JF2187: Branding With Tonya Eberhart & Michael Carr

Tonya and Michael are partners from Brandface, a personal branding firm that helps real estate professionals differentiate themselves. They discuss the importance of creating a personal brand, especially in the real estate industry. You will pick up some tactics on what you should be looking at when it comes to creating and managing your personal brand.

 

Tonya Eberhart & Michael Carr  Real Estate Background: 

  • Tonya is the Founder of BrandFace a personal branding firm that helps real estate professionals differentiate themselves
  • Brandface has clients in 41 states
  • Michael is the COO and America’s top-selling real estate auctioneer.
  • Michael has over 60 investment properties
  • Tonya is from Columbus, OH and Micheal is from Jefferson GA
  • Say hi to them at: www.BrandFaceRealEstate.com

 

 

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Best Ever Tweet:

“People don’t do business with a logo, they do business with a person” – Tonya Eberhart & Michael Carr


TRANSCRIPTION

Theo Hicks: Hello, Best Ever listeners and welcome to the best real estate investing advice ever show. My name is Theo Hicks and today we’ll be speaking with two people. We’ve got Tonya Eberhart and we’ve got Michael Carr. How are you guys doing today?

Tonya Eberhart: Good Theo, thank you for having us.

Michael Carr: Every day is Saturday, Theo.

Theo Hicks: That’s what I like to hear, and thank you for joining us. Looking forward to our conversation. Before we get into that though, a little bit about Tonya and Michael’s background. So Tonya is the Founder of BrandFace, a personal branding firm that helps real estate professionals differentiate themselves. Tonya and Michael are partners in BrandFace. BrandFace has clients in 41 states. Michael is also the COO of BrandFace and America’s top-selling real estate auctioneer. So maybe he can give us an example of talking super fast. Michael has over 60 investment properties. Tonya is from Columbus, Ohio. Michael is from Jefferson, Georgia, and their website is brandfacerealestate.com. So maybe starting with Tonya, and then transitioning to Michael, could you tell us a bit more about your background and what you’re focused on today?

Tonya Eberhart: Yep. I won’t be as fast-talking as Michael, but I can get it done. So years ago, I sold vacuum cleaners to pay my way through college. I did it for about three years, and then I sold a vacuum cleaner to a radio station engineer who suggested that I take a sales job at the radio station. And fast forward 18 years later, I was still in media sales. While I was in media sales, especially the very early days of my radio career, I noticed that when certain business owners walked into a room at an event or convention, they were almost like rockstars, and the things that differentiated them were that they were the face of their business, and they were almost always number one in their industry in the market as well.

So I understood very quickly between selling myself as a poor, young college student selling vacuum cleaners, and then helping to sell my own clients in developing their personal brands, how much it impacted their business. So that’s where BrandFace came from years later, and I’ll let this gentleman talk about how we met each other. He was actually the first real estate client for BrandFace, and hey, we became partners and I’ll let him take it from there.

Michael Carr: Well, my background is as an auctioneer. I started off my career as an automobile auctioneer. My dad had a car lot and I didn’t really want to be in that industry, but I loved it, and the guy that trained me to be an auctioneer, he said, “Hey, go get your real estate license because you might be able to call a farm sale one day, pick up an extra paycheck.” The industry was called a circuit auctioneer. So I worked a certain circuit in the Southeast, and next thing you know, I ended up with a Georgia real estate license and then a South Carolina real estate license.

Fast-forward to the year 2000, I really just used my real estate license to buy my own investments. I started buying residential properties in 1994 and I continue to buy them today. I just use my license as a way to get some kickback and commission. If anybody was invested in the late 90s, you could get 125% of what it was worth and make a commission on top of it to boot. It was fantastic years. We had to pay for it, of course, after the dotcom bust and all of that.

Fast-forward to 2006, I partnered with a company out of Irvine, California, and we got the Bear Stearns residential portfolio when they went under and we auctioned it off. We thought it would be about three years’ worth of work and ended up being about seven, and to date, I’ve been involved in over 78,000 residential transactions as a broker and an auctioneer. And then in 2013, we were working ourselves out of a job as all great auctioneers do, and I knew that REOs were coming to a flatline, and I just wanted something to do. So I came back to Jefferson, left the office in Irvine, the office in Seattle, Washington, came back to the office in the suburbs of Atlanta, opened up a arm’s length transaction brokerage, and needed help on marketing, met Tonya, and the rest, as they say, is history. She asked me after I executed the BrandFace principles to get known in the area as an investor, as a real estate broker, as a builder and developer. Then she asked me to co-write the book with her for BrandFace for Real Estate Professionals, and it’s number one in eight Amazon categories, including International Business. So it’s been a wild ride.

Theo Hicks: Perfect. Well, thanks for sharing that. So the name is BrandFace. You already mentioned, Tonya, in your background, how back in your radio days, you’d walk into certain events and business owners would just walk in and certain ones of them were just rockstars, and you mentioned because number one, they’re the face of their business; number two, they’re the number one in their industry. So BrandFace, they’re the face.

So I’ve talked to people about branding before a lot in the podcasts, and there seem to be two camps. The one is, be the face of your brand and the other one is to not be the face of your brand. Think of any major corporation. So why is it that being the face of your brand in real estate is better than being behind the scenes, making it more like a logo or having multiple people be the face? What’s the main benefit towards the face, making it personal, you’re the man or the woman?

Tonya Eberhart: Okay. It’s about a personal connection. In fact, you just hit on something, Theo. On the back of all our books, our mantra says, “People don’t do business with a logo. They do business with a person.” If you think about it, in every instance where you do business, there’s a person involved. So in real estate, on a local level, we already knew coming into BrandFace — we worked with many different business owners and entrepreneurs. Real estate has been our biggest sector so far. Number one, because of the success of this gentleman with me today, and number two, because it is an industry that already leans toward that way. A lot of real estate agents already have their photo on their yard sign or their business card, and they were one of the first industries to really go all-in with that, because they realized that no matter how many people are in a brokerage, the brokerage name is great, the brokerage might have their own brand. However, it’s the individual sitting across the table from you that is going to make you decide who to do business with.

Theo Hicks: Oh yeah, perfect answer. So follow up question, for some context. So do you focus mostly with real estate agents or is it agents, investors, anyone?

Tonya Eberhart: All of the above.

Michael Carr: All of the above. We work in every genre of business, from lawyers to honestly, to medical profession. It doesn’t matter. Anything that is customer-facing, we put a face forward.

Theo Hicks: What would you say, out of all your clients, the top maybe two or three? Just if you can focus on those ones?

Tonya Eberhart: I would say real estate agents, real estate investors, and then the others is splintered, because entrepreneurs come in all shapes and sizes. We have one surprisingly, that’s doing super well, is a skin care consultant, and she is doing incredibly well because she realized they were–

Michael Carr: On a global scale.

Tonya Eberhart: On a global scale. She realized there were many, many thousands of people like her and she wanted to set herself apart, for two reasons. Number one, for the customers who would purchase the end product, they would be the end-user of the product, and then for recruitment purposes too, because a great brand not only helps you to sell your products and services and connect with people on a human level, but it also helps you recruit the right people in for the culture you want to build.

Theo Hicks: Perfect. So most people listening to this show are going to be investors, so let’s talk about that. So let’s say I’m a real estate investor, and I either have no branding at all or I’ve been focusing more on having a really nice company logo and all of my content on my website is focused towards my company, and the only place where my face is on there is maybe in the bottom corner from my bio. So what’s the first thing that I need to do in order to start working towards building up my personal brand?

Michael Carr: The most important thing is to define what it is; that’s really big. When we build a brand, we look at about 77 different criteria, but they all boil down to defining the brand. So we take personal experience from people and their life experiences and what has brought them to where they are. We try to find a natural point of differentiation. We all have them as humans. We’re all uniquely an individual and uniquely special in that way, and then we also have other people who are naturally attracted to us and attracted to not just our facial features, but the story behind why we do what we do. So you have to define what that position is, and then you have to flag it and own it. That’s the most important.

Tonya Eberhart: Yep.

Theo Hicks: Okay, so you would say, come up with some stories in your past, and then figure out a way to make that be your main brand. So maybe give us a few examples.

Michael Carr: Well, let me tell you an example of a guy actually in the Atlanta marketplace that uses this principle extremely well. There is an investor in Atlanta, and you see his billboards all over the place, and he does it extremely smart. He’s got one point of differentiation – Get a guaranteed offer on your home. He buys remnant billboards all over the city, he puts his face on there, his name, his website. There’s not even a phone number to it, and everybody on earth knows that when you see Mark, he’s going to give you a guaranteed offer on your home. That’s a point of differentiation, and that is defining that point of differentiation, and then holding that position until the business comes to you, so much as you going after the business. Does that make sense?

Theo Hicks: So is the differentiating point the billboards, or is it the guaranteed offer?

Michael Carr: No, it’s the guaranteed offer on the home.

Theo Hicks: Guaranteed offer, okay.

Michael Carr: Yeah, get a guaranteed offer on your home, and that’s his point of differentiation.

Tonya Eberhart: They can range, Theo, from many different things. They can be personality-driven, they can be attributes, or things that just set you apart in how you conduct business. They can be a promise of doing business. It can be a differentiator that says, “I service this area or this type of customer.” It can really be anything you want it to be. The most important thing is, first of all, you’ve got to look in that definition phase who you’re trying to attract. Who are those ideal customers?

But here’s what happens a lot of when it comes to branding. People think of marketing first and branding later, and they’re two very different things. Marketing is utilizing platforms and vehicles to get a message out to the world. Get a message out to your customers and try to draw them in. Your brand is the message and image that you put out there on those marketing vehicles. So if you think about it this way, how on earth would you even begin to know what to put on any of your marketing, what to even post on social media, for goodness sake, unless first of all, you knew who it was you’re trying to attract. So in that define phase, we look at ideal customers and point of differentiation; those two things. Does that help with a little clarity?

Theo Hicks: 100%.

Michael Carr: For me, mine’s “America’s top-selling real estate auctioneer” because nobody’s auctioned off more residential properties than me, period. Because of that, even though it’s an arm’s length transaction brokerage that Tonya helped me try to launch, I still was a very active investor, especially in those times when there was still a lot of remnants laying around that we could pick up.

I moved directly from buying housing to buying building blocks because there’s this lag time of years there where nobody believed land was ever going to be worth anything anymore until they ran out of it, but they were still very excited about paying too much for houses at foreclosure auction. So what we did was we took my point of differentiation from my experience level, and then she taglined “America’s top-selling real estate auctioneer”, and then the secondary was the confidence at that time – 65,000 transactions. We leveraged the fact that no matter where you stood in line, if you wanted me to sell your house, I can sell your house for you. If you want me to buy your house, I could buy your house, and then we’d just show them the door one, door two, door three, and then let you choose which door worked best for your family type of situation. So we took my experience, and then we’ve defined it that way, and then pointed it at the ideal customers that we were trying to attract.

Theo Hicks: I really appreciate you explaining that right there. You said the top auctioneer, that crystallized in my mind. Ours is “the world’s longest-running daily real estate investing podcast”.

Tonya Eberhart: Yep.

Michael Carr: There you go.

Theo Hicks: It’s the same thing, same concept as yours.

Michael Carr: Yep, exactly.

Tonya Eberhart: It puts you in a position of differentiating yourself.

Michael Carr: Yep. Or even to the best ever, how y’all put “best ever” behind everything; that is a point of differentiation that makes you guys stand out and continue to stand out.

Theo Hicks: Perfect. So I’ve defined my personal brand and know what differentiates me, I’ve got my tagline, and I’ve got my ideal customer defined. Now, what do I do?

Tonya Eberhart: What’s next? Okay, the next phase– and by the way, we call this our freedom formula. It’s three Ds – define, develop and display. I will tell you why it’s the freedom formula here in just a moment. But in the develop phase, what you’re going to do now is you’re going to develop a strong personal brand wrapped all around that point of differentiation starting with your brand colors, your personal brand logo, imagery that resonates with what you stand for and what’s going to attract your ideal customers, photos of you that are very well done and portray the image you want to portray, and most importantly, in that development phase, it’s the brand messaging that sets you apart from your elevator pitch to your biography to what we call signature sound bites, which are bullet points, if you will, highlights of your brand at a glance. The most important thing about a brand is living it and breathing it, and it all starts with how do you communicate what it is that sets you apart, and that’s done in your brand messaging. So once you’ve got the messaging and all that imagery ready to go, the development phase is complete.

Theo Hicks: Perfect, and then after that you said, define, develop and then display. So I’m sure display is get it out there.

Michael Carr: Get it out there. Use the billboards, the park benches, the social media, and it all needs to be consistent, and you need to know your ideal customer. I didn’t do it for a long time as a real estate agent. As an auctioneer, I did it naturally. When people came into an arena and I was auctioning off a group of houses or whatnot, I sized everybody up pretty fast. I could tell who my main investors were, I could tell who end user homebuyers were, I could tell– you size them up, but we don’t do that enough in business. You have a lot of listeners that are investors that are like, “Hey, I just want to attract more business and find more business, but what does that have to do with it?” Well, if you know what the lifestyle of those people are for that ideal house that you want to buy, if you know everything about that particular owner; it might be a multifamily, small one to four multifamilies or even all the way up to something bigger 200, 300, 800-unit apartment buildings, whatever that might be. If you understand that, then your messaging in the display, that messaging is clear and towards those people.

