinvestments.com/bestever/). If you enjoyed today’s episode remember to subscribe in iTunes and leave us a review!

 

Best Ever Tweet:

“Some of these concepts don’t just apply to hotels”

 

Free Apartment Resource:

http://bit.ly/bestevercalculator

 


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

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

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


TRANSCRIPTION

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

We’ve got Follow Along Friday today, with Theo Hicks. Theo Hicks, hello sir.

Theo Hicks: How’s it going, Joe?

Joe Fairless: It’s going well. Follow Along Friday, as a refresher, Best Ever listeners, we’re gonna go over stuff that I learned through the marathon of interviews that I did last week, on last Thursday; that’s when I do all my interviews, one day of the week, and that is on Thursdays usually. I’m gonna pull some things from those conversations and talk about them, because I think they’ll be helpful for you, and because those episodes won’t be airing for a handful of months from now.

The first one was with Peter Knobloch. He’s a third-generation real estate investor, and he’s got experience in multifamily office space, hotels, restaurants and sporting clubs… And one thing he talked about – because he’s really honed his expertise on underwriting – is he built his own underwriting analyzer from scratch, and he said one mistake make when they’re creating those spreadsheets, and even one thing you should look out for when you’re purchasing the spreadsheet… I don’t think his is for sale either, so it’s not like he was trying to sell his or anything, I don’t believe… He said make sure that you have the ability to put in when leases expire for each of the units that you have.

This is assuming we’re talking about an apartment community, but the same principle applies for office and retail. And he said the reason why is a lot of calculators have an assumption that when you increase rent by X amount for renovations, you’re gonna renovate units, it assumes that you’re gonna do all of them at the same time, but in reality everybody listening to this conversation knows – and Theo, you know – that it doesn’t happen magically overnight, it happens incrementally, as leases expire. And it’s important to be able to plug in when leases are expiring into your calculator, that way you can have a true staggered approach for what reality looks like, versus what you would ideally like, which is all at once at the beginning of the year.

Theo Hicks: Yeah, one hundred percent. Another way to go about doing that without having to plug in all the lease expiration days in the cashflow calculator is to have in mind how long you think it’s gonna take to renovate all these units – 12 months, 18 months… Obviously, it’s not gonna be zero months; it’s not gonna be you buy the property and instantaneously every single unit is renovated [unintelligible [00:04:44].20] when you’re underwriting in the beginning – obviously, you wanna do this eventually, but it’s to assume however long it’s gonna take, let’s say 12 months or 18 months, and then make sure that the rent is gradually increasing from day 0 to month 12. If it’s 12 months, by one-twelfth, so if the overall rent increase is gonna be $12,000, then each month it goes up by $1,000, rather than $0, $0, $0 and then all of a sudden up $12,000… Because that will mess your model up.

I did wanna mention too that that’s kind of an advanced underwriting tip. Me and you did do an episode where we talked about some other advanced underwriting tips. That’s episode 1445, and then we continued at 1480. So we did ten tips — I think we did two episodes; the first episode was the first five tips, the second one was the next five tips. I don’t think this was one of them, so I guess now we have 11 advanced underwriting tips.

Joe Fairless: Theo, I love how prepared you are. Busting out with the episode numbers…?

Theo Hicks: I just pulled that while you were talking about it.

Joe Fairless: Man… You’re the man, nice job. We’ve got a professional show going on right now, I love it.

Theo Hicks: We do, we do.

Joe Fairless: Let’s keep going and see what else Theo has in store for us. The next insight I got from last week’s interviews – Nichole Stohler. She’s the founder and host of The Richer Geek Podcast. She’s got over 90 units and has a 64-room hotel under contract. Her focus is not multifamily, it’s hotels. I don’t know a whole lot of people who are focused on hotels, and I wanted to talk to her about why she likes hotels. She gave some examples or some reasons why, and she said you have higher profitability per room versus multifamily, with hotels.

She elaborated more on that and she said “Because you can monetize hotels, because they have a different clientele than, say, C-class apartment communities.” She said you can offer free Wi-Fi, but then you can have an opportunity to upgrade that Wi-Fi. And as most of us have noticed on planes, when you go buy Wi-Fi, a lot of the times it says “Here’s free Wi-Fi, or here’s a set price for Wi-Fi if you just wanna browse the internet, and here’s a higher price should you want to watch movies or download larger files.” Same concept here.

She said other ways to monetize hotels – when someone logs into the Wi-Fi, you can have a splash page, and then sell advertising to local restaurants on that splash page.

Then she got to other examples, like there’s a breakfast space that you can rent out for events when it’s not being used… She gave a list of things. But one thing it made me think of is some of these concepts don’t just apply to hotels, they also could apply to multifamily. For example, the splash page example made me think of  – well, okay, most hotel guests are logging into Wi-Fi, and they’re being exposed to this advertising… What about apartment communities? What do most apartment residents do? Most of them pay their bills, so how is the rent presented to them, and is there a way to incorporate some sort of advertising component to that and sell that space? So if it’s an online bill, does it have to just be an invoice, or something that is sent to the tenant on some accounting type of template, or can it be something that also has a local restaurant?

This isn’t gonna be big bucks, unless you have a large apartment community, but you could drive some incremental revenue, and you could also be giving your residents some exclusive discounts to these restaurants, so it could help with your retention, which I would argue would be more valuable from a bottom-line standpoint than any type of advertising dollars you’ll receive for selling that space.

Theo Hicks: Yeah, it’s always interesting to hear how other seemingly completely disconnected real estate niches are able to – in this case – monetize to make money… And then try to pull the underlying concept of how they’re doing it and see how you apply it to real estate. You did exactly that. The free splash page – the underlying concept is just advertising. So what ways can you incorporate advertising into your apartment to make more money? Your example was to somehow have an advertisement on maybe the portal that is used to collect rent.

Another example I remember from the podcast way back in the day was someone put up a billboard on the decor of one of their buildings and leased that up for advertising dollars.

So for these three right here – the Wi-Fi upgrade is offering some sort of upgrade, so what can you offer at your apartment that’s typically free or not expensive, and then something else on top of that. Maybe it’s a regular unit and a furnished unit. Maybe you can somehow offer a free Wi-Fi upgrade or a cable upgrade, or something like that.

Then the other one was the events. If you have a big apartment community, you might have a really nice clubhouse, or a really nice business center, or a conference room that you could rent out to people who live there – for not a lot of money, but for whatever event they want to put on… So kind of looking at these types of things at a deeper level I think is good, and it’s exactly what Joe just did.

Joe Fairless: Yeah. Even if it’s $1,000/month extra, which might not seem like a lot… But $1,000 at an 8-cap, that’s $150,000 worth of increased value that you created  for your apartment communities. $1,000 times 12, $12,000, divided by 8 (8%), is a $150,000. So you can see how by doing a handful of these extra things you get well into six figures, and even into seven figures, just by being more intentional about it.

Lastly, Ali Boone, founder and owner of Hipster Investments – she was interviewed on our podcast five years ago. Episode 40. Four zero. Craziness. Just craziness. I remember interviewing her… I was in New York City in my East Village apartment, in my bedroom, which was the size of a shoebox; my bedroom only had space for a bed and a dresser where I put my clothes, and I had a closet… So I either did my interviews literally with my head sticking into the closet, with pillows all around me, that way the noise from the city – the windows were right there – wouldn’t distract listeners, or I would just do it sitting on my bed, because I didn’t have a desk, and there was no living room in that apartment that I lived in for nine years… So it just brought back memories…

But the thing that I learned from this episode with Ali – five years now since the last time I spoke to her on the show – is she has an idea for doing a combo of a BRRRR and turnkey deal… So BRRRR Key could be a term; I’m not sure about that, but just combining those two, that’s what I came up with… Or maybe she came up with it.

The way to do it is talk to turnkey providers and say “Hey, can I fund the renovations? And I’ll be at risk if the renovations go over”, but at least this way you’re getting some of the upside on these renovations. And my question to her was “Well, I thought that’s where the turnkey companies made their spread.” If I’m a turnkey company, I make the money by finding deals that are undervalued or distressed, renovate them, make the spread on the construction, and then whenever I sell it retail to the investor… And she said I’d be surprised by how low those margins are for turnkey companies. So they don’t really make their money as much on the spread, but more on the management.

So there’s that… If that’s helpful for anyone who’s working on those types of deals, then perhaps look at doing a turnkey/BRRRR Frankenstein approach.

Theo Hicks: Is this something she has done, or it’s just an idea that she had in her mind?

Joe Fairless: I should know the answer to that question; I don’t remember, during our conversation… I’m 90% sure that she has multiple people who have done this. I’m 90% sure, because I think we talked about it… But for some reason I can’t 100% recall.

Theo Hicks: But definitely an interesting strategy, and just kind of another unique, creative investment strategy. It’s always interesting… Something else I wanted to say, too – just kind of off-topic a little bit, but I love the titles you had on your earlier episodes. They’re great. [laughs]

Joe Fairless: Oh, yeah… Yeah, you’re referencing what I titled episode 40, which was “Love is in the air…” [laughs]

Theo Hicks: I love the show notes, because I remember for the first book we went through the first hundred episodes, and the titles are great. [laughter]

Joe Fairless: You really have to think long and hard about what I’m actually talking about when I wrote those titles. They’re not intuitive for what it is… But yeah, that was me doing titles.

Theo Hicks: Heck yeah, I like it. Alrighty. Great lessons, as always. So this week’s trivia question – if you’re the first person to get these trivia questions correctly, we’ll give a free copy of our first book. Submit your answer either on the YouTube comments below if you’re watching on video, or if you’re listening to this on the podcast, you can just email us at info@joefairless.com.

Last week’s question was “What is the best city to work in tech in 2019?” This was based on not just how much money you get paid in tech, but it was based on the cost of living in that location, the tech employment concentration, so the proportion of the population who’s employed in tech, unemployment rate, ratio of average pay to tech pay… And the answer was, surprisingly, Columbus, Ohio.

Joe Fairless: Huh. Alright… What did I say, do you remember? It wasn’t Columbus. Oh, I said Pittsburgh.

Theo Hicks: Yeah, you said San Francisco first, and then you said Pittsburgh, because I mentioned all the caveats.

Joe Fairless: Yeah.

Theo Hicks: This week’s question is “According to the most recent census data, what city grew its millennial population more than any other city?”

Joe Fairless: Okay, so it’s percent increase, not total number, right?

Theo Hicks: It’s actually total number.

Joe Fairless: Okay. Grew millennial population, total number… I’m not gonna say anywhere in Florida. There’s a lot of people moving to Florida, but I think they’re a bit older. Although millennials – hell, I’m a millennial and I’m 37 years old, so I’d say I’m old, too…

Theo Hicks: [laughs]

Joe Fairless: Let’s go with Dallas-Fort Worth.

Theo Hicks: Dallas-Fort Worth. Alright, so the first person to get this correctly will get a free copy of our first book. YouTube comments, info@joefairless.com.

The last thing – very apt, because we talked about underwriting earlier in this episode – is the free apartment syndication resource of the week… And this week’s resource is related to underwriting. Series number 14, 8-part series – so eight different episodes where we talked about how to underwrite a value-add apartment deal from start to finish… I really enjoyed recording that, because I like underwriting… That starts at episode 1653, and then the eight Syndication School episodes after that as well, and the free document is the Simplified Cashflow Calculator. This is — we’ll call it a basic, standard template to underwrite a value-add deal. So you can underwrite a value-add deal to completion, but some of the assumptions are locked in, and we’ve got those assumptions on the cashflow calculator.

The purpose for it is to, firstly, give you something to start with, so that you can underwrite a deal starting today,  but secondly, it’s recommended for you to create your own model, and customize it based on your specific business plan, how your mind works, your experience level with Excel, things like that… And it’s also something you can use as a starting point, without having to input every single thing yourself.

So that’s the simplified cashflow calculator, available for download in any of those episodes. But I would just go to episode 1653, or you can just download it in the show notes of this episode.

Joe Fairless: Best Ever listeners, I hope you got a lot of value from our conversation, and we will talk to you tomorrow.

 

JF1833: Cincinnati Meetup Podcast: Predicting The Second Half Of 2019 Cincy Real Estate Market

Listen to the Episode Below (00:44:06)
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Today’s episode is the audio from our July meetup in which we had three experts on a panel to discuss how the market in Cincinnati has been in the first half of 2019. More importantly, we’ll hear what they think the real estate market will do in the second half of 2019. If you enjoyed today’s episode remember to subscribe in iTunes and leave us a review!

 

Best Ever Tweet:

“You hire an agent for exposure, negotiating skills, and positioning” – Peter Chabris

 

Peter Chabris Real Estate Background:

  • Owner and executive of The Chabris Group
  • The Chabris Group has sold over $60 Million in real estate each of the past two years, primarily consisting of single family homes valued under $500k.
  • Based in Cincinnati, OH
  • Say hi to him at peterATasktcg.com

 

Kurt Weil Real Estate Background:

  • Mortgage broker with Zipfel Capital
  • In July of 2019 alone, Kurt is set to close on over $16 Million in real estate loans
  • Based in Cincinnati
  • Say hi to him at http://www.zipfel.com/

 

Slocomb Reed Real Estate Background:

  • Realtor, and became a house hacker in 2014, currently living in second house hack
  • Has bought and sold 34 flips and 24 buy-and-hold properties, totaling 75 units, for himself and his clients
  • Owns & manages 18 rental units, with 24 more under contract to close in August
  • Based in Cincinnati
  • Say hi to him at slocombmarketingATgmail.com

 


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TRANSCRIPTION

Best Ever listeners, I’ve got a special segment for you. 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. 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.

 

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

We are here in Cincinnati, filming this live, and the purpose of today’s conversation and this panel is to talk about Cincinnati specifically. So if you’re not interested in Cincinnati, go ahead and listen to something else, watch another video. If you are interested in Cincinnati, then come hang  out with us for a little while.

We have a panel today. We’re going to be talking to each of these  three gentlemen about last year compared to this year briefly, and then most importantly where they see the market headed in Cincinnati relative to their respective focuses.

First, we’ve got Slocomb Reed. Slocomb is a realtor and became a house-hacker in 2014. Currently living in a second house-hack. Bought and sold 34 flips and 24 buy and hold properties, totaling 75 units for himself and his clients. Owns and manages 18 rental units with 24 under contract to close in August. Big August, congratulations on that. All three of these gentlemen are based in Cincinnati, so I won’t repeat that.

Then we’ve got Peter Chabris. He’s a realtor for the Chabris Group…

Peter Chabris: Yes, sir.

Joe Fairless: The Chabris Group has sold over 60 million dollars in real estate each of the past two years, primarily consisting of single-family homes valued under 500k.

Then we’ve got Kurt Weil. How are you doing, Kurt?

Kurt Weil: Good.

Joe Fairless: I just found out Kurt’s uncle is the former president of Junior Achievement, that I’m a board member on; I just learned that. Cincinnati is such a small town, isn’t it?

Kurt Weil: It ends up that way.

Joe Fairless: It ends up that way. So Kurt is a mortgage broker with…

Kurt Weil: Zipfel Mortgage Group.

Joe Fairless: Zipfel Mortgage Group. That’s a tough one to pronounce. In July of 2019 along Kurt is set to close on over 16 million dollars in real estate loans.

With that being said, how about let’s kick it off… We don’t need to go into areas of focus or anything for background, since I’ve just said it… So what were you doing last year compared to this year that’s different? Slocomb.

Slocomb Reed: Sure. Sales-wise, as an agent, I’d say the biggest difference — well, first of all, I do most of my work at this point with investors who are looking to buy and sell their investment properties. Mostly buy and hold stuff, some flips. When I was looking back through my transactions, 2018 and 2019, what I realized was in the first half of 2018 I actually was able to find cashflow on market for clients… And now I can’t.

My sales is gonna feel fairly anecdotal compared to the massive businesses these guys have… But what I’m seeing on the market now, early 2019, is that there are three types of investment properties. All of the investment properties that hit the MLS fall into three categories. There’s the stable, ready-for-market stuff, that’s listing too high and selling too high really fast. There is the stuff that really needs a gut rehab, that is appropriately price, and lasts minutes on market… And then there’s some stuff in the middle, where there are people who think that they can get good market value for a property that needs some work, mostly because it’s been neglected… And that stuff is really coming from sellers who have seen this hot, bullish market for so long that they think it’s basically time that they sell their junk, because they’re never gonna be able to get what they think they can get right now for it. And that stuff sits on the market for a while. I’ve had a lot of clients looking a lot at those recently.

Joe Fairless: So you have double the size of your portfolio currently under contract, right? You have 18 units, and then you have 24 under contract.

Slocomb Reed: Yeah.

Joe Fairless: Clearly, last year or this year you’ve been able to grow.

Slocomb Reed: The biggest difference would be in off market lead generation for those properties. I do more off market now, so I have the capacity to buy a 24-unit now with partners, that I didn’t have this time last year. I could dive into this; I would like to talk about it more later…

Joe Fairless: Okay.

Slocomb Reed: …but the summary is going to be that  you really need to be finding deals off market, probably from a variety of sources, if you’re gonna find good deals in Cincinnati right now.

Joe Fairless: Alright, we’ll jump back to off market stuff. We’ll bury the lead. Peter, what were you doing this year compared to last year?

Peter Chabris: We’re mostly status quo. We’re primarily resale. We do work with investors that have found the opportunity and they’re looking to take it to market… But that really just constitutes as a typical resale play. So the only thing that we’re doing differently this year than last year is that we wind up spending more time negotiating multiple offers. Cincinnati’s inventory continues to drop. It’s dropped for four years straight, it dropped 20% per year, and over the past 12 months it’s dropped another 12%.

We’ve seen the average sales price in Cincinnati increase 5%-6%/year for the past years. The historic appreciation in Cincinnati is 3%, so we’ve been doing double the appreciation, driven by the decrease in inventory. That is waning. Over the past 12 months the average appreciation in Cincinnati is down to about 4.5%, and inventory year-over-year is down 12%, versus that 20% difference that we’ve seen. So while price have been doing this, they are still appreciating, but it’s starting to level off a little bit.

Joe Fairless: So any time there’s statistics, there’s all different ways to slice and dice the statistics.

Peter Chabris: Yup.

Joe Fairless: I read in your bio that you focus on 500k and below homes, is that correct?

Peter Chabris: Yup.

Joe Fairless: So what about above? Are those stats still true?

Peter Chabris: Yeah, luxury softened up about two years ago. Luxury is different in every Cincinnati we consider it 500k or more. I think part of the reason why is that people that have that kind of money – their values system for that kind of dollar has changed. So what we traditionally consider a luxury inventory, these massive properties on big land, a lot of maintenance – isn’t necessarily catering to the demands or the needs of the next generation of luxury buyer. I think luxury is trying to figure out what does value look like in that segment.

From a business model perspective, luxury homes take more time, take more maintenance, they’re harder to sell, they require trickier marketing… We like to set things up, we have a system and we know it works, so we try and keep within that system.

Joe Fairless: Knowing that the luxury market is soft relatively speaking, have you worked with any clients to convert those big homes – lots of rooms, lots of land – to assisted living, or anything like that?

Peter Chabris: That’s a great question, and the answer is no, it has never crossed my mind. Normally, our experience in the luxury — because we do still service luxury inventory; not as frequently as the non-luxury… Generally speaking, a luxury seller doesn’t want to horse around with converting a property into a multifamily or an assisted living, or something like that. They have demands in their lives, and they just want to have a clean separation and get it done, and have it be a business deal, and… Obviously make the most, but not horse around with details.

Joe Fairless: I was thinking more of an investor coming in and reaching out to purchase properties. That may be a discount relative to where they should be because it’s softer.

Peter Chabris: Sure. Yeah, I assume as long as the zoning makes sense, it’s a great idea.

Joe Fairless: And Kurt – you’ve got a lot of loans going on. What’s the difference between last year and this year?

Kurt Weil: I think the biggest difference in the lending sector would probably be investors; especially Cincinnati being in the Midwest, we have a very attractive real estate portfolio overall, so we’re bringing a lot of outside investment in; compared to our cap rates, to what lending rates are, it’s a nice spread… So I think that compared to last year, this time more of that outside investment is coming in. It’s getting more attractive. Rates are fluctuating, and the Fed went up a couple times; they’re looking to come back down tomorrow per se.

The bond market has already reacted… And with that, people need to find a  place to put their money. The economy is good, people have discretionary income, and with that, outside investments are coming here harder, because we have very low vacancy rates, very good growth rates, we have a great job market…

So I would say overall probably just investors – there’s more of them.

Joe Fairless: Help me reconcile the in some ways contradictory information. Because I hear the market is softening, I hear it’s tough to find deals…

Kurt Weil: Sorry… Let me clarify that I say that about investment property specifically. He may say in the luxury market —

Joe Fairless: Well, he was saying 500k and below it’s 20% inventory–

Kurt Weil: On the residential side… Whereas I look at it more as multifamily investing, single-family blankets, industrial flats, office space, things like that. That is more where I’m finding more outside investors coming in. Not just from East Coast to West Coast, but other countries. The Midwest market is very attractive, and that’s more so what I would say when I say investors coming out.

I do completely agree that inventory is very well, but in the basic economics of supply and demand, the demand is overabundant and the supply is not there.

Joe Fairless: Got it. I should have broadened my mind a little bit… You’re loaning on more than just single-family homes.

Kurt Weil: Correct.

Joe Fairless: So I guess I should have asked that – what are you loaning on?

Kurt Weil: Anything from single-tenant investment properties to 250-unit multifamily properties, office, industrial, flex spaces, self-storage warehouses, you name it.

Joe Fairless: You said international investors are working with you?

Kurt Weil: Not necessarily me as much. They’re more coming into the Midwest, and a lot of times those deals are harder to do, because you have to find international banks that not only can service that to do an actual loan, but get them qualified… So a lot of it is more coming in the form of cash.

Joe Fairless: Got it. Slocomb, off market stuff – how are you finding deals now? Let’s start with that.

Slocomb Reed: There are some great people in the room right now who do a lot of off market lead generation, and we’ll probably all say that you start with building a list of people that you wanna be able to contact, for whatever reason; they own property in Cincinnati, don’t live in the area, they are delinquent on paying property taxes, they live in the specific neighborhood you’re specialized in… You get a list built, and then you figure out how you can contact all of those people.

What I’ve been doing specifically is I have a team of people who work for me who use public record data, mostly from county auditors’ websites, to create a list of people that I wanna contact, and then we work on finding contact information, mostly phone numbers. Then all of my lead generation starts with cold calls.  I have people who work for me who make calls full-time, and I make some calls as well, depending on the property.

Joe Fairless: How did you find the people who work for you?

Slocomb Reed: I use virtual assistants. I found a company that is now called UpWork, that is great for finding people who can do remote work. All of the people who work for me in lead generation are in the Philippines.

Joe Fairless: And do you have one point of contact with UpWork, and then — I’m familiar with UpWork; do you have one virtual assistant who then has a team that they manage, or do you manage multiple virtual assistants?

Slocomb Reed: I’ve found an agency based out of the Philippines, and one of the two founders of that agency now works for me full-time. She helps me find other people who can fill other roles. She’s found three different callers for me. She does the initial interview, she preps them to be interviewed by me, and then I interview them. We go through a couple of practice calls, and then they’re off to the races.

Joe Fairless: What are they compensated?

Slocomb Reed: They are compensated between $5 and $7/hour plus bonuses after I close a deal… Whether I buy it myself, or sell it and get a commission, or some sort of fee. When we get to the end and I’m getting paid, I make sure that they get some of that. But it’s a pretty low hourly rate until then.

Joe Fairless: So they get an hourly rate, plus bonus whenever you close.

Slocomb Reed: Yeah.

Joe Fairless: So it’s $5-$7 hourly rate prior to closing, and then once closing – what do you give them for a bonus?

Slocomb Reed: I give the manager, the person who made the call, and the person who works on the back-end, making sure my callers have their lists – she really just does data entry, but there’s a lot of data entry involved; these people are making thousands of calls a week – I give each of them $100.

Joe Fairless: Got it. And how do you get the phone numbers?

Slocomb Reed: How do I get the phone numbers… There are a few different sources, and I’m doing some more general scrubbing of the internet to find owners of LLCs that own properties, and things like that. I have used Cole Realty Resource, which Cole Information is a big data company; Cole really resources what they use for real estate agents specifically who are looking for contact information for property owners in the area where they sell.

I’ve been using Cole Information to cross-reference with the property owner lists that I’m creating from public records to see who I can find contact info for.

Joe Fairless: Anything else about that process that is relevant to talk about?

Slocomb Reed: Well, I would say that the kind of lead generation, regardless of whether you are cold-calling, you’re hiring people to cold-call, you’re sending direct mail, you’re doing stuff on the internet – when you get to the point of being successful enough to create a full-time income for yourself, that’s a pretty serious commitment of investment dollars… But you can build up to that. I didn’t have 4-5 VAs in the Philippines working for me at the beginning; I was doing it myself, and sending a few postcards, and then using the revenue from that to scale up into bigger things.

Joe Fairless: If you did not close on a property in one month, but you had the team in place, how much would you pay expense-wise for that team?

Slocomb Reed: About $2,000.

Joe Fairless: Peter, we’ve got a bunch of investors watching and listening – what are some relevant things you think they should know in this market, based on your expertise?

Peter Chabris: I think Coleman nailed it. It’s really hard to buy cashflow right now.

Joe Fairless: Slocomb.

Peter Chabris: What did I say?

Joe Fairless: Coleman. [laughter]

Peter Chabris: Slocomb.

Slocomb Reed: Slocomb. He nailed it.

Joe Fairless: That was good stuff, so we wanna give him credit.

Peter Chabris: Yeah, totally good stuff… So yeah, it’s hard to buy cashflow right now [unintelligible [00:17:16].06] MLS. It has to be off market; it’s going to these kinds of ends where you’re gonna find your opportunities. If you can buy something right, it’s super-easy to sell something. Flipping is easier to do, I think, than buying and holding right now in terms of making cash. I think it’s easier to do, because — I wanna make sure I clarify, the market is not softening. The rate at which we’re appreciating is decreasing, but we’re still appreciating.

Joe Fairless: Right, so I misconstrued that. My bad.

Peter Chabris: So you still have market [unintelligible [00:17:47].11] and inventory is more valuable than it was 2-3 months ago because we’re in a hot market, and that’s not gonna change the second half of this year. So the wind’s in your sales; if you can find the opportunity, it’s really kind of hard to mess it up right now from a resale perspective.

Joe Fairless: I think you mentioned that to buy a cash-flowing property you should get them off market… You’re a real estate agent, so you put properties on market; so the properties that you put on market – are they typically not cash-flowing properties?

Peter Chabris: Typically, the amount of work that we do with investors is small relative to the total amount of volume that we do. I’ll be totally transparent about that. We are finding ourselves working with more and more investors in the last six months or a year, and with investors – they will typically find the opportunity and bring us in to make sure that they’ve got their projected sales price correct, and then we’ll help them move the property once they’re done with it. Sometimes we’ll consult on what to do on the property.

Now that we’ve kind of gotten into the scene a little bit more, we are finding off market opportunities present themselves, so we obviously share those with our investors first, and then if not, we’ll take them to the MLS… But in this market, they never get there, unless they’ve been picked over and they stink, in most part.

Joe Fairless: So I’m an investor, I have a single-family home, and I go to you to list it… What are some things that you’re gonna do, either from a marketing standpoint, or positioning the property itself, that will maximize the value when we list it?

Peter Chabris: I love that question. Well, there’s a couple things that you hire an agent for. One obviously is the exposure. We generate more exposure. The second one is the negotiating skills, and I think the third one is positioning from a pricing perspective… And then also positioning within the realtor community.

On the marketing front – the marketing used to be a classified ad in the newspaper; we all know it’s gone to the internet, so the question is “How do you more than just stick it on Zillow? What are the additional activities that you take online to generate additional interest? What is your reputation within the agent community? How do you move the property within the agent community, and how do you market directly to consumers?” Those are all what you look to an agent to do on the marketing front… And then you’ve gotta play something right; even in a market where everything sells quickly, if you over-price, you still leave money on the table, because a properly-priced home will go into multiples and you’ll yield more return on your investment than you will if you start the price too high and let the market figure it out.

Joe Fairless: I love that. Let’s get into some specifics on both of those points.

Peter Chabris: Sure.

Joe Fairless: When you’re looking at pricing, is there a formula that you use for what’s too high, what’s too low, what’s just right?

Peter Chabris: Yeah, I’m a data nerd, so we definitely do a data-driven pricing analysis with our client. We’ll figure out “How do you segment the market correctly?” Is it driven by school districts? If so, by the elementary level? Is it driven by beds and baths and square footage, the floor plan, parking…? And different things matter differently to value in different neighborhoods. Downtown a parking spot is gold. If you’re out in the burbs, a  parking spot is assumed. Half bath in older homes, like a Hyde Park and Pleasant Ridge adds huge resale value and the speed with which you can sell, and yet it’s an assumption [unintelligible [00:20:48].13] So different things drive value in different neighborhoods, so that’s a critical component – identifying what is the true market segment you’re operating in. You look at supply, you look at demand, you look at obviously what has sold recently, as well as what you’re competing with, and you also look at what didn’t sell, because that’s data as well, in addition to homes that you know that you know that may be coming on the market that you’re gonna be in direct competition with.

Joe Fairless: When you look at supply and demand, what exactly are you looking at?