Then when you display it, you actually get a return on your investment, and you’re not just throwing out money just to get known because Zillow has enough money to be able to get known whether they knew what they were doing or don’t know what they’re doing. But for those of us like the Theos and the Mike Antonios, well you have to watch an ROI on how much money we spend out there in the display stage. It’s very important that you’ve pointed that in the right direction.

Tonya Eberhart: Yeah, otherwise you end up with what we call spray and pray marketing. You just spray it against the wall.

Michael Carr: Yeah, I’ve done a bunch of that.

Tonya Eberhart: You put something somewhere it sticks.

Theo Hicks: What’s the best way to find out after you have your target audience very finely tuned and defined to find out what marketing avenues to use like billboard or you said, park bench, social media? How do I know, after I know who my audience is, how to get in front of them the best?

Tonya Eberhart: Okay. Well, that one happens to be honestly, one of the easiest things. So there are many, many ways to get to an audience. First of all, you’ve got to figure out where your audience is spending their time. So for some of our agents, like in Phoenix, for example, we’ve got an agent who focuses on empty nesters who are moving into lifestyle-driven communities, their home is all low maintenance, they have a golf course; it’s all about the lifestyle and retirement age. So he actually started his own small newspaper in that area. Now newspaper, you’d ask nine people out of ten, they say–

Michael Carr: What’s a newspaper?

Tonya Eberhart: Yeah, what’s a newspaper? But that still works for him because his audience still reads the newspaper every day, and it’s someone else who maybe after say, first-time home buyers or growing families, they may find that reaching them is a totally different thing. Maybe they’re encompassed in a certain number of neighborhoods and new canvas and farm those neighborhoods with postcards and door hangers and things like that. So you’ve got to first drill down and say, “Where are they spending their time? How are they consuming media? What is important to them? What’s their lifestyle like, as Michael said?”, and once you dial that in, then you choose within your own budget range, what you feel you can afford to do. If all you can afford to do is do some door hangers and some postcards in one or two neighborhoods, then max it out. But if you can afford to do more, go to maybe a little local radio station whose listeners are people who share a certain lifestyle or a certain belief system, and certain things that make them alive. So it’s different for everybody. There really isn’t just one set answer to that. It’s different for everybody because it’s very dependent on the area and who the ideal customers are.

Theo Hicks: Well, there’s one thing interesting that I noticed from everything you said is it sounds like it’s better to get more maybe, I guess, I’d say local with it and smaller scale with it as opposed to saying, “Well, I’m just gonna market on Facebook or Twitter or LinkedIn or Google or whatever.” You didn’t bring up any of those. I thought that was interesting. Very interesting.

Michael Carr: Well, here’s the thing, Theo, and I find this to be the case so much. I teach this to any agents that are coming in and even investors that would come in. There’s a couple of points here. First off, if you’re buying single-family housing in developing areas, say, a major metropolitan area or whatnot, you might be dealing with elderly people or with out of town family members that are dealing with that asset. So you do have to have your social media to back up. That’s why it’s very important during the define and development phase that you complete all of that because it can’t say a different message. I told you about the guy in Atlanta that runs the billboards. Well, there’s another guy that I follow in Greenville, South Carolina, and he’s a heck of an agent, and this guy does the same thing as I’m talking about, same thing I do, same thing Mark does – will buy a house or will sell it for you; what’s best for you, you tell us. But every billboard that this guy puts up is a different message and every one of them are forgotten.

So I’m going back around to what you said. It’s important that we have Facebook and we have our Instagram accounts and we have our website, definitely. That’s your central processing unit, that’s where everything’s got to culminate because you want to push everything back to that because that’s a main source of information, but don’t spend the money on your advertising there if that’s not where that person is going to be. They might go and check you out there, but they might not find you there. I’ve got a friend on the West Coast and he’s got buyers from Huntington Beach, California, all the way up past the bay. He’s got 12 guys; he runs Pennysaver ads – I buy estates, and about one out of every 12 estates that he buys, which is all the knickknacks that people can’t get moved down in a weekend and overly ambitiously thought that they could, he ends up buying about one out of every 10 or 12 houses because he gets there, they’re sick of it, they’ve been working for three days trying to get grandma stuff out.

Grandma’s in a nursing home and they live in Colorado and the plane leaves in four hours, and here comes Big Bill; Big Bill’s buyers. They’re like, “Well, I’ll tell you what. You got nothing but junk left. I’ll hold it all for you. Oh, and what do you want for the house?” He does the bulk of his advertising in Pennysavers – I buy estates. At other websites, he uses his estatesales.com and he just runs I ads – I buy estates, and he gets house after house after house from that. But once you do that though, obviously they may say, “Well hold on. Who’s Big Bill?”, and you want your social media to back up your story, and this is where it goes all the way back, the importance of the authenticity of the defined state because people are pretty savvy, and they’re going to pick up pretty fast if you’re shyster, is just trying to harm them or if you’re a fair investor that deserves to make a return on their investment.

Theo Hicks: Exactly. Okay, starting with Tonya then going to Michael, what is your best personal branding advice ever?

Tonya Eberhart: I would say it is about authenticity. So don’t try to be something you’re not; embrace who you are. We had an agent in New Orleans tell us last week how much she loved her brand and it had changed her life because she realized it wasn’t about helping her compete. It was really more about making sure she didn’t have to.

Michael Carr: Yeah, also an investor.

Tonya Eberhart: Also an investor.

Michael Carr: She has about 18 properties down there. So been an investor for years.

Theo Hicks: Perfect, and then Michael, what about you?

Michael Carr: Well, on the heels of that, if you’ve got the authenticity down, be bold. Prosperity favors the bold, and we say be bold. Some people would look at my career and say, “Hey, you’ve been pretty bold,” but I look at others and think, “Man, I wish I’d been bolder.” So I’d definitely say for me, it would be bolder.

Theo Hicks: Perfect, and then before we go into the lightning round, what was the three Ds. Is there a name for it? What did you call it?

Tonya Eberhart: The freedom formula – define, develop and display because it gives you the freedom to stand on your own merits. Take your brand with you wherever you go, because your brand is you.

Theo Hicks: Perfect. Alright, are you guys ready for the Best Ever lightning round?

Tonya Eberhart: We’re ready.

Break [00:24:37]:02] to [00:25:49]:08]

Theo Hicks: Okay, first question that I got. I like you both to answer these. Best ever book you’ve recently read.

Tonya Eberhart: Oh. Awaken the Giant Within. Reread it for about the fourth time.

Michael Carr: Every Man’s Tell mood.

Theo Hicks: If BrandFace were to collapse today, what would you do next?

Tonya Eberhart: I would do real estate investing. I’ve had a taste of it before. I would do it again because I absolutely love it.

Michael Carr: I’d find some way of helping people realize what they don’t realize about themselves.

Theo Hicks: What is it the best ever way you like to give back?

Tonya Eberhart: Right on the heels of what Michael just said, helping people unveil their inner star.

Michael Carr: I got to just stick with that theme, Theo. I gotta say it. We had a friend tell us a long time ago, “We love what you do because it’s hard to read the label from the inside of the jar,” and I think that I have to stick with that. The best part of our job is helping people realize the power that actually happens inside them.

Theo Hicks: And then lastly, what’s the best ever place to reach you?

Tonya Eberhart: brandfacerealestate.com. Everything we do is encompassed there and shoots out from there.

Theo Hicks: Perfect. Well guys, I really enjoyed this conversation. Branding is always a fun topic to talk about and from a personal business perspective, I could use this information from today. I know all the Best Ever listeners definitely get to learn something that you could apply to your business directly. The big thing we talked about was the freedom formula, those three Ds – define, develop and display. So essentially just define what a brand is, and then figure out who the ideal customer is, and then once you know what the brand is, you develop it around that unique differentiating factor that you have – your logo, pictures of you, your messaging, social media accounts, websites, and then focus on living and breathing that brand, and then obviously, determining how you’re going to direct that toward your target audience, and then display which is actually getting it out there and making sure that you are using the method that your target audience actually uses.

So figure out exactly how they’re consuming their media, what’s important to them, what their lifestyle is, then find a medium in which you can target them that you can actually afford. You also mentioned that Facebook and Instagram, the website are important. That’s more of a hub that people actually will go to once they actually find you and then how they find you. I thought that was a very interesting point to make distinguishing between the Facebook, Instagram and the other examples of billboards, park benches, local radio stations, things like that. Your best ever advice, Tonya’s was authenticity and Michael’s was to be bold. When you talked about the guy with all the billboards, I was like, “That’s pretty intense. It’d be weird driving around and seeing my own face on a billboard.” That’s definitely bold.

Tonya Eberhart: Michael has some billboards too, so I’ve never–

Michael Carr: I just don’t ever go that way.

Tonya Eberhart: That’s true. I’ll never forget the first time when we first started working together, I put him on shopping carts in the grocery store, and I said, “Michael, they just came out. The signs just came out. Can you please go in the grocery store and take a picture of one of those.” “Uh-uh, I’m not doing that.”

Michael Carr: I know.

Tonya Eberhart: He ended up doing it, but I think he did it in secret behind the produce.

Michael Carr: I did.

Theo Hicks: You should have done a video of you on the cart with the kids when they’re out of there flying across it. You should have done it and put it on Instagram or something. I enjoyed this conversation, Tonya and Michael. Best Ever listeners, as always, thank you for listening. Have a best ever day and we will talk to you soon.

Michael Carr: Thank you, Theo.

Tonya Eberhart: Thank you, Theo.

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JF2176: Developing Easier Ways To Invest With Jacob Blackett

Jacob is the founder of SyndicationPro and Holdfolio. He started investing in 2010 while in college and after some time decided to start companies that would help make investing easier, which is why he developed his two companies. Jacob talks about his second multifamily deal, a  50-unit that ended up making cash flow tight due to some unforeseen repairs.

Jacob Blackett Real Estate Background:

  • Founder of SyndicationPro and Holdfolio
  • Started investing in 2010
  • Holdfolio currently owns and manages 1,221 units across the midwest and southeast
  • Based in Columbus, Ohio
  • Say hi to him at: www.holdfolio.com 

Click here for more info on PropStream

Best Ever Tweet:

“I love leveraging technology to make investing easier” – Jacob Blackett


TRANSCRIPTION

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

Jacob Blackett: I am doing well, Joe. Thank you.

Joe Fairless: Yes, my pleasure and glad to hear that. A little bit about Jacob – he’s the founder of SyndicationPro and HoldFolio. He started investing in 2010. HoldFolio currently owns and manages 1,221 units across the Midwest and the Southeast. Company’s based in Indianapolis, he’s based here in Columbus, Ohio. So with that being said, Jacob, do you want to get the Best Ever listeners a little bit more about your background and your current focus?

Jacob Blackett: Sure, Joe. So my background, as you mentioned, goes back to 2010, when I started doing some fix and flips back in college. I got the bug then and decided to go ahead and get right into fix and flips and wholesales in 2012, and just got a nice wholesale fix and flip model going and started holding properties, and then learned about multifamily and jumped into that realm. Currently, I own and operate HoldFolio. We purchase real estate, we do syndications, we create partnerships to profit from real estate, and then all of this also, we took the approach of sourcing money online starting back in 2013, 2014, after the Jobs Act was passed and loosened up; some of the first real estate crowdfunding sites came online, and so with that experience of managing all of this online, that’s where SyndicationPro, the second company that I own and manage, was born. So we license software to colleagues and friends and people all over the country and all over the world to help them manage their syndication business online.

Joe Fairless: Okay, elaborate more on that, will you? Is it a competitor to, say, IMS or Groundbreaker and companies like that, or is it something else?

Jacob Blackett: It does have an investor portal built in. So that’s a big piece to managing a syndication business, is making sure that you’re providing a service to your investors and you’re also streamlining your back office. So there’s a lot of automation and tools and streamline processes that are built in. So yeah, you’d consider IMS, Juniper Square as our competitors, certainly.

Joe Fairless: Okay. So you said there’s a component of that. Is there something else that SyndicationPro does that is not typical of a competitor?

Jacob Blackett: Yeah, we take a pretty holistic approach. So that starts on the front end when someone hears about Joe Fairless and thinks about potentially investing with you – how do we capture their details? How do we intrigue them to become a lead, a prospect to potentially invest in you? So that’s built into the software, being able to register and capture leads from your website and being able to facilitate those relationships. So how do we create automation so that when they register, they can set up a call with your team, and how do we bridge those gaps and track communication? So that’s the front end of it, and then of course, through that investment cycle, you start getting into asset management and just other parts of the business like underwriting. Those features are to come on the underwriting side, but just a bigger holistic approach.

Joe Fairless: Okay. Your goal is to have the all-encompassing software for doing syndications, versus a portal or an asset management software platform. It’s the whole kit and caboodle.