Peter Chabris: Well, an appraiser is gonna look at any sales that sold in the past six months. So by default, as real estate agents we only wanna use data that is no less than six months old. We’re gonna look at past sales as a way of identifying how many sales sold in this market segment over a certain period of time, and we’re gonna compare that with how many homes are on the market.

A balanced market in residential real estate is 5-6 months’ worth of inventory. That is to say if we look at the past 12 months and 12 homes sold, your absorption rate would be two homes sold per month. Then we would look and we would say “Okay, how many homes are on the market?” Well, if there’s six on the market and two homes sold per month, that would mean there would be three months’ worth of inventory. So a balanced market is 5-6 months’ worth of inventory. Over six months of inventory is over-supplied, buyers market; less than five months is under-supplied, sellers market.

Cincinnati has continued to go down, down and down, generally speaking, in aggregate, and in some neighborhoods it’s a matter of weeks worth of supply now, which is fun… If you’re selling. [laughter] If you’re an investor, it stinks.

Joe Fairless: Yeah. Great info. From a marketing standpoint, you said you want someone who’s not just gonna post it on Zillow and wash their hands of it, so what specifically does your group do?

Peter Chabris: Yeah, I love that question. We’re a big believer in teasing the market to create urgency. Luckily, the MLS has enabled us to systemize this a little bit. It’s called like a “Coming Soon.” So we’ll try and drive up some urgency within the agent community – because all their clients will starve for inventory – as well as directly consumers; that’s done through various portals… You can pay a premium to promote that availability coming.

With the portals, we use social media – we pay on social media to put that in front of prospective buyers. And we will market that to our own database of buyers; there’s about 14,000 buyers right now… And in addition to that, we’ll work the agent community, both on the MLS and then through some various communities that we’re a part of. And if you do that right, it creates a frenzy. Anybody can sell a home right now, the question is how much money do you leave on the table? Because we actually love — a quick sideline… We love when our clients are interested in a for-sale-by-owner, because we’re not competing with the 4,500 other agents in Cincinnati and their clients, so we know we’re not gonna get stuck in a multiple offer situation; we can get that deal for them for less.

So we look to agitate in public and within the agent community through paid digital efforts, and then part of it is just old-fashioned networking with the agent community. And then in our reality, in our physical space, we’ll do door-knocking, we’ll do fliers, we’ll do call campaigns around a property to drive up interest and activity. Because everybody knows somebody that wants to move into a neighborhood, so we’ll hammer in that community and create some urgency within the local neighborhood as well.

Joe Fairless: Does your client pay for the door-knocking and the fliers?

Peter Chabris: Sure, it’s part of the commission.

Joe Fairless: It’s part of the commission.

Peter Chabris: They pay us when we’re closing.

Joe Fairless: Right. So at what price point is it worth it for your company to do that level of effort?

Peter Chabris: That’s an awesome question. What we’ve found was that it didn’t make sense when we got into the lower price points, so now we just charge a different commission rate or a flat fee, and then they’ll get the exact same service as someone who has a half a million dollar home.

Joe Fairless: Okay. So anything less than 500k, you’ll either try to–

Peter Chabris: So the way we do it is typically (we’re not price-fixing here) agents charge around 6%. Under 150k, we’ll generally charge 7%, under 100k we generally charge $7,000 flat fee. Now, these are for individual clients. [unintelligible [00:24:44].06] if it is a multiple iteration client, then obviously that’s something that we’re gonna talk about.

Joe Fairless: And what have you done that was a waste of money and time that you no longer do from a marketing standpoint?

Peter Chabris: God, where do we start…? Buses, bench boards, signs over urinals… [laughter] [unintelligible [00:25:08].25] I just wanna be different and cut through all the chatter, right? So… I’ve learned a lot. Anybody who’s in real estate, ask me first before you spend the money, because I can tell you if it works or not. [laughter]

Joe Fairless: Kurt, based on your experience, what should this group know that would be relevant and helpful to them, based on your expertise?

Kurt Weil: As investors, coming from my banking background, inside, out into the broker world, I would tell you to be smart; it’s a sellers market. If you’re selling, good for you. If you’re buying, be smart. With the way cap rates are now, if you take something on market, it’s slimmer and slimmer and slimmer. And as we’re in the looming hours of tomorrow, where they may or may not cut the Fed fund rate, is that really gonna do much to the Treasuries? Has the bond market already gone out and lowered rates already? They’ve already reacted; or should I save “have been proactive.” So is your margin thin between your cap rate and your interest rate? Is there a lot of meat on the bone for you? No. So you have to be smart about your underwriting.

What I can tell you is that, going back to your initial question of this time last year, [unintelligible [00:26:18].16] and you see vacancy rates that used to be 6% just hit 4.9%. That’s good. It’s good for investors. Like I said, we’re in a good economy, things are going well, rates are low, it’s advantageous for investors, but it’s really advantageous for sellers. So be careful. Be careful when you’re underwriting, make sure you’re putting in reserves, make sure you’re looking at the cap-ex, and make sure that you’re doing your own due diligence.

Joe Fairless: And you mentioned cap ex and reserves… Thinking about an example of a previous client, who came to you to get a loan, and you said “I can’t do it based on the numbers that you’re showing”, what were the categories and numbers where it just didn’t work? …if that situation has happened to you.

Kurt Weil: In regards to making improvements for increased rents, or…?

Joe Fairless: They wanted a loan, and they couldn’t get a loan because of how they were underwriting. Where did they mess up?

Kurt Weil: Sure. The biggest thing — when you’re four units and under, you can take it in the residential world, where you can pass on your DTI. If your DTI is there and you can do it with a W-2 wage, you can overpay; you can overpay all day long. And that’s gonna be a shame on me; I learned my lesson the first time around.

When you start getting into the five units and more, that’s where you’re gonna be based on a cashflow coverage. When you’re based on a cashflow coverage, you need to learn with the bank that you apply with, how do they apply that [unintelligible [00:27:40].27] because we’re at a 4.9% vacancy rate, even though the property is 100% occupied, are they always gonna put in a 5% vacancy rate? Yes. “Well, I’m gonna self-manage the property.” “Fantastic, we’re still gonna put in a 5% property management fee.” It’s gonna happen no matter what, so the margins can get thin.

Will they do [unintelligible [00:27:58].04] agency-type debt, a requirement of $250/door? Are they gonna base you on $150/door in insurance, even though you have a better quote? Those are the type of questions that you need to find out – where are you gonna take this loan, where are you gonna go with it, who’s going to  be looking at it? Is your broker, is your banker going to be addressing those issues upfront? Are you doing a value-add deal, are you gonna add cap-ex? “Hey, I can still increase this right now by $200/door, but I need stainless steel appliances, and I need to repaint the cabinets, I need to put down new flooring.” Is that [unintelligible [00:28:30].11] is your proforma still gonna show, at a 95% occupancy, or while you’re going through stabilization, while you’re still in an interest-only period, with a lower stabilization – is it still going to be able to cashflow?

So those are the type of questions — sorry, I didn’t mean to get too much into it…

Joe Fairless: That’s good, thank you.

Kurt Weil: The biggest thing about investors is there’s a big cut-off – four units and under, and then five units and above… And it’s a game-changer. It’s a game-changer no matter if you’re starting out with one unit, or going straight into 12. It’s things that you really have to consider, and read up on, and learn about to be able to get your finances to build your business.

Joe Fairless: As we wrap up, anything that we haven’t talked about, that we should, as it relates to helping everyone in this room, and watching and listening, be successful in finding and buying profitable deals now, and then the foreseeable next 6-12 months in Cincinnati?

Slocomb Reed: Sure. Moving forward, there are several things that are impacting the market: cashflow, cap rates, things like that… One thing that I don’t think is going to change now is that in the last few years the rest of the real estate investing world has found us, and they’re not going anywhere. What I mean is that the people who are used to getting 4-caps, 5-caps, 6-caps on the East Coast and the West Coast – they’ve found Bigger Pockets and they’ve found Cincinnati, and when they figure out that they could get an 8-cap to a 10-cap on the market here, it sucked all the wind out of the room. And that’s what a lot of us have been experiencing.

On that — so I was listening to a  Bigger Pockets podcast at least a couple years ago, and Tim Ferriss was on. He wrote the 4-Hour Workweek and basically every else about business, and this is worth listening to… I was in a rental car, on my way back to the airport in Maryland, and when I heard what Tim Ferriss had to say to Brandon Turner and Josh Dorkin, I had to pull off on the side of the highway, put my blinkers on and write notes.

We were having trouble finding deals, and he was explaining the three advantages to making any business decision. The first is an informational advantage, the second is an analytical advantage, and the third is a behavioral advantage.

Working backwards, a behavioral advantage in figuring out whether or not you should buy or sell real estate probably has a lot to do with your discipline. Does it meet your criteria for what you should do? Are you stretching yourself because you’re desperate? Are you maintaining good investing behavior?

The other two are something that I think everyone needs to have in order to get a good deal in Cincinnati right now. An analytical advantage is when you have a way of seeing something that other people don’t have. For example, if you have a building – let’s say a duplex – where both of the units have three bedrooms, right now market rent for that, depending on the neighborhood… I’m thinking about a property in a C-class neighborhood right now – your market rent might be $850, but Section 8 is gonna pay $1,250 for that same apartment. So knowing those kinds of things gives you an analytical advantage and it allows you to see cashflow and see benefits to a deal that other people aren’t seeing.

The last one – informational advantage is when you know things that other people don’t know. That’s what you have when you’re going off market. And when I say “going off market”, I don’t necessarily mean that you need to spend thousands of dollars a month in postcards and SEO and cold-calling and door-knocking every evening… But you need to know the people who are doing that and who are putting together the deals off market, that are showing serious cashflow, that are showing the 10-caps, 12-caps, that are showing the real value-add potential that creates what we call BRRRR deals. You need to have that hassle somewhere, either you or with the people in your network, so that you have that informational edge.

Joe Fairless: Any additional thoughts?

Slocomb Reed: I can only speak to five families and less; that’s the commercial world, it’s these guys. If you’re looking at five units or less, just to your point, protect yourself. Everybody’s paying premiums right now, so make sure you’ve got an agent looking at that property and making sure that your plan B [unintelligible [00:32:50].19] Make sure you’re buying it such that you’ll be able to get out and sell it at least breakeven. I think that’s a huge, huge piece of creating insurance for yourself when it’s so competitive acquiring inventory right now.

Joe Fairless: Any parting thoughts?

Peter Chabris: All I can say is be diligent and be patient, because a lot of people are trying — like Slocomb said before, be patient, because people are trying to make deals happen, just because they’re itchy that they’re not meeting that 24-month, 36-month, 5-year goal, that they don’t have so many units. Don’t get wrapped up in the unit count. Get more wrapped up in “Is it cash-flowing?” Remember, your first one, with the bank, is always your proof of concept. If you didn’t do it right the first one, you’re not cash-flowing, who’s gonna give you a second one? So be diligent and be patient.

Joe Fairless: Thank you, you three. I really appreciate it. [applause] We have time for a couple questions. Yes, sir…

Audience Member: You guys mentioned things like inventory, appreciation rates, and those things when they affect the market. If you saw a downturn coming, what would be the red flags that are blinking? Is it an inventory rate of X, is it an appreciation of X, is it the bond market, is it unemployment? And what would be those numbers where it’s flashing and you’re like “Okay, here it comes.”

Peter Chabris: So if you watch sold data, it’s too late. You have to be watching the ratio of active inventory to the ratio of inventory that’s under contract, waiting to close. When you’re in an up market, that’s where you’re going to see the trend before it bites everybody else in the butt. Shameless plug – we do a monthly video email to our people, with the hidden economic indicators that drive our market, and [unintelligible [00:34:45].05] on what we think that means. If you guys are interested, just email peter@asktcg.com and I’ll add you to that list. But you’ve gotta watch the ratio between pending inventory and active.

Joe Fairless: What’s the ratio that would be trouble?

Peter Chabris: You look at the number of units that are traditionally sold over a six-month period – that’s the absorption rate; how does the pending inventory over a 30-day time correlate to that monthly absorption rate in the sold area? If it starts creeping up, that’s your first indicator… It’s another way of saying watching the increase in inventory.

Inventory is gonna go up or demand is gonna drop. Normally, it’s a little bit of both, and then all of a sudden it’s really extreme, so you’ve gotta be watching the lead indicators, not the lagging indicators. Does that answer your question.

Audience Member: Yeah, that’s one. Are there other factors? You mentioned the bond market… And then there’s obviously appreciation, and/or — I mean, that inventory, that’s awesome. Are there other indicators like that?

Kurt Weil: The bond market can be tricky. It depends. If you historically look at how agency treated multifamily compared to the interest rates that the bond market did on Treasuries, it potentially could be an indicator. But then it’s hard to say… And I say that because look at the interactions with the Fed itself; look what they did last year – they bumped it up a couple times. A lot of people that had revolving debt lines of credit, not that monthly installment [unintelligible [00:36:12].07] that revolving credit card debt, everybody’s tied to to prime on their home equity line of credit; if you’re flipping, you’re tied to some type of base. Most likely prime, but it could LIBOR and whatnot… But when that happens, your rates are going up, and the one that’s working that is the investor. But that leads into so many more indicators.

That leads into that discretionary spending not being there when times are good, that leads into not as much consumption GDP… That leads into so many things that get reactionary; I believe the official definition of a recession is the previous two quarters of downward trends. You don’t know you’re in a recession until it’s already happened.

Slocomb Reed: I hope you guys are taking notes. I’m on the panel right now, and I’m taking notes. I hope guys are getting as much out of it as I am.

Kurt Weil: Can I plus that up just a little bit?

Joe Fairless: Sure.

Peter Chabris: Two other indicators to watch – interest rates, GDP and unemployment drive home values, or residential home values. Commercial – it’s all about return on investment, but for residential, those are the three drives. He can speak to rates… Our unemployment dropped from 3.6% to 2.9%, and GDP has expanded as well, so there’s no indicators that would demonstrate we’re going anywhere except for our continued appreciation in values.

Joe Fairless: [unintelligible [00:37:25].14] Australia.

Peter Chabris: What’s that?

Joe Fairless: Australia has had good economic times for 27 years in a row.

Peter Chabris: That’s why they’re so happy. [laughter]

Audience Member: So if a recession were on the horizon, how would that change your investment perspective and/or how do you see the Cincinnati market going forward, next 12-18 months?

Slocomb Reed: I can start… Yeah, the first thing I’d do, to answer your question, is go on Bigger Pockets and google-search “recession-proof”, and you’ll find oodles and oodles of things. I would say if we were in a downturn or if we were preparing for a downturn, number one, have cash; and number two, cashflow can keep you from needing to sell.

One of the fundamental things – and when you’re buying your first rental property especially – that you want to avoid is the need to sell. So if you’re bringing in the revenue that can sustain your property… There are a lot of people around the room nodding heads, who have larger portfolios than me, FYI… And if you have the cashflow coming in, that will keep you afloat and keep you, ideally, generating income as the market dips, and you’re gonna be fine, so long as nothing else is compelling you to sell at a time that is disadvantageous, if that makes sense. And really, if you wanna make sure that your cashflow is going to be okay in a market that is turning down, you wanna make sure that what you own is not a niche product that is only desirable in an up market.

Joe Fairless: So that is a way to play defense, and I completely agree with you. You can search “three immutable laws of real estate investing.” I’ve got an article that talks about that – buy for cashflow, have long-term debt, and have adequate cash reserves.

Slocomb Reed: That’s awesome.

Joe Fairless: But how would you play offense?

Slocomb Reed: Have cash is a great way to play offense. One of the ways to look at market cycles is that there are times when everyone wants to buy and there’s nothing for sale, and there are times when everything’s for sale and no one wants to buy… And really, the answer would be for playing offense — your question to be asking yourself now is “How do you put yourself in a position to be one of the few people able to buy when everything is for sale?”

Joe Fairless: And I also thing that studying creative ways to structure deals, if you’re in residential – creative ways to structure deals, so that when the recession does come, you already have that knowledge to know how to do workouts with distressed sellers, so that you’re not trying to learn and go; you’ve got the knowledge and you can get going immediately.

Slocomb Reed: Yeah, awesome.

Joe Fairless: Any other questions?

Audience Member: What do you think specifically for the Cincinnati real estate market maybe is the fewest days on market, for residential? Or if you’re an investor, where do you think you can put your money today with how it is [unintelligible [00:40:22].02]

Peter Chabris: All I would say is that economically — first-time buyers have never felt a bigger pinch on inventory, that first-time buyer market segment. So wherever first-time buyers are buying, and whenever that price point is, is where you can pop things as quickly and for the biggest return.

Joe Fairless: What’s the average price point?

Peter Chabris: Yeah, I was gonna say – generally, in Cincinnati it’s anywhere from up to 175k to maybe 250k-275k in the young professional white collar entry-level inventory.

Slocomb Reed: When I get asked that question by out-of-state investors, typically people who are trying to look for their first real estate investment deal, someone who lives in L.A. or New York, for example, and wants to come here for cashflow, the generic, but accurate and helpful answer that I give during that little phone call, if you’re talking about path of progress, is look at Over-the-Rhine and downtown, and look at Oakley; then expand out in the rings. Very, very generally speaking, what we’re seeing elevator pitch-wise is that those two areas are crazy hot, with new development, with renovations, with lots of money getting invested, and that’s rippling into the surrounding neighborhoods.

So when you talk about path of progress, what I tell people who are on their laptop, on the phone, on Google Maps, is put a pin on Over-the-Rhine and put a pin on Oakley, and then just go out from there and start looking at that.

Kurt Weil: That’s a great one. I think maybe the easiest way to sum that up is follow the money. The first-time homebuyers – where are they putting their money, where are they getting that debt? Where are the projects going on? What area is being regentrified? Is there city money, is there tax abatements? Where are they being improved at? Where is the redevelopment of the strip centers? Follow that. On those ripples of those areas of Oakley [unintelligible [00:42:22].07] So just look at the ripples and then follow the money.

Joe Fairless: Last question. Anyone got a last question? It’s gotta be a good one. Pressure is on…

Slocomb Reed: One thing – shameless plug for each of these guys. They’re both phenomenal. Kurt is working on his second “Commercial Mortgage for Me” right now, and his knowledge of the market and what you can get away with when lending is phenomenal. He’s a wizard. [laughter] And that was appropriately put, by the way. The commercial game is a lot about what you can get away with.

And Peter Chabris is genius. He’s been helping me a lot in my own business, in figuring out how to do lead generation better, how to have better systems and better infrastructure. So if you get the opportunity before you leave, you should definitely shake hands with both of these guys.

Joe Fairless: Alright, thanks a lot. Oh, he’s good, too. [applause]

JF1830: Getting Money Back From Contractors, Seller Financing, & MHP Investing #FollowAlongFriday with Joe and Theo

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TRANSCRIPTION

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

This is Follow Along Friday. Theo Hicks, I learned a whole lot last week during these interviews… And as a reminder, Best Ever listeners, the purpose of Follow Along Friday is to pull out some insights that we learned – in this case I did the interviews last week, so I learned last week – and share them with you as a sneak peek, and also so that you can (should you choose to) start applying them sooner, since they interviews that I did this past week will go live probably in 4-5 months from now; we’re that booked out.

So Theo, do you want me to just go ahead and get into it?

Theo Hicks: Yeah, let’s jump right into those lessons, Joe.

Joe Fairless: Alright, cool. Holy cow – his name is [unintelligible [00:03:01].05] What an impressive human being, from a real estate standpoint. I met him through this interview, so I don’t have any preexisting relationship with him; he’s a 24-year-old real estate investor based in New York City… And as a sophomore at NYU, he identified a need for a student-run brokerage. He went out, got his brokerage license, and he and some friends were leasing apartments to fellow NYU college students, and I’m sure other college students.

He was making six figures a summer, for three months of work. Six figures. I have a hard time putting myself in that place when I was at Texas Tech as a sophomore, having an idea for a business and then earning over $100,000 for three months’ worth of work. Just an incredible entrepreneur. I asked him how much did he have by the end of his senior year, how much was in his bank account, and he said it was between 250k to 350k.

Theo Hicks: Wow…

Joe Fairless: As an undergrad who just got their degree, this person had over 250k in his bank account, and he had a college degree. Just so impressive. So one is if you are in college, and you’re looking to create a business, this is a potential opportunity. He capitalized on the New York City market, and  the way it’s structured, where you’ve gotta go through a broker to get an apartment… I know having lived in New York City, New York City is its own animal, so perhaps this exact strategy won’t be applicable to Best Ever listeners who are in college looking to create something, but… It’s just inspirational, at minimum. Perhaps some tactical components need to be reconfigured, but just incredibly inspirational.

Here’s a tactical thing that he talked about for how he has since then (surprise, surprise) grown his portfolio (he’s 24 years old) to 60 single-family units, 12 multifamily — so I should say 60 single-family houses, 12 multifamily units, and a self-storage facility. And the self-storage facility – I was like “Tell me about it.” He’s like “Well, it sounds more impressive than it is. It’s 20 garages, 4,000 square feet.” I’m like “That’s impressive. That’s very impressive.”

He bought that for $120,000, and he found it on the MLS. He talks about that during the interview, so I won’t go into that. But the tactical thing I wanted to mention is how he found 60 single-family houses and 12 multifamily units is by working with REO companies and getting deal flow through them.

And I said, “Okay, I’m not gonna ask you which companies you’re getting deal flow from, because that gets into your competitive advantage, and I don’t wanna steal your thunder on that, but the question I have is if you were starting over and you didn’t have the current relationships that you have with REO companies, how would you go about replicating this process?” and he said that an attorney helped him get connected to the REO companies. So he said what he would do is he would focus on networking with attorneys, telling them what he’s looking for and seeing if they have any connections they can give him.

He said another tactical thing you can do is by looking at the deeds and the mortgages and see who’s selling a lot of stuff on the county website, and if they’re selling a lot of stuff, they might be an REO entity. So those are two tactical things that anyone can do to identify these REO companies that might be a good lead source for him to buy directly from.

Theo Hicks: [unintelligible [00:06:49].24] I remember all the way back, when I was close to his age, I did that for Cincinnati… So I know there’s a way to do it for all the county, but for Cincinnati in particular you can get access to the back-end of the auditor’s site. [unintelligible [00:07:05].08] every single property in Cincinnati. In this case you would just filter by — they actually have recent sales too, so you just download the recent sales and filter it by the name of the person selling property, and just see “Okay, this person sold 50 properties in the past month. Maybe they’re an REO company.” Maybe they’re just a big owner who’s selling properties too, so it’s not just necessarily REO companies.

And then going back to the school one – that’s interesting, because most people will graduate with as much money that he had in his bank account in debt. So he did the exact opposite of what people typically do. For me — I was in mechanical engineering, so I’m sure I probably spent a lot of time on school, compared to maybe other majors, but I still had so much free time that I spent on doing stupid things, that I could have spent on obviously doing something like this.

I’m not sure if people think this or not, but they might think “Well, I am a full-time student. How am I gonna have time to do this?” But if people really think about it, you’ve got way more time when you’re in college than you do when you actually graduate and get a real job. So it’s definitely possible, and as you mentioned, this is pretty specific to New York. I didn’t realize that you had to have a broker represent you to lease an apartment. But yeah, this is kind of more inspiration, to get the wheels churning in your mind to think of ways you can add value as a real estate investor to college students… Because every college student is renting, looking for a place to live; you can even be some sort of consultant the same way, even though it’s not a requirement.

This guy sounds like he’s very smart, and very entrepreneurial, and obviously it’s working out for him.

Joe Fairless: I believe it was the book “Things I wish I knew when I was 20.” It’s written by an Ivy League professor, and she talks about different things that she wish she knew when she was 20. I believe it’s this book – she mentions that she gives her students a challenge at the beginning of the year to make as much money as possible with $100. So she gives them $100 and like “Okay, go.” It’s an entrepreneurial class. “Go make as much money. Create a business. Whoever makes the most money wins”, and there’s other prizes, too.

Some people created a business around selling gadgets around campus, others did laundry services… But the winning team that earned the most money — I think it was a shorter period of time than a year. I think it was about a month. The winning team that earned the most money actually did something ingenious… They sold the time that they had to present to their fellow students their business plan and their business. So instead of creating a business, they simply identified a company within that area that would love to have a captive college student audience for 30 minutes, and then they sold their time to that business, and that business presented to the students, and as a result they got access to the students; and the students that had that idea earned the most money.

So along the lines of, hey, Angad’s business, if you’re not in New York City, that exact business might not work, but it’s the mindset of how do we maximize the resources that we currently have available – that’s what this is all about, and that example really came to mind whenever I was thinking about Angad.

The second thing – Philippe [unintelligible [00:10:41].19] He’s an entrepreneur; he scaled from a $3,000 mobile home park to owning ten units now. Based in Nashville, Tennessee. I wanna mention two things about my conversation with Philippe. One is that he had a six-unit that he has now sold, and it was in a college town. One thing that he did to increase the value – he bought it for $120,000, and two years later he more than doubled it in value. He sold it for $260,000. So actually I’ll give you two things that he did, and then I have another lesson learned from him. One is he changed it from [unintelligible [00:11:20].23] the amount of beds that you can have within the residence. So he didn’t focus on “How many tenants should I have”, he  focused on how many — well, I guess I’m saying it incorrectly. He added more beds in the house. So he added two more beds in the house, and as a result he started charging per person, instead of per-bedroom. I guess that’s the proper way to say it.

So he literally made the living room a place where two more people could live. So one, he changed it from a per-bedroom to a per-bed. Two – and this is what I thought was really interesting – is he had relationships with local vendors, and those vendors would send leads his way, because they’re popular spots for college students, and in exchange he would send his residents to those vendors. Some specific vendors – there’s a Mexican restaurant; a place called Grandma’s Pancakes, and a local coffee shop.

And he would put in the welcome packet for his residents when they moved in, he’d put these cards that the vendors/restaurants gave him, and the residents would show the cards to the restaurants whenever they arrived, and then they’d get exclusive discounts as a result of living at his place. So it was  a win/win. I did something like this for one of my properties, where I reached out to local businesses. I had a card that I printed out.

And surprisingly, it was challenging for me to get local businesses on board. I offered discounts in general, but also I’d like to offer discounts that weren’t publicly available. But I went to tanning booths, or tanning salons, I went to a pet groomer, I went to a payday loan company… They were very interested; they were actually the most engaged. Surprise, surprise. I went to restaurants… And for some reason – maybe my approach wasn’t the right approach, or maybe the market wasn’t right, or something, but I didn’t have that  much success.

However, from a percentage standpoint, from the couple of companies that I did connect with – Dickey’s Barbecue was one of them; they were really on board because there’s an entrepreneurial guy who owned that franchise location… The couple of them that were on board – they really helped me have selling points for residents who wanted to move into that apartment community, and it was a win/win.

So I’ve done this approach… It might take more effort than you initially think, but it was a good use of the team’s time to create something like this… Especially if you have a smaller-sized apartment building and you’re not looking to do this in multiple locations. Or maybe it’s actually — if you have one geographic location where you own a lot of properties, that’s good. If you are spread out across multiple markets, then it might not be an effective use of your time, because it just takes a whole lot of time to do it. But in my experience, it was worth it.

I’ll stop there. Theo, do you have any comments there?

Theo Hicks: I was gonna say – do you know if he had preexisting relationships with any of these companies, or did he just reach out to them randomly?

Joe Fairless: He went to the Mexican restaurant a whole lot, he said, so they might have known him. But I don’t think he had a preexisting relationship with them in a formal capacity.

Theo Hicks: I was curious… Because I’m sure that would probably be helpful. If you’re thinking about applying this strategy, think of the places you just go to frequently, and then bring that up in the natural course of conversation if you’re talking to that owner, or whatever.

Joe Fairless: True that, yeah.

Theo Hicks: I was gonna mention something else – we were talking about this on Follow Along Friday; it might have been when we were discussing someone who had a question about buying a smaller apartment, or that didn’t have any amenities on-site, around like a bunch of massive apartment communities that had top-notch fitness centers, and things like that… We talked about you can leverage the local businesses, like fitness centers, movie theaters etc. and try to get discounts from them, and then you can present your property as like a luxury experience, without the luxury price. “So a fitness center isn’t here, but because of that your rents are gonna be lower. But we’ve also got discounts at this coffee shop, this movie theater, this tanning salon, this whatever.” That’s another way that you said you can present this type of concept to your residents as well.

Joe Fairless: Yeah, we’re actually buying a property right now that fits into that category, where there is a fitness center on-site, however literally right next door there’s a state of the art fitness facility, and the management has negotiated only an $8/month membership fee for those residents. And that is an exclusive arrangement that our property has with the fitness center. I think that more stuff like that – exclusive perks… Because then you start moving away from being a commodity and you start differentiating your apartment community in a way that others can’t compete, because you’re not going back and forth on price; you’re actually talking about these additional amenities and relationships that they don’t have.

One other thing I’ll say about the interview with Philippe – this reminds me of the example you brought up a couple times, Theo, of the gentleman who looked for properties that had a busted foundation. He would actually seek them out and he had a solution for it, where others would run away. In this example Philippe talks about how he noticed that the homes in a certain area had a double garage; they’re two-story, and the downstairs was a double garage. He would convert that double garage into three additional bedrooms. He had three bedrooms, a kitchen and a bathroom that he’d convert the double garage into, and he rents it out to construction workers.

So the house – upstairs it has three bedrooms, downstairs it has a double garage; well, now it’d have three bedrooms upstairs, and then downstairs it’d have three additional bedrooms, and he rents it out on a per-bedroom basis.

So just looking for situations in our market where there’s opportunity to reconfigure the layout of the property, and if you identify a bunch of homes that have a similar configuration and you have a certain business model like that, then you have the opportunity to make twice as much cashflow as someone else.

Theo Hicks: And the same thing can technically apply to apartments, too. Obviously, there’s demand for those larger units, but if you’re in a market where you find an apartment that’s got massive units, and the dollar per square foot doesn’t necessarily make sense, and you can just convert that to two bedrooms instead of one bedroom, and get way more money… Obviously, it depends. Same thing with an extra living space that might not necessarily be in demand in that market, converting that to a bedroom, or keeping it the same… Again, depending on the market.

Joe Fairless: [unintelligible [00:18:23].10] He is an investor based in Phoenix, Arizona. He specializes in wholesaling. They do over 70 wholesale deals a month. Their business model is to be the wholesalers’ wholesaler. When a wholesaler has an opportunity, cannot find a buyer, they go to Jameill’s group, and Jameill’s group has a list of 80,000 buyers with a 30% open rate, who he and his team send it out to.

The business model is not to be as focused – or nearly as focused – as finding the opportunities, but more focused on having a buyers list that is robust, and being the solution to wholesalers’ challenges if they don’t have buyers for their properties.

Clearly, I had to hone in on how did he create a list of 80,000 buyers with a 30% open rate when he sends out an opportunity. And he says he thinks of themselves as a tech and data company (surprise, surprise), and they have a two-step process. One is his business partner has a software background, so he has a software that they created that scrapes social platforms and the internet for a list of potential people who might be qualified buyers. Think of accredited investors – they look for that type of person.

And then Jameill’s team will actually personally reach out to these people and send them a note through that platform. He talks about what that note says. I didn’t write that down in my notes, but he sends them an intro message, and just by sheer volume of the amount of messages through that software platform that they initially find all these leads, they get a lot of people to say “Yes, I’d be interested in being on your list.” And he’ll search for #azdoctor, for example, he’ll search for lawyers, he’ll search for accountants, Facebook groups… They’ll see what you have liked and map that back to if you’d be a likely real estate investor.

So just 1) having a business that is a solution for other people in your industry, who could be perceived as competitors; that’s interesting to me. That could be applied to any business. So one, quick, think of all your competitors. Two, how could you actually be of service to them, so that they pay you for your service. That could lead to some interesting stuff. That’s what he did. And then two is the one-two approach that he and his team take to building that big list. One is you write a software, two is you have individuals reach out to these people.

Theo Hicks: Is his business partner doing it, or do they have VAs doing —

Joe Fairless: VAs. Yeah, it sounded like they have an army of VAs.

Theo Hicks: I was gonna say, I can’t imagine him sending out 8,000 messages to people.

Joe Fairless: No, it’s 80,000 people on the buyers list. That’s an email that gets sent out.

Theo Hicks: It’s probably more than that.

Joe Fairless: But you’re right, if there’s 80,000 people on the buyers list, good point – they probably sent out half a million personal messages.

Theo Hicks: I think on MailChimp the average open rate for the real estate category – and again, this is just MailChimp – is like 10% maybe. So they’re three times what it usually is. So obviously that person will touch them, and rather than just stopping at step one and saying “Okay, here’s who we want to target”, and then kind of just like creating content and sending it out and hoping they see it, they proactively just go after that one specific person and send them a message… And obviously, that seems to be working out.

I bet it’s a very interesting interview, if you go into specifics on how he’s finding these people on Facebook, using the hashtags, or whatever software that he’s writing. Obviously, not every single person is gonna write the software, but everyone can navigate the Facebook, the Twitter, the LinkedIn search function. It might take a little bit extra time, but again, it sounds like they’re using VAs, and 30% open rate is pretty amazing.

Joe Fairless: It is. And I asked him “Do you send that list anything other than deals?” He says “No. I absolutely don’t.” That’s how we approach our private investor list. I don’t send them anything other than opportunities. There has been one exception where I asked them for thoughts on the book that we’re writing – what would they want in that book – because we were writing that book for them, to help them on how to think about passively investing in apartment communities. But besides that, I don’t believe I’ve ever send an email to my private investor list about anything other than opportunities that we have available.

Cool. And then lastly, Jason Parker – he is an investor in Seattle, Washington, but he’s also a financial advisor with a focus on retirement planning. I enjoy talking to people who aren’t exclusively focused on real estate, so that we get a broader perspective. One thing he says when he sits down with potential clients – he asks them “What is the purpose of your money and why do you have it?” And when he was asking that question, I was like “Man, that’s a  good question.” What is the purpose of my money and why do I have it? I thought about it a little bit (not a whole lot) since then, and I view money as simply a  tool to exchange and to help build lifestyle and do things with.

It’s not powerful to me, it’s simply a tool. And by thinking of it as a tool, it allows me to feel good about value exchanges, it allows me to invest in myself by going to a Tony Robbins program… And it’s just a tool to help me become a better person, in that example, or give to all the non-profits we give to at BestEverCauses.com…

So I think it’s just an important question to ask ourselves, “What is the purpose of our money and why do we have it?” I don’t know what the right answer is, but it hit me as something that is a question or two questions that we should ask ourselves, so I just wanted to make note of it.

Theo Hicks: I see it on here, “Not too concerned [unintelligible [00:24:38].18]”

Joe Fairless: Yeah, so you’re looking at some notes that I had during the conversation… And he said that potential clients, when he asked them that, they tend to not be too concerned about leaving money to their kids. They wanna have the same standard of living that they’re accustomed to. But they’re like “You know what – we’ve done what we needed to do for our kids, and at this point, kids, you’ve gotta make it happen or not.” Generally, that’s the sentiment from his potential clients.

Theo Hicks: That’s interesting, because you hear a lot of times people’s goal is the legacy, family wealth, leaving it to their kids… I have a five-month-old, so it might change, but I’m definitely on board with this guy. We could probably talk about that for hours, so… You can move on.

Joe Fairless: Cool. Alright. I think that’s all. That’s all I wanted to mention on that.

Theo Hicks: Okay. Those were really good lessons. I really liked the college guy. It reminded me back to when I was in school, and I did a few things — nothing like this, but I was slightly entrepreneurial while I was in college, to make some  money, just because I didn’t have anything and I didn’t wanna work a regular job at that time.

Joe Fairless: Colleen and I were on our walk the day after I did these interviews, and I was like “And he had $300,000 in the bank account after he graduated college…!” I was just so blown away. I still am. Very impressive.

Theo Hicks: Alrighty. Well, let’s move on to the trivia question. This is the Jeopardy month. Last week the question was “The U.S. state that is home to the two cities that have the lowest cost of living.” The answer was “What is Texas?”

Joe Fairless: Oh, Texas…! My backyard.

Theo Hicks: The two cities – I don’t know if you recognize these… Harlingen and McAllen.

Joe Fairless: Yeah, Harlingen is by the  border. I think they’re both by the border.

Theo Hicks: Okay. The cost of living was 20% below the national average, and way below the highest, which was obviously New York.

Alright, this week’s question is — Yardi Matrix (they’re a real estate research company) just released their biannual rental growth information… So this week’s answer is “The U.S. city with the highest year-over-year rent growth as of June 2019, 8.4%.” So what’s the question? What is that city?

Joe Fairless: Say that again?

Theo Hicks: The U.S. city with the highest year-over-year rent growth as of June 2019. The number is actually 8.4% rent growth in 12 months.

Joe Fairless: Okay, so in the last 12 months trailing June, so from June to June?

Theo Hicks: Yeah.

Joe Fairless: The U.S. city with the highest rent growth, 8.4%… I’ll go with Orlando.

Theo Hicks: Orlando. So the first person to get that answer correctly – you can either submit your answer in the YouTube comments, or you can send an email to info@joefairless.com – will get a copy of our first book.

And then lastly, the free apartment syndication resource of the week – I actually just finished recording the last series of the first part of Syndication School, which goes over the entire process… So we just talked about how to sell your deal. That will be coming out next week. Then we’re gonna go back over Syndication School and go into more detail on some of those episodes, some of those steps.

But anyways, we give away free documents for Syndication School, so we’re highlighting those on Follow Friday at the end. This week’s free document we’re gonna highlight is from series number ten, which is how to structure the GP and the LP compensation. That starts at episode 1597; I believe it’s a two-part series, so 1597 and 1598. First we go over how to structure the compensation for the general partners, so how the GP makes money, and then next one is how you as a  syndicator can structure the compensation with your limited partner.

To help you with that, the free document is the LP structure decision tree. It’s basically a series of yes or no questions that you answer, and based on the answer to the previous question we’ll ask another question, and ultimately you’ll land on what’s the idea partnership structure with your investors, whether that’s debt equity, preferred return, profit split, what the limit should be… Things like that. You can download that in the show notes of 1597 and 1598, or in the show notes of this Follow Along Friday.

Joe Fairless: Well, very valuable resources, and they’re free, so definitely if you’re in the industry or wanna be in the industry, take advantage of that. Best Ever listeners, I hope you enjoyed this, and most importantly, got a lot of value from it. We will talk to you tomorrow.

JF1823: Online RE Auctions, Value Tactics, Finding More Money & More Deals #FollowAlongFriday

Listen to the Episode Below (00:23:14)
Join + receive...
Best Real Estate Investing Crash Course Ever!

Joe and Theo are back in the studio today to tell us about the best things they learned last week. Specifically, Joe will share his lessons from three interview guests, and Theo will offer a little bit of follow up to Joe’s thoughts. The lessons we’ll be hearing about are from Joe’s interviews with Don Wenner, Jeffrey Gitomer, and Collin Schwartz. If you enjoyed today’s episode remember to subscribe in iTunes and leave us a review!

 

Best Ever Tweet:

“If Henry Ford asked people what they wanted, they would have said a faster horse”

 

Free Document:

http://bit.ly/dealfindingtracker

 

Due Diligence Resource Joe referenced:

https://joefairless.com/ultimate-guide-performing-due-diligence-apartment-building/

 


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

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

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


 

JF1816: Making $100k In 3 Months As A College Student, Building A Buyers List, & Financial Future Questions #FollowAlongFriday

Listen to the Episode Below (00:29:55)
Join + receive...
Best Real Estate Investing Crash Course Ever!

We’ll be hearing Joe’s favorite lessons learned last week during his interviews. He’s sharing lessons from Angad Guglani (http://cooperacq.com/), Felipe Mejia (https://www.sideguymovers.com/), and Jamil Damji (https://keyglee.com/). If you enjoyed today’s episode remember to subscribe in iTunes and leave us a review!

 

Best Ever Tweet:

“Working with REO companies and getting deal flow through them”

 

Free Document:

http://bit.ly/thelpstructure

 


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

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

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


TRANSCRIPTION

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

This is Follow Along Friday. Theo Hicks, I learned a whole lot last week during these interviews… And as a reminder, Best Ever listeners, the purpose of Follow Along Friday is to pull out some insights that we learned – in this case I did the interviews last week, so I learned last week – and share them with you as a sneak peek, and also so that you can (should you choose to) start applying them sooner, since they interviews that I did this past week will go live probably in 4-5 months from now; we’re that booked out.

So Theo, do you want me to just go ahead and get into it?

Theo Hicks: Yeah, let’s jump right into those lessons, Joe.

Joe Fairless: Alright, cool. Holy cow – his name is Angad [unintelligible [00:03:01].05] What an impressive human being, from a real estate standpoint. I met him through this interview, so I don’t have any preexisting relationship with him; he’s a 24-year-old real estate investor based in New York City… And as a sophomore at NYU, he identified a need for a student-run brokerage. He went out, got his brokerage license, and he and some friends were leasing apartments to fellow NYU college students, and I’m sure other college students.

He was making six figures a summer, for three months of work. Six figures. I have a hard time putting myself in that place when I was at Texas Tech as a sophomore, having an idea for a business and then earning over $100,000 for three months’ worth of work. Just an incredible entrepreneur. I asked him how much did he have by the end of his senior year, how much was in his bank account, and he said it was between 250k to 350k.

Theo Hicks: Wow…

Joe Fairless: As an undergrad who just got their degree, this person had over 250k in his bank account, and he had a college degree. Just so impressive. So one is if you are in college, and you’re looking to create a business, this is a potential opportunity. He capitalized on the New York City market, and  the way it’s structured, where you’ve gotta go through a broker to get an apartment… I know having lived in New York City, New York City is its own animal, so perhaps this exact strategy won’t be applicable to Best Ever listeners who are in college looking to create something, but… It’s just inspirational, at minimum. Perhaps some tactical components need to be reconfigured, but just incredibly inspirational.

Here’s a tactical thing that he talked about for how he has since then (surprise, surprise) grown his portfolio (he’s 24 years old) to 60 single-family units, 12 multifamily — so I should say 60 single-family houses, 12 multifamily units, and a self-storage facility. And the self-storage facility – I was like “Tell me about it.” He’s like “Well, it sounds more impressive than it is. It’s 20 garages, 4,000 square feet.” I’m like “That’s impressive. That’s very impressive.”

He bought that for $120,000, and he found it on the MLS. He talks about that during the interview, so I won’t go into that. But the tactical thing I wanted to mention is how he found 60 single-family houses and 12 multifamily units is by working with REO companies and getting deal flow through them. And I said, “Okay, I’m not gonna ask you which companies you’re getting deal flow from, because that gets into your competitive advantage, and I don’t wanna steal your thunder on that, but the question I have is if you were starting over and you didn’t have the current relationships that you have with REO companies, how would you go about replicating this process?” and he said that an attorney helped him get connected to the REO companies. So he said what he would do is he would focus on networking with attorneys, telling them what he’s looking for and seeing if they have any connections they can give him.

He said another tactical thing you can do is by looking at the deeds and the mortgages and see who’s selling a lot of stuff on the county website, and if they’re selling a lot of stuff, they might be an REO entity. So those are two tactical things that anyone can do to identify these REO companies that might be a good lead source for him to buy directly from.

Theo Hicks: [unintelligible [00:06:48].24] I remember all the way back, when I was close to his age, I did that for Cincinnati… So I know there’s a way to do it for all the county, but for Cincinnati in particular you can get access to the back-end of the auditor’s site. [unintelligible [00:07:06].08] every single property in Cincinnati. In this case you would just filter by — they actually have recent sales too, so you just download the recent sales and filter it by the name of the person selling property, and just see “Okay, this person sold 50 properties in the past month. Maybe they’re an REO company.” Maybe they’re just a big owner who’s selling properties too, so it’s not just necessarily REO companies.

And then going back to the school one – that’s interesting, because most people will graduate with as much money that he had in his bank account in debt. So he did the exact opposite of what people typically do. For me — I was in mechanical engineering, so I’m sure I probably spent a lot of time on school, compared to maybe other majors, but I still had so much free time that I spent on doing stupid things, that I could have spent on obviously doing something like this.

I’m not sure if people think this or not, but they might think “Well, I am a full-time student. How am I gonna have time to do this?” But if people really think about it, you’ve got way more time when you’re in college than you do when you actually graduate and get a real job. So it’s definitely possible, and as you mentioned, this is pretty specific to New York. I didn’t realize that you had to have a broker represent you to lease an apartment. But yeah, this is kind of more inspiration, to get the wheels churning in your mind to think of ways you can add value as a real estate investor to college students… Because every college student is renting, looking for a place to live; you can even be some sort of consultant the same way, even though it’s not a requirement.

This guy sounds like he’s very smart, and very entrepreneurial, and obviously it’s working out for him.

Joe Fairless: I believe it was the book “Things I wish I knew when I was 20.” It’s written by an Ivy League professor, and she talks about different things that she wish she knew when she was 20. I believe it’s this book – she mentions that she gives her students a challenge at the beginning of the year to make as much money as possible with $100. So she gives them $100 and like “Okay, go.” It’s an entrepreneurial class. “Go make as much money. Create a business. Whoever makes the most money wins”, and there’s other prizes, too.

Some people created a business around selling gadgets around campus, others did laundry services… But the winning team that earned the most money — I think it was a shorter period of time than a year. I think it was about a month. The winning team that earned the most money actually did something ingenious… They sold the time that they had to present to their fellow students their business plan and their business. So instead of creating a business, they simply identified a company within that area that would love to have a captive college student audience for 30 minutes, and then they sold their time to that business, and that business presented to the students, and as a result they got access to the students; and the students that had that idea earned the most money.

So along the lines of, hey, Angad’s business, if you’re not in New York City, that exact business might not work, but it’s the mindset of how do we maximize the resources that we currently have available – that’s what this is all about, and that example really came to mind whenever I was thinking about Angad.

The second thing – Philippe [unintelligible [00:10:43].19] He’s an entrepreneur; he scaled from a $3,000 mobile home park to owning ten units now. Based in Nashville, Tennessee. I wanna mention two things about my conversation with Philippe. One is that he had a six-unit that he has now sold, and it was in a college town. One thing that he did to increase the value – he bought it for $120,000, and two years later he more than doubled it in value. He sold it for $260,000. So actually I’ll give you two things that he did, and then I have another lesson learned from him. One is he changed it from tenants to the amount of beds that you can have within the residence. So he didn’t focus on “How many tenants should I have”, he  focused on how many — well, I guess I’m saying it incorrectly. He added more beds in the house. So he added two more beds in the house, and as a result he started charging per person, instead of per-bedroom. I guess that’s the proper way to say it.

So he literally made the living room a place where two more people could live. So one, he changed it from a per-bedroom to a per-bed. Two – and this is what I thought was really interesting – is he had relationships with local vendors, and those vendors would send leads his way, because they’re popular spots for college students, and in exchange he would send his residents to those vendors. Some specific vendors – there’s a Mexican restaurant; a place called Grandma’s Pancakes, and a local coffee shop.

And he would put in the welcome packet for his residents when they moved in, he’d put these cards that the vendors/restaurants gave him, and the residents would show the cards to the restaurants whenever they arrived, and then they’d get exclusive discounts as a result of living at his place. So it was  a win/win. I did something like this for one of my properties, where I reached out to local businesses. I had a card that I printed out. And surprisingly, it was challenging for me to get local businesses on board. I offered discounts in general, but also I’d like to offer discounts that weren’t publicly available. But I went to tanning booths, or tanning salons, I went to a pet groomer, I went to a Payday Loan company… They were very interested; they were actually the most engaged. Surprise, surprise. I went to restaurants… And for some reason – maybe my approach wasn’t the right approach, or maybe the market wasn’t right, or something, but I didn’t have that  much success.

However, from a percentage standpoint, from the couple of companies that I did connect with – Dickey’s Barbecue was one of them; they were really onboard because there’s an entrepreneurial guy who owned that franchise location… The couple of them that were on board – they really helped me have selling points for residents who wanted to move into that apartment community, and it was a win/win.

So I’ve done this approach… It might take more effort than you initially think, but it was a good use of the team’s time to create something like this… Especially if you have a smaller-sized apartment building and you’re not looking to do this in multiple locations. Or maybe it’s actually — if you have one geographic location where you own a lot of properties, that’s good. If you are spread out across multiple markets, then it might not be an effective use of your time, because it just takes a whole lot of time to do it. But in my experience, it was worth it.

I’ll stop there. Theo, do you have any comments there?

Theo Hicks: I was gonna say – do you know if he had preexisting relationships with any of these companies, or did he just reach out to them randomly?

Joe Fairless: He went to the Mexican restaurant a whole lot, he said, so they might have known him. But I don’t think he had a preexisting relationship with them in a formal capacity.

Theo Hicks: I was curious… Because I’m sure that would probably be helpful. If you’re thinking about applying this strategy, think of the places you just go to frequently, and then bring that up in the natural course of conversation if you’re talking to that owner, or whatever.

Joe Fairless: True that, yeah.

Theo Hicks: I was gonna mention something else – we were talking about this on Follow Along Friday; it might have been when we were discussing someone who had a question about buying a smaller apartment, or that didn’t have any amenities on-site, around like a bunch of massive apartment communities that had top-notch fitness centers, and things like that… We talked about you can leverage the local businesses, like fitness centers, movie theaters etc. and try to get discounts from them, and then you can present your property as like a luxury experience, without the luxury price. “So a fitness center isn’t here, but because of that your rents are gonna be lower. But we’ve also got discounts at this coffee shop, this movie theater, this tanning salon, this whatever.” That’s another way that you said you can present this type of concept to your residents as well.

Joe Fairless: Yeah, we’re actually buying a property right now that fits into that category, where there is a fitness center on-site, however literally right next door there’s a state of the art fitness facility, and the management has negotiated only an $8/month membership fee for those residents. And that is an exclusive arrangement that our property has with the fitness center. I think that more stuff like that – exclusive perks… Because then you start moving away from being a commodity and you start differentiating your apartment community in a way that others can’t compete, because you’re not going back and forth on price; you’re actually talking about these additional amenities and relationships that they don’t have.

One other thing I’ll say about the interview with Phillippe – this reminds me of the example you brought up a couple times, Theo, of the gentleman who looked for properties that had a busted foundation. He would actually seek them out and he had a solution for it, where others would run away. In this example Philippe talks about how he noticed that the homes in a certain area had a double garage; they’re two-story, and the downstairs was a double garage. He would convert that double garage into three additional bedrooms. He had three bedrooms, a kitchen and a bathroom that he’d convert the double garage into, and he rents it out to construction workers.

So the house – upstairs it has three bedrooms, downstairs it has a double garage; well, now it’d have three bedrooms upstairs, and then downstairs it’d have three additional bedrooms, and he rents it out on a per-bedroom basis.

So just looking for situations in our market where there’s opportunity to reconfigure the layout of the property, and if you identify a bunch of homes that have a similar configuration and you have a certain business model like that, then you have the opportunity to make twice as much cashflow as someone else.

Theo Hicks: And the same thing can technically apply to apartments, too. Obviously, there’s demand for those larger units, but if you’re in a market where you find an apartment that’s got massive units, and the dollar per square foot doesn’t necessarily make sense, and you can just convert that to two bedrooms instead of one bedroom, and get way more money… Obviously, it depends. Same thing with an extra living space that might not necessarily be in demand in that market, converting that to a bedroom, or keeping it the same… Again, depending on the market.

Joe Fairless: Jameill [unintelligible [00:18:26].10] He is an investor based in Phoenix, Arizona. He specializes in wholesaling. They do over 70 wholesale deals a month. Their business model is to be the wholesalers’ wholesaler. When a wholesaler has an opportunity, cannot find a buyer, they go to Jameill’s group, and Jameill’s group has a list of 80,000 buyers with a 30% open rate, who he and his team send it out to.

The business model is not to be as focused – or nearly as focused – as finding the opportunities, but more focused on having a buyers list that is robust, and being the solution to wholesalers’ challenges if they don’t have buyers for their properties.

Clearly, I had to hone in on how did he create a list of 80,000 buyers with a 30% open rate when he sends out an opportunity. And he says he thinks of themselves as a tech and data company (surprise, surprise), and they have a two-step process. One is his business partner has a software background, so he has a software that they created that scrapes social platforms and the internet for a list of potential people who might be qualified buyers. Think of accredited investors – they look for that type of person.

And then Jameill’s team will actually personally reach out to these people and send them a note through that platform. He talks about what that note says. I didn’t write that down in my notes, but he sends them an intro message, and just by sheer volume of the amount of messages through that software platform that they initially find all these leads, they get a lot of people to say “Yes, I’d be interested in being on your list.” And he’ll search for [unintelligible [00:20:24].25] he’ll search for lawyers, he’ll search for accountants, Facebook groups… They’ll see what you have liked and map that back to if you’d be a likely real estate investor.

So just 1) having a business that is a solution for other people in your industry, who could be perceived as competitors; that’s interesting to me. That could be applied to any business. So one, quick, think of all your competitors. Two, how could you actually be of service to them, so that they pay you for your service. That could lead to some interesting stuff. That’s what he did. And then two is the one-two approach that he and his team take to building that big list. One is you write a software, two is you have individuals reach out to these people.

Theo Hicks: Is his business partner doing it, or do they have VAs doing —

Joe Fairless: VAs. Yeah, it sounded like they have an army of VAs.

Theo Hicks: I was gonna say, I can’t imagine him sending out 8,000 messages to people.

Joe Fairless: No, it’s 80,000 people on the buyers list. That’s an email that gets sent out.

Theo Hicks: It’s probably more than that.

Joe Fairless: But you’re right, if there’s 80,000 people on the buyers list, good point – they probably sent out half a million personal messages.

Theo Hicks: I think on MailChimp the average open rate for the real estate category – and again, this is just MailChimp – is like 10% maybe. So they’re three times what it usually is. So obviously that person will touch them, and rather than just stopping at step one and saying “Okay, here’s who we want to target”, and then kind of just like creating content and sending it out and hoping they see it, they proactively just go after that one specific person and send them a message… And obviously, that seems to be working out.

I bet it’s a very interesting interview, if you go into specifics on how he’s finding these people on Facebook, using the hashtags, or whatever software that he’s writing. Obviously, not every single person is gonna write the software, but everyone can navigate the Facebook, the Twitter, the LinkedIn search function. It might take a little bit extra time, but again, it sounds like they’re using VAs, and 30% open rate is pretty amazing.

Joe Fairless: It is. And I asked him “Do you send that list anything other than deals?” He says “No. I absolutely don’t.” That’s how we approach our private investor list. I don’t send them anything other than opportunities. There has been one exception where I asked them for thoughts on the book that we’re writing – what would they want in that book – because we were writing that book for them, to help them on how to think about passively investing in apartment communities. But besides that, I don’t believe I’ve ever sent an email to my private investor list about anything other than opportunities that we have available.

Cool. And then lastly, Jason Parker – he is an investor in Seattle, Washington, but he’s also a financial advisor with a focus on retirement planning. I enjoy talking to people who aren’t exclusively focused on real estate, so that we get a broader perspective. One thing he says when he sits down with potential clients – he asks them “What is the purpose of your money and why do you have it?” And when he was asking that question, I was like “Man, that’s a  good question.” What is the purpose of my money and why do I have it? I thought about it a little bit (not a whole lot) since then, and I view money as simply a  tool to exchange and to help build lifestyle and do things with. It’s not powerful to me, it’s simply a tool. And by thinking of it as a tool, it allows me to feel good about value exchanges, it allows me to invest in myself by going to a Tony Robbins program… And it’s just a tool to help me become a better person, in that example, or give to all the non-profits we give to at BestEverCauses.com…

So I think it’s just an important question to ask ourselves, “What is the purpose of our money and why do we have it?” I don’t know what the right answer is, but it hit me as something that is a question or two questions that we should ask ourselves, so I just wanted to make note of it.

Theo Hicks: I see it on here, “Not too concerned [unintelligible [00:24:38].18]”

Joe Fairless: Yeah, so you’re looking at some notes that I had during the conversation… And he said that potential clients, when he asked them that, they tend to not be too concerned about leaving money to their kids. They wanna have the same standard of living that they’re accustomed to. But they’re like “You know what – we’ve done what we needed to do for our kids, and at this point, kids, you’ve gotta make it happen or not.” Generally, that’s the sentiment from his potential clients.

Theo Hicks: That’s interesting, because you hear a lot of times people’s goal is the legacy, family wealth, leaving it to their kids… I have a five-month-old, so it might change, but I’m definitely on board with this guy. We could probably talk about that for ours, so… You can move on.

Joe Fairless: Cool. Alright. I think that’s all. That’s all I wanted to mention on that.

Theo Hicks: Okay. Those were really good lessons. I really liked the college guy. It reminded me back to when I was in school, and I did a few things — nothing like this, but I was slightly entrepreneurial while I was in college, to make some  money, just because I didn’t have anything and I didn’t wanna work a regular job at that time.

Joe Fairless: Colleen and I were on our walk the day after I did these interviews, and I was like “And he had $300,000 in the bank account after he graduated college…!” I was just so blown away. I still am. Very impressive.

Theo Hicks: Alrighty. Well, let’s move on to the trivia question. This is the Jeopardy month. Last week the question was “The U.S. state that is home to the two cities that have the lowest cost of living.” The answer was “What is Texas?”

Joe Fairless: Oh, Texas…! My backyard.

Theo Hicks: The two cities – I don’t know if you recognize these… Harlingen and McAllen.

Joe Fairless: Yeah, Harlingen is by the  border. I think they’re both by the border.

Theo Hicks: Okay. The cost of living was 20% below the national average, and way below the highest, which was obviously New York.

Alright, this week’s question is — Yardi Matrix (they’re a real estate research company) just released their biannual rental growth information… So this week’s answer is “The U.S. city with the highest year-over-year rent growth as of June 2019, 8.4%.” So what’s the question? What is that city?

Joe Fairless: Say that again?

Theo Hicks: The U.S. city with the highest year-over-year rent growth as of June 2019. The number is actually 8.4% rent growth in 12 months.

Joe Fairless: Okay, so in the last 12 months trailing June, so from June to June?

Theo Hicks: Yeah.

Joe Fairless: The U.S. city with the highest rent growth, 8.4%… I’ll go with Orlando.

Theo Hicks: Orlando. So the first person to get that answer correctly – you can either submit your answer in the YouTube comments, or you can send an email to info@joefairless.com – will get a copy of our first book.

And then lastly, the free apartment syndication resource of the week – I actually just finished recording the last series of the first part of Syndication School, which goes over the entire process… So we just talked about how to sell your deal. That will be coming out next week. Then we’re gonna go back over Syndication School and go into more detail on some of those episodes, some of those steps.