Jacob Blackett: Yeah, if we can integrate more tools and more functions of syndication business into one platform, I think that just drives bottom-line value for our users and for our business. So that’s our approach, our vision and what we’ve been delivering on.

Joe Fairless: Okay, and with SyndicationPro, when did you launch it?

Jacob Blackett: We launched a beta version of SyndicationPro in late 2018, and then we launched our current version in late 2019, in October of 2019.

Joe Fairless: What are the main differences between the two versions?

Jacob Blackett: So the first version was honestly, just more- -we built it out on WordPress, it was really just to get it into the hands of people and confirm. I was getting the request from colleagues in terms of how to replicate HoldFolio’s success. We’ve syndicated 18 individual deals over the last handful of years with just about 600 individual investments, and we don’t have a large investment management team. We do all of that through the software.

So that initial beta version was really just get the core pieces into the puzzle, get it in the hands of users, confirm that it’s different, it’s providing a unique service, and then once we got that good feedback and validated, then we doubled down. So the current software is built on JavaScript. It’s a scalable, institutional quality software. So I took all those next-level steps.

Joe Fairless: Let’s talk about HoldFolio and SyndicationPro. If you had a good thing going with HoldFolio, why shift your focus to another venture?

Jacob Blackett: Well, I think you can agree with me on this – the beauty about real estate is you put in the front end work to identify those assets, especially buy and hold multifamily, and you can support an A+ team to operate the business. So HoldFolio is in a place now where it’s more of a mature business model. We continue to acquire properties. We’ve acquired two properties so far this year; bit of a pause in the last 60 days. I’m sure you’ve been in the same boat there along with everyone else, but HoldFolio continues to operate. It’s a beautiful business. We have scale, it provides great income, but knowing that– really what happened, Joe, is in early 2018, I went ahead and demoed a couple of investor portal options, because when I started HoldFolio, there was no options. In 2013, 2014, it just didn’t exist; investor portal didn’t exist, and so I had no choice but to build my own website and build that out myself. So I was demoing in early 2018 in order to consider getting on to one of these investor portals, and what I saw was, unfortunately, not a solution that would work for me just because of design, bulkiness, complicated and expensive. So that’s really where everything came together and why we launched SyndicationPro. So yes, following a desire, I’ve got a knack, and I just love leveraging technology, and so HoldFolio is in a great place, and now it’s really having fun with a new business. I’m sure that you relate to that, Joe, with the different verticals that you provide a lot of value in the world too.

Joe Fairless: It makes sense, and I’d love to learn more about your start with HoldFolio and how you got to this point. With HoldFolio, you’ve got 1,221 units in the Midwest and the Southeast. Now, are those properties that you have direct ownership in?

Jacob Blackett: Oh, yeah. 15 of our 18 partnerships, we’re the only sponsor on those deals. So we’re fully vertically integrated, we take a very hands-on approach. We are licensed contractors, property management, real estate brokerage, we manage most of our properties ourselves, and then three of our partnerships, we partnered with other sponsors on as well. Especially as we got outside the Midwest, we leveraged other people who had those vertical integrations to get exposure to different markets.

Joe Fairless: So what was the last property that you purchased?

Jacob Blackett: The most recent property was in South Carolina, actually Columbia.

Joe Fairless: Will you tell us about it.

Jacob Blackett: Yeah, it was a 226 unit, and we partnered with a group out of New York who has other properties in Columbia. So the property is considered a B+ type asset. It was built in the late 90s – ’98 was the year built on it – and it’s in an area of direct growth. A little bit more suburban, a little bit more affluent area where the comps are newer-built properties, so it was the start out there in that area,. So what it presented was the opportunity to go ahead and provide the next level of renovations in order to make those units more comparable to some of those newer builds in the area, and a nice little value add. So a really high occupancy, spending roughly $8,500 per unit on renovations, doing things like refacing cabinetry, hardware, granite countertops, putting nest thermostats and bringing up the common areas to today’s standard to, in the end of the day, reposition a B+ asset to probably what you’d consider as an A-.

Joe Fairless: What’s been the most challenging deal?

Jacob Blackett: That’s a good question. So I’ve done hundreds of single-family home deals, but I’ll focus on multifamily. So probably the most challenging multifamily deal we’ve done was our second multifamily we purchased. It was a 50-unit.

Joe Fairless: Who’s we?

Jacob Blackett: HopeFolio.

Joe Fairless: HopeFolio, okay. Got it.

Jacob Blackett: Yeah, yeah, always talking about it as a team. So yeah, we purchased that property from an owner who had owned it for about 30 years, and it needed some help. It had deferred maintenance, it was built in the early 70s, and it was pretty much your classic value add deal. Bought a C Class property looking to reposition it to C+, and our biggest mistake on that is that we went and scoped all the units and put together our budget to get through the improvements that we planned, but we didn’t consider that for the first 18 months of owning that property we were going to have considerably higher repairs and maintenance. So we went through with our improvements on the units just fine, but we didn’t have enough cash to really take care of the other things going on at that property, and so it just made cash flow tight for the first 12 to 18 months.

Joe Fairless: And how did you eventually navigate that?

Jacob Blackett:  It’s tough. It’s your second multifamily deal, you’re still learning in certain senses… So we just stayed on top of things, we looked at every single expense, every single month and categorized it… We reached into our network and anytime you can get some feedback from experienced colleagues, and  that helped them… It was really just the function of the previous owner putting bandaids on things for 30 years, just not dealing with the plumbing stacks leaking, just patching it, not replacing the plumbing stack and the toilets. If everything’s good, you could replace a toilet for a couple of hundred dollars, but if the sub-flooring is completely caved in and plumbing is so old that you can’t turn on and off the valves and they just break, all of that just starts adding up a lot. So we wrote it out, it hindered our cash flow, but in the end, we were able to sell the property and return principal plus profits to everyone. So for a bad deal, it wasn’t so bad, but it was certainly stressful as we were doing it.

Joe Fairless:  What deal have you made the most amount of money on?

Jacob Blackett: Oh, man. Probably my shiniest deals probably came in doing fix and flips in some gentrifying areas in Indianapolis where in 2013 through 2015 we were buying homes for 10 to 20 grand, we were completely renovating them for $80,000 to $100,000. These are older homes, older vintage… And we’re selling them in the neighborhood of $200,000 to $280,000 dollars. So it was a good couple of year period.

Joe Fairless: What years?

Jacob Blackett: It was in 2013 through 2015.

Joe Fairless: What area of Indy?

Jacob Blackett: In Fountain Square.

Joe Fairless: Okay.

Jacob Blackett: There’s dozens of homes in that area that we had the pleasure of getting in, and you strip it down to just the sticks. You can see from the backyard to the front yard, and you just come in all-new, that new layout, and so that was fun and some crazy numbers.

Joe Fairless: Do you remember the deal when the gravy train stopped on that area, and you’re like, “Oh wait, I just put in 100, and it’s not getting the price that it’s been getting for last two years”?

Jacob Blackett: It was interesting, because I didn’t stay in it long enough to get to that point, and that neighborhood is still cruising along, although people are paying 80 to 120 grand.

Joe Fairless: Instead of 10 to 20.

Jacob Blackett: Yeah, yeah, yeah. So we wrote it out summer over summer, year over year, and we started selling these things for 160 grand, and when we exited, we were getting close to the 300 grand mark on those exits, and of course, we slowly started paying more and more. But quite honestly, it is right about when we started getting traction with syndications in late 2015, that we said, “You know what? The fix and flips are fun, but they’re risky, they’re super transactional. Every property you buy, you sell, you’ve got to go find another one.” So we were looking to build a portfolio, long-term, buy and hold. So we just washed our hands of the fix and flips and focused on rentals.

Joe Fairless: Based on your experience, what is your best real estate investing advice ever?

Jacob Blackett: I would say for anyone who is getting started or entering into a new investment or something new, leverage existing people. So I made that mistake early on with my first couple of fix and flips. I was trying to do everything myself, when I could have simply tried to find a deal for an existing person or JV with someone who’s already doing flips. So just find someone who’s doing what you’re doing, who’s doing it successfully, especially if you’re just trying to get started, and see where you can fit into that puzzle, even if it just means providing some capital and having someone who’s agreement is to let you be more involved.

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

Jacob Blackett: Sure, Joe.

Break [00:17:32]:09] to [00:18:35]:03]

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

Jacob Blackett: Quite honestly, I have my first baby at home, so I haven’t been–

Joe Fairless: Congratulations.

Jacob Blackett: Thank you very much. But I will say one book that I come back to continuously is The Four Agreements. It’s an amazing book to just stay on track and have a really good mindset and outlook on life.

Joe Fairless: Best ever way you like to give back to the community.

Jacob Blackett: Big Brothers, Big Sisters.

Joe Fairless: How can the Best Ever listeners learn more about what you’re doing?

Jacob Blackett: They can visit syndicationpro.com. Our contact information is on there.

Joe Fairless: Jacob, thanks so much for being on the show. I enjoyed our conversation about HoldFolio, how you were getting some grand slams in Indianapolis on the single-family homes, also the challenging projects that you’ve worked on, and then SyndicationPro too, and why you created it and your focus now, in addition to HoldFolio. I enjoyed our conversation. Thanks so much for being on the show. I hope you have the best ever day, and we’ll talk to you again soon.

Jacob Blackett: Thanks a lot, Joe. Thanks, everyone.

Website disclaimer

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JF2051: Real Estate Tribes Approach During The Coronavirus With Travis Smith

Travis is the CEO of Tribevest and shares the story of how Tribevest came to be and explains how they are being impacted by the coronavirus pandemic. He also shares what he is noticing in other tribes and how they are approaching the market. 

Travis Smith Real Estate Background:

  • Founder and CEO of Tribevest
  • He is a partner in several investment groups that invest in single-family rentals, multifamily, and commercial real estate
  • From Columbus, Ohio
  • Say hi to him at: www.tribevest.com

 

Best Ever Tweet:

“When everyone is panicking and selling, our tribes are pulling capital together, so when the time is right, they will be able to take advantage of great deals.” – Travis Smith


TRANSCRIPTION

Theo Hicks: Hello, Best Ever listeners. Welcome to the best real estate investing advice ever show. My name is Theo Hicks and today we’ll be speaking with Travis Smith. Travis, how are you doing today?

Travis Smith: Good, Theo. Thanks for having me; glad to be here.

Theo Hicks: We’re glad to have you and thanks for being here, looking forward to our conversation. As everyone knows, we are in the middle of the Coronavirus pandemic, so we’re going to be talking about that today with Travis, how it’s impacting his business, his thoughts on it and what he is doing to combat it. But before we get into that, let’s go over Travis’s background.

He is the founder and CEO of TribeVest, which he will talk about here in a little bit. He is a partner in several investment groups that invest in single-family rentals and multifamily and commercial real estate. He is from Columbus, Ohio and his website is tribevest.com. So Travis, do you mind telling us a little bit more about your background and then what you are focused on today?

Travis Smith: Absolutely. TribeVest, first of all, just a little bit about the platform. We’re really a collaboration platform for investor groups. You can think of us as an operating system and a banking platform designed for real estate investors to come together, assemble, form and bank together, and ultimately do more as a result of pooling resources and pooling capital. So I’m really excited to talk about that. A little bit of my background – I come from the FinTech space, so digital banking and payments processing was where I came up, and then in 2017, 2018, came full time being the founder of TribeVest.

Theo Hicks: Okay. So do you mind elaborating a little bit more? Give me an example of what I have — I don’t know, $500,000, and I’m interested in investing in real estate, how would I use TribeVest to use that capital?

Travis Smith: Yeah, let me go back to the beginning, which is very relevant today. TribeVest was born from the last global crisis, the financial crisis, the Great Recession in 2008 and 2009. My brothers and I, we were on a fishing trip, quite frankly one that we couldn’t afford, and we were seeing the world changing around us. In fact, my uncle, who we had all looked up to and admired because he had a great job, worked for HP, was traveling the world, and after the Great Recession kicked in, he was laid off and was unemployable at the age of 55. It made us realize that everything we had been told to go to school, get good grades, get a good job and retire and die gracefully wasn’t going to work for us. We always saw real estate as a way to hack wealth without having to give up our day jobs, but we had that same problem that we all have – to break into private markets, to break into real estate, you need capital, lump sums of money that we just didn’t have.

On that fishing trip over a few beers, we had a breakthrough. We said, “Listen, guys. Let’s quit talking about doing real estate deals and address the problem right in front of us – lack of capital.” And in that moment, we said, “Let’s each agree to a manageable and monthly contribution of $500 each.” That was a stretch for us back then, but it was manageable, and between the four of us that was $2,000 a month, $24,000 a year, and that was how we broke in. One investment led to another led to another and led to another, and we look back and we’ve realized that by forming and funding that investor group, that tribe, we unlocked a future we could have never dreamed of, and over time, we were changing our future.

About three years ago, people started to notice, and they said, “Wait a minute, you’re investing in what type of deals? How are you doing this?” Then they would say, “Well, wait a minute, I have a tribe. We have shared financial goals. Can you help us form an investor group too?” And that’s when we thought about it, and said, “Is there a market here?” And of course, we realized, we looked back and we thought, “Gosh, what would we have done differently?” and we would have done a ton differently. Ultimately, that’s how we came up with our initial product, that now hundreds of investor groups are using to form and fund whatever their venture.