But anyways, we give away free documents for Syndication School, so we’re highlighting those on Follow Friday at the end. This week’s free document we’re gonna highlight is from series number ten, which is how to structure the GP and the LP compensation. That starts at episode 1597; I believe it’s a two-part series, so 1597 and 1598. First we go over how to structure the compensation for the general partners, so how the GP makes money, and then next one is how you as a  syndicator can structure the compensation with your limited partner. To help you with that, the free document is the LP structure decision tree. It’s basically a series of yes or no questions that you answer, and based on the answer to the previous question we’ll ask another question, and ultimately you’ll land on what’s the idea partnership structure with your investors, whether that’s debt equity, preferred return, profit split, what the limit should be… Things like that. You can download that in the show notes of 1597 and 1598, or in the show notes of this Follow Along Friday.

Joe Fairless: Well, very valuable resources, and they’re free, so definitely if you’re in the industry or wanna be in the industry, take advantage of that. Best Ever listeners, I hope you enjoyed this, and most importantly, got a lot of value from it. We will talk to you tomorrow.

JF1809: Power Connections, Cannabis Properties, & Hiring VA’s #FollowAlongFriday with Joe and Theo

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Theo did the podcast interviews again last week so we’re hearing the lessons that he learned from those interviews last week. The lessons that Theo will be discussing come from Alex Talcott, Brad Stevens, and Dana Wallace. If you enjoyed today’s episode remember to subscribe in iTunes and leave us a review!

 

Best Ever Tweet:

“The idea of the money raising tracker is to see how you are finding investors and know where to focus your time”

 

Free Document:

http://bit.ly/moneyraisingtracker

 


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

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

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


 

JF1808: How to Asset Manage A Newly Acquired Apartment Syndication Deal Part 8 of 10 | Syndication School with Theo Hicks

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Theo explained how to attract high quality residents to your apartment communities yesterday. After you have great residents, you’ll have to focus on keeping them. That is the focus of today’s conversation, starting with resident appreciation party ideas. If you enjoyed today’s episode remember to subscribe in iTunes and leave us a review!

 

Best Ever Tweet:

“When you are hosting these resident appreciation parties, it will result in higher occupancy, less turnover, less bad debt, better and higher quality leads and residents, which equates to a higher net operating income”

 

Free Document:

http://bit.ly/weeklyperformancereview

 


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

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

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


 

JF1802: Staying In Touch With Clients, Pulling Permits, & The 5 10 3 Rule #FollowAlongFriday with Joe and Theo

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Follow Along Friday today will be the top lessons Joe learned from his interviews for the podcast last week. Joe also adds his own actionable tips and tactics to the lessons he shares today. If you enjoyed today’s episode remember to subscribe in iTunes and leave us a review!

 

Best Ever Tweet:

“Those tasks might not seem super important to do everyday, but they add up over time”

 

Free Document:

http://bit.ly/buildingyourteam

 


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

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

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


TRANSCRIPTION

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

Today is Friday, and that means it’s Follow Along Friday. With us, Theo Hicks. Hello, Theo.

Theo Hicks: Hey Joe, how are you doing today?

Joe Fairless: I’m doing well, and looking forward to talking about some lessons that I learned from the marathon of interviews that I did last week, on Thursday. As a refresher, Best Ever listeners, these are lessons that when I interview — I usually interview about nine people on Thursdays. We batch the interviews obviously on one day, and that allows us to be ahead of schedule in the interview, and then it also allows me to focus on other things throughout the week, specifically buying apartment communities and making sure they’re successfully executed on the business plan.

The way we wanna structure today’s conversation is talking about some lessons that I learned during those interviews that I did. These interviews have not aired yet on the podcast; they will air in 3-4 months or so, so you’re getting a preview of some things that are coming up, and some takeaways, too. Some very practical tips.

I’m very excited to talk about what we’ve got today, because we’re going from talking about nine ways to stay in touch with your clients, whether you’re a real estate agent, whether you’re a multifamily syndicator, or whether you’re just a fix and flipper or a wholesaler – nine ways to stay in touch with your clients, your customers after the closing.

We’re also gonna talk about some construction tips – or a construction tip – as well as something that someone lost $75,000 dollars on, and why they lost $75,000 on the deal, and some personal development stuff.

First, let’s just kick it off with an interview I did with Tony Ray Baker. Tony Ray is based in Tucson, Arizona, has been a real estate agent for 25 years, and he gave (among other things) nine tips that he uses to stay in touch with his clients after he closes on a transaction with them. And again, these nine tips (or really tactics) are applicable to not only real estate agents, but apartment investors, wholesalers, fix and flippers… Really anyone. So let’s go and do the nine quickly…

One is he has a black book of vendors, so anytime one of his clients has an issue with their house, then he gives them a list of vendors that he recommends and that he has relationships with. That way, they can resolve whatever issue that they have.

Two is he and his team are foodies, and as a result they have restaurant recommendations. So it’s more than just real estate-related, it’s something that him and his team really love – food; and good food, apparently… And they have good recommendations.

Thinking about this from your standpoint, when you’re thinking through how to implement this in the business, and my standpoint too, what are some things that I’m passionate about, that In really like, what are some things that, Best Ever listeners, you really like, and how can you make that something valuable that you can share with your clients?

I really like concerts, I also am really into chess recently… I just reached out to someone to give me some lessons, on some tips, which is another story… But I think there are ways to incorporate what we really enjoy, and also make that added value to our clients and our customers or our investors. So restaurant recs is the second thing that he gives, but again, that can be personalized based on what you’re into.

Three, he does a snail mail newsletter, and he doesn’t talk about real estate, he talks about fund things that he does with his team, and places that he travels to. I do a newsletter to my investors – and Ashcroft’s investors – on a monthly basis. It is a snail mail newsletter where we interview an investor and we also profile certain businesses that our investors have who are entrepreneurs, that we want to highlight to high net worth individuals that we mail this out to, because they’re all accredited investors of ours…

So this is something that I am currently doing, and I don’t know what the ROI is on it, but I can tell you that it seems like it makes a lot of sense, and that’s why we do it, because it’s a way to build a relationship with certainly the investor who we’re profiling, because we’re interviewing them, but then also it’s a way to build a relationship – or stay top of mind in a relevant way, I should say – with the investors who receive it via snail mail.

The fourth thing is the email campaign — and by the way, if you are an investor with us and you are not receiving that snail mail newsletter, then you can email info@joefairless.com and we’ll make sure that you get put on that list, or we get your address correct.

The fourth thing is an email campaign that he sends out every month to his clients. This is something that is unique, in that it’s a dynamic email where you can plug in your mortgage information on the current home that you own, and you can determine how quickly you can pay off that mortgage… Or rather how to pay off the mortgage early, and what’s it look like, is it a good time to refinance or not to refinance… So within the email itself you can do different scenarios, and that allows you to see “Oh, should I sell, should I not sell? Should I refinance? Should I pay off the mortgage early?”

I asked him what program he uses, and he said he uses a program called HomeBots. It’s a lender program, so usually agents team up with lenders and they incorporate this service. It is a pay-to-play service. You can check that out if you are a real estate agent, but just the concept is applicable to anyone, and that is having something that’s more dynamic in the email itself, that can pique curiosity about what that person’s situation is currently, and then that curiosity can lead to action to drive more business for you. So that’s the fourth thing.

The fifth thing – and I’m gonna go through the rest of them pretty quickly. Talk on the phone at least once a year with his past clients. Six, involve them in a wine club or a  pet group. Tony Ray loves wine, and volunteers for some pet organization… So involving them – he didn’t really get into details about how they’re involved, but I think it’s pretty straightforward with wine; they’ll drink wine together probably. And pet group – I don’t know, they volunteer or something together.

Six is do appreciation parties. He talks about how he has people over to his house once a year, I believe, and he has local bands that come and they all just hang out. Clearly, it depends on how much land you have, what your housing setup is if you’re gonna host people, but certainly you could rent a place out, or do something else like that.

Black book of vendors, one. Restaurant recs, two. Snail mail, three. Email campaign with dynamic info, four. Talk on the phone, five. Involve them with a wine group or pet group, six. Do appreciation parties, seven. Randomly text them, if he’s thinking about them, eight. And then social media, nine.

So those are nine ways to stay in touch with the clients, your customers, after closing. I thought it was really relevant, and certainly it’s a lot of interesting tactics.

Theo Hicks: Yeah, that first one, black book of vendors, reminds me of a blog post we wrote about how to find off market apartment deals, and it was talking through different apartment vendors. But there’s a guy in my neighborhood, our landscaper, who’s like THE guy with all the different vendors. If you’ve got an issue, you go to him and he tells you “Hey, here’s a pest control person. Here’s a contractor that can help you fix a leak in the bathroom…” (we had a leak in one of our bathrooms).

Anyway, so I was  thinking, another interesting strategy – I guess this would be better for real estate agents, but I’m pretty sure it would work for investors as well – is to find that guy in your market or in your neighborhood, and then essentially find a way to do some sort of partnership with them. Because if everyone’s going to them for recommendations, and you’re an agent and someone goes  to them and  says “Hey, by the way, do you know someone who can list my house? Do you know someone who can help me find a house?”

The reason why you’re gonna want to use someone that has that black book of vendors is if you keep using them over and over again, and they keep giving you good recommendations – if you can be that person for recommendation, it’s basically free business you’re getting from people. And depending on how big they are and how well-known they are in the community for their recommendations… I’m not sure if it’s just like a Florida thing, but there’s certain people out here that are like the hubs of all of the different recommendations for your home. If it’s like that elsewhere, it’d be good to find that person and get in their  black book.

So it’s kind of slightly the reverse of this, how to stay in touch to stay to be the person in the black book, rather than having the black book.

Joe Fairless: Oh yeah, absolutely. So I think it’s being intentional about who you have relationships with, and creating something that has recommendations, and then you reaching out to people who have a wide group of customers or clients, and then saying “Hey, by the way, if you ever need people for XYZ, I’m your person, because I have a lot of different relationships and I can help you find the right person.”

Theo Hicks: Exactly.

Joe Fairless: The second thing is from James [unintelligible [00:11:46].19] is the co-founder which is a brokerage service specializing in building long-term wealth and financial stability for clients. Basically, his company does residential properties, fix and flips, and things like that. Two things that he mentioned that I wanted to point out – one, he said when you’re pulling a construction permit on a house that you’re renovating, he suggests that you pull a permit just for a particular phase of the project, versus the whole building… Because what he did initially is he’d pull a permit for the whole building, and that didn’t allow him to earn income by renting out one of the sides of the building.

Say you’re doing construction on the floor units – he would initially do the full building, and then he was out income during the construction phase of units 1, 2 and 3, even though he’s only working on the fourth unit… Whereas now he pulls the permit for the particular unit that he’s working on, or a particular aspect of the building he’s working on, and he’s able to still get income from the other side, or other sides. That’s one thing that he’s learned… Because I asked him “What are you doing differently now, versus when you started?” He said “Well, I’m not pulling the full permit on the building, that way I can make money along the way, during the construction phase.”

Another thing on a separate note is I asked him “What’s a deal you lost money on?” and he said he lost $75,000 on the house, and there were two reasons why. One is he ran into contractor issues, so he went through two GC’s and a subcontractor. That happens, right? But the second thing he mention is on that same property the driveway was steep and he thought he could grade it, but he had put $35,000 in structural concrete walls, and he also had to get a permit… And he said if it’s a structural item, slow down during the purchasing process or during the evaluation process, just to make sure that you’ve got all your costs estimated properly. He said it was so steep that one of his project managers a week on the job actually totaled his car trying to pull into the driveway, because it caught the tires and then the tow truck came, and the tow truck pulled the axel off, or something like that…

Theo Hicks: Wow…

Joe Fairless: Yeah, crazy. So just cautionary tale for that… Any comments on that one?

Theo Hicks: I do not know.

Joe Fairless: Okay. And then lastly, Gary Boomershine. I really enjoyed our conversation. We talked about probably a direction he didn’t think we were gonna go, and I’m glad that we went this direction… We talked more about how he has built his company and some things that he has in place. He mentioned at the beginning of our conversation — Gary founded RealEstateInvestor.com in 2005, and REIvault.com, he also has that… So he’s got like 90 or so employees, I believe; don’t quote me on that part. But he’s got a decent-sized team, and he talked about how he is in I wanna say nine masterminds, and they range from $15,000 to $50,000. I asked him some things that he’s learned from those masterminds, and he mentioned a couple of things… That’s what I wanna share with everyone.

One, he mentioned the 5/10/3 rule. So wake up at 5 AM, don’t start the business day until 10 – so from 5 AM to 10 AM he journals, he reads, he cleans, he comes up with one thing, or now three things that he’s gonna do today that will move the marker in the business. That’s kind of business, but still, it’s more planning, not executing. He’s in the gym for two hours… That’s a lot of time, by the way; 5 AM to 10 AM – what the heck are you doing? He’s like “Well, I’m in the gym for two hours.” He said he journals for about an hour and a half…

And then the three is he finds three things that he’s gonna do today, that will move the needle. I’m not gonna do the 5/10/3 thing because that 5 AM and 10 AM gap is too much for me, but I’ve found it interesting, and maybe that’s something that some Best Ever listeners wanna practice. Certainly Hal Elrod’s approach for the Miracle Morning is noteworthy to mention during this conversation too, so checking that out… That’s one thing.

Two is that once a quarter he flies his team to meet in person, and Theo, I think I’m gonna start doing this, once a quarter having you fly in to meet, along with Cody and some other team members… Because I think it’s important for us to meet in person. Four times a year, it’s not that big of a deal to get together four times a year… But it will be important just to recap what that quarter looked like and where we’re headed.

He also mentioned that he noticed that he has initiative in business, he’s initiator in business; he’s very proactive… But not as much in his personal life, so he’s working to correct that. And I noticed I’m the same way. I’m an initiator in business, but I don’t take as much initiative planning things, or doing certain things in my personal life. So I took a page from his book and I’m gonna be more intentional about that.

And then lastly, he has a family calendar, and I thought that was a useful thing to have. I’ve got a business calendar clearly, but what about a family calendar for things that we wanna do or experiences we want to have, or people we want to see. I thought that was something that was worthwhile to do.

Theo Hicks: I’ll work backwards… With the calendar part – I remember growing up we had a family calendar, and we had different-colored markets for all the different personal things the kids got to do for that month… So that’s something you can do too, have a calendar and just color-code it for business and for personal. I guess you can do it on your phone, but I think it’s better to actually have it, maybe put it on your backwall, or whatever.

Joe Fairless: Yeah.

Theo Hicks: And then for that 5/10/3 rule – I think that’s interesting. Obviously five hours is a long time. I think the whole idea behind it is figuring out and dedicating a block of time to those tasks that might not seem super-important by doing them each day, but they definitely add up over time. So you can tell yourself, “Well, I can work out tomorrow”, but if you don’t ever do that and you go months and months without working out, that’s gonna be an issue. Same with obviously cleaning your house, same with journaling, reading, things like that.

And then also, for me just figuring out what time of the day you’re most productive. Most people can work 2, 3, 4 hours straight, depending on your attention span. And just figuring out “Okay, if I start working at 10 and I work from 10 to noon, or 10 to 2 non-stop, working that 2-4 hours will be more productive during that time than if I started working at 6 AM till 10 AM, or 6 AM till 11 AM, 12 AM, or whatever. Just figuring out when you’re the most productive, I guess, is my point. And then – I agree with you, 5 AM is a  little bit too early for me, but I can maybe do like a 7/9/3, or something like that.

Joe Fairless: What about the quarterly meetings?

Theo Hicks: I’m down with this. Try to do it on poker was the first thing that came to my mind. I keep seeing those on Facebook, and I can’t play… I haven’t played poker in a while.

Joe Fairless: For some context, Best Ever listeners, I run a monthly Cincinnati meetup, and from that meetup has spawned a monthly poker game, where we just rotate at different houses and we all play poker once a month. Low, low, low stakes.

Yeah, well, I would love to schedule it during a poker night. Cool.

Theo Hicks: Alright, let’s move on to the trivia questions. Last week’s trivia question ended the month of international questions… The question was “What country is home to the most expensive house in the world?” and the answer was the United Kingdom. Buckingham Palace, which is valued at 1.55 billion dollars. So if you’re interested in moving in there, I guess you need to raise a ton of capital.

This week’s question —

Joe Fairless: Is it for sale? I don’t think it’s for sale.

Theo Hicks: I don’t think it’s for sale, but I think if you offered 1.7 billion they’d probably sell it to you.

Joe Fairless: Okay…

Theo Hicks: All cash… So this month we’re gonna do Jeopardy-style questions, so the answers are gonna be “What is…” and then the answer.

Joe Fairless: I hated Jeopardy… Go ahead though.

Theo Hicks: The city where 63% of the people who are searching for a place to rent are from outside that particular city? So this is a city that’s attracting the highest percentage of people in the country. What is that city?

Joe Fairless: The city where 63% of the people who are searching for a place to rent are from outside the city… Well, New York City is the number one thing that comes to mind. If I was having to put a dollar on this, I would say New York City. But since I don’t have to put a dollar on this, I’m gonna say San Francisco.

Theo Hicks: Okay. So the first person to answer this question correctly – you can either submit your answer to the YouTube comments below, or at info@JoeFairless.com and you’ll get a free copy of our first book.

Then lastly, we’re going to discuss the free apartment syndication resource of the week. Each week, every Wednesday and Thursday we release two Syndication School Podcast episodes – they’re also on YouTube as well – where we talk about the how-to’s of apartment syndications. For all of those series we release some sort of free document for you to download.

This week’s document is from series number eight, which is about how to build your all-star apartment syndication team. That starts at episode 1548. We’re basically walking through all the different team members that you need to bring on, in what order, and then how to interview them, and then what to expect them to ask you. The document we gave away for the episode that we’re highlighting is the team-building spreadsheet. Essentially, it’s a spreadsheet that lists out all the team members that you need, and it’s a place for you to track your progress for building your team, so you know who you’ve talked to, who you’ve actually decided to hire, and then all of their contact information. You can download that at the show notes of this episode, or at the show notes of 1548, or at SyndicationSchool.com.

Joe Fairless: Theo Hicks, I enjoyed our conversation. Best Ever listeners, thanks for hanging out. I hope you got value from it. We’ll talk to you tomorrow.

JF1795: Sales Skills, How To Grow A Podcast, & Overcoming An Identity Crisis #FollowAlongFriday with Theo and Joe

Listen to the Episode Below (00:26:17)
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Follow Along Friday will feature some of the best things that the guys learned last week. They’ll be covering a lot about sales skills and emotional intelligence. These tips are coming from both the interviews, as well as a lot of personal insights from Joe. If you enjoyed today’s episode remember to subscribe in iTunes and leave us a review!

 

Best Ever Tweet:

“You’re not going to create a successful podcast in a month”

 

Free Document:

http://bit.ly/companypresentationtemplate

 


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

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


TRANSCRIPTION

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

We’ve got Follow Along Friday today, Theo Hicks with us… And we’re gonna be talking about lessons learned — he did some interviews last week for the show; he’s gonna be talking about lessons learned. Let’s go ahead and get right into it, my friend.

Theo Hicks: Alright, let’s do it. I’ve got lessons learned from two interviews. It should be two lessons, might turn into four; we’ll see. I usually talk a lot on these, whenever it’s my turn to talk about interviews, I’ve realized that the past couple of weeks.

So one person I interviewed – Travis Chappell. He’s a sales consultant, real estate investor, and he considers himself a professional connector because of his podcast, which is called “Build your network”, and is a top 25 business podcast.

We broke the conversation down into two sections. One was talking about his direct sales experience, and the other one about the podcast.

For direct sales, it was interesting… I can relate, because I was in direct sales; a little bit different than his. He was doing door-to-door sales, so he was going door-knocking, door-to-door, selling — I can’t remember exactly what he was selling but something interesting that he mentioned about the skillset that he learned from doing these door-to-door sales was emotional intelligence. He called it a crash course in EQ.

He said one major thing that he learned through his door-to-door selling experience is that when you talk to people, they’re not going to actually say out loud what they are thinking… At least not right away. And when they don’t do that, you need to learn how to understand what people are saying through non-verbal communication. Their body language, how they’re looking at you, where they’re looking, things like that.

I was asking questions, “How do you learn how to read people’s nonverbal communication?” and really the only way to do it is to do it. To actually put in the reps. We talked about it metaphoric to working out. Let’s say I want to become a world-class bench presser. Well, I could read all the books in the world, all the blogs in the world, listen to all the podcasts in the world about how to become a world-class bench presser, and it’s going to help, but I’m not gonna become a world-class bench presser unless I put in the actual reps in the gym.

Same thing for learning how to read people non-verbally, as well as really anything in life. It’s important to read about nonverbal communication, as Travis was talking about, but it’s even more important to actually go out there and put in the reps. He would talk to 25+ people every single day, and doing that for years, he learned how to just instantaneously read someone non-verbally, even if they’re saying something completely different.

Joe Fairless: This is something that I think I can add my two cents in, that will be helpful for the Best Ever listeners… Because I consider myself very good at emotional intelligence. It’s something that comes naturally to me, where I can pick up on things that are subtle nuances whenever I’m speaking to people, if I’m in-person or over the phone… Probably because of the sheer number of conversations I’ve had. I’ve interviewed more real estate investors than anyone else in the entire world… But then also it’s just a gift that I’ve had throughout my life.

I went to a conference this past weekend – Michael Blanc’s conference; I was speaking at that conference. And at conferences, at meetups, typically you’re going to have a chance to observe this dynamic, where people are talking, one person’s more interested in the conversation than the other, or the conversation has run its course, but one person doesn’t know the conversation has run its course, and the other person is trying to get out of the conversation, but won’t announce “Hey, I’ve gotta bounce.”

On that related note, Tim Ferriss talks about a way to get out of a conversation and talk to other people by simply saying “Hey, I’ve gotta run, but are you gonna be around for the rest of the conference? I’d love to continue to meet up with you or talk to you.” That way it doesn’t feel like it’s an ending, it’s just “to be continued.” So there’s one tip for you if you’re trying to get out of the conversation, or if you’ve gotta go to the bathroom. “Are you gonna be around for the rest of the conference? If so, great. Let’s continue to connect.”

But the tip I have for how to really identify if you’re picking up on the cues or not from someone else, is to put less emphasis on ourself when we’re talking to people and put more emphasis on the other person. It sounds kind of obvious, but I don’t think a lot of people do that.

For example, this past weekend I was at the conference, and I get a decent amount of people coming up to me and talking, and I really enjoy it. But then at the end of the conference, whenever Colleen, my wife – and we actually had our daughter, a nine-month-old, with us – we were looking to leave, there were a bunch of people who kept coming up. And if the people towards the end of that were picking up on my nonverbal cues – I’m starting to wipe my face, and itch, and twitch, and stuff – they would have identified “Hey, I think he’s needing to bounce.” And I could have used that example, the tip I said earlier, “Hey, are you gonna be around?”, but we were actually leaving for the conference, so I needed to try and end the conversation; eventually, I just kind of had to interrupt them during their conversation with me, like “Hey, I really enjoy getting to know you, but we’ve gotta go.”

So in order to hone this skill set, my opinion – it’s simply being more self-aware. And how do we become more self-aware? Well, whenever we approach conversations with people, we intentionally (we have to have intention with this) put more emphasis on them than we are ourselves or the stories that we’re telling. Even if we’re really excited to get some message out, or our background about where we came from, or a deal that we’ve got, still check in with them through eye contact; not necessarily asking “Hey, how are you doing? Are you enjoying my story?”, but check in with them with eye contact, and just notice, just mentally notice what’s their interest level. Because if they’re checked out or if they’re starting to twitch, or sway, or maybe look around the room, then you might not have as receptive of an audience, so you’ll need to pivot or you’ll need to change your approach… Or you’ll need to wrap it up.

That can tie to your bottom line as a business professional, because ultimately people remember how things end with you. And there’s studies on this, there’s a book – I forget the book, but it talks about a doctor who does colonoscopies, and they did studies on this; people who get colonoscopies, if you give them an intense amount of pain, like major, intense, big-time pain during the middle of the colonoscopy, but then taper it off towards the end, they’re gonna have a better perception of the experience than if you give someone a little bit of pain towards the middle, but then just slightly more towards the end… Because they’re gonna remember how it ended more painful than it began. And same with conversations, same with deals with your investors, same with anything that you do in business. It’s a psychological mechanism — not mechanism, but it’s a psychological trait that most of us have, where we’ll remember most of our experience about the end, but it’s kind of tough to remember during the middle and beginning stages of stuff. It’s just how it works.

So when you’re having a conversation with someone, check in with them, because regardless of how much rapport you’ve built up with them from the beginning and the middle, if you’re losing them towards the end then it’s gonna not be as good of an experience with them.

Theo Hicks: Yeah, that’s a lot of great advice. There’s one thing to add – I guess another specific thing you can pull from that is if you go to a conference and you wanna talk to a speaker, do it at the beginning or the middle of the conference, don’t wait until it’s over.

Joe Fairless: Yeah. And Tim Ferriss — apparently, I’m on a Tim Ferriss kick here on today’s episode… But Tim Ferriss talks about when you are at a conference, instead of going up to have a conversation with the speaker, go up and give them a handwritten note or something, that they can slip in their pocket. Say “Hey, I know you’re busy, you’ve got a long line. I appreciate what you do. Here’s a note for you. Feel free to read it whenever. I hope you enjoy the rest of the conference.” That’s a way to stand out, and your likelihood of having that person follow up with you afterwards is much higher than if you had just approached them and had the conversation with them… Because it’s tough to remember who’s background ties to who, and who you should follow  up with, who you shouldn’t… So give them that handwritten note.

Theo Hicks: Alright, so the next lesson I learned also from Travis Chappelle – as I mentioned, he has a top 25 business podcast, and so a natural question would be “Well, how the heck do I get a top 25 business podcast?” or “How do I create a top podcast?” This is something that we already know; we’re talking about the podcast a lot, but it’s just great to hear it reinforced by someone who actually has a successful podcast… And I know something that me and Joe talked about maybe six months ago, which is instead of thinking about things in terms of months, thing of things in terms of decades, or at least in years. That’s the advice that Travis gave about creating a podcast. You’re not going to create a successful podcast, YouTube channel, thought leadership platform in a month, in two months; maybe not even in six months. It’s going to take years to grow an audience.

He was saying that his number one tip for people who want to start a podcast, start a YouTube channel, is to upfront realize that it’s a five to ten-year play, and not something that’s going to be something that you’re going to get a million dollars or a million viewers in six months. So it’s just kind of reinforcing that… And something that he said that’s very interesting was “Take time now to save time later.” Invest that 2, 3, 5 years into creating your podcast; once the ball is rolling on that, then it’s kind of like — I’m making a graphical with my finger… It’s gonna shoot up. It’s gonna be very slow at first, but then once you’re getting to that point where the ball is rolling, you’ve built up momentum, the results you get – either viewers, or sponsorships, investors, whatever your goal of the podcast is  – are going to increase exponentially, once you’ve put in the time. But it’s not something that’s a gradual increase. It’s going to be slow at first, and then shoot up. So it’s really good to hear that be reinforced by someone who has actually got a pretty popular podcast.

Joe Fairless: Yeah, I wholeheartedly agree. Sound business advice.

Theo Hicks: One other quick thing about the podcast too that was interesting – because a lot of people are probably thinking when they’re starting a podcast, “Well, Joe Fairless is out there making a podcast, so why am I gonna make a podcast if he’s already there with all these viewers?” Tim Ferriss, Tony Robbins – you name it; whoever has a successful podcast right now… “Why would I do that?” So it’s kind of coming down to having the impostor syndrome is what Travis mentioned… And one way to get over that is to 1) understand that Tim Ferriss, Joe Fairless, everyone was at the same point you were at at five, six, ten, whatever years ago. Something else is that if you don’t think you have enough knowledge in your mind to do a podcast – which probably isn’t true, but if that’s a roadblock that you have – then just do an interview-based podcast. So interview the experts instead. Rather than it being your expert advice, it’s someone else’s expert advice.

Something else that Travis talks about – and we’ve talked about that on the podcast before – by doing that, you become an expert. You become perceived as an expert, but you also become an expert, because you’re able to curate your own customized education by interviewing the top people in whatever industry you are in.

Joe Fairless: Absolutely.

Theo Hicks: The other interview I did that I wanted to talk about was with Logan Freeman. He was on the podcast before – this was a Skillset Sunday, so the second time… He’s an ex-NFL player with the Oakland Raiders. He transitioned from the NFL to becoming a real estate investor, developer and agent.

Joe Fairless: He’s in Kansas City, right?

Theo Hicks: Yup, Kansas City, Missouri.

Joe Fairless: Yeah, I remember our conversation.

Theo Hicks: A very powerful interview. He mentioned a lot of things that are very inspiring, just because he went through a pretty big identity crisis, and not only with the NFL, but he lost his father as well… And one question I asked him was — because everyone at some point in their life goes through a major or a minor identity crisis; maybe you’re going through one right now… And I asked him “If someone’s going through that right now, what’s the first thing that they need to do in order to take that first step to transitioning into something new?”, and he said something really interesting… He said “Take time to take inventory on what your beliefs, your values (he said limiting beliefs) are, and then pick one of them that you think is the thing that’s holding you back the most and focus on figuring out how to remove that.” So whatever it is – you’ve probably got a million limiting beliefs, or 100 limiting beliefs; find the one that’s the biggest roadblock and then remove that one first… And that’s it.

Joe Fairless: Did he give an example?

Theo Hicks: He didn’t give a particular example.

Joe Fairless: What would be one?

Theo Hicks: Well, we can just go back to the podcast example about growing a podcast, and you’re thinking that “Okay, I wanna start a podcast, but my reason why I’m not starting a podcast is because Joe Fairless is already out there, and they have all the viewers, so why would I waste my time doing a podcast if 1) I don’t have the expertise, plus why wouldn’t someone just go to Joe?” Well, that’s probably a huge limiting belief that you have, that you can’t be a Joe Fairless, or you can’t be a Tim Ferriss. So if you remove that limiting belief – and the best way to obviously do that is what we mentioned, is to interview other people on your podcast. If you’re not the expert, then just interview someone else who is the expert. That’s what you did, that’s what a lot of successful podcasters do.

It’s not about just identifying it and saying “Alright, I’ve figured it out. Alright, Theo, remove the limiting belief.” It’s not that easy; you have to actually do something to overcome that. In this case, if you’ve got impostor syndrome as your limiting belief, then the way to overcome that is to actually go out there and interview people instead. It’s not gonna be easy, but that’s essentially what you need to do if you truly want to grow a podcast and get over that issue that you have.

Another example that he gave as well, that I’m thinking of right now – this is another thing I wanted to talk about [unintelligible [00:16:51].24] is about goal-setting. So when he took inventory on his goals, he realized that a goal that he had set was actually holding him back from scaling his business. The example is his goal for the year was stability for his family, financial stability. So by focusing on financial stability, he was missing opportunities that would allow him to move his business forward, and it kind of blinded him to other opportunities that were maybe not as stable, maybe a little bit more risky… He didn’t give any specific examples of this, because we were at the end of the podcast, but… I thought that was interesting, because a lot of people talk about their goal being financial independence, financial stability, but what happens after that – or is that something that’s potentially holding you back from achieving financial independence, by focusing on just being stable and just hitting this one number? Grant Cardone talks about it, 10x-ing things… I’m sure Tony Robbins has a similar concept as well…

I thought that was really interesting. That’s why it’s important to take inventory on your goals, he said. Because if you set your goal for a year and don’t look at it ever again, then you’re not going to be able to realize if that’s actually holding you back. So if you have a goal that’s actually holding you back from scaling, then you wanna identify that sooner rather than later. So taking inventory in your goals each quarter or each month is better than doing it each year, or every five years, or I guess never doing it at all… Because you really don’t know if something’s working unless you are taking the time to think about it… And it could just take an hour, a recorder, just to evaluate “Alright, so my goal is stability. What have I been doing to get stability? Is there anything else that I’ve missed? Any opportunity costs from this particular goal?”

Joe Fairless: That’s exactly right; that’s what I was gonna mention, you just stole the words out of my mouth… It’s identifying what are the opportunity costs as a result of me focusing efforts on this? Because there’s always opportunity costs. You decide you wanna go to the grocery store – well there’s an opportunity cost; it’s what you could be spending your time doing while you go to the grocery store. You decide you want to get it delivered instead; well, there’s an opportunity cost because maybe that’s not quite as healthy as buying food from the grocery store. Anything we do in life, any action we take, there’s an action that we could have taken in its place, and that could send us on a different trajectory. So just being aware of that…

Personally, I go over my goals… I have a column — they’re actually to the left of me, and on my vision board in front of me… I call them categories of improvement; and I do that — let’s see… I created my list for this year on December 28th, 2018, so right before the new year, and then I do a check-in around July, and I’ve already done that for this year. I’ve done that the last two years.

So I have categories of improvement. I’ve got personal – body, diet, relationship, personal development, fun – and then I’ve got professional: revenue goals, launching our book that we’re writing together, giving away a certain amount of money to non-profits every year, that sort of stuff. And just check in on the quantifiable progress of them in the July time period, six months after, and see what (if anything) should I revise, or maybe consolidate. Maybe there’s a lead domino. I know that if we perform on our current portfolio and we really focus on that, then everything else will be taken care of, because I’ll have more time to do other things, because our business is doing so well. So it’s also identifying what is the lead domino, what has implications on everything else.

Theo Hicks: Yeah. It’s interesting – of that list, a lot of those things don’t seem like they’re necessarily directly related to your real estate investing business, but it all is. Even, for example, you said nutrition. If you’re not eating healthy or you’re not eating enough, then you’re not gonna have the energy or the focus to actually work on your business. Same with working out, [unintelligible [00:20:52].22] sleeping, whatever. Personal life, if you’ve got issues… I can’t remember, I was interviewing someone and they mentioned something along the lines of one of the main reason people fail in business is because they’ve got some personal issue going on. Or the main reason they’re underperforming at work is because of some issue going on at home. So that’s another perfect example of why you need to have relationship goals, personal goals as well.

Joe Fairless: Yeah. I don’t subscribe to the philosophy of “how you do one thing is how you do everything”, because there are certain things I just don’t care about, so I slack off on certain stuff and I put my focus on other things… So I don’t subscribe to that, but I do subscribe to how most things are connected. It’s more about being intentional about your approach; because I think you can slack off in certain things.

For example, I used to be more competitive in sports – in softball, for example. Our softball team is terrible, as you know. You played on our team a couple years… And I used to be really competitive there, but now I realize it’s more about just getting out there and having fun and enjoying the process, and perhaps that’s everything. I don’t slack off, but I have a different mindset… Whereas I wanna enjoy the process in all aspects of life, but I’m much more competitive with business and other things, because it’s not just about enjoying the process, it’s also about making sure that you achieve the desired results.

So I think all the things are certainly connected, but it’s also being conscious and intentional about what you choose to focus on. As long as you have that consciousness, then I think you’re good.

It’s just when you go on autopilot and subconsciously there’s areas that are blind spots for you, that’s where you can get into trouble. That’s where you get into people who try to — Jim Rohn talks about this; I’ve been listening to him a lot recently… He talks about how people try to clean up an organization when they still haven’t even cleaned up their own garage at home. Like, how do you clean up an organization if at home you’re not organized? Same type of thing.

Theo Hicks: Exactly. Alright, so those are the lessons that I learned from the interviews last week. Of course, many more lessons, so make sure you check out those interviews coming out around the October timeframe.

Alright, so this is the last week of the international trivia questions. Last week we had Jason on the podcast and I asked him the trivia question “What country has the highest homeownership rate?” And I think he said Croatia, because I specified it to Eastern Europe, and the answer is actually Romania. 96.4%. That’s by far the highest home ownership rate out of any country in the world.

This week’s question is “What country is home to the most expensive house in the entire world?” And I promise you – just to give you a hint –  when I say the answer, you’re gonna be like “Oh, of course!” [laughs]

Joe Fairless: Okay, what country has the most expensive house in the entire world… I’ll go with Switzerland.

Theo Hicks: Switzerland. So if you want to answer this trivia question, either submit it in the comments of the YouTube video below, or email it to info@joefairless.com. The first person to answer it correctly will receive a copy of the first book.

Then lastly, we’re gonna discuss the free apartment syndication resource of the week. As guys and girls know, we do Syndication School each week (Wednesday and Thursday), where we go over the how-to’s of apartment syndication. For each of those series we give away at least one free document, spreadsheet, template, something that accompanies that episode that’ll help you scale your apartment syndication business.

This week’s highlighted document is from series number seven – we’re actually on series twenty right now – and it is on the power of the apartment syndication brand. Those episodes – I believe it’s a six-part series – start at 1535, and it’s actually three or four free documents for that series. Last week we talked about the branding resources; this week is the company presentation template.

So once you are starting out your company, building your team, you’re going to want to have a presentation that you can use, that tells people not only about your team, but about your business plan. This can be used when you’re having conversations with investors, with team members, with business partners… So make sure you check that out. You can download that for free, either at SyndicationSchool.com or in the show notes of this episode.

Joe Fairless: Awesome. Well, thanks everyone. I hope you enjoyed our conversation, and most importantly, got value from it. We’ll talk to you tomorrow.

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

Listen to the Episode Below (00:47:59)
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Today’s episode was recorded at the meetup we host in Cincinnati every month (bestevercincy.com). Gaston has attended the meetup for years, and we have personally watched his growth as a real estate investor through the years. He’s scaled up to 240 units over the past few years, with no syndications or funds, all of the units are his own, acquired through traditional financing. One huge difference between Gaston’s business and most others that you’ve heard of, he buys bad properties (until he turns them around) in bad areas, which goes against the traditional advice you usually hear to “buy the worst property in the best neighborhood”. We’ll hear his story of getting to the level he’s at today, and how he plans on continuing the growth. If you enjoyed today’s episode remember to subscribe in iTunes and leave us a review!

 

Best Ever Tweet:

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

 

Gaston Teran Real Estate Background:

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

 


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

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

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


TRANSCRIPTION

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

Gaston Teran: Good, thanks for having me.

Joe Fairless: My pleasure. We are in Cincinnati, Ohio at the Best Ever Meetup. The website is bestevercincy.com, if you wanna come check out/hang out with us. We’ve got visitors from — usually, we have them from all over the surrounding states. We do it the last Tuesday of every month, and we are going to be talking to Gaston today. He is a real estate investor based in Cincinnati, Ohio. He’s the president of GT Apartments. He’s got 240 units, and these 240 units are his 240 units. He has not syndicated, he has not raised any money; these are his 240 units, and he’s built this portfolio from zero.

He started building his multifamily portfolio while working full-time as a corporate controller, left the accounting world to be a full-time real estate investor, and we’re gonna get into it right now. With that being said, Gaston, do you wanna give the Best Ever listeners a little bit more about your background and your focus?

Gaston Teran: Sure. The bread and butter of how my business works has not changed. What we do is we buy distressed multifamily, preferably large, in bad neighborhoods. Usually the occupancy is low, there’s tons of deferred maintenance… We go in, we fix them up, both inside and outside, we get the occupancy up, we raise rents, increase the value, and then hold long-term. Then also there’s usually a cash-our refi component to it, which then funds future purchases.

Joe Fairless: You buy in bad neighborhoods – that’s the opposite of the advice I typically read in books, “Buy the worst property in the best neighborhood.” So why do you do that?

Gaston Teran: Well, I would buy a distressed property in a nice neighborhood, but usually, distressed properties are in bad neighborhoods.

Joe Fairless: Got it, okay. So you’ve got 240 units now. Let’s do a timeline and the progression from 0 to 240, as medium-level as we can. The first property was what?

Gaston Teran: It was a four-family in 2007.

Joe Fairless: You brought a spreadsheet.

Gaston Teran: I did.

Joe Fairless: I did not know that. Nice.

Gaston Teran: It’s because there’s a lot of numbers here, and you like to talk about numbers…

Joe Fairless: I do.

Gaston Teran: …so I wanted to be ready.

Joe Fairless: Good. Okay, so the first property was what?

Gaston Teran: A four-family in 2007. And I held that — I didn’t think much of it. I wasn’t gonna go into real estate; it was just an investment to park my money. And I really got more serious with it in 2013, when I bought an 18-unit.

Joe Fairless: Okay.

Gaston Teran: And on that one, I will note that as we were trying to raise the funds — I had a hell of  a time trying to raise the funds, the banks wouldn’t talk to me… Finally, I did get my mom in as a minority investor for the first two deals, but since then it’s been me 100%.

Joe Fairless: Got it. Alright. So before we jump into the 18-unit, 2007 to 2013 you did not purchase anything.

Gaston Teran: Right.

Joe Fairless: 2010 through 2012, in hindsight, was a pretty good time to purchase, so what were you doing at that point? Was the 2007 purchase that was bought at the top of the market and you were underwater?

Gaston Teran: No… I’m pretty cheap, and in the accounting world — I always was saving money, so I wanted to invest. I didn’t know what I wanted to invest in. I did the four-family, I did stocks… I was kind of lingering around, figuring out how I wanna invest my money.

Joe Fairless: Okay, so you were figuring it out. What ultimately led you in the direction of “Okay, I wanna go larger”?

Gaston Teran: After some time I realized that four-family, if I scale it up, could make some good money, so I started looking a  little bit more seriously, and I said “If the numbers are right, this could be really lucrative”, so that’s when I started seriously looking.

Joe Fairless: And what did you do? Did you act on that thought with the four-family?

Gaston Teran: Well, this is while I was owning the four-family. I was looking then – this would be 2012-2013 timeframe.

Joe Fairless: Okay, got it. So then you  purchased the 18-unit… How did you purchase the 18-unit?

Gaston Teran: It was on the MLS.

Joe Fairless: Are you a real estate agent?

Gaston Teran: I am not.

Joe Fairless: So did you work with one to find it for you?

Gaston Teran: No, I’ve found it on one of the listings, I contacted the realtor, and then I went from there.

Joe Fairless: So do you have access to the MLS as a non-real estate agent?

Gaston Teran: Yeah, just the websites… The different realtor websites.

Joe Fairless: Got it, okay. So a broker had it, they were marketing it, and you reached out to the broker… And then what?

Gaston Teran: Well, I’d saved up quite a bit. I probably had 60% of the money to buy it, and I thought “Surely a bank is gonna put up half. I put in half, you put in half, it’s safe for the bank.” I couldn’t get a bank to look at it. It probably was in rough shape… Not terrible, but it was in rough shape. It was probably 60% economic occupancy… So those numbers hurt, and I didn’t really have a track record at the time, so I was really getting nowhere with the banks.

Joe Fairless: And for anyone who’s not aware of economic versus physical occupancy, will you explain the difference?

Gaston Teran: Sure. Well, it had physical occupancy 90-something percent, meaning say 90% were occupied, but a lot of those people weren’t paying. So roughly 60% were paying.

Joe Fairless: The four-unit that you bought – was it fully occupied?

Gaston Teran: Yes.

Joe Fairless: Okay. So you went from a fully-occupied four-unit, and then an 18-unit that you were looking at, 60% economic occupancy, in a rough area?

Gaston Teran: Yes.

Joe Fairless: What area was it, for people familiar with Cincinnati?

Gaston Teran: Price Hill.

Joe Fairless: Price Hill. So an 18-unit that is 60% occupied (economic occupancy), 90%+ physical, which means you’re gonna have to boot a bunch of people most likely…

Gaston Teran: We booted a lot of people.

Joe Fairless: You booted a lot of people… So you were undertaking a major project. Did you know going into it, having not purchased a property of this size, what you were getting into?

Gaston Teran: Yeah, you can imagine, I haven’t gone through it… With the four-family I had done enough maintenance where I had kind of taught myself, so I was more comfortable with that. I was a little less comfortable with evictions, since I’d only done one or two at that point… But I was ready for it, and I went for it.

Joe Fairless: So how much was the total purchase price, first?

Gaston Teran: It was $190,000.

Joe Fairless: $190,000…?

Gaston Teran: It was a steal.

Joe Fairless: Okay. Hah! When you said “One nine…” , I was thinking 1,9. Okay, $190,000, which still would have been completely an opposite direction; I’m crazy. Okay, so $190,000… So they’re giving it away, essentially… You have 60% saved up, and your mom ended up loaning you the remaining 40% to buy it all cash.

Gaston Teran: Yes.

Joe Fairless: Got it. Then what? You closed on it… Now what?

Gaston Teran: I closed on it, and we went right to work with the evictions, the deferred maintenance, and slowly — I mean, because of my lack of experience, some of the incoming people weren’t the greatest either… But slowly but surely we improved, and that was great.

Joe Fairless: Because of your lack of experience what aspect of it, if presented something similar in the future, what would you do differently?

Gaston Teran: You can’t be a landlord with a heart. When people give excuses, even if they’re good… They could be crying, whatever… As an experienced landlord, you can’t do that. Everything’s gotta be black and white. If they’re late, they’re late. See you later. I was too soft there.

Joe Fairless: Okay… I imagine collecting rent was challenging. In a tough area, that’s a hard part of it usually. So what was your approach for collecting rent?

Gaston Teran: Just to be on top of it. And that makes a big difference. Sometimes property managers get into trouble because they try to do everything remotely, especially when they’re not familiar with the tenant base… And really, I was very hands-on. I was there all the time, working on it, I got to know all the tenants, and that really helped me.

Joe Fairless: Will you define that a little bit more, on being on top of it? If I’m a tenant, how am I most likely going to pay you my rent?

Gaston Teran: At that time I was accepting money order or cash in person. I don’t do that anymore, but that’s how I did it. But staying on top of it meaning by the seventh if you haven’t paid, I’m knocking on your door, or soon after giving you an eviction notice on top of that. I’m not letting it go till the 12th of the month, or something.

Joe Fairless: What’s a story of — and I don’t know if there is one, but I imagine there is one… What’s a story of a challenging time when you were knocking on the door on the seventh for rent, and you got a less than warm response?

Gaston Teran: I usually didn’t get that. Usually it’s a lot of excuses. “Come back tomorrow”, or “I’ll pay you on Friday”, that sort of thing. Usually they’re kind of weaseling out of it. You usually don’t get the sharp response for a rent collection.

Joe Fairless: Okay. How much in total did you put into that property?

Gaston Teran: 20k.

Joe Fairless: 20k? That’s it?

Gaston Teran: Yeah. The reason is because there wasn’t major — the roof was good, there was a  lot of bathroom plumbing, that kind of thing, and I did it all myself. So I’m not counting labor, but that always plays a big part of it.

Joe Fairless: I mean, just the unit turns… I usually have a calculator in front of me, but I don’t right now. The unit turns alone have to be a couple thousand, and you evicted a lot of people, right?  I mean, labor aside, just like the materials, and stuff…

Gaston Teran: When you do a unit turn, a lot of the cost is in flooring. Always, always I try to harden the apartments by having something hard on the floor. That one had the benefit of being hardwood floor, and fortunately there weren’t a lot of ruined floors. They didn’t have quite the luster, but they were still something where you could just clean, mop, move on to the next one.

Nowadays we do as much as possible real ceramic tile. It looks good, it’s durable, you mop it, you go. I hate paying for carpet. Carpets get expensive, especially when you have high turnover. And in bad neighborhoods you tend to have higher turnover.

Joe Fairless: And then do you do anything for the second and third floor units, due to the noise factor, with that type of flooring?

Gaston Teran: No.

Joe Fairless: No complaints?

Gaston Teran: No, not really.

Joe Fairless: Sleeping, common area or bedrooms all have that type of flooring?

Gaston Teran: Yes.

Joe Fairless: Anywhere you have carpet?

Gaston Teran: Some, just we haven’t gotten around to switching them. Sometimes if I get in a bind, I’ll just begrudgingly go carpet, just because it’s fast. [unintelligible [00:12:41].15]

Joe Fairless: Got it. So all-in $210,000.

Gaston Teran: Yup.

Joe Fairless: Did you refinance that one?

Gaston Teran: Yup.

Joe Fairless: And what was the refinance valuation?

Gaston Teran: 360k was the appraisal. This was several years ago.

Joe Fairless: Do you still have it?

Gaston Teran: I do have it. The cash-out – it wasn’t ideal; usually, I try to get 75% of the appraisal value cash-out, minus what’s owed on it. This one in the end was only a 50%, but I still got 180k out. So I almost got all my money back.

Joe Fairless: And what’s the economic occupancy today?

Gaston Teran: 100%.

Joe Fairless: You’re collecting 100% of the rents every month?

Gaston Teran: Yes. And they’re good people. Good family people. There’s none of those drug dealers that used to go on. Even though the surrounding neighborhood’s bad, the people in there are great.

Joe Fairless: And tips for someone who’s buying in that type of area, to get 100% economic occupancy?

Gaston Teran: Well, the most important thing is you have to find who the troublemakers are. If you’re working there, you’ll kind of see it. Find out who your best tenants are, just by observation, by talking to them; get friendly with them. If they get comfortable with you and they know that you won’t say “Hey, so-and-so told me that so-and-so…”, they’re gonna rat out who the troublemakers are, and you make sure to get those troublemakers out of there. That’s the first thing you need to do.

Joe Fairless: What’s the second?

Gaston Teran: The second most important would be, of course, rents.

Joe Fairless: Yup. Collecting money. Important in real estate.

Gaston Teran: Yeah, kick out people who are not. They’re habitual liars, or people that wanna keep delaying.

Joe Fairless: What’s the third?

Gaston Teran: I guess it would be related to maintenance. You really need a decent-looking building. [unintelligible [00:14:16].17] that kind of thing.

Joe Fairless: What’s your timeframe for getting the work orders?

Gaston Teran: It depends what it is, but generally if it’s an emergency, it would be — we don’t come out in the middle of the night unless it’s flood or fire; otherwise it’s next day. But just something typical might be a week. That’s kind of the way it is.

Joe Fairless: And what’s a typical maintenance request?

Gaston Teran: A drain is slow, maybe cockroaches… And those depend, because sometimes if we’re there [unintelligible [00:14:45].29] We don’t want it to go…

Joe Fairless: Got it. So you self-manage, right?

Gaston Teran: I used to.

Joe Fairless: You used to. During the 18-unit days you were self-managing.

Gaston Teran: Yes.

Joe Fairless: Is there a way – to the best of your ability answer this question – to implement step one of that process when you hire a property management company?

Gaston Teran: Well, you hope that the property management company knows and will do it. I would suggest if you do that — it’s depending on where you live, but check up on the place often.

Joe Fairless: And when you say “often”, how often were you there?

Gaston Teran: I was there probably four days a  week.

Joe Fairless: And you had a full-time job at the time?

Gaston Teran: I mean, not four full days, but after work I’d go over there. Yes, I had a full-time account.

Joe Fairless: Got it. Alright. So 18-unit, bought it for all-in 210k, reappraisal for 360k… Then what did you do after that?

Gaston Teran: My next property was in 2015k, so two years later. It was a 24-unit, same neighborhood.

Joe Fairless: Okay. Numbers?

Gaston Teran: The cost was 325k, and that required no rehab. That one had about 85% economic occupancy. It did not need much at all.

Joe Fairless: Why were they selling?

Gaston Teran: I don’t know. It was out of state… I don’t know why he was selling.

Joe Fairless: Okay. And did you get a refinance on that?

Gaston Teran: No, I did not.

Joe Fairless: Okay. And is it because there wasn’t a value-add component, so it wouldn’t be as friendly of a refi?

Gaston Teran: I probably will get a cash-out refi on that one, but I have not.

Joe Fairless: Okay. Anything interesting to note on that deal?

Gaston Teran: It’s become kind of a high demand area. I always get calls, people wanna buy.

Joe Fairless: What’s the area?

Gaston Teran: It’s also Price Hill, but that specific area within Price Hill.

Joe Fairless: Okay, got it. And what about the next one?

Gaston Teran: The next one was a 56-unit, five months later. This was probably my biggest home run. This was a 56-unit for $400,000.

Joe Fairless: How did you finance the one right before, and then we’ll talk about this property.

Gaston Teran: Yes, yes. The 24-unit was a traditional bank financing. Since that was in good shape, the banks would listen to me.

Joe Fairless: Then they’ll do it, of course. And what bank did you use?

Gaston Teran: US Bank.

Joe Fairless: Okay. And do you remember the terms?

Gaston Teran: US Bank – they have incredible terms, but they’re scared of their own shadow. So if you have a good property, I would suggest then. But if you have any problems, any defects, they’re gonna run away. The interest rate was about 3,5%. It was a great interest rate.

Joe Fairless: And were you under contract in any of your properties in your portfolio with US Bank, and then they backed out?

Gaston Teran: Yes, one time.

Joe Fairless: Tell us that story, and then we’ll get to the oh-face property.

Gaston Teran: Okay. I was under contract, I talked to them, they said they were interested. They ordered the appraisal. Three or four weeks later – they really let it wait – they said “The P&L is negative. We’re gonna back out.” But fortunately another bank stepped in and we financed it.

Joe Fairless: Got it. What was your thought process as a real estate investor/entrepreneur?

Gaston Teran: I was surprised. This is later on, but that was a hell of  a deal; I had experience, money, credit… Everything. I thought for sure this would go, and it didn’t.

Joe Fairless: 56-unit, purchased it for 400k. Right, 56-unit?

Gaston Teran: 56-unit.

Joe Fairless: Purchased for 400k. What can you tell us about the business plan?

Gaston Teran: That required a more intense rehab. It was five buildings. Four of the five roofs were leaking. It was half-empty. Basically, half of the units were down maintenance-wise.

Joe Fairless: Wow. Please continue.

Gaston Teran: By this time I had some employees. These were kind of low-cost employees, but we got the job done. That was about 100k rehab.

Joe Fairless: 100k rehab to rehab approximately 25-27 units from not habitable to habitable?

Gaston Teran: Yes.

Joe Fairless: Is that $2,500/unit? Did I do that math right?

Gaston Teran: About $2,000.

Joe Fairless: About $2,000/unit. Tell us more about what you had to do per unit, how much each of the things were, just to elaborate more.

Gaston Teran: Okay. The electrical was in good shape, we didn’t have to touch the electrical. Plumbing – it’s not major, main drain type of plumbing, but just the fixtures, the P-traps, those little [unintelligible [00:19:17].28] things here and there.

Joe Fairless: What’s a P-trap?

Gaston Teran: Under your sink, it catches water, goes down… Those things. They’re pretty simple, they’re just $4 at the store. It’s low cost, but just labor.

Joe Fairless: Got it. Okay. So you put in $100,000, you bought it for $400,000, so all-in half a million.

Gaston Teran: Yup.

Joe Fairless: And you have refinanced this one?

Gaston Teran: I did do a cash-out refi.

Joe Fairless: Over what period of time from when you bought it to when you did the refinance?

Gaston Teran: About 15 months.

Joe Fairless: 15 months, okay.

Gaston Teran: That was just a little over a year.

Joe Fairless: And how did you know the work that needed to be done in order to increase the value? Were you thinking about it that way?

Gaston Teran: No. I was thinking about it along the lines of [unintelligible [00:19:57].29] and then we need to get it nice enough where we can raise the rent.” I mean, this is a tougher neighborhood so we’re not gonna go real fancy with it, but we want it to be nice. Usually, if you’re just thinking that way and get the rents up, the value comes with it.

Joe Fairless: And how far away – for anyone not from Cincinnati – is Westwood from Price Hill?

Gaston Teran: 4-5 miles.

Joe Fairless: And how far away do you live from these two properties?

Gaston Teran: 4-5 miles.

Joe Fairless: Okay, so it was rather convenient for you to get to both of them.

Gaston Teran: Pretty close, yeah.

Joe Fairless: And were you still in a renovation process with any of your other properties when you purchased this Westwood one?

Gaston Teran: No.

Joe Fairless: Okay, so you were fully dedicated to this.

Gaston Teran: Yes.

Joe Fairless: But did you have your full-time job?

Gaston Teran: Yes.

Joe Fairless: How many hours a week were you working?

Gaston Teran: 40 hours at least.

Joe Fairless: 40 hours a week at least. What were the hours? 8 to 5?

Gaston Teran: Yeah, 8 to 5.

Joe Fairless: Okay. Did you go into an office?

Gaston Teran: Yup.

Joe Fairless: So you’re going into an office… How long was your commute?

Gaston Teran: Short, maybe 20 minutes each way.

Joe Fairless: Okay, so 20 minutes each way, plus you’re working 8-to-5, and you have a property that is half occupied, or half vacant I should say, think about it that way… And it’s you and who else helping you?

Gaston Teran: We had about three guys that used to help me mostly on the weekends.

Joe Fairless: Okay, and how did you find those guys?

Gaston Teran: One was a tenant, and the others were two of his buddies, basically.

Joe Fairless: And how were you dividing and conquering the responsibilities?

Gaston Teran: We were working together. These are not guys that you can pretty much leave alone and say “Take care of the whole building.” So I had to work with them side by side. I had some frustrating things, but we got the job done at a little cost.

Joe Fairless: And what was an example of a frustrating thing?

Gaston Teran: I had to show them how to do everything, pretty much.

Joe Fairless: Okay…

Gaston Teran: I mean, they learned along the way, but coming in they had low experience.

Joe Fairless: Got it. Alright. So 15 months later, all-in 500k. What did it appraise for?

Gaston Teran: 1.12 million.

Joe Fairless: Wow. 1.12 million, and you’re all-in at 500k.

Gaston Teran: Yes.

Joe Fairless: And how much were you able to get out of that?

Gaston Teran: To acquire the property – this was another one where I went to the banks and they were not hearing it; they did not want to do it. I had a good percentage of the down payment, but the banks wanted nothing to do with it. I went the hard money route. So I did that, 12% interest… So when I did the refi, we had to pay back the hard money lender, which was fine, that worked out. So if you do the appraisal value times 75%, minus what I owed the hard money lender, I got a check for 795k.

Joe Fairless: Wow. So that 100k that you put into it – was it the hard money person’s money?

Gaston Teran: No, that was some rents, some savings, some money on the side.

Joe Fairless: Okay, got it. So all-in you probably had around 50k-60k at most of your own money in it, not factoring in the money from the rent?

Gaston Teran: I would say that’s probably right, yeah.

Joe Fairless: And you got a check for how much?

Gaston Teran: 795k.

Joe Fairless: 795k in 15 months.

Gaston Teran: Yes. That was my biggest home run.

Joe Fairless: It’s great, yes. Netting 730k in 15 months. And it’s a refinance, so it’s not taxed, because it’s your money…

Gaston Teran: Right.

Joe Fairless: So then what did you do with that 795k, but netting 730k?

Gaston Teran: That funded future acquisitions.