Theo Hicks: Okay. So your website’s like a fishing boat in a sense, where people come together who want to collaborate on some particular venture deal, let’s say, a real estate deal… And so they all just put their money together on that platform and then go off on their own to buy the deal? I’m confused on that aspect.

Travis Smith: No, I’m glad you’re clarifying this. Right now, we are deal-agnostic in that most of our tribes and our customers are coming with a pretty good idea of the deal they want to get done, whether it’s a single-family rental down the road that they’re putting together with their neighbors, or they’re participating in a multifamily syndicate, or a commercial deal syndicate, or whatever, it literally could be anything and that’s a fun thing to get into on what our tribes are investing in. But really, they bring the dream, they bring the deal or what their goals are, and we’re helping them facilitate. I think it’s important to point out here, Theo, and maybe you’re picking up on it – what we’re doing is nothing new. We’ve been surviving and thriving as a tribe since the beginning of time, and certainly in real estate, since the beginning there too, people have been coming together, forming groups to get deals and bigger deals and more deals done.

So we didn’t invent the idea of tribe investing, but what we are providing that was missing out in the marketplace, was a neutral third-party platform that took the burden off the members of the group, especially the initiator. It was always trying to figure out how to market the tribe and the deal and, “Hey, this is my deal” and “Come on in”. And now there’s a platform that takes the burden off of everybody, where the initiator could come in, build a vision and a mission for the group, and then share that out to prospective members and invite them in to collaborate, co-create, “Are we aligned?” Then we’re just as proud of the groups that go on to achieve awesome deals as we are the ones that never get going, because we feel like we’ve done our job.

When we are looking back at our initial tribe, when we said, “Hey, what would we do differently?” one of the big things was, “I wish we would have taken more time to align and qualify and agree on our expectations.” We always say more important than the rules are the rules upfront – the how much, the how long, then what, and what if; all those things you don’t necessarily want to talk about or you feel like you don’t really need to – well, you do, and TribeVest helps you do that in a very fun and systematic way.

Essentially, what we’ve done is we’ve mitigated emotion by making sure that you’re taking care of those things upfront. I think you’re picking up on it. Our main value here is we keep the relationship the main priority – more valuable than any of the deals you’re going to be getting done. It’s more valuable than any of the deals or anything are those relationships. Anybody that’s been around long enough or been in the business long enough would have a hard time arguing that.

So this platform is designed for you to come in, align, assemble, agree, and then all those other things that are out there, but we’ve just streamlined them. We made them super easy, we’ve automated. You can file for your LLC in all 50 states. A really unique thing, at least for business partnerships, is once you have your EIN, your LLC, you can open up an FDI business bank account online with your partners, and have access to this tribe view dashboard with all your documents, all your banking activity, your balance. You can propose deals, you can discuss those deals, vote on those deals. So just a true collaboration platform that happens to have the entity formation and the business banking part of it too.

Theo Hicks: Thanks for sharing that. I understand a lot better now what you guys are doing over there. So your company name is TribeVest, so you obviously have a massive network, a massive tribe. I want to transition now to talking about the Coronavirus. So what are the people in your tribe thinking about this right now and how did things affect their investing, their jobs? You mentioned that a lot of people who do this are also working full-time day jobs? So can you just walk me through where your head’s at and where your tribe’s head is at currently?

Travis Smith: My tribe aside, what are we seeing out there across our network and our community is really interesting. I think one of the things that we’re seeing is, we’ve seen a surge in registrations, just over the last three weeks since this happened, and we’re attributing that to a couple things.

First, I think people are thinking about ways to connect with people they care about, and knowing that we can’t do that physically, we can’t do that or get together and socialize in person, we’re figuring out ways to leverage technology platforms that bring us together, and TribeVest also does that. My brothers and I, our tribe, not only is it the reason why we’ve been able to build wealth and be in the position we are, but it’s also our most favorite thing we do together. We’re spread all over the country and it’s what brings us together. It’s the reason why we’re talking on a weekly basis. So just an interesting thing that we’re seeing is this surge in registrations.

I think the other thing that we also empathize with is there’s this mass consciousness happening right now. It doesn’t happen all the time, and usually, it happens during these moments of crisis, especially global ones, where we’re all in similar situations and observing the same news and have the same fears, and it’s an incredible time to rethink your future. Like my brothers and I, during the last financial crisis, we didn’t want to be a slave to our paycheck, we didn’t want to be dependent on our 401(k) on Wall Street, and everybody we knew that was independently wealthy and had true financial freedom was investing in real estate, but we didn’t know how to start.

That’s one of the main things, Theo, that TribeVest enables people to do. It gives people the ability to start; you can form with people you know, like and trust. So there’s confidence and safety in numbers, and then being able to pull capital in a manageable and monthly way, is super powerful.

So one of the things that we do is, even before you form your LLC, or before you open up a business bank account, before you formalize, we give you the ability to start contributing capital in parallel together. So I’m putting $500 a month or $1,000 a month into my personal FDIC savings account. But, Theo, you’ve agreed to that too, and so has Sue and so has Jeff, and we all log into the same dashboard, and we can see collectively how much capital we’re pooling, so that when opportunity does knock, when a deal does come across our table, we have capital and we can answer the door and the opportunity.

So that’s one way that our tribes are taking advantage of it. While everybody else is panicking and selling, our tribes are pulling capital in a manageable monthly way so that when the time is right, they’ll be in a position to take advantage of great deals and build wealth that way.

Theo Hicks: Is there anything else as it relates to your business, your dealings and the Coronavirus that you want to mention before we sign off that you haven’t talked about already?

Travis Smith: Yeah. I think we touched a little bit about it – from change comes opportunity. And the winners of the next year, two years or three years, whatever this is going to look like, are going to be the ones that have capital and are able to reinvest or invest in different opportunities that come from this change. No doubt, we don’t know what this is going to end up looking like, but things have changed, which again means there’s opportunity. So just keeping that mindset and always looking to grow for that opportunity.

Theo Hicks: Perfect. And then where can people reach you to learn more about TribeVest?

Travis Smith: Tribevest.com. They can follow me at @TribeTrav at Twitter. We’ve also built a landing page for your audience at tribevest.com/bestever, and we’ll have special information for them there.

Theo Hicks: Perfect. Well, Travis, thanks again for joining us today and telling us about your platform TribeVest, as well as your thoughts on the Coronavirus. So just to summarize – and I’m pretty sure I fully understand how TribeVest works now – it’s a collaboration platform for investor groups. You call it the operating system and banking platform designed for real estate investors to pool resources and capital. Basically, I, me and a few friends have an idea of a business idea, or maybe we just have a particular deal that we want to do, we don’t know exactly how to get started, we can come to TribeVest and they can help us with all of the things that we need to do to set ourselves up for success including, it sounds like, strong focus on creating an upfront business plan with the correct rules, the correct expectations and the correct vision, and basically help us facilitate that deal.

You mentioned how the idea was born from the 2008 recession, and that you realized that you needed capital to break into real estate. So rather than focus on finding deals, you focused on ways to get capital, and you and your brothers each agreed to do $500 per month, and that’s how the business started. Then what you also mentioned, that I really liked, is that the one thing that’s more valuable than the deals and really anything else are going to be the relationships. You try to focus on that a lot at TribeVest.

Then more COVID-related, you mentioned that you’re seeing a surge in registrations over the last three weeks and you attribute that to number one, people needing ways to connect virtually because they can’t do it physically in person. And then also, the fact – and this is a very true point – that everyone’s really in the same situation; the news is the exact same for everyone, it’s always about Coronavirus. So everyone has the exact same fears, which means it’s a great time to rethink your future and what you are going to be doing once this eventually ends, and that the winners of the next few years and after this ends are going to be the ones that have capital to invest in the different opportunities that come from this change. Obviously, that starts with, as you mentioned, the most valuable thing, which is your relationships and your network.

So again, Travis, thanks for joining us. Best Ever listeners, as always, thanks for listening. Everyone, stay safe, have a best ever day and we will talk to you tomorrow.

Travis Smith: Thanks, Theo.

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Best Real Estate Investing Advice Ever Show Podcast

JF1068: $5,000,000 to $50,000,000 Value Add Deals!!! With Matt Lasky

Matt and his company buy BIG deals in healthcare and retail assets! He is in charge of finding, structuring, and analyzing the deals. Get an insight how the big boys underwrite their deals. If you enjoyed today’s episode remember to subscribe in iTunes and leave us a review!

Best Ever Tweet:

Matt Lasky Real Estate Background:
-Managing Partner at Equity Velocity Funds, a boutique real estate private equity fund
-Responsible for deal sourcing, structuring, and analysis
-Company focus is an emphasis on value-add and opportunistic healthcare & retail assets
-Post-acquisition, Matt helps implement the strategic business plan on each asset to enhance its value
-Based in Columbus, Ohio
-Say hi to him at www.evfunds.net
-Best Ever Book: The Most Important Thing

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

With us today, Matt Lasky. How are you doing, Matt?

Matt Lasky: I’m doing great, Joe. How are you?

Joe Fairless: I’m doing great as well, and nice to have you on the show. A little bit about Matt – he is a managing partner at Equity Velocity Funds, which is a boutique real estate private equity fund. He’s responsible for sourcing, structuring and deal analysis. His company is based in Columbus, Ohio. You can say hi to him at his company’s website, which is in the show notes link. Let’s get into this, my friend. Matt, do you wanna give the best ever listeners a little bit more about your background and your current focus?

Matt Lasky: Sure. We’re a private equity fund that’s spun out of a deal sponsor who was celebrating their 30th year in existence this year; the whole time we’ve pretty much stuck to healthcare and retail investing; those have been our core competencies, in kind of a smaller and middle market. Most of our projects are between 5 and 50 million. We’re not duking it out with a lot of the bigger institutions in the core markets most of the time. 30 years ago, when our founder kind of laid the vision, health care and retail were highly disparate activities, and as you see – or as you’ll probably hear when we speak – healthcare and retail are merging; we’re seeing a lot of health care uses in retail spaces, and that’s part of our philosophy, so I don’t know if it was fortuitous [unintelligible [00:03:52].02] Now those two sections have a lot of overlap, and that just happens to be what we do now.

Joe Fairless: So let’s talk macro level, and this is just to give some big picture perspective on the type of dollars you’re dealing with and the type of stuff that you all invested in your overall business model. Will you give us an example of maybe the last fund that you did, what type of specific things did you buy within it and what is your role in that process?

Matt Lasky: Sure. We bought about seven or eight assets; we were the whole owner of six of them, and then in the other two — one we went and bought about a 30 million dollar deal with another equity partner, and then also partnered with some physicians on a medical office development. So our fund’s value add and opportunistic. Our goal was mid teens net returns to our investors, and we wanna write a minimum million dollar check, so our first fund’s asset value was just shy of 100 million dollars, and we deployed it in just over a year. We wanted to raise the funds and invest them in the same environment that we were kind of raising them in, maybe a little different than the bigger institutional funds who have a 1-2 year capital raise period and then 1-3 year investment period. We just maybe took a different philosophy there, and we were able to do so just given the project size we typically pursue.

From a macro level, that was pretty much split 50/50 between retail and healthcare assets, with one repositioning and one ground-up development; the rest were value-add acquisitions.

Joe Fairless: Repositioning, ground-up and value add – so most value-add, one repositioning and one ground-up. What’s the difference between value-add and repositioning?

Matt Lasky: In this, repositioning was kind of a unique situation. We had a tenant through kind of our sponsor that I mentioned we spun out of, and the corresponding brokerage firm. The tenant needed space, and we ended up finding a bank-owned, completely vacant building, but had already structured the lease deal with them [unintelligible [00:06:07].19] and so it became a construction project and kind of a retrofit, from a [unintelligible [00:06:13].10] medical office to put the practice in.

Joe Fairless: What is your role in this process?

Matt Lasky: I’m responsible for deal identification, helping lead our underwriting team, and then post-close implementing the business plan and doing some of the high-level asset management. We believe strongly that the people making the assumptions on deals should live with them, so our acquisitions team is the same as the asset management team [unintelligible [00:06:43].15] from inception to disposition, which involves the acquisition assumptions and underwriting helping with the debt structuring, and then closing on the asset, and then post-close monitoring performance and helping — usually we have some sort of problem to fix, being a value-add player… Whether that’s deferred maintenance, vacancy, or all of the above. We’re helping oversee the corrections of those issues and then ultimately the disposition.

Joe Fairless: Have you exited out of all these deals?

Matt Lasky: No, our first investment was made October 2014, so we’re just starting the exit on some of our deals.

Joe Fairless: Okay. Have you exited out of any?

Matt Lasky: Yeah. Our first one, we kind of bought a portfolio and we’re exiting in stages. That was a retail deal where we sold it in parts, and that final part – actually, we should be getting the purchase contract to the final part today. So we’ve exited out of two, and assuming we exit the third where we think, and we’ve had multiple offers in the same area, we’re looking at a 2,5x or 3x equity multiple at the project level over, call it just shy of three years.