Joe Fairless: Okay. And when was that refinance?

Gaston Teran: That would have been at the end of 2016.

Joe Fairless: Okay, 2016 at the end. Now what did you do with that money?

Gaston Teran: The next purchase was a 44-unit just outside Price Hill. I call it Price Hill, but technically it’s not. That was a 44-unit for 595k.

Joe Fairless: How did you finance it?

Gaston Teran: Traditional bank.

Joe Fairless: Okay, and how did you find it?

Gaston Teran: MLS. Well, I take that back. It was a broker, who had not put it on the MLS. It was a broker I was familiar with, who was the broker on the previous deal, on the 24-unit, so he was familiar with me.

Joe Fairless: Right, okay. So he was not actively marketing the deal…

Gaston Teran: He was marketing it to his email list.

Joe Fairless: To his email list, okay. So he was promoting it, and then he reached out to you… And what do you think you saw with that deal that others didn’t, or others weren’t willing to pay the price that you paid?

Gaston Teran: It had some deferred maintenance. It wasn’t terrible, but it had some deferred maintenance. It’s kind of a rougher neighborhood, kind of… It’s kind of a rough area, but it’s in a dead end, so you don’t have a lot of the neighborhood problems in the dead end, so it’s good in that way.

Joe Fairless: When you’re driving in an area that is rough, is there anything that you see that would deter you from investing in the area? Or you’re just like “It doesn’t matter the area. If it’s a good deal, I’ll invest there”?

Gaston Teran: If the maintenance is just terrible. Like, you could see in the window, and see the sky, because part of the roof is missing… That kind of deters me a little bit. [laughter]

Joe Fairless: Why? That surprises me…

Gaston Teran: I would still consider it.

Joe Fairless: Because it’s a major value-add deal.

Gaston Teran: Yeah, but you have several factors. One is the city. The city is [unintelligible [00:25:10].12] They sometimes are determined to knock it down. They want permits, and they want to redo all the electrical, and plumbing, and all that. It can be done, but the cost is gonna go higher.

Joe Fairless: So that’s about the property, but I was asking about the area. What about the areas? Is there anything that the research, or through word of mouth, that is just like “You know what, I’ve done some rough stuff, but I’m not gonna go there”?

Gaston Teran: It all factors in… I probably would go anywhere, but if it’s a hotbed for shootings, or that sort of thing, or if it’s a high congregation area… For example there’s an apartment building and a Quickie Shop right next door, you don’t want that.

Joe Fairless: Nope.

Gaston Teran: Because in the Quickie Shop everybody is gonna loiter, and you have no control over that. And they’re gonna keep loitering. If they’re all loitering in your target apartment building, that’s a good thing; you can kick them all out. You control that part.

Joe Fairless: Do you have security at your apartment?

Gaston Teran: No.

Joe Fairless: So how do you kick them out?

Gaston Teran: I do it.

Joe Fairless: You do it.

Gaston Teran: You have to be careful, but yes, we do.

Joe Fairless: Got it, okay. So that property parlayed into what? What was the next one?

Gaston Teran: So the 44-unit was one acquisition. 2017, by the way, was awesome. Then on the same day I purchased a 13-unit in Dayton. This was a good deal, too. Smaller, but a good deal. $90,000. There’s a 12-unit and a house. Not vacant.

Joe Fairless: Okay. What’s the business plan?

Gaston Teran: That was far away. The others were 5-6 miles, whatever. This was an hour’s drive away. What brought the value of that down was there was a vacant house next door; a big, vacant house with boarded-up windows. And that’s always gonna drive the price down.

My little trick there was I said “I have to knock that house down.” And I wanted to be able to be sure I can knock that house down before I bid on this… Because no one really wants to live next to — coming out their door and they see a big, vacant house, boarded-up windows, and all the trouble that those kind of buildings bring.

So it’s a long story, but basically I got in touch with some old guys that owned it, and because of how it was set up I couldn’t buy it, but I said “Okay, how about I just knock it down? And it’ll lower your taxes…” They were behind on taxes anyway, and they were like “Go ahead, I don’t care.” So we knocked it down.

Joe Fairless: Did you get a written agreement before you did?

Gaston Teran: Yes.

Joe Fairless: So now you knock it down… Is there anything at all there? Did you plant a garden or anything?

Gaston Teran: A beautiful yard. It’s just a beautiful, straight lawn. Now they have a backyard.

Joe Fairless: Yeah. So you were under contract with another property?

Gaston Teran: This was all quick, but basically I got into agreement with them before I put the final offer. Or I think it was during the inspection period.

Joe Fairless: So how long did it take you — you said it’s a long story and we don’t have to go into it all, but how long did it take you from initially seeing the boarded-up house to actually it being bulldozed?

Gaston Teran: Well, the agreement was within two weeks, and probably a month later it was bulldozed. You have to do certain things with the permit process to —

Joe Fairless: Right. But you were able to track the people down who owned the house, and have that conversation.

Gaston Teran: Yes.

Joe Fairless: And I’m the person who owns the house. How did that conversation go?

Gaston Teran: Well, I said “I noticed that it’s abandoned, and I was wondering if you’d sell it.” They said “Sure…” They weren’t even really about the money. The city was kind of after them, because they weren’t really cutting the grass, they weren’t paying the taxes… They really wanted to get rid of it. And I was willing to pay them some money for it…

Joe Fairless: What did you offer them?

Gaston Teran: Well, we didn’t even really get to that, because it was a partnership, and a  lot of those partners were deceased, so it was gonna go through a probate thing… I don’t even understand all the details, but it was gonna be hell… So it was a lot easier to just get the written permission to knock it down.

Joe Fairless: Okay, got it. What’s the next deal?

Gaston Teran: Another smaller one – this is a 6-unit for $90,000.

Joe Fairless: We can skip past that.

Gaston Teran: Okay. And then the next one is a bigger deal – this is a 63-unit for $700,000.

Joe Fairless: 63-unit for $700,000. Okay. So now you’re  relative to what you’ve usually purchased at. You’re purchasing at a higher per-unit basis. Slightly… I believe. I mean, I don’t have a calculator.

Gaston Teran: 11k per door.

Joe Fairless: Right. Relative to what you used to purchase at. So what’s the business plan there? Is that in a similar area?

Gaston Teran: It’s in the city of Hamilton, maybe a 45-minute drive away, something like that. It’s a beautiful building. It’s actually my favorite building.

Joe Fairless: Why?

Gaston Teran: It’s large, it’s a historic building, it’s a beautiful architecture… That’s where we have our rental office. The units are great… It was in good shape. It did not have a  lot of deferred maintenance. I got lucky in there.

Joe Fairless: And did you refinance it?

Gaston Teran: Yes.

Joe Fairless: And what did it refinance at?

Gaston Teran: It appraised a lot lower than I expected. It appraised for 1.1 million, minus the mortgage that we had on there; it gave us a cash-out refi check of 349k.

Joe Fairless: Over what period of time?

Gaston Teran: Maybe a year and a half.

Joe Fairless: Got it. Any other large ones?

Gaston Teran: No.

Joe Fairless: Okay. So your model is pretty straightforward – you go in and you buy in challenging areas, you are really hands-on, renovating the units, increasing the value, focused primarily on just getting them renovated and leased up to high-quality residents, and then you refinance the cash-out. Pretty straightforward.

Gaston Teran: Yup.

Joe Fairless: The last question I’m gonna ask you – the question I ask everyone – you said you used to not have a management company, but now you do…

Gaston Teran: It’s an employee.

Joe Fairless: It’s an employee. Okay, so you have your own management company.

Gaston Teran: It’s internal, but I personally don’t do it anymore.

Joe Fairless: Okay. What are some things that you made sure to train that person on, that perhaps would not be typical based on your experience, or maybe might just be something that would be interesting for the listeners?

Gaston Teran: Man, I can’t think of any. Normally, he just follows the rules of property management. I don’t know that there’s too many things. I mean, there’s a lot of integration with us. Sometimes they can wear different hats, where maybe a separate property management company may not get into… But more or less it’s a vanilla position.

Joe Fairless: I don’t think they would agree with that. [laughter] Just my gut. I don’t know this person, but they wouldn’t call it a vanilla position.

Alright, what’s your best real estate investing advice ever?

Gaston Teran: I would say have integrity. I don’t know what is with real estate, but real estate is a magnet for people who are pretenders, and scammers… You see it with gurus who prey on these newbies, for example; they’ll have a section for $50, and people attend, and all it is is a sales pitch for the next level, which is $1,000, which is the next level for $20,000… That’s kind of disgusting.

Then wholesalers — some wholesalers have integrity, they announce themselves as wholesalers, but other guys are always deceiving people. I hate that. And then the other one is I’ve had people want to buy these apartment buildings, pretend they have the money, make a good offer, we get into contract, and now they’re trying to raise all this money. They don’t have any access to the money, and they’re walking away, and sometimes they wanna fight to get their earnest money back, even though they had it tied up for a  couple months.

I really suggest anyone getting into the business – perform with integrity.

Joe Fairless: On the last point, did they pass their deadline, so then their earnest money was non-refundable?

Gaston Teran: Yeah, they definitely did pass the deadline.

Joe Fairless: So when the dust settled, did you end up keeping it?

Gaston Teran: It depends on which one, but yes, on the most recent I kept it. On the other one, they fought… Sometimes it just doesn’t make sense because of the legal stuff. It’s just “Keep your earnest money.”

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

Gaston Teran: Yes.

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

Break: [00:33:16].29] to [00:33:59].05]

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

Gaston Teran: I read Moby Dick in eleventh grade, and I didn’t finish it, so…

Joe Fairless: That’s the most recent book you’ve read?

Gaston Teran: That’s the most recent. [laughter]

Joe Fairless: Student of experience.

Gaston Teran: No, I do read… I listen to podcasts, I’m on the internet learning constantly, Bigger Pockets, that sort of thing. Just books aren’t for me.

Joe Fairless: Best way to learn how to renovate a unit?

Gaston Teran: To learn how to renovate?

Joe Fairless: Yeah, learn about the process.

Gaston Teran: If you’re gonna learn it yourself, there is so much online. YouTube – there are guys that put these videos up, and many of them are great. I’ve learned a lot of things by using YouTube.

Joe Fairless: Best ever clauses you have in a purchase contract whenever you’re buying a distressed property? If you have that in your sheet, I’ll be shocked… Because I’m just giving you questions off the top of my head.

Gaston Teran: I have four keys to find good deals.

Joe Fairless: Okay, let’s hear them.

Gaston Teran: Okay. Number one – have cash or financing ready. I have lost a couple deals, and they killed me inside (even though they’re old) that I did not have the cash or the financing ready, and I lost it… So that’s the first thing.

Number two is just as far as finding the deals – follow up on leads and listings consistently. You can’t just look at it and then forget it for two weeks. You have to consistently do it. I don’t do it every day, but I do it pretty often.

Joe Fairless: Do you have an example of when you did not get the deal, but then you followed up and then you got it?

Gaston Teran: Yeah… The 18-unit was one where I was going through the banks, I thought I was gonna lose it, and then I came through with the partner that had the money.

Number three – this is a little different than most people do it… I do 90% of my due diligence before I make an offer. And by that, I mean I have enough experience hands-on that I can go into a building and pretty much know what needs to be done in the building. And that’s mainly my main due diligence that I do. Of course, we wanna look at title, we wanna look at all those other things, but the majority of my due diligence I do before the offer… And if I can’t get in, I can still offer, but it’s gonna discount the offer.

That’s number four – make a calculated offer; include all the different factors. The neighborhood… If it’s something that you can’t get into, I’ll still make an offer, but it’s gonna be discounted.

Joe Fairless: I’ve got a  property, and I tell my broker “Have any prospective buyer submit their offer, and then I’ll release the financials.” It’s dumb, but people do that. How would you approach discounting your offer for my property?

Gaston Teran: I care about rent rolls, and I don’t really care about P&L’s. When you have experience, you can kind of figure out P&L’s. You know when it’ll ensure for more or less, you know what the water and the electricity is… Once you have the rent roll, you know what everything else is… So really, what I need is the rent roll. And even if you don’t give it to me, if I’m doing a tour, I can ask the tenants. That’s really the information I need.

Joe Fairless: And the rent roll shows the potential income, but the P&L will show the actual income, right?

Gaston Teran: Yeah. What I wanna know is where are the rents, and — well, I would like to know who’s paying, but really, how full is it?

Joe Fairless: Got it. Okay, interesting. Best ever way you like to give back to the community?

Gaston Teran: I like to help folks who are newer. I attend many meetups every month; some in Dayton. That’s one of my favorite things to do.

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

Gaston Teran: If you have any questions or wanna follow some of what we’re doing, email me. That would be the best way.

Joe Fairless: Okay. Do you wanna give out the email?

Gaston Teran: Sure. Gteran@yahoo.com.

Joe Fairless: I enjoyed our conversation, Gaston. Impressive stuff, congrats. Now I open it up to questions from the Best Ever listeners, or people here.

Audience Member: I’ve two quick ones and then a longer one. Is most of your debt recourse or non-recourse?

Joe Fairless: And will you repeat the questions?

Gaston Teran: Yes. The gentleman asked if the debt is recourse or non-recourse. All of it is recourse.

Audience Member: What’s your average per-square-foot rents across your portfolio, if you remember it off the top of your head?

Gaston Teran: In general, rents for a one-bedroom – let’s say $440, with maybe 460 sq. ft. Something like that. And then we have efficiencies in two-bedrooms.

Audience Member: Cool. And then the last bigger question was – obviously, you are pretty key to your operation and your business plan. You put  a lot of your own time and heart and soul into it. Do you see your business model changing as you have to start hiring employees to grow?

Gaston Teran: Yes. The question was basically as far as scaling and employee count, what the plans are. Right now I have three rehab — I count myself as a rehab, so really there’s four rehab guys. There are two full-time maintenance guys, and one full-time property manager.

Basically, I wanna grow that, in all instances. The rehab crew I wanna grow, and I want the property manager to be fully independent. I hate when I have to get into the property management side. I really like doing more the rehab and the acquisition side.

Audience Member: Thanks.

Audience Member: You mentioned you tried to make your apartments nice, but not too nice. What can I expect — if I wanna do an apartment, what would it look like, and what are the things maybe you don’t do or maybe you do do because of the area?

Gaston Teran: My favorite floor is, like I said, the ceramic tile floor, usually all over. And then for vanities – vanities get beat up. A bathroom vanity will often leak, and people will tell you about it, or get kicked, or whatever. So I will usually go at Lowe’s and just get one that’s $120; it looks new. It’s not fancy at all, but it’s solid, the door works right… So I’ll spend some money there. And the faucets… That kind of thing.

Audience Member: A couple of questions… You have one person you’re calling a property manager for 240 units. What are that one person’s responsibilities for 240 units?

Joe Fairless: I should have asked that. Good question.

Gaston Teran: What are the responsibilities for the property manager, given the number of units that we have… Lease-up. Leasing agent is a big part of his job. The other is receiving maintenance calls. I would like in the future to split that up. Right now he is receiving the maintenance calls. He doesn’t do any maintenance, he just puts it online. We use Rent Manager, and he’ll put it on there, and then the maintenance guys will see it, go, and then clear it once we’re done.

He’ll have some other duties, like if there’s some bills that need to be managed, or that kind of thing. If there’s a dumpster issue, or that kind of thing.

Audience Member: And then move-outs and evictions?

Gaston Teran: Evictions… My wife is an attorney, so she does our evictions. The property manager will do the eviction notices. Right now we’re kind of alternating. Sometimes I’ll go to court, sometimes he’ll go to court.

Audience Member: Okay. And then you said you use a management software called Rent Manager… What does that do for you?

Gaston Teran: Rent Manager… The company is LCS. They’re based in Cincinnati. They are a database. We put all our tenant information in the system. We run our rent payments through there, so it can tell us quickly who’s delinquent and who’s not; it can run our financials. All the P&L’s, fees or taxes, are done there. We’ve recently implemented electronic pay, so now tenants have another option besides mailing a money order. Now they can pay with credit card, ACH, or they can go — I think [unintelligible [00:41:32].03] which surprisingly a lot of people like to do.

Joe Fairless: What type of compensation does a property manager in that position get?

Gaston Teran: $40,000.

Audience Member: [unintelligible [00:41:42].28]

Gaston Teran: What’s the key to finding tenants in rougher neighborhoods… Yes. When I talk to a tenant, I’m always listening; I’ll shut up and let them talk, and after they’re done talking, I’ll be quiet and they take the uncomfortable silence and they’ll keep talking… And here’s what I’m listening for. If they say things like “Oh, I’m working a temp job”, you don’t want them. If they say “I’m in between jobs”, you don’t want them. If they’re talking about anything like family drama, anything like that – you don’t want any of that. If they’re lying — sometimes they’ll say something… “Oh, I haven’t had an eviction in ten years”, and then you double-check on the Clerk of Courts website and you see the eviction, boom, they’re lying. And then the other is if they’re rushing to move in. “Oh, I need it by tomorrow.” That’s a red flag. You really want people to put their deposit down and move in in three weeks. That’s how it’s supposed to be done. And even in rough neighborhoods people will do that. But if it’s a hurry, you’ve gotta ask questions. Something’s a little off there, usually.

Audience Member: Do you have any other screening processes that you employ?

Gaston Teran: As far as screening, we do not do credit check. I can’t base this on facts, but I assume that a lot of the credit scores we would see would be pretty low. What we do check is criminal and eviction. And of course, we wanna verify that there is income, whether it’s something like social security, or a job; if they provide pay stubs, we wanna see that.

Joe Fairless: Any income to rent ratio that you look for?

Gaston Teran: The property manager has that… Usually it’s not as strict as some have it, but I forget what ratio he uses.

Audience Member: [unintelligible [00:43:23].01]

Gaston Teran: I hired my property manager way too late. I was near mental breakdown at that point when I hired him. It was that day where I bought the 44-unit and the 13-unit, and we already had 100 or so units… And I was still working full-time — well, no, at that point I was decreasing from five days a week to one day a week [unintelligible [00:43:54].20] But yeah, I probably should have done that a little earlier. So to answer your question, I’m a little crazy, but I personally can do 100 units with the stuff. But once you cross 100 units, you really need a  property manager.

Joe Fairless: And how did you find them?

Gaston Teran: I think the first guy was Craigslist, I think… But now I use normally Indeed.

Audience Member: I haven’t heard you mentioning Section 8. Are you using Section 8/affordable housing?

Gaston Teran: The question was if we use Section 8. Rarely. We used to have across our portfolio maybe 7 Section 8. They’ve gotten tougher as far as maintenance requirements. For example, one that kept bugging me was some of our parking lots — especially in Cincinnati, where it’s very hilly… Some of the parking lots have some areas where they’re a little rough, and they started being very picky about that… And I didn’t think it was worth to repave in order to get some Section 8 tenants in. So we’ve kind of dialed that down. I think we’re down to one Section 8 tenant. And people say it’s guaranteed rent… Well, not really, because even if Section 8 pays three fourths, you’re still gonna have to chase down the one fourth that the tenant owes… So it’s not really guaranteed.

Audience Member: What’s your current occupancy?

Gaston Teran: We have about 12 vacancies… Just a little over 90%, I would say.

Audience Member: So you’ve turned down a lot of potential tenants… Has anyone ever said you’re discriminative against them for some reason?

Gaston Teran: Not really, but you have to be really careful about that.

Audience Member: How do  you deal with that?

Gaston Teran: Usually if you give him a direct answer and you say “Look, you had a misdemeanor/felony X number of years ago. We don’t accept that, I’m sorry”, then they move on. If you’re vague or if you’re mean to them, you’re not helping yourself.

Joe Fairless: Any other questions? The last two. Yes, sir.

Audience Member: Why do you choose to keep property management internal, instead of hiring a property management company?

Gaston Teran: That’s a good question. It’s something that I’ve kind of wrestled with. I think the main would be repairs. I do like keeping repairs in-house. I do like having some control over that. I always have feared — I’ve never used a  property management company, but I’ve always feared that if they start managing the repairs, they might take advantage of getting their money not through the rent collection, but through the repair process. I always wanted to avoid some of that.

Joe Fairless: Okay. The last one.

Audience Member: [unintelligible [00:46:25].01]

Gaston Teran: Say it again? I’m sorry…

Joe Fairless: Apps to estimate your costs. Anything you use in particular, other than your experience in your head?

Gaston Teran: Now, no. It’s all in my head.

Joe Fairless: Before?

Gaston Teran: Other than maybe the roof. Once you know the square footage, you can multiply, figure out what a new rubber roof would cost. Before I had to do some research, maybe talk to someone that might be more experienced in a certain thing. Now it’s — I mean, you have to write it down; you can’t remember it all. But you write everything down, you multiply, you get a feel for everything… You look at the wiring, you look at the plumbing, you look at the foundation, you wanna look at all the corners, make sure you don’t have corner settling. The roofs – if there’s wet mud on the ceiling, you have to wonder where that’s from.

Joe Fairless: Cool. Hey, thanks a lot. I appreciate it. [applause]

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

Listen to the Episode Below (00:29:21)
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Theo did the interviews for the podcast last week, and has some lessons learned to share with us today. Danny Randazzo is joining Theo and sharing some valuable lessons he has recently learned as well. If you enjoyed today’s episode remember to subscribe in iTunes and leave us a review!

 

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


TRANSCRIPTION

Theo Hicks: Best Ever listeners, welcome to the best real estate investing advice ever show. As you can tell if you’re watching this or listening to this, this is not Joe; this is Theo. I’ll be hosting today, and we’ve got a new co-host for this week’s episode, as well as likely next week’s episode, and that is Danny Randazzo. Danny, how are you doing today?

Danny Randazzo: I am doing great, Theo, and just excited to be here with the Best Ever community and listeners, and we’ll go through our Follow Along Friday.

Theo Hicks: Let’s do it. I’ll be playing Joe today, and you’ll be playing Theo today. At the end we’ll evaluate our performances and see how we did.

Danny Randazzo: Excellent, Theo.

Theo Hicks: As Danny said, this is Follow Along Friday, so we are going to discuss the things that we learned in the interviews last week. I actually did the interviews last week, and I’ll be doing them for the next few weeks, so I guess you’ll be hearing a lot of my voice on the Follow Along Fridays… But before we get in, I just wanted to do a brief introduction on the co-host, Danny. He is the key principal and PassiveInvesting.com, so he’s actually an apartment syndicator.

He is an author, entrepreneur, host of a real estate mastermind, national speaker and volunteer with the first The First Tee, so he’s all over the place. I wanna tell a funny story, that I’ve told him before… He volunteered at First Tee, I was actually a part of The First Tee, and I remember one of my — I won’t say a fond memory, but probably a negative memory was I wrote my name in pencil on one of the picnic tables at The First Tee headquarters, or whatever, and they made me come and paint every single picnic table that they had in the lunchroom area, for writing my name on there. So… Lesson learned. If you’re gonna vandalize things, don’t put your name on it, because they know who it is. [laughs]

Danny Randazzo: Certainly.

Theo Hicks: So he has over a decade of professional experience working as a financial consultant. He advised multi-billion-dollar companies and helped them achieve results in areas that include [unintelligible [00:03:51].25] performance, increase profit margin and enhance technology utilization. Now he’s a full-time real estate entrepreneur and investor. His company, PassiveInvesting.com, purchases value-add apartment communities that are greater than 150 units, and Danny is focused on asset management, building relationships, investment analysis, planning, and all things finance.

Then a fun, little fact about Danny – he met his wife on a boat in Vietnam, when they were both traveling from San Francisco, so that’s an interesting factoid.

Hopefully we can get through these two lessons first, so we can talk a little bit about Danny’s background and some projects he’s working on right now… Let’s hop into the two lessons that I learned from interviews last week.

As I mentioned, I only interviewed one person. His name is Matt Spangenberg. He’s a 36-year-old real estate investor who literally started from nothing, and that will be one of the lessons that we discuss. He saved up money to buy his first property, and then he worked on the property himself, put in the sweat equity to increase the value, and then he actually got a HELOC loan on that property. He used that money to buy another property, and essentially has kept renting and repeating that same strategy of getting HELOC loans. Basically, he turned $25,000-$30,000 that he spent on his first property into a portfolio of 7,5 million dollars, without having to put a single dime of his own capital into the deals after that initial 25k-30k (I can’t remember exactly how much it was).

In the episode he went over a few of his specific deals; one of them was how he was able to create over $350,000 in equity on a deal, and the other one was how he was able to do 100% owner financing on a deal… Which brings us into the first lesson.

If you remember, it was probably a month ago me and Joe were talking about different strategies for finding deals, and I remember I interviewed someone who invests in Boston. And apparently, in Boston a lot of the multifamilies are owner-occupied. So you’d find a 12-unit building in Boston, and the family lives on the top floor. So technically, if you wanted to do door-knocking, you could door knock at the actual property. So you’d go to the top floor, you’d go to the owner’s unit, and you’d know and say “Hey, can I buy your property?” Whereas what Matt did is he literally tracked down where this seller lived… It was a six-unit in — I’m not sure what town it was in… But in a six-unit, in that same town where the guy lives, a regular single-family home, and Matt literally went to this guy’s house and knocking on his door, and asked if he wanted to sell his property. And I remember me and Joe were talking about how insulting it would be to us, and we’d be so annoyed. This strategy probably only works if the person lives at the house… But now we’ve got proof that this strategy indeed does work if you actually knock on their personal residence.

I thought that it was really funny that he said that…

Danny Randazzo: That is.

Theo Hicks: Yeah.

Danny Randazzo: I think it’s interesting… Obviously, any strategy out there works as long as you’re taking action and going through those steps of either tracking down the owner, maybe emailing, calling, texting, or go and knock on their own residence door, and you can make a deal happen. I think that’s certainly a feasible avenue to go down. I’ve certainly been there and done that before.

I remember tracking down an owner online, finding where they live… I think we found out through Facebook that they were  a huge — either a Clemson or a South Carolina Gamecocks fan… So I called and built some rapport with that person by starting to talk about college football. Then, once I had that rapport down, I kind of said “Hey look, I understand you have a property over here. Would you be interested in selling?”

I think as long as you take action, you’re gonna find the deal and kind of make them happen.

Theo Hicks: Exactly. I’m on Bigger Pockets a lot; I think you’re on Bigger Pockets a lot, as well. I see you posting on there. And a common question is “Oh, I’m looking for my first off-market deal. How do I do it?” Or “I’m stuck between should I cold-call, or should I do direct mail?” As you mentioned, you need to just do something; just pick one and then do it. Do it for six months, see if it works. If not, then do the other one… Not necessarily wasting time, but over-analyzing, over-thinking which strategy is gonna be the best, because in reality it’s just about taking action.

Something you said specifically about when you found out about the person, did some background research on them and discovered that they were the Clemson or the South Carolina fan. That’s something else that’s huge as well, because — I’ll tie this back to Matt’s story in a second, but at the end of the day, if you’re doing a direct-mailing campaign, and obviously if you have a standard template that you send to everyone, it works; people do it. But I’m sure that the response rate and the conversion rate would be much higher if not only they were handwritten mailers, but there was something that was specific and personal to that person.

Obviously, that takes a lot of time, which is why it’s probably a better strategy for these larger deals, because you’re not sending out 10,000 mailers  a month… But at the end of the day, people might not necessarily sell it to the person that gives them the highest and best offer. If they know you, if they like you, if they trust you, it’s a lot more important. Because they care more about actually closing on that deal than getting some crazy high offer and then that person can’t end up closing, or completely disappears. The chances of that happening are a lot lower if there’s some sort of personal rapport going on between the two already.

Danny Randazzo: Absolutely. I think you hit the nail on the head with that. Know, like and trust you – those are the most important things, from either a seller’s perspective, or a broker if they’re representing their seller; they need to know you, like you and trust you that you’re gonna close the deal.

And even if we tie it into the greater syndication or working with investors, that rapport again – know you, like you and trust you – is gonna help people find investors for their deals that they have going on, especially when we’re talking about this example of finding an off-market deal, reaching out directly to the owner of that property, establishing that they know you, they like you and they trust you… Like you said, you may not be the highest and best offer in terms of price, but if they know you’re gonna do what’s right for them, what’s right for the property, ultimately it makes it a win.

Going back to my story of reaching out to the college football enthusiast (we’ll call him), he actually owned the property with three other siblings. So not only was he making the decision for himself, he was also considering the feelings, the impact and the financial output for the three other siblings that were also part owners in the property. So we were able to build that rapport; he trusted us enough to take it to his siblings and say “Look, we have a buyer for the property, and I know them. I trust them, and they’re gonna do what they say, so let’s get it under contract and we’ll sell the property to this guy and get it done.”

Theo Hicks: Yeah, I wasn’t going to say this, but I guess we’re gonna do figure lessons now, because you mentioned something about the fact that it was owned by three other siblings, so not only did he have to solve the pain points or present an offer that was attractive to that one specific person, but it had to be attractive to the others as well. That kind of comes back to — what’s really nice about these off-market deals and working directly with the owner is that you can identify these types of things. If you were buying this deal directly through a broker, you might not have discovered that the owner was actually owners, and they’re all siblings, and they might have had some issues on what price they were gonna sell it at; maybe one sibling didn’t wanna sell it, maybe the other one did, and there were some issues going on there.