Joe Fairless: And for someone who’s not in your world of equity multiple formulas or metrics, what is an equity multiple?

Matt Lasky: That’s basically saying that for every dollar you gave us, with that 2,5-3 equity multiple you’d be getting $2,5-$3 back over the course of the investment.

Joe Fairless: And does that include your original investment dollars back?

Matt Lasky: Yes, it does.

Joe Fairless: So let’s talk about that one that you’re starting to exit in pieces. Can you tell us how much you bought the portfolio for, what exactly is it, and then just give us the numbers on these exits that you’re taking chunks from to exit out of?

Matt Lasky: Sure. We bought the portfolio, which was a couple single-tenant buildings and a strip center that was about 60% occupied for 3,5 million dollars. It was our opinion that the strip center just needed some more hands-on ownership; it was in a market where the average occupancy was well into the ’90s, with rents a lot higher than this center. It’s in Pickerington, Ohio, which is a South-Eastern suburb of Columbus.

Joe Fairless: Okay.

Matt Lasky: This is a little off the beaten path of [unintelligible [00:09:20].21] and it’s gonna be more of your local tenant mix, and the owner, who had some TI dollars and being well capitalized to capture some of the tenants that were in the market could do so. So over the course of 2,5 years we’re now at a true 100% occupancy; we have no vacancy.

Joe Fairless: Wow, congrats.

Matt Lasky: …and we had a good timing. We bought in late 2014, and as a lot of your listeners probably know and other people talked about, cap rates have continued to compress, or I guess otherwise that building values have gone up. So we both bought it right… On one  of the single-tenant deals the tenant was expiring in a couple years and we kicked them out in an extension to over 10 years, which creates a lot of value in the single-tenant net lease marketplace, but not enough to kind of get a premium.

The original going in price, like I said, was around 3,5 million. We had a renovation budget of a hundred thousand, and now we’re selling it piecemeal. I guess, for reference, the strip center exceeds our overall project budget, plus the two single-tenant deals that we exited.

Joe Fairless: That’s outstanding. So you’re basically selling the strip center for the price that you paid plus renovations costs for the entire portfolio.

Matt Lasky: Correct. We’re flipping that [unintelligible [00:10:48].05] we could sell the single-tenant pieces and get all of our equity out on the strip center, with no money into it… So kind of the inverse of what you’ve just said. But either way you look at it, we just thought the single-tenant stuff would be easier to sell going into it; adding value in retail is always a little bit of a question mark. We think we can do it, but we’re never positive that months 6 do we get leases done, month 12, 18, 24, or whatever… But we knew what we had in the single-tenant stuff, so we kind of took the mirror image of the approach you mentioned. It’s similar ways of looking at it. We just thought each part was greater than the sum of the whole, and if we could add value, we’d be in a good spot.

Joe Fairless: Here’s a stupid question – when you sell, say, the two single-tenant buildings and you’re able to now own the strip center with no money into it, is that owned by you and your company, or is that owned by the fund, so you, your company, plus your investors will own that?

Matt Lasky: It’s a complicated question. Technically, it’s owned by the investors and the sponsor, and the same partnership agreement as the whole portfolio, if that makes sense. This project was a little tricky because of the way we collateralized the debt. On the front-end we knew we might do this, so we had to pre-negotiate the lease amounts to free up equity as we sold off a part of the portfolio.

Joe Fairless: I wanna talk more about that 60% occupancy that now is 100%, because I’d like to get into specifics. I love the philosophy that your team has – the team that acquires the property is the same team that is managing the asset, so you have to see through the vision that you had painted at the beginning. A lot of the Best Ever listeners who have a smaller company are like, “Well, d’oh, you have to acquire and then you oversee it”, but larger companies might have an acquisitions department, and then separately an asset management department.

So let’s talk about the 60% occupancy and now it’s 100% – how many storefronts did you have to get occupancy for and how did you go about it?

Matt Lasky: That’s a great question. The total size of the center is about just over 25,000 square feet. The bays or the storefronts were 1,400, so I’m not sure what that math works out to be, but we needed a handful. We were fortunate enough to have some great leasing guys, and so we kind of took a top-down approach of who were the biggest users… So we had some blocks of space where we could combine continuous space to reach 4,200, which was three of the bays, in a couple situations. So we tried to identify, as a team, users who are in these types of centers – this was a Kroger anchored center… For the Best Ever listeners out there, Kroger is a market-leading grocer in the Midwest, headquartered in Cincinnati; we’re up in the Columbus area, so there are kind of an 800-pound gorilla of grocers here, which is what attracted us to this project, so we were like “In what other places are there centers like this that are Kroger anchored, kind of off Main & Main, and what does their tenant mix look like?” So we databased and did research on a number of those, and then we went after categories who we thought would take multiple bays. The results were pretty interesting.

The two big tenants we got were 1) the public library of Pickerington; they did a branch office in our building, which was great, and we’re right across from a public high school; we think that plays really well, being across from the high school and being a library. And believe it or not, that is a little bit of an atypical use in retail, but it’s not the first time that’s been done in Columbus. There was a center that I described in that process earlier of how we were looking at other tenants in a town called Worthington – the Worthington Public Library is in a Kroger center that’s not on Main & Main.

So that wasn’t that original of an idea; maybe a little out of the box, but we were like, “Hey, we should really talk to these guys.” It ended up working out. Then we got a karate studio, as well.

As a landlord who’s experienced in health care and retail, I guess one of our big philosophies is – kind of coin the internal term “Amazon test”, which is we would put in tenants who can’t outsource them to online. You can’t do karate online (yet) or go to the library actually online; you can buy books and what not, but it’s not exactly the same experience, especially with the school across the street.

So we’re trying to be cognizant of that as we look at the tenant mix and who might be the best long-term prospects for centers.

Joe Fairless: That’s fascinating. I was gonna call you out when you said “the Amazon test”, because you said the public library — I was like “Come on, that’s how Amazon was founded, by selling books!”, but I get it, because this school is across the street, so kiddos go over to the library. Any special deal negotiation parameters that you had to be aware of negotiating with a public library point person, versus someone in the private sector?

Matt Lasky: They were inexperienced just because this was the first real estate deal they had done since their main campus. They’re not in the business of real estate, they’re in the business of being in the public service. We were really collaborative. We had to get a little creative on how they win and what their structure looked like, which involved a couple levels of board of trustees and approvals for people who weren’t gonna be involved in the day-to-day, but just oversee decisions. They were great, because they were very collaborative and they really did make the process smooth and easy. We try to be open book when we can, and we want a true win/win for everyone, so it was kind of through that collaboration and them saying “Hey, these are our sticking points.” As a landlord, you always want the highest rent possible with the least amount of concessions, but ultimately there was something that worked for both groups. We gave a little flexibility; we ended up giving them half rent for one of the suites, because [00:17:26].09] looked like a big win for them based on their internal politics, and it allowed the people who wanted to operate there and the directors of the library to get board approval.

Joe Fairless: And as far as the single-tenant buildings, you said you extended it from one to ten years, which helps with the value of your property, because it shows a long-term commitment, just like if there are apartment buildings, month-to-month versus a one-year lease – same thing. Why weren’t they already on ten years and how did you come up with the solution for them to want to do ten years, versus what they were already doing?

Matt Lasky: They had built their building on a ground lease, and their base term was running out. They had built the building in ’04 or ’05, and the term was running out when we acquired the building. As part of our due diligence on all our acquisitions we interview all the tenants; if it’s a local tenant, we try to talk ownership; if it’s a more regionalized or national tenant, at least the manager, and a lot of times the real estate person, and it’s a collaborative situation where we just wanna understand how the space works for them and what their needs are, and if we can budget in capital expenditures to make the property better, to meet their needs and ultimately help their business; that’s the type of landlord that we wanna be.

It was through that process that we met with the owner of the single-tenant concept. We were on this edge of town where — it is the gross edge of Pickerington, and this center came out of the ground about a year or two before ’08 happened, and then all the housing starts that were supposed to happen stopped, but they’ve since picked back up and there’s a ton of new houses out that way, relative to what else is going on in Columbus. So he knew that the houses were coming back; he was a really well-experienced restaurant operator, and he just said it’s a little slower than usual, so we ended up negotiating on his rent increases from when his lease would expire. If his was to renew, his option – for five years his rent would have increased higher, and we kind of met him in the middle and said “Hey, let’s not increase your rent as much, but let’s extend you for 10 years. We’re more in it for the long-term and the surety of income than your term rent increase.” Ultimately, he had a lower occupancy cost and wanted to be there long-term, so we were able to come to an agreement.

Joe Fairless: I could ask you questions about this for probably 60 more minutes; I find this so fascinating, because you’re playing at a higher level, and I love learning about how funds operate from a professional standpoint and how you methodically approach things… But we’ve gotta keep rolling, so what is your best real estate investing advice ever?

Matt Lasky: I think my best advice is really understand and be collaborative with whomever you’re dealing with. A lot of our investment philosophy comes from our backgrounds – everyone on our fund’s team was a broker or in an advisory role at one standpoint, so we’ve been on each side of a transaction. I think that really helps us pick apart and understand everyone’s motifs. So just being a human, going out there and actually meeting people, or getting face-to-face I think really goes a long way in today’s digital age.

We’ve had a number of confrontational phone calls, and then kind of the guard comes down and we’re all humans at the end of the day, and things get advanced.

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

Matt Lasky: I am.

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

Break: [00:21:15].22] to [00:22:17].10]

Joe Fairless: Best ever book you’ve read?

Matt Lasky: Probably “The Most Important Thing” by Howard Marks. It’s chock-full of high-level investment philosophy that really makes you reflect.

Joe Fairless: Best ever deal you’ve done?

Matt Lasky: Probably the one we just talked about, that went phenomenally well. If we could always do that type of returns, in a couple of years we’d be in a great place.

Joe Fairless: What’s a deal that hasn’t gone well?

Matt Lasky: Probably our nicest retail asset that actually passed the Amazon test; we’re working through and have a lot leasing momentum, but we bought it and a year in had two bankruptcies for tenants who had 50 and 250 locations respectively and had been around for over 60 years each. It was fortunate enough to be in a good market and we’ve got a lot of leasing momentum, but it caught us off-guard because all the managers, through our due diligence process told us that the locations were performing well, but then they had kind of whole company failures, independent of the locations.

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

Matt Lasky: I am a mentor at my college’s business school, which is [unintelligible [00:23:30].10]. There’s a young professional committee that I’m on, and I have a few student mentees… I’m really trying to help today’s youth, and I end up slanting all conversations back to real estate. I’m trying to recruit some bright young minds and help them as they transition from student to professional.

Joe Fairless: And how can the Best Ever listeners learn more about your company or get in touch with you?

Matt Lasky: My e-mail is mattlasky@equity.net and our website is EVFunds.net. I will disclose that this morning we found out we actually had had our website hacked, so we’ve got some random links on there right now, which is really fortuitous timing for this call.

Joe Fairless: [laughs] Well, this call will air probably after you get those resolved, so I suspect it will be okay to go check out your website. But just in case, you can just e-mail Matt at the e-mail address that he mentioned.

Matt, thank you for being on the show. Thanks for talking about the fund that you all are in the middle of, the acquisition approach — really the asset management approach is what we focused in on, with the strip center and the single-tenant buildings, how you approached identifying the best tenants to fill in the strip center based on what’s worked in the past with others; you brought in the public library, you brought in the karate studio, you do the Amazon test… And then the extension of the lease from one to ten years to add value, how you were able to exit out of it, and man, isn’t that just beautiful when you can exit out of something and still own pieces of the deal with no money into it? That’s a real estate investor’s dream.

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

Matt Lasky: Thanks, Joe, you and the Best Ever listeners as well.

 

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Best Real Estate Investing Advice Ever Show Podcast

JF1045: Know Your Market or Lose Your Money with Pete DiSalvo

Many investors think that if they have property in a strong housing market, they have a great property.  Pete is here to tell us why this isn’t true.  Listen in to get a better idea of what makes a property valuable.  If you enjoyed today’s episode remember to subscribe in iTunes and leave us a review!

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Pete DiSalvo Real Estate Background:
-Founder and President of DiSalvo Development Advisors, a real estate consultancy firm
-Over 20 years experience providing market research and consulting on 1,000+ projects throughout 46 states
-Housing work has been used by bond rating agencies, investment groups, banks, and private developers
-Based in Columbus, Ohio
-Say hi to him at http://ddadvise.com/
-Best Ever Book: Liar’s Poker

Click here for a summary of Peter’s Best Ever advice: How These Two Market Factors Will Make or Break Your Real Estate Business

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advice on real estate market knowledge

 

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

With us today, Pete DiSalvo. How are you doing, Pete?

Pete DiSalvo: I’m doing well, Joe. How are you?

Joe Fairless: I am doing well, nice to have you on the show. I’ve known Pete for 4-5 years, and I initially came across Pete through a mutual friend. He helped me (Pete did) on market research on a project that I did not end up purchasing, but I learned a whole lot about business and his insightful mind… Because Pete has over 20 years fo experience doing market research and consulting on 1,000+ projects across all the 46 states. He is the founder of DiSalvo Development Advisors, which is a real estate consulting firm. He is based in Columbus, Ohio.
With that being said, Pete, do you wanna give the Best Ever listeners a little bit more about your background and your current focus?