But in Matt’s story, that same owner whose door he knocked on obviously was surprised that this guy would show up to his house and didn’t wanna sell… And he kept going through all these different reasons why he didn’t wanna sell. Each time he came up with a reason, Matt presented a solution. There were standard reasons, like “I don’t wanna pay capital gains tax”, so that’s why he presented owner financing. Or “I wanna continue to get cashflow”, so he did an interest-only for a certain number of years.

But there were another couple of interesting things that I don’t have in my notes, but I remember him saying… One of them was that the guy had a personal connection to the house, and he didn’t wanna sell it because he didn’t want someone to go in there and change a  bunch of things, or go in there and knock the property down and build something else, or kind of just ignore it and let it get distressed… So  Matt kind of went through and explained to him exactly what he planned on doing to his property to make it really nice, to fix some things, to make sure that the tenants that currently live there are continuing to have an enjoyable experience… And he bases off of some of his old deals. It got the guy excited.

And then Matt mentioned what would really seal the deal, based on the offer that the presented to this guy (the seller financing offer), is he said that “You’ll be able to sit on a beach, with your feet up, and not have to worry about being  a landlord anymore”, and the guy told him that that was the one statement that ended up sealing the deal for him… Even though the seller was not able to get as high of a price that he actually wanted; I think he ended up settling for $100,000 less than what the owner actually wanted because of the way that the deal was structured… So I thought that was also interesting.

Whenever you’re doing off-market deals, you need to figure out a way to identify what the person actually wants. If they say no, there’s always something that they would do to sell the property, even if it’s some crazy high purchase price. Once you get them thinking yes, then you can figure out how to present an offer that gets close enough to what they want, that they end up selling.

Danny Randazzo: Yeah, I think one of the best ways to figure out that information from the seller — because they’re not gonna come out and say “Hey, Theo, I wanna sell this property so I can go sit on the beach and count my hundreds of thousands of dollars, since I’ve owned it for 30 years and I’ve got it paid off.” They’re just gonna say “Look, I might be interested in selling. What’s the price? Tell me what’s the price.” And I’ve always found it helpful when you’re thinking about “Is seller financing an option?” or “Would the seller even consider it?” Because as we think about things from a buyer’s perspective, seller financing seems appealing in a lot of opportunities, because you can come in with less equity. So instead of needing 20% or 30% to put down, maybe you only need 10 or 20, and the seller will carry back maybe 10% or 20%. So it brings your out-of-pocket as a buyer down.

But the way I’ve found to figure that out is you ask the seller “Well, I see you bought this property 30 years ago, and it looks like you’re gonna make a pretty good amount of equity or capital gains on it. What are you planning to do with the money?” And that kind of gets some talking. “What are you planning to do with the money? Are you gonna buy a fancy car, or something with this?” Most of the time everybody is a hardworking investor, and they’re not gonna go out and spend their money on a car or on a luxury vacation, but they’re gonna say “Oh, I have a plan to purchase a new building”, which probably means they’re not as interested in seller financing.

Or they may say “I have no plans for the money, and I’m kind of at that retirement age… I don’t wanna own any more properties. Being a landlord is tough. I’ve done it for 50 years, and I’m ready to be out of the business and just sit on a beach.” And then you say “Perfect. Well, would you be interested in seller financing? Because what you’re gonna do is you’re gonna hold the note back, it’s gonna be secured in a second position against the asset, so if for some reason I don’t pay you, you can foreclose on me and take the property back. But I’ve got full intention to pay my debt to you on a regular monthly basis, and you can collect your mailbox money, or I can certainly just ACH it directly to your bank account every month… And it’ll be a way for you to minimize capital gains and collect a monthly income stream over your retirement period.” A lot of sellers find that very appealing.

So I think it’s just getting that conversation going. Like you said, understanding what their needs are and what their wants are, and just open the door by saying “It seems like you’re gonna have some good capital gains or good equity by selling this property. What are you planning to do with it?”

Theo Hicks: That’s a solid question to ask. And then keeping in mind that obviously this is not something that happens in one sitting. He didn’t knock on the door and have this entire conversation go back and forth for like half an hour. He’s like “I don’t wanna pay capital gains.” Then he says “I want cashflow.” It’s like, “All of us do.” I think this was a 3 to 6-month process, actually finally getting a deal under contract.

Danny Randazzo: Yeah. Real quick, one last fun fact about the communication piece. Actually, at the Best Ever Conference back in February in Denver there was a speaker at the event and I absolutely loved it and remember this, and I tell all of the people that I meet, whether it’s someone I’m networking with, or at my mastermind… But the stat was the rate of closing with a person, to be able to build that know, like and trust you. So Theo, if you and I are gonna do a deal, I’m not gonna sell you and close you on the first interaction. Actually, by the fifth or sixth interaction of you and I either meeting face-to-face, or having a phone call, or having coffee, or doing a Zoom meeting, it was like a 65% closing rate.

Best Ever listeners, keep that in mind when you’re thinking about “Am I gonna get this seller to sell on the first interaction?”, no. But if you can make those interactions — for example, if the seller is like “Give me your price, give me your price” on the first time you meet them, just say “Let me run my numbers, talk to my business partner, and I’m gonna get back to you.” Now you’re on your second time.

So I think always making a reason to have multiple interactions… And if you can get to that five interactions, you’re gonna have a much higher success rate than just trying to talk to them once or twice.

Theo Hicks: Exactly. We’re not trying to buy or sell Girls Scout Cookies or candy bars; these things are expensive, people have held on to these things for a long time, there’s a lot of personal investment going on here… So yeah, it takes time. Any sales book, any sales technique strategy should focus on that, and say “Hey, you should not try to pressure that close.” I guess some of them do say that, but for real estate that doesn’t work, and you’ve proven that with that 65% number.

So that’s number three, from the interview with Matt. It’s a quick one, but as I mentioned, he started from nothing. I know technically everyone started from having absolutely nothing, but a lot of other things that I see – people asking on Bigger Pockets – I guess that’s how I gauge what new investors are thinking. [unintelligible [00:18:44].12] but they say “Hey, I don’t have a lot of money. What should I do? How should I get started?” Or “Hey, I want to raise money, because I don’t have money myself” or “How do I get 0% down financing, how do I get seller financing?” Essentially, “How do I get started if I have no money whatsoever?” and I always wanna say “You need money.”

Obviously, there’s ways to avoid having to put money down, if you find a way to get a lot of experience by working for someone somehow… But most likely, most people that started had some sort of money in the game, or their own money. So the answer is just get a job for a  few years and work. That’s exactly what Matt did. I think he said he bought his first property when he was 20. At 18 he decided that he wanted to buy real estate, and so instead of saying “I can’t do this at 18 because I don’t have any money”, I can’t remember exactly what he said that he did, but he just worked a full-time job. I don’t think he went to college, I think he just left college, or just forgo college altogether, and worked a really crappy full-time job for 2 years to save up that $20,000+ to buy a property.

So the best ever advice was just if you wanna get into real estate and you’re not lucky enough to have college funds saved up, or your parents have money, or you come into the idea of real estate investing once you actually have a 401K or whatever, you just need to work your butt off and save up the money to get that down payment. It helps if you’re young and you wanna do a house-hack, because you don’t have to save up as much money. I was able to get into real estate with 6k, I think, and buy a $170,000 property with $6,000. So you can save up 6k in a year – or two, depending on what job you have – but at the end of the day, the majority of people are gonna get into real estate by having their own capital and buying a property with their own money, because it’s very difficult to raise capital without having  done a deal yourself. I mean, obviously, there are exceptions, but it’s very difficult.

We were kind of going over seller financing, but when you were going through the spiel of “If I don’t pay you back, I’ll foreclose on you”, something that might come up is like “Well, what evidence do I have that you’re able to pay back these types of loans? How do I know that you can do this?”, then your answer should be “Well, I’ve done this many deals before” or “I’ve done this many seller financing deals before”, “I have this much in debt that I have to pay back and never foreclosed on before.” So if you’ve never done a deal before and you’re trying to pursue seller financing and they ask you about your background and you have no answer, then obviously you can rely on team members, but at the end of the day, the point is that if you wanna get into real estate and you don’t have money, then take a year or two and make that money.

Danny Randazzo: Yeah. A couple of quick points here. One quick tip if you are considering trying to do seller financing, print your annual credit report for free, and it’s like 30-some pages. It shows that you make your monthly payments. I have done this before, where I send in a 70 or 80-page document about my own personal financial ability and say “Look, here’s 80 pages of proof that I will pay you back with your seller financing.”

Not that they’re gonna get through even the first page, but there’s 80 pages, this huge thing of proof that says “I pay my debts”, and that’s always helpful from a seller financing standpoint. And Theo, you’re absolutely right – the best way to get into real estate, to have people trust you, is by having your own ownership and your own money invested in deals, because that’s a huge deterrent, which — we’re not saying it’s not possible, but it just slows your ability down to build a portfolio when and if you’re trying to raise money without having any money to contribute yourself.

So to that point, I always refer to it as having an equity nest egg. And like you’re saying, go and work for it, get another job, maybe wholesale some properties to make a percentage of money, get commissions from a sales job… Do whatever it takes to build up this equity nest egg, and then you can start to buy your own properties.

The first interview that I did with Joe, episode 961, I talk about how I was doing house-hacking, and how I was working a consulting job and saving up money to build that equity nest egg, which ultimately allowed me to go out and buy my first investment property, which was a one-million-dollar office building. If you wanna get that full story, check out episode 961, and I’ll kind of break down that equity nest egg and how important it is to jump-start your success.

Theo Hicks: Exactly. You need to have some chunk of cash to go to work with. I guess not need, but it’s helpful, and Danny is a proof of that, I’m a proof of that, and most investors are a proof that. Obviously, that’s not what you wanna hear if you don’t have any money right now and you wanna get started tomorrow, but you’ve gotta build that solid foundation first, and taking that time… What’s even better – and you’ve kind of mentioned this, too – you kind of kill two birds with one stone… To find a job that’s real estate related to make that money; you’re getting both the experience and the money end goal. So either wholesale properties, find a syndicator, or whatever type of real estate investor you wanna be  – find that person to work for, and you might have to do it for free for a while… That’s what I did, I worked for Joe for free for six months, and now it’s turned into a full-time job, and now I’m talking on a podcast, with all these viewers… [laughs] So it’s possible.

Danny Randazzo: Be open to new opportunities.

Theo Hicks: Exactly. Alright… Well, I wanted to get into some more details on what you’ve got going on, but maybe we can talk about that next week. I’ve just gotta wrap this up because I’ve got other interviews to do today… So we’re gonna move into the next section, which is the trivia question. Last week ended the month of whacky real estate laws, and the question was “What Western state has a law that has restrictions on keeping upholstered chairs, couches and mattresses (essentially, indoor furniture) on your porch or front lawn?” Any furniture that is not manufactured for outdoor use… And the answer was Colorado. I think it was actually Boulder, Colorado that has that restriction, and the reason why is because apparently it’s a pretty rowdy town, and they were having issues with people burning furniture on their front lawn… So in order to avoid that, they just made it illegal to have furniture on your front lawn. I thought that was funny and interesting.

Danny Randazzo: Those darn college kids probably out there in Boulder having too much fun…

Theo Hicks: Exactly. The first person that got that question correct gets a free copy of our first book. This week’s question – I’m not sure what this theme is yet, but I’m gonna try to make this whatever the theme of this question is the entire month… And Danny, you get to guess the answer, and we’ll see if you’re right next week.

Danny Randazzo: Alright, very good.

Theo Hicks: Alright, so name the country where it is almost impossible to buy a pre-owned resale home, because most of the houses depreciate in value, and more than half of them are demolished after 30 years.

Also in this country – because of the fact that obviously they’re constantly building new homes – there are four times more architects and two times more construction workers per capita than the U.S. This is a country, name that country.

Danny Randazzo: Four times more architects per capita… So it’s just a ratio of the scale. The country is going to be Bahrain.

Theo Hicks: Okay. So that’s Danny’s guess. Everyone else, you can guess either in the YouTube comments below if you’re watching the video; if you’re listening to the episode, then you can email the answer to info@joefairless.com. Again, the first person to name the correct country will get a free copy of our first book.

To wrap things up, we are no longer doing the review of the week… Last week we started by discussing a free apartment syndication document that you can download for free on our website. This week’s free document is going to be the annual income calculator. All the way back in series number four I went over the ultimate syndication success formula, and one of the steps in that formula was to determine what you wanted your annual income goal to be. The reason why is because once you determine how much money you wanna make, you can kind of reverse-engineer exactly how much money you need to have in verbal commitments from your investors in order to raise enough capital to close on a large enough deal that will get you the desired return goal.

So instead of having to do that calculation yourself, we went ahead and put together a nice, clean Excel template, where you just type in your annual goal, your return structure you plan on having with your investors, and it’ll spit out exactly how much money you’ll want to have in verbal commitments from passive investors, and then how large of a deal you need to look at, and all the different criteria you need in order to hit that annual income goal.

So if you want to download that free document, as well as listen to those episodes, you can either download it in the show notes of episodes 1513 and 1514, or we’re gonna include a link to the actual calculator in the show notes of this Follow Along Friday episode. Or you can go to SyndicationSchool.com and find it there, as well as other episodes and all the other free documents that we’ve done so far.

That wraps it up. Danny, I wanna say you did a good job playing Theo. The only difference is that you talk way slower than I do. I talk so fast, and you talk so slow and so clear, so I appreciate that. I appreciate you coming in; I’m looking forward to having a conversation with you next week.

Danny, before we clock out, where can people find you, learn more about you and contact you?

Danny Randazzo: Just go to PassiveInvesting.com, reach out to me there. My email is Danny@PassiveInvesting.com. If you’ve got questions or things that I can help with, I’m happy to be of service and help the Best Ever community… Because you’re the best!

Theo Hicks: Absolutely. Alright, Best Ever listeners, thanks for tuning in. Enjoy your weekend, and we will talk to you soon.

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

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

 

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

 

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


TRANSCRIPTION

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Joe Fairless: Yeah.

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

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

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

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

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

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

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

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

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

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

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

Joe Fairless: Oh, yeah. The Navy SEAL.

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

Joe Fairless: Yup. Cool. Good stuff.

Theo Hicks: Those are some solid lessons.

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

Theo Hicks: There you go.

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

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

Joe Fairless: Yup.

Theo Hicks: You guys followed me down here.

Joe Fairless: Yup.

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

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

Joe Fairless: Awesome!

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

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

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

Theo Hicks: It’s gonna be a state.

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

Theo Hicks: Within that state, yeah.

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

Theo Hicks: Yeah.

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

Theo Hicks: Yes.

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

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

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

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

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

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

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

 

Best Ever Tweet:

“Use a ring doorbell camera and wifi locks”

 


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

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


TRANSCRIPTION

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

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

Theo Hicks: How’s it going, Joe?

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Theo Hicks: That’s awesome.

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

Theo Hicks: That’s really funny.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Theo Hicks: No, I couldn’t find it…

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

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

Joe Fairless: Alright. What’s next?

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

Joe Fairless: Yeah, I think I said Arkansas.

Theo Hicks: The answer was New Mexico.

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

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

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

Joe Fairless: The whole state?

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

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

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

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

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

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

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

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

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

 

Best Ever Tweet:

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

 


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

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


 

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

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

 

Best Ever Tweet:

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

 


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

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


 

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

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

 

Best Ever Tweet:

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

 

Alex Holt Real Estate Background:

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

 


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

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


 

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

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

 

Best Ever Tweet:

“Get curious, what could be their motivation?”

 


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

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


TRANSCRIPTION

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Theo Hicks: [laughs]

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Joe Fairless: Do you know what I said?

Theo Hicks: Six.

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

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

Joe Fairless: Real estate agents?

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

Joe Fairless: Alright, alright.

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

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

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

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

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

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

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

 

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

 


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TRANSCRIPTION

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

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

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

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

Take it away, my friend.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Joe Fairless: 220k per place?

Theo Hicks: Yeah, per property.

Joe Fairless: Alright, so 660k total.

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

Joe Fairless: That’s right.

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

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

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

Joe Fairless: Right.

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

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

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

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

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

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

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

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

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

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

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

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

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

Theo Hicks: No, I don’t have that.

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

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

Theo Hicks: Mm-hm.

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

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

Joe Fairless: Okay.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Joe Fairless: Minneapolis… Sneaky, sneaky.

Theo Hicks: That was surprising.

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

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

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

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

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

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

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

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

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

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

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

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

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

Theo Hicks: Zero.

Joe Fairless: Seven. [laughs]

Theo Hicks: Seven?!

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

 

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

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

 

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

 


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TRANSCRIPTION

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Theo Hicks: Perfect.

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

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

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

Theo Hicks: Yeah.

Joe Fairless: Cool.

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

Joe Fairless: Okay.

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

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

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

Joe Fairless: Where is it, Beverly Hills?

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

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

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

Joe Fairless: Four.

Theo Hicks: Okay, four.

Joe Fairless: I’ll say four.

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

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

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

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

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

Theo Hicks: Yeah.

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

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

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

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

 

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TRANSCRIPTION

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

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

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

Theo Hicks: I did.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Joe Fairless: What’s your takeaway there?

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

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

Theo Hicks: Letizia and Kenji.

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

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

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

Joe Fairless: Yup.

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

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

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

Joe Fairless: Yeah.

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

Joe Fairless: You had some fun interviews last week.

Theo Hicks: I did, yeah.

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

Theo Hicks: No.

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

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

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

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

Joe Fairless: Yeah, that is.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Any and all other advice is also welcome.”

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Theo Hicks: 34 years old. You were closed.

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

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

Joe Fairless: Where is it located?

Theo Hicks: L.A. It’s in Bel Air.

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

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

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

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

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

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

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

Listen to the Episode Below (00:21:23)
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Best Real Estate Investing Crash Course Ever!

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

 

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

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


TRANSCRIPTION

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

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

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

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

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

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

Theo Hicks: Okay…

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Theo Hicks: Exactly.

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

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

Theo Hicks: I do not.

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

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

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

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

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

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

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

Theo Hicks: There you go.

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

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

Joe Fairless: Congratulations again. All is well?

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

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

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

Joe Fairless: Awesome.

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

Joe Fairless: Looking forward to it.

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

Joe Fairless: No, let’s do it.

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

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

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

Joe Fairless: Now, in 2019?

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

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

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

Joe Fairless: Volume one, right?

Theo Hicks: Volume one.

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

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

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

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

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

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

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

 

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

Listen to the Episode Below (00:16:14)
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Joe has been building his portfolio by renovating and adding value to his properties, pulling out the equity, and reinvesting into his real estate investing business. We’ve covered that with him previously, today he is going to tell us how to “tenant proof” our investment properties. Not only does Joe tenant proof his properties, he maximizes the ROI while doing so. If you enjoyed today’s episode remember to subscribe in iTunes and leave us a review!

 

Best Ever Tweet:

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

 

Joe Cornwell Real Estate Background:

 


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

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


TRANSCRIPTION

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

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

Joe Cornwell: Good, how are you?

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

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

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

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

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

Joe Cornwell: Yes.

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

Joe Cornwell: Right.

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

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

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

Joe Cornwell: Some of it, yeah.

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

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

Joe Fairless: What’s in that category?

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

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

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

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

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

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

Joe Cornwell: Yeah. Especially on this current project.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Joe Fairless: Wow.

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

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

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

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

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

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

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

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

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

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

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

Joe Cornwell: No, I think that’s it.

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

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

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

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

Joe Cornwell: Thanks for having me. See you.

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

Listen to the Episode Below (00:22:19)
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Best Real Estate Investing Crash Course Ever!

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

 

Best Ever Tweet:

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

 

Ryan Naish Real Estate Background:

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

 


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

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


TRANSCRIPTION

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

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

Joe Fairless: I’m doing well, and looking forward to our conversation. A little bit about Ryan – he is a real estate investor, and he has been one since 2006. He’s flipped 18 properties in Cincinnati, Ohio, and he flipped five of them last year. He’s a licensed realtor and he has handled 35 purchase and listing transactions. As I mentioned, he’s based in Cincinnati, Ohio. With that being said, Ryan, do you wanna give the Best Ever listeners a little bit more about your background and your current focus?

Ryan Naish: Okay. Thanks for having me on here. Gosh, my background is actually a lot of sales. I was selling various forms of construction; I was always in outside sales, since 2006, and it wasn’t until 2016 that I quit my job, and got my real estate license, and started becoming a full-time property investor.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Joe Fairless: It sounds like it went up.

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

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

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

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

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

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

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

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

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

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

Joe Fairless: Yup.

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

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

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

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

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

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

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

Joe Fairless: That’s good!

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

Joe Fairless: Everyone okay?

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

Joe Fairless: Oh, my gosh…

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Joe Fairless: Yup. Makes sense.

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

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

Ryan Naish: I sure am.

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

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

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

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

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

Ryan Naish: Yeah, it is.

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

Ryan Naish: That Pleasant Ridge deal.

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

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

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

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

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

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

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

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

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

Joe Fairless: Sure, of course.

Ryan Naish: 513-535-6480.

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

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

Ryan Naish: Alright, thanks a lot, Joe.

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

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

 

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

 

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

 


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TRANSCRIPTION

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

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

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

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

Lennon Lee: That’s it.

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

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

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

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

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

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

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

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

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

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

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

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

Lennon Lee: 100%.

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

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

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

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

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

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

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

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

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

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

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

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

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

Lennon Lee: Exactly.

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

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

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

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

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

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

Lennon Lee: Ow…

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

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

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

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

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

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

Lennon Lee: Wow… Yeah.

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

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

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

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

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

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

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

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

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

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

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

Lennon Lee: Their true version.

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

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

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

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

Lennon Lee: Always, man.

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

Joe Fairless and Theo Hicks real estate show flyer

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

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

 

Best Ever Tweet:

 

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

 

Mo Bloorian Real Estate Background:

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

 

Paige Panzarello Real Estate Background:

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

 

Jason Fudin Real Estate Background:

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

 

Krisstina Wise Real Estate Background:

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

 


Sponsored by Stessa – Maximize tax deductions on your rental properties. Get your free tax guide from Stessa, the essential tool for rental property owners.


 

Joe Fairless episode 1648 banner with Theo Hicks

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

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

 

Lessons Learned:

Alan Fruitman: Stay in your lane

Jake Stacy: Having proper insurance

Jason Palliser: Executing on deals

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

 

Best Ever Tweet:

 


Sponsored by Stessa – Maximize tax deductions on your rental properties. Get your free tax guide from Stessa, the essential tool for rental property owners.


 

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

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

 

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Eric Kottner Real Estate Background:

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

 


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TRANSCRIPTION

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Joe Fairless: Got it, okay.

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

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

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

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

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

Joe Fairless: Well, that’s fun.

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

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

Eric Kottner: Yes.

Joe Fairless: Tell us about that one.

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

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

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

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

Joe Fairless: That sounds like a slam dunk.

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

Joe Fairless: Why?

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

Joe Fairless: Oh, dang…

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

Joe Fairless: Oh…

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

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

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

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

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

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

Joe Fairless: Dang, was that big?

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

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

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

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

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

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

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

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

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

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

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

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

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

Eric Kottner: 150k.

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

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

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

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

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

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

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

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

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

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

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

Joe Fairless: Okay.

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

Joe Fairless: 50/50?

Eric Kottner: Yeah.

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

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

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

Eric Kottner: Exactly.

Joe Fairless: [laughs]

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

Joe Fairless: Okay…

Eric Kottner: But we still have the appraisal side.

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

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

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

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

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

Eric Kottner: Let’s do it.

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

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

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

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

Joe Fairless: It’s called what?

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

 

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TRANSCRIPTION

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

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

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

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

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

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

Joe Fairless: Congratulations!

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

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

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

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

Theo Hicks: Yeah.

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

Theo Hicks: Yes.

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

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

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

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

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

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

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

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

Theo Hicks: Yeah.

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

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

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

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

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

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

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

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

Joe Fairless: Good stuff.

Theo Hicks: That’s the advice I’ve got on that. Do you have anything else to add, or are we gonna move on?

Joe Fairless: No, I’ve got nothing else.

Theo Hicks: Alright. Do you have any updates that you wanna discuss?

Joe Fairless: Nope.

Theo Hicks: Cool. I just want to mention one thing… As I mentioned last week, we are expanding to multiple markets in Florida; originally it was just Tampa, and now we’re expanding to Tallahassee, Orlando and Jacksonville. The reason why [unintelligible [00:12:51].12] conversation we had on this podcast, so again, I really appreciate that… And I reached out to a lender who was nice enough to send me all this market information on those, so we’re kind of going through that right now.

Now it’s just looking at four times more deals… Actually more than that, because Tampa has been a little dry lately, and I’m just having my underwriters go through those deals, and… I think you’ll think this is funny – I did get lunch with a commercial broker and then the lender for that company…

Joe Fairless: Yeah.

Theo Hicks: And we were kind of just talking, and I mentioned you and Ashcroft, and the guy is like “Ashcroft… That sounds so familiar. I think I just talked to someone from Ashcroft recently.” He pulls out his e-mail, and sure enough, he had talked to your acquisition manager, Scott…

Joe Fairless: Scott, yeah…

Theo Hicks: [laughs] I was like, “Oh, yeah. I know Scott.” [laughs] I thought that was pretty funny. A super-small world.

Joe Fairless: We’re everywhere, Theo. [laughs]

Theo Hicks: I know. You are. I just wanted to mention that; I thought that was interesting. [unintelligible [00:13:43].22] grinding still, looking for that first deal, and definitely increasing our chances by looking at more markets, for sure.

Joe Fairless: What happened to the Jacksonville one?

Theo Hicks: Too big. It was 440 units.

Joe Fairless: Got it. Cool.

Theo Hicks: It was more of a class A property. It was a little bit too nice for us. The price per unit to purchase it, as well as the price per unit to upgrade it was just a little bit above what we’d want to do. I’m looking for more that B, C-ish type of property that we can put under 10k into. We don’t wanna do the nice, luxury, granite stuff just yet, but obviously eventually that’d be great.

Joe Fairless: Yup. Cool.

Theo Hicks: Alright, moving on to the trivia question. I don’t know why, I’m always so excited by the trivia section.

Joe Fairless: They’re fun!

Theo Hicks: I did a ton of research on the question this week; I think it’s kind of interesting. But first, last week’s question. The question that “In 2010 Apple purchased one acre of land from an elderly couple from North Carolina to build a data server. That elderly couple bought their land for 6k 34 years prior (in the 1970’s). How much did Apple pay for that land?” And I said within $100,000, and the answer was 1.7 million dollars. So that’s almost a hundred or a thousand times than what they paid for it originally, so good for them.

Joe Fairless: Yeah, good for them. I’m sure somehow it worked out financially for Apple, too.

Theo Hicks: Seriously. I do [unintelligible [00:15:00].24] and they were buying houses for four or five times as much as they were actually worth, but this is…

Joe Fairless: Who’s “they”?

Theo Hicks: Whoever the developer was, that developed the apartment building.

Joe Fairless: Oh, the apartment developer was doing that, okay.

Theo Hicks: Yeah.

Joe Fairless: I thought you were still talking about Apple.

Theo Hicks: And I think one guy didn’t wanna sell, and eventually the government stepped in and he didn’t make as much money as he would have if he had just sold. That should have been a trivia question, but that’s too specific. But this week’s question is gonna be – in 1929 it was announced that they were increasing the height of the Empire State Building from 1,050 to 1,250 feet, via that needle that’s at the top of the empire state building right now.

Joe Fairless: Sure.

Theo Hicks: So the question is “What was the original purpose of that needle on top of the Empire State Building?”

Joe Fairless: Oh, I don’t think there was a purpose. I just think they did it to be the tallest building, because I’m sure they were trying to beat another building… So they just wanted the needle there to have bragging rights. That’s my guess.

Theo Hicks: Okay. Submit your answer to either info@JoeFairless.com, or you can comment on the YouTube video with your answer, and the winner will receive a copy of the Best Real Estate Investing Advice Ever book that we wrote.

Joe Fairless: Volume 1, right?

Theo Hicks: Yeah. It’s the first person to get the answer correct. But moving on, the recording is on Thursday, this will be live on Friday; a week from when this goes live is the Best Ever Conference. That is in Denver, next week, and I wanted to ask you, Joe, since obviously you’re putting the conference on, you’re gonna be a speaker, do you wanna give us a little sneak peek on what you’re gonna be talking about in your keynote?

Joe Fairless: Yeah, sure. I am actually finalizing it now; it’s on my desktop. I’m gonna be talking about lessons learned after acquiring 500 million dollars worth of apartment communities… And they’re applicable to apartment investors, but then also entrepreneurs and real estate investors and business people. There will be lessons that I have not talked about before, because I recently did an assessment of just the business after we closed on this deal, which we closed a week ago today… Therefore it’s new stuff, it’s all new stuff; some new concepts… It’s gonna be a lot of fun to talk about some things that are recent observations that I’ve come across. So that’s gonna be my keynote. That will be Friday around 11 AM or so.

The agenda is on our website, BestEverConference.com. We’ve got about 40 or so tickets that are left, otherwise we’re all booked up. We’re gonna meet that allotment, for sure, so if you wanna go, come on over, come hang out with us. We’ll be having fun, too. On Thursday night there’s a Bigger Pockets event. We’re not officially affiliated with it, but Thursday night there’s a Bigger Pockets event, and then Friday night we’re renting out a bar, and all hanging out there, and then Saturday night I think it’s whatever you wanna do. But then Sunday there’s an Assisted Living Academy that everyone can attend for free as a result of being a paid attendee at the conference; that’s Sunday.