Pete DiSalvo: Sure, thank you. I am a former senior market analyst with the [unintelligible [00:03:29].07] which is a national real estate group. I worked there for 14 years and I worked with nearly every tax credit syndicator in the country. In 2010 I left and started my own practice. Among our services, we help clients like yourself and other investors and developers assess the market value of properties, especially acquisitions during an option period.

Most of the work that we do involves mixed-use redevelopment, but it’s typically led by multi-family developments. So multi-family is still a core of the services that we offer. Today I wanted to discuss a little bit about how do you assess if your property that you’re looking to acquire, your value-added property has the marketable characteristics to have long-term viability.

Today in most of the markets across the country that we go to, every apartment market is strong, so how do you know if your particular property is going to be able to do well when the market is not humming on all cylinders? Just because you have a property in a strong housing market doesn’t mean that the property can sustain the high occupancy and rent for a long term.

Strong housing markets can’t mask weaknesses or vulnerabilities in inferior properties, so when a market isn’t at its highest level, those inferior properties are the ones that have the hiccups. You start having occupancy problems, rent problems… To those Best Ever listeners that fell in love with the “value-added property” in a strong local rental housing market – you have to ask yourself some key questions, and more importantly, answer those for your investors.

So you have a marketable property that has long-term viability based on three market-related items: one is location, two is product, and three is market position. I’m gonna go into a little bit about each of those three items and what things to look out for.

When you’re looking at a property, aside from “Financially, does it pencil out today?” what are some of the things you wanna look for as red flags or positives for your property? On the location side, a lot of apartments — ideally, you have an apartment that has visibility to a lot of traffic. There’s a lot of drive-by traffic that sees your apartment. If you’re not one of those that are getting 10,000-15,000 cars a day in front of you, that may mean you’re gonna have to spend more dollars marketing for people to find your property.

Joe Fairless: Where do you get that data?

Pete DiSalvo: Esri – the demographer – has a lot of that traffic count data, and if it’s a state route or a highway, you get that from the Department Of Transportation for each state.

Joe Fairless: Really? I didn’t know that.

Pete DiSalvo: You can also touch base with your city. Often times, municipalities will have traffic counts throughout  their city. My experience – and I’ve heard from other groups… Like, management will say “Yeah, we’re having problems in a market that doesn’t have them, and we have to run out every day and place temporary signs on a major road and then take it down before the end of the day”, but that’s not the ideal situation. So that’s one possibly red flag – am I hidden? Is this the situation I wanna be in?

To the same extent, good ingress, egress, how easy it is to get in and out of your property – that can play into it, too. If it’s a right out only, but you know that all the traffic goes left to go to work in the morning, that may be an issue.
The one that I enjoy seeing examples every day is what is located next to your apartment? Not only is it aesthetically pleasing, is it complementary, but I recently saw an apartment development that was built near a strip club. Now, it was a non-descript strip club, but once the apartment opened and there was entrance road next to the two, the strip club would park their billboard sign next to the entrance. [laughter] It was a family project where you had this enormous billboard of the next ladies that would be dancing there that night.

And not as extreme an example, but in one of the markets I saw a developer build the exact same product – one of them was next to a mini-storage facility, which was in decent shape, but not really contributing to the apartments, and they were getting less rents than another apartment that had better uses.

Those are the kinds of things to keep in mind [unintelligible [00:08:02].26]

Joe Fairless: I missed that point – what was wrong with building next to a mini-storage facility?

Pete DiSalvo: Well, you have to ask yourself when you’re looking at these properties – do you wanna live next to a mini-storage facility? Is it truly a complementary use to an apartment? It’s not entirely adverse, but when you’re stacked up in a competitive environment, less people are gonna wanna choose to live next to a mini-storage than other residential, or retail, or something like that.

It’s just understanding where you fit against your competition – are you next to the most complementary uses, or is it kind of a mismatch of uses?

Joe Fairless: Okay.

Pete DiSalvo: They all know schools are important, but I would say more so (renters are having less kids) but I would say if you’re looking at a property that has a really heavy mix of three bedrooms, that’s when you really need to look into the schools, and if the schools aren’t particularly good, what are the private schools like? Sometimes that’s enough to negate that issue.

And everyone hears the talk of the millennial – “Hey, we need to get the millennial… It is an enormous generation coming through. How do we attract them?” Well, three of the things as they relate to location – are they close to jobs? Millennials don’t commute as much as dummies like me did when I was a kid, and some of that is can you get to a highway quickly? Do you have quick access?

Then the third is how close are retail opportunities? The closer you are to those – as long as it’s not a strip club – the better type of site you have. So those are some of those locational issues.

Joe Fairless: For the schools, what resource do you use to determine if it’s a good school district or not?

Pete DiSalvo: That’s a good question. Every state pretty much has report cards on how their schools are doing. You could look at that, but I’ve found that the best way to find out is simply to go talk to people and say “Hey, I’m relocating in the area, looking for an apartment… Where would you suggest?” and if they suggest another area, you say “What about this area?” and see if schools pop up.

Just asking of somebody coming into the area – you can get a good flavor; if there’s really a problem with the schools, there’s gonna be a knee-jerk reaction. “You probably don’t wanna be there because of the schools…” So just talking as a newcomer to the area, to several people – that often times will be enough to identify if there’s an issue or not.

Joe Fairless: Okay.

Pete DiSalvo: The next item that’s often overlooked is product. When I’m talking about product, there are opportunities with this, but looking out for that functional obsolescence… If it’s something that can be remedied, there’s a big potential for rent increases, and I’ll give you some examples. If not, it’s a big red flag… That if the markets have those hiccups, as I call them, you may be the first to experience problems.

I’ll give you a list of some of those… Galley kitchens, for example. Galley kitchens are tiny kitchens for those – I’ll try to do my best to explain them – that are contained in a very tight, small area and really aren’t open to other rooms. They’re probably what you see a lot in New York City… Joe, would that be fair to say?

Joe Fairless: Yeah… I’m sure my apartment in East Village, when I lived there — it was just like a sync and a stove and that was basically it. I don’t know if that’s a galley kitchen… I wish I had a galley kitchen, I think. [laughs]

Pete DiSalvo: Yeah… It may sound nice, but a galley kitchen is essentially a closet with your appliances in it.

Joe Fairless: Oh, okay.

Pete DiSalvo: It’s the one you see in a lot of the older products. I’ve seen some really good examples where those can be opened up, and everybody wants an open floor plan now, and having a kitchen open [unintelligible [00:11:50].24] open to the kitchen… But I’ve also seen plans where the construction of the unit, especially in high rises, is almost like a bunker, and opening it up isn’t financially feasible… So it’s one of those things you need to keep an eye out for. Galley kitchens aren’t the most marketable kitchen types, so keeping an eye out for that, and if they can be convertible.

On that same theme, that compartmentalized floor plan, the one where there’s a hallway everywhere, and your unit feels like a lot of doors and hallways… Renters don’t lease spaces based on rent/square foot, as much as we talk about rent/square foot. It’s all about perception. A smaller, efficient floor plan in many ways is gonna outdo larger floor plans in a market that has tons of hallways  and doors.

To the extent that your floor plan has the ability to be open or is open, that’s a good thing. If it’s not an efficient floor plan, that’s a red flag.

Joe Fairless: Just for my own clarification – the more open it is, the better it is, and the more compartmentalized (doors, walls), the less desirable? Is that correct?

Pete DiSalvo: That’s correct. And it doesn’t function as well, because if you think about hallways and doors, all of that space has no use, aside from passing through it. So aside from maybe putting a little table for a key stand or something, there’s very little than you could do with that space. If it’s open, not only does it allow you to do more things, the perception is it’s a bigger unit than it actually is… As opposed to an apartment where you come in and it’s tunnel vision. You may leave thinking “This is small”, even though it may be larger.
I’m always a big person on dimensions and bedrooms sizes and closet space; the master bedroom, if you’re getting less than 10 feet, unless it’s very common in your market, that’s something you need to keep an eye out for. If it’s less than 10 feet, it really limits what a renter could put in there in terms of bed size, and a lot of things.

And then lack of closet space… Some of the older, older properties have a place to hang up a little bit of clothes, and those types of things can create some higher turnover once they get and say “Well, I don’t have enough place to put my clothes…” Without the storage stuff, you’re gonna have higher turnover in your property, maybe even difficult to rent.

A couple other ones… The sub-grade units – those apartments that are partially underground, in a basement, those are…

Joe Fairless: Terrible.

Pete DiSalvo: Yeah, those are the ones that you need to keep an eye out for. That’s a big red flag. Those are tough, no matter how you look at it. Even in good times those can be difficult to rent.

Joe Fairless: I know why I said terrible… Why did YOU say terrible?

Pete DiSalvo: [laughs] Well, again, thinking from a renter’s standpoint, if you’re looking for an apartment, do you wanna live in a basement? There’s also a perception of security issue as well, as people walk by and they can look into your unit from that ground level. What is your take on that?

Joe Fairless: Floods, water coming in because it’s below ground…

Pete DiSalvo: Okay. That’s important from a developer’s standpoint as well. In terms of obsolete unit types, three-bedroom one-bath units certainly aren’t the ideal type of unit that you wanna be getting, unless you can possibly add a bath. As long as there aren’t a lot of them, you’re okay.

The two-bedroom townhouse with one bath on the top floor is also a very obsolete design, and I’ve seen that converted an awful lot where you’re putting a half-bath under the stairway. It changes the marketability entirely and increases rent. So that’s a situation of “one that really doesn’t work” to now we’ve got something that’s marketable and we make more rents.

The last item I wanted to discuss was that market position. Understanding where your property is and its potential to increase rents is really a key to that whole value-added property acquisition model. Everybody employs the comps strategy, and I’m not gonna go into that because I know that it’s been talked about on other podcasts and people understand that… Finding a comparable property and saying “Here’s what we can do compared to that.”

Joe Fairless: Yup.

Pete DiSalvo: I like to take it a step further and employ a strategy where I establish a ceiling by looking at properties that are of high quality, that “Hey, I know we can’t attain this rent”, so I have an understanding of “Where can I expand into?” What’s good about that is let’s say you have a class B property and you wanna improve it, whether that’s amenities, improving the exterior… If the rent is already close to class A rents, you may not be able to push the rent that much higher for the improvement that you wanna make.

On the other hand, if your rents were well below that and you get out of those, there’s an opportunity to potentially bump up your rents without encroaching on those class A rental properties. I like that example a lot for value-added, because class A properties – which typically are new properties – don’t have a lot of flexibility in terms of what they can do with their rents; they really need to get those high rates… Compared to your value-added, that has a lot more cushion, where if the market was going south a little bit, you could come down a little bit and it would still pencil out.

The other thing I wanted to mention was regarding markets that don’t have class A apartments, and have a lot of older inventory… Markets like Cleveland, Ohio…

Joe Fairless: They don’t have class A?

Pete DiSalvo: They do now.

Joe Fairless: Okay.

Pete DiSalvo: For a long time, a lot of national/regional developers wouldn’t even think of – even investors wouldn’t touch or think of Cleveland, because they were concerned about the growth really wasn’t there, and the rents weren’t very high… There’s wasn’t this “higher comps”, and then somebody finally realized in that market “We’ve got a lot of high incomes, and there’s tons of [unintelligible [00:17:49].13] for good product.” So as soon as somebody built that, it was like the floodgates were open, and now we’re seeing property after property open… But understanding that in some of those older markets – don’t be too scared to get involved if you’re not seeing rents that aren’t as high as you may want; it may just be a product of what’s out there, and if you give them something good, you can really push the rents in that marketplace.

Joe Fairless: Does that complete number three?

Pete DiSalvo: It sure does.

Joe Fairless: Awesome. Well, location, product and market position… I’ve asked questions along the way, so I’m gonna ask you a high-level question based on your experience… What is your best advice ever for multi-family real estate investors?

Pete DiSalvo: It relates to the whole topic – understanding that just because you have a site in a strong housing market doesn’t mean you have a great site. Making sure you have those fundamental market characteristics is important to having a long-term viable project. Depending on the exit strategy, five years out is a long time in terms of market. A lot of investors wanna hold on to it for much longer than that, and you need to look past today… So making sure you’re not vulnerable to future fluctuations is important.

Joe Fairless: I noticed that you were talking about the particular property and the location next to it, the product, and the market positioning in terms of what is your ceiling… What I didn’t hear you talk about – I know it’s a factor, so that’s why I wanna bring it up, and I know you take this into account… It would be jobs and the diversification of employment. Can you talk a little bit about what you look for?

Pete DiSalvo: Sure. In fact, I’ll say jobs are key for apartment development, and a lot of the clients I’m looking for when we’re looking for sites – that’s one of the key issues, because again, millennials wanna be close to jobs. If you have the jobs, there are opportunities for that housing. If you don’t have jobs nearby your area and you’re asking people to drive a longer way, it’s gonna be a little more vulnerable.