So we’ve got a lot of miscellaneous stuff going on before and after the conference. Then, obviously, the conference is a lot of good content. I’m looking forward to meeting everyone there, or seeing you there. BestEverConference.com.

Theo Hicks: Alright. And lastly, the review of the week. So make sure you guys and girls pick up a copy of the Best Ever Apartment Syndication Book on Amazon, leave a review and send us a screenshot in order to have the opportunity to be the review of the week, read aloud on the podcast.

This week’s review comes from Arthur, and I really like reviews like this one; it makes me feel good, if I’m being honest. Arthur said:

“Having been in the apartment development and syndication business for the last 15 years, I’ve never found a  book like this one. Very useful information. I’m actually surprised that he shares such detailed trade secrets. Following his book will give you a ten-year headstart.”

Joe Fairless: Thank you for that. It means a lot, especially coming from you, with the background that you have.

Theo Hicks: Exactly.

Joe Fairless: Thanks again. Best Ever listeners, I enjoyed our conversation. I hope you got a lot of value from this, and we’ll talk to you tomorrow.

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JF1620: How Important Is A Social Media Presence For Real Estate Investors #FollowAlongFriday with Joe and Theo

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Social media. It consumes a lot of people at all times of the day. Today, Joe and Theo are answering a question sent in from a listener asking about social media and it’s importance for real estate investors, especially just starting out in apartment syndications. If you enjoyed today’s episode remember to subscribe in iTunes and leave us a review!

 

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TRANSCRIPTION

Joe Fairless: Best Ever listeners, how are you doing? Welcome to the best real estate investing advice ever show. I’m Joe Fairless, and this is the world’s longest-running daily real estate investing podcast. We only talk about the best advice ever, we don’t get into any of that fluffy stuff. We don’t like that fluffy stuff; we only like the best advice that helps you out.

Today we’ve got Follow Along Friday. The purpose of Follow Along Friday is to talk about what we’ve learned, or answer questions from you, Best Ever listeners, to help you along with your real estate endeavors… And today we’re gonna do the latter – we’re gonna be answering some questions from a Best Ever listener.

Theo Hicks is with us, as always, on Follow Along Fridays. Theo, what have we got?

Theo Hicks: We had a question submitted from Rebecca, and it’s actually really cool. She’s doing a research project for schooling, and it’s related to real estate, so she kind of asked us if we have any data that we can provide her to help her with her research… And the main research question was “How important is a social media presence in establishing credibility as a real estate investor, in the real estate industry?”

Joe Fairless: Well, I don’t have any data for it, so if she’s looking for data points, then sorry… But I can answer the question. Was she looking for data points?

Theo Hicks: In a sense. Some of her questions were asking for specific data, but some of them were more general. For example, “The two things you really wanna know about how social media marketing in general helps you out, as well as how did writing on Bigger Pockets help you out with your syndication business, particularly when you were first starting out?”

Joe Fairless: Okay. This question will be helpful for anyone who is bringing capital to their deals, or anyone who is entering into real estate investing from some other career path, and they need to get customers or clients or investors and attract them to their business. This could be relevant for real estate agents, this could be relevant for apartment syndicators, this could be relevant for fix and flip people, and it could even be relevant for wholesalers who are looking to attract people on their buyers list and people on their sellers list.

So the question is “How important is social media when you’re starting out?” Well, I imagine most of us – and even Rebecca, I’m sure you’re are, or else you probably wouldn’t be asking the question – realize that it is important to have a presence on social media. The choice that we should make though is what platform should we focus on, and what is our role, and what’s the purpose of us being on the platform? Because some of us – I’ll raise my hand – don’t enjoy being on social media sites as much as others.

So first off, one mandatory in my opinion – but it’s a fact – is if you’re in real estate investing and you are attracting some sort of client or customer, then you’ve got to be on social media. And specifically within social media, you have to pick which platform or platforms that you want to be on. Then, once you pick that – let’s say you pick Facebook, for example – then you’ve got to find out “Okay, within Facebook as the platform that I’ve chosen, now what is my role and what will I be doing within that platform?”

I can tell you that when I was starting out with Facebook, my focus was simply promoting the episodes that I was doing from the podcast. In the early days I was doing everything for the podcast: finding the guests, interviewing the guests, doing the show notes, promoting the episode, letting the guests know that the episode went live, all of that stuff. And the important part of this is you’ve got to identify what you want to accomplish as a result of being on the platform. At a bare minimum, what you need to accomplish is when someone searches for you on a major platform like Facebook, for example, they’re going to see that you have a presence, because they’re going to be skeptical if you do not.

And in fact, I had one investor about a year and a half ago say “I looked you up on Facebook, Joe, and I couldn’t find that you posted anything for the last three years.” I was like, “What? What are you talking about?” What he was looking at – back in my advertising days when we were testing… So I was working on the social media account for Fortune 500 companies like Microsoft, and we were specifically on the Bing search engine, the Bing account – I had to create a test account for my profile to test out certain apps that we were launching; so I had like a dummy test account for Joe Fairless, and this investor was looking up my name and he found that one, and he saw I hadn’t posted in many years… And I said “I think you’re looking at the wrong one.” Then I told him the right one and he was like, “Okay, cool.” But that was a red flag for him, that he thought that I hadn’t been posting. I was kind of secretive about it.

At this point in time in our culture, you’re not allowed to be closed off. It’s just not acceptable… And for better or worse, because the downside to that, I believe, is when something catches fire on social media, whether it’s true or not true, it just takes off, because we’re all so super-connected. So that’s a downside, in my opinion, if it’s not true… But on the plus side, since we are so connected, it allows us to go in with eyes wide open into partnerships, because we have more of a sense of who that individual is and what they’re like; you get a more personal glimpse into their life. And that’s not something that should be surprising to anyone, but what we should focus on as business professionals, and especially in real estate investing, is we have to have a presence and we have to know what the outcome of that presence is.

So if you are not interested in social media, but you know from this conversation you need to have a presence, then simply have a Facebook page, and you can have things auto-populate on your page from your website, or from your blog post, where you’re simply auto-populating your Facebook page with content. And at least every now and then check in on it and make sure that your account is staying active. So it’s really a check-the-box thing.

In terms of how important it was whenever I got started – well, I don’t know how much growth being on social media, and specifically Facebook, because I’m not on Instagram; I think I have an account, but I don’t even have that on my phone… Basically, Facebook. I deleted Twitter, because that’s just a lot of noise; I know it’s very helpful for emergency situations, because you can see exactly what’s happening at every second, but… I only have Facebook on my phone, and I recently took off the notifications from Facebook on my phone, so I don’t get notified whenever I get an alert, because I personally don’t enjoy social media. But I do have a team who posts on the page as the brand page. And I jump in there every now and then, but it’s just not something that I personally enjoy.

So the takeaway is you must be on social media, but pick a platform and have a consistent presence at minimum, and at maximum, you can really grow your business.

I know that we have ads on Facebook that promote our local meetup every month, and we’re getting people from Indianapolis, Tennessee, Cleveland, Detroit, Dayton (it’s pretty close, but…) all over come to the meetup that we have in Cincinnati, and same goes for the annual conference that we have in Denver.

Theo Hicks: That’s some really solid advice. Just to add a few things, going back to what you said in the beginning about picking a platform – again, I don’t have any evidence for this, but it feels like each platform fits better based on what you do as a real estate professional. I know a lot of syndicators on Facebook because of the ability to do Facebook live; you can do Facebook live whenever, more informally, or you can do a formal webinar. That’s a good way to put information across.

It sounds like Snapchat and then Instagram are really good for agents, and fix and flippers, too. Anyone that’s doing these faster projects, that they’re trying to turn around quickly, they can quickly do before and after types of pictures. I know we’ve got a few blog posts under the “Branding and thought leadership” category on our blog that has different agents, wholesalers and fix and flippers talking about their Instagram and Snapchat strategies… But it sounds like Facebook is kind of the go-to one for what we do, just because it kind of has everything on there. You can do image-based stuff, you can do text-based stuff…

Twitter – just like you, I don’t know any investors that use Twitter, so I’m not exactly sure what that strategy would be, but I do know that the hashtag tool is very powerful if you’re trying to grow your brand and grow your thought leadership platform, and you want to find out who is creating or sharing similar content… You can type in #apartmentsynidcation and find the biggest accounts, and then share content that way.

And of course, Bigger Pockets… Do you consider Bigger Pockets social media, or something different?

Joe Fairless: No, I don’t consider it a social media platform. I don’t think it is. It’s a forum. It’s the most valuable forum you can be on as real estate investors, but yeah, it’s a forum.

Theo Hicks: I do remember you saying a while ago that you weren’t a fan of Facebook ads. Is that true, and what changed your mind about that? Because I remember you didn’t like them before.

Joe Fairless: Well, you’re bringing up something that I don’t remember saying, but I trust you, because you’re a lot smarter than I am, and probably have a better memory. I don’t remember saying I don’t like Facebook ads, so I’m not sure why I said it, but if I did, then I’ve changed my mind. I am a fan of Facebook ads because you can determine how much you’re paying, and if you’re not getting a good cost per click, then you maneuver or you reconfigure some things, or you discontinue. So I’m fine with Facebook ads.

Perhaps what I said, if what you’re remembering isn’t entirely accurate – which I’m not sure it is or isn’t – is I’m not a fan of doing Facebook ads when you’re paying cost-per-impression; I’d wanna pay cost-per-click, because cost-per-impression – no real ROI there, but with cost-per-click you’re sending people somewhere. But thank you for mentioning the different platform value propositions. It’s such a very important point, that’s very helpful, because Instagram visual stuff, which — I could have more visual stuff, and perhaps I will, like on the unit renovations we’re doing, and other things like that… Right now I don’t have a team capturing all that on-site, but I just I hired a director of marketing and he lives in Dallas, and most of our properties are in Dallas, so maybe we do some of that stuff in the future… But for me and our company Facebook is the way to go, because not only does it have it all, but I enjoy the conversation and I feel like it’s a deeper level of connection with people, because you’ve got that back and forth; we’re not confined with a certain amount of characters that you can write, and it’s really a platform that is conducive to conversations, versus checking in and checking out and doing a fly-by-night thing.

Twitter is good for content sharing. I’m not a fan of it, but that’s how that is. Snapchat – I have no idea, I’ve never even been on Snapchat, and I don’t ever wanna be on Snapchat.

Theo Hicks: I was gonna say it’s probably generationally — like, people that are a lot younger than us, they’re definitely using Snapchat, because it came out in 2011, I think… It’s just one of those newer social media platforms.

There was one more question I wanted to ask you before we moved on about social media; it’s kind of related, but you were mentioning how in the beginning you had that test accounts that you were using for your previous job, and how it kind of went dormant, and someone looked that up and was like “Oh, you’re never really posting anything on here…” – would you recommend that people create a separate business page for themselves, or should they just post everything on their personal profile?

Joe Fairless: Good question. We could have a debate on this, and there would be excellent arguments for both sides. So the debate for the pro motion, where you have two separate accounts would be you don’t want to inundate people with a bunch of business stuff whenever they added you as a friend, because they were your friend before you had this business, and so now you’re blasting them with all this business stuff, so you’re really wearing out that friendship, which could in turn hurt your business in the long run, because you’re being so loud about it.

But the motion on the flipside would be, well, yeah, but if you’re posting valuable information, like you’re supposed to, and you’re adding value every time you post some content, it’s like “Oh, this is something interesting I learned today. When I do drywall, I’ve got to install it this way, or that way… Otherwise you could run into this problem”, and it’s just a helpful tip for homeowners” – well, okay, I feel you there. Then that just might mean you need a personal page. But I think if you only have a personal page, your individual page, you’re limiting your business growth to just local period, or at least you’re limiting your business, period, because Facebook only allows you to have a certain amount of friends, and you’re not able to scale it.

Think about if Coca-Cola just had a Mrs. Coca-Cola page and it was just one female who was talking about Coca-Cola and they didn’t have a product page. Well, they’d be missing out on a lot of engagement there. So to answer your question directly, my side of the fence, the side I choose to be on on that answer is you should have a business page plus a personal, and focus your business stuff on the business page, that way you can scale your business, and occasionally, if relevant, post business stuff on your personal page, but only when it adds a whole lot of value to the people who are connected to you in a non-real estate way; so homeowners would be a good thing, because while there are less and less homeowners – thankfully, since we’re multifamily investors – there are less and less homeowners, but there’s still a lot of homeowners out there that could find some helpful tips.

Theo Hicks: I was thinking the same thing, and you sold me when you mentioned the friend limit. I forgot about that. I think you can only have like five thousand friends, or a thousand friends, or something.

Joe Fairless: I never want to hit that mark. That sounds like insanity. I don’t accept friendships on Facebook unless I actually know the person off of Facebook, and that’s when I accept that friendship.

Theo Hicks: Yeah, I do the same thing. I got really excited because I got so many friend requests from being on this podcast, and then it kind of got too much, and my page had a bunch of random people on there.

Yeah, so if you’ve got a business page, you can post 10, 20, 30, however many times you want to per day, and then anything that’s relevant to people that are on your personal Facebook page, you could share maybe one thing per day on your personal Facebook page, just to kind of push people who are your personal friends that would be interested in learning more about your business to your page, but people who aren’t don’t have to see it every single day… So I agree with you.

Joe Fairless: Cool.

Theo Hicks: Alright, good stuff. I just had one quick update I wanted to mention before I moved on to the trivia question. Last week I was talking about that deal in Jacksonville, and how Jacksonville is too far away, and all these different reasons why I couldn’t look at that deal… And you challenged me, and I really appreciated that, so I reached out to that broker, I got the information on the deal, my underwriters are underwriting it now… And I talked to my business partner about what you said about investing outside of Tampa, so we’re gonna start targeting Orlando, Tallahassee and Jacksonville.

We’re very grateful — someone reached out to me on Bigger Pockets who’s a lender, who asked me if I needed any help, and I was like “Well, yeah. Do you wanna send me some market information?”, so he sent me these super-detailed market reports on Tampa. I’m gonna do the same thing for Tallahassee, Orlando and Jacksonville, and then we are going to – either my business partner and I, or my wife and I are gonna schedule trips to those locations just for a weekend, because I’ve never been to any of those places before, so I have no idea what they even look like.

Hopefully I’ve got a couple of deals that I can look at as well, and then I’m also gonna be getting lunch with a broker and another on Tuesday who cover all of Florida, just so I can get a better idea of what areas in Tallahassee, Jacksonville and Orlando are good and which I should avoid, as well as to ask them for property management contacts.

So thank you, Joe, for challenging me. I just wanna let everyone know that I’m acting on Joe’s advice. Now I’ll be able to look at four times more deals, because I’ve got ten underwriters now, so I’ve got plenty of people to underwrite deals.

Joe Fairless: Well, I’m glad to hear that, and… As long as these episodes are helpful for you and no one else, that’s what’s most important. We’ll just continue on that. I’m sure all the Best Ever listeners will be totally fine with that, where you and I just have like a little coaching session…

Theo Hicks: Seriously. They probably would…

Joe Fairless: Who cares about everyone else…? [laughter] But I’m glad to hear that, and I’m sure we’re all looking forward to hearing how it progresses.

Theo Hicks: Do you have anything to share?

Joe Fairless: Oh, yeah, well, today we’re closing on a deal. It’s a deal in Richardson, Texas, and that’s gonna put us over the 500 million dollar mark on properties that we have under management, and we’ve got part ownership in on along with our investors… So congratulations to all the investors who are in the deal with us in Richardson.

We’re airing this episode – so there’s no confusion for investors who are listening to this… This episode airs on Friday, but we record it on Thursday, and we’re scheduled to close on Thursday. So if you hear this episode on Friday and you’re saying “Wait a second, we closed yesterday”, well that’s because we recorded a day before. So congrats to everyone, and… I don’t know if there’s any lessons learned on this deal. If there is something that comes up, then I’ll mention it, but I just kind of wanted to celebrate that note, and let’s move on to the trivia stuff.

Theo Hicks: Congratulations to you, half-way to a billion dollars.

Joe Fairless: Yup.

Theo Hicks: That’s awesome. Alright, trivia questions. Last week’s trivia question was “What U.S. city had the largest increase in rent from 2014 to 2017?”, so those past three years data was available for, percentage-wise. The answer was surprising to both of us – Detroit. It actually increased by 9.8%. It was a $340 increase in rents. The person that got that correct will be getting their free signed copy of the Best Real Estate Investing Advice Ever Book.

This week’s question is gonna be a little different than usual, but I think it’s a very interesting and unique question. In 2010 Apple, the iPhone company – and they do more than that, but the iPhone company… I’ve got my iPhone in front of me that made me say that… It purchased one acre of land from an elderly couple in North Carolina in order to build a data server. So this elderly couple bought that land for $6,000 34 years prior. The question is “How much did Apple pay for that land?” And I’m gonna let you be within $100,000.

Joe Fairless: Alright, how much did they buy it for originally?

Theo Hicks: $6,000.

Joe Fairless: They bought it for 6k. And what year did they buy it?

Theo Hicks: 34 years before 2010, so was that ’76?

Joe Fairless: They bought it for how much?

Theo Hicks: $6,000.

Joe Fairless: They bought it for $6,000 in 1976, and how much did they sell it to Apple for… There’s only one acre?

Theo Hicks: One acre.

Joe Fairless: One acre in North Carolina?

Theo Hicks: Mm-hm.

Joe Fairless: What city? Or I guess it was a little outside of a city, I imagine, since it’s a data center…

Theo Hicks: Yeah. I don’t know.

Joe Fairless: Well, that’s hard with not knowing how close it is to civilization. I imagine it’s kind of close… So this is — who knows…? I’m not even gonna guess. I don’t even know.

Theo Hicks: You’ve gotta guess, Joe.

Joe Fairless: I’m gonna say — one acre? I’ll tell you, the nicest area of Cincinnati, or the most expensive area of Cincinnati (Indian Hill is that area), they sell per acre around $200,000, so I’m gonna say $250,000 for one acre.

Theo Hicks: Okay. Well, anyone else who has a guess, make sure that you comment either on the YouTube video, or send us an e-mail at info@joefairless.com, and if you are within $100,000, then you will receive a signed copy of the Best Real Estate Investing Advice Ever book.

Joe Fairless: The first one to respond who’s within 100k.

Theo Hicks: The first one, yes. Correct.

Joe Fairless: Yeah. Sweet.

Theo Hicks: Alright, so what’s the date today? The seventh. So we are very close to the Best Ever Conference 2019 in Denver, Colorado, 22nd of February and 23rd. The last scheduled event right now is going to be The Worst Deal Spotlight and Competition. It looks like it’s going to have a Price is Right game show theme to it… I thought that was interesting, because I used to love that show when I was in college. I’d watch it every single day at my fraternity house.

Joe Fairless: Really?

Theo Hicks: Yeah.

Joe Fairless: On the couch, eating Cheetos?

Theo Hicks: No, we had like a meal plan there, so I’d go there for lunch, and I’d watch Price is Right with everyone, and we’d all scream at the TV…

Joe Fairless: That’s some whacky stuff. Alright, college kids, huh?

Theo Hicks: College kids. So make sure you guys aren’t screaming at anyone during this Price is Right game, but… I think that was kind of a fun activity, but you also kind of learn about some mistakes people made on their worst deals.

Joe Fairless: Yeah, we learn a lot from our successes, and we also learn a lot from our failures, and it’s even better if we learn — well, sometimes it’s better if we learn from other people’s failures, not our own… Because otherwise we’d be failing a whole lot if we had to learn from only our own failures to be where we wanna be.

Cool, good stuff. And review of the week?

Theo Hicks: Yeah, review of the week – guys and girls, make sure you guys pick up a copy of The Best Ever Apartment Syndication Book on Amazon, and leave a review and send a screenshot to info@joefairless.com in order to be the review of the week.

This week’s review is from Charles. Charles said:

“The only bad thing I can say about this book is I wish it was available in hardcover, because the amount of times I’ve referred to this book has made the cover flimsy. Whether you are brand new, or experienced, or in-between, the book has many great tips to follow.”

Joe Fairless: Well, thank you for that, and interesting idea on hardcover. I’m not sure how easy it would be or hard it would be to do that. We might look into that. Most importantly, thank you so much for taking time out of your day to leave a review, and I’m grateful that, most importantly, you got value from the book.

Well, everyone, have a best ever weekend, and I’m looking forward to talking to you tomorrow.

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JF1613: Top Apartment Syndication Questions We Get #FollowAlongFriday with Joe & Theo

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Joe received an email with a lot of apartment syndication questions recently. He decided to make an entire episode answering the questions. The questions Joe will be answering are:

 

I was curious about syndication deal structure. I’m curious what types of deal structures are typical as far as preferred return vs equity split?

For instance, if you offer a 6% preferred return, what kind of equity split is reasonable? How does that split change if you move to an 8% preferred return?

Also, length of investment. What’s your experience with how fast investors are generally looking to get their money back? 3-5 years? 10 years?

Lastly, refinancing. Does Ashcroft capital keep investors in the deal after refinancing and paying back initial capital? If so, does the equity split change at that point?

 

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JF1606: 5 Biggest Takeaways From 1 Week Of Real Estate Interviews #FollowAlongFriday with Joe and Theo

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For today’s Follow Along Friday, Joe is sharing his biggest lessons learned from doing his podcast interviews last week. From shelf corporations to learning about underground storage tanks and the problems they can cause. We’ll also receive the usual business updates that we as investors can learn from. If you enjoyed today’s episode remember to subscribe in iTunes and leave us a review!

 

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TRANSCRIPTION

Joe Fairless: Best Ever listeners, how are you doing? Welcome to the best real estate investing advice ever show. I’m Joe Fairless, and this is the world’s longest-running daily real estate investing podcast. We only talk about the best advice ever, we don’t get into any of that fluffy stuff.

We’ve got Follow Along Friday today. The purpose of Follow Along Friday is to talk about what we have learned, or certain things that we’ve come across in our real estate endeavors, so that we can share those lessons with you, ultimately to help you on your journey; that’s the whole point of Follow Along Friday.

With us, Theo Hicks, as always. Theo, how should we get going?

Theo Hicks: Well, this week we’re gonna talk about some of the things that you learned from your podcast interviews last week. We’ve got five particular people – these are interviews where you learned something new, basically, and since these interviews are not gonna come up for a while, and since we’re on Follow Along Friday and the purpose of Follow Along Friday is to teach people about things that we’ve learned, we figured we could have a conversation around that today. So I guess we could just go straight through these five interviews, starting with Jerry Detweiler…? Did I pronounce that correctly?

Joe Fairless: Yeah, I think so. I think it’s Detweiler. But for additional context, and thanks for setting the stage – just for a little bit more context… So every Thursday I do interviews for this show; that is the day I do interviews. Most of you Best Ever listeners know this, but I don’t do interviews every single day for this daily podcast, otherwise I’d go bonkers and I wouldn’t be able to be effective with the primary way that I make money, and that is Ashcroft Capital, overseeing that company along with my business partner, Frank.

So the way I slice up my time is on Thursdays I do interview day. Today, for example, I am interviewing nine people, and I’m starting to interview at [11:30] AM, and they’re 30-minute blocks, so I’ve got three interviews from [11:30] all the way to 1 PM. Then I have a call with a potential new investor who reached out to us. That’s usually my break period after the three interviews, but my team booked a new investor call, so I’m speaking to a new investor. Then I’ve got three more interviews. Then there is a break at 3 PM, to [3:30]. Then from [3:30] to 5 PM I have  three more interviews. So I’m doing nine interviews today. It’s a pretty quick day for me, because it’s so active… And then we do this Follow Along Friday on Thursday, so that it can air on Fridays, and the ads, and whatever else can be added in there the day before.

So Thursdays are interview day, and I am inundated with a whole lot of information… And I thought it would be interesting for me to be intentional about the information that I’m learning and coming across last week, so I can really determine what am I taking away from these interviews… And these five things that I’m about to talk about – some of them might seem a little silly, because, like, “Really? That’s the thing you chose to take away from the interview?” and what I was really focused on is something brand new that I hadn’t heard of before from the interviews, or it was just something that was good to reinforce in my mind.

So while I was talking to the individuals who I interviewed last week on the interview day, if there was something that stood out like that, I put it in all caps and I said “Thing I learned”, and then I said “This would be cool to share with the Best Ever listeners next week.” And I believe you can learn something from anyone; it’s your responsibility, should you choose to undertake this, to find out what that something is. Everyone has something that they can teach us; whether or not we discover what that is, that’s up to us. That takes us first wanting to learn from that individual, and then also being able to ask the right questions.

I can interview someone who has no real estate experience – I usually don’t – and I could learn something from them about what they have done so far, and if it’s nothing at all, well, there’s something to be learned there… We would dig into why they haven’t done anything, and we can learn some aspects of their psychology and perhaps apply that or reinforce some things in our own mind. So there is the setup for this.

One thing from Jerry Detweiler that I learned is she mentioned shelf corporations. I’d never heard of a shelf corporation before, had you?

Theo Hicks: No.

Joe Fairless: No?

Theo Hicks: I’ve heard of Shell Corporation, but shelf…

Joe Fairless: Right, this would be shelf corporation… I too have heard of Shell Corporation, but not shelf corporation. Jerry works at Nav.com, and their business model is essentially helping businesses get lines of credit, and they help businesses determine what their credit score is and how to build that credit score, so they can get more and more lines of credit for funding. And we talked about she and her team approach that, and she also talked about some scams that are out there to try and trick people into paying them money so that they can build their credit, but it doesn’t actually work.

One scam she said to look out for – it’s not always a scam, but one thing to look out for and be very eyes wide open about if you choose to pursue it is a shelf corporation. The concept behind the shelf corporation from a line of credit standpoint is the corporation has been established for a long period of time, but they’ve putting it (metaphorically) essentially on a shelf, so it doesn’t have activity, but it’s been building this credit, because it’s been around for so long, so people sell their shelf corporations to individuals who want a business that’s been around a while, so it can be approved for a larger line of credit. Makes sense?

Theo Hicks: It makes sense, yeah.

Joe Fairless: So conceptually it makes sense, but she said “Not necessarily the case most of the time, because there’s a lot of things that go into actually getting approved for a line of credit.” Actually, there’s a couple things, and you will have to listen to the interview with her to learn those things, because I didn’t write that down, and I’m not necessarily looking for  a business line of credit, so… That’s something in my notes, but not on the notes in front of me. But that was one takeaway that I got from the day, is the shelf corporations. It was a new term, I hadn’t heard of it… And just something to look out for, not necessarily to jump on board if you are looking for a line of credit. I thought it would be interesting for the Best Ever listeners.

Theo Hicks: That is interesting. We can kind of apply this to real estate, too… Kind of, not exactly, but… I’m thinking of shelf properties – these are properties that have obviously been rented out for a long time, but the owner themselves have kind of put it on the shelf and haven’t really addressed any of the deferred maintenance or any of the issues, and you need to watch out for those kinds of properties too, because you’ll find a lot of hidden things that you didn’t expect.

I think my fourplexes could probably be considered shelf properties; they’ve been ignored for a while, so… That’s the first thing that came to my mind when you said that.

Joe Fairless: I like that, yeah. Way to bring that full circle. Nice work. The second is a conversation I had with Steve [unintelligible [00:08:55].16] First off, he’s from Detroit; I was born in Flint, Michigan, grew up in Texas, and there’s something about talking to people who are from Detroit and Flint area… I just enjoy blue collar, say-it-how-it-is type of people, and I just really like having the conversations with people like that.

Anyway, he talked about a 20-unit apartment complex, a 1920’s property, all-brick, and what I wrote down as something that I liked during our conversation – and it’s not anything about the deal, but it was how he was describing the deal, because he’s a great storyteller… But in my opinion he wasn’t intending to be a great storyteller, he’s just someone who you like to hear talk about what they’re working on, because it’s really interesting, because he makes it sound really interesting… But he unintentionally makes it sounds interesting, it’s just how he has a conversation. He said “Imagine this… “, and then he talked about the deal. And when he said “Imagine this”, I was like, “Well, I’m imagining exactly what he’s talking about.” And it was that command of “Imagine this…” I wrote it down, I was like, “I like that phrase”, because it immediately made me think of exactly what he was talking about, because he told me to imagine it… And I thought, “Well, that’s an interesting phrase that I can incorporate whenever I’m talking about stuff and I want people to imagine it, and be there with me in the journey as I tell the story”, so I wrote that down.

Clearly, that has  nothing really to do with the real estate deals that he was working on, which are — it’s really interesting to hear his story, so I obviously recommend listening to his podcast when it comes out, in 30-45 days, but the “Imagine this” phrase is what caught my attention.

Theo Hicks: Yeah, seriously. My goal is gonna be to use that phrase at least once on this podcast. I’m gonna drop it out of nowhere, Joe, so… You’re never gonna know when it’s gonna come. [laughter]

Joe Fairless: I have so much anticipation for when that will happen. The next one is Chandler David Smith. He started in sales, knocking on doors… And I wish I wouldn’t have sent you the outline that I was gonna talk about, Theo, because I would have asked you what you think he was selling door-to-door, but… You see the outline in front of you – he was selling pest control products/services. Door-to-door, incredibly hard. Pest control services – I imagine that’s gotta be pretty hard, too… And he ended up being a top salesperson doing door-to-door sales, and clearly that translates into real estate, because you’ve got to be able to sell yourself, sell the deal, sell yourself to team members to attract the right team members, the most qualified team members… And so I asked him “How did you do that?” Because he made $90,000 in a summer, and