Joe Fairless: What’s longer?

Pete DiSalvo: It depends on the market. Obviously, if you’re in Los Angeles, compared to Columbus, Ohio, it’s a lot different. But if you understand your market area or your trade area and you see that it will take you a lot longer… If everybody else can get to employment quicker than you can, that’s the issue. It’s all relative to each market, so I can’t give you a time. The more accessible and the quicker you can get to it, the better.

Joe Fairless: Okay.

Pete DiSalvo: And if you start to have more unemployment in an area, that’s where you wanna have that flexibility with rents. If you’re starting to lose jobs, it’s going to impact your market. It just depends on how many jobs you’re losing; if it’s a major employer, everybody’s gonna feel it.

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

Pete DiSalvo: Yes.

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

Break: [00:21:01].10] to [00:22:04].14]

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

Pete DiSalvo: Well, I don’t have one best. I’m a big fan of Michael Lewis, so I would say that any Best Ever listeners that have not read his books, maybe try Liar’s Poker.

Joe Fairless: Best ever project you’ve worked on?

Pete DiSalvo: I had a chance to work on a lake-front development for the Cleveland Browns, the former ownership. That was fun.

Joe Fairless: What did they hire you for?

Pete DiSalvo: I worked with an international sports group and they were looking at all of the housing and retail opportunities around the stadium.

Joe Fairless: What’s a mistake you’ve made on a transaction or just in business in general that you can think of?

Pete DiSalvo: Probably the mistake that I had the most is letting others talk you out of a position, when you know in your gut it’s one way and you’ve done your homework, whether it’s a former boss or a partner that doesn’t agree with you. You’ve gotta argue enough to get your point across.

Keeping an open mind, but sticking to that opinion lest somebody has a compelling reason for you to move. That’s a mistake, I made those mistakes, and that’s something that I’ve learned – just to keep an open mind.

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

Pete DiSalvo: I like to do some pro bono work with some of the nonprofits, consulting work, and also helping out some startup companies.

Joe Fairless: Pete, who’s your ideal client, and how can the Best Ever listeners get in touch with you?

Pete DiSalvo: Our ideal clients are municipalities, developers, CDCs and investors. You can either get in touch with us through our website, DDAdvise.com. My phone number is there as well. DDAdvise.com is the best way to get a hold of us.

Joe Fairless: Excellent. Best Ever listeners, there’s a link in the show notes page with that URL. Pete, I am clapping silently right now, because I so much enjoyed learning from you during this conversation, and this is one of the reasons why I do the podcast. We were able to get a college class in 28 minutes or however long we’ve been talking, and it’s free for the Best Ever listeners and myself, and I suspect you’re gonna get some business out of it as well, but if not, you’ve given a lot of value to the world, that’s for sure.

The question is how do we know if our multifamily property is positioned well in the long-term, and the answer is we’ve gotta look at location, product and market position. Looking within each of those, you mentioned some surprising things that I hadn’t thought of… One of them is going to and from the apartment – do most of the people turn left, and is that left a tough left turn to make? Because that could have an influence on your turnover being high.

On the product, again, the master bedroom being ten feet or more – that’s something I’m gonna pay particular attention to from here on out, as well as the open floor plan, which I kind of already knew, but it wasn’t a conscious thing for me. And then the marketing position, and lots of other insights in between.

Best Ever listeners, if you need some notes from this, then go to BestEverShow.com and we’ve got a transcription of this episode and the previous episodes, so you can go read this conversation as well, if you weren’t able to take notes like I’m taking notes right now.

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

Pete DiSalvo: Thank you, Joe. I appreciate it.

 

 

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JF947: You’ll Lose MILLIONS If You Don’t Understand These Tax Principals

The IRS is merciless, and if you don’t understand how real estate investments and the tax laws work together, you could be at a loss. Focus on understanding self-directed IRA’s and the entities you use in the purchase and sale, and don’t just rely on a cheap custodian to help you. This is a great episode!

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John Hyre Real Estate Background:

– Tax attorney, accountant and real estate investor
– 19 years of experience as a tax attorney/accountant and 14 years of experience as a real estate investor
– Investor in low income rentals and small mobile home parks
– 95% of his clients are real estate investors
– Prior to owning his company, he worked for two of the Big Five accounting firms and for several Fortune 500 companies
– Based in Columbus, Ohio
– Say hi to him at http://www.realestatetaxlaw.com
– Best Ever Book: Grit by Angela Duckwork

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tax principals with John Hyre

 

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

With us today, a tax attorney, an accountant and a real estate investor, John Hyre. How are you doing, John?

John Hyre: Very good, thank you much!

Joe Fairless: Nice to have you on the show, my friend. John has 19 years of experience as a tax attorney/accountant and 14 years of experience as a real estate investor. He’s an investor in low-income rentals and small mobile home parks, based in Columbus, Ohio. With that being said, John, do you wanna give the best ever listeners a little bit more about your background and your focus?

John Hyre: Sure. My focus is making sure you keep it, because you earned it. Most of my practice is tax-oriented, it’s mostly real estate investors, small businesses and self-directed IRA investors. I do the attorney part now, I refer the CPA work, meaning the tax returns and the bookkeeping out.

I also invest on the side, just sort of building a little bit of wealth on the side, mostly high cash flow, low income, which is a whole separate podcast and story onto itself. Those are the basics.

The client base is nationwide, and I’ve been at it for a little while now.

Joe Fairless: What’s the typical client hire you for?

John Hyre: That’s a hard one to break down…

Joe Fairless: Top three categories for why they hire you.

John Hyre: The top three categories… I’ll tell you, the self-directive IRAs, the self-directed 401k practice is absolutely exploded over the last three years. I won two tax court cases and word kind of got out there on that. So I do a lot of that work, and a lot of people call in and say “Look at my whole structure, top to bottom.” Entities, books, taxes, everything. And usually we figure out a fixed fee and then I save them a ton of money.

Finally, a very specific question – someone might call in with a very specific, very pointed question, which I will of course keep the discussion to the parameters that they define. I would say those top three define it.

Joe Fairless: What do people hire you for with self-directed IRAs and 401k’s? Because I’m under the impression – but obviously, it sounds like I’m wrong – that you can just go to a custodian, like iPlan or Pensco or something, and then they’ll handle everything for you.

John Hyre: They don’t handle everything. They won’t do planning advice or structuring, or at least they’re not supposed to. If you read their paperwork, it says they don’t do it, and if they do it’s not their fault if it’s messed up. A lot of the people you talk to on the phone there, while they mean well, are also salespeople and also just don’t have the expertise.

I get a lot of referrals from those custodians that send me people. For example, people will ask “We wanna setup a checkbook LLC. Can we lend money to our uncle? Can we invest in such and such project? How do we avoid prohibited transactions?” Those are a lot of the questions that I get, and I’d say about 70% of my referrals come straight from straight from the custodians, questions they really don’t wanna answer.

Joe Fairless: You won two tax court cases… What was the case about, if you can talk about it?

John Hyre: I’ve actually won more than one, and by winning, we didn’t go to trial. The IRS decided instead of going to trial, they would just tell my client they no longer owed them any money, and could we just call it even and walk away… Which I consider a bigger victory than going to trial, because you avoid the expense. The two cases are specifically self-directed IRA cases.
The first time we had a guy that was a rehabber mostly, with his IRA, and he had done some things in there that were questionable; they were grey, but we convinced the IRS that “No, that’s okay.”

I’ll give you an example… His IRA ran out of money on a rehab, so he put some of his own personal money in there, which is usually a no-no, but we managed to show the IRS some rulings and some case law that indicated, “You know, we have a fighting chance. Do you really wanna go to court with this?” so they decided to back off.

The second guy had a very large Roth IRA and did a lot of investing. We’re talking rentals, buy and sell, lending, a private equity investment… He did all sorts of things, so there was a lot for them to look at. We spent a lot more time on that one because of the number of transactions. We went through a lot of different things, but ended up in the same position. It was kind of like the Obi Wan Kenobi moment, “These are not the droids you’re looking for.” “These are not the droids we’re looking for” – they agreed with that, and so ultimately we got a very happy ending. There was a half a million in taxes at stake, and we got him out for — I think my fee on that one was in the very low five-figure. He was extremely pleased.

Joe Fairless: Just so I’m clear on that second one… It was the same issue that was being discussed, mixing personal money with IRA money?

John Hyre: That one had a multiplicity of issues. For example, he had a trust that the IRA invested into, that he controlled the trust through a friend who was the trustee, so the IRA was arguing the trust was illegitimate, they argued that you can’t have a friend act as a trustee, which – yes you can, as long as it’s done correctly… They also tried to argue that certain transactions were illegitimate based on the details. Those I won’t go into. Bottom line is we persuaded them that they were wrong.

It took a while. The auditor didn’t wanna listen, the appeals people, who are usually pretty good, didn’t really understand IRAs, which is normal, so we didn’t really get any traction until we talked to the lawyers. I do audit and tax court representation all over the country, but what we do is we bring the cases here to Ohio, we have the trial in Columbus, and the attorneys are actually out of your hometown, Cincinnati. So I know who they are; they come up here, and I’m used to dealing with them. Actually, I have to say, they’re pretty reasonable, the IRS lawyers. They can be aggressive, but they’re pretty reasonable.

The client was in Florida, and ultimately we went through the transactions one at a time until they decided “This really isn’t a good case for us, never mind.”

Joe Fairless: Does that mean that we can mix our own personal money with a self-directed IRA and be okay?

John Hyre: You can, I don’t recommend it. If it’s done, it has to be done in a very specific way. It creates complexity and it creates subtle traps, which is why I recommend people, if they can, just not go there. Keep your IRA and personal investments separate. That’s ideal. With that said, can they be mixed if it’s done in a certain way? Yes. Typically, either an undivided interest, especially if we’re dealing with a note, so maybe the IRA lends 70k, I lend 30k, and it’s 100k total.

I’m oversimplifying… There are some tricks and traps in there that we have to watch for. The biggest one is we have to prove that we did not need the IRA money to enter into a personal deal. You can never use an IRA as assets or income to benefit yourself personally, no matter how small or indirect that benefit. So if you needed the IRA to get into the deal, for example, that would be an example of using the IRA to benefit you, so the first thing we do is try and create a record that “Hey, I could’ve done this deal myself. The reason I brought my IRA in was not because I needed it – I have other sources of money – but because it was a good deal for the IRA.” That’s one example.

Sometimes we’ll do joint investment of personal and IRA money through an LLC. Really, it just depends on the nature of the investment and how much time we’re gonna be in the investment and how much liability there is. For example, I’m more inclined to use an LLC where low-income rentals are concerned, because those are high-liability items. But if there’s a loan, lending money is not really high liability. People don’t tend to trip and fall on notes, so usually just a cheaper joint investment, the same way you might invest in a house as tenants in common is a cheaper, more efficient way to do things. Because we don’t wanna overcomplicate or over-bill the client if it can be avoided.

Joe Fairless: What are some issues that you see your clients or prospective clients have from a tax attorney standpoint that can be avoided?

John Hyre: Tons. That’s two or three podcasts right there.

Joe Fairless: You’re booking me up for the month right now.

John Hyre: Yeah, we’ll fill you up. Let’s see here… In terms of IRAs, it’s not getting help ahead of time, listening to the custodians and being cheap and thinking that you know it. The IRA rules are complicated, and the penalty for the IRA for screwing up is death. The IRA dies if you commit a prohibited transaction; that can be horribly expensive. So usually, even if you do some research, get a little bit of help; get an attorney, talk to them about what you can and cannot do. Put some time in up front.

With general taxes, I would say the biggest issue by far that clients have is horrible record-keeping. They’re entitled to deductions, but they never back it up. They never do what they have to do to make it legit in the eyes of the IRS to be able to prove it. I happen to be married, and I can tell you there’s a big difference between being right and being able to prove to your spouse that you’re right. That second step is where investors mess up. They don’t do what it takes to prove to the IRS that they’re right. Scanning receipts, keeping a good set of books, especially for QuickBooks… And it’s normal; entrepreneurs are normally gunfighter/cowboy/can-smell-a-deal-a-mile-away, and they’ll do the bookkeeping work maniana. And maniana becomes maniana-maniana-maniana, and there’s the issue.

Joe Fairless: I’d love to learn a little bit more about the proving — well, I wrote my notes “Prove to your spouse that you’re right…” [laughs] The intention behind that, which is make sure that we can prove to the IRS that we are right and that we have accurate books… You mentioned scanning receipts and having a good set of books. Let’s say we hire a bookkeeper; he or she is taking a look at our credit card transactions, our bank accounts, and putting them in a spreadsheet. So we have that allocated. What do we need to do with the receipts? And do we need receipts at all if we have them in the credit card statement?

John Hyre: You do need the receipts. In fact, because the IRS has had its budget cut and audit rates are down, they’re getting sneakier and trickier. They’re sending out letters that say “Show me February and May receipts for this business.” And then let’s say you’re missing 60% of them, they just allow 60% of all your expenses on the return. You need to have receipts. The best way to keep them – scan them.

What we do is we pay our children to do it. There’s a tax angle in paying your kids. You get a tax deduction; your kids almost certainly will not pay any tax on the income, because their standard deduction is bigger than what you’re paying them, and if you pay them through not a corporation, so any entity, but something that’s taxed as a corporation… If you pay them through not a corporation and they’re under 18, they also don’t pay social security tax. So you’ve shifted money within the family. You still have indirect control of the money through the kids, you’ve gotten a tax deduction… Once they scan your receipts, save them in three or four different places, and name them by the date. I name my receipts – today would be 030117A, 030117B. I don’t even put what it was for, because I will never look at them again unless I get audited, but I can find them by date. If I get audited, I’m gonna show my QuickBooks to the IRS, and they’re gonna say “Show me February receipts for car expenses”, and I can just pull all the receipts for that month and have a VA or somebody go through the receipts and figure out which ones were for cars, and hand them over to the IRS.

Joe Fairless: Do you use a particular app for that?

John Hyre: I don’t. I probably should, and I suspect that kids are out of the picture… The cheap, easy labor of those kids are my app. I don’t even know what app they use to scan things, frankly. They deal with it. So once I don’t have the kids around, I will probably have to discover one of the better apps. I know there are a ton of them out there. Same thing for tracking mileage. There are a ton of apps that will doing if people would just take the time and implement it.

So once you’ve got the receipts, ideally you keep things in QuickBooks; I’d prefer that to a spreadsheet – it’s a lot better record keeping system. As long as the receipts tie to the QuickBooks that tie to the banks statements – man, that’s gonna be a short audit.

Just last year I had my shortest, cheapest audit ever. I charged a guy $1,300 to do the audit and it made me sick to charge that little. But he had a flipping business — more really an assignment business on the side… So he had a day job, he had a side business on schedule C; he was an engineer, he listened well to directions, he took directions well and he was detail-oriented. That audit lasted about 15 minutes of me showing the IRS agent the receipts, and about an hour and forty-five minutes of me flirting with her and passing the time.

Joe Fairless: [laughs] Let’s say you get the letter that states “We need to see your receipts for February and May” and you don’t have the physical receipts. Have you heard of a case where the IRS is “Well, really? Then how about you show me for the rest of the year, too?”

John Hyre: Absolutely. The whole point of those audits is to see if they’ve got an easy target. The faster and the clearer you respond to that letter, the more likely they are to be done and gone. So first rule with the IRS is “Never lie.” The second rule is “Don’t answer questions that were not asked.” The third rule is “Don’t let the audit metastasize”, and that is precisely what you described, how an IRS will metastasize. They smell blood, they spot weakness, they expand the audit.
Joe Fairless: What was the second rule?

John Hyre: Don’t ever answer a question that wasn’t asked. People do that all the time, that’s why we don’t like clients talk to the IRS. They wanna talk and show the good faith and how innocent and wonderful they are, and the IRS agent shuts his mouth and listens, and gets a lot more information than you want. When they ask a question, no matter how stupid or irrelevant you think the question is, you answer the literal question, with the truth, nothing more, nothing less. You don’t expand.

Joe Fairless: Alright, let’s switch gears to your investing in low-income rentals. What’s the last low-income rental you purchased?

John Hyre: It’s not really a rental… I got one I’m about to flip. The last low-income rental – I bought one if my 401k back in May. I am so busy with the practice I’m not out actively looking, but some of my clients are wholesalers and they bring me things. A wholesaler brought me a low-income rental here in Columbus… It’s not a war zone, but it’s not a beautiful area either… But this was a great deal.

It was 15k. I think he made 5k on it. The lady had been in there for 12 years, the rent is 620/month; it needs about 10k to rehab, but not today. I’ve had this thing now for almost a year, and we’re now getting ready to replace the roof with about how half of my net cash flow.

It’s been a great property. The only real quirk with the property is the tenant has been there so long, she’s hard to train. I have a property manager, because when you have something in an IRA or 401k you don’t wanna run it yourself; there are tax problems with that. You really need to have an outside manager.
For her, the manager needs to show up on the third Thursday of the month, and text her on the third Wednesday of the month. She gets her government check the third Wednesday. You have 24 hours, and she will pay you in cash. If you wait 48 hours, that money will be gone. So you have to show up and pick it up from her. She’s incapable of writing a check. That’s the only real quirk. But if you do the numbers, it’s a sweet deal, and it’s perfect in my 401k. I don’t pay tax on it, I’ll continue to reinvest the money.

Joe Fairless: And you’re using the money from the rental to improve the property? Is your goal to sell it in a certain amount of time, or is this a long time hold?

John Hyre: This is a cash flow property. I could sell it right now in this market for probably 30-35. Maybe if I had a California or a foreign investor maybe 40. It’s funny, I tell my California investors “Be careful, don’t tell people you’re from California, because if they hear that, they charge you more, and you pay.” But no, I’m gonna hold that for the cash flow. I am cash flowing about 5k/year on that property, which if you figure I had 15 in it, that’s great.

For the first four years I’m gonna reinvest about 2,500/year into updating the property. For example, the roof really needs replace. It’s still functional, it’s not leaking, but I can tell it’s gonna go, and I’d rather just deal with it now. Plus, keep her in there. If she’s been in there 12 years, le’s make the place a little nicer. It’s a swell return.

Joe Fairless: Based on your background as a tax attorney, is there a particular reason why you choose to do fix and flips, or low-income rentals versus other opportunities?

John Hyre: You know, some of it is based on the tax law, but some of it — it’s a long story how I got into it. Bottom line is I bought a book called Deals On Wheels by Lonnie Scruggs, almost 20 years ago. And to experiment, I started buying mobile homes really cheap and turning around and selling them on payments, and I got to know the low-income way of doing things. It was a hard lesson… I used to be a really nice person, and dealing with low-income tenants will fix that problem quick.

I learned you have to be really firm, you have to be careful with those guys… But I love the cash flow. I love the cash flow – that’s the real reason I do it. One of these days I may look at other types of rentals, but as long as I can find decent management — because I have learned I don’t wanna manage that. I will probably get arrested if I manage for too long, and they’ll find bodies everywhere. “Who’s the tax attorney that took [unintelligible [00:19:41].13] the water tower in this low income neighborhood?” “Oh, that was Hyre.” So we can’t have that. We make sure that other people manage them for me.

Joe Fairless: [laughs] The number one challenge, at least from what I’ve heard, with low-income rentals is the maintenance and the high tenant turnover. Have you experienced challenged in either of those areas?

John Hyre: Definitely. We’ve gotten better at picking tenants. Now, I’m if Hispanic background. I grew up speaking Spanish, my wife’s from South America, so we do like dealing a lot with immigrant tenants, especially of Latin background. Politically incorrect as it is to say it, the first generation comes here to work, the second generation – not so much. So we really like first-generation… They’re gonna bust their butts, and if you take care of them, by and large they’re gonna take care of you. I do find you get a better result when a woman is present. If it’s all guys, that’s really hard on the property.

You’ve gotta get a feel for their job history and background, are the kids in the local schools…? How itinerant are they? Because they can be very itinerant, but if you take care of them, it’s a good property, they tend to stay, they tend to be very good about referrals… You have to be careful with in particular Latino immigrants. They fix the property up for you — and put that all in quotes, “they fix it up for you”… They think it’s nicer and they think they fixed it up, and you look at it and think, “Oh dear lord, I’m gonna have to tear that down and just start from scratch on whatever it is they did.”

They have a different way of looking at saving money, and they really believe they’re saving you money. And based on my experience overseas, living in Chile, for example, that may work there. That approach just doesn’t work here. You really have to control what they do with the property, drive by it periodically, make sure that half their extended family isn’t living there.

Joe Fairless: John, what’s your best real estate investing advice ever?

John Hyre: Tax-free investing. Don’t pay taxes. Do it through an IRA, an HSA, a [unintelligible [00:21:35].09]  savings account, a 401k… There are not deductions that are bigger, and we’ve gotten a reprieve. There was a bill in Congress – in the Senate, specifically – that showed the Democrats game plan for taking apart IRAs. They don’t like Roth’s in particular. And seeing those, how they figured they’re gonna win and they laid out their game plan – everybody was of course surprised by the result – we’ve gotten a reprieve, and we have some time to use this technique and this device before Congress decides it’s losing too much money. It would be lunacy to pass it up.
And I walk the walk. I invest in my properties whenever I can through one of those devices. I don’t wanna pay the tax.

Joe Fairless: With the 1031 exchange you can continue to defer the gains until you die. Help me clarify something… Whoever picks up your property after you die – it can continue to be up until what… Is it 13 million dollars in there…?

John Hyre: We’re mixing taxes, and it’s easy to do. On the income tax side, if you 1031 till you die, which I think is a great strategy, your kids inherit property – or whoever it is that you have inheriting – and you get what’s called “the basis step up”. So let’s say you bought it for 100k, depreciated it like crazy for 28 years or more down to zero. They inherit it, and let’s say when they inherit it it’s work 300. The day they inherit, they have a basis of 300. They can sell it that day and not pay income tax. So that’s the income tax side.

Then what you’re talking about is the estate tax. You can have up to 11 million in your estate with no planning. This is assuming you’re married – otherwise it’s about five and a half million. You can have 11 million with a little bit of planning in your marital estate and not pay estate tax – which is very high. Estate tax is up there around 50%, so you don’t wanna pay any.
Once you get past that 11 million, you need to do some planning in order to not pay estate tax on the remainder.

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

John Hyre: Hit me!

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

Break: [00:23:44].12] to [00:24:26].07]

Joe Fairless: Best ever book you’ve read?

John Hyre: Let me think a minute. Best ever book I’ve read? I read so much that I’m starting to smoke through the ears. The best most recent book I’ve read, the one that comes to mind – there’s a book called Grit, and it is about persistence and toughness and just pushing through. That was a brilliant book.

Joe Fairless: Best ever deal you’ve done?

John Hyre: Probably that little rental I’ve just described. I really like that deal. I’ve done stuff that’s close to that, but not quite that cheap.

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

John Hyre: Two things: volunteering as a debate coach. I coach kids debate; I teach verbal violence, and it’s just fun to see the light come on and the confidence in their eyes. Second, there’s a school here in Columbus, St. Charles School For Boys that we like to give to. I plan ultimately on funding a scholarship; they’re a wonderful school, they change lives.

Joe Fairless: What’s the biggest mistake you’ve made on a deal?

John Hyre: Partners. I’ve almost never bought a bad deal, but I’ve gotten involved with bad partners, I didn’t do my due diligence. In one case I didn’t do the due diligence on the spouse, and it turns out that she was two scoop-fulls of crazy, and it caused a lot of problems, big time. It cost me way more money than they property ever could have.

Joe Fairless: I enjoyed the two scoop-fulls of crazy. I haven’t heard of that, I have a good visualization, so thank you for the metaphor. How do you qualify partners and partner’s spouses now for future stuff?

John Hyre: I don’t partner anymore. I don’t have the need to do so, and for now I don’t. If I were to qualify them, I suppose I would do more due diligence, asking around, looking at history, ask for credit record… This one would have been pretty hard to spot. In hindsight, the only way I could have spotted her condition was talk to enough people who dealt with her, because what’s funny is after the feces hit the rotating blade device, a number of people came up and said, “Oh yeah, she’s nuts!” I just wish I would have talked to those people, but it’s the only way I think I could have discovered it, because she was kind of like high-functional crazy. It’s not like I came home and there’s a rabbit’s head boiling on a pot of water on the stove… You really had to dig to figure her out.

Joe Fairless: What’s the best place the Best Ever listeners can get in touch with you, John?

John Hyre: Two places that go to the same website: iralawyer.com or realestatetaxlaw.com. It’s a primitive little website – I’m so busy I haven’t had time to make it nice. One of these days I will.

Joe Fairless: Well, we will have that link in the show notes page. John, thank you for being on this show, thanks for talking through the tax issues and challenges that investors will come across… Keep our receipts, and also the three rules for dealing with an IRS audit – number one, “Don’t lie”, number two, “Don’t ever answer a question that wasn’t asked” and number three, “Don’t let the audit metastasize”, so don’t let it snowball into something; immediately address it.

And the 15k flip, flip/hold that you’re doing, where you’re getting $620/month in rent; it’s worth about 30k, so it’s really not about the money you’re making on the sale, it’s more about the cash flow, and why you invest in low-income producing properties. Thanks so much for being on the show, I hope you have a best ever day, and we’ll talk to you soon.

John Hyre: Take care!

 

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Best Ever Show Real Estate Advice from experts

JF762: How to Assess, Address, and Fix While Keeping Your Tenants

Never had a big issue that needs to be fixed while keeping a multiunit building? This episode will show you how, or at least what our guest did. It all worked out well, here’s his solution to a very common problem in buying homes.

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Roan Yarn Real Estate Background:

– Founder at HomebuyerPool.com; A real estate exchange portal that connects buyers and sellers
– Over 15 years experience in real estate, which began as project manager of 46-unit building in Miami
– Based in Columbus, Ohio
– Say hi to him at www.homebuyerpool.com
– Best Ever Book: The Art of the Deal by Donald Trump

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